XL Leisure group, Britain's 3rd largest tour operator, collapsed last week, leaving 85,000 holiday makers stranded across the world, due to the grounding of its aircraft fleet. Most will get no compensation from their travel insurances. As to XL's 1,700 workers, they are now without a job, with no compensation either.
At about the same time, two of the USA's largest banks - Merrill Lynch and Lehman Brothers - hit the buffers. The first one was absorbed by Bank of America, the world's largest bank, the other filed for bankruptcy. Tens of thousands of these two banks' employees will lose their jobs as a result, including at least 5,000 in London's City.
These events may not appear to be related. But in fact, they are consequences of the same credit crisis which has been increasingly crippling the world economy for over a year now, by spreading from the sphere of high-flying finance into the real productive economy.
A Contagious disease
The media was quick to blame the rising cost of kerosene for XL's difficulties. But a very different story soon filtered through: one of XL's banks had terminated its on-going line of credit. Overnight, XL was unable to pay its fuel and airport bills and went to the wall with its aircraft stranded.
But why would a bank end its line of credit to one of the country's biggest tour operators, which has enough customers to guarantee that it pays its debt off eventually? Why, if not because, due to the bursting of the speculative housing bubble, the banks are keeping their cash to offset their losses. As a result they reduce their loans to their least profitable customers.
Not that anyone should feel sorry for the banks, of course. After all it was their greed which was instrumental in creating the housing credit bubble in the first place and it is only right that they should feel the pain by having to write off billions of pounds of worthless debt from their books. The problem is that they are now passing on the pain to the rest of the economy by cutting credit.
Yet credit is the oil that is needed for the cogs of the capitalist economy to operate smoothly. Without credit - which is nothing but our own cash and savings - the economy would come to a standstill. When credit becomes difficult to obtain, or too expensive, there are casualties among those individuals or companies who need it to keep going. From this point of view, Alistair Darling was telling the truth, for once, when he said that the current crisis is the worst since 1929.
An unacceptable cost for jobs
Through this mechanism, the credit crisis spreads into the real economy and claims its toll. To be sure, it has been the case for months in housing and the construction industry. The number of house starts is now only a fraction of what it was last year, while building sites are mothballed. Mortgage authorisations are at an all-time low and only middle-income families which can fork out a 35% deposit have any chance of getting one. As to remortgages and personal loans, they are scarcely available at all, except for the better-offs.
Meanwhile an estimated 50,000 workers in construction and related industries have now lost their jobs. The retail and leisure industries are shedding jobs too, due lower consumer spending. Every bankruptcy in finance comes with its load of redundancies, like the 5,000 resulting from the collapse of Lehman Brothers. Many of these workers are not the big bonus type, but low-paid back office workers - and they will have a hard time finding alternative employment.
Today, even the government's massaged jobless figures are showing this increase. According to some projections which take into account those in casual under-employment (something that ministers never do!), total real joblessness may increase by 30% at least by the end of 2009 and go over the 4 million mark.
Such is the cost of this dysfunctional social organisation, in which the greed of a tiny minority of capitalist parasites can spell chaos and hardship for the overwhelming majority of workers who produce everything in this society and without whose labour nothing would work. If there was ever a case for getting rid of this bankrupt system, with its private profiteering and chronic crises, and for replacing it with a social organisation at the service of the entire population, this is it!