The Clintons and Their Banker Friends
The Wall Street Connection (1992 to 2016)
By Nomi Prins | TomDispatch | May 7, 2015
[This piece has been adapted and updated by Nomi Prins from chapters 18 and 19 of her book All the Presidents’ Bankers: The Hidden Alliances that Drive American Power, just out in paperback (Nation Books).]
The past, especially the political past, doesn’t just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward.
When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a “champion” for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.
To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband’s years in office.
In return, today’s titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable.
Whatever her populist pitch may be in the 2016 campaign — and she will have one — note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street’s role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends. She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.
The 1992 Election and the Rise of Bill Clinton
Challenging President George H.W. Bush, who was seeking a second term, Arkansas Governor Bill Clinton announced he would seek the 1992 Democratic nomination for the presidency on October 2, 1991. The upcoming presidential election would not, however, turn out to alter the path of mergers or White House support for deregulation that was already in play one iota.
First, though, Clinton needed money. A consummate fundraiser in his home state, he cleverly amassed backing and established early alliances with Wall Street. One of his key supporters would later change American banking forever. As Clinton put it, he received “invaluable early support” from Ken Brody, a Goldman Sachs executive seeking to delve into Democratic politics. Brody took Clinton “to a dinner with high-powered New York businesspeople, including Bob Rubin, whose tightly reasoned arguments for a new economic policy,” Clinton later wrote, “made a lasting impression on me.”
The battle for the White House kicked into high gear the following fall. William Schreyer, chairman and CEO of Merrill Lynch, showed his support for Bush by giving the maximum personal contribution to his campaign committee permitted by law: $1,000. But he wanted to do more. So when one of Bush’s fundraisers solicited him to contribute to the Republican National Committee’s nonfederal, or “soft money,” account, Schreyer made a $100,000 donation.
The bankers’ alliances remained divided among the candidates at first, as they considered which man would be best for their own power trajectories, but their donations were plentiful: mortgage and broker company contributions were $1.2 million; 46% to the GOP and 54% to the Democrats. Commercial banks poured in $14.8 million to the 1992 campaigns at a near 50-50 split.
Clinton, like every good Democrat, campaigned publicly against the bankers: “It’s time to end the greed that consumed Wall Street and ruined our S&Ls [Savings and Loans] in the last decade,” he said. But equally, he had no qualms about taking money from the financial sector. In the early months of his campaign, BusinessWeek estimated that he received $2 million of his initial $8.5 million in contributions from New York, under the care of Ken Brody.
“If I had a Ken Brody working for me in every state, I’d be like the Maytag man with nothing to do,” said Rahm Emanuel, who ran Clinton’s nationwide fundraising committee and later became Barack Obama’s chief of staff. Wealthy donors and prospective fundraisers were invited to a select series of intimate meetings with Clinton at the plush Manhattan office of the prestigious private equity firm Blackstone.
Robert Rubin Comes to Washington
Clinton knew that embracing the bankers would help him get things done in Washington, and what he wanted to get done dovetailed nicely with their desires anyway. To facilitate his policies and maintain ties to Wall Street, he selected a man who had been instrumental to his campaign, Robert Rubin, as his economic adviser.
In 1980, Rubin had landed on Goldman Sachs’ management committee alongside fellow Democrat Jon Corzine. A decade later, Rubin and Stephen Friedman were appointed cochairmen of Goldman Sachs. Rubin’s political aspirations met an appropriate opportunity when Clinton captured the White House.
On January 25, 1993, Clinton appointed him as assistant to the president for economic policy. Shortly thereafter, the president created a unique role for his comrade, head of the newly created National Economic Council. “I asked Bob Rubin to take on a new job,” Clinton later wrote, “coordinating economic policy in the White House as Chairman of the National Economic Council, which would operate in much the same way the National Security Council did, bringing all the relevant agencies together to formulate and implement policy… [I]f he could balance all of [Goldman Sachs’] egos and interests, he had a good chance to succeed with the job.” (Ten years later, President George W. Bush gave the same position to Rubin’s old partner, Friedman.)
Back at Goldman, Jon Corzine, co-head of fixed income, and Henry Paulson, co-head of investment banking, were ascending through the ranks. They became co-CEOs when Friedman retired at the end of 1994.
Those two men were the perfect bipartisan duo. Corzine was a staunch Democrat serving on the International Capital Markets Advisory Committee of the Federal Reserve Bank of New York (from 1989 to 1999). He would co-chair a presidential commission for Clinton on capital budgeting between 1997 and 1999, while serving in a key role on the Borrowing Advisory Committee of the Treasury Department. Paulson was a well connected Republican and Harvard graduate who had served on the White House Domestic Council as staff assistant to the president in the Nixon administration.
Bankers Forge Ahead
By May 1995, Rubin was impatiently warning Congress that the Glass-Steagall Act could “conceivably impede safety and soundness by limiting revenue diversification.” Banking deregulation was then inching through Congress. As they had during the previous Bush administration, both the House and Senate Banking Committees had approved separate versions of legislation to repeal Glass-Steagall, the 1933 Act passed by the administration of Franklin Delano Roosevelt that had separated deposit-taking and lending or “commercial” bank activities from speculative or “investment bank” activities, such as securities creation and trading. Conference negotiations had fallen apart, though, and the effort was stalled.
By 1996, however, other industries, representing core clients of the banking sector, were already being deregulated. On February 8, 1996, Clinton signed the Telecom Act, which killed many independent and smaller broadcasting companies by opening a national market for “cross-ownership.” The result was mass mergers in that sector advised by banks.
Deregulation of companies that could transport energy across state lines came next. Before such deregulation, state commissions had regulated companies that owned power plants and transmission lines, which worked together to distribute power. Afterward, these could be divided and effectively traded without uniform regulation or responsibility to regional customers. This would lead to blackouts in California and a slew of energy derivatives, as well as trades at firms such as Enron that used the energy business as a front for fraudulent deals.
The number of mergers and stock and debt issuances ballooned on the back of all the deregulation that eliminated barriers that had kept companies separated. As industries consolidated, they also ramped up their complex transactions and special purpose vehicles (off-balance-sheet, offshore constructions tailored by the banking community to hide the true nature of their debts and shield their profits from taxes). Bankers kicked into overdrive to generate fees and create related deals. Many of these blew up in the early 2000s in a spate of scandals and bankruptcies, causing an earlier millennium recession.
Meanwhile, though, bankers plowed ahead with their advisory services, speculative enterprises, and deregulation pursuits. President Clinton and his team would soon provide them an epic gift, all in the name of U.S. global power and competitiveness. Robert Rubin would steer the White House ship to that goal.
On February 12, 1999, Rubin found a fresh angle to argue on behalf of banking deregulation. He addressed the House Committee on Banking and Financial Services, claiming that, “the problem U.S. financial services firms face abroad is more one of access than lack of competitiveness.”
He was referring to the European banks’ increasing control of distribution channels into the European institutional and retail client base. Unlike U.S. commercial banks, European banks had no restrictions keeping them from buying and teaming up with U.S. or other securities firms and investment banks to create or distribute their products. He did not appear concerned about the destruction caused by sizeable financial bets throughout Europe. The international competitiveness argument allowed him to focus the committee on what needed to be done domestically in the banking sector to remain competitive.
Rubin stressed the necessity of HR 665, the Financial Services Modernization Act of 1999, or the Gramm-Leach-Bliley Act, that was officially introduced on February 10, 1999. He said it took “fundamental actions to modernize our financial system by repealing the Glass-Steagall Act prohibitions on banks affiliating with securities firms and repealing the Bank Holding Company Act prohibitions on insurance underwriting.”
The Gramm-Leach-Bliley Act Marches Forward
On February 24, 1999, in more testimony before the Senate Banking Committee, Rubin pushed for fewer prohibitions on bank affiliates that wanted to perform the same functions as their larger bank holding company, once the different types of financial firms could legally merge. That minor distinction would enable subsidiaries to place all sorts of bets and house all sorts of junk under the false premise that they had the same capital beneath them as their parent. The idea that a subsidiary’s problems can’t taint or destroy the host, or bank holding company, or create “catastrophic” risk, is a myth perpetuated by bankers and political enablers that continues to this day.
Rubin had no qualms with mega-consolidations across multiple service lines. His real problems were those of his banker friends, which lay with the financial modernization bill’s “prohibition on the use of subsidiaries by larger banks.” The bankers wanted the right to establish off-book subsidiaries where they could hide risks, and profits, as needed.
Again, Rubin decided to use the notion of remaining competitive with foreign banks to make his point. This technicality was “unacceptable to the administration,” he said, not least because “foreign banks underwrite and deal in securities through subsidiaries in the United States, and U.S. banks [already] conduct securities and merchant banking activities abroad through so-called Edge subsidiaries.” Rubin got his way. These off-book, risky, and barely regulated subsidiaries would be at the forefront of the 2008 financial crisis.
On March 1, 1999, Senator Phil Gramm released a final draft of the Financial Services Modernization Act of 1999 and scheduled committee consideration for March 4th. A bevy of excited financial titans who were close to Clinton, including Travelers CEO Sandy Weill, Bank of America CEO, Hugh McColl, and American Express CEO Harvey Golub, called for “swift congressional action.”
The Quintessential Revolving-Door Man
The stock market continued its meteoric rise in anticipation of a banker-friendly conclusion to the legislation that would deregulate their industry. Rising consumer confidence reflected the nation’s fondness for the markets and lack of empathy with the rest of the world’s economic plight. On March 29, 1999, the Dow Jones Industrial Average closed above 10,000 for the first time. Six weeks later, on May 6th, the Financial Services Modernization Act passed the Senate. It legalized, after the fact, the merger that created the nation’s biggest bank. Citigroup, the marriage of Citibank and Travelers, had been finalized the previous October.
It was not until that point that one of Glass-Steagall’s main assassins decided to leave Washington. Six days after the bill passed the Senate, on May 12, 1999, Robert Rubin abruptly announced his resignation. As Clinton wrote, “I believed he had been the best and most important treasury secretary since Alexander Hamilton… He had played a decisive role in our efforts to restore economic growth and spread its benefits to more Americans.”
Clinton named Larry Summers to succeed Rubin. Two weeks later, BusinessWeek reported signs of trouble in merger paradise — in the form of a growing rift between John Reed, the former Chairman of Citibank, and Sandy Weill at the new Citigroup. As Reed said, “Co-CEOs are hard.” Perhaps to patch their rift, or simply to take advantage of a political opportunity, the two men enlisted a third person to join their relationship — none other than Robert Rubin.
Rubin’s resignation from Treasury became effective on July 2nd. At that time, he announced, “This almost six and a half years has been all-consuming, and I think it is time for me to go home to New York and to do whatever I’m going to do next.” Rubin became chairman of Citigroup’s executive committee and a member of the newly created “office of the chairman.” His initial annual compensation package was worth around $40 million. It was more than worth the “hit” he took when he left Goldman for the Treasury post.
Three days after the conference committee endorsed the Gramm-Leach-Bliley bill, Rubin assumed his Citigroup position, joining the institution destined to dominate the financial industry. That very same day, Reed and Weill issued a joint statement praising Washington for “liberating our financial companies from an antiquated regulatory structure,” stating that “this legislation will unleash the creativity of our industry and ensure our global competitiveness.”
On November 4th, the Senate approved the Gramm-Leach-Bliley Act by a vote of 90 to 8. (The House voted 362–57 in favor.) Critics famously referred to it as the Citigroup Authorization Act.
Mirth abounded in Clinton’s White House. “Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the twenty-first century,” Summers said. “This historic legislation will better enable American companies to compete in the new economy.”
But the happiness was misguided. Deregulating the banking industry might have helped the titans of Wall Street but not people on Main Street. The Clinton era epitomized the vast difference between appearance and reality, spin and actuality. As the decade drew to a close, Clinton basked in the glow of a lofty stock market, a budget surplus, and the passage of this key banking “modernization.” It would be revealed in the 2000s that many corporate profits of the 1990s were based on inflated evaluations, manipulation, and fraud. When Clinton left office, the gap between rich and poor was greater than it had been in 1992, and yet the Democrats heralded him as some sort of prosperity hero.
When he resigned in 1997, Robert Reich, Clinton’s labor secretary, said, “America is prospering, but the prosperity is not being widely shared, certainly not as widely shared as it once was… We have made progress in growing the economy. But growing together again must be our central goal in the future.” Instead, the growth of wealth inequality in the United States accelerated, as the men yielding the most financial power wielded it with increasingly less culpability or restriction. By 2015, that wealth or prosperity gap would stand near historic highs.
The power of the bankers increased dramatically in the wake of the repeal of Glass-Steagall. The Clinton administration had rendered twenty-first-century banking practices similar to those of the pre-1929 crash. But worse. “Modernizing” meant utilizing government-backed depositors’ funds as collateral for the creation and distribution of all types of complex securities and derivatives whose proliferation would be increasingly quick and dangerous.
Eviscerating Glass-Steagall allowed big banks to compete against Europe and also enabled them to go on a rampage: more acquisitions, greater speculation, and more risky products. The big banks used their bloated balance sheets to engage in more complex activity, while counting on customer deposits and loans as capital chips on the global betting table. Bankers used hefty trading profits and wealth to increase lobbying funds and campaign donations, creating an endless circle of influence and mutual reinforcement of boundary-less speculation, endorsed by the White House.
Deposits could be used to garner larger windfalls, just as cheap labor and commodities in developing countries were used to formulate more expensive goods for profit in the upper echelons of the global financial hierarchy. Energy and telecoms proved especially fertile ground for the investment banking fee business (and later for fraud, extensive lawsuits, and bankruptcies). Deregulation greased the wheels of complex financial instruments such as collateralized debt obligations, junk bonds, toxic assets, and unregulated derivatives.
The Glass-Steagall repeal led to unfettered derivatives growth and unstable balance sheets at commercial banks that merged with investment banks and at investment banks that preferred to remain solo but engaged in dodgier practices to remain “competitive.” In conjunction with the tight political-financial alignment and associated collaboration that began with Bush and increased under Clinton, bankers channeled the 1920s, only with more power over an immense and growing pile of global financial assets and increasingly “open” markets. In the process, accountability would evaporate.
Every bank accelerated its hunt for acquisitions and deposits to amass global influence while creating, trading, and distributing increasingly convoluted securities and derivatives. These practices would foster the kind of shaky, interconnected, and opaque financial environment that provided the backdrop and conditions leading up to the financial meltdown of 2008.
The Realities of 2016
Hillary Clinton is, of course, not her husband. But her access to his past banker alliances, amplified by the ones that she has formed herself, makes her more of a friend than an adversary to the banking industry. In her brief 2008 candidacy, all four of the New York-based Big Six banks ranked among her top 10 corporate donors. They have also contributed to the Clinton Foundation. She needs them to win, just as both Barack Obama and Bill Clinton did.
No matter what spin is used for campaigning purposes, the idea that a critical distance can be maintained between the White House and Wall Street is naïve given the multiple channels of money and favors that flow between the two. It is even more improbable, given the history of connections that Hillary Clinton has established through her associations with key bank leaders in the early 1990s, during her time as a senator from New York, and given their contributions to the Clinton foundation while she was secretary of state. At some level, the situation couldn’t be less complicated: her path aligns with that of the country’s most powerful bankers. If she becomes president, that will remain the case.
Nomi Prins is the author of six books, a speaker, and a distinguished senior fellow at the non-partisan public policy institute Demos. Her most recent book, All the Presidents’ Bankers: The Hidden Alliances that Drive American Power (Nation Books) has just been released in paperback and this piece is adapted and updated from it. She is a former Wall Street executive.
Copyright 2015 Nomi Prins
The Media Fall for Hillary Clinton’s Gensler Gambit
By William K. Black | New Economic Perspectives | April 16, 2015
Richard Cordray (former Attorney General of Ohio), the head of the Consumer Finance Protection Bureau (CFPG) and Gary Gensler (a former disaster under Bill Clinton and Goldman Sachs) have been the two great appointments by President Obama in the field of finance. Obama’s other appointments at Treasury, the financial regulatory agencies, and the (non) prosecutors who are supposed to specialize in financial prosecutions have been nightmarishly bad.
Gensler was another Rubinite from Goldman Sachs who, under Bill Clinton, helped destroy Brooksley Born’s effort to protect the nation from the financial derivatives that blew up AIG and much of the financial world through passage of the infamous Commodity Futures Modernization Act of 2000. As Obama’s appointee to chair the Commodity Futures Trade Commission (CFTC), however, Gensler justly earned praise for attempting to restore effective regulation. Gensler was a grave disappointment to Obama’s administration, which thought it was sending a reliably pro-finance Rubinite to run a fairly obscure agency he had helped emasculate. When Gensler showed a spine Obama refused to reappoint him and replaced Gensler with Timothy G. Massad, a Timothy Geithner minion noted for his pro-industry views. Massad’s claim to fame was being one of the principal unprincipled architects of the failed homeowner relief programs. As I pointed out in my first Bill Moyers interview, failing (for the right political reasons) proves you are a reliable “team player” and gets you promoted in Washington, D.C. As Geithner found out, succeeding gets you your walking papers. Jesse Eisinger, as his norm, wrote a great piece about Massad when Obama nominated him in November 2013. An alternative view can be found in the American Banker, which gave prominently space to an op ed praising Massad’s nomination written by the head of a firm that trains CFTC staff.
Massad’s tenure represents a regulatory retreat at the CFTC, but in fairness, as bad as Obama is on financial regulation the Republicans are vastly worse. They are trying to force the wholesale repeal the Dodd-Frank protections on financial derivatives and they have waged an unholy war on the CFTC’s budget to try to make it impossible for the agency to protect the public. The GOP also fought hard to prevent Cordray’s appointment because they (more precisely, their donors), rightly, feared his integrity and skills.
One might think that Obama, and Democratic Party candidates for the presidential nomination would be campaigning on the issue of Republicans being in the pocket of the industry and trying to recreate Bush’s anti-regulatory “Wrecking Crew” (as Tom Frank aptly labeled it) that produced the financial crisis. But leaders of the Democratic Leadership Council (DLC) (aka “new Democrats,” which include both Clintons and Obama – by his own words) cannot bring themselves to channel their inner FDR and take on big finance. (The DLC is defunct as a formal organization, but its political leaders and pro-finance and anti-regulatory dogmas remain intact.) Big finance is the DLC’s financial base. Senator Bernie Sanders may run. If he does the Republican Party’s unholy war on regulation will be one of his primary issues.
Hillary Clinton’s Successful Gensler Gambit
The financial media is abuzz today with the leaked news that Hillary Clinton is hiring Gensler as a senior campaign staffer. From H. Clinton’s perspective, the media buzz was perfect. Bloomberg’s article bears this gushing one sentence summary: “Hillary Clinton will bring on one of Wall Street’s fiercest critics to oversee her campaign’s finances.” The article explains the politics.
“For Clinton, who has been fighting her left flank’s concern that she is too cozy with Wall Street, Gensler is a notable hire. He became known as someone with sharp elbows —even during his negotiations within the Obama administration—in his push for tighter regulation.”
In short, H. Clinton’s campaign got the ideal spin from what could have been a very hostile financial media. Hiring, and leaking, Gensler’s hire was a very smart political move.
Just One Little Catch
But here’s the catch. Gensler is being hired for a job that will take 150% of his available time given H. Clinton’s ability to raise money and the obscene rules that make modern campaign finance a sport in which both parties routinely devise “black box” funding devices to allow the wealthy to rule American politics secretly. This has two critical implications. Gensler will not be working to block the power of the secretive wealthy – he will be doing the opposite, at least 16 hours a day. It also means that he was not hired to advise H. Clinton on the crimes of Wall Street banksters and the vital need for vigorous regulation and prosecutions. Even if he had the desire to fill that role he will have no time to do so and he will be busy secretly catering to the needs of the wealthy and politically dominant criminal class.
Gensler Was No Godzilla When He Led the CFTC
Gensler’s stint at the CFTC is a nice story of redemption. He did try to be a vigorous regulator over great opposition from the industry, much of Congress (including many House Democrats), and Treasury. Gensler’s desire to be an effective regulator was unacceptable to Obama, who in another act of “revealed preferences” refused to reappoint Gensler.
But Gensler is not, remotely, “one of Wall Street’s fiercest critics.” Quick: memory association: what’s Gensler’s “fiercest” criticism of Wall Street? You came up blank, didn’t you? I checked the Wall Street Journal and did a more general web search. The WSJ was happy to see that Obama refused to reappoint him (the cover story is that Gensler did not want to serve another term) and it criticized him as harsh – but I could not find a story quoting any harsh denunciation of Wall Street by Gensler. Given that even life-long banking apologists like Geithner’s replacement as President of FRBNY now routinely refer to the corrupt culture of Wall Street, Geithner is not even one of the harsher critics of Wall Street within the none-too-critical Obama administration.
The “sharp elbows” claim is pure invention by Geithner’s worse than useless minions. Anyone who refused to brownnose the finance industry was considered far too aggressive by Geithner. Geithner and his team launched the same smear at Sheila Bair (FDIC chair) and Neil Barofsky (SIGTARP). We (the S&L regulators) were routinely referred to as “Nazis,” the “Gestapo,” and the “KGB.” The political, dirty tricks, and litigation attacks on us were far more severe and consequential because our actions were sending elites to prison and humiliating their political patrons who rushed to return campaign contributions from those we exposed as frauds.
Back in the S&L days under the team assembled by Federal Home Loan Bank Board Chairman Edwin Gray, the Reagan administration detested us precisely because Gensler (in his CFTC incarnation) would have been somewhere in the middle of the distribution of regulatory vigor. The comparison is conjectural because under Gray’s leadership, which generally became so supportive of regulatory vigor, and the tutelage of Joe Selby and Mike Patriarca (the Nation’s consensus choices as the most effective and vigorous financial regulators), Gensler might have developed into a far more effective regulator. Gensler’s mentor, Robert (“Bob”) Rubin, inflicted a severe impediment to regulatory effectiveness that Gensler had to struggle to try to overcome.
Conclusion
Ignore the media crush on Gensler’s appointment. As campaign CFO for H. Clinton his job is the care and feeding of the DLC’s financial base – the finance industry. H. Clinton’s Gensler gambit is smart politics, but if you think it means she is seeking progressive advice you are being played – successfully.
Stop Corporate Welfare Kings
By Ralph Nader | CounterPunch | April 17, 2015
“Tax day” comes and goes each year, but unfortunately, the systemic issues that plague American taxpayers linger on without resolution well past the mid-April deadline.
The U.S. tax code has long been manipulated by corporate lobbyists and their corporate tax attorneys. (President Jimmy Carter once called the loophole-ridden tax laws “a disgrace to the human race.”) A primary purpose of these perforations is to arrange the law and regulations so that certain categories of profit-rich companies can avoid paying their fair share to Uncle Sam.
In many states, it is a literal race to the bottom for elected officials to offer corporations sweeter tax deals to keep jobs in their locality — see the 2013 Boeing controversy in the state of Washington, in which the aerospace industry, much of which is made up of Boeing, was awarded $8.7 billion in tax breaks over 16 years to produce the 777X jetliner in-state. Notably, Boeing paid zero in federal income tax that year — along with many other major U.S. corporations such as GE and Verizon. Some of these Fortune 500 companies even get a rebate check!
According to Citizens for Tax Justice, “American Fortune 500 corporations are avoiding up to $600 billion in U.S. federal income taxes by holding more than $2.1 trillion” of retained profits offshore, which they designate as “permanently reinvested” to avoid a tax liability.
And of course, millionaires and billionaires often pay less in taxes than middle-class Americans do, taking full advantage of tax loopholes, deductions, deferrals and other forms of creative accounting. The Republican-controlled House of Representatives now intends to pass legislation to repeal the estate tax, which would see that “vast amounts of money that has never been taxed will be passed tax-free to the heirs of today’s billionaires,” according to Scott Klinger of the Center for Effective Government.
The end result is that, through a myriad of tax avoidance schemes, the wealthy 1 percent continue to profit using public resources, subsidies and infrastructure while the 99 percent disproportionately pay the bills for it — all while struggling to pay their own bills, mortgages, student loans, and more. And when Wall Street runs amok, it’s the taxpayers who have paid the bills for the catastrophic damage as a result of regulatory surrender. Millions of these taxpayers also lost their jobs and pensions in the 2008-2009 Wall Street collapse of our economy.
This brings us to the Internal Revenue Service — which has been made into a dirty word to many Americans. Those Americans might be surprised to learn, however, that the current IRS enforcement budget is $10.9 billion, after a cut of $346 million from the previous year. To put that in perspective, Apple Inc. spent $14 billion just to buy back its own stock last year, a move that only serves to provide a meager benefit, if that, to its shareholders, while nourishing executive compensation packages.
The IRS loses an estimated $300 billion a year due to tax evasion. A budget proposal by the Obama administration claimed that the IRS could bring in an additional $6 for every dollar it adds to the enforcement budget. IRS Commissioner John Koskinen said that he pushes this very convincing point in Congress to little reception or reaction. “I say that and everybody shrugs and goes on about their business,” he told the AP in 2014. “I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not.”
The effects of these budgetary cuts are already being seen. Current staffing levels at the IRS are at 87,000 — the lowest since the early 1980s. The agency lost 13,000 employees from 2010 to 2014 and expects to lose another 3,000 this year. In the final stretch towards April 15, many taxpayers have experienced excruciatingly long waits on hold and long lines at local IRS offices as a result. Congress doesn’t care. (National Taxpayer Advocate Nina Olson, who operates independently within the IRS, detailed this degradation of service in her annual report to Congress. (See taxpayeradvocate.irs.gov.)
Republican presidential hopeful Ted Cruz has gone so far as to publicly state his intention to abolish the IRS entirely, calling that radical course of action the “simplest and best tax reform.” It’s not clear how Senator Cruz intends the federal government to collect revenue to pay for his presidential salary, the White House budget and expanding his giant military budget if he should be elected and not recover his senses.
It is clear, however, that significant rational tax reform is necessary. What remains unclear is who will benefit the most from such reform. Americans must seriously ask why individual U.S. taxpayers are fronting the money for hugely profitable corporations. These are funds that could potentially be used to repair critical public infrastructure, create decently paying jobs, or simply reduce the tax burden on middle-income individuals.
One solution to ensure that the interests of small taxpayers are accounted for and protected is to establish taxpayer watchdog associations across the country. These organizations would work full-time in each state to make sure that individual taxpayers get the best deal possible. After all, big corporations can afford to support an army of tax accountants and attorneys to continually update the playbook of tactics to avoid having to pay their fair share. Most taxpayers don’t have this luxury. What they do have, however, is sheer force of numbers. Organization of such watchdog organizations could be facilitated by including a notice on the 1040 tax return inviting people to pay a small due and join these advocacy and educational nonprofit groups. These associations would be supported by membership dues and would receive no tax money. The members would elect a board of directors that could hire researchers, organizers, accountants and lawyers.
Such pressure from united citizen bodies would provide the organizational mechanism to enhance the influence of individuals in the tax-collection and policy-making process — something that is much-needed in our current American plutocracy.
A simple motto to consider when asking what we choose to tax is: “Tax what they burn, not what we earn.” Before we place the largest burdens of taxation on workers, we should tax areas that have the greatest potential negative or damaging influence on our economy and our society. Tax the polluters, the Wall Street speculators, the junk-food peddlers, and the corporate criminals. Consider that just a fraction of a 1-percent sales tax on speculation in derivatives and trading in stocks could bring in $300 billion a year! (See robinhoodtax.org.)
If taxpayers really want to protect their interests, they must organize and fight for them. The corporations certainly have the money — but they can’t match the manpower or votes of an organized citizenry.
In the meantime, big corporations on welfare like Walmart, Goldman Sachs, Bank of America, Pfizer, General Electric, Weyerhaeuser, and ExxonMobile should declare April 15 to be Taxpayer Appreciation Day. The corporate welfare kings should have the decency to, at least, thank smaller taxpayers who pay for all the freeloading that the corporatists have rammed through Congress. (See goodjobsfirst.org for much more on this issue.)
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Banks Say “Thanks for the Bailout,” Now We’ll Park our Profits in Overseas Tax Havens
By Steve Straehley | AllGov | March 16, 2015
Giant financial institutions that benefitted from federal bailouts during the depths of the recession have repaid the American people’s largesse by hiding profits overseas to avoid paying their fair share of taxes.
According to a report (pdf) commissioned by Senator Bernie Sanders (I-Vermont), four big banks—Citigroup, Goldman Sachs, Bank of America and JPMorgan Chase—which received massive amounts of money and loan guarantees to keep them afloat in the wake of the financial crisis, park large amounts of money in tax haven nations.
Citigroup got the most help of the four in the bailout, $2.5 trillion. That company has at least 427 offshore divisions where it squirrels away profits out of reach of the American people. Those funds, as of early 2014, totaled $43.8 billion, which would mean $11.7 billion in tax revenue for the United States if they were brought to this country. Citigroup CEO Michael Corbat was rewarded with $1.5 million in salary, $4.5 million in bonuses and $8 million in stock for his work in 2014.
Bank of America received a $1.3 trillion bailout from the American people. In 2014, it had $17 billion in profits stashed offshore, which would bring $4.3 billion in funding for education, infrastructure and other badly needed projects in the United States. Bank of America CEO Brian Moynihan made $1.5 million in salary, $13 million in bonuses and $11.5 million in stock in 2014.
JPMorgan Chase got a $416 billion bailout from American taxpayers. That bank has hidden $28.5 billion overseas which would bring in $6.4 billion to the U.S. Treasury. Chase CEO Jamie Dimon was paid $1.5 million in salary, $7.4 million in bonuses and $11.1 million in company stock in 2014.
Goldman Sachs was the recipient of $814 billion in virtually zero-interest loans, as well as $10 billion from the government. It’s holding $22.5 billion offshore that would bring $4.1 billion back to the American people. Goldman CEO Lloyd Blankfein made $2 million in salary, $7.33 million in bonuses and $7.33 million in stock in 2014.
Of course, banks aren’t the only companies taking advantage of tax havens. Apple, for instance, famously worked it out so two of its subsidiaries have no home country to which to pay taxes. But then Apple didn’t come hat-in-hand begging the American people not to let it go under.
To Learn More:
Legalized Tax Fraud: How Top U.S. Corporations Continue to Profit Through Offshore Tax Havens (by Senator Bernie Sanders, U.S. Senate) (pdf)
Offshore Shell Games (U.S. PIRG) (pdf)
The Bailouts 4 Years Later: Were They Worthwhile Investments? (by Matt Bewig, AllGov )
Quantitative Easing for Whom?
Why the European Central Bank’s Trillion Euro Plan will Only Help Keep the Banks Afloat
By MICHAEL HUDSON and SHARMINI PERIES | CounterPunch | March 13, 2015
SHARMINI PERIES: In an effort to relieve some pressure on the struggling European economies, Mario Draghi, president of the European Central Bank, announced a 1 trillion euro quantitative easing package on Monday. Quantitative easing is an unconventional form of monetary policy where a central bank creates new money electronically to buy financial assets like government bonds. And this process aims to directly increase private-sector spending in the economy and return inflation to target.
Well, what does that mean and what might be wrong with it is our next topic with Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
Michael, the Fed and some economists will argue that this is what got the U.S. out of its 2008 financial crisis. In fact, they put several QE measures into place. So what’s wrong with quantitative easing?
MICHAEL HUDSON: Well, the cover story is that it’s supposed to help employment. The pretense is an old model that used to be taught in textbooks a hundred years ago: that banks lend money to companies to invest and build equipment and hire people.
But that’s not what banks do. Banks lend money mainly to transfer ownership of real estate. They also lend money to corporate raiders. They lend money to buy assets. But they don’t lend money for companies to invest in equipment and hire more workers. Just the opposite. When they lend money to corporate raiders to take over companies, the new buyers outsource labor, downsize the work force, and try to squeeze out more work. They also try to grab the pensions.
The Fed was pretty open in what quantitative easing is supposed to do since 2008. It’s supposed to lower the interest rates, which raises bond prices and inflates the stock market. Since 2008 they’ve had the largest monetary inflation history – $4 trillion of quantitative easing by the Fed. But it’s gone via the banks into the stock and bond market.
What has this done for the economy as a whole? For starters, it’s obviously helped stock and bond holders get richer. And who are they? They’re the 1 percent and the 10 percent.
People are wringing their hands and saying, why isn’t the economy getting richer? Why is it that since 2008, economic inequality and the distribution of wealth have worsened instead of gotten closer together? Well, it’s largely because of quantitative easing. It’s because quantitative easing has increased the value of the stocks and the bonds that are held mainly by the 1 percent or the 10 percent hold. This hasn’t helped the economy because the Fed is really concerned with its constituency, which are the banks.
Quantitative easing hasn’t helped one class of investors in particular: pension funds. It’s done just the opposite. Pension funds made the assumption a few years ago that in order to break even with the rate of contributions that corporations, states and municipalities are paying, they have to make eight percent or eight and a half percent a year as a rate of return. But quantitative easing lowers the interest rate.
Today’s lower interest rates have made pension funds desperate. The risk-free rate of return is less than 1 percent on short-term Treasury bills. If you buy longer-term treasuries you can make 2 percent, but then if the interest rates ever go up, you’re going to take a loss as the bond price declines. So pension funds have said, “We’re desperate; what are we going to do?”
They’ve turned their money over to Wall Street money managers and hedge funds. The hedge funds take a huge rake off of fees to begin with. But even worse, when hedge funds and the big banks – Goldman Sachs, Citibank – see a pension fund manager coming through the door, they think, “How can I take what’s in his pocket and put it in mine?” So they rip them off. That is why there are so many big lawsuits against Wall Street for mismanaging pension fund money.
To summarize, the effect of the quantitative easing has been to make pension funds desperate, and to support real estate prices, as if higher costs to obtain housing will help recovery. It doesn’t help recovery, because to the extent that quantitative easing supports a re-inflation of housing prices, new homeowners have to pay even more of their income to the banks as mortgage interest. That means they have less money to pay for goods and services, so markets for goods and services continue to shrink.
What the quantitative easing has not been used for is what was promised in 2008. Before President Obama won the election and took office, Congress said that the TARP bailout and TALF were supposed to go for debt reduction. Some was to write down mortgages, so that people could afford to stay in their homes rather than the millions of home owners that have been foreclosed on and thrown out. But even before Obama came into office, Hank Paulson, the Secretary of the Treasury, told Democrats in Congress, yes, we’re willing to write down debts. But as Barney Frank explained in exasperation, Obama said no, he’s not going to do that. Obama ended up supporting the banks. So almost none of the TARP bailout money has been used for debt write-downs.
The same phenomenon is happening in Europe.
PERIES: So, Michael, what’s wrong with what the ECB has announced in terms of a trillion euros worth of quantitative easing for Europe?
HUDSON: They head of the European Central Bank, Mario Draghi, has said that he’ll do whatever it takes to keep banks afloat. He doesn’t say that he’ll do whatever it takes to help economic recovery, or to help labor more. The ECB’s job is to help banks make more money.
Draghi was vice chairman of Goldman Sachs during 2002 to 2005. His view is that of Wall Street. It’s not a vantage point helping labor or helping economies grow. So it’s not surprising that the trillion euros of new money that the eurozone’s central bank is creating hasn’t gone to help Greece, for instance, survive. It hasn’t gone to help Greece, Spain, Italy, or Portugal get out of depression by fueling government spending. It’s simply been given away to the banks to buy bonds and stocks, including buying American stocks and bonds.
Behind this policy is the trickle-down theory that if you can make the financial sector richer, if you can make the one percent and the 10 percent richer, it’s all going to trickle down. This is the view of Paul Krugman, and it’s the view of the advisers that Obama has had. But instead of trickling down, the stock and bond price gains by the 1% and 10% drive a wedge in the economy, by increasing the value of stocks and bonds and real estate and wealth against labor. So quantitative easing is largely behind the fact that the distribution of wealth has become worse rather than better since 2008.
PERIES: One of the things that has happened in Europe that you wrote to me actually in an email was the disappearing central banks’ role in stimulating economies. Why is this an issue?
HUDSON: Central banks originally were designed to monetize government deficits. Governments are supposed to spend money into the economy, because that helps economies grow. But in Europe the Lisbon agreements say governments can’t run a deficit more than 3 percent of national income.
Furthermore, the role of the European Central Bank is not to give a penny to governments. They say that if you give a penny to government, you’ll have hyperinflation like you had in Weimar. So the central bank can only give money to banks – to invest in stocks and bonds. But the ECB won’t buy fresh bonds to finance new government spending. The result of this policy of not funding government deficits is that if the economy is to grow, it has to be entirely dependent on commercial banks for credit.
We had this situation in the United States in the last few years of the Clinton administration when the United States actually ran a budget surplus instead of a deficit. Now, how do you think the United States could grow when there’s a budget surplus sucking money out of the economy?
The answer is that commercial banks and bondholders have to supply the money. But the banks only supplied money in the form of junk mortgages and other forms of an economic bubble, such as takeover loans and a stock market bubble.
The interest of banks is not to help economies grow; it’s to extract interest from the economy. The financial sector uses part of its rising wealth to lobby for privatization sell-offs. The problem with this is that when you privatize a public utility, you give away a monopoly – and if you deregulate the economy, you let the monopoly set up tollbooths over the economy, for toll roads, communications or whatever is being privatized.
The ECB is telling Greece to privatize to raise the money to pay its bondholders, the ECB and IMF. So you have quantitative easing going hand-in-hand with the insistence on privatization. The result is debt deflation as the economy is forced to depend more and more on banks for the money to grow, instead of on government spending into the economy. You’re having the governments not being able to spend on infrastructure, letting it fall apart, as is happening with bridges and tunnels in the United States.
The next step is for the government to say, “I’m sorry, the central bank doesn’t have enough money to help us build new infrastructure. So we’ve got to sell it off to private investors who do have the money.” The next thing you know, you have the economy ending up looking like Chicago. That city sold off its sidewalks and its parking meters to Goldman Sachs and to other Wall Street firms. All of a sudden the prices of parking, driving, and living in Chicago went way, way up instead of lowering the costs as privatization promised.
You have the same phenomenon here that England suffered under Margaret Thatcher: costs for hitherto public services go up. Transportation costs go way up. Road costs go up. Communications, internet costs, telephone costs, everything that is privatized goes way up. Financialization leads to a rent-extractive, almost neo-feudal economy.
In that sense, quantitative easing and the refusal of central banks to fund governments (except to pay bondholders and bail out commercial banks) is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be. It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: This is really a scandal, because most privatizations are corrupt insider dealings. The SYRIZA Party came in and said, wait a minute, the privatizations that have been done are by governmental officials to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them?
The European Central Bank said, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
Remember, the American privatization to the railroad barons and their financial backers created essentially the ruling class of the 20th century. It created the American stock market. The same thing is happening in Greece. It’s being told to continue the former politicians’ drive to endow a new oligarchy, a new kind of a feudal monopoly lord, by these privatization giveaways. The ECB says that if you don’t do that, we’re going to bankrupt the banking system.
Yanis Varoufakis went back to the party congress in Parliament and asked whether they would approve this. The left wing in Greece has said, no, we won’t approve the giveaways.
The pretense is that privatization is to make money, but the European Central Bank is saying, no, you can’t make money; you have to give it away to our cronies. It’s all one happy financial family. This is escalating financial warfare.
I can assure you that neither Varoufakis nor SYRIZA has any interest in this kind of privatization giveaway. It’s trying to figure out some way of perhaps prosecuting the cronies for bribery, for internal connections, or figuring out some way of legally stopping the rotten policies that they’re told to follow by the European Central Bank – which isn’t giving a single euro to help Greece get over the economic depression that debt deflation has brought on. The euros are only given to the financial sector, basically to help declare war on the Greek government, the Spanish government, the Italian government.
This financial warfare is trying to achieve the same thing that military warfare did in the past. It’s aim is to grab the land, to grab control of the public infrastructure, to grab control of governments themselves. But it’s doing it financially rather than militarily.
PERIES: Right. The SYRIZA Party last week did agree to the conditions of privatization, that they would not roll back on the existing agreements that had been made by previous government. They agreed to not roll back on ones that are underway, and that they’re actually not even averse to privatization as a statement by Yanis Varoufakis. What does all this mean for Greece?
HUDSON: The financial gun was put to their head. If they wouldn’t have said that, there would have been a total breakdown, and the European Central Bank would have tried to bankrupt the Greek banks. So he didn’t have much of a choice. Everything that Varoufakis has written, and all that the political leader of SYRIZA has said, has been exactly the opposite. But they had to give lip service to what they were told to do, and any agreement that’s made has to be ratified by Parliament. So, what they’ve said is, okay, we’re going to play good cop, bad cop. We’ll be the good cops with you, and let Parliament and our left wing be the bad cops and say that we’re not going to stand for this.
House Votes to Protect Citigroup if It Gambles and Loses
By Noel Brinkerhoff and Danny Biederman | AllGov | November 12, 2013
One of the nation’s leading banks wants Congress to amend federal law adopted in the wake of the 2008 financial crisis so it and other Wall Street institutions can go back to gambling with risky investments and have taxpayers cover the losses again if they bet wrong.
Under the Dodd-Frank Act of 2010 (pdf), banks can no longer use monies backed by the Federal Deposit Insurance Corporation (FDIC) to invest in high-risk derivatives, such as “swaps.” This prohibition was adopted because derivatives crippled numerous key players on Wall Street five years ago, including Countrywide Mortgages, Bear Stearns, AIG, Lehman Brothers, Washington Mutual, Wachovia and others.
One of those “others” was Citigroup, which had to be bailed out by the federal government to the tune of $45 billion. A Citigroup lobbyist, though, was primarily responsible for authoring the Swaps Regulatory Improvement Act, which was approved by the U.S. House of Representatives two weeks ago.
The bill would wipe out Section 716 (pdf) of Dodd-Frank that requires banks to use a non-bank entity for trading commodity, energy and other swaps. In other words, if the legislation becomes law, financial institutions could return to conducting high-risk trading with funds that are backed by the FDIC (i.e. the taxpayer).
Dennis Anderson, who’s running for Congress from Illinois, says “to propose an easing of the controls on such behavior is irresponsible.”
“The behavior of these large banks and financial institutions cost all of us in loss of value in our retirement accounts, in lowered property values and, most importantly, in the general and deep recession that followed the failure of their gambling,” Anderson wrote at Daily Kos. “The idea of ‘too big to fail’ is still with us, and has grown even more threatening as these institutions have continued to grow.”
Citigroup was responsible for recommendations made in 70 lines of the 85-line bill, according to Eric Lipton and Ben Protess of The New York Times. In fact, reported the writers, a couple key paragraphs in the bill had been copied word for word from Citigroup’s submitted draft, which it had developed in conjunction with other Wall Street banks.
The legislation cleared the House on a 292-122 vote that saw 70 Democrats join all but three Republicans. Republicans voting against the measure were Representatives John Duncan of Tennessee, Walter Jones of North Carolina and Thomas Massie of Kentucky.
One of the Democrats supporting the change was Representative Carolyn Maloney of New York, the second-ranking Democrat on the House Financial Services Committee. She told The Hill that the bill would “protect safety and soundness,” per Federal Reserve Chairman Ben Bernanke.
“Even Federal Reserve Chairman Ben Bernanke opposed Section 716 as written, stating that the way it forces these activities out of insured depository institutions ‘would weaken both the financial stability and strong regulation of the derivatives activities,’” she said.
Bernanke has supported certain changes to the law, but never backed the Citigroup bill, according to the Times.
The White House said it opposes the bill, noting that the law is still being implemented by regulators. Legislation to amend it is “premature and could be disruptive and harmful to the implementation of these reforms,” it added.
Only about 40% of the rules required by the law have been implemented to date. Whether the Citigroup bill passes or not, such attempted legislation has “a chilling effect on regulators,” according to the Times.
“After inflicting so much pain and suffering on the American people, now is not the time to let the largest banks back into the casino,” Representative Maxine Waters (D-California) said in a statement.
Why are so many other Democrats supporting a bill that the Obama administration opposes? House aides interviewed by the Times theorized that “Republicans have enough votes to pass it themselves, so vulnerable House Democrats might as well join them, and collect industry money for their campaigns,” wrote Lipton and Protess.
Indeed, lawmakers who currently support bills advocated by big banks have, this month, received double the amount of donations from Wall Street firms as those who opposed such bills, according to MapLight, a nonprofit group that analyzes campaign financial records.
Additionally, Wall Street has, in the past few weeks, hosted special fundraisers for the bills’ co-sponsors.
A Democrat who supports the industry bills and is a top cash recipient of Wall Street—Representative Jim Himes of Connecticut, who was once a Goldman Sachs banker—confessed that the “system” has “problems.” “It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption,” he told the Times. “It’s unfortunately the world we live in.”
To Learn More:
Heard about the Swaps Regulatory Improvement Act (H.R.992 – 113th Congress)? (by Dennis Anderson, Daily Kos)
House Votes for Bipartisan Change to Dodd-Frank on Bank Swaps (by Pete Kasperowicz, The Hill)
House, Set to Vote on 2 Bills, Is Seen as an Ally of Wall St. (by Eric Lipton and Ben Protess, New York Times)
Banks’ Lobbyists Help in Drafting Financial Bills (by Eric Lipton and Ben Protess, New York Times)
The European Union: Where Corporate Fantasies Come True
By David Cronin | New Left Project | July 18, 2013
Edward Snowden has exposed more than a massive spying operation. The whistleblower has – perhaps unintentionally – drawn attention to just how obsequious Europe’s political leaders are towards the US.
Angela Merkel and François Hollande are reportedly furious over revelations that America has been reading their diplomats’ emails (though their fury can’t be that intense given that a rumour that Snowden was on a flight to Bolivia was sufficient for France to block the plane from its airspace). There were hints too that a planned trans-Atlantic trade agreement could be in jeopardy as a result of the controversy. Yet the talks have opened this month as planned. With many of the world’s most powerful corporations adamant that the talks take place, they were unlikely to be derailed by a spat over snooping.
In May this year, a ‘business alliance’ to support the planned trade deal was established. Many of the firms belonging to this coalition – BP, Coca-Cola, Deutsche Bank, British American Tobacco, Nestlé – have been involved in similar initiatives since the 1990s. Using a highly dubious methodology, the alliance estimates that a transatlantic trade and investment partnership (known by the ugly acronym TTIP) would bring benefits of €119 billion to the EU and €95 billion to the US per year. What they don’t spell out is that the price of any such benefits could be the destruction of democracy.
A leaked document detailing what EU officials wish to achieve in the negotiations says that an eventual agreement should include ‘state-of-the-art’ provisions on ‘dispute settlement’. Under this plan, special tribunals would be set up to allow corporations to sue governments over laws that hamper them from maximising their profits.
When clauses like those being envisaged have been inserted into previous investment treaties, corporations have invoked them in order to challenge health and environmental laws that were not to their liking. Australian rules that all cigarettes be sold in unattractive packaging and Germany’s decision to abandon nuclear power are among the measures that corporations have tried to torpedo in the name of ‘investor protection’.
What will the masters of the global economy take on next: minimum wage levels; restrictions on hazardous chemicals; food quality standards? All of these advances are the results of struggle by workers and campaigners. All of them could be at risk if European and American negotiators go ahead with their plan to set up a special court system that corporations alone may use.
Peter Mandelson must shoulder some of the blame for the extremist agenda now being pursued. In 2006, when he was EU trade commissioner, Mandelson published an official blueprint called Global Europe. It committed the Brussels bureaucracy to work in tandem with corporations to remove any obstacles they encountered throughout the world.
The blueprint closely resembled recommendations made by pressure groups like the European Services Forum (ESF). Bringing together Microsoft, BT, Veolia and – at the time – Goldman Sachs, the ESF has its origins in the 1999 conference of the World Trade Organisation, best remembered for the ‘Battle of Seattle’ – the large-scale protests against it.
In The Brussels Business, an excellent film about corporate lobbying, the ESF’s Pascal Kerneis waxes emotional as he recalls how some ‘high-VIPs’ were unable to attend important meetings in Seattle because of the demonstrations outside their hotel. Kerneis, however, did not allow this display of people power to weaken his determination to refashion the international economy in the way that his elitist pals wanted.
In his dealings with Mandelson’s team of advisers, Kerneis argued that if the EU is unable to have the wishes of corporations fulfilled at the WTO level, it should concentrate on twisting the arms of individual governments. The stilted phrasing of some ESF briefing papers though could not conceal that they were designed to turn some of the wildest capitalist fantasies into reality. One advocated that the EU should strive to remove all capital requirements for banks and caps on foreign ownership of companies in its key trading partners, as well as any pesky rules preventing corporations from sending profits abroad (to, say, a tax haven).
As they were drafted before the financial crisis that erupted in 2008, these papers have a carefree, almost naive feel to them. And yet the European Commission is still striving to attain the core goals identified in such documents. The Commission’s latest annual report on ‘trade and investment barriers’ says that all ‘relevant instruments and policies’ will be marshalled worldwide ‘to make sure the playing field is levelled’. On the surface, that may sound innocuous. In practice though, it means that corporations are accorded more rights than human beings.
If an Indian arrived in Heathrow Airport tomorrow and demanded to automatically have the same entitlements as a British citizen, he or she would probably be arrested. Yet the EU executive believes that big Western companies active in India should enjoy ‘national treatment’ – that is they should be treated exactly like Indian firms. Britain’s industrialisation was achieved at least partly because the textiles sector was shielded from foreign competition. Yet blinkered by neoliberal ideology, Brussels officials want to prevent poorer countries from applying the same tactics, which they now describe as ‘protectionist’ (a dirty word, according to these ideologues).
The willingness to allow corporate lobbyists to set the rules is not confined to trade policy. Financial regulation too has been heavily influenced by the world’s most powerful banks.
Charlie McCreevy, the EU’s single market commissioner from 2004 to 2010, displayed a deep aversion to oversight during his time in office. His hands-off approach can be attributed to the fact that the ‘experts’ he appointed to guide him held exorbitantly-paid posts at the investment banks Goldman Sachs and Morgan Stanley. A consultative group on hedge funds that the Irishman assembled was comprised entirely of insiders from the financial services industry.
When Michel Barnier was tasked with taking over McCreevy’s portfolio, Nicolas Sarkozy (remember him?) contended that giving this post to a Frenchman was a defeat for the Anglo-Saxon model of capitalism. Like many of Sarkozy’s proclamations, it was fanciful. Barnier has kept up the dishonourable tradition of relying primarily on advice from the private sector. An ‘expert group’ on banking reform set up at his behest last year had a token representative from the European Consumers’ Organisation (known by the French acronym BEUC) and a couple of academics. Most of its eleven members, however, were sitting or former bankers – or, worse still, weapons salesmen.
Financial service whizzkids are held in awe by EU policy-makers. This became much apparent during 2009. Boris Johnson hopped on the Eurostar to Brussels that year to champion the City of London and predictably grabbed the headlines. Away from the glare of publicity, however, an army of hedge fund managers succeeded in eviscerating a law designed to restrain their gambling. When the law went before the European Parliament, the hedge fund industry prepared a voluminous set of amendments. Sharon Bowles, a Liberal Democrat MEP who chairs the Parliament’s economics committee, admitted to me that she signed amendments drafted by the financial industry and then tabled them in her own name. This obviously begs the question of whether she is really working on behalf of her constituents or on behalf of banks.
The corporate lobby has proven adept at concocting myths. Whereas it was patently obvious that the economic crisis was caused by the reckless behaviour of banks, powerful groupings have spread the falsehood that extravagance in public spending was really to blame. The European Roundtable of Industrialists (ERT) – which includes the chief executives or chairmen of Shell, Volvo, Nestlé, Vodafone and Heineken – has been leading efforts to demolish the welfare state. Among its core demands are that healthcare should be privatised so that Europe more closely resembles the US. The ERT enjoys the kind of access to top-level politicians that defenders of the underprivileged are denied. Herman Van Rompuy, the EU’s unelected ‘president’, is known to have dined with ERT delegations in private clubs, without any details of these encounters being posted on his website. And in March this year, Merkel and Hollande, along with the European Commission’s head José Manuel Barroso, met ERT representatives in Berlin. The ERT is pushing the Union’s governments to agree on a ‘competitiveness pact’ over the next twelve months. Under this pact, each EU country would become obliged to drive down its wage levels and dilute its labour laws.
‘Competitiveness’ is a byword for crony capitalism. It should not be confused with competition: among the ERT’s demands are that the EU becomes less fussy about controlling mergers between large companies. Far from encouraging diversity, it wants to have wealth concentrated in increasingly fewer hands.
Repeated so often, the idea of ‘competitiveness’ has assumed an almost religious significance among the EU elite. Opposing it is regarded as heretical.
Despite Thatcher’s tetchy relationship with the EU institutions, the main tenets of Thatcherism have gone mainstream in Brussels. Attempts made in earlier decades to give the Union a social dimension – by, for example, championing gender equality – always amounted to fig-leafs for a project that was essentially right-wing and anti-democratic. In more recent years, these fig-leafs have become increasingly slender.
Barroso is among a new generation of leaders who are demonstrably in thrall to the ‘Iron Lady’. While he habitually describes the EU as a ‘social market’ economy, it is evident from his favoured policies that his real agenda is to bolster corporate power. One key objective of the European Commission is to promote ‘public-private partnerships’. This idea of handing over services financed by taxpayers to unaccountable companies can be traced back to Thatcher and her successor, John Major.
With few exceptions, the Union is cuddling up to big business and screwing the rest of us. Building a mass movement to confront corporate power has never been more urgent.
Wall Street is writing its own regulation bill
RT | May 24, 2013
Bank lobbyists have a direct influence on financial legislation drafted in Congress, and are in some cases even writing the measures themselves. Citigroup this month drafted a regulation bill that has already passed through a House committee.
To soften financial regulations, bank lobbyists frequently ‘assist’ lawmakers in writing draft legislation that serves to benefit them at the expense of American taxpayers, according to a New York Times investigation.
Lobbyists working for Citigroup Inc., a multinational financial services corporation, wrote 80 percent of a regulation bill that was approved by the House Financial Services Committee this month. Citigroup wrote 70 lines of 85-line bill, which exempts “broad swathes of trades” from new regulation, the Times reported based on e-mails it obtained.
Two paragraphs of the bill were copied “nearly word for word” from what Citigroup drafted. The only difference between the versions were two words, which lawmakers changed to make plural.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010, inflicted heavy financial regulatory reform following the most recent recession. The bill was pushed into law by Democrats, but now, both Democrats in the House and Senate are siding with bank lobbyists to roll back parts of the regulation overhaul.
The bill drafted primarily by Citigroup this month was starkly opposed by the Treasury Department, but easily made it through the House Financial Services Committee, the Times reports. MapLight, a nonprofit group that analyzes campaign finance records, found that lawmakers who supported Wall Street’s legislation received twice as much in contributions from financial institutions than those who opposed such measures, which appears to indicate that lawmakers’ support can be bought.
This month, Wall Street groups also held fundraising dinners for lawmakers who co-sponsored the bills they backed and in some cases co-wrote. As a reward for siding with bank lobbyists, these lawmakers were granted a dinner in which attendees paid up to $2,500 for a plate.
When questioned by the Times, bank industry officials said that helping draft legislation was a common practice on Capitol Hill, but argued that they do not undermine Dodd-Frank.
“We will provide input if we see a bill and it is something we have interest in,” said Kenneth E. Bentsen Jr., a Wall Street lobbyist. Bentsen is a former lawmaker himself, and many financial institutions’ lobbyists have worked as Capitol Hill aides and staffers before taking on their current roles.
Jeff Connaughton, a former lobbyist and former congressional staffer, said that Wall Street has so much influence on the Hill that it “skews the thinking of Congress.”
“It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption,” Rep. Jim Himes, a top recipient of Wall Street donations and a former banker at Goldman Sachs, told the Times, admitting his own faults. “It’s unfortunately the world we live in.”
Profiting off hunger: Wall Street makes big gains over food price spikes
RT | January 21, 2013
Powerful firms like Goldman Sachs have made hundreds of millions of dollars in food future trades. Critics accuse them of profiting off starvation and market manipulation, while traders claim their profits are due to increasing consumption in China.
World food prices tracked by the UN Food and Agriculture Organization (FAO) have more than doubled in the past 10 years. The FAO’s Food Price Index, which baskets prices for five prime food commodities, peaked in 2008 and 2011, each time rising more than 50 percent from the previous year. The latest price spike was one of the key factors that triggered the series of uprisings in the Arab world resulting in the fall of several governments.
The year 2013 may see another price hike, following the worst draught in the US in 50 years and poor harvests in Russia and Ukraine. The UN has warned that the world may be approaching a major hunger crisis.
At the same time, the industry is bringing millions in profits to those who rushed to invest in food. Goldman Sachs made an estimated $400 million in 2012 from investing its clients’ money in a range of “soft commodities,” from wheat and maize to coffee and sugar, according to an analysis by the World Development Movement (WDM).
“While nearly a billion people go hungry, Goldman Sachs bankers are feeding their own bonuses by betting on the price of food. Financial speculation is fueling food price spikes and Goldman Sachs is the No, 1 culprit,” Christine Haigh of the WDM told the British newspaper The Independent.
The London-based organization – along with similar NGOs like Foodwatch, Oxfam, or Weed (World Economy, Ecology and Development) – have for years blamed financiers for inflating food prices, or for at least making the market dangerously volatile.
They argue that the amount of speculative money is too big in proportion to the physical inventories of the commodities. Deregulation in the late 1990s allowed financial institutions to bet on food prices, resulting in some $200 billion being poured into the market.
For example, hedge fund Armajaro virtually single-handedly sent the global price of cocoa to a 33-year high in July 2010 by buying around 15 percent of global cocoa stocks.
The overall effect of speculation on food prices is an issue of dispute. Influential analysts, such as US economist Paul Krugman, have argued that speculation is a marginal factor compared to rising demand from developing countries, as well as the expanding production of corn and maize for biofuels at the expense of foodstuffs.
Diagram from “The Food Crisis: Predictive validation of a quantitative model of food prics including speculators and ethanol conversion” By Marco Lagi,
A study by the New England Complex Systems Institute last year showed that the Food Price Index should only change if ethanol production had an impact. The study estimated that a 2008 ethanol price hike was largely due to speculation, while a 2011 spike was significantly fueled by investors.
Many financiers dismiss the accusations, and say they will continue bidding against food prices. On Saturday, Deutsche Bank Co-Chief Executive Juergen Fitsche told the Global Forum for Food and Agriculture that Germany’s biggest lender “will continue to offer financial instruments linked to agricultural products.”
“Agricultural futures markets bring numerous advantages to farmers and the food industry,” he said.
Others seem to be yielding to pressure. Last year, several German banks, including the second-largest Commerzbank, ceased to speculate on basic food prices for moral reasons.
Related articles
- How The Fed’s Quantitative Easing Increases World Hunger (triplepundit.com)
- Goldman bankers get rich betting on food prices as millions starve (independent.co.uk)
- UN blames food price rises on trading in agricultural commodities (guardian.co.uk)
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The lies about the 1967 war are still more powerful than the truth
By Alan Hart | June 4, 2012
In retrospect it can be seen that the 1967 war, the Six Days War, was the turning point in the relationship between the Zionist state of Israel and the Jews of the world (the majority of Jews who prefer to live not in Israel but as citizens of many other nations). Until the 1967 war, and with the exception of a minority of who were politically active, most non-Israeli Jews did not have – how can I put it? – a great empathy with Zionism’s child. Israel was there and, in the sub-consciousness, a refuge of last resort; but the Jewish nationalism it represented had not generated the overtly enthusiastic support of the Jews of the world. The Jews of Israel were in their chosen place and the Jews of the world were in their chosen places. There was not, so to speak, a great feeling of togetherness. At a point David Ben-Gurion, Israel’s founding father and first prime minister, was so disillusioned by the indifference of world Jewry that he went public with his criticism – not enough Jews were coming to live in Israel.
So how and why did the 1967 war transform the relationship between the Jews of the world and Israel? … continue
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