Bank Crimes Pay: Under the Thumb of the Global Financial Mafiocracy
By: Andrew Gavin Marshall
27 November 2015
Originally posted at Occupy.com
On Nov. 13, the United Kingdom’s Serious Fraud Office (SFO) announced it was charging 10 individual bankers, working for two separate banks, Deutsche Bank and Barclays, with fraud over their rigging of the Euribor rates. The latest announcement shines the spotlight once again on the scandals and criminal behavior that have come to define the world of global banking.
To date, only a handful of the world’s largest banks have been repeatedly investigated, charged, fined or settled in relation to a succession of large financial scams, starting with mortgage fraud and the Libor scandal in 2012, the Euribor scandal and the Forex (foreign exchange) rate rigging. At the heart of these scandals, which involve the manipulation of interest rates on trillions of dollars in transactions, lie a handful of banks that collectively form a cartel in control of global financial markets – and the source of worldwide economic and financial crises.
Banks such as HSBC, JPMorgan Chase, Barclays, Bank of America, Citigroup, Deutsche Bank, Royal Bank of Scotland and UBS anchor the global financial power we have come to recognize as fraud. The two, after all, are not mutually exclusive. In more explicit terms, this cartel of banks functions as a type of global financial Mafia, manipulating markets and defrauding investors, consumers and countries while demanding their pound of flesh in the form of interest payments. The banks force nations to impose austerity measures and structural reforms under the threat of cutting off funding; meanwhile they launder drug money for other cartels and organized crime syndicates.
Call them the global Mafiocracy.
In May, six major global banks were fined nearly $6 billion for manipulation of the foreign exchange market, which handles over $5 trillion in daily transactions. Four of the six banks pleaded guilty to charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged.” Those banks were Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland, while two additional banks, UBS and Bank of America, were fined but did not plead guilty to the specific charges. Forex traders at Citigroup, JPMorgan Chase and other banks conspired to manipulate currency prices through chat room groups they established, where they arrogantly used names like “The Mafia” and “The Cartel.”
The FBI said the investigations and charges against the big banks revealed criminal behavior “on a massive scale.” The British bank Barclays paid the largest individual fine at around $2.3 billion. But as one trader at the bank wrote in a chat room conversation back in 2010, “If you aint cheating, you aint trying.” The total fines, while numerically large, were but a small fraction of the overall market capitalization of each bank – though the fine on Barclays amounted to some 3.4% of the bank’s market capitalization, the highest percentage by far among the group.
Despite the criminal conspiracy charges covering the years 2007 through 2013, the banks and their top officials continue to lay the blame squarely at the feet of individual traders. Axel Weber, the former president of the German Bundesbank (the central bank of Germany), who is now chairman of Switzerland’s largest bank, UBS, commented that “the conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions.”
Looking at the larger scale of bank fines and fraud in the roughly eight years since the global financial crisis, the numbers increase substantially. In addition to a 2012 settlement for mortgage-related fraud in the U.S. housing market, which amounted to some $25 billion, several large banks paid individual fines related to mortgage and foreclosure fraud – including a $16 billion fine for Bank of America, and $13 billion for JPMorgan Chase. Added to these are fines related to the rigging of the Libor rate (the interest rate at which banks lend to each other) and the Forex rigging, as well as money laundering, violating sanctions, manipulating the price of gold, manipulating the U.S. electricity market and assisting tax evasion, among other crimes.
According to a research paper published in June, the total cost of litigation (fines, penalties, settlements, etc.) paid by 16 major global banks since 2010 has reached more than $300 billion. Bank of America paid the most, amounting to more than $66 billion, followed by JPMorgan Chase, Lloyds, Citigroup, Barclays, RBS, Deutsche Bank, HSBC, BNP Paribas, Santander, Goldman Sachs, Credit Suisse, UBS, National Australia Bank, Standard Chartered and Société Générale.
Virtually all of these banks also appear on a list of data, compiled through 2007, revealing them to be among the most interconnected and powerful financial institutions in the world. This core group of corporations forms part of a network of 147 financial institutions that Swiss scientists refer to as the “super-entity,” which, through their various shareholdings, collectively controland own each other and roughly 40% of the world’s 43,000 largest transnational corporations.
In other words, the big banks – along with large insurance companies and asset management firms – do not simply act as a cartel in terms of engaging in criminal activities, but they form a functionally interdependent network of global financial and corporate control. Further, the banks work together in various industry associations and lobbying groups where they officially represent their collective interests.
The largest European banks and financial institutions are represented by the European Financial Services Round Table (EFR), whose membership consists of the CEOs or Chairmen of roughly 25 of the top financial institutions on the continent, including Deutsche Bank, AXA, HSBC, Allianz, RBS, ING, Barclays, BNP Paribas, UBS, and Credit Suisse, among others.
In the United States, the Financial Services Forum (FSF) represents the largest American along with some European banks and financial institutions. The Forum’s membership consists of less than 20 executives, including the CEOs or Chairmen of such firms as Bank of America, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Citigroup, UBS, HSBC, AIG, Bank of New York Mellon, State Street Corporation, Deutsche Bank and Wells Fargo, among others.
And on a truly global scale, there is the Institute of International Finance (IIF), the premier global association representing the financial industry, with a membership of nearly 500 different institutions from more than 70 countries around the world, including banks, insurance companies, asset management firms, sovereign wealth funds, central banks, credit ratings agencies, hedge funds and development banks.
In addition to these various groups and associations, many of the same large banks and their top executives also serve as members, leaders or participants in much more secretive groups and forums – for example, the International Monetary Conference (IMC), a yearly meeting of hundreds of the world’s top bankers hosted by the American Bankers Association, which invites selected politicians, central bankers and finance ministers to attend their off-the-record discussions. In addition, there is the Institut International d’Etudes Bancaires (International Institute of Banking Studies), or IIEB, which brings together the top officials from dozens of Europe’s major financial institutions for discussions with central bankers, presidents and prime ministers in “closed sessions” with virtually no coverage in the media.
These financial institutions are major owners of government debt, which gives them even greater leverage over the policies and priorities of governments. Exercising this power, they typically demand the same thing: austerity measures and “structural reforms” designed to advance a neoliberal market economy that ultimately benefits those same banks and corporations. The banks in turn create the very crises that require governments to bail them out, racking up large debts that banks turn into further crises, pressuring economic reforms in return for further loans. The cycle of crisis and control continues, and all the while, the big banks and financial institutions engage in criminal conspiracies, fraud, manipulation and money-laundering on a massive scale, including acting as the financial services arm of the world’s largest drug cartels and terrorists organizations.
Welcome to the world governed by the global financial Mafiocracy – because if you’re not concerned, you’re not paying attention.
Why Paris Reveals the Horror – and the Hypocrisies – of Global Terrorism
By: Andrew Gavin Marshall
23 November 2015
Originally posted at Occupy.com on 17 November 2015
The world was shocked and horrified at the terror inflicted upon Paris on the night of Friday the 13th, 2015, when ISIS-affiliated militants killed well over 100 civilians in one of the world’s most iconic cities. An outpouring of grief, solidarity, support and condolences came in from across the world. The tragedy, and tyranny, of such terror cannot be underestimated, but it should also be placed in its global context: namely, that the chief cause of terrorism is, in fact, terrorism, and that the chief victims are the innocent, wherever they may be.
While ISIS claimed responsibility for the attacks, following attacks the group undertook in previous days in both Beirut and Baghdad, it is worth remembering and reflecting on what led to the development of ISIS itself. The so-called Islamic State had its origins in the Iraq War, launched by the United States and closely supported by the United Kingdom in March of 2003. After overthrowing Saddam Hussein, a dictator once favored by the U.S., the occupying powers struggled to deal with a growing Sunni insurgency against their military occupation. In response, the U.S. helped create death squads in Iraq that further fueled a sectarian conflict between Shi’a and Sunni communities, which likewise fueled a growing regional rivalry between Shi’a Iran and Sunni Saudi Arabia.
The resulting civil war in Iraq killed hundreds of thousands, and the U.S. aligned itself even more tightly with Saudi Arabia, a country the West considers to be “moderate” in comparison to both Iran and Syria, yet it was the primary financier of al-Qaeda. The broader aim, in Iraq and across the Middle East, was to support the regional hegemony of the West’s allies – Saudi Arabia and other Gulf Arab dictatorships – against their chief rivals, Iran and Syria. If it meant supporting the countries that supported al-Qaeda and other terrorist groups, so be it.
After all, it has never been much of a secret that the Saudis and their Gulf neighbors were the major financial backers of global terrorists; even then-Secretary of State Hillary Clinton admitted as much in a memo leaked by Wikileaks. Nor was it a secret that Saudi Arabia was responsible for more destabilization and terrorism inside Iraq than Iran, which nonetheless received most of the blame.
The Saudis and the Gulf dictatorships are U.S. and Western allies, with immense oil riches that have made them some of the largest investors and shareholders in Western banks and corporations. Iran and Syria, on the other hand, are not.
Al-Qaeda did not exist inside Iraq until after the U.S. invasion and occupation. Over the years, since the war and occupation began, the group has undergone a number of name changes and transitions. One such evolution of the group is the al-Nusra front. And another is now known as the Islamic State, or ISIS.
Origins of the Current Terror
When the Arab uprisings began against Western-supported dictators back in late 2010 and early 2011, the U.S. and its key Middle East allies faced an unprecedented crisis. The longtime French and U.S.-supported dictator of Tunisia, Ben Ali, fled his country in January of 2011. The following month, it was Egypt’s dictator, Hosni Mubarak, a “family friend” of Hillary Clinton’s, who had to leave.
The Saudis and other Arab dictators were furious that the U.S. could toss one of its major regional clients aside, fearful that if Mubarak could be removed, any of them could be next. Thus, Saudi Arabia and other Arab dictators led a counter-revolution against the Arab Spring, pouring in money to support dictators they considered friendly (such as in Jordan), sending in troops to violently crush uprisings (such as in Bahrain), and arming rebel groups and terrorists against long-time foes in an effort to take advantage of the uprisings and undermine their rivals (such as in Libya).
In Libya, NATO led a war against long-time dictator Colonel Gaddafi in cooperation with many extremist rebel groups, including al-Qaeda. France and Britain were the main proponents of the war against Libya, which is hardly surprising given that both countries have hundreds of years of experience invading, occupying, colonizing and waging war against peoples of the Middle East and Africa. The war in Libya was of course a monumental disaster. While it removed a dictator long despised by both the Western powers and the Gulf Arab dictators, its ultimate effect was to plunge the country into civil war and chaos, terrorism and collapse.
Meanwhile, the weapons looted in Libya during the war began making their way into neighboring Mali and the more-distant Syria. As the arms crossed borders, so too did terror and warfare, and the French weren’t far behind. In early 2013, France launched airstrikes in Mali, leading to a ground invasion that ended in 2014. Around the same time, France also military intervened in the Central Africa Republic.
In 2013, Western powers including France, the UK and U.S. began increasing their participation in the Syrian civil war, which was already a full-blown regional proxy war pitting Syria’s government, led by Bashar al-Assad allied with Iraq and Iran, against Saudi Arabia, Qatar, the United Arab Emirates, Jordan and Turkey. The Gulf dictatorships armed and funded religious extremist sects to fight against the Syrian government, and were aided in this process by Western countries.
The U.S., France and Britain provided training and support to so-called “moderate” rebels inside Jordan to fight against the Syrian government. The CIA has been involved in arming and training Syrian rebels at least since 2012, in close cooperation with Turkey, Saudi Arabia and Qatar. The official line stressed that the CIA’s efforts aimed to prevent weapons from getting into the hands of extremist groups like al-Qaeda – yet virtually all of the rebel groups it was aiding inside Syria were hardline religious extremists.
Even as reports emerged that secular and moderate rebel groups had all but collapsed, the CIA continued to funnel more sophisticated weapons (in cooperation with Saudi allies) to these mythical “trustworthy” rebel groups. France was not far behind in delivering arms to Syrian rebel groups.
Around the same time, an internal CIA study noted that in its decades of experience arming insurgencies against regimes that the U.S. opposed, the agency’s efforts had largely failed. The main “exception” to the litany of failures, ironically, was when the CIA armed and trained the Mujahideen in Afghanistan against the Soviet Union. That “success,” as we now know, led directly to the creation of al-Qaeda and the Taliban.
A Plan Backfires
With all the support given to Syrian rebel groups in the form of training and arms, those same groups quickly became enemies of the West that had armed and trained them. This includes ISIS, whose rise was fueled by U.S. involvement in both Syria and Iraq, and who is funded and supported by key U.S. allies in the region such as Saudi Arabia, Qatar and Turkey.
In fact, a report prepared by the Defense Intelligence Agency in 2012 predicted the rise of ISIS, noting that such al-Qaeda-affiliated groups were the “major forces driving the insurgency in Syria,” and added that they were being supported in their efforts to take over large parts of Syria and Iraq by “western countries, the Gulf states and Turkey.” Further, the document noted, this was “exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.” A former Pentagon official who ran the DIA even suggested that the U.S. not only didn’t “turn a blind eye” to its support of such groups, but that “it was a willful decision.”
Here is the takeaway: the Syrian civil war, combined with the effects of the Iraq war, Libyan war and other conflicts in the region that were fueled by Western powers and their regional allies, has resulted in the massive refugee crisis Europe faces today, as millions of civilians flee the conflicts plaguing their nations while Western powers continue to pour weapons and money into them. Conflict and terror has bred further conflict and terror.
Yet when terrorism hits inside Western nations, like it did Friday in Paris, the reaction by Western governments is fairly, and tragically, typical. The Paris attacks occurred less than two months after France began launching air strikes against ISIS inside Syria, and have already prompted calls for a more aggressive strategy against ISIS in the future. So what can we expect as a result? Simply, more terror.
In short, if the objective is to oppose or prevent terrorism, the most logical strategy is not to dismantle civil liberties at home and send militaries and weapons abroad, but to stop participating in terrorism itself. This does not take away from the tragedy of the lives lost in Paris on Nov. 13, but the hypocrisy in how we acknowledge and address terrorism only enhances the tragedy. French President Francois Hollande called the attacks that killed 129 people an “act of war,” which it was. But in turn, he declared that “France will be merciless” in its response, and this is something we have yet to see.
If 200,000 dead Syrians, millions of refugees, and regional warfare spreading from state to state is considered “merciful” participation by Western nations in Middle East conflicts, the terror that might now be unleashed abroad – and the new terror that will, inevitably, once again wash ashore as a result – is indeed something to fear. To end terror, perhaps Western states should consider stopping its own participation in terror. In the very least, it would be a first step in the right direction.
After “Landmark” IMF Reforms, U.S. Is Still the Group’s Unrivaled Economic Power
By: Andrew Gavin Marshall
12 November 2015
Originally posted at Occupy.com on 5 November 2015
The International Monetary Fund is one of the three pillars of the global economic system, the other two being the World Bank and the World Trade Organization. And the importance of the IMF cannot be overstated, with its membership of 188 nations (a few less than the membership of the United Nations) and its responsibility to “aid” countries in economic crisis needing loans. The IMF applies strict conditions in return for its assistance, and as such, it has been one of the most influential institutions in the management, maintenance and evolution of the world economic order.
Due to its central role in global financial governance, the management and power structure within the Fund itself reflects the power of some of the IMF’s individual member nations in the wider global economy. The United States, as the largest and most powerful economy in the world, was not only the primary architect of the IMF but remains its largest single shareholder – the only nation with veto power over the Fund’s major decisions.
The IMF was founded in 1944 and officially launched in 1946 with a membership of just over two dozen nations. During the following years and decades its membership grew rapidly. The Fund’s governance structure includes a Managing Director and deputies who are supported by an Executive Board and a Board of Governors. The Board of Governors consists of the finance ministers or central bank governors of the IMF’s member nations, who meet twice a year at the Spring and Annual meetings of the Fund and World Bank, providing national political authority to the direction and decisions of the Fund.
The Executive Board, on the other hand, consists of 24 representatives, usually mid-level bureaucrats from their respective national finance ministries or central banks, who serve at the Fund overseeing its day-to-day operations in close cooperation with the Managing Director. While the Board of Governors reflects the entire membership of the IMF, power at the Fund is not the same as at the United Nations, where one nation gets one vote. Instead, the IMF has a constituency system whereby individual nations are part of larger groups that collectively elect a representative from among their ranks to serve on the Executive Board.
For example, one constituency on the IMF’s Executive Board consists of 23 different African nations who collectively hold 3.34% of the IMF’s voting shares. Most of that influence is controlled by just two nations in the constituency, South Africa and Nigeria. Another African constituency on the Executive Board consists of 23 nations with a collective voting power of 1.66%. This means virtually all of sub-Saharan Africa, representing some 46 nations, has approximately 5% of the voting power within the Fund.
On the other hand, there are nations that do not represent a larger constituency, yet their IMF quotas and voting shares are so great that they have a permanently appointed representative on the Executive Board. The top five shareholders today are the U.S. with 16.74%, Japan with 6.23%, Germany with 5.81%, and France and the United Kingdom with 4.29% each. China, Saudi Arabia and Russia have their own permanent seats on the Executive Board; Canada and Italy are also among the top 10 shareholders in the Fund.
In other words, the major shareholders are the Group of Seven (G-7) nations along with three major emerging market and strategically significant countries. But this was not always so.
Division of Power
In the early 1960s, the largest five shareholders with permanent seats on the Executive Board of the IMF were the U.S., United Kingdom, France, West Germany and India. By 1971, Japan had joined the list and moved above India. The so-called Group of Five (G-5) nations dispatched finance ministers and central bankers who held secret meetings several times a year to steer the global economy.
Quota and governance reforms took place over the years that followed, with countries increasing the amount of money they paid into the Fund and the amount of votes they held over IMF decisions. But the top five largely remained the same. By 1983, Saudi Arabia was added as a sixth member of the group with an appointed director. This composition was maintained into the 1990s, though the pecking order changed (by 1999 Japan had risen to second place, with Germany third and France and the U.K. tied at fourth and fifth).
Not until 2010 did the Group of Twenty (G-20) finance ministers and central bank governors agree to reforms in the quotas and voting shares of the IMF, seeking to increase the participation and ownership of major emerging market economies. The aim was to maintain the legitimacy of the IMF in an era when roughly half the world’s GDP growth was coming from emerging and developing nations. Yet the representation and power of those nations in international institutions remained largely locked in the era of the 1970s. The 2010 reforms, while agreed upon, have still not been implemented due to U.S. Congress’s refusal to ratify them. Virtually every other IMF member nation has ratified and agreed to the reforms, and even the U.S. administration has pushed for the reforms, but Congress remains reluctant due to fears of a perceived loss of U.S. influence over the Fund.
The reality is that the changes in governance of the IMF keep the U.S. as the largest shareholder and still the only one with veto power, though it increases the ownership of emerging market economies, in particular those represented in the membership of the G-20. According to the data of quotas and shares, here is a list of the top 35 shareholders of the IMF, both before and after the 2010 reforms:
In the pre-2010 phase, which still exists at present, the top 10 shareholders are all of the G-7 nations plus China (at 6th place), Saudi Arabia (8th) and Russia (10th). After the reforms are implemented, the U.S. stays at number one, Japan stays in 2nd place, but China moves up to 3rd place followed by Germany, the U.K., France and Italy. Then comes India, Russia and Brazil, with Canada kicked off the top 10 list at number 11. Saudi Arabia has also been kicked off the top 10, following Canada at number 12.
When the G-20 reached agreement in 2010 on the IMF reforms, it was hailed as a “landmark” deal to give developing countries more power and say in the operations of the Fund, with then-Managing Director Dominique Strauss-Kahn calling it “a very historic agreement.” British Chancellor of the Exchequer George Osborne said at the time of the initial agreement, “We have pulled off major reform of the IMF so it properly represents the balance of economic power in the world.”
The reality, however, is that while China, India and Brazil made significant gains due to the reforms, the overall distribution of power within the Fund remains relatively unchanged. Prior to the reforms, the G-7 nations (U.S., Germany, Japan, U.K., France, Italy and Canada) collectively held 43% of the IMF’s voting shares. After the reforms, the G-7 nations will hold approximately 41% of the voting shares of the IMF. Overall, the G-20 nations (which include the G-7, plus Australia and 11 major emerging market economies) collectively account for 63% of voting shares prior to the reforms, and nearly 65% after the reforms.
Even with these relatively minor changes, the U.S. Congress has failed to pass the reforms, leading the IMF and G-20 nations to seek other “interim solutions” and ad-hoc arrangements until America ratifies the changes. But the hesitation of the U.S. has already had major repercussions, as China founded its own international economic institution, the Asian Infrastructure Investment Bank (AIIB), threatening U.S. dominance of such international organizations.
Former U.S. Treasury Secretary Lawrence Summers wrote an op-ed in which he said the U.S. failure to ratify the IMF changes cleared the way “for China to establish the Asian Infrastructure Investment Bank.” Summers wrote that “with China’s economic size rivalling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment.”
As history has shown, international institutions are slow to adapt to changes in the global economy, and even slower to adapt to changes in their governance structures. While the U.S. is concerned about maintaining its place at the center of global economic governance, through its inaction and inability to adapt quickly or with substance, it puts its own position at threat and creates the impetus for other nations to create alternatives.
The U.S. has stood at the center of the world’s financial system for roughly 70 years, but there is no reason to assume it will remain there. In an age-old example of national hubris, America’s drive to maintain its centrality – and uncontested power – in the global economy may lead to its eventual replacement.
When the IMF Meets: Here’s What Happened At the Global Plutocracy’s Pow Wow in Peru
By: Andrew Gavin Marshall
26 October 2015
Originally posted at Occupy.com
On October 6, the finance ministers, central bankers and development ministers from 188 countries convened for the Annual Meeting of the World Bank and International Monetary Fund in Lima, Peru. The yearly gathering is one of the top scheduled events on the calendar of economic diplomats, bringing them together for private discussions, seminars and press conferences with journalists. And of course it’s a big deal for the thousands of private bankers and financiers who are there to cut deals with the chief financial policymakers in those 188 IMF-member nations.
It was ironic that this year’s meeting took place in Peru at a time when emerging market economies are experiencing increased economic problems: the result of a combined slow-down in economic growth in China, a collapse in commodity prices, and threats by the U.S. Federal Reserve to hike interest rates in the near future. Indeed, talk of China, interest rate hikes and emerging market crisis was plentiful in Peru. Central bankers, unsurprisingly, came out generally in favor of raising rates, with top monetary officials from emerging markets saying they more feared the uncertainty about when rates would rise than the rise itself, and urged the Fed to simply get on with it.
Global Pow Wow
The annual meetings bring together the Board of Governors of the IMF, made up of the central bankers or finance ministers from the Fund’s 188 member nations. But the Governors are given their marching orders from the 24-member International Monetary and Financial Committee (IMFC), made up of ministers and central bank governors from the 24 major constituencies represented on the IMF’s Executive Board, and whose membership largely reflects that of the Group of Twenty (G20).
The IMFC held their meeting in Lima on Oct. 9, presided over by the committee’s chairman, Agustin Carstens, the Governor of the Central Bank of Mexico, and the IMF Managing Director Christine Lagarde. In attendance were the finance ministers of Japan (Taro Aso), India (Arun Jaitley), Argentina (Axel Kicillof), Brazil (Joaquim Levy), France (Michel Sapin), Italy (Pier Carlo Padoan), Germany (Wolfgang Schauble), Singapore (Tharman Shanmugaratnam), Great Britain (George Osborne) and the United States (Jack Lew), along with top-level central bankers from Saudi Arabia, Nigeria, Norway, Algeria, Colombia, Belgium and China.
Also participating in the IMFC meeting were Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB); Jaime Caruana, General Manager of the Bank for International Settlements (BIS); Valdis Dombrovskis, Vice President of the European Commission; Angel Gurria, Secretary-General of the Organization for Economic Cooperation and Development; Mario Draghi, President of the European Central Bank (ECB), and other top representatives from OPEC, the World Bank and the World Trade Organization (WTO).
These various financial diplomats met and made prepared statements, but the real work and decision-making took place in the IMFC’s off-the-record discussions. These discussions also included, as usual, a joint meeting between the IMFC and the G20, after which the G20 held a press conference discussing recent agreements made by the world’s top economic diplomats collectively representing roughly 85% of global GDP.
The meetings followed the consistent hierarchy of operations among the world’s most powerful economies, starting with a private gathering of the finance ministers and central bankers from the Group of Seven (G7) nations, including the U.S., Germany, Japan, UK, France, Italy and Canada. This was followed by a gathering of ministers and monetary chiefs from the G20 nations (consisting of the G7 plus China, Brazil, Russia, India, South Africa, Argentina, Australia, Turkey, Saudi Arabia, Mexico, South Korea, Indonesia and the European Union). The heads of the world’s major international organizations also attended these meetings, functioning effectively as a steering committee for the global economy. The G20 then held a joint session with the IMFC, which functions as the steering committee of the IMF.
The IMFC’s communiqué following its meeting warned that global economic growth was “modest and uneven” with increased “uncertainty and financial market volatility.” Risks to the global economy “have increased,” it noted, in particular for emerging markets.
Apart from the IMFC and G20, a number of other important meetings took place on the sidelines of the annual gathering, many of which prominently featured bankers. One of the most important gatherings of global financiers was the Annual Membership Meeting of the Institute of International Finance (IIF), a consortium of roughly 500 global financial institutions including banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks, credit ratings agencies and development banks.
From Oct. 9-10, the world’s top bankers and financiers then held luncheons and private meetings with the world’s top economic policy-makers, who were also invited to attend or speak at the conference proceedings. The IIF’s opening ceremony was addressed by Peru’s President Ollanta Humala Tasso, and included guest speakers like the finance minister of Indonesia and central bankers from Thailand and Malaysia, as well as the top Swedish central banker, Stefan Ingves, who serves as chairman of the Basel Committee on Banking Supervision (BCBS) which is responsible for shaping and implementing global banking regulations known as Basel III.
On the second day of the IIF’s meeting, guest speakers included top officials from Brazil’s finance ministry, the World Bank, and a keynote address was delivered by the governor of Canada’s central bank, Stephen S. Poloz. The rest of the day included talks by finance ministers and central bankers from Colombia, Chile and Peru; a top official from the central bank of France; and an official from the Financial Stability Board (FSB), which is a group of global central banks, finance ministries and regulators responsible for managing stability of financial markets.
Another important gathering in Lima was the Group of Thirty (G30), presided over by its Chairman Jean-Claude Trichet, the former President of the European Central Bank. The G30 was established in 1978 as a nonprofit group of roughly 30 sitting and former central bankers, finance ministers, economists and private bankers, with the aim “to deepen understanding of international economic and financial issues” and “to examine the choices available to market practitioners and policymakers.”
Among the G30’s current members are former Federal Reserve Chair Paul Volcker; Mark Carney of the Bank of England and Financial Stability Board; Jaime Caruana of the BIS; Mario Draghi of the ECB; William C. Dudley of the Federal Reserve Bank of New York; former U.S. Treasury Secretary Timothy Geithner; former Bank of England Governor Mervyn King; economist Paul Krugman; Bank of Japan Governor Haruhiko Kuroda; Bank of France Governor and BIS Chairman Christian Noyer; Reserve Bank of India Governor Raghuram Rajan; Tharman Shanmugaratnam of Singapore; former U.S. Treasury Secretary Lawrence Summers; Chinese central banker Zhou Xiaochuan; and top bankers from UBS, JPMorgan Chase, BlackRock and Goldman Sachs.
This year, the G30 held its annual International Banking Seminar in Peru, “an invitation-only, off-the-record forum that allows for frank discussion and debate of the thorniest issues confronting the central banking community,” bringing together “over fifty percent of the world’s central bank governors, the Chairmen and CEOs of the financial sector, and a select few academics to debate financial and systemic issues of global import.”
The meeting included a short speech by Federal Reserve Vice Chairman Stanley Fischer, who told the audience that the Fed’s interest rate rise was “an expectation, not a commitment.” Fischer acknowledged that “shifting expectations concerning U.S. interest rates could lead to more volatility in financial markets and the value of the dollar, intensifying spillovers to other economies, including emerging market economies.” He reassured his audience, however, that the Fed will “remain committed to communicating our intentions as clearly as possible… to assist market participants, be they in the private or the public sector, in understanding our intentions as they make their investment decisions.”
Behind Closed Doors
But the true importance of the annual IMF meetings is not what happens in formal proceedings and seminars, but the various secret meetings of finance ministers, central bankers and private financiers that take place on the sidelines of the official conference. In these closed-door events, a select group of government and monetary officials, primarily those from the G7 and G20 nations, were invited to wine and dine with bankers at decadent dinners and lavish parties, and speak to private gatherings of the world’s top investors and money managers. It’s here, in these various meetings, where the world’s chief financial diplomats were able to meet, greet and receive praise or criticism from their true constituents: the global financial elite.
As usual, the annual pow wow of the global plutocracy came and went with little comment outside the financial press. But as always, the annual IMF meetings – and the more secretive, simultaneous gatherings of global economic diplomats and financiers on the sidelines – represented the core of global economic governance, manifest in the various ad-hoc committees that in essence rule the world.
These individuals’ main interactions were not with the populations in their home nations – the people who suffer under austerity, who have to “adjust” to the restructuring of their societies into “market economies” – but rather with those from whom they have the most to gain: bankers, billionaires and financiers. And rest assured, when the officials retire from their central bank and finance ministry positions, they will be stepping out of their membership in the G7, G20 and IMFC, and into the boardrooms of JPMorgan Chase, Goldman Sachs, BlackRock, Barclays and Deutsche Bank. They will be well rewarded, with large salaries and bonuses for a job well done while in public office. And the revolving door of global economic governance will keep turning.
A Year in the World-Traveling Life of U.S. Treasury Secretary Jack Lew
By: Andrew Gavin Marshall
Originally posted at Occupy.com
15 October 2015
Jacob Joseph (“Jack”) Lew is one of the two most powerful financial diplomats in the world, the other being his central banking counterpart, Janet Yellen, the Chair of the Federal Reserve Board. As the U.S. Secretary of the Treasury, Lew has been the most important economic official inside the Obama administration since his confirmation in February 2013 following the president’s re-election.
Prior to serving as Treasury Secretary, Lew was White House Chief of Staff to President Obama from 2012 to 2013, and Director of the Office of Management and Budget from 2010 to 2012, a position he also held in the Clinton administration from 1998 until 2011. Lew was also Deputy Secretary of State under Hillary Clinton from 2009 to 2010. But from 2006 to 2008, he worked at Citigroup, overseeing the bank’s $1.8 billion in wealth management assets, and was then appointed as one of Citi’s senior executives.
Lew’s appointment to Citigroup was made on the recommendation of the bank’s then-Chairman Robert Rubin, the former Treasury Secretary from the Clinton administration (1995-1999), with whom Lew worked closely. When Lew left the bank to join the Obama administration immediately following the 2008 financial crisis and the billions in bailouts his bank received, Lew got a bonus of almost $1 million from Citigroup on top of his more than $2 million in regular earnings from the bank.
Tracking Lew’s Movements
In examining the role played by the Treasury Secretary to shape U.S. and global economy policy, it’s revealing to look at his schedule over the course of a year. After reviewing Secretary Lew’s schedule of phone calls and meetings in 2014, it’s easier to understand what it means to be one of the world’s most powerful financial diplomats. More than any other high-level official, Lew was in consistent contact with Yellen, having held over 30 phone calls or meetings with the Federal Reserve Chairperson over the course of the year, which included regular lunch or breakfast meetings.
As the two top diplomats and managers of the American economy and the U.S. dollar, it makes sense for these two individuals to meet frequently, both to assess the economic outlook and to devise a common U.S. position at international meetings – like the bi-annual meetings of the IMF steering committee known as the International Monetary and Financial Committee (IMFC), as well as the secretive meetings of finance ministers and central bankers of the Group of Seven (G7) and Group of Twenty (G20) nations.
Officially founded in 1976, the G7 sits at the center of global economic governance, meeting at the head of state level once a year, and holding multiple meetings and conference calls among the finance ministers and central bank governors of nations that comprise its membership: the U.S., Germany, Japan, France, UK, Italy and Canada. The G20, on the other hand, was founded as a meeting of finance ministers and central bank governors in 1999, and only started meeting at the head of state level in late 2008 in the midst of the global financial crisis.
Jack Lew was in frequent contact with his G7 peers, including all of the finance ministers and most of the central bankers. In addition to the gatherings of the G7 and G20, Lew spoke or met with German Finance Minister Wolfgang Schauble roughly 20 times throughout 2014. In the same period he met or spoke with the British Chancellor of the Exchequer, George Osborne, roughly 16 times; with European Central Bank (ECB) President Mario Draghi some 15 times; and with Japanese Finance Minister Taro Aso 14 times.
Secretary Lew also had extensive contact with French Finance Minister Michel Sapin and his predecessor Pierre Moscovici, who became European Commissioner for Economic and Monetary Affairs; Italian Finance Minister Pier Carlo Padoan; Canadian Finance Minister Joe Oliver; and Mark Carney, the Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), an institution that brings together central bankers, finance ministers and regulators to oversee the global management of financial markets. Lew spoke or met with Carney some 12 times throughout the year.
But apart from Yellen, the high-level official with whom Lew had the most contact was Christine Lagarde, the Managing Director of the IMF and a former French Finance Minister; Lew met or spoke to Lagarde roughly 23 times in 2014, including at the meetings of the G7 and G20, which the IMF Managing Director typically attends.
The G20 has a much wider membership than the G7, though it includes all of the G7 nations in addition to Australia, the European Union, and major emerging market economies such as China, India, Brazil, Russia, Mexico, Turkey, South Africa, Saudi Arabia, Argentina, Indonesia and South Korea. The heads of major international organizations like the IMF, World Bank, Bank for International Settlements (BIS), World Trade Organization (WTO), and the Organization for Economic Cooperation and Development (OECD) also typically attend the meetings of the G7 and G20.
Following Yellen, Lagarde and Schauble, Secretary Lew was most frequently in contact with Australian Treasurer Joe Hockey, with whom he met or spoke roughly 17 times throughout the year. While Australia is not even a member of the G7, it would typically seem odd to have such extensive communication between its Treasurer and the U.S. Treasury Secretary. But Australia was hosting the G20 meetings in 2014, and thus Hockey closely coordinated with Lew on meetings that involved financial officials convening four times during the year.
Another name that stands out is Tharman Shanmugaratnam, the Singaporean Finance Minister who held nine separate calls and meetings with Lew, and 13 including those of the G20. Shanmugaratnam became Finance Minister of Singapore, a wealthy Asian city-state, in 2007, and has also held the dual role as head of the Monetary Authority of Singapore (MAS), the country’s central bank. In addition, Tharman serves on the board of directors of Singapore’s large sovereign wealth fund, GIC, which manages between $100 and $350 billion in assets, including significant stakes in Citigroup and UBS, Switzerland’s largest bank.
The likely reason why Lew had such frequent contact with Shanmugaratnam – the chief financial diplomat of a country that is neither a member of the G7 nor the G20 – is because in March of 2011, Shanmugaratnam was appointed Chairman of the IMF’s steering group, the International Monetary and Financial Committee (IMFC), made up of finance ministers and central bank governors from the nations represented on the Fund’s Executive Board.
Lew attended the World Economic Forum in Davos, Switzerland, in January of 2014, where he held private bilateral meetings with Mark Carney of the Bank of England (and FSB), Saudi finance minister and central bank governor Ibrahim Al-Assaf, ECB President Mario Draghi, and Mexican Finance Minister Luis Videgaray, who was another emerging market diplomat with whom Lew had frequent contact throughout the year (eight separate phone calls and meetings, or 12 including those at the G20).
In February, Lew traveled to Australia for the first G20 meeting of finance ministers and central bank governors under the chairmanship of Australian Treasurer Joe Hockey. Lew moderated a session of a conference hosted by the Institute of International Finance (IIF) and held private meetings with German Finance Minister Schauble, Turkish Deputy Prime Minister and top financial diplomat Ali Babacan, and Japanese Finance Minister Taro Aso. And just before the official G20 meetings began, the G7 countries got together for a quiet one-hour meeting as well.
As the Spring Meetings of the IMF were starting in April, Jack Lew held private meetings with Russian Finance Minister Anton Siluanov, Videgaray of Mexico, Draghi of the ECB, Saudi Finance Minister Al-Assaf, and Brazilian Finance Minister Guido Mantega. Once again, Lew attended a private one-hour gathering of the G7 ministers before attending a wider G20 meeting of ministers and central bank governors on April 10. The following day, Lew attended the joint G20-IMFC meeting, and continued with G20 meetings for the rest of the day.
In September, Lew once again traveled to Australia for a special meeting of G20 financial diplomats, during which time Germany served as host for a private lunch meeting of the G7 finance ministers and central bank governors. He returned to Australia in November for the main head-of-state summit of the G20, where he privately met with his counterparts from Saudi Arabia, China, France, Japan, and with Mark Carney of the FSB.
As the chief financial diplomat from the most powerful nation and economy in the world, Jacob Lew is the central figure among G7 diplomats with whom he is in frequent contact, while closely coordinating with the chairs of the G20, the IMFC, and the heads of international organizations like the IMF and FSB. Through these and other groupings, Treasury Secretary Lew sits at what can only be understood as the absolute center of global financial diplomacy and governance.
Meet the Secretive Committees that Run the Global Economy
By: Andrew Gavin Marshall
8 October 2015
Originally published at Occupy.com
There exists an overlapping and highly integrated network of institutions, committees and secret meetings of ad-hoc groups that collectively run the global economy. This network consists of finance ministries, central banks, international organizations and the various conferences and confabs that bring them together. This network is responsible for facilitating global financial diplomacy and managing the architecture of global financial governance. In short: it is the most powerful and informal political structure in the world.
With the United States at the center of the system, the Treasury Department and Federal Reserve Bank are the two most important American institutions in global financial governance – and the Treasury Secretary and Federal Reserve Chairperson are the world’s two most powerful financial diplomats. Both institutions are headquartered in Washington, D.C., just down the street from the headquarters of the International Monetary Fund (IMF) and World Bank Group, two global financial bodies created in 1944 to manage the world economy on behalf of the rich Western nations that founded them.
Twice a year, the IMF and the World Bank host large international conferences. The Spring Membership Meeting, typically held in April, and the Annual membership meeting draw a crowd consisting of most of the finance ministers and central bank governors from the IMF’s 188 member nations, representing the Fund’s Governing Board. They descend on D.C. where the meetings are typically held (though occasionally they are hosted in other countries as well), and draw scores of journalists, academics and thousands of bankers and financiers who are eager to meet, greet, wine, dine and make deals with the political decision-makers of the global economy.
The top five shareholders of the IMF (United States, Japan, Germany, France and U.K.) reflect the membership of an ad-hoc group of finance ministers that began meeting in 1973, thereafter known as the Group of Five (G-5). At the time, U.S. Treasury Secretary George Shultz described the group as “a channel for informal and very frank communication on monetary and other issues, both of a long-term and more immediate character.” But the G-5 was hardly the first of such groups.
In 1962, the Group of Ten (G-10) was formed as a meeting of finance ministers and central bank governors from the rich industrial nations, including the U.S., West Germany, Japan, France, U.K., Italy, Canada, Belgium, Sweden, Netherlands (and eventually Switzerland, although the name remained the same). The G-10 would meet alongside the leaders of the IMF, the Organization for Economic Cooperation and Development (OECD) and the Bank for International Settlements (BIS).
Following the U.S. unilateral decision to end the Bretton Woods monetary system in 1971, a series of committees and groups were established to provide forums for major economies of the world to negotiate forming a new monetary system, and to integrate developing economies into the institutional apparatus of global financial governance. The Group of Ten was utilized as one such forum.
In 1972, the G-10 laid the groundwork for the establishment of a special Committee of 20 to be formed within the IMF, whose membership reflected the composition of the IMF Executive Board, but at the ministerial level – giving it a much higher level of political authority than the board, which is composed of mid-level officials from their respective national finance ministries. The committee would include most G-10 members alongside several developing country representatives, and was formally institutionalized in late 1974 as the “Interim Committee” of the IMF.
(Although the Group of Five was formed in 1973, it wasn’t until 1975 that it held the first meeting at the head of state level, with the addition of Italy to the group. The following year, Canada was invited to participate, and thereafter it was known as the Group of Seven (G-7), effectively functioning as the steering committee for the global economy.)
Fast forward to the mid-1990s, when the G-7 nations instructed the Group of Ten to consult with emerging market economies on ways to reform the global financial architecture in cooperation with major international organizations like the IMF, World Bank, OECD, and BIS, which were increasingly opening their membership and ownership positions to large emerging market economies.
The idea was thus: If developed countries give developing countries a stake in the existing system, they won’t use their new-found wealth and power to oppose that system. And all the while, the West was to remain at the center. Through crisis and collapse and “rescue” efforts led by the IMF, BIS and World Bank, developing and emerging market economies were encouraged to accept Western economic “advice” on how to manage their economies. If they wanted bailouts in the form of loans from international institutions, those countries had to follow conditions that demanded a total restructuring of their economies and societies along G-7 lines – designed to transform them into modern “market economies” capable of integrating into the larger global economy.
The groundwork was laid out over the following years, and in the course of 1999, the IMF’s Interim Committee was reformed into the International Monetary and Financial Committee (IMFC). The G-10 organized several seminars involving major emerging market economies and, together with the G-7, formed a new group known as the Financial Stability Forum (FSF), a meeting group of central bankers, finance ministers and regulators who were handed responsibility for maintaining financial stability in the world. Finally, 1999 also saw the organizing efforts of the G-7 result in the formation of yet another forum, the Group of Twenty (G-20).
The G-20 was born in December of 1999 at a meeting of finance ministers and central bank governors from the G-7 nations, along with Russia, China, India, Brazil, Indonesia, Korea, Australia, Mexico, Saudi Arabia, South Africa, Turkey, Argentina and the European Union. The event was attended by top officials from the IMF, World Bank and the European Central Bank. But despite all the international noise, the G20 was largely the initiative of two men: Canadian Finance Minister Paul Martin and U.S. Treasury Secretary Lawrence Summers.
The G-7, or G-8 once Russia was invited in, remained the main forum for global economic leadership. But in the midst of the global financial crisis in 2008, the G-20 was the group convened by U.S. President George W. Bush, who brought together heads of state for the first meeting that took place in Washington on November 15. That meeting produced an agreement among G-20 nations to pump trillions of dollars into their economies in order to bail out their banking systems.
In 2010, then-President of the European Central Bank, Jean-Claude Trichet, explained at a meeting of the Institute of International Finance (IIF) that the G-20 had emerged “as the prime group for global economic governance.”
Speaking to a crowd of hundreds of the world’s most powerful bankers and financiers, Trichet explained, “Global economic governance embraces supranational institutions – such as the IMF – as well as informal groupings – such as the G-7 and the G-20. Both are necessary, and both are complementary.” Trichet praised the evolving system as “moving decisively towards a much more inclusive system of global governance, encompassing key emerging economies as well as the industrialized countries.”
To this day, the hierarchy of global economic governance follows a familiar pattern. Take the IMF’s meetings, where 188 of the world’s finance ministers and central bankers meet. The International Monetary and Financial Committee (IMFC) holds a meeting, functioning as the steering committee to the Fund. And prior to IMFC meetings, the G-20 finance ministers and central bank governors hold a series of meetings, including a joint meeting with the IMFC, as they already have a significant crossover of membership.
But before the G-20 meets, the ministers and governors of the G-7 nations typically meet privately for an hour or so, attempting to form a common position or strategy in dealing with the wider groupings of the G-20 and IMFC, in which all G-7 nations are represented at the ministerial level. The chiefs of the world’s major international organizations (IMF, World Bank, OECD, WTO, BIS) participate in almost all of these meetings, acting as advisers to and receiving high-level political direction from these groups.
The hierarchy of global economic governance emanates out of the United States, in close cooperation with Germany, Japan and the other members of the Group of Seven. From there, it networks through the Group of Twenty and the IMFC, which in turn collectively function as the steering committee for the world’s major international organizations, and act as the board of directors of the global economy.
Who Rules Europe?
By: Andrew Gavin Marshall
22 July 2015
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