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Meet the “Emerging Market” Superstars of Global Economic Governance, Part II

Meet the “Emerging Market” Superstars of Global Economic Governance, Part II

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By: Andrew Gavin Marshall

2 February 2016

Originally posted at Occupy.com on 19 January 2016 and at the Transnational Institute on 21 January 2016

This is the second of a two-part article that was co-produced and co-published with the Transnational Institute, timed to coincide with the World Economic Forum starting this week in Davos, Switzerland. The first installment of the article appeared on 18 January.

Monetary Orthodoxy and its Political Repercussions

Central bankers are notoriously conservative and orthodox in their ideological positions. In the world of economics, this puts them in the position of being the political guardians of the global neoliberal order. In terms of policies, this translates into being strong promoters of low inflation, often requiring them to raise interest rates; supporters of liberalization (or deregulation) of markets, particularly financial and debt markets; implementing austerity measures (cutting social spending), and undertaking various structural reforms (such as the deregulation of labour markets and privatization of state assets) designed to further transform their respective societies into modern market economies.

While central bankers themselves are confined to the strict mandates of their institutions, often focused around what’s called maintaining “price stability” (keeping inflation at a low and stable level, generally between 2-5% depending on the country), they are still able to greatly influence the broader set of economic policies and priorities, and through their control over monetary policy they have the capacity to inflate or shrink an economy, giving them immense leverage over other policy-makers.

One of the most important characteristics of modern central banks is their so-called “independence,” referring to the degree to which the central bank and its governor are accountable to political authorities. If a central bank is “independent,” this means it has the power to act independently of elected (or otherwise established) political authorities so long as it is operating within its mandate and using the various policy options and instruments available to it (such as raising or lowering interest rates). Some of the most powerful central banks in the world, such as the U.S. Federal Reserve, the European Central Bank (ECB) and the Bank of England, are examples of independent central banks led by unelected technocrats who are unaccountable to elected officials and the democratic process.

Thus, in the world of central banking, the prevailing orthodoxy revolves around the twin concepts of operational independence and a mandate focusing on price stability. The combination of these factors gives central bankers immense political power, for their economic decisions have profound social and political consequences, capable of causing recessions or depressions, creating mass unemployment, collapsing governments, bailing out banks and financial institutions (and handing the bill to the public), and transforming the very structure of society itself.

This political power is most frequently used to the benefit of the national and international private financial community (banks, insurance companies, asset managers, etc.) as opposed to the wider public community or nation. A mandate of “price stability” (low inflation), for example, is beneficial to creditors because it increases the amounts they are owed and protects the value of their savings. Higher inflation, on the other hand, can reduce the value of their savings and make it easier for debtors to pay off debts. There are of course exceptions and nuances to this general scenario. For example, hyperinflation is bad for everyone, and low to moderate inflation may be good for debtors so long as their wages are adjusted to inflation (which allows them to be paid more in dollar amounts for the same amount of work, and thus, helps to pay off debts faster).

Raghuram Rajan acknowledged the political nature of central banking during a speech at the annual congregation of global central bankers in Jackson Hole, Wyoming, in late August of 2015. While the work and focus of central bankers is largely “technical,” explained Rajan, both history and “the current political environment” have an immense influence on monetary policy and its technical components. Rajan noted that central bankers think of and promote themselves as “apolitical,” but the “background influence of political economy” is always present, “sometimes without recognizing it.”

The problem for central bankers, he suggested, was their communication of political issues, because once central bankers do so, they become engaged in “the political dialogue,” which they are supposed to avoid, “because you’re a technocrat whose supposed view is apolitical.” An unelected technocrat at a central bank is capable of “making decisions that infringe on the prerogative of elected officials,” he said, but such “decisions may mean political trade-offs,” or deals to be made with politicians. When it comes to making policy, he said, “nothing can really be clean.”

This is something that Governor Rajan knows very well. In January of 2015, he made a private deal with the elected government of Prime Minister Narendra Modi in which he agreed to cut interest rates, giving a boost to economic growth in return for the government agreeing to implement a host of austerity measures and “structural reforms” designed to further develop India’s “power, land, minerals and infrastructure.” But by early February, Rajan indicated that “the war on inflation” was far from won in India, and refused to cut rates further.

This was viewed as “a message” by the central banker to the government to include austerity measures and other reforms if the government expected any further monetary support. The government acquiesced to the Governor’s demands, and the budget submitted by the Finance Minister included a “panopoly” of austerity measures and other reforms. Private bankers and investors expressed their delight at the new budget.

A couple days after the budget was announced, another important announcement was made for Rajan, as he was granted special new powers with the central bank being given an “inflation target” (putting “price stability” into the mandate). This effectively gave Rajan and the Reserve Bank of India (RBI) greater independence from political authorities. The day after he was granted these new powers, Rajan cut interest rates in line with his previous deal with the government in return for the budget items he demanded, and possibly in a quid-pro-quo for granting him new independent powers. During 2015, there continued to be tussles between the RBI and the government about the independence of the Bank, but it seems likely that Rajan will emerge victorious.

Governor Carstens of Mexico also had his own struggles throughout the year, dealing with the repercussions of potential higher interest rates in the United States. However despite the Mexican economy slowing down, but Governor Carstens refused to cut interest rates any further, not wanting to “let inflation and the peso go adrift.” The main guideline of the central bank, he said, “should be inflation expectations,” adding that he would even consider raising rates if need be, possibly even before the U.S. Federal Reserve raised its own rates. “We will act,” he said in an interview with the Wall Street Journal. Carstens endorsed the austerity package introduced by the Mexican Finance Minister Luid Videgaray, but warned that, “What’s important here is that the Finance Ministry sticks to its promises.”

In late July, Governor Carstens enjoyed a notable victory in the world of central bankers: inflation in Mexico hit its lowest level since 1970, and at 2.76%, it was below the 3% target set by the central bank. As the Wall Street Journal opined, this achievement “polishes Mexico’s credentials as the most economically orthodox country in Latin America, and one where inflation-control policies are sacrosanct.” Carstens referred to it as “an important milestone for Mexico.”

In September, Mexican Finance Minister Luis Videgaray announced that President Pena Nieto would nominate Carstens for a second six-year term at the head of the country’s central bank, which was “likely to give confidence to financial markets.” And despite the inevitable negative consequences of higher U.S. interest rates on emerging market economies, both Governors even came out in support of the Federal Reserve raising rates. Carstens said such a move would be reflective of a stronger U.S. economy which would be “very good news.” Rajan, on the other hand, said, “It’s preferable to have a move early on and an advertised, slow move up rather than the Fed be forced to tighten more significantly down the line.”

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Emerging Markets – An Expanding Global Elite

Rajan and Carstens are also a reflection of one of the most important economic stories in the past several decades, which has been the rise of what we call the “emerging market” economies, countries like China, India, Brazil, Russia, South Africa, Mexico, Turkey and Indonesia, among others. In the 25 years prior to the global financial crisis, the Group of Seven (G-7) countries (United States, Germany, Japan, United Kingdom, France, Italy and Canada) accounted for roughly half of global GDP, but their share has declined relative to the growth of emerging markets. In 1990, emerging economies accounted for less than a third of global growth, but by 2013, they accounted for roughly half, in what The Economist called “the biggest economic transformation in modern history.”

Emerging markets have not risen in economic size and strength in opposition to the economic system defined and governed by the G-7 nations, but rather through their integration into that economic order and acceptance of the economic orthodoxy propagated by the developed economies. With their rise, they are demanding greater international political power to match their increased international economic weight.

Despite unity on economic policy, this shift has not been a smooth process or without resistance, given the reluctance of the United States and G-7 nations to give space for emerging nations to articulate alternatives particularly on issues of foreign policy where there is more divergence of views. In managing this process, the G-7 nations have granted special status to a small group of emerging economies and to the top financial diplomats that represent them in international circles. In particular, China, India, Brazil and Mexico are the most favoured emerging economies, the most integrated into the structures of global economic governance, and whose top diplomats (in particular, central bankers) are the most respected and represented in global financial circles.

The Emerging Consensus

These two governors of the global economy, perhaps the two most respected central bankers from emerging market economies, represent the changing faces of global economic governance, but also represent the fact that for emerging markets to get real power, they must first give up any alternative economic ideology or vision. Both Carstens and Rajan attended prestigious American universities, worked in high level positions at the IMF and in their respective finance ministries before ascending to the throne of monetary managers for Latin America’s second largest – and Asia’s third largest – economy.

Integration into the existing power structures of global economic governance requires first and foremost, ideological capitulation: to accept the market system as the ideal form of the global economic order. They may push for reforms and alterations, but the substance remains largely the same: the market remains supreme and sovereign. Carstens and Rajan may be global economic governors of a different variety than the world is accustomed to, but they are firmly entrenched within the existing apparatus and ideology of global economic governance. Keep your eyes on these two, they’re going places, and taking their respective countries – and the global economy – with them.

Highlights from Carsten and Rajan’s calendar in 2015 

The following is a list of some of the most important meetings and gatherings of international financial diplomats and technocrats attended by one or both of governors Carstens and Rajan over the course of 2015.

Jan. 11-12: Bi-Monthly meeting of the Bank for International Settlements (BIS), Basel, Switzerland

Jan. 21-24: World Economic Forum (WEF) Annual Meeting, Davos, Switzerland

Feb. 8-10: Institute of International Finance (IIF) G20 Conference, Istanbul, Turkey

March 9: Bi-Monthly Meeting of the BIS, Basel, Switzerland

March 26: Financial Stability Board (FSB) Plenary Meeting, Frankfurt, Germany

April 16-19: World Bank and International Monetary Fund (IMF) Spring Meeting, Washington, D.C.

May 10-11: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland

June 11-13: 73rd Plenary Session, Group of Thirty (G-30), Hosted by the Central Bank of Brazil

July 7: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland

Aug. 27-29: Federal Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole, Wyoming, United States

Sept. 4-5: G20 Finance Ministers and Central Bank Governors Meeting, Ankara, Turkey

Sept. 25: Financial Stability Board (FSB) Meeting, London, U.K.

Oct. 8-11: World Bank and International Monetary Fund (IMF) Annual Meeting, Lima, Peru

Nov. 9: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland

Andrew Gavin Marshall is a freelance writer and researcher based in Toronto, Canada. 

Meet the “Emerging Market” Superstars of Global Economic Governance, Part I

Meet the “Emerging Market” Superstars of Global Economic Governance, Part I

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By: Andrew Gavin Marshall

25 January 2016

Originally posted at Occupy.com on 18 January 2016 and at the Transnational Institute on 21 January 2016

One is Mexican, described by the Financial Times for his “Wall Street-sized reputation for financial wizardry”; the other is Indian hailed by India’s Economic Times as “the Poster Boy of Banking” whose “chiselled features are as sharp as his brain.” Meet Agustin Carstens and Raghuram Rajan. As the world’s economic elite gathers this week to meet in Davos, they are a perfect example of what has been called the “Davos class” – what Samuel Huntingdon described as a class who “see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations.” U.S.-educated central bankers in two emerging market economies, their stories focused on their activities in one year, 2015, reveal how global power has both shifted and yet ultimately reinforced a global economic empire. Carstens entered the inner circle of financial elites, via his role as Mexico’s finance minister from 2006 to 2009, during which time he was responsible for managing the country’s response to the global financial crisis. In that capacity, Carstens turned to the IMF in April of 2009 for a $47 billion credit line to help Mexico weather the financial fallout from the crisis. During this time, he was appointed Chairman of the Joint Development Committee (JDC) of the World Bank, and after being appointed Governor of the Central Bank of Mexico in 2010, he became a member of the steering committee of the Financial Stability Board (FSB), set up to help coordinate response to the financial crisis, and was also appointed to the board of directors of the Bank for International Settlements (BIS) in Basel, Switzerland, which coordinates between 60 major central banks around the world. This impressive career resumé led to him being considered in 2011 as a contender for the top spot at the International Monetary Fund (IMF).

Raghuram Rajan’s rise to Governor of the Reserve Bank of India (RBI) followed a reverse trajectory to that of Carsten – not building his career first at a national level, but rather by gaining financial market legitimacy for his work at the IMF making himself a highly-sought after candidate within India’s elite circles. However, like Carstens, he started off in the U.S. education system, obtaining a PhD in economics from MIT in the United States in 1991, then became a professor at the University of Chicago before, in 2003, becoming the first non-Westerner and youngest person ever to fill the post of Chief Economist at the IMF, a position he held until 2007. His predictions in 2005 that “financial innovations” of the previous years and decades could make financial markets increasingly fragile, vulnerable and prone to crisis may have been questioned at the time, but after the global financial crisis hit in 2008 and proved Rajan correct, they led to him becoming well respected.

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IMF Economic Counselor and Research Department Director Raghuram Rajan briefs the press on the World Economic Outlook on April 13, 2005 at the International Monetary Fund Headquarters (IMF), Washington, D.C. The IMF World Economic Outlook presents analysis and projections of economic developments at the global level, in major country groups and in many individual countries. IMF Staff Photographer/ Stephen Jaffe

But this independence of thinking didn’t dim his belief in central tenets of neoliberalism, necessary to receive the support from financial markets to stand for office. In August of 2012, Rajan was appointed as the chief economic adviser to India’s finance ministry, praised by the Wall Street Journal as “a strong believer in liberalization and privatization,” who felt that India should continue with many of the market reforms it began implementing in the early 1990s. And the following August, in 2013, he was appointed to head the central bank by Indian Prime Minister Manmohan Singh. Immediately upon becoming Governor of the Reserve Bank of India, Rajan told the Financial Times that he planned to turn India into “a more continental and open economy” within a globalized world. Such a task is not easy, and comes with a great many risks. “I have to be careful,” he concluded.

Fostering a common vision in support of private financial capital

As central bankers in a globalized financial order, Carstens and Rajan have plenty of opportunities to meet up. They both sit on important committees of the Bank for International Settlements that meets every two months. Rajan is Vice Chairman of the BIS Board of Directors while Carstens is Chairman of BIS’s Economic Consultative Committee (ECC) and Chairman of the Global Economy Meeting (GEM). The latter has been described by its former chairman and President of the European Central Bank, Jean-Claude Trichet, “as the prime group for the governance of central bank cooperation.” The Spring and Annual Meetings of the World Bank and International Monetary Fund (IMF), taking place in April and September (or October), are also another regular stop in their calendars, especially for Carstens who has been appointed Chairman of the International Monetary and Financial Committee (IMFC), a secretive steering committee for the Fund. In addition, both Rajan and Carstens attend the private gatherings of the Group of 20 (G-20) nations that take place four times a year.

Beyond the world of inter-state financial cooperation, both Carstens and Rajan are frequent guests at meetings of private financiers – and thus all too easily pulled into the vision and interests of the private financial world – through gatherings of groupings such as the Institute of International Finance (IIF), the world’s largest and most important association of global financial institutions. IIF brings together the top executives of nearly 500 major banks, asset management firms, insurance companies, sovereign wealth funds, credit ratings agencies, hedge funds and other investment institutions.

During the IMF’s Spring Meeting in Washington in 2015, D.C., Carstens along with the Chinese Central Banker Zhou Xiaochuan, spoke at a forum on the subject of “International Capital Markets and Emerging Markets.” Carstens also sits as a member of an IIF exclusive advisory working group dedicated to supporting capital flows to emerging market countries, called the “Group of Trustees of the Principles,” sitting alongside other current and former central bankers, finance ministry officials and private bankers and financiers.

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In 2013, shortly after his appointment as Governor of the RBI, Rajan spoke to an audience of the IIF outlining his objectives for reforming India’s economy over the coming years, which included further “liberalization” of India’s various financial and debt markets and to transform his own institution into a modern central bank with strict Western standards and credentials. Governor Rajan is also a member of the very exclusive Group of Thirty (G30), a private research and advocacy group of roughly 30 individuals, including current and former central bankers.

Among these meetings, the annual meeting in Davos in January, which Carstens attended in 2015, is a key forum to meet other elites outside financial circles including dozens of heads of state and hundreds of ministers and other high-ranking government officials, business and financial leaders, media and academic figures, and the chiefs of every major international organization.

Carsten and Rajan’s interactions and meetings at least ten times a year alongside other top financial diplomats help to foster shared experiences, understanding and objectives, encourage cooperation at the supranational level, and further align their ideological positions relative to one another. Similarly, their extensive interactions and affiliation with private financial market participants helps to create a community of shared interests between central bankers and financiers. Ultimately, these groupings and exchanges allow the central bankers to come face to face with their main constituents, for it is the interests of financial markets that central banks protect above all else, whether through the promotion of liberalization and other “structural reforms,” including austerity measures that are frequently demanded by markets.

Central banks also serve financial markets through the implementation of bailout programs designed to save banks and financial institutions when markets fail, as well as through the management of monetary policy with its primary objectives of achieving ‘price stability’ (low and stable inflation), which generally favours creditors at the expense of debtors. The prevailing orthodoxy of central bankers is closely aligned with the interests and objectives of private financial institutions, and Governors Carstens and Rajan are no exceptions.

Andrew Gavin Marshall is a freelance researcher and writer based in Toronto, Canada. 

 

Exposing BlackRock: Who’s Afraid Of Laurence Fink and His Overpowering Institution?

Exposing BlackRock: Who’s Afraid Of Laurence Fink and His Overpowering Institution?

By: Andrew Gavin Marshall

10 December 2015

Originally posted at Occupy.com

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It’s not a bank, nor an insurance company, central bank, finance ministry or sovereign wealth fund. But it advises or owns such institutions. It operates virtually unregulated, often in the background, yet there is scarcely a company, country or region of the planet that this, the world’s largest asset management firm, does not touch or influence.

At a mere 27 years of age, BlackRock manages $4.5 trillion in assets, making it the single largest investor on Earth. It manages more wealth than Japan and Germany have in GDP. In fact, only China and the United States have a larger GDP than BlackRock has assets under management. Yet when one includes assets that the company not only manages, but advises upon, the number soars to around $15 trillion, roughly equal to U.S. GDP.

It’s safe to say that BlackRock is the single largest financial institution in the world: a vast holding company that has become a major shareholder in roughly 40% of all publicly traded companies in the U.S., the largest single shareholder in one out of every five U.S. corporations, and one of the largest shareholders in companies around the world, from Canada to Brazil, Germany, Japan, China and beyond.

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Owning it All

Specifically, BlackRock is one of the top shareholders in all major U.S. banks, including JPMorgan ChaseCitigroupBank of AmericaGoldman SachsMorgan Stanley, and Wells Fargo.

In terms of America’s most profitable and recognizable corporations, BlackRock is a top shareholder of WalmartGeneral ElectricGeneral MotorsFordAT&TVerizonGoogleAppleExxon Mobil and Chevron.

BlackRock’s other large holdings include Microsoft, Johnson & Johnson, Amazon, Facebook, Berkshire Hathaway, Gilead Sciences, Pfizer, Procter & Gamble, Merck, Intel, Coca-Cola, Walt Disney Company, Home Depot, Philip Morris, VISA, McDonald’s, Cisco Systems, PepsiCo, IBM, Oracle, Comcast, Lockheed Martin, MasterCard, Starbucks, Boeing and ConocoPhillips, along with thousands of other, smaller brands.

But despite its size and influence, BlackRock remains virtually unregulated as an asset management firm. Unlike a bank, asset management firms do not manage and invest their own money, but do so on behalf of their many clients. In the case of BlackRock, those clients come in the form of banks, corporations, insurance companies, pension funds, sovereign wealth funds, central banks and foundations. Gerald Davis, a professor of management and organization at the University of Michigan, described BlackRock as “the silent giant” that few know about, but which is “incredibly powerful.”

The company’s power is expressed not merely in terms of its equity (shareholdings) and bonds (debt ownership), but in its role as an adviser to governments and institutions. This role is not only played by certain divisions within the company, but by the co-founder and CEO of BlackRock itself, Larry Fink. The son of a shoe salesman and English professor, Laurence Fink started his finance career working for First Boston, trading bonds during the 1980s, and became the firm’s youngest-ever managing director at the age of 31.

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Fink Ascends to the Top

In 1988, Fink, along with a handful of other traders, founded BlackRock with support from its first financial backer, the private equity firm Blackstone (notice the similar name). Within five years, BlackRock had more than $20 billion under management. But in 1994, a conflict with Blackstone’s Stephen Schwarzman led to a separation of the two companies. Schwarzman sold Blackstone’s 32% share of BlackRock to a Pittsburgh bank, PNC, for $240 million, a transaction Schwarzman would later regret.

BlackRock went public in 1999 and began acquiring other companies throughout the 2000s. But the company’s most profitable move was its purchase of Barclays Global Investors for $13.5 billion, turning BlackRock into the world’s largest asset management firm overnight. This occurred in 2009, in the immediate aftermath of the global financial crisis, and the firm took on a vast portfolio of exchange-traded funds (ETFs) known as iShares.

But even before it earned the title of largest money manager in the world, BlackRock was raising eyebrows concerning its business advising and contracting with governments. When the financial crisis struck the U.S. in 2008, the U.S. Treasury and Federal Reserve turned to BlackRock and Larry Fink for support. BlackRock advised the government on the rescues, bailouts and purchases of Bear Stearns, American International Group (AIG), Citigroup, Fannie Mae and Freddie Mac.

Throughout the crisis, Fink would find himself on the phone multiple times a day in conversation with then-President of the New York Federal Reserve, Timothy Geithner, Treasury Secretary and the former CEO of Goldman Sachs, Hank Paulson, and Federal Reserve Chairman Ben Bernanke. Fink explained, “It gives comfort to our clients that we are being involved in some of the solutions of our economy, and it allows us to show our clients that we are being asked in these difficult situations to provide advice.”

According to Vanity Fair, One of Fink’s favorite phrases to insert into casual conversations is: “As I told Washington…” And it’s something to be said without much exaggeration. When Timothy Geithner went from being President of the New York Fed to Secretary of the U.S. Treasury, Fink’s access to the top echelons of political power grew immensely. Indeed, apart from other government officials, the BlackRock chief became “the Treasury secretary’s most frequent corporate interlocutor and an emblem of BlackRock’s growing influence in global financial affairs,” noted the Financial Times.

Using data compiled from the Treasury Secretary’s public records from 2009 to 2013, Geithner held phone calls or private meetings wit Fink at least 104 times during the duration of his term. Even with Geithner’s successor at Treasury, Jack Lew, pervasive contact has been maintained with Fink.

Enter Hillary’s Right-Hand Woman

In 2013, BlackRock hired to its board of directors Cheryl Mills, a “longtime confidant and counselor to former secretary of state Hillary Rodham Clinton.” Mills was chief of staff to Clinton at the State Department, and was “among the inner circle of advisers helping Clinton chart her plans for the future.” Mills has a long history with both Clintons; she was one of President Bill Clinton’s top attorneys during his impeachment. A former aide with knowledge of the Clinton-Mills relationship explained, “There are no secrets… Cheryl knows everything and that’s a great equalizer for them.” In an interview with the Washington Post, Mills explained that she still advises and speaks with Hillary regularly.

As Hillary Clinton campaigns for the Democratic presidential nomination, her discussions of Wall Street regulations focus almost exclusively on banks – but nowhere does she mention the role played by asset management firms like BlackRock. In fact, in her comments on the subject, Clinton actually tends to parrot the ideas that have been put forward by Fink himself. For instance, after Clinton gave a speech on Wall Street reform, The New York Times noted that it seemed as if “she could have been channeling Laurence D. Fink.”

For years, Fink has been touted as a possible Treasury Secretary the likelihood of which may increase if Clinton becomes president. Indeed, Fink, a longtime Democrat, would be perfectly suited to such a position as the “top consigliere” of Wall Street in Washington, Suzanna Andrews writes in Vanity Fair, “and the leading member of the country’s financial oligarchy.”

And of course it helps that Fink and BlackRock are not simply influential within the U.S. but across the globe. BlackRock has been hired as a consultant and adviser in Europe multiple times throughout the European debt crisis, having worked with the Irish central bank, the Greek central bank, and more recently the European Central Bank to advise on its quantitative easing program.

With $4.5 trillion in assets under management, the firm is without a doubt “one of, if not the, most influential financial institutions in the world,” noted a BlackRock co-founder. And Larry Fink, the architect of “his own Wall Street empire,” could become a household name in U.S. politics soon enough.

Andrew Gavin Marshall is a freelance researcher and writer based in Toronto, Canada.

Bank Crimes Pay: Under the Thumb of the Global Financial Mafiocracy

Bank Crimes Pay: Under the Thumb of the Global Financial Mafiocracy

By: Andrew Gavin Marshall

27 November 2015

Originally posted at Occupy.com

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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.

After “Landmark” IMF Reforms, U.S. Is Still the Group’s Unrivaled Economic Power

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

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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.

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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:

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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

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

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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

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

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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

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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.

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