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Global Power Project, Part 7: Banking on Influence with Citigroup
By: Andrew Gavin Marshall
Originally posted at Occupy.com
In the second quarter of 2013, the third-largest U.S. bank by assets, Citigroup, posted a 42% increase in profits which CEO Michael Corbat praised as a “well balanced” result of “cost cutting” programs, including the firing of 11,000 workers.
This big bank has a sordid history of predatory profiteering and criminal activity, not unlike all the other large banks. In the early 20th century, what was then National City Bank was the main bank for the Rockefeller Standard Oil interests. Over ensuing decades and mergers it eventually came to be Citibank, and in the late 1990s, Citigroup. At that time, the bank was dealing with accusations that it had aided in the laundering of roughly $100 million in payoffs by Mexican drug cartels.
In 2000, the mega-bank was accused of abusing borrowers and clients through predatory lending practices. The bank aroused further controversy by helping Enron evade financial rules which allowed the company to hide its real financial reporting from government regulators. In 2005, Citigroup paid a $2 billion settlement to Enron investors who had filed a class-action lawsuit against the bank for helping Enron hide billions of dollars in debt.
A 2005 report by Citigroup created the term ‘plutonomy’ to describe the modern state capitalist system in which there is only the rich “and everyone else”; an economy in which the rich increasingly become the consuming class, driven to a significant degree by “disruptive technology-driven productivity gains, creative financial innovation, [and] capitalist friendly cooperative governments.”
Referencing the United States, the U.K., Australia and Canada as modern plutonomies, Citigroup global strategist Ajay Kapur noted, “The Plutonomy is here, is going to get stronger, its membership is swelling,” and while the “risks” of plutonomies include “war, inflation, financial crises, the end of the technological revolution and populist political pressure,” Kapur noted that “the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.” Indeed, Citigroup would ensure that this was the case.
In the 1990s, Bill Clinton’s Treasury Secretary Robert Rubin helped to deregulate Wall Street and allow for massive mergers and the proliferation of dangerous financial instruments in the derivatives market, which helped create the future housing crisis. After leaving the White House, Rubin became an adviser to Citigroup, and ultimately the bank’s chairman, where he helped push the mega-bank further down the path taken by Morgan Stanley and Goldman Sachs to build up an unprecedented housing bubble. When the inevitable happened, Citigroup owned tens of billions of dollars in bad debts. Meanwhile, Robert Rubin was appointed as an economic adviser to the transition team for President Obama.
Citigroup was subsequently bailed out by the federal government, that is, the U.S. taxpayer, and became the largest single recipient of bailout funds totaling some $476.2 billion in cash and guarantees. Citigroup was essentially put into receivership by the government, which decided to reward the bank after its highly effective and efficient participation in the destruction of the economy. The U.S. Treasury eventually sold the last of its shares in Citigroup in 2010.
Since that time, the bank has been quietly settling civil complaints and lawsuits, further proving that criminal activity by major financial institutions comes down to a cost-benefit analysis: if the cost of committing massive crimes is less than the benefit of engaging in such criminal activity, there is little incentive to obey the law rather than pay comparably lower fines after breaking it.
Between 2003 and 2011, the Securities and Exchange Commission (SEC) accused Citigroup of securities fraud five separate times, with the bank agreeing to pay settlements in each case, amounting to a slap on the wrist from the SEC. As a Bloomberg report stated bluntly, for Citigroup “obeying the law is too damn hard.” Or rather, simply, it is unnecessary.
In 2011, Citigroup paid a $285 million settlement with the SEC for defrauding investors. In 2012, the bank paid another settlement of $590 million for defrauding investors, though it made sure not to admit guilt as the payment was “solely to eliminate the uncertainties, burden and expense of further protracted litigation.” In 2013, Citigroup agreed to pay a further $968 million to Fannie Mae over the bad mortgage loans it sold to the company in the run-up to the financial crisis.
But before you assume that Citigroup simply defrauded investors and other institutions, know this: the bank also undertook foreclosures on hundreds of U.S. military members during the financial crisis, often while the military personnel were in Iraq or Afghanistan. After illegally foreclosing on military personnel while they were overseas fighting wars for the America’s imperialists and profiteers, Citigroup made a later appearance in Iraq, announcing in 2013 that it would be the first U.S. bank to open a branch in Bagdad “as major international oil groups as well as industrial and construction companies are looking to invest in Iraq.”
Iraq is just the latest hub of overseas criminal financial activities for Citigroup, which has meanwhile been struggling to “comply” with anti-money laundering laws after also participating in the largest financial scam in history: the Libor rate-rigging scandal. At the same time, the bank has been dooming the European Union’s crisis countries (namely Greece) to a faster decline, issuing self-fulfilling reports that suggest the region is headed for further crisis, thus reducing investor confidence and pushing the crisis-hit economies into even deeper crisis.
In sum, Citigroup’s fraudulent lifestyle – with its increased quarterly profits – is one more example of how the institutions of the financial system function as criminal conglomerates on a scale far surpassing any Mafia on record. And of course, for such criminal activity to go unpunished, the institution cannot exist in isolation. In fact, like all other big banks, Citigroup is heavily integrated in the national – and increasingly international – structure of elite institutions, with cross-membership between major corporations, think tanks, governmental positions, media and educational institutions.
Thirty-seven individuals on the executive committee and board of directors of Citigroup were examined for the Global Power Project. The most represented institution was the Council on Foreign Relations, with six individual affiliations, followed by Morgan Stanley, Banco Nacional de Mexico (Banamex), American Express, the Foreign Policy Association, IBM, the Brookings Institution, the Metropolitan Museum of Art, Yale University, and Stanford University, among many others.
Meet the Elites
On the board of directors of Citigroup is Franz B. Humer, the chairman of Roche Holding, a major pharmaceutical conglomerate. Humer also sits on the International Advisory Council of JPMorgan Chase, and is chairman of INSEAD, chairman of Diageo Plc, a member of the international advisory board of Allianz SE, a member of the board of Jacobs Holdings, and a member of the European Round Table of Industrialists (which advises EU leaders on promoting policies beneficial to large corporate and financial interests). Humer also serves, comfortingly, as chairman of the International Centre for Missing and Exploited Children.
Judith Rodin, the president of the Rockefeller Foundation, is on the board of Citigroup. Rodin also served as the President of the University of Pennsylvania from 1994-2004, after which she remained as President Emerita. A former Provost of Yale University, Rodin also serves as a director of Comcast Corporation, AMR Corporation, the World Trade Memorial Foundation and Carnegie Hall. She is a member of the Council on Foreign Relations and a former honorary director of the Brookings Institution. Additionally, Rodin is a member of the board of the Alliance for a Green Revolution in Africa (AGRA) – a joint venture between the Rockefeller Foundation and the Bill & Melinda Gates Foundation to promote the advancement of GMOs in Africa – and she served as a member of the High Level Panel of the African Development Bank. Rodin currently serves as a member of the international advisory council of the Mary Robinson Foundation, a member of the American Academy of Arts and Sciences, the American Philosophical Society, and the Institute of Medicine of the National Academy of Sciences. She is also a participant in the World Economic Forum, the Global Humanitarian Forum, the Clinton Global Initiative’s “poverty alleviation track,” and she is a board member of Obama’s White House Council for Community Solutions.
Another member of the Citigroup board is Ernesto Zedillo, the former President of Mexico from 1994 to 2000, who was pivotal in implementing the North American Free Trade Agreement (NAFTA), much to the benefit of big banks and corporations, and to the detriment of poor and working people. Zedillo had previously served a number of positions in the Mexican government, including deputy director of the Bank of Mexico. Currently, Zedillo is the director of the Center for the Study of Globalization and an International Economics and Politics professor at Yale University. He is a member of the Group of Thirty, on the board of directors of Alcoa and Procter & Gamble, and on the international advisory boards of both BP, Rolls-Royce and ACE Ltd.. He is additionally an adviser to the Credit Suisse Research Institute, a member of the Foundation Board of the World Economic Forum, a former member of the Trilateral Commission, the former chairman of the Global Development Network, a former chair of the High Level Commission on Modernization of the World Bank Group Governance, a former member of the international advisory board of the Council on Foreign Relations and the Coca-Cola Company, a former member of the Global Development Program Advisory Panel of the Bill & Melinda Gates Foundation, and he is currently a member of the board of the Peterson Institute for International Economics.
William R. Rhodes, another Citigroup board member, serves as a senior advise to Citi and is president and CEO of William R. Rhodes Global Advisors. A director of the Private Export Funding Corporation, Rhodes is a senior adviser to the World Economic Forum, the global management firm Oliver Wyman, vice chairman of the National Committee on U.S.-China Relations, a director of the Korea Society and the U.S.-China Business Council, a member of Korean President Lee’s Council of Global Advisors, a member of the international advisory board of the National Bank of Kuwait, a senior adviser to the Dalian Government in China, a member of the private sector advisory board of the Inter-American Development Bank, a member of the international policy committee of the U.S. Chamber of Commerce, a member of the board of the Foreign Policy Association, and a trustee of the Asia Society and the Economic Club of New York. Rhodes is also a member of the Council on Foreign Relations, the Group of Thirty, the Lincoln Center Consolidated Corporate Fund Leadership Committee, the Metropolitan Museum of Art Business Committee, and he sits on the advisory council of the Brazilian American Chamber of Commerce. He is a former vice chairman of the Institute of International Finance, a chairman emeritus of the Americas Society and the Council of the Americas, a director of the U.S.-Russia Business Council and the U.S.-Hong Kong Business Council, a chairman of the U.S.-Korea Business Council, a trustee and member of the board of governors of the New York Presbyterian Hospital, a chairman of the board of trustees of the Northfield Mount Hermon School, and a member of the board of overseers of the Watson Institute for International Studies at Brown University.
Like all the big banks, Citigroup is heavily integrated with other dominant institutions in American and international society, which helps explain why the bank can break so many laws and get away with it. It’s not simply financial weight that makes this bank “too big to fail” and “too big to jail.” It’s the institutional affiliations that also help make it that way.
Andrew Gavin Marshall is a 26-year old researcher and writer based in Montreal, Canada. He is Project Manager of The People’s Book Project, chair of the Geopolitics Division of The Hampton Institute, research director for Occupy.com‘s Global Power Project, and hosts a weekly podcast show with BoilingFrogsPost.
Global Power Project, Part 1: Exposing the Transnational Capitalist Class
By: Andrew Gavin Marshall
An exclusive series for Occupy.com
The Global Power Project, an investigative series produced by Occupy.com, aims to identify and connect the worldwide institutions and individuals who comprise today’s global power oligarchy. By studying the relationships and varying levels of leadership that govern our planet’s most influential institutions — from banks, corporations and financial institutions to think tanks, foundations and universities — this project seeks to expose the complex, highly integrated network of influence wielded by relatively few individuals on a national and transnational basis. This is not a study of wealth, but a study of power.
Many now know the rhetoric of the 1% very well: the imagery of a small elite owning most of the wealth while the 99% take the table scraps. This rhetoric and imagery was made popular by the growth of the Occupy movement, so it seems appropriate that a project of Occupy.com should expand on this understanding and bring the activities of the global elite further to light.
In 2006, a UN report revealed that the world’s richest 1% own 40% of the world’s wealth, with those in the financial and internet sectors comprising the “super rich.” More than a third of the world’s super-rich live in the U.S., with roughly 27% in Japan, 6% in the U.K., and 5% in France. The world’s richest 10% accounted for roughly 85% of the planet’s total assets, while the bottom half of the population – more than 3 billion people – owned less than 1% of the world’s wealth.
Looking specifically at the United States, the top 1% own more than 36% of the national wealth and more than the combined wealth of the bottom 95%. Almost all of the wealth gains over the previous decade went to the top 1%. In the mid-1970s, the top 1% earned 8% of all national income; this number rose to 21% by 2010. At the highest sliver at the top, the 400 wealthiest individuals in America have more wealth than the bottom 150 million.
A 2005 report from Citigroup coined the term “plutonomy” to describe countries “where economic growth is powered by and largely consumed by the wealthy few.” The report specifically identified the U.K., Canada, Australia and the United States as four plutonomies. Published three years before the onset of the financial crisis in 2008, the Citigroup report stated: “Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries.”
“The rich,” said the report, “are in great shape, financially.”
In early 2013, Oxfam reported that the fortunes made by the world’s 100 richest people over the course of 2012 – roughly $240 billion – would be enough to lift the world’s poorest people out of poverty four times over. In the Oxfam report, “The Cost of Inequality: How Wealth and Income Extremes Hurt Us All,” the international charity noted that in the past 20 years, the richest 1% had increased their incomes by 60%. Barbara Stocking, an Oxfam executive, noted that this type of extreme wealth is “economically inefficient, politically corrosive, socially divisive and environmentally destructive…We can no longer pretend that the creation of wealth for a few will inevitably benefit the many – too often the reverse is true.”
The report added: “In the UK, inequality is rapidly returning to levels not seen since the time of Charles Dickens. In China the top 10% now take home nearly 60% of the income. Chinese inequality levels are now similar to those in South Africa, which is now the most unequal country on Earth and significantly more unequal than at the end of apartheid.” In the United States, the share of national income going to the top 1% has doubled from 10 to 20% since 1980, and for the top 0.01% in the United States, “the share of national income is above levels last seen in the 1920s.”
Previously, in July of 2012, James Henry, a former chief economist at McKinsey, a major global consultancy, published a major report on tax havens for the Tax Justice Network which compiled data from the Bank for International Settlements (BIS), the IMF and other private sector entities to reveal that the world’s super-rich have hidden between $21 and $32 trillion offshore to avoid taxation.
Henry stated: “This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries.” John Christensen of the Tax Justice Network further commented that “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people… This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”
With roughly half of the world’s offshore wealth, or some $10 trillion, belonging to 92,000 of the planet’s richest individuals —representing not the top 1% but the top 0.001% — we see a far more extreme global disparity taking shape than the one invoked by the Occupy movement. Henry commented: “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.”
In his 2008 book, “Superclass: The Global Power Elite and the World They Are Making,” David Rothkopf, a man firmly entrenched within the institutions of global power and the elites which run them, compiled a census of roughly 6,000 individuals whom he referred to as the “superclass.” They were defined not simply by their wealth, he said, but by the influence they exercised within the realms of business, finance, politics, military, culture, the arts and beyond.
Rothkopf noted: “Each member is set apart by his ability to regularly influence the lives of millions of people in multiple countries worldwide. Each actively exercises this power and often amplifies it through the development of relationships with other superclass members.”
The global elite are of course not defined by their wealth alone, but through the institutional, ideological and individual connections and networks in which they wield their influence. The most obvious example of these types of institutions are the multinational banks and corporations which dominate the global economy. In the first scientific study of its kind, Swiss researchers analyzed the relationship between 43,000 transnational corporations and “identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.”
In their report, “The Network of Global Corporate Control, researchers noted that this network – which they defined as “ownership” by a person or firm over another firm, whether partially or entirely – “is much more unequally distributed than wealth” and that “the top ranked actors hold a control ten times bigger than what could be expected based on their wealth.” The “core” of this network – which consists of the world’s top 737 corporations – control 80% of all transnational corporations (TNCs).
Even more extreme, the top 147 transnational corporations control roughly 40% of the entire economic value of the world’s TNCs, forming their own network known as the “super-entity.” The super-entity conglomerates all control each other, and thus control a significant portion of the rest of the world’s corporations with the “core” of the global corporate network consisting primarily of financial corporations and intermediaries.
In December of 2011, the former deputy secretary of the Treasury in the Clinton administration, Roger Altman, wrote an article for the Financial Times in which he described financial markets as “a global supra-government” which can “oust entrenched regimes… force austerity, banking bail-outs and other major policy changes.” Altman said bluntly that the influence of this entity “dwarfs multilateral institutions such as the International Monetary Fund” as “they have become the most powerful force on earth.”
With the formation of this “super-entity” – a veritable global supra-government – made up of the world’s largest banks and corporations exerting immense influence over all other corporations, a new global class structure has evolved. It is this rarefied group of individuals and firms, and the relations they hold with one another, that we wish to further understand.
According to the 2012 report, “Corporate Clout Distributed: The Influence of the World’s Largest 100 Economic Entities,” of the world’s 100 largest economic entities in 2010, 42% were corporations while the rest were governments. Among the largest 150 economic entities, 58% were corporations. Wal-Mart was the largest corporation in 2010 and the 25th largest economic entity on earth, with greater revenue than the GDPs of no less than 171 countries.
According to the Fortune Global 500 list of corporations for 2011, Royal Dutch Shell next became the largest conglomerate on earth, followed by Exxon, Wal-Mart, and BP. The Global 500 made record revenue in 2011 totaling some $29.5 trillion — more than a 13% increase from 2010.
With such massive wealth and power held by these institutions and “networks” of corporations, those individuals who sit on the boards, executive committees and advisory groups to the largest corporations and banks wield significant influence on their own. But their influence does not stand in isolation from other elites, nor do the institutions of banks and corporations function in isolation from other entities such as state, educational, cultural or media institutions.
Largely facilitated by the cross-membership that exists between boards of corporations, think tanks, foundations, educational institutions and advisory groups — not to mention the continual “revolving door” between the state and corporate sectors — these elites become a highly integrated, organized and evolved social group. This is as true for the formation of national elites as it is for transnational, or global, elites.
The rise of corporations and banks to a truly global scale – what is popularly referred to as the process of “globalization” – was facilitated by the growth of other transnational networks and institutions such as think tanks and foundations, which sought to facilitate these ideological and institutional structures of globalization. A wealth of research and analysis has been undertaken in academic literature over the past couple of decades to understand the development of this phenomenon, examining the emergence of what is often referred to as the “Transnational Capitalist Class” (TCC). In various political science and sociology journals, researchers and academics reject a conspiratorial thesis and instead advance a social analysis of what is viewed as a powerful social system and group.
As Val Burris and Clifford L. Staples argued in an article for the International Journal of Comparative Sociology (Vol. 53, No. 4, 2012), “as transnational corporations become increasingly global in their operations, the elites who own and control those corporations will also cease to be organized or divided along national lines.” They added: “We are witnessing the formation of a ‘transnational capitalist class’ (TCC) whose social networks, affiliations, and identities will no longer be embedded primarily in the roles they occupy as citizens of specific nations.” To properly understand this TCC, it is necessary to study what the authors call “interlocking directorates,” defined as “the structure of interpersonal or interorganizational relations that is created whenever a director of one corporation sits on the governing board of another corporation.”
The growth of “interlocking directorates” is primarily confined to European and North American conglomerates, whereas those in Asia, Latin America and the Middle East largely remain “isolated from the global interlock network.” Thus, the “transnationalization” of corporate directorates and, ultimately, of global class structures “is more a manifestation of the process of European integration – or, perhaps, of the emergence of a North Atlantic ruling class.”
The conclusion of these researchers was that the ruling class is not “global” as such, but rather “a supra-national capitalist class that has gone a considerable way toward transcending national divisions,” notably in the industrialized countries of Western Europe and North America; in their words, “the regional locus of transnational class formation is more accurately described as the North Atlantic region.” However, with the rise of the “East” – notably the economic might of Japan, China, India, and other East Asian nations – the interlocks and interconnections among elites are likely to expand as various other networks of institutions seek to integrate these regions.
The influence wielded by banks and corporations is not simply through their direct wealth or operations, but through the affiliations, interactions and integration by those who run the institutions with political and social elites, both nationally and globally. While we can identify a global elite as a wealth percentage (the top 1% or, more accurately, the top 0.001%), this does not account for the more indirect and institutionalized influence that corporate and financial leaders exert over politics and society as a whole.
To further understand this, we must identify and explore the dominant institutions which facilitate the integration of these elites from an array of corporations, banks, academia, the media, military, intelligence, political and cultural spheres. This will be the subject of the second installment in the series, appearing next week.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada. He is Project Manager of The People’s Book Project, head of the Geopolitics Division of the Hampton Institute, Research Director for Occupy.com’s Global Power Project and hosts a weekly podcast show at BoilingFrogsPost.
The Global Banking ‘Super-Entity’ Drug Cartel: The “Free Market” of Finance Capital
By: Andrew Gavin Marshall
This essay is the product of research undertaken for the first volume of The People’s Book Project. Please donate to help the first volume come to completion: a study of the institutions, ideas, and individuals of power and resistance in a snap-shot of the world today, looking at the global economic crisis, war and empire, repression and the global spread of anti-austerity and resistance movements.
I would like to introduce you, the reader, to some realities of our global banking system, resting on the rhetoric of free markets, but functioning, in actuality, as a global cartel, a “super-entity” in which the world’s major banks all own each other and own the controlling shares in the world’s largest multinational corporations, influence governments and policy with politicians in their back pockets, routinely engaging in fraud and bribery, and launder hundreds of billions of dollars in drug money, not to mention arms dealing and terrorist financing. These are the “too big to fail” and “too big to jail” banks, the centre of our global economy, what we call a “free market,” implying that the global banks – and corporations – have “free reign” to do anything they please, engage in blatantly criminal activities, steal trillions in wealth which is hidden offshore, and never get more than a slap on the wrist. This is the real “free market,” a highly profitable global banking cartel, functioning as a worldwide financial Mafia.
Scientific Research Proves the Existence of a Global Financial “Super-Entity”
In October of 2011, New Scientist reported that a scientific study on the global financial system was undertaken by three complex systems theorists at the Swiss Federal Institute of Technology in Zurich, Switzerland. The conclusion of the study revealed what many theorists and observers have noted for years, decades, and indeed, even centuries: “An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.” As one of the researchers stated, “Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market… Our analysis is reality-based.” Using a database which listed 37 million companies and investors worldwide, the researchers studied all 43,060 trans-national corporations (TNCs), including the share ownerships linking them.
The mapping of ‘power’ was through the construction of a model showing which companies controlled which other companies through shareholdings. The web of ownership revealed a core of 1,318 companies with ties to two or more other companies. This ‘core’ was found to own roughly 80% of global revenues for the entire set of 43,000 TNCs. And then came what the researchers referred to as the “super-entity” of 147 tightly-knit companies, which all own each other, and collectively own 40% of the total wealth in the entire network. One of the researchers noted, “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network.” This network poses a huge risk to the global economy, as, “If one [company] suffers distress… this propagates.” The study was undertaken with a data set established prior to the economic crisis, thus, as the financial crisis forced some banks to die (Lehman Bros.) and others to merge, the “super-entity” would now be even more connected, concentrated, and problematic for the economy.
The top 50 companies on the list of the “super-entity” included (as of 2007): Barclays Plc (1), Capital Group Companies Inc (2), FMR Corporation (3), AXA (4), State Street Corporation (5), JP Morgan Chase & Co. (6), UBS AG (9), Merrill Lynch & Co Inc (10), Deutsche Bank (12), Credit Suisse Group (14), Bank of New York Mellon Corp (16), Goldman Sachs Group (18), Morgan Stanley (21), Société Générale (24), Bank of America Corporation (25), Lloyds TSB Group (26), Lehman Brothers Holdings (34), Sun Life Financial (35), ING Groep (41), BNP Paribas (46), and several others.
In the United States, five banks control half the economy: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs Group collectively held $8.5 trillion in assets at the end of 2011, which equals roughly 56% of the U.S. economy. This data was according to central bankers at the Federal Reserve. In 2007, the assets of the largest banks amounted to 43% of the U.S. economy. Thus, the crisis has made the banks bigger and more powerful than ever. Because the government invoked “too big to fail,” meaning that the big banks will be saved because they are very important, the big banks have incentive to make continued and bigger risks, because they will be bailed out in the end. Essentially, it’s an insurance policy for criminal risk-taking behaviour. The former president of the Federal Reserve Bank of Minneapolis stated, “Market participants believe that nothing has changed, that too-big-to-fail is fully intact.” Remember, “market” means the banking cartel (or “super-entity” if you prefer). Thus, they build new bubbles and buy government bonds (sovereign debt), making the global financial system increasingly insecure and at risk of a larger collapse than took place in 2008.
When politicians, economists, and other refer to “financial markets,” they are in actuality referring to the “super-entity” of corporate-financial institutions which dominate, collectively, the global economy. For example, the role of financial markets in the debt crisis ravaging Europe over the past two years is often referred to as “market discipline,” with financial markets speculating against the ability of nations to repay their debt or interest, of credit ratings agencies downgrading the credit-worthiness of nations, of higher yields on sovereign bonds (higher interest on government debt), and plunging the country deeper into crisis, thus forcing its political class to impose austerity and structural adjustment measures in order to restore “market confidence.” This process is called “market discipline,” but is more accurately, “financial terrorism” or “market warfare,” with the term “market” referring specifically to the “super-entity.” Whatever you call it, market discipline is ultimately a euphemism for class war.
The Global Supra-Government and the “Free Market”
In December of 2011, Roger Altman, the former Deputy Secretary of the Treasury under the Clinton administration wrote an article for the Financial Times in which he explained that financial markets were “acting like a global supra-government,” noting:
They oust entrenched regimes where normal political processes could not do so. They force austerity, banking bail-outs and other major policy changes. Their influence dwarfs multilateral institutions such as the International Monetary Fund. Indeed, leaving aside unusable nuclear weapons, they have become the most powerful force on earth.
Altman continued, explaining that when the power of this “global supra-government” is flexed, “the immediate impact on society can be painful – wider unemployment, for example, frequently results and governments fail.” But of course, being a former top Treasury Department official, he went on to endorse the global supra-government, writing, “the longer-term effects can be often transformative and positive.” Ominously, Altman concluded: “Whether this power is healthy or not is beside the point. It is permanent,” and “there is no stopping the new policing role of the financial markets.” In other words, the ‘super-entity’ global ‘supra-government’ of financial markets carries out financial extortion, overthrows governments and impoverishes populations, but this is ultimately “positive” and “permanent,” at least from the view of a former Treasury Department official. From the point of view of those who are being impoverished, the actual populations, “positive” is not necessarily the word that comes to mind.
In the age of globalization, money – or capital – flows easily across borders, with banks, hedge funds and other financial institutions acting as the vanguards of a new international order of global governance. Where finance goes, corporations follow; where corporations venture, powerful states stand guard of their interests. Our global system is one of state-capitalism, where the state and corporate interests are interdependent and mutually beneficial, at least for those in power. Today, financial institutions – with banks at the helm – have reached unprecedented power and influence in state capitalist societies. The banks are bigger than ever before in history, guarded by an insurance policy that we call “too big to fail,” which means that despite their criminal and reckless behaviour, the government will step in to bail them out, as it always has. Financial markets also include credit ratings agencies, which determine the supposed “credit-worthiness” of other banks, corporations, and entire nations. The lower the credit rating, the riskier the investment, and thus, the higher the interest is for that entity to borrow money. Countries that do not follow the dictates of the “financial market” are punished with lower credit ratings, higher interest, speculative attacks, and in the cases of Greece and Italy in November of 2011, their democratically-elected governments are simply removed and replaced with technocratic administrations made up of bankers and economists who then push through austerity and adjustment policies that impoverish and exploit their populations. In the age of the “super-entity” global “supra-government,” there is no time to rattle around with the pesky process of formal liberal democracy; they mean business, and if your elected governments do not succumb to “market discipline,” they will be removed and replaced in what – under any other circumstances – is referred to as a ‘coup.’
Banks and financial institutions provide the liquidity – or funds – for what we call “free markets.” Free markets in principle would allow for free competition between companies and countries, each producing their own comparative advantage – producing what they are best at – and trading with others in the international market, so that all parties rise in living standards and wealth together. The “free market” is, of course, pure mythology. In practice, what we call “free markets” are actually highly protectionist, regimented, regulated, and designed to undermine competition and enforce monopolization. The “free markets” serve this purpose for the benefit of large multinational corporations and banks.
When we use the term “free markets” we are generally referring to the “real” economy, legitimate and legal. When it comes to illegitimate markets, for example, the global drug trade, we do not tend to refer to them as “free markets” but rather, “illegal” and run by “cartels.” Cartels, like corporations, are hierarchically organized totalitarian institutions, where decisions and power and exercised from the top-down, with essentially no input going from the bottom-up. Large multinational corporations, like large international cartels, seek to control their particular market throughout entire nations, regions, and beyond. Often, co-operation between corporations allow them to function in an oligopolistic manner, where the collectively dominate the entire market, carving it up between them. Major oil companies, agro-industrial firms, telecommunications, pharmaceutical, military contractors and water management corporations are well-known for these types of activities.
Cartels have often been known to engage in a similar practice, though typically they are more competitive with each other. When interests are threatened – which is defined as when a corporation or cartel is at risk of losing its total dominance of its market in a particular region – conflict arises, and often violently so, with the potential for coups, assassinations, terror campaigns, and war. This is when the state intervenes to protect the market for the cartel or corporate interests. Thus, a market like the global drug trade functions relatively similar to those of the “legitimate” economy, pharmaceuticals, energy, technology, etc. The illicit trade in drugs is as much a “free market” as is the trade in automobiles or oil. And of course, the money ends up in the same place: the global supra-government of “financial markets.”
Banking Cartel or Drug Cartel… or What’s the Difference?
In 2009, the United Nations Office on Drugs and Crime reported that billions of dollars in drug money saved the major banks during the financial crisis, providing much-needed liquidity. Antonio Maria Costa, the head of the UN Office on Drugs and Crime stated that drug money was “the only liquid investment capital” available to banks on the brink of collapse, with roughly $325 billion in drug money absorbed by the financial system. Without identifying specific countries or banks, Costa stated that, “Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.”
In 2010, Wachovia Bank (now owned by Wells Fargo) settled the largest action ever under the U.S. bank secrecy act, paying a fine of $50 million plus forfeiting $110 million of drug money, of which the bank laundered roughly $378.4 billion out of Mexico. The federal prosecutor in the case stated, “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.” The fine that the bank paid for laundering hundreds of billions of dollars in drug money was less than 2% of the bank’s 2009 profit, and on the same week of the settlement, Wells Fargo’s stock actually went up. The bank admitted in a statement of settlement that, “As early as 2004, Wachovia understood the risk” of holding such an account, but “despite these warnings, Wachovia remained in the business.” The leading investigator into the money laundering operations, Martin Woods, based out of London, had discovered that Wachovia had received roughly six or seven thousand subpoenas for information about its Mexican operation from the federal government, of which Woods commented: “An absurd number. So at what point does someone at the highest level not get the feeling that something is very, very wrong?” Woods had been hired by Wachovia’s London branch as a senior anti-money laundering officer in 2005, and when in 2007 an official investigation was opened into Wachovia’s Mexican operations, Woods was informed by the bank that he failed “to perform at an acceptable standard.” In other words, he was actually doing his job. In regards to the settlement, Woods stated:
The regulatory authorities do not have to spend any more time on it, and they don’t have to push it as far as a criminal trial. They just issue criminal proceedings, and settle. The law enforcement people do what they are supposed to do, but what’s the point? All those people dealing with all that money from drug-trafficking and murder, and no one goes to jail?
As the former UN Office of Drugs and Crime czar Antonio Maria Costa said, “The connection between organized crime and financial institutions started in the late 1970s, early 1980s… when the mafia became globalized,” just like other major markets. Martin Woods added that, “These are the proceeds of murder and misery in Mexico, and of drugs sold around the world,” yet no one went to jail, asking, “What does the settlement do to fight the cartels? Nothing – it doesn’t make the job of law enforcement easier and it encourages the cartels and anyone who wants to make money by laundering their blood dollars. Where’s the risk? There is none.” He added: “Is it in the interest of the American people to encourage both the drug cartels and the banks in this way? Is it in the interest of the Mexican people? It’s simple: if you don’t see the correlation between the money laundering by banks and the 30,000 people killed in Mexico, you’re missing the point.” Woods, who now runs his own consultancy, told the Observer in 2011 that, “New York and London… have become the world’s two biggest laundries of criminal and drug money, and offshore tax havens. Not the Cayman Islands, not the Isle of Man or Jersey. The big laundering is right through the City of London and Wall Street.”
Just as the “too big to fail” program acts as an insurance policy for the big banks to engage in constant criminal activity, taking ever-larger financial risks with the guarantee that they will be bailed out, the settlements and lack of criminal prosecutions for banks laundering drug money provides the incentive to continue laundering hundreds of billions in drug money, because so long as the fine is smaller than the profit accrued from such a practice, it comes down to a simple cost-benefit analysis: if the cost of laundering drug money is less than the benefit, continue with the policy. The same cost-benefit analysis goes for all forms of criminal activity by banks and corporations, whether bribery, fraud, or violating environmental, labour and other regulations. So long as the penalty is less than the profit, the problem continues.
An article in the Observer from July of 2012 referred to global banks as “the financial services wing of the drug cartels,” noting that HSBC, Britain’s biggest bank, had been called before the U.S. Senate to testify about laundering drug money from Mexican cartels, holding one “suspicious account” for four years on behalf of the largest drug cartel in the world, the Sinaloa cartel in Mexico. In fact, a multi-year investigation into HSBC revealed that the bank was not only a major international drug money-laundering conduit, but also laundered money for clients with ties to terrorism. In July of 2012, as the Senate was publicly investigating HSBC, Antonio Maria Costa stated, “Today I cannot think of one bank in the world that has not been penetrated by mafia money.” The global drug trade is estimated to be worth roughly $380 billion annually, with most of the money made in the consumer markets of North America and Europe. Using the example of the $35 billion per year cocaine market in the United States, only about 1.5% of these profits make their way to the coca-leaf producers (mostly poor peasants) in South America (who became the target of our bombing and chemical warfare campaigns in the “war on drugs”), while the international traffickers get roughly 13% of the profits, with the remaining 85% earned by the distributors in the U.S. HSBC was accused of laundering the profits of the distributors.
The U.S. Senate report concluded that HSBC had exposed the U.S. financial system to “a wide array of money laundering, drug trafficking, and terrorist financing,” including billions in “proceeds from illegal drug sales in the United States.” HSBC acknowledged, in an official statement, that, “in the past, we have sometimes failed to meet the standards that regulators and customers expect.” Among those “standards” that HSBC “sometimes failed to meet,” according to the Senate investigation, were financing provided to banks in Saudi Arabia and Bangladesh which were tied to terrorist organizations, while the bank’s regulator failed to take a single enforcement action against HSBC. Among the terrorist organizations which potentially received financial assistance from HSBC through Saudi banks was al-Qaeda. HSBC put aside $700 million to cover any potential fines for such activities, which is not uncommon for banks to do. Banks like ABN Amro, Barclays, Credit Suisse, Lloyds and ING had all reached major settlements for admitting to facilitating transactions and engaging in money laundering for clients in Cuba, Iran, Libya, Myanmar and Sudan.
As executives from HSBC appeared in the U.S. Senate, the bank’s head of compliance since 2002, David Bagley, resigned as he testified before the committee, commenting, “Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators.” As Ed Vulliamy reported in the Observer, in May of 2012, a poor black man named Edward Dorsey Sr. was convicted of peddling 5.5 grams of crack cocaine in Washington D.C. and was given 10 years in jail. Meanwhile, just across the river from where Dorsey had committed his crime, executives from HSBC admitted before the U.S. Senate that they laundered billions in drug money, just as Wachovia had admitted to the previous year, with no one going to prison. The lesson from this is clear: if you are poor, black, and are caught with a couple grams of crack-cocaine, you can expect to go to prison for several years (or in this case, a decade); but if you are rich, white, own a bank, and are caught laundering billions of dollars (or hundreds of billions of dollars) in drug money, you will be fined (but not enough to make such practices unprofitable), and may have to resign. Too big to fail is simply another way of saying “too big to jail.”
Of course, it’s not fair to put all the blame for international drug money-laundering on the shoulders of HSBC and Wachovia, as Bloomberg reported, Mexican drug cartels also funneled money through the Bank of America and even the banking branch of American Express, Banco Santander, and Citigroup. Even the FBI has accused Bank of America of laundering Mexican drug cartel funds. But it’s not just drug money that banks launder; all sorts of illicit funds are laundered through major banks, many of which have been fined or are now being investigated for their criminal activities, including JPMorgan, Standard Chartered, Credit Suisse, Lloyds, Barclays, ING, and the Royal Bank of Scotland, among others. Another major Swiss bank, UBS, has been very consistent in committing fraud and engaging in various conspiracies, a great deal of which was committed against Americans, though the bank was given “conditional immunity” from the U.S. Department of Justice.
Financial Fraud and the ‘Get Out of Jail Free Card’
The major banks of the world have been caught in conspiracies of ripping off small towns and cities across the United States, which allowed banks like JPMorgan Chase, GE Capital, UBS, Bank of America, Lehman Brothers, Wachovia, Bear Stearns, and others, to steal billions of dollars from schools, hospitals, libraries, and nursing homes from “virtually every state, district and territory in the United States,” according to a court settlement on the issue. The theft was done through the manipulation of the public bidding process, something that the Mafia has become experts in with regards to garbage and construction industry contracts. In short, the banking system actually functions like a Mafia cartel system, not to mention, taking money from the Mafia and cartels themselves. Banks like JP Morgan Chase and Goldman Sachs engaged in bribery, fraud, and conspiracies which resulted in the bankruptcy of counties all across the United States. Still, they continue to be ‘respected’ by the political class which refuses to punish them for their criminal activity, and instead, rewards them with bailouts and follows their instructions for policy.
Over the summer of 2012, another major banking scandal hit the headlines, regarding the manipulation of the London inter-bank lending rate known as the Libor. The Libor rate, explained the Economist, “determines the prices that people and corporations around the world pay for loans or receive for their savings,” as it is used as a benchmark for establishing payments on an $800 trillion derivatives market, covering everything from interest rate derivatives to mortgages. Essentially, the Libor is the interest rate at which banks lend to each other on the short term, and is established through an “honour system” of where 18 major banks report their daily rates, from which an average is calculated. That average becomes the Libor rate, and reverberates throughout the entire global economy, setting a benchmark for a massive amount of transactions in the global derivatives market. Whereas the derivatives market is a massive casino of unregulated speculation, the Libor scandal revealed the cartel that owns the casino.
The scandal began with Barclays, a 300-year old bank in Britain, revealing that several employees had been involved in rigging the Libor to suit their own needs. More banks quickly became implemented, and countries all over the world began opening investigations into this scandal and the role their own banks may have played in it. By early July, as many as 20 major banks were named in various investigations or lawsuits related to the rigging of the Libor.
Among the major global banks which are being investigated by U.S. prosecutors are Barclays, Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, HSBC, UBS, Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds Banking Group, Rabobank, Royal Bank of Canada, Société Générale, and others. Prosecutors in the U.S., U.K., Canada and Japan were investigating collusion between the major banks on the manipulation of the Libor. In June of 2012, Barclays paid a fine to US and UK authorities, admitting its culpability in the rigging with a $450 million settlement. With information and documents pouring out, implicating further banks and institutions in the scandal, a general consensus was emerging that the Libor had been manipulated since at least 2005, though, as one former Morgan Stanley trader wrote in the Financial Times, the rigging had began as early as 1991, if not before. The British Banker’s Association was responsible for setting the Libor rate by polling roughly 18 major banks on their highest and lowest rates daily. Thus, rigging by one bank would require the co-operating of at least nine other banks in purposely manipulating their rates in order to have any effect upon the Libor. Douglas Keenan, the former Morgan Stanley trader, wrote that, “it seems the misreporting of Libor rates may have been common practice since at least 1991.”
Rolf Majcen, the head of a hedge fund called FTC Capital told Der Spiegel that, “the Libor manipulation is presumably the biggest financial scandal ever.” As regulators were using words like “organized fraud” and “banksters” to describe the growing scandal, it was becoming common to refer to the major banks as functioning like a “cartel” or “mafia.” The CEO of Barclays, Bob Diamond, resigned in disgrace, as did Marcus Agius, the Chairman of Barclays (who also serves as a director on the board of BBC, and is married into the Rothschild banking dynasty). The “cartel” manipulated the Libor for a great number of reasons, among them, to appear to be in better health by rigging their credit ratings upwards. The Business Insider referred to the Libor rigging as a “criminal conspiracy” from the start, essentially designed to promote manipulation as the Libor was determined by an “honor system” for banks to properly report their rates. Imagine giving a pile of credit cards to a group of credit card fraud convicts and establishing an “honour system.” Could one truly be surprised if it didn’t work out? Well, the Libor scandal is effectively based upon the same logic, except that the repercussions are global in scope.
Traders at the Royal Bank of Scotland referenced, in internal emails, to their participation in operating a “cartel” that made “amazing” amounts of money through the manipulation of interest rates, with a former senior trader at RBS writing that managers at the bank had “condoned collusion.” The same trader, who was later hung out to dry by RBS as a scapegoat, wrote in an email to a trader at Deutsche Bank that, “It is a cartel now in London,” where the Libor is established.
The cartel, however, did not simply include the major banks, but also required the cooperation or at least negligence of regulators and central banks. Documents released by the Federal Reserve Bank of New York and the Bank of England show correspondence between then-President of the NY Fed Timothy Geithner (who is now Obama’s Treasury Secretary) and Bank of England Governor Mervyn King discussing how Barclays was manipulating the Libor rates during the 2008 financial crisis. While the NY Fed corresponded with both the Bank of England and Barclays itself on the acknowledgment of interest rate manipulation, it never told the bank to stop the rigging practice. An official at Barclays even informed the NYFed in 2008 that the bank was under-reporting the rate at which it could borrow from other banks so that Barclays could “avoid the stigma” of appearing to be weaker than its peers, adding that “other participating banks were also under-reporting their Libor submissions.”
A Barclays employee told the New York Fed in an April 2008 phone call that, “We know that we’re not posting um, an honest Libor… and yet we are doing it, because, um, if we didn’t do it, it draws, um, unwanted attention on ourselves.” The New York Fed official replied: “You have to accept it… I understand. Despite it’s against what you would like to do. I understand completely.” Several months later, a Barclays employee told a New York Fed official that the Libor rates were still “absolute rubbish.”
While the New York Fed expressed sympathy for the poor and helpless global banks need to engage in fraud and interest rate manipulation in order to lie and appear to be healthier than it was, the Bank of England went a step further, when Paul Tucker, the head of markets at the BoE wrote a note to Barclays CEO Bob Diamond in 2008 suggesting that Barclays lower its Libor rate, thus encouraging the rigging itself, instead of just expressing sympathy for the “need” to commit fraud.
The main British banking lobby group, the British Banker’s Association (BBA), which was responsible for overseeing the Libor rate process (no conflict of interest there, right?), was, in late September of 2012, stripped of its right to oversee the Libor, to be replaced with a formal regulator. The BBA’s “oversight” of Libor dates back to 1984, when the City of London (Britain’s Wall Street) had begun an experiment to establish a new way of setting interest rates, asking the banking lobby group to set the rate in 1986 when the Libor began. The BBA’s Foreign Exchange and Money Markets Committee is responsible for setting the Libor, and they meet every two months to review the process in secret without any minutes being published, and even the membership of the Committee is kept a secret. Spokespersons at Credit Suisse, Royal Bank of Scotland, and UBS refused to comment on whether they had any representatives on the committee, while Barclays, Deutsche Bank, HSBC, Bank of America and Citigroup didn’t even respond to emailed inquiries about their involvement with the committee, as Bloomberg reported. A British regulator, in the understatement of the century, stated, “There is an apparent lack of transparency,” adding that the BBA’s committee “doesn’t appear to be sufficiently open and transparent to provide the necessary degree of accountability to firms and markets with a direct interest in being assured of the integrity of Libor.” When the fox guards the henhouse, it takes a great deal of stupidity to be “surprised” when some hens go missing.
In an April 2008 meeting with officials at the Bank of England, Angela Knight, the head of the British Banker’s Association, suggested that the BBA perhaps should no longer be responsible for oversight of “the world’s most important number,” which had become too big for the BBA to manage. No one at the meeting cared enough to do anything about it, however, and so nothing changed. Where was the incentive to change the system, after all? Yes, massive fraud was taking place, and this was well understood by the banks committing it, as well as the regulators and central banks overseeing it. But on the plus side, everyone was getting away with it. So indeed, there was no incentive to change the system. From the point of view of those managing it, the Libor was functioning as it should. A cartel was established because a cartel was desired. The fact that it was all highly illegal, fraudulent, and immoral was – and is – beside the point. Mexican drug cartels do not worry about the legality of their operations because they are, by definition, illegal. They worry simply about getting away with their illegal operations. The same can be said for the global banking cartel. So long as they get away with criminal cartel operations, there is no incentive to change the system, and instead, there is only an incentive to expand and further entrench the cartel’s operations.
Canada’s antitrust regulator began an investigation into the “international cartel” of banks rigging the Libor, focusing on the role played by banks such as JP Morgan Chase, Royal bank of Scotland, Deutsche Bank, HSBC, and Citigroup, among others. A law professor at the University of Toronto who was hired by the regulator to study the case commented that, “international cartels are of a significant concern for the Canadian economy.” We have truly reached an impressive circumstance when the actual regulators of the banks refer to the banking system as an “international cartel.”
A lawsuit was being filed by several homeowners in the U.S. who were attempting to sue some of the world’s largest banks for fraud, as the Libor manipulation sparked increases on their mortgages, resulting in illegal profits for banks. The class action lawsuit filed in New York in October of 2012 accused banks such as Bank of America, Citigroup, Barclays, UBS, JPMorgan Chase, Deutsche Bank and others of fraud over a period of ten years. For U.S. states and municipalities that bought interest-rate swaps before the financial crisis, the Libor rigging was poised to more than double their losses. Banks had sold roughly $500 billion of interest-rate swaps (in the derivatives market) to municipalities before the financial crisis, with roughly $200 billion of those swaps tied to the Libor. As one legal expert who studies derivatives told Bloomberg, “Almost all interest-rate swaps begin with Libor.” This prompted several states in the U.S. to begin their own investigations into how the Libor-rigging may have negatively affected them.
Punishing the World’s Population into Poverty: Life Under the Global Cartel
While the global cartel of criminal banks rig rates, launder drug money, fund terrorists, engage in bribery, fraud and demand multi-trillion dollar bailouts from our governments (effectively selling their bad debts to the public), and then give themselves massive bonuses, they are also demanding – through what is called “market discipline” – that our governments deal with our debts by undertaking policies of “austerity” and “structural reform,” which are euphemisms for impoverishment and exploitation. Thus, after the cartel helped create a massive financial crisis, and after our governments rewarded them for their criminal activity, the cartel now demands that our governments punish their populations into poverty and open their economies, resources and labour up for cheap and easy exploitation by banks and multinational corporations. This is referred to as the “solution” for getting out of the ‘Great Recession,’ and which is sure to great a Great Depression. Greece is now two and a half years into its “austerity” and “adjustment” reforms, with its debt growing as a result, poverty exploding, misery spreading, health, education, welfare rapidly declining, suicide rates and hunger increasing, as the Greek people are subjected to a program of “social genocide.” Market discipline demands austerity and adjustment, or in other words, class warfare creates poverty and exploitation.
Countries that refuse to implement programs of austerity and adjustment are subjected to financial terrorism by the “international cartel,” as financial markets engage in “market discipline” by using the derivatives market to speculate against that particular country’s ability to pay its interest or debt, thus making its credit ratings decrease and borrowing rates increase, plunging the country into a deeper crisis. In any other scenario, this is called terrorism or in the very least, extortion: do what I say or I will punish you and destroy you. This is what former U.S. Treasury official Roger Altman referred to in the Financial Times as the new “global supra-government” who can “force austerity, banking bail-outs and other major policy changes,” and thus, “have become the most powerful force on earth.” Countries, regional, and international organizations all bow down to the dictates of the “international cartel” of the “global supra-government,” and so countries like Greece, Spain, Ireland, Italy, and Portugal, organizations like the European Union, European Central Bank, powerful states like Germany, France, Britain, and the U.S., and other international organizations like the IMF, Bank for International Settlements, and the OECD all demand and implement austerity measures and structural “reforms.” Either they follow the orders of the “cartel” – which we commonly refer to as the “invisible hand” of the “free market – or they directly challenge “the most powerful force on earth.” In the global economy, a small country like Greece standing up to the “global supra-government” is much like a small Greek restaurant trying to stand up to the city Mafia.
In the U.S., states that were defrauded in the billions of dollars by the cartel, and took on major debts as a result, are now the harbingers of austerity in America. Beginning in 2010, roughly 20 states across the U.S. began implementing austerity measures, and have been doing much worse economically as a result (the predicted effect of austerity). Even the institutions which are the most militant in demanding austerity measures, such as the European Union and the IMF, have acknowledged in recent reports that countries which pursue austerity to supposedly reduce their debts end up getting much larger debts as a result, and that such measures are actually extremely damaging to economies. This is not news, of course, since there is a rather large sample of data from the past 30 years of forced austerity and adjustment measures across Africa, Asia, and Latin America (at the behest of the IMF, World Bank, western governments, and of course, the “cartel”), which show quite clearly the effect that austerity and adjustment have in rapidly expanding poverty and facilitating exploitation. As austerity is hitting several U.S. states, jobs are lost and poverty increases with debt, standards of living decline and the recession deepens into a depression. The population is essentially punished for the crimes of the global cartel, while public employees, pensioners, welfare recipients, teachers and workers get the blame.
In late October of 2012, the CEOs of 80 major corporations and banks in the United States banded together (as any well functioning cartel does) in order to pressure Congress, regardless of who the next President is, to pursue an agenda of harsh austerity measures and structural reforms. In a statement to Congress signed by the 80 CEOs, the American branch of the global cartel (its most significant branch), demanded that policies be enacted immediately, though implemented gradually, “to give Americans time to prepare for the changes in the federal budget.” Among the demands are to reform Medicare and Medicaid, healthcare, Social Security, increase taxes, and generally reduce spending. All of this amounts to a large federal program of austerity, to cut social spending and increase taxes on the population, thus impoverishing the population. This, in the words of the letter to Congress, “must be bipartisan and reforms to all areas of the budget should be included.” Among the signatories to the letter were the CEOs of AT&T, Bank of America, BlackRock, Boeing, Caterpillar, Dow Chemical Company, General Electric, Goldman Sachs, JPMorgan Chase, Merck, Microsoft, Motorola, Time Warner, and Verizon, among many others.
This followed roughly one week after a group of 15 major global bank CEOs sent a letter to President Obama and the U.S. Congress lecturing the U.S. political class on “moral authority,” giving their formal orders to the U.S. political establishment, that regardless of Democratic or Republican administrations, they are losing patience with the democratic apparatus of the state, and warned: “The solvency, productive capacity, and stability of the United States, as well as its moral authority as a global leader, require that its fiscal challenges be credibly met.” Among the signatories to the letter were the CEOs of Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The Wall Street Journal, reporting on this letter, commented that even for “a dying democracy, it’s embarrassing enough to see bankers telling our government what to do,” but in this letter, “we even see foreign bankers telling our government what to do,” as other CEOs of the global cartel signed the letter, from banks such as UBS, Credit Suisse, and Deutsche Bank. The “consequences of inaction” on the U.S. debt, read the letter, “would be very grave.” In other words, the U.S. political class has received a threat from the global cartel that it is now time to implement austerity and adjustment measures, or to face the consequences of financial terrorism.
Hiding the Loot: The Offshore Economy in the Age of the Global Plutonomy
While people are being forced into poverty to pay off the bad debts of the “super-entity” global banking cartel of drug-money laundering banks which make up the “global supra-government,” the richest people in the world have been hiding their wealth in offshore tax havens, and of course, with the help of those same banks. James Henry, a former chief economist at McKinsey, a major global consultancy, published a major report on tax havens in July of 2012 for the Tax Justice Network, compiling data from the Bank for International Settlements (BIS), the IMF and other private sector entities which revealed that the world’s superrich have hidden between $21 and $32 trillion offshore to avoid taxation. Henry stated: “This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries.” John Christensen of the Tax Justice Network commented that, “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people… This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.” Roughly 92,000 of the super-rich, globally, hold at least $10 trillion in offshore wealth. In many cases, the worth of these offshore assets far exceeds the debts of the countries that they flow from, the same debts that are used to keep these countries and their populations in poverty and a constant state of exploitation.
The estimated total of hidden offshore wealth amounts to more than the combined GDP of the United States and Japan, hidden in secretive financial jurisdictions like Switzerland and the Cayman Islands. The process of hiding this wealth is largely facilitated by the major global banks, which compete with one another to attract the assets of the world’s super-rich. James Henry explained that the wealth of the world’s super-rich is “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy;” more of that “free market” magic. The top ten banks in the world, which include UBS and Credit Suisse (based in Switzerland) as well as Goldman Sachs in the United States, collectively managed roughly $6.4 trillion in offshore accounts for 2010 alone. As the report revealed, “for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world,” debts which are largely illegitimate as it stands. This trend is exacerbated in the oil-rich states of the world such as Nigeria, Russia, and Saudi Arabia. The report stated: “The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments.” With roughly half of the world’s offshore wealth belonging to the top 92,000 richest individuals, they represent the top 0.001%, a far more extreme global disparity than that which is invoked by the Occupy movement’s 1% paradigm. Henry commented: “The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy.” Remember, “free market” means that those who own the market (the global cartel), and free to do anything they please.
A 2005 report from Citigroup coined the term “plutonomy,” to describe countries “where economic growth is powered by and largely consumed by the wealthy few,” and specifically identified the U.K., Canada, Australia, and the United States as four plutonomies. Keeping in mind that the report was published three years before the onset of the financial crisis in 2008, the Citigroup report stated: “Asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries,” and that, “the rich are in great shape, financially.” It’s only everyone else that is suffering, which by definition, is a “well functioning” economy. As the Federal Reserve reported, “the nation’s top 1% of households own more than half the nation’s stocks,” and “they also control more than $16 trillion in wealth — more than the bottom 90%.” The term ‘Plutonomy’ is specifically used to “describe a country that is defined by massive income and wealth inequality,” and that they have three basic characteristics, according to the Citigroup report:
1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”
2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” [Citigroup strategist Ajay] Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.
3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.
Kapur, who authored the Citigroup report, stated that there were also risks to the Plutonomy, “including war, inflation, financial crises, the end of the technological revolution and populist political pressure,” yet, “the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.”
In February of 2011, Ajay Kapur, the author of the Citigroup report who is now with Deutsche Bank, gave an interview in which he explained that, “the world economy is even more dependent on the spending and consumption of the rich,” and that, “Plutonomist consumption is almost 10 times as volatile that of the average consumer.” He further explained that increased debt levels are a sign of plutonomies:
We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.
The plutonomy is largely characterized by a lack of a consuming and vibrant middle class. This is a trend that has been accelerating for several decades, particularly in North America and Britain, where the middle class population is heavily indebted. The middle class has existed as a consumer class, keeping the lower class submissive, and keeping the upper class secure and wealthy by consuming their products, produced with the labour of the lower class.
The most advanced plutonomies in the world are the most advanced industrial and technological nations, where the major corporations and banks are highly subsidized and protected by the state, as is typical for a state-capitalist society. While the industrial and rich northern state-capitalist societies were able to industrialize and grow rich through highly protectionist measures, the poor south of the world (Africa, Asia, Latin America) were subjected to “free market” policies which opened up their economies to be exploited and plundered by the rich northern nations. No country has ever become an industrial power by implementing free market policies, but rather, by doing the exact opposite: heavy subsidies and state protection for key industries, technologies, and corporate entities.
While the ‘Third World’ was forced to implement “free market” policies in order to get loans, the predictable result took place: mass impoverishment and exploitation. The ‘Third World’ states were run by tiny elites who dominated the countries politically and economically, and who hid their stolen wealth in foreign banks and offshore tax havens. Now, in the midst of the global economic crisis which has been ravaging the world for the past four years, the rich northern countries are themselves implementing the same “free market” policies, though designed to subject their populations to “market discipline” while maintaining – and in fact increasing – the protectionist and subsidized policies for the multinational corporations and banks. It is important to note that “market discipline” and actual “free market” policies are exclusively designed for the general population, not the elite. Workers, students, the elderly, the poor and the many are to be subjected to “market discipline” while the banks and multinational corporations continue to be heavily subsidized (as the largest national welfare recipients) and protected by the state. Thus, just as our banks and corporations have plundered the Third World with rapacious delight over the past three decades, now they will be able to do the same to the populations of the rich nations themselves. The state will transform, as it did in the ‘Third World’, into a typically totalitarian institution which is responsible for protecting the super-rich and controlling, oppressing, or, in extreme cases of resistance, eliminating the ‘problem populations’ (i.e., the people).
Welcome to the global plutonomy in the age of austerity, the result of living under – and tolerating – a global “super-entity” corporate-financial cartel. Truly, one must pause and, if only for a moment, appreciate the ability of this global cartel to function so effectively in spite of its blatant criminal activities, and face almost absolutely no repercussions. Something truly is wrong with a society when a poor black man caught with 5 grams of crack-cocaine goes to prison for ten years, while rich white bank executives admit to laundering billions of dollars in drug money and receive only a fine and a slap on the wrist (maybe).
The lesson is clear: if you are a thief, steal by the billions or trillions, and then no one can do anything about it. If you are in the drug trade: handle only billions (or hundreds of billions) in drug money, and then you will get away with it. If you don’t want to pay taxes, be a member of the top o.oo1% of the world’s super-rich and hide your billions in offshore tax-free accounts. If you want more, create a global economic crisis, demand to be saved by the state to the tune of tens of trillions of dollars, and then, tell the state to punish their populations into poverty in order to pay for your mistakes.
In other words, if you want to indulge your criminal fantasies, lie and steal, profit from death and drugs, dominate and demand, be king and command, become the highly-functioning socially-acceptable sociopath you always knew you could be… think big. Think BANK. Serial killers, bank robbers and drug dealers go to jail; bankers get bailouts and get an unlimited insurance policy called “too big to fail.”
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
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