Nov 062016
 

By Eric Toussaint, 99GetSmart

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In 1823, the government of the United States adopted the Monroe Doctrine. Named after a Republican president of the USA, James Monroe, it condemns any European intervention in the affairs of “the Americas.” In reality, the Monroe Doctrine served as cover for a policy of more and more aggressive conquests on the part of the USA to the detriment of the new independent Latin American States, beginning with the annexing of a large part of Mexico in 1840s (Texas, New Mexico, Arizona, California, Colorado, Nevada and Utah). North American troops occupied Mexico’s capital city in September 1847. It should also be pointed out that the government of the USA attempted to exterminate all native peoples, the “redskins,” who refused to submit. And those who did submit were still subjected to atrocities, and ended up on reservations.

Territories lost by Mexico in favor of the United States in 1848

Territories lost by Mexico in favor of the United States in 1848

In 1898, as we have seen, the United States declared war on Spain and took control of Cuba and Puerto Rico. 

In 1902, in contradiction of the Monroe Doctrine, Washington did not come to the defence of Venezuela when it was the victim of armed aggression by Germany, Britain, Italy and Holland with the goal of forcing the country to repay debt. Then the United States intervened diplomatically to see to it that Caracas resumed debt repayment. This attitude on the part of Washington gave rise to a major controversy with Latin American governments, and in particular with the Argentine Minister of Foreign Affairs, Luis M. Drago, who declared: “The principle I would like see recognized is that] a public debt cannot give rise to the right of armed intervention, and much less to the occupation of the soil of any American nation by any European power.” This principle was to become known as the Drago doctrine. The debate among governments ended in an international conference at The Hague which led to the adoption of the Drago-Porter Convention (from the name of Horace Porter, a United States soldier and diplomat) in 1907. It called for arbitration to be the first means of solving conflicts: any State signing the Convention must agree to submit to an arbitration procedure and participate in it in good faith, failing which the State demanding repayment of its debt would have the right to use armed force.

In 1903, President Theodore Roosevelt organised the creation of Panama, which was separated from Colombia against the country’s will. This was done to allow the Panama Canal to be built under Washington’s control.

In 1904, the same president announced that the United States considered itself to be the policeman of the Americas. He pronounced what is known as the “Roosevelt Corollary to the Monroe Doctrine”: “Chronic wrongdoing, or an impotence which results in a general loosening of the ties of civilized society, may in America, as elsewhere, ultimately require intervention by some civilized nation, and in the Western Hemisphere the adherence of the United States to the Monroe Doctrine may force the United States, however reluctantly, in flagrant cases of such wrongdoing or impotence, to the exercise of an international police power.” |1|

Theodore Roosevelt (center, left) and the “Rough Riders” in Cuba, 1898

Theodore Roosevelt (center, left) and the “Rough Riders” in Cuba, 1898

In 1915 the United States invaded Haiti under the pretext of recovering debts and occupied the country until 1934. Eduardo Galeano writes: “the United States occupied Haiti for twenty years and, in that black country that had been the scene of the first victorious slave revolt, introduced racial segregation and forced labor, killed 1,500 workers in one of its repressive operations (according to a U.S. Senate investigation in 1922), and when the local government refused to turn the Banco Nacional into a branch of New York’s National City Bank, suspended the salaries of the president and his ministers so that they might think again” |2|.

Other armed interventions by the United States took place during the same period, but an exhaustive list would be too long.

US military interventions in Latin America, 1898 - 1939

US military interventions in Latin America, 1898 – 1939

This brief summary of the intervention and policies of the United States in the Americas in the 19th and early 20th centuries gives us an understanding of Washington’s true motives in the debt repudiations in Cuba in 1898 (see The USA’s repudiation of the debt demanded by Spain from Cuba in 1898: What about Greece, Cyprus, Portugal, etc.?) and Costa Rica in the 1920s (see What other countries can learn from Costa Rica’s debt repudiation).

General Smedley Butler, author of “War is a Racket"

General Smedley Butler, author of “War is a Racket”

In 1935, Major General Smedley D. Butler, who took part in many US expeditions in the Americas, writing during his retirement, describes Washington’s policies as follows: “I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903.” |3|

Translated by Snake Arbusto

Footnotes

|1https://en.wikipedia.org/wiki/Roose…

|2| Eduardo Galeano, Open Veins of Latin America: Five Centuries of the Pillage of a Continent, Monthly Review Press, 1973, translated by Cedric Belfrage, online editionop. cit., p. 108.

|3| Published in Common Sense, November 1935. See Leo Huberman, Man’s Worldly Goods. The Story of the Wealth of Nations, New York, 1936. Note that an American military base in Okinawa bears the name of Smedley D. Butler. His confession cannot help but remind one of John Perkins’s Confessions of an Economic Hit Man. The shocking story of how America really took over the world, Ebury Press, 2005.

Eric Toussaint

Eric Toussaint

Eric Toussaint is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Sep 152015
 

By Eric Toussaint, CADTM, 99GetSmart

Eric Toussaint, CADTM

Eric Toussaint, CADTM

Another way is possible …

Chapter titles:

  • The Citizen Audit Commission of 2011
  • The position of SYRIZA’s leadership regarding the citizen audit committee of 2011
  • SYRIZA’s program in the legislative elections of May-June 2012
  • Late 2012: SYRIZA’s leadership moderates its positions
  • October 2013: Alexis Tsipras calls for a European conference on public debt
  • SYRIZA becomes the leading party in Greece with the May 2014 European elections
  • The January 2015 victory5.
  • The fatal agreement of 20 February 2015 with the institutional creditors
  • A different policy was desirable and possible
  • The Truth Committee on the Greek Public Debt is launched
  • The Greek government refrains from making use of the audit
  • From the referendum on 5 July to the agreement of 13 July 2015
  • The lessons of the capitulation of 13 July 2015
  • A parallel currency as part of “Plan B”

Subtitles in the video by snakearbusto

 

Aug 072013
 

Posted by greydogg, 99GetSmart

* FIRST CONGRESSMAN ALLOWED TO READ SECRET TREATY SAYS, “THIS … HANDS THE SOVEREIGNTY OF OUR COUNTRY OVER TO CORPORATE INTERESTS”

By Tyler Durden, zerohedge

[…] Yesterday, Congressman Alan Grayson (who knows how to read legislation … he was a successful lawyer before he was elected to Congress, and has written and co-sponsored numerous bills himself including the bill to audit the Federal Reserve and – most recently – the “Mind Your Own Business Act” to stop NSA spying) announced that he had been allowed to read the text of TPP – and that it is  an anti-American power grab by big corporations:

Last month, 10,000 of us submitted comments to the United States Trade Representative (USTR), in which we objected to new so-called free trade agreements. We asked that the government not sell out our democracy to corporate interests.

Because of this pressure, the USTR  finally let a member of Congress – little ole me, Alan Grayson [anyone who’s seen Grayson in action knows that he is formidable] – actually see the text of the Trans-Pacific Partnership (TPP). The TPP is a large, secret trade agreement that is being negotiated with many countries in East Asia and South America.

The TPP is nicknamed “NAFTA on steroids.”  Now that I’ve read it, I can see why. I can’t tell you what’s in the agreement, because the U.S. Trade Representative calls it classified. But I can tell you two things about it.

1)    There is no national security purpose in keeping this text secret.

2)    This agreement hands the sovereignty of our country over to corporate interests.

3)    What they can’t afford to tell the American public is that [the rest of this sentence is classified].

***

I will be fighting this agreement with everything I’ve got. And I know you’ll be there every step of the way.

***

Courage,

Congressman Alan Grayson

Grayson also noted:

It is ironic in a way that the government thinks it’s alright to have a record of every single call that an American makes, but not alright for an American citizen to know what sovereign powers the government is negotiating away.

***

Having seen what I’ve seen, I would characterize this as a gross abrogation of American sovereignty. And I would further characterize it as a punch in the face to the middle class of America. I think that’s fair to say from what I’ve seen so far. But I’m not allowed to tell you why!

Remember that one of the best definitions of fascism – the one used by Mussolini – is the “merger of state and corporate power”. Our nation has been moving in that direction for a number of years, where government and giant corporations are becoming more and more intertwined in a malignant, symbiotic relationship.   TPP would be the nail in the coffin for free market economics and democracy.

Note to progressives who support public banking: This is a key battle.

Note to those who oppose to what they call “one world government” or a “new world order”: This is the big fight.

READ / VIDEO @ http://www.zerohedge.com/contributed/2013-06-19/first-congressman-allowed-read-secret-treaty-says-“-hands-sovereignty-our-cou

MORE INFO ON THE TRANS PACIFIC PARTNERSHIP AGREEMENT (TPP) @ http://99getsmart.com/?p=3715

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* 8 WAYS PRIVATIZATION HAS FAILED AMERICA

By Paul Buchheit, CommonDreams

Privatization is fascism repackaged

Privatization is fascism repackaged

Some of America’s leading news analysts are beginning to recognize the fallacy of the “free market.” Said Ted Koppel, “We are privatizing ourselves into one disaster after another.” Fareed Zakaria admitted, “I am a big fan of the free market…But precisely because it is so powerful, in places where it doesn’t work well, it can cause huge distortions.” They’re right. A little analysis reveals that privatization doesn’t seem to work in any of the areas vital to the American public.

Health Care

Our private health care system is by far the most expensive system in the developed world. Forty-two percent of sick Americans skipped doctor’s visits and/or medication purchases in 2011 because of excessive costs. The price of common surgeries is anywhere from three to ten times higher in the U.S. than in Great Britain, Canada, France, or Germany. Some of the documented tales: a $15,000 charge for lab tests for which a Medicare patient would have paid a few hundred dollars; an $8,000 special stress test for which Medicare would have paid $554; and a $60,000 gall bladder operation, which was covered for $2,000 under a private policy. […]

Water

A Citigroup economist gushed, “Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.”

A 2009 analysis of water and sewer utilities by Food and Water Watch found that private companies charge up to 80 percent more for water and 100 percent more for sewer services. A more recent study confirms that privatization will generally “increase the long-term costs borne by the public.” Privatization is “shortsighted, irresponsible and costly.” […]

READ @ http://www.commondreams.org/view/2013/08/05

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* A 280,000% MARK UP FOR … WATER? A LOOK INSIDE THE BOTTLED WATER INDUSTRY

By Tyler Durden, zerohedge

fijibottledwater-copy-62

Imagine there was a time when bottled water didn’t exist in our catalog of popular commodities. Perhaps the trend started in 1976 when the chic French sparkling water, Perrier made its introduction. There it was seductively bottled in its emerald green glass amongst the era of disco and the spectacle of excesses… who could resist right?! What could be more decadent than to package, sell and consume what most consider (in the western world) a common human right easily supplied through a home faucet! It’s absurd that the cost of designer water is at a “280,000% markup” to your tap water and it’s reaching record heights in consumption.

15 The Beginning of the Insanity

It wasn’t until the 1990s when bottled H2O became an everyday common sight and a symbol of our cultural desire towards fitness and “health-consciousness”. Even today health enthusiasts claim drinking water often helps to “detox and boost the metabolism!”

There have been controversies about chemicals leeching into the water from the soft plastic material of bottles, but the FDA determined the containers “do not pose a health risk to consumers.” IBISWorld reports that the “U.S. is the largest consumer for bottled water in the world, followed by Mexico, China, and Brazil”.

14 The Bottled Water Scheme 

Regular drinking water competes with itself in a bottle, but reviewing the cost difference, you’ve got to wonder why or how? As for the water piped into your home or work place, it costs less than one penny per gallon! Fairfax Water organization, (FCWA) states, “The average price of water in the U.S. is about $1.50 for 1,000 gallons.”

Let’s look at your favorite 20 oz. bottled H2O, it will run you up to $3 per bottle at the corner convenience store and up to $4 at a posh restaurant or nightclub. If you buy bulk at Costo or other markets, the price averages are .31 cents per bottle, but that still remains enormously expensive when compared to tap water. Granted many don’t like tap water quality, but modern technology allows for an array of water filters.

In the mid-1990s, soda companies found that the niche market for bottled water could be huge, why not? The profits were obvious! Pepsi and Coca-Cola jumped into a race with their brands Aquafina and Dasani; they led the way to making bottled water what it is today. […]

READ @ http://www.zerohedge.com/news/2013-07-29/280000-mark-water-look-inside-bottled-water-industry

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* BANKS: FUDGED HEALTH REPORT

By Eric Toussaint, CADTM

arton9330-dda55

Part 9 of the series : Series: Banks versus the People: the Underside of a Rigged Game! and follow up of Banks bluff in a completely legal way, published the 19 June available here.

Neoliberal euphoria and Basel II

The Basel II accords were drafted at a time of neoliberal euphoria when capitalist bankers had obtained the cancellation of the few prudential rules that still remained from the 1930 Great Depression.

Basel II coincided with Alan Greenspan, chairman of the Federal Reserve, the US central bank, |1| speechifying about the ability of financial markets to regulate themselves and recommending the suppression of any constraint that still shackled the said bankers’ ‘creativity’.

The Basel II accords were implemented in 2004-2005, just before the outbreak of the financial crisis in 2007, and are still valid in 2013-2014. The Basel III accords that were drafted in 2010 as the crisis was deepening, and revised in 2011, |2| are still only at the stage of interpretation and negotiation. They are not to be fully implemented until 2018-2019. This is why it is really worth beginning by taking the time to understand the Basel II accords, whereas most commentators focus on the Basel III measures as though they were already effective. Supervising authorities, governments in cahoots with major private banks, and most of the media attempt to convince citizens that constraints have been imposed on the finance industry. This is a lie. As we shall see even the Basel III measures will not really change the slack regulations that allow banks to act as they please. Indeed banks will still be able to cook their books and fiddle their health reports thanks to the system whereby their assets are weighted relative to the degree of risk. They will also be allowed to legally trade off the balance sheet, and thus be prompted to take more risks. These two facts alone are enough to undermine the array of small measures that have been widely and loudly advertised. To show how harsh the Basel III standards are, banks grumble and try to get the authorities to soften the measures or delay their implementation. This is just taking the public for a ride. Leaders and supervisory authorities show how complicit they are with large private banks.

Before we turn to Basel III, let us examine the Basel II accords that are currently effective. […]

READ @ http://cadtm.org/Banks-Fudged-health-report

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* REDISTRIBUTING WEALTH IS THE WRONG WAY TO FIX A RIGGED GAME

By Conor Friedersdorf, The Atlantic

don't cheat full flickr

In my review of Twilight of the Elites, Chris Hayes’s thoughtful critique of American meritocracy, I largely agreed with his contention that the current system is frequently rigged by those at the top.

How should that be fixed? I’d prefer a polity constantly attuned to abuses of power and committed to tweaking the rules of the game in a constant effort to make them as neutral, fair, and equitable as possible. With apologies for the violence a one-sentence summary necessarily does to a subtle, book-length argument, Hayes emphasized the need for affirmative action and redistribution of wealth. Discouraged about the prospects of remedying unfairness, he wanted to address its consequences, causing me to worry that alleviating the symptoms would make the disease easier to ignore.

As I put it at the time:

If rich Americans are gaming the system to illegitimately increase their wealth, if they are pulling up the ladder so that they can never be replaced as elites, if they are too socially distant from the people over whose lives they wield great influence, and if they aren’t even punished like regular people when they break the rules, surely there are urgent policy changes needed that are a lot more targeted to reforming the elite than ‘raise their taxes and spread the wealth.’

Better to eliminate ill-gotten gains than to redistribute them. […]

READ @ http://www.theatlantic.com/politics/archive/2013/08/redistributing-wealth-is-the-wrong-way-to-fix-a-rigged-game/278391/

Apr 072013
 

By Marie Dufaux, Eric Toussaint, CADTM

images

This is a historical moment. On 23 and 24 March 2013, a coalition of left secular Tunisian political parties (in which there are 11 political formations) organised a meeting of Mediterranean region progressive parties to call for the abolition of the odious and illegitimate debts of Northern and Southern Mediterranean countries. Two half-days of debate produced a final declaration and were followed by a grand public conference bringing together over one thousand people and all the strength of the left-wing groups united for a common cause. |1|

Below are highlights of Eric Toussaint’s speech at this first Mediterranean coordination meeting against debt, austerity policies, and foreign domination, and for a free, united, democratic, social, solidarity-based, feminist, and environmentally responsible Mediterranean region.

Eric Toussaint, President of CADTM Belgium stressed that this budding political alliance is the continuation of the struggle initiated by Thomas Sankara, President of Burkina Faso, who was assassinated on the 15 October 1987, after he called on the people of Africa and the rest of the World to unite in a common combat for the non-payment of the illegitimate debt. It also extends the struggle of the martyrs of the Arab Spring, including Chokry Belaid, assassinated on 6 February 2013, not to forget Ahmed Ben Bella, the first President of independent Algeria, who died in April 2012, |2| and who, towards the end of his life, had made the abolition of illegitimate debt one of his principal struggles.

This new coordination is facing another major challenge. All too often, left-wing parties limit their engagement to a radical denouncement of illegitimate debt without giving the question further importance in their day to day public activities. Once they start to approach positions of power, some of them abandon their promises to put an end to illegitimate debt, and end up agreeing with the terms of repayment.

Eric Toussaint presented the initial definition of odious debt as debt taken on by a dictatorial regime such as that of Ben Ali. According to international law, when such a regime falls, the part of the debt that is odious falls with it, and therefore should not in any case be repaid. Of course, we must often fight for international law to be respected. To achieve this goal, only a strong social movement can convince a government to suspend payments and repudiate odious debt. It is therefore essential to create a favourable balance of power in order to defy the creditors.

Today, international law defines odious debt in terms of three criteria: |3|
the non-consent of the people in the indebted state;
the lack of advantages for the people in the indebted state;
the creditors were aware that the loans they consented were not in the interest of the people and were not approved by them.

The debt “owed” to the Troika (European Central Bank, European Commission and the IMF) by countries like Greece, Ireland, and Portugal should be denounced because it corresponds to these criteria: 1. The people in the countries concerned did not give their consent, and many governments elected on anti-austerity programmes bend to the will of the Troika once they are in power; 2. This debt is not favourable to the people, on the contrary, it is linked to violations of their economic, social, and civil rights (reductions in social services and wages, large scale lay-offs, difficulty in gaining access to health services and education, repeal of collective bargaining agreements, disregard for the democratic choices made by electors, legislative power that bows down to the executive); 3. The creditors (the Troika and bankers), know perfectly well that the loans they advance are not in the interest of the people, because they are made in order to pay off the debt and in exchange for drastic austerity measures. It is the Troika itself that imposes these violations of human rights and dictates its conditions to governments and parliaments of indebted countries.

As for the governments that have come into power since 2011 after the dictators Ben Ali and Mubarak, they have themselves taken on new debt, which is much more to the advantage of the creditors than to the people. This is done to pay back the odious debts inherited from the previous dictatorial regimes and to pursue policies weakening their countries. Therefore, this new debt is also odious.

Tunisia and Egypt are currently negotiating new arrangements with the IMF. |4| This is a fruitless process. If these loans are granted, they will be illegitimate for at least two reasons: they will be used to continue making repayments on inherited odious debt, and they will be linked to policies that are contrary to the interests of the people in these countries.

Other elements that may make a debt illegitimate

On the one hand, the debt may be the consequence of unjust fiscal policies. In real terms, states accord fiscal advantages to big (national and international) companies and the wealthiest households, this reduces tax revenues and deepens public budget deficits. These practices increase public debt, because the governments must again borrow in order to finance their budget. Debt taken on in these conditions is illegitimate to begin with because it is socially unjust.

On the other hand, it may derive from bank bail-outs. Since 2007, governments of the most industrialised countries have flown to the assistance of private banks, that are responsible for the crisis, injecting billions of euros into their capital and/or providing other guarantees. Any debt taken on to finance these bail-outs is equally illegitimate.

Creditors and governments maintain that debt must always be repaid without questioning its origins, even if they are illegitimate. Then they justify the imposition of anti-social austerity policies by insisting on the effort necessary to balance the budget. It is within this context that a growing percentage of the people in Mediterranean countries (and beyond) are rejecting the repayment of illegitimate debt. In some countries (Tunisia, Greece, Portugal, Spain, and France) citizens audits have been called for in order to identify the illegitimate part of public debt. They are seeking to establish how, why, and by whom the debt was taken on, and if it has really been used in the interest of the people. These citizens audit committees are seeking to convince as many people as possible that illegitimate debt must be repudiated.

Saying “NO” to the Creditors

It is possible and necessary to defy the International Financial Institutions and the Troika, to refuse the diktats of the private creditors in order to create leeway for improving the situation of a country and its people. As we can see in the following examples of several countries that have dared to say “No” to their creditors, it is worth being adamant.

Argentina’s suspension of debt repayments

At the end of December 2001, after three years of economic recession (1999 – 2001) and pressure from a massive popular rebellion that caused the fall of President De La Rua, Argentina decided to suspend payments, amounting to about $90 billion. This represented an important portion of its commercial debt.

Part of the money freed up was reinvested in the social sector, particularly in benefits paid to unemployed ’Piqueteros’. Some would claim that the real reason why Argentina recovered as of 2003-2004 is only because of the increase in the prices of its exports.

This affirmation is, however, false, because if Argentina had not suspended its debt repayments, the revenue from exports would have been swallowed up by them. The government would not have had the means necessary to stimulate economic activity. In addition, thanks to this suspension of payments that lasted until March 2005, Argentina was able to impose a 50% reduction of this debt on its creditors.

The CADTM, as well as numerous social movements and leftist parties proposed to Argentina to abolish, not only the debt that concerned private creditors, but also the IMF and other public creditors. The Argentine government did not follow this recommendation.

It is important to note that Argentina has also suspended payment of $6.5 billion to the Paris Club since 2001. So we see that twelve years later Argentina is still holding out against the Paris Club. In spite of the 44 law suits brought before the World Bank and recent threats of expulsion from the IMF, Buenos Aires maintains its position. Argentina has not borrowed on the financial markets since 2001, but the country continues to function!

The Argentine experience must not be misinterpreted. It is not to be taken as an example, and we always need to adopt a frankly critical point of view. The Argentine government has maintained Argentina within the bounds of capitalism, no structural reforms have been undertaken, Argentine economic growth is largely based on the extraction and the exportation of primary products (genetically modified soya beans, ores,…). Nevertheless, what Argentina has demonstrated is that saying “No” to the creditors is possible. Elsewhere, an authentic left-wing government could go much further on the basis of this precedent.

Ecuador: audit and suspension of payment

Ecuador gives us another example. In July 2007, seven months after his election, the Ecuadorian President Raphael Correa decided to instigate an audit of the country’s debt and the conditions in which it was contracted. An audit commission, made up of 18 experts including the CADTM, was created for this purpose. Its final report was presented after 14 months of investigation. It showed in particular that numerous loans had been contracted in violation of basic rules. In November 2008, the new administration, on the basis of this report decided to suspend the repayment of bonds payable in 2012 and 2030. Finally, the government of this small country came out on top in the tussle with North American bankers and those holding Ecuadorian securities. It repurchased bonds for less than $1 billion, which had a nominal value of $3.2 billion. Public finance thus saved $2.2 billion dollars of debt stock to which must be added $200 million a year (between 2008 and 2030) in interest payments. This allowed the government to allocate more means to social projects in health, education, social assistance, and communication infrastructure development. The Ecuadorian constitution now prohibits private debt from being transformed into public debt and illegitimate debt from being contracted. |5|

In addition, Ecuador no longer recognises the World Bank’s jurisdiction in international disputes court. It has rejected free trade treaty propositions from the US and UE. The Ecuadorian President has announced his intention to audit the current bi-lateral investment treaties. Finally, the Quito authorities have put an end to the US military presence on its territory.

In the case of Ecuador, we must again be careful not to hold up this ongoing experience as a model to be emulated. Critical analysis remains indispensable. Nonetheless, the Ecuadorian audit and unilateral suspension of payments experience shows that saying “No” to creditors is perfectly possible, and there are advantages to be gained in terms of making more means available for public health, education, and other sectors.

Iceland’: refusal to pay the demands made by the Netherlands and the UK

After its banking system collapsed in 2008, Iceland refused to compensate the British and Dutch savers who had put deposits amounting to €3.9 billion into subsidiaries of Iceland’s failed private banks. The British and Dutch authorities covered the losses to their citizens and presented the bill to Iceland. Under popular pressure (demonstrations, occupations, and referendums), the Reykjavik authorities refused to pay. Britain put Iceland on its terrorist list, froze its assets and, in conjunction with the Netherlands, sued Iceland the EFTA court. |6| Meanwhile, Iceland has completely blocked the outflow of capital. In the end, Iceland is faring better than the other European countries that accepted the conditions imposed by creditors. Here again we must not present Iceland as a model to be imitated, but learn from its experience.

These examples demonstrate that saying “NO” to creditors leads neither to catastrophe nor to the collapse of a country.

We must also recall that these experiences were preceded or accompanied by a popular movement that put pressure on the governments concerned. It is therefore important, as Eric Toussaint reminded us, that knowledge of this at times, complex question must conveyed to the whole of the population. The task of a public audit is to raise public awareness. The illegitimacy of public debt must become visible to the majority of people.

To conclude this workshop, Eric Toussaint repeated that the above examples are not to be taken to as political models to be followed, but that these experiences are a source of important political lessons!

Translation : Mike Krolikowski and Charles La Via

 

Footnotes

|1| See Pauline Imbach, “Tunis: Birth of a Common Front of Political Organisations Against Debt”,http://cadtm.org/Tunis-Birth-of-a-C…, published 25 March 2013.

|2| See Eric Toussaint, “Remembering Ahmed Ben Bella, first President of independent Algeria who passed away on the 11th April, 2012 at 96”, http://cadtm.org/Remembering-Ahmed-…, 12 April 2012.

|3| See CADTM, http://cadtm.org/Droits-devant, and in particular Stéphanie Jacquemont, “Que retenir du rapport de l’expert de l’ONU sur la dette et les droits humains ?”, http://cadtm.org/Que-retenir-du-rap… , 25 January 2013 (articles in French only).

|4http://www.imf.org/external/np/sec/…

|5| See Eric Toussaint, “La Constitution équatorienne : un modèle en matière d’endettement public”,http://cadtm.org/La-constitution-eq… , 27 December, 2010 (in French only).

|6| The EFTA (European Free Trade Association) court, which is in no way a progressive organisation, has judged in favour of Iceland’s position. See CADTM, “EFTA court dismisses ’Icesave’ claims against Iceland and its people”, http://cadtm.org/EFTA-court-dismiss…, 29 January 2013.

Feb 172013
 

By Éric Toussaint, CADTM

From the series: Banks versus the People: the Underside of a Rigged Game! (Part 5)

arton8820-535b1

 

“In order to facilitate the financing, insuring, and timeliness of all that trade, the volume of cross-border transactions in financial instruments has had to rise even faster than the trade itself. Wholly new forms of finance had to be invented or developed, credit derivatives, asset-backed securities, oil futures, and the like all make the world’s trading system function far more efficiently.

In many respects, the apparent stability of our global trade and financial system is a reaffirmation of the simple, time-tested principle promulgated by Adam Smith in 1776: Individuals trading freely with one another, following their own self-interest leads to a growing, stable economy.” Alan Greenspan |1|

The financial innovations presented as a panacea by Alan Greenspan have been a big flop, causing very serious economic and social damage. At the same time, the dictatorship of the markets and the ukases of the European troika have been infringing on the democratic rights of citizens everywhere. European treaties and the policies applied by successive governments have progressively chipped away at the peoples’ hard-won democratic rights: the legislative power has been increasingly dominated by the executive, the European parliament is a front piece for the European Commission, and there is less and less respect for what the electors try to say. Meanwhile, leaders hide behind the European treaties and repeat the old Thatcherite refrain: TINA (there is no alternative), to justify austerity and debt repayment. At the same time, they have been doing as much as possible to defy the economic and social rights conquered during the 20th century, on the one hand.(see Part 3 of this series); and, on the other hand, to prevent a new banking crisis from erupting. However, no seriously restrictive measures have been taken to impose a new discipline on banks and other financial institutions. The banks have not cleaned up their accounts since 2007-2008. Worse yet, they have been very active in creating new bubbles and new structured financial products.

In this fifth part of the series, |2| we look at how the banks have been bending over backwards to fund their activities, their almost total dependence on public assistance, the speculative bubbles that are in gestation, speculative financial innovations, the disastrous effects of the present banking system particularly in creating food crises, as well as the new risks that the modus operandi of banks has been creating for people. |3|

Medium- and long-term financing problems

We will first have a look at the financing side of bank operations, (i.e., bank liabilities), where banks are encountering big problems. Institutional investors (insurance companies, pension funds, other banks, and sovereign wealth funds among others) no longer have confidence in banks, and hesitate to buy their covered bonds issued in the hope of finding stable long-term financing. Even if some banks like France’s two biggest, BNP Paribas and Societe Generale or Spain’s second biggest bank BBVA, have found buyers for their bonds, the volumes issued in 2012 remain as low as in the previous years. According to the Financial Times, this might even be the worst year since 2002. |4|

As the banks cannot find sufficient long-term funding on the financial markets, they are vitally dependant on the 3-year ECB loans totalling €1 trillion at 1%, |5| and generally the liquidities made available by the central banks of the industrialised countries (particularly by the US Federal Reserve Bank, the ECB, Bank of England, National Bank of Switzerland, and the BoJ (Japanese Central Bank)).

Short-term financing problems

Much of their financing, other than deposit and savings accounts, which show no growth because of the crisis, must be found on the short-term market. According to the Liikanen report, the big European banks need €7 trillion from day to day. |6| The volume of banks’ short term debt increased significantly between 1998 and 2007, from €1.5 to €6 trillion, while from 2010 to 2012, it remained at €7 trillion! Where do banks find this short-term money? It is no longer, or hardly, available on the interbank markets, because the banks are too wary to lend each other money. They are thus dependent on Money Market Funds (MMFs) which have up to $2.7 trillion available for day-to-day trading depending on how the winds of crisis are blowing in Europe. |7| MMFs shut off the flow in June 2011, and reopen it when the ECB lent €1 trillion. |8| At any moment, they may close or restrict the flow again. The surest supply of funding is once again the central banks. The ECB has made massive loans at 0.75% (the current rate since May 2012).

The conclusion is clear: without the €1 trillion over three years and the day-to-day loans of the ECB and the national central banks linked into the Eurosystem (to which must be added the Bank of England and the National Bank of Switzerland), many big European banks would be menaced with suffocation and bankruptcy. This is more evidence that the banks have not cleaned up their accounts. They must find massive short-term funding, whereas they hold long-term assets of doubtful value. In many cases, the value of the assets on their balance sheets will not be realised when they come to maturity, and the losses suffered may absorb their whole capital.

The stock exchanges are blocked

Funding from the stock exchanges is also blocked The price of bank shares has dropped, on average, to a fifth of their 2007 level |9| (see charts in appendices). The institutional investors (insurance companies, pension funds, investment funds, banks, and others) are not inclined to buying shares of companies that are in bad shape. This is additional proof of the abysmal distance that exists between the theoretical functioning of capitalism as announced by its supporters and reality. In theory, the stock exchange is supposed to help listed companies gain access to long-term investment capital (shares are considered to be investments that must be kept for at least eight years). However, this scenario just doesn’t work, because the stock exchange is no longer a place where companies can find funding for a long time, but a place of pure speculation. That is why banks must be recapitalised with public money.

On other hand, according to the same theory, the stock exchange, by the price of its shares, is the real representation of a company’s value. From this point of view, the average 80% drop in the capitalisation value of banks suggests a very embarrassing revelation for their directors and for the pundits of the capitalist system.

We should also remember that banks use part of the cash supplied to them by the central banks to buy back their own shares. There are two reasons for this: to try to stop the value of their shares from falling, and to pay their shareholders for their shares. |10|

Banks funded by money coming from drug traffickingDrug trafficking money is another source used to fund banks. On 26 January, 2009, Antonio Maria Costa, Executive Director of the United Nations Office on Drugs and Crime (UNODC), declared to the on-line Austrian magazine profil.at |11| that some interbank loans were recently funded “by money from drug trafficking and other illegal activities.” Very recently, in December 2012, HSBC (UK, the second largest bank in the world in terms of assets) accepted to pay a record fine of $1.92 billion |12| to US authorities to put an end to the lawsuits being brought against it, in particular for charges of laundering money for the Mexican drug cartels. |13|

Time bombs in European and US bank assets

As seen above, banks assets are in reality, large financial time bombs that are already ticking.
In Europe, 70% of the structured financial products backed by commercial mortgages (CMBS – Commercial Mortgage-Backed Securities) that matured in 2012 were not paid! |14| These products were sold between 2004 and 2006, just before the subprime bubble burst, and they come to maturity from 2012 to 2014. According to the Fitch rating agency, only 24 of the 122 CMBS that matured in the first 11 months of 2012 were paid. In 2013-2014, the contracts that arrive at their term amount to €31.9 billion. In 2012, JP Morgan, the biggest US bank lost $5.8 billion on the European CMBS market through its London office because of the bad management by one of its agents nicknamed “the Whale”. |15| This did not stop Deutche bank or the Royal Bank of Scotland creating new CMBS for the European market! Why do these banks get involved in these operations? Because the high risk level is compensated by the expectation of higher returns than those on other products. Keep watch!

European and US banks still have several trillion dollars of residential mortgage-backed securities (MBS) on their balance sheets, notably subprime MBS and other categories of asset-backed securities (ABS). Banks have a hard time trying to unload these securities unless they accept important losses. At the end of December 2011, MBS could be sold for no more than 43% of their nominal value, but there were very few buyers. |16| Banks are very discrete about the exact volumes of MBS they hold on their balance sheets, and even more so concerning their off-balance sheet holdings.

Collateral loan obligations (CLO) are another structured product created during the period leading up to the subprime crisis, which raises concern while at the same time enticing the most aggressive European banks, such as the Royal Bank of Scotland into the fairy circle of high risk – high profits. CLOs were sold to gain funds for investors who wanted to buy companies by taking on more debt, playing on leverage to the maximum, which is known as a leveraged buy-out (LBO). These CLOs are now reaching maturity, and their owners are wondering how they will be paid. The European market is totally flat, but the US market has come back to life, selling $39 billion in 2012. Some European banks are also purchasing them because the possible gains are high given the risks involved. |17| Fragile, handle with care.

New bombs are being set

JP Morgan and other big banks have proposed to create structured products comparable to the subprime mortgages CDOs, for credit linked to international trade. Remember that Collateral Debt Obligations (CDOs) were created out of different types of mortgages, which the banks wanted to unload by securitising them (that is by transforming mortgages into a more easily tradable security). |18| JP Morgan wants to do it all over again with export credits instead of mortgages. It was this same bank that in 1994 created the ancestor of CDOs. |19| The export credit market is $10 trillion per year. JP Morgan is trying to persuade banks that are active in this market, to structure the credits into CDOs so as to render them more liquid. The official line is that this approach will reduce assets thereby reducing the leverage effect in accordance with the new Basel III regulations on the need to increase capital ratios (see Part 6 and the Basel III accords). In fact, for JP Morgan and the other big banks that are always seeking to achieve profitable financial innovation, this is a new mine to open and exploit on a major market. |20| Here again, if the JP Morgan strategy works well there are high prospects of more damage from a new bubble.

The frantic scramble for profit causes losses

A few examples illustrate the magnitude of the risks that banks continue to take. There was the blow to Societe Generale in France (€4.9 billion) resulting from the continual mishaps of its trader, Jerome Kerviel. This affair goes back to January 2008 and we might imagine that the banks would have since taken the lesson. Not at all! In September 2011, the Swiss bank UBS announced losses of $2.3 billion through unauthorised transactions by Kweku Adoboli, manager at Global Synthetic Equities Trading in London. Again in London, as mentioned above, JP Morgan’s “whale” lost $5.5 billion for “his” bank. These affairs are only the tip of the iceberg.

A speculative bubble has developed in Corporate Bonds

Many financial market observers and many fund managers consider that a speculative bubble has developed in the Corporate Bonds sector, bonds issued by big companies. There is thus, a new bubble forming on the debt of major corporations. Why has this $9.2 trillion market been creating a bubble? The return that banks and other institutional investors get from the United States treasury and the sovereign bonds of the main EU powers is at a historical low. The investors search around for a better sector, in which there is no apparent risk: corporate bonds of non financial companies gave a more attractive return of about 4.5%. Another reason that banks prefer to purchase obligations rather than take on loans is that obligations can be easily converted into cash on the secondary market if need be. |21| This rush on bonds caused a serious drop in their yield, which fell from 4.5% at the beginning of 2012 to 2.7% in September of that same year.

A major corporation like Nestle was able to issue €500 million in 4-year obligations offering no more than 0.75% p.a. This case is exceptional, but it shows that the rush on corporate bonds does exist. According to JP Morgan, the call for bonds is such that the yield on junk bonds was in free fall during the summer of 2012, dropping from 6.9% to 5.4%. If the trend continues, institutional investors may look elsewhere for better returns. |22|

The craving for profit is such that companies succeed in issuing PIK (Pay in Kind) bonds, which were trendy before 2006-2007 then found no new buyers until 2012. These bonds receive no interest until the capital is fully paid off. Of course, the promised final repayment is high, but there is a great risk that the company borrowing will not be in a position to either pay back interest or capital when the loan matures! It would in fact be prudent of a lender to ask why a company that is unable to pay regular interest over the duration of the loan will be able to repay the full amount at the end. |23| Once again the craving for profit and the availability of liquidity (because of central bank loans) has led to a keen interest for these high risk products.

The shortage of collateral |24|

Up to 2007-2008, the financial markets experienced a period of growth and exuberance. The Bankers and other institutional investors cross lent capital and structured products to each other in a joyful asset-go-round without any verification as to the credit worthiness or the capacities of those signing a contract to assume their responsibilities when it came to maturity. For example, bankers paid insurance premiums to Lehman Brothers and AIG to cover against the risk of payment defaults without first verifying whether they had the means to pay the indemnity if need be.

In most transactions, the borrower must put up an asset as a guarantee. This is called collateral. What often happened and still does is that the same collateral is used to guarantee several different transactions. A borrows from B and puts up collateral as a guarantee. B borrows from C and uses the same collateral as a guarantee, and so on. If the chain is broken anywhere, there is the risk of not finding the collateral. As long as the markets were euphoric and nobody asked embarrassing questions about collateral, business went on as usual. Since 2008, things have not quite been the same and the co-contractor who wants collateral may insist on having assurances that it is really available if need be, that its value is authentic and of that it is of good quality. Collateral circulates less and doubtful collateral is refused. |25|

It is reasonable not to accept toxic assets such as subprime CDOs as collateral. This has led to the beginning of a shortage of collateral. In 2011 and 2012, the Franco-Belgian financial company Dexia suffered from insufficiently good collateral, and was unable to cover its financial needs. In 2012, Dexia borrowed close to €35 billion from the ECB at 1% within the LTRO framework. The enormous loans from the ECB were insufficient, so Dexia, once again, turned to the French and Belgian States, in October-November 2012 for a €5 billion recapitalisation.

According to the Financial Times, Spanish banks have become experts in the creation of collateral. They create structured ABS products from doubtful mortgage credits and other equally doubtful products, and push them on the ECB as collateral for treasury needs. |26| So the ECB accepts this custom-made low quality collateral. This example offers more evidence of how the ECB bows down to the bankers.

In the context of collateral, we must also denounce the lies concerning government bonds that are supposedly giving the banks a headache. Government bonds are a much surer form of collateral than most private financial instruments. Banks do not hesitate to offer them as prime quality collateral for ECB loans.

Sovereign debts

Indeed, let us have another look at sovereign debt. Until now, it has not caused any banking catastrophes. Nevertheless, it is evident that in countries like Spain and Italy, the banks are making important purchases of the bonds issued by their own governments. They have two good reasons for acting in this way: on the one hand, they hold large amounts of liquidities lent by their central banks at very low interest rates (0.75 to 1%); on the other hand, their own country’s bonds are remunerated at much higher rates (4 to 7%). However, the austerity policies are so brutal that it is uncertain whether these governments will always be to pay them back. This problem is not an immediate threat, but the possibility of future difficulties must be considered. |27|

Sovereign debt is not the Achilles’ heel of private banksThe mainstream media permanently repeats the story told by bankers and politicians according to which sovereign debt represents a real danger. In order to clear up this issue and take away this old sovereign debt argument from those in power, who are using it to impose antisocial policies, we must develop convincing counter-arguments, which could be based on the data provided in this series. In a recent IMF report, |28| there is a chart on the percentage of sovereign debt in the assets of private banks in 6 key countries. According to this chart, government debt represents only 2% of the assets of British banks, |29| 5% for French banks, 6% for US and German banks, and 12% of the assets of Italian banks. Japan is the only country, among the 6 mentioned, in which government debt represents an important proportion of bank assets (25%). It is not every day that the IMF agrees with our arguments. However, the conclusion we draw from this data, and the one the IMF would clearly hesitate to make, is that it would be much easier to cancel illegitimate public debt than most people could imagine!

Shadow banking

One of the main causes of bank fragility is their off-balance sheet activities, which in some cases may be greater than their officially declared activities. The major banks continue creating ad hoc companies (Special Purpose Vehicles, MMFs) that are not considered as banks and do not have to comply with banking regulations. |30| Until now these companies could operate without control or, in the case of MMFs, with little control, lending to banks and conducting many kinds of speculative actions on a multitude of derivatives or raw materials (including foodstuffs) on futures markets or the over the counter (OTC) market, which is not regulated. The opacity is total or nearly so. Banks are not obliged to declare, in their accounts, the activities of the non-banking companies they create. The most dangerous activities are the ones conducted by Special Purpose Vehicles. If the losses of one of these companies causes their bankruptcy, the bank that created it is forced by its creditors to record this loss on its balance sheet, which may absorb the bank’s capital and cause it to go bankrupt (or perhaps be taken over by another bank or the government, or be given a public bailout). This is what has happened to Lehman Brothers, Merrill Lynch, Bear Stearns, the Royal Bank of Scotland, Dexia, Fortis, and several others since 2008.

Speculation on commodities |31|

Through their trading activities, banks are the biggest speculators on the over the counter and commodities futures markets. They have much greater means available than the other protagonists. See the website Commodity business awards (http://www.commoditybusinessawards….), where a list of important bankers and brokers on the commodities markets is available (whether on the commodities market where they are bought and sold, or on the underlying derivatives market). Among these banks, the ones most often mentioned are BNP Paribas, Morgan Stanley, Credit Suisse, Deutsche Bank, and Societe Generale.

What is more, the banks are trying to take direct control of the stocks of raw materials. This is the case of Credit Suisse which is associated with Glencore, |32| the world’s biggest raw materials brokerage company. Meanwhile, JP Morgan is seeking to purchase 61,800 tons of copper in order to influence copper market prices. |33|

These are the leading performers in the development of speculative bubbles formed on the commodities markets. |34| When the bubble bursts, the repercussions on the state of the banks will cause new damage. Not to mention, and much more seriously, the consequences on the people in the developing countries that export raw materials.

A look back at the fundamental role played by speculation in the dramatic increase in food and energy prices in 2007-2008Speculation on the principal markets in the United States on which world commodity prices are negotiated (farm products and raw materials) played a crucial role in the dramatic increase in food prices in 2007-2008. |35| These rising prices resulted in a big increase in the number of people suffering from hunger: more than 140 million additional people in one year, for a grand total of more than 1 billion (1 in 7 of the world’s population). Those involved in this speculation were not mavericks, they were institutional investors (or high rollers), including banks, |36| pension funds, investment funds, and insurance companies. Hedge funds |37| also played a role, even if they had much less impact than institutional investors. |38|

Michael W. Masters, who had been managing a Wall Street hedge fund for twelve years, provided evidence of this in his testimony before a Congressional commission in Washington on 20 May 2008. |39| He made the following declaration to this commission, which was making an official investigation into the possible role played by speculation in rising commodity prices: “You have asked the question ‘Are Institutional Investors contributing to food and energy price inflation?’ And my unequivocal answer is ‘YES’”. In his authoritative testimony, he explains that the increasing price of food and energy was not due to an inadequate supply but rather to a “demand shock” caused by the arrival of new participants in the commodities future market. On the futures market, participants buy the future production: the wheat that will be harvested in 1 or 2 years, or the oil that will be produced in 3 or 6 months. In “normal” times, the main participants in those markets are for example airline companies that buy kerosene, or food companies that buy grain. Michael W. Masters shows that in the United States, the capital allocated by institutional investors to the commodity index trading in futures markets rose from $13 billion dollars at the end of 2003 to $260 billion in March 2008. |40| During the same period of time, the prices of the 25 commodities that make up these market indices rose by 183%. He explains that it is a small market, |41| and if institutional investors such as pension funds and banks allocate 2% of their assets to it, this will change the situation drastically. The price of commodities on the futures market has an immediate repercussion on the actual price paid for these basic goods. He shows that institutional investors bought huge quantities of corn and wheat in 2007-2008, which produced a price spike.

It is worth noting that in 2008 the Commodity Futures Trading Commission (CFTC) considered that institutional investors should not be considered as speculators. The CFTC stated that institutional investors are commercial market participants, which enabled it to argue that speculation did not play a significant role in the dramatic rise in prices. Michael W. Masters is very critical of the CFTC, but Michael Greenberger, a Law professor at the University of Maryland, was even more adamant in his testimony before the Senate commission on 3 June 2008. Michael Greenberger, who was Head of the CFTC’s Division of Trading & Markets from 1997 to 1999, criticised the laxity of other CFTC Directors, who looked the other way when they saw manipulation of energy prices by institutional investors. He cites a series of declarations by CFTC Directors worth publishing in an anthology of hypocrisy and stupidity. Michael Greenberger considers that 80 to 90% of the stock market transactions in the US energy sector are speculative. |42|

On 22 September 2008, as financial turmoil was rocking the United States, and President Bush was proposing a $700 billion bank bailout plan, the price of soy beans shot up by 61.5% driven by speculation!

Jacques Berthelot also shows the crucial role played by bank speculation in the rising prices. |43| He gives the example of a Belgian bank, KBC, which ran an advertising campaign to market a new investment product offering customers the possibility to invest in six food raw materials. To convince its clients to put their money into its “KBC-Life MI Security Food Prices 3” investment fund, KBC’s advertisement encourages them to: “Take advantage of rising food commodity prices!” It presents the “shortage of water and farm land” as an “opportunity” since there is now a “shortage of food products, leading to rising food commodity prices.” |44|

Meanwhile, the US judicial system has ruled in favour of the speculators. This is what Paul Jorion denounces in an editorial published in Le Monde. He questions the decision made by a court in Washington on 29 September 2012, which rejected a proposal made by the CFTC “that aimed to limit the volume of positions a single participant can take on commodities futures market, so that he or she alone would not be able destabilise it.” |45|

Currency speculation

Banks are also the main participants on the currency markets, which they maintain in a permanent state of instability. Approximately 98% of foreign exchange activity is speculative. Only 2% is associated with the really productive economy, Foreign Direct Investments, effective international trade of goods and services, remittances by emigrants, and credit or debt repayment). Between €3 to €4 trillion transit daily through the foreign exchange markets! Banks also trade heavily on foreign exchange derivatives, which may cause considerable damage, not to mention the damage to society because of the instability of the currencies.

Over thirty years ago, James Tobin, long time advisor to US President J.F. Kennedy, suggested throwing sand into the wheels of international speculation. In spite of all the fine talk by some heads of States, the plague of foreign exchange rate speculation has worsened. Bank and other lobbies have so far averted having the smallest grain of sand disrupt their wheels from spinning or profits from accumulating. The decision taken in January 2013 by 11 eurozone governments to impose a tax of 0.1% on financial transactions is totally insufficient.

High–frequency trading

High-frequency trading enables orders to be passed on the markets in 0.1 milliseconds (one ten thousandth of a second). The “Regulations and banking activities separation act” put before the French national assembly by Pierre Moscovici, French finance and economy minister, on 19 December 2012 contains an interesting description of high-frequency trading: “High-frequency trading is a market activity entrusted to computers running on algorithms that combine observation and analysis of the market, and the placing of orders at ever higher frequencies. They may place several thousand orders per second on the same exchange platform, sometimes causing saturation. The risks are high in case of coding errors, these may cause absurd financial movements (the quasi-bankruptcy of the ’Knight Capital Group’ in August 2012 is an example). In 2011, high-frequency trading accounted for more than 60% of the orders on the Paris stock exchange, only 33% of which created a real transaction”. |46|

High-frequency trading is clearly linked to speculative operating: manipulate the financial markets in order to influence prices and extract a profit. Specialists are well aware of the most popular methods:

Quote Stuffing: “A tactic of quickly entering and withdrawing large orders in an attempt to flood the market with quotes that competitors have to process, thus causing them to lose their competitive edge in high frequency trading”. |47| |48|

Layering, high-frequency traders may use this method to sell a block of values at the highest possible price, they place a series of buying orders at price offers up to a ceiling price, and in this way create layers of orders, once the ceiling is reached they sell massively before the price has time to go down, and at the same time cancel the invalid orders. This process relies on the filling of their competitors sales ledger with offers to buy, and then surprising the market by inversing the movement. |49|

On 6 May 2010, Wall Street experienced a “flash crash” |50| typically caused by high-frequency trading including a ’quote stuffing’ operation. The Dow lost about 998.52 points (before recovering 600) between 2.42pm and 2.52pm. A fall of 9.2% in ten minutes, unprecedented in stock exchange history. This incident spotlights the involvement of high-frequency trading that corresponds to about two-thirds of transactions on Wall Street.

Such accidents will certainly happen again. The big banks that actively use high-frequency trading are opposed to banning the system or introducing any strict controls under the pretext of maintaining the greatest possible liquidity on the financial markets.

Proprietary trading

Proprietary trading: when banks trade for themselves, is an important banking activity, producing a great amount of revenue and profit, but carrying very heavy risks. Banks engage their own resources (equity, customer deposits, borrowings) to take positions (buy or sell) on the different financial markets: stocks and shares, interest rates, foreign currency, raw materials, derivatives, futures, forwards, commodities (including foodstuffs), and their futures and real estate. Trading is definitely a speculative venture, because it is based on short-term market movements greatly influenced by their own actions. One illustration of the speculative nature of trading is Societe Generale’s €4.9 billion loss in 2008 because of the positions, taken by one of its traders Jerome Kerviel, which engaged close to €50 billion. JP Morgan allowed $100 billion dollars to been engaged by a person on its London proprietary trading department staff known as the “Whale”. The sums involved by the banks in propriety trading action are so huge that the losses can menace the survival of the bank itself.

Short selling: another speculative activity

Short selling is the sale of a stock that we do not hold at the moment, but intend to buy later to balance the end of the account. For the Banque de France: “there are two kinds of short selling”:
• Covered short-selling: in this case, the seller has borrowed (or made a borrowing agreement for) the stock that he must eventually sell at the end of the operation. In fact, the stock that this person borrows will be sold, and he promises to return the same kind of stock to the lender;
• Naked or uncovered short selling: in this case, there is no borrowed stock or borrowing agreement before the sale of the stock. The seller must buy identical stock to be able to pass it on to the buyer”. |51|

According to the French banking federation, ’short “short selling is good for market vitality (…) it increases market cash flow.” |52| Who do they think they are kidding?

Who sells short and why?

Short selling is done by a large number of market participants, such as banks, hedge funds, and financial institutions such as pension funds and insurance companies among others. It is a purely speculative activity. A speculator gambles that the price of the share concerned will fall, and if his guess is right he purchases it at a lower price than that at which he sold it, and so makes a profit. This kind of practice undermines market stability. The sharp fall in the price of bank shares during the summer of 2011 was aggravated by short selling. It is easy to understand why this kind of activity should be quite simply prohibited. |53|

Leverage

As they systematically use leverage, their equity is small compared to the risks they take. From their point of view this is the desired situation: have the least possible amount of equity in proportion to their assets. A low general profit / assets ratio can produce a high profit/equity ratio, if the equity is as low as possible. Imagine a profit of €1.2 billion with assets of €100 billion, which means a profit of level of 1.2%. However, if compared to equity of €8 billion, this becomes 15% profit. If the bank using leverage, then borrows €200 billion on the financial markets to purchase further assets. the volume of assets becomes €300 billion, the equity has remained the same at €8 billion, while the liabilities have also risen by €200 billion. If the bank continues to make a profit of 1.2% that becomes €3.6 billion. With equity still at €8 billion that means a Return on Equity (ROE) of 45%. This is the fundamental reason to increase leverage by borrowing.

As we saw in Parts 2 and 4 of this series, apparently minimal losses may be quickly followed by disastrous effects and the need for a bailout. In this example, a loss of €8 billion on total assets of €300 billion (a loss of 2.66%) would wipe out the equity and result in bankruptcy. This happened to Lehman Brothers, Merrill Lynch, and the Royal Bank of Scotland, among others. The IMF’s Global Financial Stability Report published in October 2012, considers that the leverage of European banks is 23:1 without taking derivatives into account. A ratio of 23:1 considering only tangible assets (without derivatives) is very high! |54| The real leverage effect is even more important, because banks have debts and assets that are off-balance sheet (notably a significant amount of derivatives).

Conclusion: The big banks continue playing with fire, because they are persuaded that governments will save them whenever necessary. They do not encounter any serious opposition from the authorities as they continue to trade (this question will be discussed in Part 6). At the same time, they are playing an ongoing game of brinkmanship. In spite of their continual marketing efforts to regain public confidence, they have no desire to change their objectives from seeking maximum and immediate profit, and gaining as much power as they can to influence government decisions. Their force corresponds to current government leaders’ decisions to give them total freedom of action. The leaders’ moralistic tones, insisting that banks should be more restrained in their bonuses and remunerations, are only for Public consumption.

Karl Marx writes in Capital that “At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State’. This is just as applicable to today’s banks. |55|

Banks have a colossal capacity to wreak havoc. Those who believe that a humane capitalist bank is possible must wake up and realise this is pure fantasy. The entire banking system must be withdrawn from capitalist control, and without any compensation, in order to create a public service under the control of citizens, users, and banking sector workers. |56| This is the only way to guarantee the total respect of public service precepts concerning savings and credit that are in the interest of the community.

In Part 6, the new banking regulations will be analysed.

Translated by Mike Krolikowski and Charles LaVia

Part 1
Part 2
Part 3
Part 4

Footnotes

|1| Alan Greenspan, The Age of Turbulences, Penguin press, New York, 2007, p. 408.

|2| Part 1 of this series “2007-2012: Six years that shook the banking world” was published on 2 December, 2012. See 2007-2012: Six years that shook the banking world. Part 2 “The ECB and the Fed at the service of the major private banks” was published in 23 December 2012. Part 3 “The greatest offensive against European social rights since the Second World War” 12 January 2013, see http://cadtm.org/The-greatest-offen…. Part 4 A journey into the vice ridden world of banking on 2 February 2013, See http://cadtm.org/A-journey-into-the…

|3| The author would like to thank Olivier Chantry, Brigitte Ponet, Patrick Saurin, and Damien Millet for their advice.

|4| Financial Times, 27-28 October 2012.

|5| This loan that the ECB advanced to 800 European banks for a total of €1 trillion at 1% over 3 years was analysed in Part 2 of this series. See note 3 above.

|6| See Erkki Liikanen (chairperson), High-level Expert Group on reforming the structure of the EU banking sector, October 2012, Brussels. Erkki Liikanen is governor of the Finnish central Bank. At the initiative of Michel Barnier, eleven experts formed a work group to diagnose the situation of European banks and to propose reforms to the European banking sector. One of the interesting points of the Liikanen report is its official confirmation of the depravity of the banks, the staggering risks taken to make maximum profit. The group was created in February 2012, and delivered its report in October 2012. See : http://ec.europa.eu/internal_market…
The data concerning the day-to-day financing needs is found in chart 2.5.1, p.27. This document will hereafter be called the Liikanen report.

|7| MMFs were described in Part 4 of this series.

|8| See Part 2 “The ECB and the Fed at the service of the major private banks,” published on 23 December 2012.

|9| Liikanen report, chart 2.4.1.

|10| The shareholders who sell their shares to their bank transform their paper certificates into cash. From the fiscal point of view, it is more advantageous to receive income on a regular basis by selling some shares than to receive a dividend.

|11| http://www.profil.at/articles/0905/…

|12| This fine is high compared to the fines usually paid by banks, but compared to its assets HSBC has paid a pittance. The amount paid by HSBC to US authorities ($1,920,000,000 or €1,443,000,000) represents less than 1/1000 of its assets (€1,967,796,000,000).

|13| We will come back to this question in Part 7 of this series.

|14| Financial Times, « Europe’s property loans unpaid », 4 December 2012, p. 23, http://www.ft.com/cms/s/0/2183f122-…

|15| Financial Times, “Mortgage-backed securities make a comeback”, 15 October 2012,
http://www.ft.com/intl/cms/s/0/ee87…

|16| Financial Times, 21 December 2011, p. 24

|17| Financial Times, “Traders warn of sting in tail for crisis-era securities”, 15 November 2012, p. 24

|18| Another objective was to reduce the amount of certain products in the total volume of assets, and replace them with more profitable ones.

|19| See Gillian Tett, Fool’s Gold, Little Brown and Co. 2009.

|20| Financial Times, “Banks test CDO-style finance for trade”, 9 April 2012.

|21| Besides, consumer or business loans are reducing or rising only marginally. This is the result of the banks applying stricter conditions to making loans. They prefer to buy securities (even high risk). Medium and small companies cannot float bonds on the financial markets and so are encountering difficulties in finding finance.

|22| See Financial Times, « Fears grow bond rush will turn to price rout », 22 November 2012 and Financial Times, “Funds warn of stretched European debt rally”, 17 October 2012.

|23| James Mackintosh, “Change would pop the corporate bond bubble”, Financial Times, 25 November 2012. See also the article mentioned above.

|24| Collateral: Assets that may be transferred or considered to be a guarantee in case of the incapacity to pay back a debt or cover an engagement. Source: Banque de France.

|25| See Manmohan Singh, “Beware effects of weakening collateral chains”, Financial Times, 28 June 2012.

|26| Financial Times, « Collateral damage », 25 October 2012

|27| The central theme of this series is the necessity to repudiate the public debts and socialise the banks. In doing so (with other important measures) a positive outcome to this crisis is perfectly possible.

|28| IMF, Global Financial Stability Report, Restoring Confidence and Progressing on Reforms, October 2012 http://www.imf.org/External/Pubs/FT… , p. 52

|29| The debt figures here concern British public debt held by British banks. Ditto for the other countries.

|30| Liikanen Report, p. 77.

|31| What is briefly called “commodities” is the raw materials market. ( Foodstuffs, minerals, metals and precious metals, petroleum and natural gas products among others). Like other assets, commodity prices are in permanent negotiation whether that be on the spot market or in derivatives.

|32| Glencore was founded by Marc Rich. It is a trading and brokerage company based in Baar, Switzerland in the canton of Zoug well known to high level frauders. Marc Rich has been prosecuted several times for corruption and tax evasion. In 2011, the group claims to employe more than 2 700 persons in marketing and 54 800 persons (in 30 countries) directly or indirectly in its industrial activities. According to available data, in 2011 Glencore controlled about 60% of the world zinc market, 50% of copper, 30% of aluminium, 25% of coal, 10% of cereals and 3% of petroleum. This highly controversial society was awarded the 2008 Public Eye award as the most irresponsible of the multinationals See: http://en.wikipedia.org/wiki/Glencore. Glencore has been considering merger with the Swiss Xstrata company, also brokerage specialists See http://affaires.lapresse.ca/economi…

|33| Financial Times, « JPMorgan copper ETF plan would ‘wreak havoc’ », 24 May 2012, p. 15

|34| Of course among the powerful actors on the commodities markets are the big companies specialising in mining, production and commercialisation such as Rio Tinto, BHP Billiton, Vale do Rio Doce; in petroleum, ExxonMobil, BP, Shell, Chevron, Total… ; and in foodstuffs, Cargill, Nestlé… and many others.

|35| Much of this text has already been published in: Eric Toussaint, “Getting to the root causes of the food crisis”, 21 November 2008, http://cadtm.org/Getting-to-the-roo…

|36| In particular, BNP Paribas, JP Morgan, Goldman Sachs, and Morgan Stanley, and until they disappeared or were taken over, Bear Stearns, Lehman Brothers, and Merrill Lynch.

|37| Sovereign wealth funds are public institutions that in the vast majority of cases belong to emerging countries like China or oil exporting countries. The first sovereign wealth funds were created in the first half of the 20th century by governments that wanted to save some of their export revenues coming from oil or manufactured goods.

|38| World wide, at the beginning of 2008, institutional investors held $130 trillion, sovereign wealth funds $3 trillion, and hedge funds $1 trillion.

|39| Testimony of Michael W.Masters, Managing Member/Portfolio Manager Masters Capital Management, LLC, before the Committee on Homeland Security and Governmental Affairs United States Senate http://hsgac.senate.gov/public/_fil…

|40| “Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260billion as of March 2008.”

|41| “In 2004, the total value of futures contracts outstanding for all 25 indexed commodities amounted to no more than $180 billion. Compare that with worldwide equity markets which totalled $44 trillion, over 240 times bigger.” Michael W. Masters points out that during that year, institutional investors invested $25 billion dollars in futures markets, which was equivalent to 14% of the market. He shows that during the first quarter of 2008, institutional investors greatly increased their investments in this market: $55 billion in the first 52 trading days of the year. Clearly enough to make commodity prices explode!

|42| See Testimony of Michael Greenberger, Law School Professor, University of Maryland, before the US Senate Committee regarding “Energy Market Manipulation and Federal Enforcement Regimes,” 3 June 2008, p. 22.

|43| Jacques Berthelot, « Démêler le vrai du faux dans la flambée des prix agricoles mondiaux » (Distinguishing what is true from what is false in skyrocketing world food prices), 15 July 2008, p. 51 to 56. On line: www.cadtm.org/spip.php?artic…

|44| http://www.lalibre.be/index.php?vie…

|45| Paul Jorion, « Le suicide de la finance » (The suicide of finance), Le Monde, 9 October 2012.

|46| « Loi de régulation et de séparation des activités bancaires », December 2012, http://www.gouvernement.fr/gouverne…
et http://www.economie.gouv.fr/files/p…

|47| Read more: http://www.investopedia.com/terms/q…

|48| http://www.nanex.net/20100506/Flash…

|49| See: http://en.wikipedia.org/wiki/High-f…

|50| The US FDIC and the SEC have produced a detailed report on the 6 May 2010 “Flash Crash” “Findings Regarding the Market Events of May 6, 2010”, http://www.sec.gov/news/studies/201…

|51| See p. 42 : http://www.banque-france.fr/fileadm…

|52| French Banking Federation activities report 2010 (Fédération bancaire française (FBF), Rapport d’activités 2010, Paris, 2011).

|53| The question of Credit Default Swaps (CDS) will be discussed in Part 6. For more information, see CDS and rating agencies: factors of risk and destabilization by Eric Toussaint, 23 September 2011, http://cadtm.org/CDS-and-rating-age…

|54| IMF, Global Financial Stability Report, Restoring Confidence and Progressing on Reforms, October 2012 p.31 http://www.imf.org/External/Pubs/FT…

|55| Karl MARX, 1867, Capital, volume I, chapter 31. http://www.marxists.org/archive/mar…

|56| As mentioned in Part 4, a small cooperative banking sector must co-exist alongside the public sector.

Eric Toussaint, Senior Lecturer at the University of Liège, is the President of CADTM Belgium (Committee for the Abolition of Third-World Debt), and a member of the Scientific Committee of ATTAC France. He is the author, with Damien Millet, of AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Seuil, Paris, 2012.

 

 

Feb 052013
 

Posted by greydogg, 99GetSmart

* THE INVENTION OF CAPITALISM: HOW A SELF-SUFFICIENT PEASANTRY WAS WHIPPED INTO INDUSTRIAL WAGE SLAVES

By Yasha Levine, ExiledOnline

Happy Faces of Productivity

Happy Faces of Productivity

” … everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.” – Arthur Young; 1771

Our popular economic wisdom says that capitalism equals freedom and free societies, right? Well, if you ever suspected that the logic is full of shit, then I’d recommend checking a book called The Invention of Capitalism, written by an economic historian named Michael Perelmen, who’s been exiled to Chico State, a redneck college in rural California, for his lack of freemarket friendliness. And Perelman has been putting his time in exile to damn good use, digging deep into the works and correspondence of Adam Smith and his contemporaries to write a history of the creation of capitalism that goes beyond superficial The Wealth of Nations fairy tale and straight to the source, allowing you to read the early capitalists, economists, philosophers, clergymen and statesmen in their own words. And it ain’t pretty.

One thing that the historical record makes obviously clear is that Adam Smith and his laissez-faire buddies were a bunch of closet-case statists, who needed brutal government policies to whip the English peasantry into a good capitalistic workforce willing to accept wage slavery.

Francis Hutcheson, from whom Adam Smith learned all about the virtue of natural liberty, wrote: ”it is the one great design of civil laws to strengthen by political sanctions the several laws of nature. … The populace needs to be taught, and engaged by laws, into the best methods of managing their own affairs and exercising mechanic art.” […]

READ @ http://tinyurl.com/clfub3f

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* A JOURNEY INTO THE VICE-RIDDEN WORLD OF BANKING

By Eric Toussaint, CADTM

“As the Economist put it at year-end 2006, ‘having grown at an annual rate of 3.2% per head since 2000, the world economy is over halfway towards notching up its best decade ever. If it keeps going at this clip, it will beat both the supposedly idyllic 1950s and the 1960s. Market capitalism, the engine that runs most of the world economy, seems to be doing its job well.’” |1| Alan Greenspan

Argento Spiralis

The primary objective of the world’s leaders is to avoid another banking and financial crash that could be worse than the one in September 2008. |2|

As we saw in the first three parts of this series, the big central banks (ECB, Bank of England, US Federal Reserve, and National Bank of Switzerland) have prevented the bankruptcy and collapse of many private banks by lending them massive sums. |3| Without this unlimited line of credit, a large number of banks would have had to suspend payments. Central banks have loaned more than 20 trillion dollars to private banks since 2007. In the EU alone, the loans given to private banks by public administrations go far beyond the unlimited credit doled out at very favourable interest rates. Guarantees must also be put into the balance, which amount to 1.174 trillion euros (9.3% of EU GDP) |4|, for the period between October 2008 and December 2011, and bank recapitalisations to the tune of €442 billion (3.5% of EU GDP).

Also to be considered are:

  • the decrease in tax revenues, because banks declared losses, which enabled them to avoid paying taxes for several years, even when they were making a profit; |5|
  • the decision not to take legal action against banks for financial offences in spite of the damage they have inflicted on society; |6|
  • the unwillingness to apply any binding or disciplinary measures on financial institutions in order to prevent another banking or financial crisis. |7|

What is more, the eurozone, the States, and the European commission maintain the judicial framework that gives the private financial sector a monopoly in terms of lending money to the public sector. Yet, the eurozone private banks’ principal source of funding at low interest rates (between 0.75% and 1%) is the ECB and the central banks of eurozone countries (which constitute the Eurosystem). These are the funds that are lent to the peripheral EU countries (Greece, Ireland, Italy, Portugal, Spain, and the East European eurozone countries) at exorbitant rates (between 4.5% and 10% or more). From a legal and moral point of view, this is doubly condemnable: the banks are guilty of abusive practises and unjust enrichment (abusive because of the usury rates). In Part 7 of this series, we will look at other crimes and offences committed by banks, which should cancel the debts these banks are trying to collect. The people and the corporations that are responsible should be forced to pay heavy fines, perform community service, have their personal freedom restricted, or be banned from exercising a financial or banking profession.

It would be naive to imagine that banks will take advantage of public generosity to adopt careful management practices for the funds that States allocate to them or that people deposit in their accounts. This is one of the points analysed in the following pages. […]

READ @ http://cadtm.org/A-journey-into-the-vice-ridden

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* TRIAL BY VIDEO

By Masha Gessen, NYTimes

Maria Alyokhina

Maria Alyokhina

BEREZNIKI, Russia — “I can barely see you,” the young woman on the videoscreen said, her high-pitched voice trembling. “You are just a dark silhouette. And I cannot see or hear the defense or the prosecution at all.”

“You can hear us,” the judge nodded, writing something in her notepad.

The woman on the screen was Maria Alyokhina, one of the two members of the punk rock group Pussy Riot who are serving two-year sentences in Russian penal colonies. Alyokhina has been held in a women’s colony here  in Berezniki since early November, and in that time she has clocked a whopping four violations. She appealed the violations: If they are overturned, she will, at least on paper, have a chance at parole in September; otherwise she will stay behind bars until March 2014.

Appeals such as Alyokhina’s are normally heard inside the penal colony by judges who come out to hear several such cases in a day. Each case is usually heard in less than half an hour and court generally upholds the colony’s position. But Alyokhina’s support team, a ragtag group of friends, relatives and former strangers who flocked to the group after their performance at Moscow’s Cathedral of Christ the Savior last February, pressured the court to open the hearing to the public — and succeeded, with one important caveat they had not foreseen: Alyokhina herself was not transported to the hearing, but rather was connected by video. […]

READ @ http://tinyurl.com/d6juqpk

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* ACTIVISTS ‘OCCUPY’ BARCELONA BANK AS ANTI-EVICTION PROTESTS CONTINUE

Source: BLOTTR

activists-occupy-barcelona-bank-anti-eviction-protests-continue

Dozens of activists have occupied the Caixa de Sabadell in Barcelona in response to the eviction last night of Unnim bank.

Images shared by protesters show them inside the bank, holding placards reading ‘STOP DESAHUCIOS’ or ‘STOP EVICTIONS’. The outside of the bank has been plastered with green leaflets and posters protesting this bank and many others’ continuing evictions of tenants who are unable to meet mortgage, or rent payments.

Riot police attended the eviction on Sunday night, forcibly removing and arresting those inside. The Unnim building had been occupied since Thursday in opposition to the eviction of a family.

The demonstration on Monday in the Caixa de Sabadell is in response to this action, and in solidarity with those arrested.

READ @ http://tinyurl.com/a4pddbv

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* THIS IS WHAT A HUMANE ECONOMY LOOKS LIKE

By Ines Beitex, IPS

(Photo: Popicinio / Flickr)

(Photo: Popicinio / Flickr)

Malaga, Spain – The severe crisis crippling Spain is also sparking some creative responses, such the Okonomía project, a teaching initiative that helps individuals and communities to understand the workings of the economy and make more informed decisions to manage their finances.

“Things have gotten so bad, with people out of work, losing their homes and watching their savings vanish, that something has to be done to economically empower people,” said activist Raúl Contreras, one of the academics behind this initiative that in February will open its first school in Benimaclet, a multicultural neighbourhood in the southeastern city of Valencia.

Contreras – an economist who also heads the company Nittúa, which sponsors this project – spoke with IPS about the powerlessness and fear that is taking hold of many people who do not understand how the economy works and how it affects their lives, and are thus made vulnerable to manipulation.

“Doubts, ignorance and fear – in some cases spread intentionally – lead to mistakes, anxiety and difficult situations that could be avoided if people are better informed and equipped to make decisions or choices,” Nittúa’s website reads. […]

READ @ http://tinyurl.com/b2tf8dt

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* NO AUSTERITY HAS HELPED ANY ECONOMY

By Gaius Publius, AmericaBlog

Men and women line up for a free meal at Saviour's Anglican Church in Riga's old town in Latvia, Dec. 15, 2012. Some experts are hailing the country's progress as proof of the healing properties of austerity measures - while the country still has 14% unemployment. (Photo: Andrea Bruce/The New York Times)

Men and women line up for a free meal at Saviour’s Anglican Church in Riga’s old town in Latvia, Dec. 15, 2012. Some experts are hailing the country’s progress as proof of the healing properties of austerity measures – while the country still has 14% unemployment. (Photo: Andrea Bruce/The New York Times)

Paul Krugman’s recent column looks at the romance between the “austerians” — the promoters of austerity for economically troubled nations — and the need to inflict pain to get economic gain. His bottom line — no country that has tried austerity has seen a major economic benefit.

My bottom line — add “to its people” to the end of Krugman’s bottom line and you’ve got it exactly. There is an obvious economic benefit, but only for a few.

Let’s start with Krugman. He begins (my emphasis):

Looking for Mister Goodpain

Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority. […]

READ @ http://tinyurl.com/bzmluzj