[Banks] Getting Away with Murder
CAPITALISM, 22 Jun 2015
When asked what the banks have learned from the 2008 financial meltdown, Susan Georges instant reaction is: ‘That they can get away with murder.’
21 May 2015 – Hope springing eternal, I didn’t believe that the banks could emerge from the 2007-08 crisis far stronger than before, especially in political terms. Yes, some have paid staggering fines to governments – a total of $178 billion for the US and European banks – but they now consider such outlays as mere ‘costs of doing business’. None of the industry hotshots has spent so much as a night in prison or been fined personally.
Although we have not yet fully escaped from the aftershocks of 2007-08, a scenario for the next crisis is already being written both by politicians and the bankers themselves. Mathematicians have demonstrated the dense, interconnected web of world financial actors in which the failure of one could trigger the collapse of all. They have put us on a knife-edge and we have good reasons to be pessimistic:
- Governments and international institutions have shown no serious intention of regulating the banks, thus placing us in considerable danger of a repeat performance. Banks and bankers are not just too big to fail and too big to jail, but also too big to nail – they have become a law unto themselves.
- Obvious safeguards to the financial system have been systematically dismissed. The all-important separation of commercial or retail banking from investment banking (which would prevent the industry from using depositors’ money to speculate) hasn’t occurred. For more than 60 years the US New Deal’s Glass-Steagall Act separated them and protected the country’s financial system. When it was abrogated in 1998 under President Bill Clinton – with a helpful shove from his Treasury Secretary, former Goldman-Sachs man Robert Rubin – it took less than a decade to produce the fall of Lehman Brothers and devastating market failure. Politicians listen not to reason but to the bankster lobby. Similarly, reserve (capital) requirements for banks are still far too low. No new financial transaction taxes have been passed. One planned by 11 European Union (EU) countries is still only under consideration.
- Daily trade volumes of derivatives and currencies have grown by 25 to 30 per cent compared to pre-crisis levels and figure in the trillions every day. Total yearly trades of derivatives amount to about 100 times Gross World Product. Automated, algorithm-powered trading drives this growth – but even machines and maths geeks can make dangerous mistakes.
- Masses of risky ‘securitized’ loans could once more flood the portfolios of institutional investors. This time they wouldn’t be based on subprime mortgages but on bundles of other debt categories, such as student or consumer loans.
- In 2008, unbridled speculation on the commodities markets caused food prices to escalate dramatically and 150 million people to be added to the ranks of the hungry worldwide. These won’t recur this year or next: grain prices have plummeted and $150 billion of Wall Street money has been withdrawn from these markets in the past two years. However, other protective New Deal laws have also been struck down and unlimited bets could once more be placed on these markets as soon as climate change and lower food stocks make them profitable.
- Tax havens have triumphed. They help not just individuals from the richest one per cent but also specialize in corporate tax avoidance. Our largest corporations have stopped paying their fair share. France, for example, has a yearly corporate tax shortfall of $60-80 billion. Corporations benefit from public services such as police and fire protection, energy, water, sanitation, transport, healthcare, education and training for their personnel, and the rule of law – but don’t pay for them, so they deteriorate. Citizens and necessary infrastructure lose. The Luxleaks scandal (which exposed tax-dodging by more than 300 corporations) shows that an EU member state, using the big four accounting corporations as accomplices, has actively recruited companies to bypass the countries where they make their sales and profits and use Luxembourg’s tax avoidance services instead. The British island paradises are doing their bit as well. Probably 25 per cent or more of the turnover of the largest EU banks takes place in offshore havens; no-one knows for sure.
- Surveys by the European Central Bank of the 130 largest EU banks show that they do not support the real economy, where people actually live, work, produce and consume. Small and medium EU businesses provide 80 to 90 per cent of all employment but they still have lots of problems securing loans. Since 2008, banks have consistently tightened their credit terms. Finance Watch, a progressive Brussels thinktank, says that only 28 per cent of all banking activity goes to the real economy – the rest swells the financial-products sector that makes money from money without passing through such boring phases as production and distribution.
- The US has witnessed growth and job creation, yes, but more than 90 per cent of the value of that growth has gone to the top one per cent. European unemployment is still deepening and, rather than growing, the EU is sliding into deflation.
- By 2011, profits at US banks were back to record, pre-crisis levels. By 2009, the nine largest US banks gave bonuses of $1 million or more to 5,000 traders and bankers, using public bailout money. Thus, at least $5 billion of US taxpayer money went to individuals in the finance industry. Their British counterparts got $20-billion worth of bonuses in 2010-11 and French bankers did nearly as well.
- Hefty bonuses contribute to the great leap forward of inequality. Readers of this magazine have surely seen the dizzying comparisons of the billionaires’ share and what’s left over for the rest of the world. If not, check out Oxfam’s figures, or better still the annual World Wealth Reports that scale the golden heights where dwell not the one per cent – vulgar losers! – but the one in ten million.
- The 2014 Forbes billionaire list names 1,542 earthlings who made the cut, with a total haul of $6.5 trillion. Inequality isn’t just obscene in monetary terms. In The Spirit Level, Richard Wilkinson and Kate Pickett have incontrovertibly proven that inequality is invariably correlated with every nasty, costly social phenomenon, from illness to violence to obesity and prison populations. But finance is now organized so that once you’ve reached billionaire status, it is pretty hard to lose it.
Bankers have also learned how to organize international institutions so that they will be rewarded in good times and bad, for brilliant or stupid financial investments. Thus Eurozone governments such as Germany and France give money to the European Financial Stability Mechanism so it can give money to the Greek (Irish, Spanish…) government so that the government can hand over the money to the Greek (Irish, Spanish…) banks so that they can repay the loans received from French and German banks.
Most people don’t realize that the huge ‘loans’ from the Troika (the European Commission, European Central Bank and International Monetary Fund) to Greece from 2010-12 were not intended to ‘help the Greeks’, but to reroute the money to banks that had bought Greek bonds. Why buy those? Good question: because they were labelled in euros, but paid slightly higher interest than, say, German bonds, also labelled in euros.
The Troika’s job is thus to make sure the banks get their money back, while attaching drastic austerity conditions to these indirect bailout schemes. The banks may still lose a little on their investments in southern or peripheral European countries, but not nearly as much as they would without the Troika-driven revolving door.
The people, who had nothing to do with creating the crisis in the first place, must suffer. Whereas mounting hunger, hospital and school closures, violence, and the migration of young people are to some extent measurable, the real consequences for innumerable, blameless human beings cannot be quantified. When I said the banks have learned they can get away with murder, it was not just a rhetorical device…
And so arrives the moment when the reader says, ‘Yes, but what can we do?’ Most of the answers are known and many of them consist in doing the opposite of what is briefly recounted above. Separate the banks, tax financial transactions, outlaw the outlaw tax jurisdictions, tell Luxembourg to dismantle its Corporate Protectorate, refuse to sign the Transatlantic Trade and Investment Partnership (TTIP).
Change the rules of the European Central Bank (ECB), which does not lend to countries, only to private banks. The latter borrow from the ECB at less than one per cent and can then lend to countries at whatever interest rate the traffic will bear, often more than six per cent – just another gift to the banking sector. The ECB should instead lend directly to countries at one per cent or less. We should have joint euro-bonds.
Austerity policies must be thrown out because they don’t work, in human or in economic terms. Northern Europeans don’t understand this: the German for debt is Schuld, which also means sin, or fault – but the continuing crisis isn’t a morality play. We need less breast-beating (of other people’s breasts) and more smart economics. As one German economist writing in the Financial Times put it: ‘There are two kinds of German economists: those who haven’t read Keynes and those who haven’t understood Keynes.’
Remember first of all that sovereign debt isn’t at all like the debt of a family. Throughout history, in fact, most sovereign debt has been forgiven, but in any case, as US economist and academic Paul Krugman says, ‘keep your eye on the flows, not the stocks’.
So long as countries continue to make their interest payments, they can stay indebted forever. Nations do not disappear. Greece, for example, has a budget surplus if interest payments are subtracted and interest at one per cent is payable. Greece should also slash its military budget, tax the Church – which is the largest land and property owner – and, as the governing Syriza Party says, ‘Go after the oligarchy.’
If the next crisis really comes to pass, it will be huge and deadly dangerous for ordinary people, who could lose their savings, insurance, pensions and more. I’m not suggesting 1950s-style bomb-shelters, hoarding and a revolver for every home, but it wouldn’t hurt to develop right now more resilient social systems and a far greater degree of self-reliance. People are good at working more co-operatively and do so instinctively – or out of necessity – when confronted with an economic meltdown, like the Argentinians 15 years ago or the Greeks today. They organize soup kitchens, community gardens, volunteer health clinics, childcare, alternative currency systems, housing arrangements and more.
Above all, we need to confront the deadly neoliberal ideology that has polluted thought and action while allowing the banks to get away with murder.
Susan George is one of TNI‘s most renowned fellows for her long-term and ground-breaking analysis of global issues. How to win the Class War – The Lugano Report II is the newest of her sixteen widely translated books. She describes her work in a cogent way that has come to define TNI: “The job of the responsible social scientist is first to uncover these forces [of wealth, power and control], to write about them clearly, without jargon… and finally…to take an advocacy position in favour of the disadvantaged, the underdogs, the victims of injustice.”
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