In this submission from former Communist Party of Australia leader, Eric Aarons, the financial sector is put under scrutiny for its amoral pursuit of profit - but at the cost of society at large. As the author explains, some of the world's largest banks' actions sometimes verge on the criminal.
It is the new form being taken by
capitalism, in which a worldwide coterie of Mega-rich individuals takes a far greater
part of the socially-created wealth than can be justified on any national
interest or social justice grounds.
It is taking us on a path that endangers
the capacity of our natural environment, our planet, to continue supplying the
quantity and quality of resources we will always need for our own existence,
and the continued existence and health of the wider natural environment we
require to be able to flourish.
We need to know for some purposes the cash value of the items we use, but to
actually live we need to have the things themselves, the solid entities, that
we and other living species require
for life itself, and to develop, over this and coming centuries, the full
potential of Homo sapiens – a project which we have only just begun.
If my memory serves me, the economist Gary
Becker said that a money equivalent could (and should) be put on marriage and
other inter-personal relationships. We know that this indeed occurs, but is it
in any way a recipe for achieving genuine community happiness?
The general concept of ‘financialization’
(a new and rather ugly word as well as a repugnant concept) arose from the
rapid rise in the proportion of GDP occupied by financial transactions,
entities and ‘products’ following the victory over fascism in the Second World
War. From about 2 percent in 1940, it rose in the US, which led the way, to 8
per cent at the turn of the present century, where financial markets have dominated
the traditional industrial, agricultural and social ones.
It also plays on a naïve belief, derived
from the phenomena of interest and credit, that money can, of itself, make more money. A knowledgeable sales person can make
up endless tales that seem to make sense of this for the unwary, and many are
paid by their bank employers on that basis, being sacked if they fail to succeed
in doing so.
Planned
multi-billion dollar fraud
But as well as the theoretical fundamental
weaknesses of the concept, it has now become, through the banking system, a
centre of widespread, multi-billion, even trillion-dollar crime that, unless
rigorously dealt with, threatens far worse catastrophes than those we have recently
seen in this early part of the second millenium.
In his renowned biography of John Maynard
Keynes, Robert Skidelsky quoted an unsourced remark that Lenin was reported to
have made: ‘that there is no subtler, no surer means of overturning the
existing basis of society than to debauch the currency’. (page 239)
I doubt that Lenin ever made such a remark,
and in any case he did not have the means to actually do it. But the centres
for financialization, the big banks, are doing a more than competent job in
that direction, of which I give many instances below.
The intention is to treat all values
exchanged, including tangible or intangible, future or present promises, as if
they were a form of currency. Promises are morally expected to be kept and
agreed processes observed, with legal penalties sometimes available to enforce
them. But today they increasingly take on illegal form as instanced below, or
that of `betting, which has now, among other evils, penetrated all forms of
sport, degrading the site of one of humanity’s most pleasurable, even noble, manifestations.
There are plenty of past examples of
financial fraud, but both the scale and the source today are unprecedented in
scale and the source – modern banking, which is well advanced in corrupting the very basis of the currency,
with potentially lethal social disasters.
Before giving instances of the scale of the
crimes, we should note that they only became possible when Paper currency –
that is fiat money – became
universal when gold became impractical. The word describes an edict in which a government declares ‘let
it be so’ , or ‘let it be done’, derived from the Latin word ‘fieri’.
Britain takes the reins
Though Britain was near-bankrupted by the
Second World War, its long-standing banking credentials gave it the call over
the USA to be the world’s international financial centre. One of its tasks in
this capacity was to determine, through a top level bankers’ committee, the
rate of interest to be charged on the widely used temporary unsecured loans that
banks make between themselves. This in turn became a guiding benchmark for a
myriad of other financial transactions. It was called Libor – the ‘London inter
bank offered rate’, set each working day at 11 am. (There is also a ‘Euribor’)
Many banks were caught out by the GFC,
partly because the official economics had arrived at the point of a Great Moderation in which the
boom-bust pattern of development of the
past would no longer apply. How wrong they were!
If a bank’s assets fail to exceed its
liabilities, by law it has to cease trading. Details are not available, but many
banks found that loans and purchases made in earlier and better times (say in Greek
or Spanish government bonds) were losing up to half of their value, so that the bank itself (Barclays
for example) could have found itself technically insolvent and would have had to
cease trading. Then, in 2009, when Bob Diamond, a former CEO of Barclays was in
charge of setting Libor, he arbitrarily fixed the rate to boost the value of
some of the bank’s holdings.
The prestigious American organization Council
on Foreign Relations later published a background paper ‘Understanding the
Libor Scandal’ updated on December 5, 2013 which said:
In 2012, an international investigation
into the manipulation of interbank offered lending rates revealed a widespread
plot undertaken by multiple banks – most notably Barclays, UBS [Union bank of
Switzerland], Rabobank [Dutch] and the Royal Bank of Scotland – to leverage
these interest rates for profit … Regulators in the US, UK and EU fined banks
more than $6 billion for participating in rigging interest rates. Barclays
agreed in late June 2012 to pay a $453 million fine to settle allegations that
it had systematically rigged The ‘London interbank offered rate’ – Libor – between
2005 and 2009.
Many
other banks joined in:
From now on space limitations will
confine me to giving only the name of the bank; but further information is
readily available on the internet.
Citi
Bank
JP
Morgan Chase
Bank
of America
Wells
Fargo
UBS (Union Bank
of Switzerland)
Rabobank
(a Dutch bank with a long name)
The
Royal Bank of Scotland
Deutsche
Bank
ING
Bank
Deutsche
Bank, JP Morgan and Societe Generale were also involved .
Though, so far as we know, no major
Australian bank has been directly involved in such criminalities, its general
approach is similar. Known before privatization as the ‘People’s Bank’, some
employees of the Commonwealth Bank of Australia in October 2008 sent an
anonymous fax to the Australian Securities Investment Commission ‘citing fraud
at Commonwealth Financial Planning
and alleging a “high level” of
cover up within CBA. The culmination of
that action was a damaging report from the Senate economics committee. It
sensationally found that the bank repeatedly sought to keep the regulator and the public in the dark
and its credibility was so tarnished that only a royal commission or judicial
inquiry could get to the bottom of what really went on.
Major Crimes
Credit
Suisse is reported to have misled Fannie Mae and
Freddie Mac on the quality of loans worth $16.6 billion in mortgage bonds. (The Australian, 24 March, 2014).
‘The
Bank of England has become embroiled in the escalating foreign exchange
scandal after it suspended a member of staff and launched a new investigation
into allegations that its officials condoned or were aware of market
manipulation. The move is the latest twist in the $US 5.3 trillion per day
forex [foreign exchange] industry, the world’s largest financial market.’ (The Australian, March 7, 2014)
HSBC (Hong Kong Shanghai Banking Corporation) may be outstanding in this field.
It laundered an as yet unrevealed number of billions of dollars of illegal Mexican drug money into the United States. Found out, in 2012 it paid fines for multiple offences of $1.921 billion (The Australian, June 1, 2014).
The Royal Bank of Scotland ‘had to pay large fines, bringing the total
penalties paid in Libor settlements to more than $3.7 billion. (Wikipedia, December 5, 2013)
‘The
Bank of England has become embroiled in the escalating foreign exchange
scandal after it suspended a member of staff and launched a new investigation
into allegations that its officials condoned or were aware of market
manipulation. The move is the latest twist in the $US 5.3 trillion per day
forex [foreign exchange] industry, the world’s largest financial market.’ (The Australian, March 7, 2014)
BNP (Banque National de Paris) + Paribas (Banque de Paris) $US 8.97 billion. The Australian
reported (July 2) that, legally, the prosecutors could have sought double that
amount’…..
‘US authorities are pushing for BNP Paribas to pay more than $US 10.7 billion to end a criminal probe into allegations the bank evaded US sanctions’. (The Australian, June 1, 2014)
On July 3, The Australian revealed how much worse than I have so far revealed
the situation with the banks really is. It wrote ‘The French government which
had warned that disproportionate sanctions could destabilize Europe’s took
credit for the limited scope of the dollar ban, but “BNP Paribas will continue
to be able to finance economic activity in satisfactory conditions” said France’s Finance Minister Michael Sapin.
And the paper claimed, straight-faced, that bankers ‘think that criminal
charges are now like financial penalties: a painful but manageable cost of
doing business’.
I think it likely that accounting-wise these fines might be classified as a ‘business expense’. If, for example, the scam netted $3 billion profit, evea a fine of $2 billion would leave the bank $1 billion better off, with none of its operators in danger of being jailed, For in the banking field it is rare for anyone to be even charged, let alone actually tried, and even then ever sentenced. In no other field are fines accepted in lieu of jail for major crimes. This conduct clearly trashes the basic principle that we are all equal before the law.
Until people in banking are duly prosecuted for transgressing the law, and jailed when found guilty of the sorts of crimes described above, I believe the debauching of the currency and the consequent social collapse foreshadowed by Skidelsky will become increasingly likely.
There is much more information available
on the internet, but the above should be enough to show that unless the banks
are rigorously policed, with prosecutions and jail terms for the guilty
imposed, the financial system is threatened with the debauched state predicted
by Keynes, but today in reality inflicted by the greed of the banks in
particular, and the mega-rich that own them.
Some may hold to the view ‘the worse the
better (for social change)’. But history does not support that stance. It is
always the mass of people that suffer most in such circumstances, so we must,
rather, struggle to avoid such outcomes with positive alternatives. I hope that,
among others, trade unionists and their supporters will see the potential of
the above facts to negate or diminish major features of the assault the Abbott
government is developing against trade unions and the left in general.
All the guilty should be punished; but on this count
the Left should be firmly on the front, not the back foot as it is at present.
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