Meltdown is a four-part investigation that takes a closer look at the people who brought down the financial world. See Part 1: The men who crashed the world, Part 2: A global financial tsunami, and Part 3: Paying the price.
Meltdown is a four-part investigation that takes a closer look at the people who brought down the financial world. See Part 1: The men who crashed the world, Part 2: A global financial tsunami, and Part 4: After the fall.
Meltdown is a four-part investigation that takes a closer look at the people who brought down the financial world. See Part 1: The men who crashed the world, Part 3: Paying the price, and Part 4: After the fall.
Meltdown is a four-part investigation that takes a closer look at the people who brought down the financial world. See Part 2: A global financial tsunami, Part 3: Paying the price, and Part 4: After the fall.
The Guardian reports: Britain’s tax authorities have given Goldman Sachs an unusual and generous Christmas present, leaked documents reveal. In a secret London meeting last December with the head of Revenue, the wealthy Wall Street banking firm was forgiven £10m interest on a failed tax avoidance scheme.
HM Revenue and Customs sources admit privately that the interest-free deal is “a cock-up” by officials, but refuse to say who was responsible.
Documents leaked to Private Eye magazine and published in full by the Guardian record that Britain’s top tax official, HMRC’s permanent secretary Dave Hartnett, personally shook hands on a secret settlement last December.
Hartnett is due to be questioned on Wednesday by the Commons public accounts committee. The leaked documents suggest that a previous PAC chairman, Edward Leigh, was misled when he was told it was illegal to reveal details of such cases to parliament.
Leaked legal advice from James Eadie QC, which the Guardian also publishes today, says the opposite. Hartnett has discretion to reveal such facts to the parliamentary watchdog, according to the advice.
Leigh said: “It just underlines the absurd culture of secrecy that still pervades Whitehall.”
Hartnett also refused to give the facts about Goldman Sachs to MP Jesse Norman on the Treasury committee last month, claiming disclosure would be illegal. He also refuses to brief ministers on the details.
The £10m Christmas gift for Goldman was the culmination of a prolonged attempt by the US firm to avoid paying national insurance on huge bonuses for its bankers working in London.
The sum was pocket change to Goldman, whose employees received $15.3bn (£9.5bn) in pay and bonuses last year. Its Wall Street head, Lloyd Blankfein, received $68m in 2008 and at the height of Britain’s banking crisis 100 London partners set their bonuses at £1m each. This level was considered a mark of restraint.
Jesse Eisinger writes: Morgan Stanley by any measure is a safe and solid investment bank. Except for one: The amount of trust people have in the whole financial and political system. It’s just about zero.
That’s why the bank’s shares are down 42 percent this year. That’s why all the big bank stocks have double-digit dips.
True, they start their next round of quarterly reporting in a matter of days. Morgan Stanley is scheduled to report its third-quarter earnings on Oct. 19, and its earnings may calm fears temporarily.
But the essential problem will still be there, a slow burn beneath the global financial system that flares up at the worst moments. Banks don’t have faith in other banks, investors are deeply scarred and wary, and nobody believes that the governments around the world could grapple with the magnitude of the problems, even if they wanted to.
Three months ago, the Belgian bank Dexia passed the European stress tests. By that measure, it was fine. Then it collapsed.
Pam Martens writes: Videos are springing up across the internet showing uniformed members of the New York Police Department in white shirts (as opposed to the typical NYPD blue uniforms) pepper spraying and brutalizing peaceful, nonthreatening protestors attempting to take part in the Occupy Wall Street marches. Corporate media are reporting that these white shirts are police supervisors as opposed to rank and file. Recently discovered documents suggest something else may be at work.
If you’re a Wall Street behemoth, there are endless opportunities to privatize profits and socialize losses beyond collecting trillions of dollars in bailouts from taxpayers. One of the ingenious methods that has remained below the public’s radar was started by the Rudy Giuliani administration in New York City in 1998. It’s called the Paid Detail Unit and it allows the New York Stock Exchange and Wall Street corporations, including those repeatedly charged with crimes, to order up a flank of New York’s finest with the ease of dialing the deli for a pastrami on rye.
The corporations pay an average of $37 an hour (no medical, no pension benefit, no overtime pay) for a member of the NYPD, with gun, handcuffs and the ability to arrest. The officer is indemnified by the taxpayer, not the corporation.
New York City gets a 10 percent administrative fee on top of the $37 per hour paid to the police. The City’s 2011 budget called for $1,184,000 in Paid Detail fees, meaning private corporations were paying wages of $11.8 million to police participating in the Paid Detail Unit. The program has more than doubled in revenue to the city since 2002.
AlterNet reports: Americans may be deeply divided about what ails our country, but there’s no denying we’re a nation of unhappy campers.
Danes, on the other hand, consistently rank as some of the happiest people in the world, a fact attributed at least in part to Denmark’s legendary income equality and strong social safety net.
Forbes recently cited another possible factor; the Danes’ "high levels of trust." They trust each other, they trust ‘outsiders,’ they even trust their government. 90% of Danes vote. Tea party types dismiss Denmark as a hotbed of socialism, but really, they’re just practicing a more enlightened kind of capitalism.
In fact, as Richard Wilkinson, a British professor of social epidemiology, recently stated on PBS NewsHour, "if you want to live the American dream, you should move to Finland or Denmark, which have much higher social mobility."
While we debate whether climate change is real and a tax on unhealthy foods is nanny state social engineering, the Danish are actually trying to address these problems head on.
They can afford to, because they don’t spend all their waking hours worrying about whether they’re about to lose their job, or their house, or how they’re going to pay their student loans, or their health insurance premiums.
Reuters reports: When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need.
Chengdu, the capital of southwestern Sichuan province, answered the call for stimulus action with a bold plan for a railway hub modeled after Waterloo railway station in London.
Except London’s Waterloo was not ambitious enough.
“I was shocked when I finally got to visit Waterloo. It was so small,” said Chen Jun, a director at Chengdu Communications Investment Group, which built the new Chinese terminal. “I realized we would probably need a station a few times bigger to meet the demands of our city.”
In a manner typical of many infrastructure projects in China, Chengdu more than doubled the size of its planned transport hub, borrowed 3 billion yuan ($473 million) from a state bank to finance it, then set out on a blistering construction timeline that saw the finishing touches put on the project two years later.
But instead of getting the accolades they expected for helping to stimulate the economy, Chengdu Communications and many of China’s 10,000 local government financing vehicles (LGFV) have now come under a harsh spotlight for the grim side-effects of the construction binge.
China’s local governments have piled up a mountain of bad debt, some of it to finance bridges to nowhere and other white elephant projects, which now threatens to constrict growth at a time when the global economy is sputtering. It is adding to other systemic risks in China, including a sharp downturn in the property market and a rapid rise in problematic loans.
[Editor’s note — “The City” is London’s financial district, Britain’s equivalent of Wall Street. In 1986, West Germany’s counterpart was in Frankfurt, on the US-friendly side of the Iron Curtain.]
The Observer reports: Back in 1986, as the City broker L Messel was being acquired by a fast-expanding investment bank called Lehman Brothers, a young, ambitious financier was parachuted into London from Wall Street and put in charge of European expansion.
That man was Dick Fuld, who later achieved notoriety as the captain of the investment bank as it went down with all hands, but even in the mid 1980s he was demonstrating a deftness of touch.
At an early meeting, Messel executives told their new thrusting boss that if he was serious about achieving his aggressive growth plans, they really needed to supplement the London office with another in Frankfurt.
“No way,” fired back the earnest American. “We’re never going behind the iron curtain!”
Many of the Messel staff present have dined out on that one ever since, but it is only one of many anecdotes about the events leading up to what will forever be known in the City as the Big Bang.
This month marks the 25th anniversary of that radical Thatcherite reshaping of the City, a period in which the Americans arrived to snap up ancient City institutions for huge premiums, leading to the clubby atmosphere of the Square Mile being replaced with the rapacious, bonus-grabbing culture of the investment bank.
“Nobody could quite believe how much the Americans wanted to pay,” recalls Adam Pollock, now head of corporate broking at Panmure Gordon, then a banker at Lazard. “It brought with it a renewed vigour and enthusiasm, with everybody working a lot harder. But that ended some traditions. It used to be de rigueur to have a big lunch.”
The Big Bang was partly about modernisation – ensuring that the City used up-to-date technology such as computers. But it also dismantled the barriers between the separate, narrowly focused firms in the City, the stockbrokers, advisers and “jobbers” who created the markets in shares. Afterwards, all these services could exist under one roof and ultimately, some would argue, it led to the catastrophe of the credit crunch, whose effects the UK is still living through. “Big Bang was the start of investment banking in the UK,” says Tony Dolphin, chief economist at the Institute for Public Policy Research.
With the Glass-Steagall Act, separating investment banking and deposit-taking, still in force in the US, Britain’s laxer regime brought an influx of US firms, with their chinos, booze-free lunch-breaks and bumper bonuses, helping to bust open the old City cliques.
With them, argues City veteran Tony Greenham of the New Economics Foundation thinktank, came deep-seated conflicts of interest.
“On the plus side, the Americans brought a more meritocratic culture,” he says. “But they also brought the idea that, instead of being client-based, it was a transaction-based business. You change from long-termism to short-termism, from looking after the long-term interests of your client to making the biggest buck out of today’s deal.”
The Washington Post reports: As the board of Amgen convened at the company’s headquarters in March, chief executive Kevin W. Sharer seemed an unlikely candidate for a raise.
Shareholders at the company, one of the nation’s largest biotech firms, had lost 3 percent on their investment in 2010 and 7 percent over the past five years. The company had been forced to close or shrink plants, trimming the workforce from 20,100 to 17,400. And Sharer, a 63-year-old former Navy engineer, was already earning lots of money — about $15 million in the previous year, plus such perks as two corporate jets.
The board decided to give Sharer more. It boosted his compensation to $21 million annually, a 37 percent increase, according to the company reports.
Why?
The company board agreed to pay Sharer more than most chief executives in the industry — with a compensation “value closer to the 75th percentile of the peer group,” according to a 2011 regulatory filing.
This is how it’s done in corporate America. At Amgen and at the vast majority of large U.S. companies, boards aim to pay their executives at levels equal to or above the median for executives at similar companies.
The idea behind setting executive pay this way, known as “peer benchmarking,” is to keep talented bosses from leaving.
But the practice has long been controversial because, as critics have pointed out, if every company tries to keep up with or exceed the median pay for executives, executive compensation will spiral upward, regardless of performance. Few if any corporate boards consider their executive teams to be below average, so the result has become known as the “Lake Wobegon” effect.
Lee Fang reports: A few years go, a media firestorm erupted over the urban “Stop Snitchin” campaign promoted by gangs and a few hip hop icons. Stop Snitchin refers to the effort to intimidate informants to prevent them from cooperating with police about gang violence or drug trafficking schemes. Rapper Cam’ron received heavy scrutiny for endorsing the trend during an interview on the issue for CBS’s 60 Minutes.
A new Stop Snitchin campaign to deter would-be informants, in this case against people speaking up against crimes on Wall Street, is quietly taking shape, this time far from the media’s eye.
Financial experts and academics agree that strong whistleblower regulations could have prevented the Bernie Madoff Ponzi scheme and indeed much of the financial crisis if employees at firms engaged in fraudulent activity had spoken up early or had reported complex crimes to the appropriate authorities. Employees at firms at the center for the financial crisis, including troubled lender Countrywide, have cited intimidation and other illicit tactics as the reason few people spoke up as whistleblowers. Since the old whistleblower laws provided for weak legal protections for informants and relatively rare rewards, the Dodd-Frank financial reform law passed last year revamped the system with new rights for informants blowing the whistle on financial crimes.
Bank lobbyists and Fox News, however, have made such protections enemy number one.
The New York Times reports:
Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries.
Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.
They are taking to the streets, in part, because they have little faith in the ballot box.
“Our parents are grateful because they’re voting,” said Marta Solanas, 27, referring to older Spaniards’ decades spent under the Franco dictatorship. “We’re the first generation to say that voting is worthless.”
Economics have been one driving force, with growing income inequality, high unemployment and recession-driven cuts in social spending breeding widespread malaise. Alienation runs especially deep in Europe, with boycotts and strikes that, in London and Athens, erupted into violence.
But even in India and Israel, where growth remains robust, protesters say they so distrust their country’s political class and its pandering to established interest groups that they feel only an assault on the system itself can bring about real change.
Young Israeli organizers repeatedly turned out gigantic crowds insisting that their political leaders, regardless of party, had been so thoroughly captured by security concerns, ultra-Orthodox groups and other special interests that they could no longer respond to the country’s middle class.
In the world’s largest democracy, Anna Hazare, an activist, starved himself publicly for 12 days until the Indian Parliament capitulated to some of his central demands on a proposed anticorruption measure to hold public officials accountable. “We elect the people’s representatives so they can solve our problems,” said Sarita Singh, 25, among the thousands who gathered each day at Ramlila Maidan, where monsoon rains turned the grounds to mud but protesters waved Indian flags and sang patriotic songs.
“But that is not actually happening. Corruption is ruling our country.”
Increasingly, citizens of all ages, but particularly the young, are rejecting conventional structures like parties and trade unions in favor of a less hierarchical, more participatory system modeled in many ways on the culture of the Web.
In that sense, the protest movements in democracies are not altogether unlike those that have rocked authoritarian governments this year, toppling longtime leaders in Tunisia, Egypt and Libya.
Robert Reich writes:
The Reverend Al Sharpton and various labor unions announced Wednesday a March for Jobs. But I’m afraid we’ll need more than marches to get jobs back.
Since the start of the Great Recession at the end of 2007, the potential labor force of the United States – that is, working-age people who want jobs – has grown by over 7 million. But since then, the number of Americans who actually have jobs has shrunk by more than 300,000.
In other words, we’re in a deep hole – and the hole is deepening. In August, the United States created no jobs at all. Zero.
America’s ongoing jobs depression – which is what it deserves to be called – is the worst economic calamity to hit this nation since the Great Depression. It’s also terrible news for President Obama, whose chances for re-election now depend almost entirely on the Republican party putting up someone so vacuous and extremist that the nation rallies to Obama regardless.
Danny Schechter writes:
Back in the 1960s, a gang of Yippies, a politicised arm of the hippies led by the late Abbie Hoffman, wormed their way into the tour of the New York Stock Exchange. While up on the visitors’ gallery, looking down on the trading floors, they threw US legal tender – coins and bills – at the men below who, when they realised what it was, began diving for dollars.
That colourful assault on the money culture took place 40 years ago on August 24, 1967. CNN recently remembered the moment, noting: “Some of the brokers, clerks and stock runners below laughed and waved; others jeered angrily and shook their fists.”
The bills barely had time to land on the ground before guards began removing the group from the building, but news photos had been taken and the Stock Exchange “happening” quickly slid into iconic status.
Once outside, the activists formed a circle, holding hands and chanting “Free! Free!” At one point, Hoffman – an old friend of mine – stood in the centre of the circle and lit the edge of a $5 bill while grinning madly, but an NYSE runner grabbed it from him, stamped on it, and said: “You’re disgusting.”
What disgusts some, inspires others, and that event is now firmly embedded in the legacy of the US left, which may have changed its character, but not its dislike of America’s Mecca of money and symbol of greed.
In the 1920s, the “Street” was bombed by anarchists, but a new non-violent breed today, holding on to the hatred of the wheeling and dealing that drives US capitalism – and perhaps global capitalism – have for the last week staged an encampment a few blocks north of the Exchange as a part of what they call #OccupyWallStreet.
Apparently, if provided with the right kind of parenting, children who might have grown up to become psychopaths can instead become successful stock market traders. What seems unclear is whether this would make society as a whole any safer.
Chris Barth writes:
The hubbub is just starting to pick up after NZZ Online’s report yesterday on a University of St. Gallen study that shows stock market traders display similarities to certified psychopaths. The study, authored by MBA students Pascal Scherrer and Thomas Noll, compares decisions made by 27 equity, derivative and forex traders in a computer simulation against an existing study of 24 psychopaths in high-security hospitals in Germany. Not only do the traders match their counterparts, but, as Der Speigel succinctly puts it, the “stockbrokers’ behavior is more reckless and manipulative than that of psychopaths.”
The traders, according to Noll, were fixated on gaining more than their competitors in the computer simulation – to the extent that they “spent a lot of energy trying to damage their opponents.” He compared the behavior to bashing a neighbor’s fancy car with a baseball bat in order to make your own car the nicest in the neighborhood.
This is fascinating stuff, but it’s not entirely new. In 2004, New Scientist compared ladder-climbing corporate employees to psychopaths for their shared characteristics of lacking empathy and compassion while thriving under stress. In 2005, Antoine Bechara, an associate professor of neurology at the University of Iowa, told the Wall Street Journal, “It’s possible that people who are high-risk takers or good investors may have what you call a functional psychopathy.” In 1996, Jason Bennetto, a crime correspondent for The Independent, noted that “stockbrokers share many of the same characteristics as criminal psychopaths.” That same year, a Scottish University found that “with the right parenting [psychopaths] can become successful stockbrokers instead of serial killers.”
In an interview on the BBC, Alessio Rastani, a stock market and forex trader in Europe, provided a glimpse inside the minds of those who see golden opportunities in the misfortune of others.
Rastani says the stock market is “toast” and to those who imagine that collective government action will prevent another recession he says: “the governments don’t rule the world. Goldman Sachs rules the world.”
Paul Kingsnorth writes:
Living through a collapse is a curious experience. Perhaps the most curious part is that nobody wants to admit it’s a collapse. The results of half a century of debt-fuelled “growth” are becoming impossible to convincingly deny, but even as economies and certainties crumble, our appointed leaders bravely hold the line. No one wants to be the first to say the dam is cracked beyond repair.
To listen to a political leader at this moment in history is like sitting through a sermon by a priest who has lost his faith but is desperately trying not to admit it, even to himself. Watch Nick Clegg, David Cameron or Ed Miliband mouthing tough-guy platitudes to the party faithful. Listen to Angela Merkel, Nicolas Sarkozy or George Papandreou pretending that all will be well in the eurozone. Study the expressions on the faces of Barack Obama or Ben Bernanke talking about “growth” as if it were a heathen god to be appeased by tipping another cauldron’s worth of fictional money into the mouth of a volcano.
In times like these, people look elsewhere for answers. A time of crisis is also a time of opening-up, when thinking that was consigned to the fringes moves to centre stage. When things fall apart, the appetite for new ways of seeing is palpable, and there are always plenty of people willing to feed it by coming forward with their pet big ideas.
But here’s a thought: what if big ideas are part of the problem? What if, in fact, the problem is bigness itself?
The crisis currently playing out on the world stage is a crisis of growth. Not, as we are regularly told, a crisis caused by too little growth, but by too much of it. Banks grew so big that their collapse would have brought down the entire global economy. To prevent this, they were bailed out with huge tranches of public money, which in turn is precipitating social crises on the streets of western nations. The European Union has grown so big, and so unaccountable, that it threatens to collapse in on itself. Corporations have grown so big that they are overwhelming democracies and building a global plutocracy to serve their own interests. The human economy as a whole has grown so big that it has been able to change the atmospheric composition of the planet and precipitate a mass extinction event.
One man who would not have been surprised by this crisis of bigness, had he lived to see it, was Leopold Kohr. Kohr has a good claim to be the most important political thinker that you have never heard of. Unlike Marx, he did not found a global movement or inspire revolutions. Unlike Hayek, he did not rewrite the economic rules of the modern world. Kohr was a modest, self-deprecating man, but this was not the reason his ideas have been ignored by movers and shakers in the half century since they were produced. They have been ignored because they do not flatter the egos of the power-hungry, be they revolutionaries or plutocrats. In fact, Kohr’s message is a direct challenge to them. “Wherever something is wrong,” he insisted, “something is too big.”