Greg Palast on the other “Summers memo” and the decriminalisation of rogue banking

‘Dirty’ Industries: Just between you and me, shouldn’t the World Bank be encouraging MORE migration of the dirty industries to the LDCs [Less Developed Countries]?

wrote Larry Summers when he was Chief Economist at the World Bank. The words are contained in a memo to Brazil’s then-Secretary of the Environment Jose Lutzenberger on December 12th 1991 that became known as the “Summers memo”.

This memo (which was apparently ghost-written by Lant Pritchett who worked under Summers, and signed by Summers himself) then went on to suggest three reasons why dumping toxic waste in the poorest regions of the world is a great idea; reasons that are summarised below:

1) “…a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages… I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.”

2) “I’ve always thought that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City.”

3) “The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity… Clearly trade in goods that embody aesthetic pollution concerns could be welfare enhancing. While production is mobile the consumption of pretty air is a non-tradable.”

Summers adding that:

The problem with the arguments against all of these proposals for more pollution in LDCs (intrinsic rights to certain goods, moral reasons, social concerns, lack of adequate markets, etc.) could be turned around and used more or less effectively against every Bank proposal for liberalization.

You can read more about the “Summers memo” here.

Lutzenberger later wrote a response to Summers as follows (although I believe that his reply came after the memo itself had been leaked):

“Your reasoning is perfectly logical but totally insane… Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional ‘economists’ concerning the nature of the world we live in… If the World Bank keeps you as vice president it will lose all credibility. To me it would confirm what I often said… the best thing that could happen would be for the Bank to disappear.”

You can read this alongside the Summers memo at the satirical website whirledbank.org

If this first leaked memo was, well let’s just say more than a little embarrassing for the World Bank and Larry Summers, then what turned up recently looks altogether more incriminating again. This second memo – a document that fell into the hands of investigative reporter Greg Palast and who says he expended great efforts to affirm its authenticity – “confirmed”, as Palast put it in his recent article for Vice Magazine, “every conspiracy freak’s fantasy: that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet.”

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn’t believe it. […]

The Treasury official playing the bankers’ secret End Game was Larry Summers. Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank. If the confidential memo is authentic, then Summers shouldn’t be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world.

Since Palast wrote his piece, it transpires that Summers will not be replacing Ben Bernanke as Fed Chairman, but instead the job looks likely to go to Timothy Geithner1 – Geithner being the author of this latest memo, which (to quote Palast again) “begins with Summers’ flunky, Timothy Geithner, reminding his boss to call the then most powerful CEOs on the planet and get them to order their lobbyist armies to march”:

“As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs….”

So just what was this “end-game” that Tim Geithner is referring to in his memo sent in late November 1997? Well, it’s complicated but here’s Palast again picking up the story:

It’s not the little cabal of confabs held by Summers and the banksters that’s so troubling. The horror is in the purpose of the “end game” itself.

Let me explain:

The year was 1997. US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game: “derivatives trading.” JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets.”

Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws?

The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet in one single move. It was as brilliant as it was insanely dangerous.

How could they pull off this mad caper? The bankers’ and Summers’ game was to use the Financial Services Agreement, an abstruse and benign addendum to the international trade agreements policed by the World Trade Organization.

Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives.

Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives “products.”

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers’ battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

After further background surrounding the nature of the “WTO financial services negotiations” Geithner is alluding to in his memo to Summers, Palast then adds:

Does all this evil and pain flow from a single memo? Of course not: the evil was The Game itself, as played by the banker clique. The memo only revealed their game-plan for checkmate. 2

Click here to read Greg Palast’s full article entitled “Larry Summers and the secret ‘End-Game’ Memo”, which was published on August 22nd 2013.

You can also watch an interview with Palast on Tuesday’s [Sept 17th] Keiser Report in which he talks more about the “End-Game” memo:

Going back to the original “Summers memo” and we discover that in their defence both Lant Pritchett (the self-confessed author) and Summers himself said later that their suggestion for dumping toxic waste in third world countries was just meant sarcastically – so in other words just a great big insider joke, ha, ha, ha… stop me because my sides are splitting!

Presumably then, this more recently discovered “End-Game” memo will turn out to be just another example of the boys at the US Treasury, the WTO and the heads of the major banks larking around. Playing at being mobsters with a wink and a nudge – you know, like Bugsy Malone or something. Destroying the global economy with toxic derivative “products”, ha, ha, ha… like that could ever happen!

1 From an article entitled “Federal Reserve:Who will replace Ben Bernanke?” published by BBC news on September 16, 2013:

“There are three candidates being discussed as possible replacements to Ben Bernanke, chairman of the Federal Reserve, the US central bank. They are vice-chair of the Federal Reserve Janet Yellen, previous vice-chair Donald Kohn and former Treasury Secretary Timothy Geithner.” […]

The 52-year-old was heralded by watchers of the Fed as the man to replace Ben Bernanke. He is a confidante of Mr Obama, and a White House favourite. But he has ruled himself out of the race.

Chris Orndorrf, senior portfolio manager at Western Asset Management, told the BBC he thought Mr Obama would try to persuade Mr Geithner to take the job.

“He [Mr Geithner] said he doesn’t want it but stranger things have happened in Washington. I would say maybe a 25% chance,” Mr Orndorrf said.

There is no doubt that Mr Summers had been Mr Obama’s preferred choice to lead the post. ”

http://www.bbc.co.uk/news/business-24105985

2 From an article entitled “Larry Summers and the Secret ‘End-Game’ Memo” written by Greg Palast, published by Vice Magazine on August 22, 2013. http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo

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Filed under financial derivatives, Greg Palast, Max Keiser

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