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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. ”


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

the answer to TINA… is TRISH!

Let’s start with TINA…

There is no alternative (shortened as TINA) was one of Margaret Thatcher’s favourite slogans. Those who repeat this slogan today, do so in defence of the same neoliberal agenda that Thatcher’s policies first helped to establish during the 1980s. They believe that only the  “freedom of the markets” is sacrosanct, and oblivious to the hardship and brutal oppression which such policies have brought to so many countries around the world, they stand firm in their conviction that we are living under the best of all possible economic orders. In this sense, they are fundamentalists. Whilst those who use it to defend calls for the latest round of “austerity measures” are also saying that making savage cuts to government spending is the only way to rescue ourselves in these times of economic crisis. That we must sacrifice everything in order to satisfy the market. Yet all of this is dependent upon accepting an ideology that refuses to admit it is an ideology, and all of this is socioeconomic nonsense.

A background to austerity

Inter-governmental institutions, such as the International Monetary Fund (IMF), have for many years demanded a commitment from governments of impoverished nations to accept the imposition of austerity measures in exchange for functioning as a lender of last resort. The terms for such IMF bailouts are technically known as “conditionalities”.

Conditionalities generally involve a number of requirements and some of these may indeed be beneficial. The IMF may, for example, insist upon anti-corruption measures. But mostly the IMF will insist upon “free market reforms”, which means, in short, a tough austerity package to dismantle the nation’s welfare system, with the forced privatisation of key public services, along with the imposition of “trade liberalisation” and deregulation. Under such a programme, with the country being required, in effect, to give up it economic sovereignty, it is suddenly open to vulture capitalism, and ready to be asset-stripped by global corporations.

This package of conditionalities, or “market-friendly policies”, was known as the Washington Consensus, although it might more aptly have been renamed the “Chicago Concensus” given that these rules for “economic reform” were predicated on the hardline neoliberal dogma developed by the Chicago School, and then first tested by the so-called Chicago Boys, who imposed them as economic “Shock Therapy” during the terrible years of the Pinochet dictatorship in Chile. In any case, the name Washington Consensus became so sullied that the IMF have dropped it altogether. But only the tone of the IMF has been softened, as the demands being made of Greece and Portugal now show. They are still in the business of dismantling welfare systems and the wholesale privatisation of nations.

The results of austerity

“The experience of austerity measures imposed on developing countries should sound alarm bells for us all. These measures are not a new innovation; they were cooked up by Thatcher and Reagan in the 1980s and forced onto developing countries by the IMF and World Bank. The effects were devastating: inequality, poverty and injustice increased as public services and welfare spending were slashed.

“Recently, such policies have been completely discredited; even the World Bank and IMF held their hands up and said they got it wrong. Countries, like Malaysia and Vietnam, that resisted the austerity measures remained far less vulnerable than those that had to succumb to these failed economic prescriptions. If we don’t resist this illogical thinking, the outcome will lead to a truly broken Britain.”

says Deborah Doane, director of the World Development Movement.

In the same article, which is entitled “Neoliberal policies have no place in the post-crash world”, Doane also gives a concise and well-informed overview of the effects of imposed austerity on the basis of recent historical cases.1

Why austerity cannot help us

“The deficit isn’t caused by profligate government spending to support an over-bloated welfare state, but by a massive bank bailout, shrinking government revenues, and a decline in corporate taxation. As in the developing world, maintaining public spending is what we need for long-term support to our economy, and to our populations.”

says Deborah Doane in the same article.

The maths is actually quite simple here. If you cut government spending, especially during times when the private sector economy is also struggling, then the knock-on effect is that tax revenues are reduced, and this then increases the deficit. The outcome being precisely the opposite to that demanded. But austerity isn’t simply doomed to failure, it is doomed to devastating failure. It leaves the country concerned with nothing but mass unemployment and even greater debts to repay.

Why we must fight this together

“For decades, Europe has been held up as a paragon for how social democracy can work, by providing free healthcare or education, and ensuring people have a high quality of life at the same time. The legacy of the Chicago School is invading this last battleground for social justice. Fighting the austerity agenda at home is a truly globally relevant campaign.”

says Deborah Doane in the same article.

It took a century for the people of Europe to win our economic rights, but we are now on the verge of throwing that inheritance away. People all around the world aspire to enjoy the same rights. We should not let them down.

And now over to TRISH

In an attempt to offer an alternative to TINA, I have put together this five-point alternative plan. I believe that something of this sort needs to be agreed upon by all groups who now stand opposed to the government (and IMF supported) programme of austerity measures. I would very much welcome any constructive comments, amendments, or corrections; and if you are interested in helping to take the idea further then do please get in touch.

The basic proposals can be summarised as follows: Take on the bankers, Re-regulate the markets, Increase tax revenues, Stop the wars, and Help for ourselves. Hence, TRISH:

Take on the bankers

The current crisis didn’t just happen for no reason. If it were simply a part of some kind of quasi-natural but ultimately mysterious boom and bust cycle, then we might hope to simply grit our teeth and ride it out. There is, unfortunately, no evidence that supports such a conviction.

The current crisis did not originate because of fiscal mismanagement and government overspending. The problems in Greece, for instance, did not arise simply because of their long-standing problems with tax receipts, any more than the recession in America began with subprime mortgages and the housing bubble. The individual crises of these various nation states are merely symptoms of more than two decades of unregulated greed and corruption in Wall Street and The City of London. The results of a systemic failure, which cannot be resolved therefore until the current financial system is itself overhauled.

The current crisis has happened because the speculators and financiers gathered so much power that they have taken control of our senior politicians. This is why Obama is surrounded by a coterie of advisers from Goldman Sachs. It is also why Peter Mandelson and George Osborne were found cosying up together aboard a Russian oligarch’s yacht at one of Nathan Rothschild’s lavish parties. For no dog can have two masters. To make sure they are working for us then, such obscene cronyism has to be rooted out, and, so far as it’s possible, legislated against.

Ever since the crash of 2008, the banks have been playing the suicide card. Holding us hostage with a gun pointed to their own heads. Give us your money or everything goes down with us, they threaten, and their close friends in the media and government play along, perpetuating the myth that they are simply “too big to fail”. They want us to forget about their malpractice and criminal fraud that caused the crisis, and to carry on stumping up the interest for debts so enormous they can never be repaid.

We need an investigation. We need an international debt moratorium followed by cancellation of all debt found to be odious. The endless bailouts only serve the bankers and these must end. Meanwhile private savings and pension funds need to be protected. But if Goldman Sachs closes down then so be it. We’ll pick up the pieces later.

Re-regulate the markets

This current crisis really owes its origins to the policies of Thatcher and Reagan. Everything would have been avoided if it hadn’t been for the deregulation of the markets which began back in the 1980s. Allowing the bankers to police themselves turned out to be a bad idea. We might have guessed.

The underlying cause of the current crisis is the worldwide trade in “derivatives”. It is currently estimated that in the order of a quadrillion US dollars (yes, that’s with a qu-) has been staked on derivations of various kinds. We can compare this with the entire world GDP which turns out to be a mere 60 trillion US dollars2. One quadrillion being more than twenty times larger. Or we might compare it against the estimated monetary wealth of the whole world: about $75 trillion in real estate, and a further $100 trillion in world stock and bonds. So one quadrillion is a number exceeding even the absolute monetary value of the entire world! Warren Buffett once described derivatives as “financial weapons of mass destruction”, and he should know because he trades in them.

We must place a ban, if not on all derivatives, then certainly on the most toxic varieties such as credit-default swaps. There should also be a criminal investigation that looks into the sale of so many “toxic assets” and considers the role of the credit ratings agencies which graded them triple-A. The very same rating agencies that are now downgrading countries such as Greece, Portugal and Ireland.

A separation of investment banking from depository banking would at least have protected ordinary savers from the whims of the speculators. In America such a separation had existed since the Banking Act of 1933, known as the Glass-Steagall Act, until Bill Clinton repealed the law in 1999. Legislation along the lines of Glass-Steagall needs to be brought back.

Increase tax revenues

Tax is a dirty word but if the deficit is to be redressed then government revenue will need to be increased. Politicians talk a great deal about fairness and we should hold them to this. The people who caused the crisis should now be bailing us out. There has been some talk of a Tobin tax on all transactions in the financial markets, and even at the very low rates of 0.05% being proposed by some groups, hundreds of billions of pounds would be raised annually. So why not levy a Tobin tax at a higher rate, say 1% (which is a tiny fraction when compared to any tax the rest of us pay) and then use that money to repay the national debt?

Gordon Brown came into office on the promise of closing tax loopholes but did nothing of the kind. Major corporations simply don’t pay their fair share. They move their operations offshore by taking advantage of the many tax havens available, the majority of which are British dependencies. It is estimated that tax havens drain the UK economy of around £25bn annually through their role in tax avoidance and evasion, and that hundreds of billions are lost globally each year.3 Money that should be paying for education and healthcare.

We should resist any rises in the sorts of stealth taxes on the poor and the middle class which the government are likely to propose, no matter how temptingly packaged they may appear. “Quantitative Easing”, which is a deliberately impressive and misleading term for what is simply the printing of extra money, is an inherently inflationary strategy. It is, therefore, the most insidious stealth tax of all. Let’s find the money in fairer ways, by forcing the corporations and the super-rich to pay their dues.

Stop the wars

Wars cost money, lots of money. Defence Secretary Liam Fox has recently revealed that the estimated cost for our involvement in the NATO-led Libya campaign will be in the region of £120m, assuming the conflict continues into the autumn as expected. A further £140m then being needed to replace missiles and munitions, which makes £260 million in total.4 However, less conservative estimates of costs to the British taxpayer raise the figure to as much as £1bn. 5

Meanwhile, the wars in Afghanistan and Iraq have already cost British taxpayers more than £20billion, and this does not even include the salaries of soldiers or paying for their long-term injuries and mental health care.6 Acute care for the troops most seriously injured in Afghanistan is costing the government more than £500,000 every week.7 And all for what?

Putting an end to these imperialist adventures is not only a moral imperative, it is an economic necessity.

Help for ourselves and others

Running a nation’s economy is not the same as running a household budget. Making cuts in government spending may save money, but with reduced investment there must come an inevitable kick-back. The economy will shrink and with less tax revenue available the deficit then grows. And this becomes a vicious cycle.

In order to stop such a debt spiral turning into depression, the government needs to spend rather than save. This is what the post-war Attlee government did when it expanded the welfare state and founded the National Health Service. Reinvestment in public services and infrastructure can put money in people’s pockets again. Meanwhile, investment in manufacturing and industry would help to reduce our balance of payments deficit.

During times of depression government investment becomes essential. We need investment to revive Britain’s once strong manufacturing base. This can involve tax or other incentives and will most certainly require significant cash injections to support established industries and encourage new production and innovation. In the meantime, we should roll back the privatisation of our public sector, of schools and prisons (how outrageous that companies can profit from locking people up), and most urgently, of the NHS.

In a fully privatised world, which is the dream of neoliberal economists, we all fall prey to the markets. So let’s abandon our current obsession with private enterprise and move back to a more mixed-economy, adopting a policy of dirigisme. In this spirit, we might decide to take state control of any struggling key industries, as well as re-nationalising the natural monopolies of water and energy supply.

It is high time to rebuild our infrastructure, since this is the bedrock for all social and economic progress: and examples of the sorts of projects we should consider include the long overdue upgrading of our railway system; the installation of countrywide fibre-optic broadband; the construction of new power plants including the proposed tide power barrage across the Severn estuary, which alone could supply more than 5% of our current electricity demands; and then there are more ambitious schemes, such as protecting ourselves against future water shortages by building a national water grid. We need to seize this as an opportunity to do all the things we ought to have done years ago because the future will belong to those who invested wisely – which means funneling our money into rebuilding industry, reconstructing our infrastructure, and supporting new areas of scientific research and development instead of frittering it away on banker bailouts and bonuses. Let’s build a country that’s fit and proper for the twenty-first century.

Such a New Deal programme was how Franklin Roosevelt rescued the US economy during the last Great Depression. Between 1933 and 1936, Roosevelt implemented the “3 Rs”: Relief for the unemployed and poor, Recovery of the economy to normal levels, and Reform of the financial system to prevent a repeat depression. Roosevelt’s New Deal is perhaps the best example of the kind of forward-thinking programme of economic measures that is so desperately needed today.

2 According to IMF economic database for October 2010, World GDP is $61,963.429 billion (US dollars)

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Filed under analysis & opinion, austerity measures, Britain, campaigns & events, Europe, financial derivatives, neo-liberalism