Follow the money

When did we elect the bankers to supreme power?

Will those who sign the cheques continue to write our laws? There is at last popular resistance to currency speculation, and it is forcing governments to distance themselves from the financial industry. Although hardly far enough.

by Serge Halimi

Le Monde diplomatique, English edition (June 2010)


Shareholders in Societe Generale, reassured by a fresh European injection of 750 billion euros into the furnace of speculation, saw the value of their assets rise by 23.89% on 10 May - the same day that French president Nicolas Sarkozy announced that, due to budgetary constraints, a programme of aid that gave 150 euros to families in financial difficulty would be wound up. From one financial crisis to another, the conviction grows that those in power tailor their behaviour to the mood of shareholders. Politicians from time to time ask the people to approve of parties preselected by the markets for their innocuousness.

Belief in claims about the public good is being eroded by the suspicion of prevarication. When Barack Obama reprimanded Goldman Sachs, the better to justify his financial regulation measures, the Republicans immediately put out an ad summarising the donations that the president and his political friends had received from the company during the 2008 election campaign: "Democrats: $4.5 million. Republicans: $1.5 million. Politicians attack financial industry but take millions from Wall Street."

When the British Conservative Party, affecting concern for the poor, opposed the introduction of minimum alcohol pricing, the Labour Party accused it of being more concerned with placating the supermarket lobby (since supermarkets use alcohol as a loss leader and many people are delighted to find that beer can cost less than water). When Sarkozy eliminated advertising on France's state-owned TV channels, it was widely suspected that this would benefit the private stations run by his friends Vincent Bollore and Martin Bouygues, now free from competition for advertisers' budgets.

Such suspicions are not new. People resign themselves to situations that ought to cause scandal. They say: "It was ever thus". It's true that in 1887 the son-in-law of the French president Jules Grevy used his links with the Elysee Palace to trade in honours. At the end of the 19th century, Standard Oil made certain US state governors dance to its tune. In the dictatorship of finance, the mur d'argent (wall of money) of 1920s France is often mentioned - the financiers whose control of public debt amounted to a daily plebiscite. However, laws were passed to regulate the role of capital in political life. This even happened in the US, during the Progressive Era (1880 to 1920) and then at the end of the Watergate scandal, always after political mobilisation. France's "wall of money" finances were placed under supervision after the Liberation in 1944. Things may always have been thus, but they're capable of change.

They are also capable of changing back again. On 30 January 1976 the US Supreme Court struck down several key restrictions on the role of money in politics passed by Congress (the Buckley vs Valeo ruling). The judges reasoned that freedom of expression shouldn't depend on the financial ability of an individual to engage in public debate - so limiting expenditure amounted to stifling free speech. In January 2009 this ruling was extended to allow firms to spend whatever they wanted, to back, or attack, a candidate. In the past twenty years, with former Soviet apparatchiks who turned themselves into oligarchs and Chinese bosses who hold office in the Communist Party, with European members of the parliament, ministers and executives who go through a US-style revolving door to the private sector, and with the Iranian clergy and Pakistani military intoxicated by the world of business {1} - the slide towards corruption has become systemic. It inflects the political life of the planet.

As Bill Clinton's mediocre first term drew to an end in 1996, he began preparing his re-election campaign. He needed money and to get it he offered the most generous party donors the chance to spend a night in the White House, even in the Lincoln bedroom. Since this association with the Great Emancipator wasn't within the reach of those with modest budgets, nor necessarily to the taste of those with large ones, there were other attractions for sale, including coffee with the president at the White House. Potential big donors to the Democratic Party met members of the executive whose job was to regulate their activities. Clinton's spokesman, Lanny Davis, explained innocently that it was "a chance for regulators to learn more about issues affecting the industry" {2}.

One coffee morning may have cost the global economy several trillion dollars, stimulated the US national debt and caused the loss of tens of millions of jobs: on 13 May 1996 some of the most important US bankers had a ninety-minute meeting at the White House with leading members of the administration. Besides the president, the secretary of the treasury Robert Rubin, his deputy in charge of monetary affairs, John Hawke, and the man responsible for the regulation of the banks, Eugene Ludwig, were present. So too, by good fortune, was Democratic Party chairman Marvin Rosen. According to Eugene Ludwig's spokesman, "bankers discussed legislative issues, including ideas for breaking down regulatory barriers between banks and other financial institutions" {3}.

After the crash of 1929, the New Deal forbade savings banks from taking risks with their customers' money, which obliged the state to bail them out lest their bankruptcy should ruin their depositors. The Glass-Steagall law, signed by Franklin Roosevelt in 1933 and still on the statute book in 1996, was loathed by the bankers, who were also eager to profit from the new economy. The aim of the meeting in 1996 was to remind the president of bankers' feelings about regulation as he was about to seek their finance for his re-election campaign.

A few weeks after the meeting, the Treasury Department announced plans to send Congress a legislative package that would "overhaul banking rules established six decades ago, giving banks broad new powers to venture into insurance and securities businesses" {4}. What happened next is well known. Clinton was re-elected thanks in part to his campaign war chest {5}. In 1999, the Glass-Steagall law was repealed, worsening the speculative orgy of the past decade (with its ever more sophisticated financial products) and precipitating the crash of September 2008.

In fact, the 1996 meeting (one of 103 such gatherings in the White House at that time) only confirmed that the tide was already running in favour of financial interests. The Republican Party too had benefited from the banks' largesse and it was a Republican-majority Congress that buried the Glass-Steagall law, true to its liberal ideology and its backers' wishes. With or without the meetings, the Clinton administration wouldn't have held out against Wall Street for long; his secretary of the treasury, Robert Rubin, was a former co-chairman of Goldman Sachs. Henry Paulson was at the helm of the Treasury in September 2008; having let Bear Stearns and Merrill Lynch - two of Goldman Sachs' competitors - go to the wall, he bailed out American Insurance Group (AIG), an insurance corporation whose bankruptcy would have affected its biggest creditor, Goldman Sachs.

Immune to shock

Why does a nation, most of whose citizens are not well off, accept that its politicians will put the wishes of businessmen, lawyers and bankers first, so that politics becomes about consolidating economic power relations rather than countering them with democratic legitimacy? Why do the rich, on becoming politicians, feel entitled to enlarge their own fortunes, and to proclaim that the general interest requires satisfying the interest of the privileged classes, endowed with the power to do (through investment) or to prevent (through relocating), who must be constantly seduced (to "reassure the markets") or kept from leaving (by Sarkozy's fifty percent fiscal shield).

Consider Italy (see above), where one of the richest men on earth created a party of his own, Forza Italia, explicitly to defend his business interests rather than join an existing party and seek to influence its direction. On 23 November 2009 La Repubblica published a list of eighteen laws that have favoured Silvio Berlusconi's business empire since 1994 or allowed him to escape legal action. (Costa Rica's justice minister, Francisco Dall'Anase, has already warned of a further stage, in which a state will not only take care of the banks but will serve criminals: "Drug cartels will take over political parties, finance political campaigns and then take over the government" {6}.)

What effect did revelations in La Repubblica have on the Italian right at the ballot box? None, to judge by its success in the regional elections last March. It is as though the everyday loosening of public morals has immunised populations against any reaction to political corruption. Why get angry when politicians want to satisfy the new oligarchs or join them at the top of the rich lists? "The poor don't make political donations", was former Republican presidential candidate John McCain's shrewd observation. He's now a lobbyist for the finance industry.

The month after he left the White House, Bill Clinton made as much money as he had in all his previous 53 years. Goldman Sachs paid him $650,000 for making four speeches. A single appearance in France netted him $250,000 from Citigroup. In the last year of his presidency, the Clintons declared earnings of $357,000; between 2001 and 2007, the total came to $109 million. The best time to cash in on the fame and the contacts garnered during a political career is after that career is over. Directorships in the private sector or consultancies to banks are a lucrative substitute for a popular mandate whose term has run its course. And of course government is all about thinking about the future ...

But the desire to hop from public to private sector is not explained by the wish to become a life member of the oligarchy. Private business, international financial institutions and NGOs connected to companies have become places of power and intellectual hegemony to rival the state. In France the prestige of the financial sector, as much as the desire for a gilded future, has diverted many graduates of the grandes ecoles - the Ecole nationale d'administration (ENA), the Ecole normale superieure and the Polytechnique - from a career in public service. Former prime minister Alain Juppe, a former student at two of them, admitted the temptation: "The golden boys were great! Everyone was fascinated by these young people who arrived in London and sat in front of their screens moving billions of dollars around in a few seconds. They earned millions of euros every month. I wouldn't be entirely truthful if I denied that from time to time I said maybe if I'd done that I'd be in a different situation today." {7}

There were no such qualms for Yves Galland, former French business minister, who became CEO of Boeing France, a competitor of Airbus. Nor for Clara Gaymard, wife of Herve Gaymard, the former economy, finance and industry minister: after being a civil servant in Bercy and then a roving ambassador for international investment, she became president of General Electric France. Christine Albanel, minister for culture and communication for three years, has been using her communication skills to run France Telecom since March, her conscience untroubled.

The general interest

Half of all US senators become lobbyists when they leave the Senate, often working for the businesses they previously regulated. This is true of 283 members of the Clinton administration and 310 of the Bush administration. In the US, the annual turnover of the lobbying industry is close to $8 billion: the returns on investment are hefty. In 2003 the taxes on overseas profits made by Citigroup, JP Morgan Chase, Morgan Stanley and Merrill Lynch were cut from 35% to 5.25%. The bill for lobbying came to $8.5 million. The benefit to the bottom line was $2 billion. The name of the bill? The American Job Creation Act {8}. "In modern societies", says Alain Minc, graduate of ENA, (unpaid) adviser to Nicolas Sarkozy and (paid) consultant to several big French bosses, "the general interest can be served not only in the state sector but also in business" {9}. "The general interest" - that says it all.

The appeal of business, and of the paycheques, has charmed the Left too. "The upper middle class", François Hollande, then first secretary of the French Socialist Party, said in 2006, "was replaced when the left arrived in power in 1981. It was the state apparatus which gave capitalism its new leaders. Coming from a culture of public service, they attained the status of nouveaux riches, talking to the politicians who appointed them as if they were their masters" {10}. Those politicians were also tempted to follow in their footsteps.

More and more of us have hitched our destiny - sometimes unwillingly - to finance through pension and investment funds. Now anyone can defend banks and the stock market by affecting concern for the penniless widow or the employee who bought shares to supplement his salary or take care of his retirement. In 2004 President George W Bush pinned his re-election hopes on this "class of investors". As the Wall Street Journal explained: "The more these voters are in the market, the more likely they are to support the kind of free-market-oriented economic policies associated with Republican administrations. About three in five adult Americans (58%) have some savings invested directly or indirectly in the markets, compared with 44% six years ago. At every income level, direct investors are more likely to identify themselves as Republicans than as non-investors." {11}

"Governments that have been slaves to finance for two decades will not of their own accord turn on finance unless it threatens them directly to an intolerable extent", wrote the economist Frederic Lordon last month {12}. The extent of measures that Germany, France, the US and the G20 take against speculation will soon show us if the daily humiliation that markets inflict on states, and the popular anger at the cynicism of the banks, will reawaken any residual dignity in governments tired of being treated like lackeys.

Links:

{1} See Behrouz Aref and Behrouz Farahany, "Iran's unelected power", Le Monde diplomatique, English edition, March 2010.

{2} See "Guess who's coming for coffee?", Washington Post, 2 February 1997.

{3} Ibid.

{4} Ibid.

{5} See Thomas Ferguson, "Le tresor de guerre du president Clinton" (President Clinton's war chest), Le Monde diplomatique, 1996.

{6} Quoted in the London Review of Books, London, 25 February 2010.

{7} Broadcast "Parlons Net", France Info, 27 March 2009.

{8} Dan Eggen, "Lobbying pays", Washington Post, 12 April 2009.

{9} France Inter, 14 April 2010.

{10} François Hollande, Devoirs de verite (Obligations of Truth), Stock, Paris, 2006, pp 159-161.

{11} Claudia Deane and Dan Balz, "‘Investor Class' Gains Political Clout", Wall Street Journal Europe, 28 October 2003.

{12} Le Monde diplomatique (French website), "Les blogs du Diplo", 7 May 2010.

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Translated by George Miller

See also "Italy awash with secret funds" by Francesca Lancini
http://mondediplo.com/2010/06/09italy

More by Serge Halimi: http://mondediplo.com/_Serge-Halimi_

http://mondediplo.com/2010/06/08banks

Bill Totten http://www.ashisuto.co.jp/english/