The reign of the Bankocracy goes on

Left-wing economist Eric Toussaint, spokesperson for the Committee to Abolish Third World Debt (CADTM), is the author of numerous books, including most recently Bankocracy!, published in French in 2014. In preparation for the publication of an English translation, he wrote this essay, previously published at the CADTM website, describing developments since the original version of the book was sent to the printers at the end of March 2014.

The European Central Bank headquarters in GermanyThe European Central Bank headquarters in Germany

NO MEASURES designed to avoid further crises have been imposed on the private finance system. Governments and the various authorities meant to ensure that the regulations are respected and improved have either shelved or significantly attenuated the paltry measures announced in 2008-09. The concentration of banks has remained unchanged, as have their high-risk activities. There have been more scandals implicating the 15 to 20 biggest private banks in Europe and the United States--involving toxic loans, fraudulent mortgage credits, manipulation of currency exchange markets, of interest rates (notably, the LIBOR) and of energy markets, massive tax evasion, money-laundering for organised crime, and so on.

The authorities have merely imposed fines, usually negligible when compared to the crimes committed. These crimes have a negative impact not only on public finance but on the living conditions of millions of people all over the world. People in charge of regulatory bodies, such as Martin Wheatley, former director of the Financial Conduct Authority in London, have been sacked for trying to do their job properly and being too critical of the behavior of banks.[1] George Osborne, the Chancellor of the Exchequer, dismissed Martin Wheatley in July 2015, nine months before the end of his five-year contract.[2] Although obviously to blame, no bank director in the United States or Europe (with the exception of Iceland) has been convicted, while traders, who are mere underlings, are prosecuted and sentenced to between five and 14 years behind bars.

As was the case for the Royal Bank of Scotland in 2015, banks that were nationalized at great public expense to protect the interests of major private shareholders have been sold back to the private sector for a fraction of their value. Salvaging the RBS cost 45 billion pounds ($69 million) of public money, while its reprivatization will probably mean the loss of a further 14 billion pounds ($21 million).[3] We have seen the same thing happen for SNS Reaal and ABN Amro in the Netherlands, the AIB group (Allied Irish Banks) in Ireland or part of the defunct Banco Espirito Santo in Portugal. In every case, the losses to the public purse are tremendous.

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EUROPEAN CENTRAL Bank (ECB) policy has undergone superficial changes, but nothing far-reaching. Since early 2015, the Frankfurt-based institution has embarked upon an active policy of quantitative easing, buying up 60 billion euros' ($68 billion) worth of bonds a month from private European banks. The ECB encourages the banks to create structured products which it then buys. It also buys covered bonds and sovereign debt paper from countries which implement neoliberal policies. At the same time, the ECB lends to private banks at an interest rate of 0.05 percent (the rate in force since September 2014).[4]

The Federal Reserve has put a stop to quantitative easing, having practiced it from 2008 until 2014. It no longer buys structured mortgage-backed securities from banks. Early in 2014, it announced plans to raise interest rates for the first time since 2006. Theoretically, this should come about before the end of 2015; but potential negative fallout for the country's economy has led to hesitation. Indeed, raised interest rates are bound to attract massive capital inflow to the United States, which would push up the value of the dollar against other currencies and thus cause a reduction in U.S. exports, in the present context of a weak global economy. Furthermore, many private companies are likely to run into trouble when the time comes to refinance their debts. Add to this that the cost of repaying the public debt will increase automatically. Although this last factor may count for little in the Fed's hesitations, the impact on emerging economies will be very negative as masses of their capital will be transferred to the United States for better returns and security.

Neither central banks' policies nor those adopted by governments have succeeded in boosting productive investment. The big private corporations are sitting on mountains of liquidities, on both sides of the Atlantic. For non-financial companies in Europe, this means that more than 1 trillion euros ($1.14 trillion) remain in company treasuries instead of being used to increase investment and productivity. Corporations use their profits in great quantities, especially to buy up their own shares on the stock market with a view to keeping prices up or preventing them from falling, and to make sure that their shareholders get juicy returns. At the same time, the share of profits that goes to shareholders in the form of dividends continues to rise, which of course means that there is even less incentive to invest.

Clearly, governments' and central banks' policies are causing a speculative bubble on the stock markets. This bubble may burst at any moment. In 2015 the phenomenon has started in China and is imminent in Europe and the United States.

Meanwhile, the prices of several primary materials are falling (e.g. oil, solid minerals, and more). The dramatic fall in the price of oil put an end to the shale-gas boom in the United States leaving many companies in that sector on the verge of bankruptcy. Large oil-exporting countries such as Venezuela and Nigeria have been badly hit by the fall in oil prices.

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A KEY thesis of Bankocracy is that central banks and governments are pursuing two major objectives: first, to rescue the large private banks, their principal shareholders and their top management, while guaranteeing that their privileges will continue. There is little doubt that, had it not been for the actions of the central banks, the big banks would have failed, and governments would have been forced to take strong and forceful measures against their directors and principal shareholders. The second objective is to participate and support capital's offensive against labor, so that corporate profits increase, making the big European corporations more competitive on the global market. These two objectives are shared by the Fed, the Bank of England, the ECB and the Bank of Japan.

The ECB itself has two further specific objectives which complement each other. The first is to defend the euro, which acts as a straitjacket for the weaker economies of the eurozone and, indeed, for all the populations of Europe. The euro is an instrument that serves both the large private corporations and the ruling classes of Europe--that is, the wealthiest 1 Percent. Having adopted the euro, eurozone countries cannot devalue their currency. Yet the weaker Eurozone economies would have every interest in devaluing, if they are to become competitive again in the face of Europe's economic giants--Germany, France, the Benelux Union (Belgium, the Netherlands and Luxembourg) and Austria. Belonging to the eurozone has proved to be a financial snare for countries like Greece, Portugal, Spain or Italy. In times of crisis, the European authorities and their national governments apply what they call internal devaluation: they force salaries down, to the sole benefit of the management of large private corporations. The second of the ECB's specific objectives is to strengthen the domination of Europe's leading economies (especially Germany, France and Benelux) where the largest private European corporations are based. This implies maintaining a markedly asymmetrical relationship between the strongest and weakest economies.

The victory, in January 2015, of an anti-austerity left-wing coalition in Greece was seen as a direct threat by the ECB, the European Commission, the large corporations and all the other governments of the EU (not only those in the eurozone). Defeating SYRIZA's project became the main goal of the ECB and all the European leaders; they finally achieved it in July 2015. The ECB literally strangled Greece financially, forcing the Tsipras government onto its knees. To avoid capitulation, the Tsipras government could have turned to alternative solutions,[5] such as those described in the final chapter of Bankocracy. They should have made use of the results of the audit carried out by the Truth Committee on the Greek Public Debt.[6] Instead, they chose a more moderate path, despite the fact that it was bound to lead to failure.

Nevertheless, it has become clear over the last few years that since the 2007-08 crisis, with the ensuing intensification of neoliberal austerity policies, populations are ready to opt for radical solutions. This is evident from the growing popularity of the radical left-wing proposals of SYRIZA in Greece, Podemos in Spain and even Jeremy Corbyn in the United Kingdom and Bernie Sanders in the U.S. One of the central lessons of Greece's capitulation in July 2015 is that we need political forces that are determined to carry through the measures they call for, integrating them into a coherent program that breaks with the system. Another lesson is that left-wing governments must really get to grips with issues such as illegitimate debt, private banks, taxes and public services. This is the only road to social justice and the way to get the energy and environmental transition started. There are no other ways of solving the crisis for the benefit of the 99 Percent.

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Footnotes

1. Jonathan Ford, "Greenspan's capital idea for cutting back on banking angst," Financial Times, 23 August 2015. The article reports, "The UK government recently sacked one of the country's most senior financial regulators, the head of the Financial Conduct Authority, Martin Wheatley. His crime? Annoying too many financiers by the assiduousness with which he approached the task."
2. "Martin Wheatley still has 'unfinished business' at financial regulator FCA," The Independent, 13 September 2015.
3. Christine Berry, "RBS sale: there is an alternative," The NEF blog, 4 August 2015.
4. Eric Toussaint, "To the Bankers, he's 'Super Mario 2.0' Draghi," CADTM, 8 September 2014.
5. Eric Toussaint, "Greece: Alternatives to the Capitulation," CADTM, 16 July 2015.
6. Truth Committee on the Greek Public Debt, "Preliminary Report of the Truth Committee on Public Debt," 18 June 2015.

First published at the Committee to Abolish Third World Debt website.