Corruption In The US Finance Industry Can Give India A Run For Its Money

Posted by juggernautbooks in Books
October 30, 2017

Even as India is reeling under reports of mega-defaults by big corporations, with PSU banks’ non-performing assets (NPAs) or bad loans exceeding ₹8 lakh crore [!], a new book clarifies that corruption is endemic in the finance industry globally. In “How Will Capitalism End?”, author Wolfgang Streeck argues that capitalism is killing itself, and there is no cure at hand. The marriage between democracy and capitalism, ill-suited partners brought together in the shadow of the Second World War, is coming to an end:

Oligarchs from outside the United States typically take their money out of their countries to resettle it in New York or London. American oligarchs, by comparison, are both more cosmopolitan and more patriotic: they extract their wealth globally and park it locally in the global financial firms of Manhattan. While their counterparts exit their societies to let them rot, moving preferably to the U.S., American oligarchs exercise voice at home to make sure that their country remains a safe haven for themselves as well as their non-American fellow oligarchs. As long as they succeed in this, there is no need for American-style oligarchic neo-feudalism to be replicated, for example, in Western Europe. As long as this is certain, it does not really matter who governs with what ambitions in France or Germany.

The second disorder of capitalism to be briefly touched upon here is corruption. As pointed out before, corruption is endemic in finance where the highest profits are to be made by circumventing or outright breaking legal rules on, for example, insider trading, mortgage lending, money laundering, rate fixing and the like. Indeed cheating can be assumed to be normal in finance and consequently fails to excite moral outrage, certainly among insiders. In the United States alone, the leading banks had by June 2014 agreed to pay about $100 billion in out-of-court settlement fees for legal infractions in connection with the 2008 financial crisis alone. A little more than a year later, the “Frankfurter Allgemeine” reported on a study by Morgan Stanley, according to which American and West European banks had together paid roughly $260 billion in settlement fees, again since 2008. Note that none of these cases ever went to trial, testifying to a deep empathy on the part of the legal system with the competitive pressure on financial institutions to break the law in order to make a profit.

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Financial corruption does not end here, however. Making fortunes in finance requires not just confidential early information on likely developments in ‘the market’, but also intimate knowledge of government policies, preferably in advance, and a capacity to influence such policies, both their conception and their implementation. Not surprisingly, then, no other industry, except perhaps armaments, has developed anything like Wall Street’s rotating door relationship with the U.S. government. There is Robert Rubin, treasury secretary from 1995 to 1999 under Clinton, and Henry Paulsen, in the same position under Bush the Younger, from 2006 to 2009 – both former CEOs of Goldman Sachs, the one instrumental for financial deregulation, the other presiding over its results in 2008. The two are, however, only the tip of a truly titanic iceberg, as there were and are literally hundreds of former and later Goldman people occupying a wide variety of government positions.

And not to be forgotten is the Attorney General of the Obama administration, Eric Holder, in office from 2008 to 2014. While negotiating one out-of-court settlement with Wall Street financial firms after another, he was on leave from a Wall Street law firm specializing in, of all things, representing those very same financial firms. Under Holder, not a single banker had to go to court, not to speak of prison. Having made around $2.5 million a year before joining the Cabinet, Holder resigned in 2015 to reassume his partnership, moving back into his old office. Of course, President Obama, who appointed Holder, drew more than one-third of his campaign contributions from the financial industry…

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