Adonis Diaries

Posts Tagged ‘George Osborne

Corporate power unbound: No remedies decided for the next financial crisis

Governments are liberating global corporations from the rule of law and leaving them to rip the world apart

international assault on democracy?

What have governments learned from the financial crisis?

I could write a column spelling it out. Or I could do the same job with one word: nothing.

The lessons learned are counter-lessons, anti-knowledge, new policies that could scarcely be better designed to ensure the crisis recurs, this time with added momentum and fewer remedies.

And the financial crisis is just one of the multiple crises – in tax collection, public spending, public health and, above all, ecology – that the same counter-lessons accelerate.

 Andrew Bossone shared this link

“This, in a world of accelerating complexity and booming corporate crime, is pure recklessness.

But fear not, they say: economic power no longer needs to be subject to the rule of law. It can regulate itself.”

http://www.theguardian.com|By George Monbiot
Step back a pace and you see that all these crises arise from the same cause.
Players with huge power and global reach are released from democratic restraint. This happens because of a fundamental corruption at the core of politics.
In almost every nation the interests of economic elites tend to weigh more heavily with governments than do those of the electorate.
Banks, corporations and landowners wield an unaccountable power, which works with a nod and a wink within the political class. Global governance is beginning to look like a never-ending Bilderberg meeting.

As a paper by the law professor Joel Bakan in the Cornell International Law Journal argues, two dire shifts have been happening simultaneously.

On one hand governments have been removing laws that restrict banks and corporations, arguing that globalisation makes states weak and effective legislation impossible. Instead, they say, we should trust those who wield economic power to regulate themselves.

On the other hand, the same governments devise draconian new laws to reinforce elite power.

Corporations are given the rights of legal persons. Their property rights are enhanced. Those who protest against them are subject to policing and surveillance – the kind that’s more appropriate to dictatorships than democracies.

Oh, state power still exists all right – when it’s wanted

Many of you will have heard of the Trans-Pacific Partnership and the proposed Transatlantic Trade and Investment Partnership (TTIP).

These are supposed to be trade treaties, but they have little to do with trade, and much to do with power.

They enhance the power of corporations while reducing the power of parliaments and the rule of law.

They could scarcely be better designed to exacerbate and universalise our multiple crises – financial, social and environmental. But something even worse is coming, the result of negotiations conducted, once more, in secret: a Trade in Services Agreement (TiSA), covering North America, the EU, Japan, Australia and many other nations.

Only through WikiLeaks do we have any idea of what is being planned.

It could be used to force nations to accept new financial products and services, to approve the privatisation of public services and to reduce the standards of care and provision.

It looks like the greatest international assault on democracy devised in the past two decades. Which is saying quite a lot.

So the self-hating state proclaims that it has no power while destroying its own capacity to legislate.– internationally and at home As if the last financial crisis had not occurred, and as if unaware of what caused it.

George Osborne, in his most recent speech to the City of London, told his audience of bankers that “a central demand in our renegotiation is that Europe stops costly and damaging regulation”.

David Cameron has boasted of running “the first government in modern history that at the end of its parliamentary term has less regulation in place than there was at the beginning”.

This, in a world of accelerating complexity and booming corporate crime, is pure recklessness.

But fear not, they say: economic power no longer needs to be subject to the rule of law. It can regulate itself.

Some of us have long suspected that this is bunkum with bells on. But until now, suspicion is all we’ve had.

This week the first global review of self-regulation is published. It was commissioned by Britain’s Royal Society for the Protection of Birds, but it covers every sector from payday lenders to dog breeders. And it shows that in almost all cases – 82% of the 161 schemes it assessed, voluntary measures have failed.

For instance, when the European Union sought to reduce the number of pedestrians and cyclists killed by vehicles, it could simply have passed a law instructing the vehicle manufacturers to change the way they designed their bumpers and bonnets, at a cost of roughly €30 a car. Instead, it relied on a voluntary agreement with the industry. The result was a 75% lower level of protection than a law would have delivered.

When the Welsh government introduced a 5p charge for plastic bags, it cut their use by 80% overnight. The Westminster government claimed that self-regulation by the retailers would do the job just as well. The result? A grand reduction of 6%.

After seven wasted years, it succumbed last month to the obvious logic, and introduced a charge.

Voluntary schemes designed to prevent the advertising of junk food to children in Spain, to cut greenhouse gases in Canada, to save water in California, to save albatrosses from long-liners in New Zealand, to protect cosmetic surgery patients in the UK, to stop the aggressive marketing of psychiatric medicines in Sweden: fail, fail, fail, fail.

What the state could have done with a stroke of the pen cheaply and effectively is left instead to the fumbling efforts of industries that, even when sincere, are fatally undermined by free riders and opportunists.

In several cases, companies begged for new laws to raise standards throughout the industry. For example, those who make plastic silage wrappings for farmers tried to get the UK government to raise the recycling rate, while garden companies wanted regulations to phase out the use of peat. The governments refused.

Was this the result of blind ideology or grubby self-interest – or both? The biggest donors to political parties tend to be the worst operators, using their money to keep malpractice legal (consider Enron).

Because the parties they fund bow to their wishes, everyone else is forced to adopt their low standards.

I suspect that governments know as well as anyone that law is more efficient and effective than self-regulation, which is why it is not used.

Restraining the electorate, releasing the powerful: this is a perfectly designed formula for a multidimensional crisis. And boy, are we reaping it.

Libor, Not Labor: Everyone was affected

What is this benchmark rate, the London interbank offered rate (Libor)? The Libor is supposed to be based on the average rate at which large banks can borrow money overnight. It’s not based on actual transactions, and that leaves room for mischief.

Manipulating the Libor is a big deal because it affects the cost of money for almost everyone. The Libor is used to set rates on mortgages, credit cards and all manner of loans, personal and commercial. The amount of money affected by the phony rates is at least $500 trillion, British regulators have estimated.

 published in the New York Times this July 7 under “The British, at Least, Are Getting Tough”:

“THE unfolding story of how Barclays — and, in all likelihood, other big banks — rigged interest rates is full of telling tidbits about the way Wall Street works. It also represents yet another teachable moment.

By now the world knows that Barclays manipulated the most widely used benchmark rate, the London interbank offered rate.  But Barclays is just one member of the cozy club that sets the Libor. And mischief there was, according to e-mails and other documents that Barclays has turned over to regulators in the United States and Britain.

The upshot: traders colluded by posting rates that either helped their bets in the markets or their bank’s perceived financial strength during the harrowing days of 2008.

Barclays is not the only bank under investigation for rigging the Libor. It was simply the first to own up to the behavior and settle with regulators, paying $450 million. Other banks will almost certainly follow, and the documents bound to bubble up in those cases will surely prove fascinating.

One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean-clean,” an executive said in a phone conversation. Talk about defining deviancy down.

“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.

British authorities have not bought on the argument that “dirty clean” is an acceptable basis to be absolved of outright cheating.

Last week’s defenestrations of Marcus Agius (Barclays chairman); Robert E. Diamond Jr.,(chief executive); and Jerry del Missier, (chief operating officer), apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator.

(Mr. del Missier have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)

MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank.

You know how it works on this side of the Atlantic (USA): faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.

British officials are taking a different approach with this scandal.

George Osborne, the chancellor of the Exchequer, said in a statement on June 28: “It is clear that what happened in Barclays and potentially other banks was completely unacceptable, was symptomatic of a financial system that elevated greed above all other concerns and brought our economy to its knees. Punish wrongdoing. Right the wrong of the age of irresponsibility.”

Mr. Osborne voiced the question that so many have asked recently in the United States: “Fraud is a crime in ordinary business — why shouldn’t it be so in banking?”

Perhaps the biggest lesson from the Libor scandal is how dangerous it is to rely on interested parties to set interest rates or prices of financial instruments, rather than on actual transactions conducted by investors.

The Libor has been set in the current and vulnerable manner since the late 1960s. Maybe it has never been rigged before, but who knows?

It is far better to have the transparent and verifiable record of prices created by a tape of electronic trading. Such records are standard pricing mechanisms for many securities. But not all.

Prices of derivatives, especially credit default swaps that trade one-to-one, can still be based on one dealer’s say-so. That’s why a rule proposed by the Commodity Futures Trading Commission that would require pre-trade price transparency in the swaps market is so important.

But it is also why Wall Street is pushing back, especially on the commission’s proposal that swap execution facilities provide market participants, before they buy or sell, with easily accessible prices on “a centralized electronic screen.”

The commission’s rule would eliminate the one-to-one dealings by telephone that are so lucrative to traders and so expensive to investors.

A bill intended to gut the commission’s proposed rule and to maintain dealers’ profits in derivatives failed to go anywhere after being passed last year by two committees in the House of Representatives — Financial Services and Agriculture. That was a good thing.

But there are rumblings in Washington that this bill has resurfaced and that it may be quietly attached to a House Agriculture Committee appropriations bill scheduled for a vote this month. The bill, if passed,

1. would bar the requirement for a centralized pricing platform to shed light on the enormous swaps market.

2. would prevent regulators from requiring that a number of participants provide price quotations to customers, a way to ensure fairness.

It’s hard to believe, in the wake of the Libor mess, that Wall Street and its supporters in Congress would continue to battle against price transparency in any market. Then again, that’s precisely what they did after the credit crisis.

With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself.

When Mr. del Missier took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”

Given the Libor scandal, let’s just say good luck with that.

 

adonis49

adonis49

adonis49

September 2021
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