By Marc Morgan
Earlier this year, formal records were released under the Irish Freedom of Information Act which revealed the intertwined relationship between the Irish Government and the Irish Financial Services Centre (IFSC). These records become known to the general public on Monday October 8th in an article by The Irish Times. The relationship between the two parties has been, and continues to be, played out within the IFSC Clearing House Group, a lobbying group, chaired by Martin Fraser, the secretary general of Government. The group comprises of civil servants from state agencies like the Industrial Development Agency (IDA) and Enterprise Ireland, as well as representatives from the principle financial corporations in the country; JP Morgan, Citigroup, State Street, Barclays, KPMG, Bank of America, Bank of Ireland, among others. Meetings between the two parties take place in Government Buildings, so it is no surprise that the Government’s policy bears striking resemblance to the Group’s position in two related areas: tax incentives for the financial industry and the stance on the EU’s proposal of a European-wide financial transactions tax (FTT).
Not only did the Government’s position exactly match that of the financial industry’s lobbyists, but there is no evidence that they consulted any other representative group in Irish society before holding a final view. It follows quite naturally then that the Government is opposed to the implementation of a FTT (having discussed the matter at 13 meetings with representatives of the financial lobby group between October 2011 and May of this year, according to the released documents), and that “a total of 21 changes to the Finance Act were made to accommodate the sector including a contentious incentive that allowed foreign executives with companies based in Ireland to pay tax on only 70 per cent of income between €75,000 and €500,000”. Included in these changes was a further incentive that allows executives to claim tax relief on school fees up to €5,000, even though this was opposed by the Revenue Commissioners. In our ‘democracy’ it thus seems that the quantity of currency in one’s pocket has replaced the passport as the legitimate means to participate in public policy decisions.
But this perversion of democracy is not solely unique to Ireland. In Washington DC, the interests of the financial sector are thoroughly represented by the Financial Services Roundtable, a lobby group employing 3,000 lobbyists; which is more than five lobbyists for each member of the US Congress, elected in principle to represent all citizens equally. Charles Ferguson, in his award-winning documentary Inside Job, reveals that financial corporations spent over $5 billion in lobbying and campaign contributions from 1998 to 2008. Since the crisis the Financial Services Roundtable are spending even more money trying to fight reforms like the FTT.
Further examples of financial oligarchy can be found within Europe. The City of London, amply represented in David Cameron’s government, has vetoed the proposal of a FTT or comparable financial controls. The City, being Europe’s biggest and most important financial centre, can afford the votes that grant it veto power. In addition, key positions in Cameron’s government are occupied by ex-financiers from major investment banks, like Royal Bank of Scotland, Morgan Stanley, UBS and HSBC. James Meyer Sassoon, from the Secretary of the Treasury, was former vice-president of UBS, to cite one example.
Lithuania provides a further illustration. After the crisis of 2008 struck, the Lithuanian government had to basically choose between removing its peg with the Euro, causing huge damage to the balance sheet of Swedish banks that previously flooded the country with credit, or choose an internal devaluation; in other words cutting wages and the public sector budget in general. Lithuania chose the latter option. Since then it is known that the two Lithuanian economic ministers heavily involved in that decision both held prior employments with Swedish banks (Daniels Pavļuts atSwedbank and Andris Vilks at SEB).
The ‘Great Recession’ that ensued in 2008, primarily from the activities engaged by the financial industry in the preceding years, has actually strengthened the political hand of the financial sector, not weakened it. Since 2010, at least 10 of the 27 EU states have appointed ex-bankers or fund managers to positions in their respective ministries of finance or Central Banks (Spain comprises the tenth country, as from early 2012 the finance minister of the new government, Luis de Guindos, was a former director of – now bankrupt – Lehman Brothers). In the case of two of these countries, Italy and Greece, two unelected technocrats were brought into power in November 2011. Earlier this year in Greece, Lucas Papademos, the former vice-president of the ECB, was replaced by a democratically elected prime minister. However, in Italy, Mario Monti, who spent six years as a consultant in Goldman Sachs, remains, alongside a team of former bank executives. At the European institutional level, the current president of the ECB, Mario Draghi was an ex-director of Goldman Sachs and the president of the temporary European Financial Stability Facility, Klaus Regling came from the American hedge fund Moore Capital.
Not only has there been an inflow of financial executives into the political sphere, there has also been an outflow of public representatives from European institutions to the financial sector. Most notably, four European Commissioners who formed part of Jose Manuel Barroso’s team until February 2010 have been offered employment in the private financial sector, including Charlie McCreevy, the former Commissioner for Internal Market and Services, in charge of regulating capital markets and opaque financial products, and now a director at the Dublin unit of the Bank of New York Mellon.
This trend is a globalised affair, at least among developed Western countries and institutions. In the US, President Obama appointed Gene Sperling, a former advisor to Goldman Sachs, to the position of President of the National Economic Council in his administration in January 2011. Up until June 30, 2012 Robert Zoellick headed the World Bank, having arrived at the post from Goldman Sachs; in July 2011 Christine Lagarde appointed David Lipton, a former director of Citigroup and Moore Capital, as the First Deputy Managing Director of the IMF; while the man appointed as chairman of the Financial Stability Board by the G-20 in November 2011, the person looked upon to reform the financial system, is Mark Carney, an old alumni of Goldman Sachs and governor of the Bank of Canada since 2007.
Although representatives of the financial world continue to court politicians very closely, their fates have drastically parted course in the aftermath of the crisis. The governments of four of the five biggest European economies (UK, France, Italy, and Spain) that governed in the years prior to 2008 have been, since the crisis, removed by their respective electorates. These were among the politicians that pledged to ‘reform capitalism’ at the 2008 G-20 Summit in Washington. Meanwhile, there has been little or no change in the governance of four of the biggest and most powerful financial firms in the world, determined to fight the reforms. Even though Goldman Sachs had to pay a fine of $550 million for engaging in fraudulent activities prior to the economic downturn, Lloyd Blankfein continues to be the bank’s CEO. Jamie Dimon continues to preside over JP Morgan, Brian Moynihan over Bank of America, and right up until 16th October 2012, Vikram Pandit was CEO of Citigroup; all key players in the lead up to the crisis.
Does this not constitute an imposition by the financial sector on Western democracy? What might further help to think so is the mainstream belief that current austerity policies are a remedy for the irresponsible management of public finances by governments in the recent past. This makes us forget that, with the exception of Greece (incidentally, aided in concealing its irresponsibility by Goldman Sachs) public finances have been drastically degraded as a result of responding to the crisis in the financial sector; the same sector whose representatives have been promoted to direct Government economic policy on both sides of the Atlantic. The subsequent ‘reforms’, or lack thereof, speak for themselves and for the state of our democracies.