Inside Job II: ‘One unit of currency, one vote’

By Marc Morgan

The IFSC: where the decisions are really made?

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.

Worth watching.

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.

Alumni in high places.

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.

  1. Richard said:

    Why hasn’t someone created an organisation that allows members of the public to lobby their MPs. For example proposed laws are put published and people can contribute to a fund which will pay any MP voting in their favour. If the law does not go their way they don’t pay. If you want to limit the power of the super rich put a cap on the “donation” amount.

    For sure this would get people more interested in what is going on in the commons.

  2. senex72 said:

    An excellent and exhaustively accurate post! Remedies? It might be worth recalling that in ancient tines when democracy was founded in Greece, elections were always seen as the mark of oligarchic rule of the rich, because of the power of money and favours. Office bearers were instead subjected to a strict annual open scrutiny and severe penalties for anti-democratic corruption included exile, confiscation of assets and destruction of property. Officials were selected by lot from panels of citizen volunteers, as were juries whose case allocations were also decided at the last moment by lot again.

    It is worth looking at the work of. James Fishkin (Stamford Uni) on Deliberative Democracy, who discusses a number of useful ideas..
    It might be worthwhile trying to establish groups of 10 scrutineers in each county, chosen by lot, to challenge and question publicly all apparent administrative defalcations by administrators and by their MP’s..
    The formation of the present undemocratic Coalition government has effectively paralysed public discussion and awareness of alternative policies (which after all were well developed in the thirties).”Undemocratic” because it was cobbled together after a first-past-the-post election to concoct policies never subjected to prior open public debate or public decision, and sabotages inquiries into lobby power.

  3. Thank you both for your comments.

    Richard, I don’t think your proposal would be desirable, or of much democratic value. If you allow for competitive monetary lobbying across a wider range of the population there will not be any great change to the current predicaments. Politicians will continue to be responsive to those that offer them the most money, which will only detract them further from adopting rational and impartial policies aimed at increasing common welfare. Encouraging more extensive lobbying from all parts of the population will only raise the contributions currently offered by the sectors of society with most influence over policy, like the financial sector, as increased lobbying competition would breed a ‘race to the top’ in terms of payments. This would evidently favour those with greater financial endowments. It would, potentially, be highly regressive, and change very little.

    The obvious remedy which I think should be taken is not a “cap on the donation amount”, but a complete ban of any form of private donations, as all such donations violate the ‘one person, one vote’ democratic maxim. If the biggest corporations can ‘legally’ finance political parties, democracy dies. In the political sphere equality is the governing principle, by which all citizens have the same rights and the same opportunities to participate in the political process. This is a principle found in almost all Western constitutions.

    ‘Lobbying’ should not involve financial incentives/rewards but rather careful argumentation in a collectivised decision making environment, comprising of citizens from all sections of the population.

    I think the way forward is, as senex72 described, for greater public scrutiny of political representatives and their proposed policies on a more continual basis through public assemblies and participatory regional and state budgeting. Citizens should naturally have the final say on proposed policies, if common welfare is accepted as the main societal objective of a nation, as is written in most Western constitutions. Citizen assemblies and participatory budgeting are already features in many cities around the world, particularly in Latin America. I think these local assemblies should be open to all resident adults of a town/city district, with the local people then nominating candidates (‘panels of citizen volunteers’) to assist and participate in regional/state assemblies. The idea of a selected number of “scrutineers in each county, chosen by lot, to challenge and question publicly all apparent administrative defalcations by administrators and by their MP’s” would be the basic idea. The nominated candidates would ideally be subject to rotation, over an agreed time period, to get as many people involved in the national decision making process. A progressive shift from representative democracy to more direct democracy would I think be desirable. It is too incredible that public participation in public policy can only ‘officially’ take place every four-five years.

    • Richard said:

      Marc – Okay, I agree, other other solution would be zero polticial donations of any sort. I went with the public lobby option because that could happen now if an entitiy wanted it to happen. To have zero donations would take years and years.

      About the funds. I would say the public has more more money than any corporation. In other words, the population are a far bigger “corporation” than any business. They have access to many times more cash than Apple for example.

      • senex72 said:

        OK Richard but you might hit the problem of the disparity of power between consumers (in this case consumers of political policies) and producers thereof: because producers (e.g. via lobbies for massive utility, financial and GM companies) are more concentrated, fewer and easier to organise into a lobby. marcmorgan26 is right about the anti-democratic effects of financial power however wide the occasional voting net, I feel. The solution needs to be local, organised and bottom-up. Mass communication unchecked by local observation is notoriously subject to editing-out “unwelcome” aspects of otherwise fair reports (BBC pulling the Panorama report on Jim? Police on Liverpool fans?).

      • Richard said:

        Senex – are more concentrated, fewer and easier to organise into a lobby. – Yes, this is a huge problem.
        “The solution needs to be local, organised and bottom-up” – The problem is education. It takes massive effort to see through the propaganda that is 24/7. Presidential debates in the USA for example. Much easier to go along to get along. But fundamentally education is what is needed. We may not get there but if we do it will be the strongest foundation. I hope things dont have to get too bad for people to be motivated to educate themselves but I am not holding my breath……

      • senex72 said:

        Richard yes: time to start disseminating? The web is doing it, which is why power-holders keep trying to supervise and spy on its use. Also revolution becomes attainable when the elite splits, perhaps they will through intensified competition for a reducing number of plumb positions, as their kleptomania and austerity programmes destroy mass prosperity.

      • Richard said:

        Senex – Yes, you would think there has to come a time when they are in conflict given they are all power hungry. Unless of course they are part of some bizarre cult where they defer to those who they believe have superior genes………

  4. senex72 said:

    For fundamental political change we need to look at the foundations of mass attitudes.”Education” is useful for sharpening perceptions of democratic activists; but an idea will not work ‘until its time has come’. The destruction of democratic arrangements and social welfare across large parts of Europe in the interests of the finance industry has not been stopped even though we know its self-serving austerity policies are absurd.People balance their personal prospects against the cost of social progress as you said,(how else can we explain our national silence over the misery inflicted by the euro, or the disasters of NATO-backed air-strike “democracy”?); and so they opt for the quiet life; until the cost of staying in the game clearly outweighs the benefits to them and at the same time those on top lose their grip when it comes to putting down discontent violently (e.g. Ireland 1921). Then we get revolt, tax-refusal, petrol bombs in parliament , communes and break-away movements (Spain’s calls for regional independence, a Venetian Republic in Italy, eviction of the bankers’; stooges in Iceland). But for such a moment to be productive of progress and social justice we need to have a clear idea of where to go and what to do – that Is what I had in mind about internet communication, so that the end state is not worse than the beginning, and the people can be given reasonable confidence enough to act. creatively in the gale of economic destruction and rough justice.. .

  5. Joy said:

    very interesting piece on RT TV at the moment about lobbying in the European Parliament and the European Round Table well worth a look

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