Who are the Architects of Economic Collapse

pjt | Nov 10, 2008 | Comments 0 |

Will an Obama Administration Reverse the Tide?

The October 2008 financial
meltdown is not the result of a cyclical economic phenomenon. It is the
deliberate result of US government policy instrumented through the
Treasury and the US Federal Reserve Board.

This is the most serious economic crisis in World history.

The "bailout" proposed by the
US Treasury does not constitute a "solution" to the crisis. In fact
quite the opposite: it is the cause of further collapse. It triggers an
unprecedented concentration of wealth, which in turn contributes to
widening economic and social inequalities both within and between
nations.

The levels of indebtedness have
skyrocketed. Industrial corporations are driven into bankruptcy, taken
over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates.

With the "bailout", the public
debt has spiraled. America is the most indebted country on earth. Prior
to the "bailout", the US public debt was of the order of 10 trillion
dollars. This US dollar denominated debt is composed of outstanding
treasury bills and government bonds held by individuals, foreign
governments, corporations and financial institutions.

"The Bailout": The US Administration is Financing its Own Indebtedness

Ironically,
the Wall Street banks –which are the recipients of the bailout money–
are also the brokers and underwriters of the US public debt. Although
the banks hold only a portion of the public debt, they transact and
trade in US dollar denominated public debt instruments Worldwide.

In a bitter twist, the banks
are the recipients of a 700+ billion dollar handout and at the same
time they act as creditors of the US government.

We are dealing
with an absurd circular relationship: To finance the bailout,
Washington must borrow from the banks, which are the recipients of the
bailout.

The US administration is financing its own indebtedness.

Federal,
State and municipal governments are increasingly in a straightjacket,
under the tight control of the global financial conglomerates.
Increasingly, the creditors call the shots on government reform.

The bailout is conducive to the
consolidation and centralization of banking power, which in turn
backlashes on real economic activity, leading to a string of
bankruptcies and mass unemployment.

Will an Obama Administration Reverse the Tide?

The financial crisis is the outcome of a deregulated financial architecture.

Obama has stated unequivocally
his resolve to address the policy failures of the Bush administration
and "democratize" the US financial system. President-Elect Barack Obama
says that he is committed to reversing the tide:

"Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers.
In this country, we rise or fall as one nation, as one people."
(President-elect Barack Obama, November 4, 2008, emphasis added)

The Democrats casually blame the Bush administration for the October financial meltdown.

Obama says that he will be introducing an entirely different policy agenda which responds to the interests of Main Street:

"Tomorrow, you can turn the page on policies that put the greed and irresponsibility of Wall Street before
the hard work and sacrifice of men and women all across Main Street.
Tomorrow you can choose policies that invest in our middle class and
create new jobs and grow this economy so that everybody has a chance to
succeed, from the CEO to the secretary and the janitor, from the
factory owner to the men and women who work on the factory floor.(
Barack Obama, election campaign, November 3, 2008, emphasis added)

Is Obama committed to "taming Wall Street" and "disarming financial markets"?

Ironically, it was under the Clinton administration that these policies of "greed and irresponsibility" were adopted.

The 1999 Financial Services
Modernization Act (FSMA) was conducive to the the repeal of the
Glass-Steagall Act of 1933. A pillar of President Roosevelt’s "New
Deal", the Glass-Steagall Act was put in place in response to the
climate of corruption, financial manipulation and "insider trading"
which resulted in more than 5,000 bank failures in the years following
the 1929 Wall Street crash.

Bill Clinton signs into law the Gramm-Leach-Bliley Financial Services Modernization Act, November 12, 1999

Under
the 1999 Financial Services Modernization Act, effective control over
the entire US financial services industry (including insurance
companies, pension funds, securities companies, etc.) had been
transferred to a handful of financial conglomerates and their
associated hedge funds.

The Engineers of Financial Disaster

Who are the architects of this debacle?

In a bitter irony, the
engineers of financial disaster are now being considered by
President-Elect Barack Obamas Transition Team for the position
Treasury Secretary:

Lawrence Summers played
a key role in lobbying Congress for the repeal of the Glass Steagall
Act. His timely appointment by President Clinton in 1999 as Treasury
Secretary spearheaded the adoption of the Financial Services
Modernization Act in November 1999. Upon completing his mandate at the
helm of the US Treasury, he became president of Harvard University
(2001- 2006).

Paul Volker was
chairman of the Federal Reserve Board in the l980s during the Reagan
era. He played a central role in implementing the first stage of
financial deregulation, which was conducive to mass bankruptcies,
mergers and acquisitions, leading up to the 1987 financial crisis.

Timothy Geithner is CEO
of the Federal Reserve Bank of New York, which is the most powerful
private financial institution in America. He was also a former Clinton
administration Treasury official. He has worked for Kissinger
Associates and has also held a senior position at the IMF. The FRBNY
plays a behind the scenes role in shaping financial policy. Geithner
acts on behalf of powerful financiers, who are behind the FRBNY. He is
also a member of the Council on Foreign Relations (CFR)

Jon Corzine is currently governor of New Jersey, former CEO of Goldman Sachs.

Larry Summers (left) and Timothy Geithner

At the time of writing, Obamas favorite is Larry Summers, front-runner for the position of Treasury Secretary.

Harvard University Economics
Professor Lawrence Summers served as Chief Economist for the World Bank
(1991–1993). He contributed to shaping the macro-economic reforms
imposed on numerous indebted developing countries. The social and
economic impact of these reforms under the IMF-World Bank sponsored
structural adjustment program (SAP) were devastating, resulting in mass
poverty.

Larry Summers stint at the
World Bank coincided with the collapse of the Soviet Union and the
imposition of the IMF-World Banks deadly " economic medicine" on
Eastern Europe, the former Soviet republics and the Balkans.

In 1993, Summers moved to the
US Treasury. He initially held the position of Undersecretary of the
Treasury for international affairs and later Deputy Secretary. In
liaison with his former colleagues at the IMF and the World Bank, he
played a key role in crafting the economic "shock treatment" reform
packages imposed at the height of the 1997 Asian crisis on South Korea,
Thailand and Indonesia.

The bailout agreements
negotiated with these three countries were coordinated through Summers
office at the Treasury in liaison with the Federal Reserve Bank of New
York and the Washington based Bretton Woods institutions. Summers
worked closely with IMF Deputy Managing Director Stanley Fischer, who was later appointed Governor of the Central Bank of Israel.

Larry Summers became Treasury
Secretary in July 1999. He is a protégé of David Rockefeller. He was
among the main architects of the infamous Financial Services
Modernization Act, which provided legitimacy to inside trading and
outright financial manipulation.

Larry Summers and David Rockefeller

"Putting the Fox in Charge of the Chicken Coop"

Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group,
As a Hedge Fund manager, his contacts at the Treasury and on Wall
Street provide him with valuable inside information on the movement of
financial markets. Under the helm of Larry Summers and as a direct
result of the financial meltdown, the D. E. Shaw Group made record
profits. At the end of October 2008, at the height of the financial
crisis, the D. E. Shaw Group announced $7 billion in revenue, a 22
percent increase over the previous year, "with nearly three times more
cash on hand than a year ago" (2theadvocate.com, 31 October 2008).

Putting a Hedge Fund manager
(with links to the Wall Street financial establishment) in charge of
the Treasury is tantamount to putting the fox in charge of the chicken
coop.

The Washington Consensus

Summers, Geithner, Corzine,
Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to
mention Alan Greenspan, al al. are buddies; they play golf together;
they have links to the Council on Foreign Relations and the Bilderberg;
they act concurrently in accordance with the interests of Wall Street;
they meet behind closed doors; they are on the same wave length; they
are Democrats and Republicans.

While they may disagree on some
issues, they are firmly committed to the Washington-Wall Street
Consensus. They are utterly ruthless in their management of economic
and financial processes. Their actions are profit driven. Outside of
their narrow interest in the "efficiency" of "markets", they have
little concern for "living human beings". How are peoples lives
affected by the deadly gamut of macro-economic and financial reforms,
which is spearheading entire sectors of economic activity into
bankruptcy.

The economic reasoning
underlying neoliberal economic discourse is often cynical and
contemptuous. In this regard, Lawrence Summerseconomic discourse
stands out. He is known among environmentalists for having proposed the
dumping of toxic waste in Third World countries, because people in poor
countries have shorter lives and the costs of labor are abysmally low,
which essentially means that the market value of people in the Third
World is much lower. According to summers, this makes it far more
"cost effective" to export toxic materials to impoverished countries. A
controversial 1991 World Bank memo signed by of Chief Economist Larry
Summers reads as follows (excerpts, emphasis added):

DATE: December 12, 1991 TO: Distribution FR: Lawrence H. Summers Subject: GEP

"’DirtyIndustries: Just
between you and me, shouldn’t the World Bank be encouraging MORE
migration of the dirty industries to the Less Developed Countries? I can think of three reasons:

1) The measurements of the
costs of health impairing pollution depends on the foregone earnings
from increased morbidity and mortality…. From this point of view
a given amount of health impairing pollution should be done in the
country with the lowest cost, which will be the country with the lowest
wages. I think the economic logic behind dumping a load of toxic
waste in the lowest wage country is impeccable and we should face up to
that.

2) The costs of pollution are
likely to be non-linear as the initial increments of pollution probably
have very low cost. I’ve always though that under-populated countries in Africa are vastly UNDER-polluted,
their air quality is probably vastly inefficiently low compared to Los
Angeles or Mexico City. Only the lamentable facts that so much
pollution is generated by non-tradable industries (transport,
electrical generation) and that the unit transport costs of solid waste
are so high prevent world welfare enhancing trade in air pollution and
waste.

3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity.
[the demand increases when income levels increase]. The concern over an
agent that causes a one in a million change in the odds of prostrate
cancer is obviously going to be much higher in a country where people
survive to get prostrate cancer than in a country where under 5
mortality is is 200 per thousand…. "

http://www.globalpolicy.org/socecon/envronmt/summers.htm

Summers stance on the export of pollution to developing countries had a marked impact on US environmental policy:

In 1994, "virtually every
country in the world broke with Mr. SummersHarvard-trained "economic
logic" ruminations about dumping rich countriespoisons on their
poorer neighbors, and agreed to ban the export of hazardous wastes from
OECD to non-OECD [developing] countries under the Basel Convention.
Five years later, the United States is one of the few countries that
has yet to ratify the Basel Convention or the Basel Conventions Ban
Amendment on the export of hazardous wastes from OECD to non-OECD
countries. (Jim Valette, Larry SummersWar Against the Earth, Counterpunch, undated)

The 1997 Asian Crisis: Dress Rehearsal for Things to Come

In the course of 1997, currency
speculation instrumented by major financial institutions directed
against Thailand, Indonesia and South Korea was conducive to the
collapse of national currencies and the transfer of billions of dollars
of central bank reserves into private financial hands. Several
observers pointed to the deliberate manipulation of equity and currency
markets by investment banks and brokerage firms.

While the Asian bailout
agreements were formally negotiated with the IMF, the major Wall Street
commercial banks (including Chase, Bank of America, Citigroup and J. P.
Morgan) as well as the "big five" merchant banks (Goldman Sachs, Lehman
Brothers, Morgan Stanley and Salomon Smith Barney) were "consulted" on
the clauses to be included in the Asian bail-out agreements.

The US Treasury in liaison with
Wall Street and the Bretton Woods institutions played a central role in
negotiating the bailout agreements. Both Larry Summers and Timothy
Geithner, were actively involved on behalf of the US Treasury in the
1997 bailout of South Korea:

[In 1997] "Messrs. Summers and
Geithner worked to persuade Mr. Rubin to support financial aid to South
Korea. Mr. Rubin was wary of such a move, worrying that providing money
to a country in dire straits might be a losing proposition…" (WSJ,
November 8, 2008)

What happened in Korea under advice from Deputy Treasury Secretary Summers et al, had nothing to do with "financial aid".

The country was literally
ransacked. Undersecretary of the Treasury David Lipton was sent to
Seoul in early December 1997. Secret negotiations were initiated.
Washington had demanded the firing of the Korean Finance Minister and
the unconditional acceptance of the IMF "bailout".

A new finance minister, who
happened to be former IMF and World Bank official, was appointed and
immediately rushed off to Washington for "consultations" with his
former IMF colleague Deputy Managing Director Stanley Fischer.

"The Korean Legislature had met
in emergency sessions on December 23. The final decision concerning the
57 billion dollar deal took place the following day, on Christmas Eve
December 24th, after office hours in New York. Wall Street’s top
financiers, from Chase Manhattan, Bank America, Citicorp and J. P.
Morgan had been called in for a meeting at the Federal Reserve Bank of
New York. Also at the Christmas Eve venue, were representatives of the big five
New York merchant banks including Goldman Sachs, Lehman Brothers,
Morgan Stanley and Salomon Smith Barney. And at midnight on Christmas
Eve, upon receiving the green light from the banks, the IMF was allowed
to rush 10 billion dollars to Seoul to meet the avalanche of maturing short-term debts.

The coffers of Korea’s central
Bank had been ransacked. Creditors and speculators were anxiously
awaiting to collect the loot. The same institutions which had earlier
speculated against the Korean won were cashing in on the IMF bailout
money. It was a scam. (See Michel Chossudovsky, The Recolonization of Korea, subsequently published as a chapter in The Globalization of Poverty and the New World Order, Global Research, Montreal, 2003.)

"Strong economic medicine" is
the prescription of the Washington Consensus. "Short term pain for
long term gain" was the motto at the World Bank during Lawrence Summers
term of as World Bank Chief Economist. (See IMF, World Bank Reforms Leave Poor Behind, Bank Economist Finds, Bloomberg, November 7, 2000)

What we dealing with is an
entire " old boys network" of officials and advisers at the Treasury,
the Federal Reserve, the IMF, World Bank, the Washington Think Tanks,
who are in permanent liaison with leading financiers on Wall Street.

Whoever is chosen by Obamas Transition team will belong to the Washington Consensus.

The 1999 Financial Services Modernization Act

What happened in October 1999 is crucial.

In
the wake of lengthy negotiations behind closed doors, in the Wall
Street boardrooms, in which Larry Summers played a central role, the
regulatory restraints on Wall Street’s powerful banking conglomerates
were revoked "with a stroke of the pen".

Larry Summers worked closely with Senator Phil Gramm (1985-2002),chairman of the Senate Banking committee, who was the legislative architect of the the Gramm-Leach-Bliley Financial Services Modernization Act, signed into law on November 12, 1999 (See Group Photo above). (For Complete text click US Congress: Pub.L. 106-102). As Texas Senator, Phil Gramm was closely associated with Enron.

In
December 2000 at the very end of the Clinton mandate, Gramm introduced
a second piece of legislation, the so-called Gramm-Lugar Commodity
Futures Modernization Act, which paved the way for the speculative
onslaught in primary commodities including oil and food staples.

"The act, he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc)
got into the business of regulating newfangled financial products
called swaps—and would thus "protect financial institutions from
overregulation" and "position our financial services industries to be
world leaders into the new century." (See David Corn, Foreclosure Phil, Mother Jones, July August 2008)

Phil Gramm was McCains first choice for Secretary of the Treasury.

Under
the FSMA new rules – ratified by the US Senate in October 1999 and
approved by President Clinton – commercial banks, brokerage firms,
hedge funds, institutional investors, pension funds and insurance
companies could freely invest in each others businesses as well as
fully integrate their financial operations.

A "global financial
supermarket" had been created, setting the stage for a massive
concentration of financial power. One of the key figures behind this
project was Secretary of the Treasury Larry Summers, in liaison with
David Rockefeller. Summers described the FSMA as "the legislative
foundation of the financial system of the 21th century". That
legislative foundation is among the main causes of the 2008 financial
meltdown.

Financial Disarmament

There can be no meaningful
solution to the crisis, unless there is a major reform in the financial
architecture, implying inter alia the freezing of speculative trade and
the "disarming of financial markets". The project of disarming
financial markets was first proposed by John Maynard Keynes in the
1940s as a means to the establishment of a multipolar international
monetary system. (See J.M. Keynes, Activities 1940-1944, Shaping the Post-War World: The Clearing Union,
The Collected Writings of John Maynard Keynes, Royal Economic Society,
Macmillan and Cambridge University Press, Vol. XXV, London 1980, p.
57).

Main Street versus Wall Street

Where are Obamas "Main Street
appointees"? Namely individuals who respond to the interests of people
across America. There are no labor or community leaders on Obamas
list for key positions.

The President-elect is appointing the architects of financial deregulation.

Meaningful financial reform cannot be adopted by officials appointed by Wall Street and who act on behalf of Wall Street.

Those who set the financial system ablaze in 1999, have been called back to turn out the fire.

The proposed "solution" to the crisis under the "bailout" is the cause of further economic collapse.

There are no policy solutions on the horizon.

The banking conglomerates call
the shots. They decide on the composition of the Obama Cabinet. They
also decide on the agenda of the Washington Financial Summit (November
15, 2008) which is slated to lay the groundwork for the establishment
of a new "global financial architecture".

The Wall Street blueprint has
already been discussed behind closed doors: the hidden agenda is to
establish a unipolar international monetary system, dominated by US
financial power, which in turn would be protected and secured by US
military superiority.

Neoliberalism with a "Human Face"

There is no indication that Obama will break his ties to his Wall Street sponsors, who largely funded his election campaign.

Goldman Sachs, J. P. Morgan Chase, Citigroup, Bill GatesMicrosoft are among his main campaign contributors.

Warren Buffett, among the the
worlds richest individuals, not only supported Barak Obamas election
campaign, he is a member of his transition team, which plays a key role
deciding the composition of Obamas cabinet.

Warren Buffett

Unless there is a major
upheaval in the system of political appointments to key positions, an
alternative Obama economic agenda geared towards poverty alleviation
and employment creation is highly unlikely.

Barack Obama. November 7 Press Conference.
Joe Biden (far left), newly appointed chief of staff Rahm Emanuel (far right). Photo: Charles Dharapak

What we are witnessing is continuity.

Obama provides a " human face"
to the status quo. This human face serves to mislead Americans on the
nature of the economic and political process.

The neoliberal economic reforms remain intact.

The substance of these reforms
including the "bailout" of Americas largest financial institutions
ultimately destroys the real economy, while spearheading entire areas
of manufacturing and the services economy into bankruptcy.

Who are the Architects of Economic Collapse

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