Category Archives: Banks

How Fascist Loot Funded US Anti-Communism

In Gold Warriors, by Sterling and Peggy Seagrave, the authors reveal one of the most shocking secrets of the 20th century. It is the story of the vast treasure Japan managed to loot across Asia, today worth billions or even trillions of dollars, the concealment of it in hundreds of sites, and the secret recovery of much of it by what would become America’s Central intelligence Agency. America helped Japan cover up this vast fortune, fooling the world into believing Japan was bankrupt after the war and was unable to pay reparations for their mass murder and material damage.

Most of Japan’s vast stolen fortune would remain in the hands of imperialist war criminals, and would for decades be used to prop up Japan’s corrupt one party democracy ruled by the Liberal Democratic Party, with the CIA and the Yakuza pulling the strings behind the scenes. It would be controlled by men like Allen Dulles and John J. McCloy through their Black Eagle Trust, which managed both Japanese and Nazi War loot. The Gold would be deposited in the Federal Reserve, the Bank of England, Union Banque Suisse (UBS) in Switzerland, Citibank, HSBC and other major banks who often stole it for themselves.  The gold was also used to manipulate the global economy, finance assassinations and covert ops, bribe politicians, and finance right wing political movements like the John Birch Society domestically.

Gold Warriors tells a compelling tale of secrecy, greed, treachery, murder and lies. The book offers a window into the vast and mysterious world of offshore banking and the Gold Cartel. The authors estimate that today, the ultra-rich are hoarding over 23 trillion dollars, mostly in offshore bank accounts. Meanwhile around the world, health and education are being cut, poverty and homelessness are on the rise, and the rest of us are constantly told to tighten our belts.

The Seagraves destroy the myth that America reformed Japan after the war, revealing the shocking story of the MacArthur occupation and its alliance with fascists along with Japan’s ruthless imperial family and their huge corporate backers like Mitsui, Mitsubishi, Kawasaki and Sumitomo. They used this loot to finance Japan’s postwar recovery and meteoric rise. Companies that have since become household names made their fortunes through looting Asia and employing slave labor, including that of American POWS. When the survivors tried to sue for reparations, State Department officials like Tom Foley with corrupt ties to these Japanese corporations compared these victims to terrorists.

The Seagraves begin their book with the brutal assassination of the Korean Queen Min on October 7 1895 by the imperialist Japanese. In Japan, like in America, big business, organized crime, and intelligence were strongly interrelated. The Japanese Empire, like all empires, were cynical liars and claimed that Queen Min had been murdered by Koreans. With the strong-willed Queen Min out of the way, her weak husband King Kojong quickly became a Japanese puppet and soon Korea was a Japanese colony, while China suffered a humiliating defeat at Japan’s hands when it tried to intervene.

Japan seized Taiwan and parts of Manchuria from China. Korea became Japanese property, and they began to loot the accumulated wealth of centuries, including gold silver and prized celadon porcelains. Japan employed an army of antiquarians to seize and catalog hundreds of ancient Korean manuscripts, sending them to Japan or burning them to destroy Korea’s cultural heritage.  The Japanese even resorted to grave robbery on a massive scale, targeting Korean Imperial tombs.

Japan targeted Taiwan, colonizing the island and setting up massive heroin laboratories. Taiwan would for decades become a center of the global drug trade. Japan launched a sneak attack on the Russian Empire in 1904 and Russia was forced to sign a humiliating peace deal giving Japan control of its possessions in Manchuria like the South Manchurian Railway it had built. To turn a quick profit, Japan set up a massive opium growing operation. They bribed warlords and began buying up Chinese industries and land. Manchuria became what the authors call the center of “carpetbaggers, spies, secret policemen, financial conspirators, fanatical gangsters, drug dealers and eccentric army officers.” The Mitsui and Mitsubishi Corporations ran everything, making a fortune from their cut of the illegal drug trade. Through a series of provocations involving the patriotic societies and Japanese intelligence, Japan was whipped into a war frenzy and more Chinese land was stolen. Japan unleashed an army of experts to steal as much art and priceless manuscripts as they could.

Around the same time Japan had been conquering Korea, America had conquered the Philippines while claiming they wanted to liberate it from Spain. With its usual cynical hypocrisy, once Spain surrendered, America crushed the Filipino independence movement with the brutal tactics it would later employ in Greece, Korea, Vietnam, Afghanistan, Iraq and a long list of other countries. Of course, it had been America itself which had forced Japan to end its long isolation setting into motion the chain of events that had led to Japan’s rapid modernization and imperialist adventures in the first place. When the Second World War began to go very badly by 1943, Japan was no longer able to ship its loot back to Japan, and so began to hide it all over the Philippines and Indonesia. Prisoners of war and the local Filipinos were forced to dig massive tunnels. These slave laborers were often massacred or buried alive to keep the tunnels secret. The Japanese often buried their loot near historical landmarks and hospitals because they were less likely to be bombed. They smuggled gold into the Philippines on phony hospital ships, since they would be less likely to be sunk by American submarines. They hid some of the gold by loading ships full of treasure and sinking them for later recovery, and huge underground chambers were filled with thousands of tons of gold.

The Americans managed to discover gold was being hidden during the war, thanks to one of their spies. There were at least 176 treasure sites in the Philippines. By the time the war ended, the Americans had found so much gold that if it became publicly known it would have destroyed the Bretton woods system which relied on gold being valued at 35 dollars an ounce. The Bretton Woods system was itself backed with the huge sums in Nazi gold the US had managed to seize and hide, the authors of Gold Warriors suggest.

Back in Washington, there was already a group dedicated to stealing and hiding Nazi gold: the Black Eagle Trust. With their massive off-the-books money, they would bribe politicians and finance coups, covert operations and psychological warfare. Soon, the Golden Lily loot was being managed by the same people. It was being moved across the world, being used to prop up banks around the world. UBS in Switzerland, HSBC in Hong Kong, the Bank of England, Chase Manhattan. Hidden in 42 countries between 1945-47, the gold was used to make huge loans to Britain, Egypt, and the Kuomintang in China. Politicians around the world were bribed with gold certificates. The intersection between Wall Street and intelligence involved vast sums completely unknown to the public. The notion that the CIA could ever be held in check once it had control of this vast fortune was a joke, and it perhaps led to events like the Kennedy assassination. A nearly 60-year cover-up after that event would not be surprising when one remembers that the entire mainstream American media was controlled by former Office of Strategic Services men, as discussed in Science of Coercion by Christopher Simpson. The CIA and Office of Policy Coordination controlled much of the media worldwide as part of Frank Wisner’s infamous Operation Mockingbird, putting out nonstop Cold War propaganda.

In Japan, criminal Yoshio Kodama made a deal to turn over $100 million to the CIA for his immunity (worth 1 billion dollars today). During the war, Kodama had managed to save 13 billion in gold, platinum, diamonds and other loot. America had not bombed Japanese industries, instead targeting workers’ homes. This was likely because American corporations were heavily invested in Japan, just as they were in Nazi Germany, where American-owned factories supplying the German war machine were spared during the war. In occupied West Germany, Denazification was a scam, and so too was the removal of imperialism in Japan. Trials targeting Japanese war criminals were fixed to prevent the Emperor’s role being known. The US set up a special fund to bribe witnesses. Kodama was put on the CIA payroll, and behind the scenes he created the misnamed Liberal Democratic Party headed by corrupt politicians. The Yatsuya fund was used to  control the Japanese underworld. The Keenan fund named after Joseph Keenan, the chief war crimes prosecutor, was used to bribe witnesses to protect the Emperor and his cronies.

The M-Fund was named after General William Frederic Marquat, who was in charge of restructuring the Japanese economy. Marquat was also entrusted to disband Japan’s infamous Unit 731 that ran bio-warfare research using prisoners as guinea pigs during the war, but instead of disbanding, they were recruited by the Pentagon and used to develop germ warfare against China and North Korea. The M-Fund was used to bribe politicians, and evolved into one of the most scandalous financial scams in history. Soon, it would corrupt American politicians as well. Nixon turned the M-Fund, which had been run by MacArthur’s cronies like General Marquat along with the CIA and the corrupt Liberal Democratic Party, over to the full control of Japan in exchange for illegal kickbacks funneled into the 1960 presidential Campaign he lost to Kennedy. Part of the deal was for Nixon to return Okinawa to Japan, which he later did once he finally got elected.

Golden Lily loot was funneled back to far right movements in the US, and would help finance Joseph McCarthy’s witch hunts. Another source of such wealth was the global drug trade, as the CIA would manage it in cooperation with the Chinese Kuomintang and Japanese and Korean organized crime. Together, these sources of wealth would be used to fund the World Anti-Communist League or WACL the global network of fascist drug dealers and terrorists loved by Ronald Reagan. In the final chapter of their book, the authors provide a brilliant summary of the politics of heroin, relying heavily on Doug Valentine’s classic The Strength of the Wolf. In Japan, McCarthyism took a much bloodier course with a massive assassination program combined with a COINTELPRO-style war on anyone who dared to dissent. Even American and British officials could be targeted for assassination if they threatened to expose MacArthur’s alliance with war criminals and gangsters. For assassinations that were even more sensitive, KOTOH was employed – an acronym formed from the names of five Japanese army officers who performed assassinations.

Much of Gold Warriors describes the hunt for treasure in the Philippines. The Japanese were the masters of this, quietly returning for decades to recover their loot. Future Philippines president Ferdinand Marcos learned of the gold by befriending Santa Romana and making deals with the Japanese to recover gold, becoming one of the richest men in the world through his discoveries. It was Marcos gold that paved the way for Nixon’s visit to China, with Marcos agreeing to deposit 72 billion in Gold in China’s Bank accounts. Marcos had long been used by the CIA to bribe Asian governments into supporting American policy, and in return they allowed him to get rich by selling his gold to Saudi princes or trading it for drugs from Asian or Latin American cartels. The golden Lily loot that led to his rise also led to his downfall, when he bargained too forcefully with the Reagan White House and the CIA who wanted him to use his fortune to back Reagan’s scheme to create Rainbow dollars. Marcos then became one of the first victims of a CIA color revolution. As CIA-backed NGOs flooded the streets with angry protestors, his American sponsors kidnapped him and airlifted his fortune out of the country.

Gold Warriors reveals that from the underworld to the military and intelligence agencies, to the corrupt politicians to the titans of finance we are ruled at every level by gangsters. After reading it, one may even wonder how much of the CIA’s gold is involved today in financing charlatans like Alex Jones and the rest of the US “patriot” movement, since their radio stations are heavily involved in selling gold and silver. It is a fantastic book that anyone with an interest in the CIA, drugs, or fascism should read, because it offers a window into the shadowy world of offshore banking, where around a trillion dollars is transferred around the world every day. It names some of the most powerful families in the world: the Krupps, the Rothschilds, the Oppenheimers, the Warburgs and the Rockefellers. All are tied to banking and the gold cartel, where fortunes are incalculable. In fact, the gold and diamond cartels are still looting the world today with the same greed and brutality as imperial Japan. In the Democratic Republic of the Congo alone, ten million people have been killed in a brutal war to loot the country of gold, diamonds, uranium, and rare earth elements. Furthermore, most of the world’s gold is hoarded today in the Swiss Alps, in secret bunkers and underground tunnels designed to survive a nuclear war. The hunt for the gold stolen by imperial Japan even resumed as recently as 2001, when George W. Bush sent navy seals on a secret mission to recover it.

Blackstone, BlackRock or a Public Bank? Putting California’s Funds to Work

California has over $700 billion parked in private banks earning minimal interest, private equity funds that contributed to the affordable housing crisis, or shadow banks of the sort that caused the banking collapse of 2008. These funds, or some of them, could be transferred to an infrastructure bank that generated credit for the state – while the funds remained safely on deposit in the bank.

California needs over $700 billion in infrastructure during the next decade. Where will this money come from? The $1.5 trillion infrastructure initiative unveiled by President Trump in February 2018 includes only $200 billion in federal funding, and less than that after factoring in the billions in tax cuts in infrastructure-related projects. The rest is to come from cities, states, private investors and public-private partnerships (PPPs) one. And since city and state coffers are depleted, that chiefly means private investors and PPPs, which have a shady history at best.

A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “experience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors. A March 2017 report by the Economic Policy Institute titled “No Free Bridge” also highlighted the substantial costs and risks involved in public-private partnerships and other “innovative” financing of infrastructure.

Meanwhile, California is far from broke. It has over well over $700 billion in funds of various sorts tucked around the state, including $500 billion in CalPERS and CalSTRS, the state’s massive public pension funds. These pools of money are restricted in how they can be spent and are either sitting in banks drawing a modest interest or invested with Wall Street asset managers and private equity funds that are not obligated to invest the money in California and are not safe. For fiscal year 2009, CalPERS and CalSTRS reported almost $100 billion in losses from investments gone awry.

In 2017, CalSTRS allocated $6.1 billion to private equity funds, real estate managers, and co-investments, including $400 million to a real estate fund managed by Blackstone Group, the world’s largest private equity firm, and $200 million to BlackRock, the world’s largest “shadow bank.” CalPERS is now in talks with BlackRock over management of its $26 billion private equity fund, with discretion to invest that money as it sees fit.

“Private equity” is a rebranding of the term “leveraged buyout,” the purchase of companies with loans which then must be paid back by the company, typically at the expense of jobs and pensions. Private equity investments may include real estate, energy, and investment in public infrastructure projects as part of a privatization initiative. Blackstone is notorious for buying up distressed properties after the housing market collapsed. It is now the largest owner of single-family rental homes in the US. Its rental practices have drawn fire from tenant advocates in San Francisco and elsewhere, who have called it a Wall Street absentee slumlord that charges excessive rents, contributing to the affordable housing crisis; and pension funds largely contributed the money for Blackstone’s purchases.

BlackRock, an offshoot of Blackstone, now has $6 trillion in assets under management, making it larger than the world’s largest bank (which is in China). Die Zeit journalist Heike Buchter, who has written a book in German on it, calls BlackRock the “most powerful institution in the financial system” and “the most powerful company in the world” – the “secret power.” Yet despite its size and global power, BlackRock, along with Blackstone and other shadow banking institutions, managed to escape regulation under the Dodd-Frank Act. Blackstone CEO Larry Fink, who has cozy relationships with government officials according to journalist David Dayen, pushed hard to successfully resist the designation of asset managers as systemically important financial institutions, which would have subjected them to additional regulation such as larger capital requirements.

The proposed move to hand CalPERS’ private equity fund to BlackRock is highly controversial, since it would cost the state substantial sums in fees (management fees took 14% of private equity profits in 2016), and BlackRock gives no guarantees. In 2009, it defaulted on a New York real estate project that left CalPERS $500 million in the hole. There are also potential conflicts of interest, since BlackRock or its managers have controlling interests in companies that could be steered into deals with the state. In 2015, the company was fined $12 million by the SEC for that sort of conflict; and in 2015, it was fined $3.5 million for providing flawed data to German regulators. BlackRock also puts clients’ money into equities, investing it in companies like oil company Exxon and food and beverage company Nestle, companies which have been criticized for not serving California’s interests and exploiting state resources.

California public entities also have $2.8 billion in CalTRUST, a fund managed by BlackRock. The CalTRUST government fund is a money market fund, of the sort that triggered the 2008 market collapse when the Reserve Primary Fund “broke the buck” on September 15, 2008. The CalTRUST website states:

You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

CalTRUST is billed as providing local agencies with “a safe, convenient means of maintaining liquidity,” but billionaire investor Carl Icahn says this liquidity is a myth. In a July 2015 debate with Larry Fink on FOX Business Network, Icahn called BlackRock “an extremely dangerous company” because of the prevalence of its exchange-traded fund (ETF) products, which Icahn deemed illiquid. “They sell liquidity,” he said. “There is no liquidity. . . . And that’s what’s going to blow this up.” His concern was the amount of money BlackRock had invested in high-yield ETFs, which he called overpriced. When the Federal Reserve hikes interest rates, investors are likely to rush to sell these ETFs; but there will be no market for them, he said. The result could be a run like that triggering the 2008 market collapse.

The Infrastructure Bank Option

There is another alternative. California’s pools of idle funds cannot be spent on infrastructure, but they could be deposited or invested in a publicly-owned bank, where they could form the deposit base for infrastructure loans. California is now the fifth largest economy in the world, trailing only Germany, Japan, China and the United States. Germany, China and other Asian countries are addressing their infrastructure challenges through public infrastructure banks that leverage pools of funds into loans for needed construction.

Besides the China Infrastructure Bank, China has established the Asian Infrastructure Investment Bank (AIIB), whose members include many Asian and Middle Eastern countries, including Australia, New Zealand, and Saudi Arabia. Both banks are helping to fund China’s trillion dollar “One Belt One Road” infrastructure initiative.

Germany has an infrastructure bank called KfW which is larger than the World Bank, with assets of $600 billion in 2016. Along with the public Sparkassen banks, KfW has funded Germany’s green energy revolution. Renewables generated 41% of the country’s electricity in 2017, up from 6% in 2000, earning the country the title “the world’s first major green energy economy.” Public banks provided over 72% of the financing for this transition.

As for California, it already has an infrastructure bank – the California Infrastructure and Development Bank (IBank), established in 1994. But the IBank is a “bank” in name only. It cannot take deposits or leverage capital into loans. It is also seriously underfunded, since the California Department of Finance returned over half of its allotted funds to the General Fund to repair the state’s budget after the dot.com market collapse. However, the IBank has 20 years’ experience in making prudent infrastructure loans at below municipal bond rates, and its clients are limited to municipal governments and other public entities, making them safe bets underwritten by their local tax bases. The IBank could be expanded to address California’s infrastructure needs, drawing deposits and capital from its many pools of idle funds across the state.

A Better Use for Pension Money

In an illuminating 2017 paper for UC Berkeley’s Haas Institute titled “Funding Public Pensions,” policy consultant Tom Sgouros showed that the push to put pension fund money into risky high-yield investments comes from a misguided application of the accounting rules. The error results from treating governments like private companies that can be liquidated out of existence. He argues that public pension funds can be safely operated on a pay-as-you-go basis, just as they were for 50 years before the 1980s. That accounting change would take the pressure off the pension boards and free up hundreds of billions of dollars in taxpayer funds. Some portion of that money could then be deposited in publicly-owned banks, which in turn could generate the low-cost credit needed to fund the infrastructure and services that taxpayers expect from their governments.

Note that these deposits would not be spent. Pension funds, rainy day funds and other pools of government money can provide the liquidity for loans while remaining on deposit in the bank, available for withdrawal on demand by the government depositor. Even mainstream economists now acknowledge that banks do not lend their deposits but actually create deposits when they make loans. The bank borrows as needed to cover withdrawals, but not all funds are withdrawn at once; and a government bank can borrow its own deposits much more cheaply than local governments can borrow on the bond market. Through their own public banks, government entities can thus effectively borrow at bankers’ rates plus operating costs, cutting out middlemen. And unlike borrowing through bonds, which merely recirculate existing funds, borrowing from banks creates new money, which will stimulate economic growth and come back to the state in the form of new taxes and pension premiums. A working paper published by the San Francisco Federal Reserve in 2012 found that one dollar invested in infrastructure generates at least two dollars in GSP (state GDP), and roughly four times more than average during economic downturns.

This article was originally published on Truthdig.com.

Fringe Economy

Fringe, adj. not part of the mainstream; unconventional, peripheral. When this definition is applied to the economy it becomes the title of a book, Short Changed: Life and Debt in the Fringe Economy, written by Howard Karger, who at the time was a professor of social policy.1 Part 4 is a review of that book.

Do you have any idea what the “historical neighborhood banker” is? I didn’t until I read his book. It’s the pawnshop says Karger. Most likely not in your neighborhood, though. Indebted people have been pawning their belongings as long ago as 1000 BC. If your image of today’s American pawnshop is of a storefront operation owned and operated by a shady character, you’ll be as surprised as I was to learn that many of those storefronts have been gobbled up by five publicly traded corporations (e.g., EZ Pawn) raking in 100’s of millions of dollars yearly from pawnshop loans and with boards of directors lavishly paying their CEOs. Even the shrinking population of go-it-alone pawn shop brokers gets loans to set up their operations from big banks. Well, why not? No banksters worthy of the name will miss out on grabbing other people’s money.

Karger defines the fringe economy as “corporations and business practices [that pray on the poor] by charging excessive interest rates or fees, or exorbitant prices for goods and services.” He divides this economy into seven sectors and gives a chapter to each. Besides a storefront loan sector that includes pawnshop businesses, the other sectors are the credit card industry, alternative financial services such as check cashing and rent-to-own, fringe housing, real estate speculation and foreclosure, the fringe auto industry, and the “getting-out-of-debt” industry such as the multibillion dollar debt management business. Large corporations operate in each of these sectors, and some, like EZ Pawn, may not be household names, while other large corporations that operate in both the fringe and mainstream economies surely are, such as the really big banksters, Bank of America, Wells Fargo, Verizon, and then the telecommunications giant, AT & T, that depended on the banksters at the outset.

Karger fills his book with a lot of facts about his subject, so much so that he warns early on that reading them “may be tedious” yet necessary because the “devil is in the details.” He compensates nicely for them, though, by fleshing out the facts with many anecdotes. I couldn’t help but think how Charles Dickens might have novelized them into a modern classic, absent the debtor’s prison (see the next paragraph) in “David Copperfield.

Karger’s name for the last sector, the “getting-out-of debt” industry surely has to be tongue-in-cheek, for as he describes and explains it, this industry can only be a multi-billion dollar business because its customers never get out of debt. Businesses in the other sectors, as he amply shows, are no different in that they all seek to sink already indebted people further into debt by escalating the interest fees levied on them, amounting in some cases to nearly a 500% APR! It would not be profitable to put these people in debtors’ prisons. Indeed, the entire sub-prime and predatory lending businesses of the fringe economy are built on the backs of persistently indebted customers.

Obviously, it would it not be profitable either to drive indebted people into bankruptcy, an escape hatch of last resort so to speak. This explains why corporations, especially in the credit card industry lobbied heavily to get the draconian Bankruptcy Abuse Prevention and Consumer Protection Act passed by a captive Congress. Known pejoratively but aptly as the “loan shark law,” Karger notes that it “intensifies the economic war on the poor and credit-challenged.”

If you are thinking loan sharks might starve if people stopped spending beyond their means you would be giving, in Karger’s opinion, too much credence to what he calls the “over consumption” argument. While he agrees that such “affluenza” (see De Graaf et al., 2002) is a contributing factor, he maintains that the argument fails to address a major cause of indebtedness, “the high cost of living in a privatized society.”2 He notes that the rising cost of necessities amounted then to 75% of a family’s two-person income, leaving little left for luxuries for the “functionally poor.” Moreover, consumer spending is less than it was a decade ago then. The argument, he believes, lets lawmakers fault debtors “for an economic reality they can’t control.”

Besides its loan shark law, the government has boosted the fringe economy in various other ways. For example, what Karger means by a “privatized society” is that stricter federal and state public assistance policies more quickly than before throw former recipients into jobs with no benefits and with pay suppressed by the miserly minimum wage law that has been frozen at that time by conservative politicians since 1997. Another example is public policy on homeownership along with sub-prime mortgage lenders and their low teaser rates that lure unqualified customers to buy homes eventually foreclosed. And not to leave out the judiciary’s role, Karger cites a U.S. Supreme Court ruling that allows national banks to charge the highest rate allowable in their home states to borrowers living elsewhere.

What, you might ask, is the difference between the two types of lending, sub-prime and predatory? Is the first legal and the second not? No. Illegalities exist in both. Moreover, state usury laws vary, so what may be illegal loans in one state are legal in another. Ethical considerations certainly don’t differentiate the two types of lending. Unscrupulous but legal practices abound in both types. The difference between them Karger says is blurry, offering his own blurry view that the first is generally “beneficial” and the second is “destructive.” In my opinion the only difference may be in how excessively customers are gouged. It seems to me, moreover, that sub-prime loans can’t be beneficial because the effects of being gouged benefit only the gouger.

The profitability of the fringe market has been too tempting for mainstream financial institutions not to enter it. Some observers, Karger says, believe this development will help to counteract unscrupulous lending practices. Not a chance! Anyone who tracks big financial institutions and corporations in general should know that the profit to be made and the pressure to make it every quarter will compromise the means to make it. Karger is not “optimistic” either and offers some corroborating evidence by citing some very prominent corporations that entered the fringe market. Customers of this market represent what I would call our own undeveloped “sub-country,” so why should we expect it to be any less exploited than are undeveloped countries by multi-national corporations?

The solution, Karger thinks, is not to eliminate the fringe market, as if that were even a remote possibility! He also thinks it would not be desirable because compared to fringe services the mainstream ones are not as accessible physically or as culturally compatible to poor neighborhoods.

At the end of each sector’s chapter and in the concluding chapter, therefore, he suggests numerous solutions, some more plausible than others, that would accommodate the realities of these neighborhoods while also eliminating some of the abusive and fraudulent practices of doing business with the people who live in those neighborhoods. Many of the solutions, like lending “only to borrowers who have the income or liquid assets to repay the debt” (how plausible, though, is that for some borrowers?) could be voluntarily adopted by lenders. But business being what it is, whether in the fringe or mainstream economy, socially and genuinely responsible behavior is rarely volunteered. So Karger adds some legislative recommendations. In this sense his book is very timely. As I wrote the review, for instance, Congress was considering legislation to curb the excesses of the sub-prime mortgage business. But whatever Congress passes is academic. Anything Congress does is not done without the heavy hand of large corporations in the mix.

In Closing

Were it only true that the corpocracy and its capitalism were relegated to the fringe economy and then made to vanish to never-never land!

  1. Brumback, GB. “Review of the book Short Changed: Life and Debt in the Fringe Economy by Howard Karger in the book review section of Personnel Psychology 60″, 2007, pp. 787-790.
  2. John De Graaf, J. et al. Affluenza: The All-Consuming Epidemic, 2002.

Switzerland: A Once-in-a-Lifetime Chance to spreading Positive Banking News to the World

It’s called “Vollgeld Initiative” – in German, meaning more or less “Referendum for Sovereign Money”. What is “Sovereign Money”? It’s money produced only by the Central Bank, by the “Sovereign”, the government, represented by its central bank. Money created in accordance with the needs of the economy, as contrasted to the profit and greed motives of the banking oligarchy, what it is today; money creation at will, by private banking.

The people of Switzerland are called to vote on 10 June 2018 whether they want to stop the unlimited, unrestrained money-making by the Swiss private banking system, and to return to the “olden days”, when money was made and controlled only by the Central Bank; and this not just in Switzerland, but in most countries around the globe. Switzerland is one of the few sovereign countries within the OECD, and possibly worldwide, that has the Right of Referendum written into her Constitution. With 100,000 valid signatures anybody can raise a referendum to amend or abolish a law, or to create a new one. This is a huge privilege to Right a Wrong.

Most Swiss and probably most westerners in general don’t even know that the loan or mortgage they get from their bank is no longer backed by the bank’s capital and deposits. How could they? Instead of being told the truth, they are being lied to, even by their own party and politicians. And that in the case of Switzerland, by nobody less than the CEO of the UBS, the largest Swiss bank. Just watch this short video (in German and Italian – 2 min)

Lying is a felony, hence Mr. Sergio Ermotti, CEO of UBS, should be prosecuted. Unlikely to happen, though. What Mr. Ermotti in essence says in this interview is that loans are backed by deposits. This is directly contradicted by the Swiss National Bank and the German Bundesbank (Central Bank). They say that “today about 90% of all the money is accounting money, created by loans the banks make to enterprises and private citizens. Pretending that banks use deposits to make loans is not true.” The latter part was specifically expressed by the German Bundesbank.  So, how come Mr. Ermotti, CEO of UBS, wouldn’t know that?

Switzerland, fully embedded in the globalized western banking system, absorbed by it, has a chance to tell the world that the only way to control and get on top of the cycle of financial and economic crises is to reign-in the bottom-less money production, the debt-interest-profit driven banking system, a Ponzi scheme that cannot survive (financing debt with more debt); the abhorrent uncontrollable debt-profit cycle that has brought misery to humanity – just look at Greece. With money production controlled by the respective central banks, for example, in France and in Germany, the senseless indebting of Greece by German and French banks would not have been possible, in which case the troika’s (ECB, European Commission and IMF) so-called bail-outs, or ‘rescue packages’, would not have been possible either. Hence no doubling of Greece’s debt, and Greece would be well on her way to recovery.

The point is that these too-big-to-fail banks have become also too big to control, and, of course, they do not want to be controlled. They have the (political) power to shed off any control. They want to continue creating debt, lending money not for economic development, but for profit of their shareholders. Banking for development has stopped a long time ago. The only banking for development is public banking, and that is almost non-existent  so far in the west; except for North Dakota and soon New Jersey, and a number of other US States are considering public banking as a means of bringing back the true sense of banking; i.e., for economic development. But with the current FED-Wall Street bulldozer’s onslaught on the world, they are fighting against windmills but even windmills are fallible.

By and large, in the west it’s corporate banking for profit. And thanks to the public’s ignorance and disinterest, deregulation took place behind our backs.

Did you know for example, that to become a member of the World Trade Organization (WTO), a nation has to deregulate its banks – to put them on a platter at disposal of the globalized banking sharks? Probably you didn’t. Such decisions are never publicized.

Again, the Swiss with a Yes vote on 10 June could change this for themselves and send a signal to the rest of the world, suggesting to take back their financial, economic and monetary sovereignty, cutting the link to globalized usury banking that enslaves the poor in favor of the rich. Literally.

Will Switzerland seize this unique opportunity to broadcast this powerful message to the (western) world? Saying in the clearest voice possible – enough is enough, we are going back to regulating our banking system, through ‘new-old’ legislation and through the only institution that really has the Constitutional power to create money – the Swiss National Bank?

The Swiss, an enormous influence in international banking – good or bad – could become a trail blazer for a new economic model, to demonstrate how well an economy can run without following the global trend of unlimited money supply which serves only the banks by indebting the nations and the people. They could put a halt to the seemingly out-of-control economic rollercoaster that brings only misery to people, unemployment, broken homes and businesses, decimated social safety nets, pensions health plans — they, the Swiss could put an end to it and become an economically and financially independent nation with a healthy economy for the wellbeing of the people – not of the banks.

Will they? Will they grasp this once in a lifetime opportunity to break loose from the banking stranglehold?

The Swiss people are the most indebted of the G20, with 127.5% of private debt as compared to GDP in September 2017. The trend is on the rise. The United States, where deregulation started in the 1990s under President Clinton before it became ‘globalized’, was number seven with 78.5% in September 2017. According to an OECD 2015 report, mortgages account for 120% of GDP, by far the largest proportion of all OECD countries.  Do the Swiss know that? Some probably do, but the majority most likely does not. Ever-so-often the Swiss National Bank (Central Bank) issues a routine warning about private and particular mortgage debt as it is an ever-raising risk for highly indebted families. An economic crisis, loss of a job and a family fails to meet mortgage payments – bingo, foreclosure. The same as in 2008, 2009 and going on.

Well, do you know that in Switzerland first mortgages do not have to be amortized? In fact, banks encourage you not to repay your mortgage, but just keep paying interest. Many mortgages are passed on with the related real estate from generation to generation. So, you never really own your house. The bank does. And the bank earns the money on your house, as well as calls the final shots on what is to happen with your real property, in case it is being sold.

“Free money”, as it could also be called, is money made indiscriminately without backing. It has many negative effects – the risk factor, as mentioned before – and the bubble effect on the housing market which in turn increases the risk for houseowners, because sooner or later bubbles burst. The only winners are the banks.

Why can the banks just make mortgage loans without requesting amortization? Because they are afloat with money. Because, of course, they just make money with loans – the 90% which are not central bank made money. And the more loans they have outstanding, the more interest they earn. They earn money for doing absolutely nothing. For a mouse-click. Interest accumulates on its own. And debt is today’s foremost tool to enslave people, nations, entire continents.

This is what the Swiss could change by accepting this referendum, by Voting YES to Vollgeld. It would refrain banks from creating money and return the responsibility to the central bank, where it is to be located according to the Swiss Constitution. It would force banks to be more prudent in issuing mortgages and personal debt, it would provide for a more stable economy and for a financially less vulnerable personal life. It would gradually take some air out of the real estate bubble – a healthy feature for any society.

Again, are the Swiss going to vote for what is best for them? Probably not. But why not?  Because they are subjected to an enormous anti “Sovereign Money” campaign by the banking and finance sector, by the ‘built-in’ lobby. Yes, built-in, because in Switzerland Parliamentarians have the right to represent as many corporations, banking and otherwise, in their Boards of Directors, as they please. Yes, this is another special feature of Switzerland, also unique among OECD countries. How many Swiss are aware of this?

Is it therefore a surprise that the Swiss are being utterly brainwashed to vote against their own interest? As they have done so often in the past – and frequently to the utter surprise of neighboring countries.

In addition, and this is where another feature of the Swiss Un-Democracy enters: The Swiss Federal Council, the Swiss Executive, takes for itself the privilege and right – I have no clue from where, it is nowhere written in the Constitution – to issue sort of an edict before every national vote or referendum “advising” the people how they should vote. With a public that oozes of comfort, where consistently less than 50% go to the polls, largely because of disinterest, such a proclamation has a huge impact.

In this case, the Swiss Government, its Executive, has already and already for a while repeatedly “advised” its populace to vote ‘no’ to the Vollgeld Initiative. And surprisingly every major party goes along with it, including the socialists and other left-leaning parties. Either they are brainwashed to the core by propaganda repeated at nauseam, indoctrinating the people how bad accepting the “Vollgeld Initiative” would be. How bad can be owning your “Sovereign Money”? Can you imagine? How much lie must go into such fake marketing?

Or could it be that the Swiss are no longer ruled by Bern, nor has the Swiss Central Bank much to say about Swiss monetary policy, but they may be ruled by an international and globalized banking cartel that puts so much pressure on the Swiss government, that it could almost be interpreted as blackmail? Why otherwise, would intelligent people advise and vote against their own and proper interests?

My dear Swiss fellow compatriots, this is the chance of your lifetime. Do yourself a favor by voting YES to the “Vollgeld Initiative“. Not only will you do yourself and the Swiss economy a favor, by bringing the latter back to sovereign control, you would most certainly make world-headlines and, who knows, inspire the peoples of other countries, who are sick and tired of their enslavement by banks, to request that their Central Banks alone can make money – in the amount that corresponds to the needs of their economies – no longer according to the profit-and-greed requirements of the globalized banking oligarchy.

The Underworld of Banksters

The financial industry is but one of many industries in the modern world. Besides whatever their stated purposes may be, every one of their modus operandi can be “unmasked” to reveal some degree and form of wrongdoing and harm done, as I did once in a very cursory way.1

One of those industries, the financial industry, is comprised of numerous sectors such as the insurance industry, for instance. I have written about how it along with its government ally are financially soaking the public.2 This present article burrows into another sector, what I call the industry’s “underworld of banksters.” A bankster is a bank or banker that relies on illegal or unethical wrongdoing in their financial dealings. The wrongdoing to be found in their underworld is monumental and incalculable in size and harm done.

Hijacking a Public Domain

Permit me to issue and control a nation’s money and I care not who makes the laws.

— Mayer Amschel Rothschild3

Mayer Amschel Rothschild was a German banker and the “founding father of international finance” that grew into the Rothschild banking dynasty that still exists today in full force, with ownership or control of banks in over 150 countries.4 In 2005 he was ranked seventh on the Forbes’ magazine list of “The Twenty Most Influential Businessmen of All Time.”5

Forbes, naturally, did not characterize him as a bankster of the financial underworld, but we can judge whether that is so just from the above quote. In its first clause he says he would like to privatize what should be in the public domain, namely, the exchange of money for goods and services, an exchange essential to any society’s existence. In its second clause he is saying exactly what would be expected of a bankster.

Bankrolling Wars

All wars are banksters’ wars!

The Rothschild banking dynasty has bankrolled “war operations for the past several centuries.”6  And they bankrolled both sides!7  And why not? Why would they care so long as they profited from the bloodshed? Mayer Rothschild’s wife reportedly quipped on her deathbed “If my sons did not want wars, there would be none.”8 Such was the power of her five sons sent by their father to establish banks in five countries. I don’t think there is any evidence to show that they did not want wars.

The banksters do not wait for wars to just happen, they help get them started and then bankroll them for munificent profits. For instance, President Woodrow Wilson promised to keep the U.S. out of WWI, but the Morgan Bank, then the most powerful bank, nudged him into declaring war and then promptly bankrolled over 75 percent of the financing for the allied forces.9  Behind US involvement in more recent wars was the banksters’ intention of enfolding all countries into a Western, private central banking powerhouse.10

Woodrow Wilson was hardly the only captive U.S. president. A knowledgeable insider once examined archives of U.S. presidents for over a century and discovered that banksters were “in constant communication with the White House — not just about financial and economic policy, and by extension trade policy, but also about aspects of World War I, or World War II, or the Cold War.”10 U.S. presidents obviously listen when the banksters come calling!

Besides its full war operations, declared or undeclared, the U.S. government officially approves millions of dollars to fund terrorist groups.11 It should come as no surprise, therefore, that the banksters unofficially milk the fund. Successfully suing them on behalf of families of U.S. military members slain by the funded terrorists seems to be an insurmountable hurdle, especially when the banksters being sued were a conduit to other banks that did the funding. But indirect funding should be irrelevant, as one of the lawyers who filed the lawsuit observed; “Does it matter whether a particular bank was the physical conduit of the transfers to the terror apparatus, or is it enough that they were in a conspiracy which made that possible, and that they were, as a legal matter, deliberately indifferent to that result?”12  Well, Mr. Lawyer, you are dealing with the banksters, whether first hand or second hand.

Banksters are also profiting from and preparing for the ultimate war, a nuclear blowout. PAX recently issued a report on its findings from January 2014 through October 2017 that showed “329 banks, insurance companies, pension funds and asset managers from 24 countries that invest significantly in the top 20 nuclear weapon producers.”13  If blowback gets the banksters nuked that would be poetic justice, but it is not something to wish for since the fallout would engulf everyone else as well.

Arranging Assassinations

Befitting Mafia hit men, banksters have been suspected of arranging the assassinations of several U.S. presidents, a member of Congress and a Justice, all of whom dared defy the banksters: Andrew Jackson (attempt failed), Zaccary Taylor, James Buchannan (survived arsenic poisoning), Abraham Lincoln, James Garfield, William McKinley, Louis T. McFadden (a member of the House of Representatives in the twenties and thirties), Justice Martin V. Mahoney, and John F. Kennedy.14

Banksters are cunning enough to arrange for perfect murders, ones that will never be solved in a court of law. Each of the assassinated had with their policy decisions angered the banksters, a strong enough reason to suspect their complicity in the murders. In each case the banksters undoubtedly had foils with their own grievances against their targets do the assassinating. This account obviously amounts to conspiracy theorizing, yet there may be some truth to it. For instance, one author claims in his book that “persuasive evidence suggested that Lincoln’s assassin, John Wilkes Booth, had been hired for the job by Judah Benjamin, Treasurer of the Confederacy. Judah Benjamin was a close associate of Benjamin Disraeli (1804-1881), British Prime Minister and an intimate of the London Rothschilds.15  As time rolls on and with more digging the theory may start looking more like reality.

Bankrupting America

When America Suffers, the Banksters Thrive

There have been three major economic calamities in America’s history. The first and third were geographically widespread in scope. The first is known as the Great Depression that occurred from 1929 to 1939. The third that started around 2008 and has never ended is generally referred to as The Second Great Depression, although I named it Economic Katrina after the second, a localized calamity, Hurricane Katrina, that devastated the New Orleans area in 2005.16 The banksters, of course, were behind all three of these calamities.

The Great Depression

Poor Americans were devastated by this economic meltdown. Unemployment soared. Home foreclosures soared. Homelessness soared. The suicide rate soared. Repossessions soared. I was a little boy in the second half of this meltdown and recall how my parents struggled to make ends meet. Since my father held onto his job, my mother’s job was given to someone without a job. Yet, as a lower middle-class family, we fared much better than did millions of Americans.

So too, needless to say, did the wealthy, and that included, of course, the banksters, not to be confused with the thousands of small bankers whose banks folded. The mysteriously poisoned Congressman Louis McFadden had contended shortly before his death that the Great Depression “was no accident. It was a carefully contrived occurrence. The international bankers sought to bring about a condition of despair, so they might emerge as rulers of us all.”17

Hurricane Katrina

Hurricane Katrina was reportedly the costliest natural disaster to hit America. To Naomi Klein, author of The Shock Doctrine, hurricane Katrina was an example of how commercial interests such as the banksters swoop down in an “orchestrated raid” to capitalize on new market opportunities.18 The banksters themselves obviously window dress their role in the disaster, as exemplified in this remark by a spokesperson for one of the bank members of the Federal Reserve Board, which is a citadel for the really big banksters; “resourceful banks have designed creative ways to resume business, incorporating “flexibility” and “customization” into their vocabulary, engaging in recovery area investment projects and forming alliances with community partners.”19  That quote is sheer PR. No bankster, of course, other than anyone like a Mayer Rothschild, would boast about turning any disasters to others into bonanzas for themselves.

The Second Great Depression

America has never recovered from this third calamity that in 2008 started sweeping away main street and keeping the banksters and Wall Street high and dry, for the most part through unconscionable and astronomical government bailouts. After doing extensive research on the matter, I have concluded that there is one single, pivotal event that triggered this economic calamity, and I see that at least one Wall Street insider agrees with me.20 That event was the repeal of the Glass-Steagall Act that had prevented banks from operating both regular commercial loans and investments. The banksters gradually were able through lobbying and arm twisting to puncture some loopholes into the law, and then in 1994 the Act was replaced by one that allowed a bank to do both forms of business. The new law led to the creation of megabanks, but because they got greedy and careless with their selling of securities they suffered a financial setback of their own making but still had enough influence to get bailed out by government. It was simply a quid pro deal. One dirty hand washes the other. Or Napoleon Bonaparte would have put it differently; “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.”21

A Line Up of the Banksters

(a) Bank for International Settlement

Before doing the research for this article I had never heard of BIS. Now I know it is the most powerful private central bank in the world with the avowed aim of coordinating and controlling all monetary activities in the industrialized world and indebting it to the International Monetary Fund (a member of the Unholy Trinity to be discussed shortly). It was established in 1930 by bankers and diplomats of Europe and the United States to collect and disburse Germany’s World War I reparation payments. In WWII the BIS was used to launder money for the Nazis.22  As you can see, the BIS is not a wholesome bank to say the least.

(b) The Unholy Trinity

This well-deserved nickname refers to the International Monetary Fund (IMF), the World Bank (WB), and the World Trade Organization (WTO).23  They became the primary enabler of the globalization of the world’s money.

The trios’ purpose ostensibly from the beginning has been to reduce poverty and to develop the economies of Third World countries. In reality the aim of its work has been totally different, very “unholy.” Huge amounts of money masquerading as developmental loans and contingent on the currency devaluation and paring of the borrowing country’s social programs are siphoned off to huge, transnational corporations, many of which are U.S. firms, and the pockets of the governing and power elite of the country. The country goes further into debt and becomes even more vulnerable to being further exploited, including being subjected to sham debt relief programs.

No matter where on the globe the exploitation takes place there is a similar pattern of corporate/bankster behavior involved that includes such despicable, inhumane practices as relying on militaries and militias to purchase commodities made by forced labor; using armed groups to protect corporate assets; supplying arms to rebel and government forces; actually participating in military actions; engaging in smuggling, money laundering, and illegal currency transactions; and sweat-shop production of goods.24

(c) The Federal Reserve Board

The Fed is America’s banksters’ subordinate counterpart to the BIS and the Unholy Trinity.

A cabal of banksters got together in 1913 at the idyllic Jekyll Island resort off the coast of Georgia (where my family has stayed several times, not knowing we may have slept in banksters’ bedrooms). They coyly added the adjective “Federal” to disguise the intent, since twice before efforts to establish similar controlling banks had failed.17

As you may know, the Fed is made up of 12 branches around the country. All 12 and the headquarters are owned by 10 mega banks, four of which are headquartered in the U.S. As you might suspect, two of the owners are Rothschild banks, one in London and one in Berlin. About 100 very powerful individuals own those banks and thus also own the Fed. It is, therefore, no more a “Federal” agency of the government than is “Federal” Express. Being a private entity, one would expect the government would tax it. Not so, the Fed only pays property tax.17

Remember my including U. S. Congress Representative Louis T. McFadden as one of the likely victims of an arranged assassination? At the time he was Chairman of the Committee on Banking and Currency. Here is what he said that angered the banksters; “The Federal Reserve Board has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. Our people’s money, to the tune of $1,200,000,000, has within the last few months been shipped abroad to redeem Federal Reserve Notes and to pay other gambling debts of the traitorous Federal Reserve Board and the Federal Reserve Banks.”17  Today’s Fed is no less of an abominable bankster.

(d) Mega Banksters at Home

These mega banksters in the U.S. have assets totaling trillions of dollars. They didn’t get these assets through socially responsible investments to help the common good. They got them through bankrolling wars, through bankrupting the U.S. economy with fraudulent subprime securities that plummeted the U.S. into its Second Great Depression, and through all sorts of other ways to fleece the public out of its money. Put simply, these mega banksters are criminals on the loose throughout the country.

The Medium

Bad Capitalism

People, banksters included, do not depend only on themselves to go from birth to death. They must also depend on the circumstances and situations they encounter and sometimes help create. These circumstances and situations are the medium of life.  Bad capitalism is the banksters’ medium. Without it there would be no underworld of banksters.

Adam Smith, the putative “father of capitalism,” was a moral philosopher. He understood the importance of morality and the difference between good and bad capitalism and thought the emerging corporations of his time posed threats emanating from their unlimited life span; unlimited size; unlimited power; and unlimited license.25  How prescient he was!

I have written copiously about good and bad capitalism and have presented a plethora of my own as well as others’ proposals to turn bad capitalism into good capitalism.26 They have all come to naught. The banksters would guffaw if they read my work.

Public Banking to the Rescue?

Since the banksters made America’s public money private it stands to reason that a straightforward solution to ridding America of the banksters or at least curtailing them would be to establish a network of public banks throughout America. That is precisely what Ellen Brown, President and Chair of the Public Banking Institute is trying to accomplish. Through her stature and persuasive skills, she managed to get published in the OpEd section of the establishment paper, New York Times, no less, a piece promoting public banking.27 Her efforts are quite commendable and worth following.

Two additional strategies I should think would be to abolish the Fed and replace it with a truly Federal Reserve of Public Banks, and to prosecute and jail banksters instead of looking the other way or giving them token fines. Doing all this would take a herculean political effort, and I don’t expect it will ever happen.

Conclusion

A two-sentence conclusion ought to be enough. One, the banksters control most of the world’s money and will stop nothing short of fueling wars and creating economic havoc to keep growing their money and control. Two, commercializing peace or commercializing war — never the first, daily routine the second.

Acknowledgments

Wrongdoing is like mushrooms, thriving in the dark. The Fed shrouds itself in secrecy. In 2012, the Fed attempted to rebuff a Freedom of Information Lawsuit by Bloomberg News claiming that as a private banking corporation and not actually a part of the government, the Freedom of Information Act did not apply to the “trade secret” operations of the Fed.17

It is basically through the alternative media that we learn about the Fed’s secret dealings and its adverse impact on society at large. It was an article from the alternative media, for example, that told us the Fed is ruining our economic future because it caters to itself and the rest of the banksters.28  People drawn to the alternative media should rightly be fed up with the Fed.

As the author of this article who relied so heavily on one individual’s trailblazing efforts to dig up the facts that the government withholds, I must acknowledge Michael Rivero, who dominates my list of footnotes. He is my Internet friend of yesteryear. Without his efforts I could not have written this article. It was his quote, “Behind all wars are bankers” that I cited in one of my books. It was only after rereading one of my book reviews about corporate gangs, which ironically had little to say about banking, that I conceived the opprobrious “banksters.”29

  1. Brumback, GB. “Corporate America Unmasked“, The Greanville Post, January 3; OpEdNews, January 4; Dissident Voice, January 4; Uncommon Thought Journal, January 7, 2018
  2. Brumback, GB. Soaking the Public: The Insurance Industry and Captive Government, OpEdNews, July 11; Dissident Voice, July 12; 2016.
  3. Lendman, S. Banker Occupation: Waging Financial War on Humanity, Clarity Press, Inc., 2012.
  4. See: Complete List of BANKS Owned or Controlled by the Rothschild Family.
  5. Noer, M. “The Twenty Most Influential Businessmen of All Time”, Forbes, July 29, 2005.
  6. Dmitry, B. “Rothschild Wealth Is Now Greater Than 75% Of World Population Combined,” January 21, 2017.
  7. USWGO. The Rothschild Dynasty Funded Both Sides of Every War, USWGO, March 14, 2011.
  8. Collier, A. “Perspective on the World”, March 7, 2014.
  9. Washington Blog. “Bankers are Behind the Wars“, April 18, 2014.
  10. Ibid.
  11. Khabieh, B. “Obama Approves $800m Funding for Terrorist Groups in Syria and Ukraine”, Reuters, November 28, 2015.
  12. Profess, B. & Clifford, S. “Suit Accuses Banks of Role in Financing Terror Attacks”, The New York Times, November 10, 2014.
  13. Beenes, M. & Snyder, S. “Don’t Bank on the Bomb, A Global Report on the Financing of Nuclear Weapons Producers”, PAX, March, 2018.
  14. Rivero, M. “All Wars are Bankers’ Wars“.  See also, pik_artist, “Judge Poisoned After Ruling Bank Forclosure Is Illegal and All Mortgages Are Null and Void, Hub Pages, January 17, 2018.
  15. Engdahl, WF. Gods of Money: Wall Street and the Death of the American Century, 2009.
  16. Brumback, GB. The Devil’s Marriage: Break Up the Corpocracy or Leave Democracy in the Lurch, 2011, pp. 151-152.
  17. Rivero, Op. Cit.
  18. Klein, N. The Shock Doctrine: The Rise of Disaster Capitalism. 2007.
  19. Owens, D. “After the Storm: Banks Respond to Katrina’s Punch”, Federal Reserve Bank of St. Louis, Spring, 2006.
  20. Rickards, J. “Repeal of Glass-Steagall Caused the Financial Crisis”, U.S. News and World Report, August. 27, 2012.
  21. Rivero, OpCit.
  22. Epstein, E.J. “Ruling the World of Money”, Harper’s Magazine, 1983.
  23. Peet, R. Unholy Trinity: The IMF, World Bank and WTO, 2009 (Second Edition).
  24. For more on the Unholy Trinity and the globalization of the world’s economy see John Perkins’ riveting book, Confessions of an Economic Hit Man, 2004, and my review of it in Personnel Psychology, Vol. 59, No. 2-Summer, 2006, Book Review Section, pp. 489-493.
  25. Smith, A. The Wealth of Nations, 1776.
  26. See Brumback, Op. Cit. 2011; and also, Brumback, GB. Corporate Reckoning Ahead, 2015.
  27. Brown, E. “Public Banks Are Essential to Capitalism”, NYTimes Op Ed, October 2, 2013.
  28. Parramore. LS. “How the Federal Reserve is Destroying Your Economic Future”, Alternet, April 16, 2015.
  29. Nace, T. Gangs of America: The Rise of Corporate Power and the Disabling of Democracy, 2003. I reviewed this book in the 2004 Fall Issue of the Book Review Section of Personnel Psychology, pp. 780-783.

Plunder Down Under: The Rot in Australia’s Financial Services

It has all the elements of a crudely crafted, if effective, tale: banks and other financial services, founded, proud of their standing in society; financial service providers, with such pride, effectively charging the earth for providing elementary services; then, such entities, with self-assumed omnipotence, cheating, extorting and plundering their clients.

This is the scene in Australia, a country where the bankster and financial con artist have been enthroned for some time, worshipped as fictional job creators and wealth managers for the economy.  Impunity was more or less guaranteed.  All that might be expected would be the odd sacking here and there, the odd removal, the odd fine and limp slap of the wrist. But then came along something the Australian government never wanted: a Royal Commission.

While Commissioner Kenneth Hayne’s Royal Commission into the Banking, Superannuation and Financial Services industry initially promised to be a fizzer, one that risked being stage managed into oblivion by a conservative former High Court justice, the contrary has transpired.  Even in its infancy, it has produced a string of revelations that have sent the financial establishment, and those supporting them, into apoplectic worry.

The Turnbull government, long steadfast in treating Australia’s banking and financial sector like a golden calf, has found itself encircled by misjudgement and error.  Former front bencher Barnaby Joyce had to concede error in arguing against a Royal Commission into the sector. “I was wrong.  What I have heard is [sic] so far is beyond disturbing.”

Ministers have been more mealy-mouthed, in particular Revenue Minister Kelly O’Dwyer who has given a string of performances featuring stellar denial and evasion. “Initially,” she told the ABC last Thursday, “the Government said that it didn’t feel that there was enough need for a royal commission.  And we re-evaluated our position and we introduced one.”

Such a view ignores a strain of deep anti-banking suspicion within some conservative circles – notably of the agrarian populist persuasion.  The National rebels George Christensen, Llew O’Brien and Barry O’Sullivan were repeatedly noisy on the subject.  (The unregulated free market sits uneasily with them.)

The undergrowth of abuse has proven extensive and thorny.  Clients, for instance, have been charged services they were never supplied; monitoring systems to ensure that such services were, in fact, being provided, have been absent.  Not even the dead have been spared, with the Commonwealth Bank’s financial business wing knowingly charging fees of the departed.

One revelatory report stretching back to 2012 from Deloitte found the Commonwealth Bank of Australia (CBA) particularly egregious on this score.  According to the authors, 1,050 clients were overcharged to the hefty tune of $700,000 for advice never received, as their financial planners had left the business prior to 2012.

At times, the hearings have made for riveting viewing.  Commissioner Hayne found himself in the position of reproaching Marianne Perkovic, head of the CBA’s private bank some three times for hedging responses to Michael Hodge, QC, senior counsel assisting the commission.  “You will get on better if you listen to counsel’s question – if you have to stop and think about the question do it – but listen to counsel’s question and answer what you’re asked.”

Perkovic had remained oblique on the issue of the CBA’s foot dragging – some two years of it, in fact – regarding a failure to inform the Australian Services & Investment Commission (ASIC) on why it did not supply an annual review to financial advice clients of Commonwealth Financial Planning.

Scalps are being gathered; possible jail terms are being suggested; promises of share holder revolts are being made.  The most notable of late has been AMP, whose board, after the resignation of chief executive Craig Meller risk a revolt from shareholders at a meeting on May 10.  “At this stage,” announced Australian Council of Superannuation Investors CEO Louise Davidson, “we are thinking of voting against the re-election of the directors.”

This is not the view of Institutional Shareholder Services, a proxy firm that maintains the front that caution should be exercised in favour of the three directors in question. Stick by Holly Kramer, Vanessa Wallace and Andrew Harmos – for the moment.

“Given that the Royal Commission is in its early stages,” go the dousing words of the ISS report, “and although information presented thus far would be of concern, it is considered that shareholders may in due course review the findings of the Royal Commission, once presented, and any implications for their votes on directors at the appropriate time.”

It is precisely such attitudes of disbelief, caution and faith that have governed Australia’s financial sector during the course of a religiously praised period of uninterrupted growth.  AMP’s value has been dramatically diminished, losing $4 billion from its market capitalisation.  In naked terms, this constitutes a loss of 24 percent of shareholder value over the course of six weeks. But that is merely one component of this financial nightmare, which has stimulated a certain vengeful nature on the part of shareholders.

What, then, with solutions?  The regulator suggests greater oversight; the legislator suggests more rigid laws of vigilance.  The penologist wishes to see the prisons filled with more white collar criminals.  Yet all in all, Australia’s financial service culture has been characterised by shyness and reluctance on the part of ASIC to force the issue and hold rapacity to account.  Central to such a world is a remorseless drive for profit, one that resists government prying and notions of the public good.

One suggestion with merit has been floated.  It lies deep within structural considerations that will require a return to more traditional operations, ones untainted by the advisory arm of the financial industry.

“Financial institutions,” suggests Allan Fels, former chairman of the Australian Competition and Consumer Commission, “must be forced to sell their advisory businesses.  This will remove the unmanageable conflict of interest inherent in banks creating investment products while employing advisers to give purportedly independent recommendations to consumers about their investments.” Now that would be radical.

Fox in the Hen House: Why Interest Rates Are Rising

The Fed is aggressively raising interest rates, although inflation is contained, private debt is already at 150% of GDP, and rising variable rates could push borrowers into insolvency. So what is driving the Fed’s push to “tighten”?

On March 31st the Federal Reserve raised its benchmark interest rate for the sixth time in 3 years and signaled its intention to raise rates twice more in 2018, aiming for a fed funds target of 3.5% by 2020. LIBOR (the London Interbank Offered Rate) has risen even faster than the fed funds rate, up to 2.3% from just 0.3% 2-1/2 years ago. LIBOR is set in London by private agreement of the biggest banks, and the interest on $3.5 trillion globally is linked to it, including $1.2 trillion in consumer mortgages.

Alarmed commentators warn that global debt levels have reached $233 trillion, more than three times global GDP; and that much of that debt is at variable rates pegged either to the Fed’s interbank lending rate or to LIBOR. Raising rates further could push governments, businesses and homeowners over the edge. In its Global Financial Stability report in April 2017, the International Monetary Fund warned that projected interest rises could throw 22% of US corporations into default.

Then there is the US federal debt, which has more than doubled since the 2008 financial crisis, shooting up from $9.4 trillion in mid-2008 to over $21 trillion in April 2018. Adding to that debt burden, the Fed has announced that it will be dumping its government bonds acquired through quantitative easing at the rate of $600 billion annually. It will sell $2.7 trillion in federal securities at the rate of $50 billion monthly beginning in October. Along with a government budget deficit of $1.2 trillion, that’s nearly $2 trillion in new government debt that will need financing annually.

If the Fed follows through with its plans, projections are that by 2027, US taxpayers will owe $1 trillion annually just in interest on the federal debt. That is enough to fund President Trump’s original trillion dollar infrastructure plan every year. And it is a direct transfer of wealth from the middle class to the wealthy investors holding most of the bonds. Where will this money come from? Even crippling taxes, wholesale privatization of public assets, and elimination of social services will not cover the bill.

With so much at stake, why is the Fed increasing interest rates and adding to government debt levels? Its proffered justifications don’t pass the smell test.

“Faith-Based” Monetary Policy

In setting interest rates, the Fed relies on a policy tool called the “Phillips curve,” which allegedly shows that as the economy nears full employment, prices rise. The presumption is that workers with good job prospects will demand higher wages, driving prices up. But the Phillips curve has proven virtually useless in predicting inflation, according to the Fed’s own data. Former Fed Chairman Janet Yellen has admitted that the data fails to support the thesis, and so has Fed Governor Lael Brainard. Minneapolis Fed President Neel Kashkari calls the continued reliance on the Phillips curve “faith-based” monetary policy. But the Federal Open Market Committee (FOMC), which sets monetary policy, is undeterred.

“Full employment” is considered to be 4.7% unemployment. When unemployment drops below that, alarm bells sound and the Fed marches into action. The official unemployment figure ignores the great mass of discouraged unemployed who are no longer looking for work, and it includes people working part-time or well below capacity. But the Fed follows models and numbers, and as of April 2018, the official unemployment rate had dropped to 4.3%. Based on its Phillips curve projections, the FOMC is therefore taking steps to aggressively tighten the money supply.

The notion that shrinking the money supply will prevent inflation is based on another controversial model, the monetarist dictum that “inflation is always and everywhere a monetary phenomenon”: inflation is always caused by “too much money chasing too few goods.” That can happen, and it is called “demand-pull” inflation. But much more common historically is “cost-push” inflation: prices go up because producers’ costs go up. And a major producer cost is the cost of borrowing money. Merchants and manufacturers must borrow in order to pay wages before their products are sold, to build factories, buy equipment and expand. Rather than lowering price inflation, the predictable result of increased interest rates will be to drive consumer prices up, slowing markets and increasing unemployment – another Great Recession. Increasing interest rates is supposed to cool an “overheated” economy by slowing loan growth, but lending is not growing today. Economist Steve Keen has shown that at about 150% private debt to GDP, countries and their populations do not take on more debt. Rather, they pay down their debts, contracting the money supply; and that is where we are now.

The Fed’s reliance on the Phillips curve does not withstand scrutiny. But rather than abandoning the model, the Fed cites “transitory factors” to explain away inconsistencies in the data. In a December 2017 article in The Hill, Tate Lacey observed that the Fed has been using this excuse ever since 2012, citing one “transitory factor” after another, from temporary movements in oil prices, to declining import prices and dollar strength, to falling energy prices, to changes in wireless plans and prescription drugs. The excuse is wearing thin.

The Fed also claims that the effects of its monetary policies lag behind the reported data, making the current rate hikes necessary to prevent problems in the future. But as Lacey observes, GDP is not a lagging indicator, and it shows that the Fed’s policy is failing. Over the last two years, leading up to and continuing through the Fed’s tightening cycle, nominal GDP growth averaged just over 3%; while in the two prior years, nominal GDP grew at more than 4%. Thus “the most reliable indicator of the stance of monetary policy, nominal GDP, is already showing the contractionary impact of the Fed’s policy decisions,” says Lacey, “signaling that its plan will result in further monetary tightening, or worse, even recession.”

Follow the Money

If the Phillips curve, the inflation rate and loan growth don’t explain the push for higher interest rates, what does? The answer was suggested in an April 12th Bloomberg article by Yalman Onaran, titled “Surging LIBOR, Once a Red Flag, Is Now a Cash Machine for Banks.”  He wrote:

The largest U.S. lenders could each make at least $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady.

During the 2008 crisis, high LIBOR rates meant capital markets were frozen, since the banks’ borrowing rates were too high for them to turn a profit. But US banks are not dependent on the short-term overseas markets the way they were a decade ago. They are funding much of their operations through deposits, and the average rate paid by the largest US banks on their deposits climbed only about 0.1% last year, despite a 0.75% rise in the fed funds rate. Most banks don’t reveal how much of their lending is at variable rates or is indexed to LIBOR, but Oneran comments:

JPMorgan Chase & Co., the biggest U.S. bank, said in its 2017 annual report that $122 billion of wholesale loans were at variable rates. Assuming those were all indexed to Libor, the 1.19 percentage-point increase in the rate in the past year would mean $1.45 billion in additional income.

Raising the fed funds rate can be the same sort of cash cow for US banks. According to a December 2016 Wall Street Journal article titled “Banks’ Interest-Rate Dreams Coming True”:

While struggling with ultralow interest rates, major banks have also been publishing regular updates on how well they would do if interest rates suddenly surged upward. . . . Bank of America . . . says a 1-percentage-point rise in short-term rates would add $3.29 billion. . . . [A] back-of-the-envelope calculation suggests an incremental $2.9 billion of extra pretax income in 2017, or 11.5% of the bank’s expected 2016 pretax profit . . . .

As observed in an April 12 article on Seeking Alpha:

About half of mortgages are . . . adjusting rate mortgages [ARMs] with trigger points that allow for automatic rate increases, often at much more than the official rate rise. . . .

One can see why the financial sector is keen for rate rises as they have mined the economy with exploding rate loans and need the consumer to get caught in the minefield.

Even a modest rise in interest rates will send large flows of money to the banking sector. This will be cost-push inflationary as finance is a part of almost everything we do, and the cost of business and living will rise because of it for no gain.

Cost-push inflation will drive up the Consumer Price Index, ostensibly justifying further increases in the interest rate, in a self-fulfilling prophecy in which the FOMC will say, “We tried – we just couldn’t keep up with the CPI.”

A Closer Look at the FOMC

The FOMC is composed of the Federal Reserve’s seven-member Board of Governors, the president of the New York Fed, and four presidents from the other 11 Federal Reserve Banks on a rotating basis. All 12 Federal Reserve Banks are corporations, the stock of which is 100% owned by the banks in their districts; and New York is the district of Wall Street. The Board of Governors currently has four vacancies, leaving the member banks in majority control of the FOMC. Wall Street calls the shots; and Wall Street stands to make a bundle off rising interest rates.

The Federal Reserve calls itself “independent,” but it is independent only of government. It marches to the drums of the banks that are its private owners. To prevent another Great Recession or Great Depression, Congress needs to amend the Federal Reserve Act, nationalize the Fed, and turn it into a public utility, one that is responsive to the needs of the public and the economy.

• This article was originally published at Truthdig.com.

A Million Dollars Isn’t Worth, In Value, What It Used To Be

One of the primary economic paradoxes that has always perked the curiosity of both bourgeois and Marxist political economists alike can be neatly encapsulated in a notorious quip uttered by the famous New York Yankee’s catcher and manager, Yogi Berra, who, once upon a time, famously pronounced: “a nickel isn’t worth a dime, anymore”.

In this simple Yogism lies one of the primary post-modern financial mechanisms by which neoliberal bourgeois-capitalists have sucked value out of the workforce/population, under the cover of western economic opulence, into their own coffers to the bewilderment and detriment of the workforce/population, which slowly sinks ever-deeper into debt misery.  Behind Berra’s quip rests a capitalist sleight of hand, which pivots on the hidden properties of post-modern value-determinations, embodied in fiat-money and wealth. Namely, what Berra’s quip points to is a transfer, or fluctuation, of “worth” over time and space, between a nickel and a dime, despite the fact that the relation between a nickel and a dime remains at face-value technically unchanged and timeless. Berra’s quip points to the declining value of money in society, meaning the declining purchasing power of money, year in and year out, over the passing decades. And this, in a nutshell, is the essence of the rising financial inequality festering across post-industrial, post-modern, bourgeois-state-capitalism.

Unpacking this conundrum is no small feat as this sleight of hand lies at the center of the extraction and accumulation of capitalist profits.  First and foremost, to begin with, this capitalist sleight of hand; i.e., financial mechanism, was initially made possible by western capitalist economies when these western capitalist economies abandoned the gold-standard roughly in the early 1970s. This unfastening of wealth from gold detached value from any manner of universal measurement and/or points of reference which in the past could always be boiled down to the value of gold. Meaning, gold kept the relation between value and money (wealth), static, stable, and most importantly, honest. And, with the abandonment of the gold-standard, the relation between value and money (wealth) became increasingly arbitrary, ambiguous, and devoid of any solid referential basis. Namely, price, value, and wage, that is, value and money (wealth), went post-modern via the abandonment of the gold-standard.

Value and money (wealth) was unfastened and increasingly made subject to the arbitrary whims of bourgeois capitalists. That is, value, price and wage; i.e., value and money (wealth) became increasingly subject to the influence of power and power-relations, which is to say value and money (wealth) increasingly became subject to a new, post-modern, economic base, a base founded on force, influence and state-finance-corporate-networks. When gold was abandoned, the vacuum it left was filled by force, influence, and network-power, whereupon the relation between value and money (wealth) became increasingly a matter of influence, force and power. That is, a matter of networks and power-blocs, capable of determining, stabilizing, and managing the relation between value and money (wealth), according to their own perceived arbitrary standards and artificial determinations. This includes also the artificial, arbitrary, determination of value, price and wage through capitalist networks and power-blocs.

Consequently, the abandonment of the gold-standard opened western capitalist economies to new economic maneuvers, schemes, manipulations, and financial mechanisms, designed to increase capitalist profits for those select few who have the means and the power to do so. The result is, and continues to be, a vast globalized transfer of value from the globalized workforce/population to a small, globalized state-finance-corporate-aristocracy. Specifically, a capitalist aristocracy, which incessantly orchestrates this value-transfer via hidden value/price machinations, which have significantly destabilized the relation between value and money (wealth), while keeping the superficial structure of value and money (wealth) intact and unchanged. Yogi Berra’s witticism apprehends this capitalist trick very well. And, in addition, it is quite apropos that the initiator of post-industrial, post-modern, political-economics, via the abandonment of the gold-standard, should be a man aptly referred to as “Tricky Dick”, which was the informal, derisive, nickname for President Richard Nixon.

When Nixon removed the US economy off the gold-standard, a decision which was eventually adopted by all western economies, it ultimately set forth a post-modern gold rush, namely, a gold-rush grounded in financial manipulations and arbitrary values that would catapult and transform the banking and financial sectors into the premier economic vanguards of neoliberal capitalism, itself. The reason being, the capitalist-system, having gone off the gold standard, and now based on fiat-money, both digital and otherwise, was essentially empowered and privy to create money, seemingly out of nothing, namely, out of thin-air, so as to stimulate incessant capitalist growth and capitalist development.

However, contrary to Marxists, who state that no banking or financial institution whatsoever can create value out of thin-air, this is not really the case when it comes to the abandonment of the gold-standard and fiat money, despite some Marxists and bourgeois economists claiming the opposite. Granted, the creation of money by the central banks, including various financial institutions, appears like the creation of value out of thin-air, but this is not the case in the sense that what actually happens is that the illusion of instant money-creation; i.e., the instant creation of new fiat-money is, in fact, designed to dilute the total sum of value circulating across all sectors of the capitalist-system. The creation of new instant-money merely dilutes value across a larger monetary (wealth and capital) terrain and numerical sum wherefore a million dollars is no longer worth in value what it used to be. This means that there is less value being represented in every dollar with every financial injection of newly minted fiat-money.

Therefore, as Yogi Berra aptly stated “a nickel isn’t worth a dime, anymore”, and the reason is that any increase in fiat-money dilutes value over a larger sum of money (wealth), digital or otherwise, to such a radical extent that, according to Negri and Hardt, capitalists are “no longer able to measure value adequately. [Moreover, due to this dilution process] value can no longer be measured in terms of …labor-time”,1 meaning, that all modern labor theories of value, Marxist or bourgeois, are no longer applicable in the determination of value, price and wage, as “money [has been] unmoored in [this] phase of [complete] financial control”.2

In addition, these injections of instantaneous fiat-money into the economy tend to have the added consequence of resulting in the speed-up of circulation, production, consumption and distribution, both for capitalists and the general-population. The setting of interest rates by banking and financial institutions are supposedly designed to control inflation, but, in fact, they merely hide and veil the dilution of value across a wider economic terrain and a greater numerical sum of money and wealth. That is, interest rates conceal the dilution of value and help ease the transition into greater levels of value-dilution, including the fact that there is less purchasing power embodied in every dollar. Furthermore, the dilution of value, concealed in interest rate manipulations by the central banks and various financial institutions, permit the state-finance-corporate-aristocracy to absorb greater levels of capitalist profits through the cloak of natural inflation, and through the arbitrary manipulation of price, value and wage.

This process enables the state-finance-corporate-aristocracy to suck more value out of the general-population than it allocates unto them via the creation of new instant-money. That is, despite the general-population having access to, and having, more money and wealth than it previously had, the value laid-out across this money and this wealth, is significantly less than previous, due to the instantaneous manifestation of fiat-money, which has significantly increased the numerical sum of money and wealth, thus diluting value over a larger terrain of money and wealth.

To recap:

(1) value is diluted in and across the capitalist economy when money is instantaneously created by the central banks and/or various financial institutions. Meaning, that a million dollars is worth less in value than it previously was; and, moreover, this means that the attainment of a million dollars is easier for the general-population because there is more money circulating in and across the economy, which stimulates the general-population to work harder and buy more. Simultaneously, this also means that one billion dollars is in reach, which decades ago was virtually inconceivable. Notwithstanding, there is less value embodied in the sum of money and wealth, due to value having been diluted over a larger capitalist terrain.

(2) Injections of instant money in and across the economy also means that a person needs more of money (wealth) to acquire commodities due to the fact that commodity-prices, subject to inflation, tend to increase over an extended period of time and space. Notwithstanding, interest rate manipulations ease inflation and any sharp rise in prices, while permitting capitalists certain leeway to increase capitalist profits through the imposition of arbitrary mark-ups, which are validated on the premise of inflation and ever-increasing costs of production. However, these price mark-ups, which are, in fact, arbitrary and artificial fabrications by power-blocs and corporate-networks, always exceed inflation and the new production-costs, allowing for the cultivation of greater capitalist profits and value out of the workforce and the general-population.

The whole financial mechanistic process of the dilution of value is designed to trick the general-population, through a capitalist sleight of hand, by giving the general-population access to greater sums of money (wealth), while simultaneously radically decreasing the value embodied in these greater sums of money and wealth, which means that the general-population has access to less and less value, despite having access to more and more money. The value of the money and wealth, which the general-population has access to, is now worth significantly less than it was prior to the injection of new instantaneous fiat-money by banking and financial institutions. Ultimately, this means the general-population, in reality, has less purchasing power and is worth less with every increase in the numerical sum of money, the reason being the fact that value is diluted over a greater sum of money and wealth.

To sustain its current level of value and purchasing power in its own possession, the workforce/population has to work harder and longer with every new instantaneous creation of fiat-money by the central banks. If it is unable to do this, which on most counts this is the case, then the level of value and purchasing power in the possession of the workforce/population goes down and is transferred to the state-finance-corporate-aristocracy.

For example, in the United-States, the money supply grew “from 6.407 trillion in January 2005, to 18.136 trillion in January 2009”3, which had a profound effect on the relation between value and money (wealth), during this time-frame, as this fiat-money creation out of thin air diluted the amount of value embodied in every dollar. The result was increasing financial inequality between the state-finance-corporate-aristocracy and the workforce/population, including the creation of an ever-widening chasm between value and money (wealth), despite keeping the value-structure of money intact. Moreover, this has also enabled the state-finance-corporate-aristocracy to raise the amount of money (wealth) needed for the general-population to purchase commodities via arbitrary value, price and wage-determinations, founded on nothing but power; i.e., the power to set price, value and wage, according to what an entity can get away with.

According to Negri and Hardt, in the age of post-industrial, post-modern capitalism, “how do [one] measure the value of knowledge, or information, or a relationship of care or trust, or the basic results of education or health services?”4 The answer is derivatives. For Hardt and Negri, “derivatives are part of finance’s response to the problem of measure”5 in the sense that “derivatives and derivative markets…operate…[to] establish commensurability, making an extraordinary wide range of existing and future assets measurable against one another”5. In effect, derivatives bundle together a variety of radically different commodities into a singular finance-commodity, which is then subjected to an arbitrary price and traded unto the global market. Through this economic process, derivatives provide an arbitrary marker for unknown values embodied in highly immeasurable objects, commodities, services etc., which are both conceptual and material in nature.

As Hardt and Negri state, “derivatives …make all manner of capitals across disparate spheres of place, sector and characteristic commensurate with one another”.5 However, what Hardt and Negri fail to see is that derivatives are highly arbitrary and artificial determinations, more or less, artificially fabricated values and prices, founded on the premise of power, that is, the power embodied in the specific ruling capitalist networks and power-blocs, which govern and dominate specific spheres of production such as finance. Derivatives are fictional manifestations and commodities, whose value and price-determinations have nothing to do with economic reality and everything to do with what a set of capitalist power-blocs can get away with, price-wise, within and across the marketplace.

As Marx might say, they are founded on “the whim of the rich and the capitalist”6, namely, power. That is, the power of a specific, capitalist-network to set the parameters and the sum of value and price across an industry, pertaining to a particular commodity, whether this is a mental commodities derivative, or a physical commodities derivative, while being able to maintain this value sum and price sum for an extended period of time and space, until this arbitrary value and price becomes, legitimately, an industry and global market norm. Therefore, contrary to Hardt and Negri, it is not derivatives, which establish commensurability between radically different commodities, it is power; i.e., the exercise of power through the medium of derivatives, which ultimately establishes artificial value and price, despite these values and prices being completely arbitrary and artificial constructs. Behind derivatives and derivative markets lie corporate, capitalist power-blocs, and capitalist networks, which pull the strings of power, according to the arbitrary whims of their mercenary impulses, which increasingly command maximum extraction and accumulation of surplus value. That is, maximum profit by any means necessary.

Likewise, the value embodied in derivatives, or a million dollars, decreases with every augmentation in the money (wealth) supply. The decrease in value is the result of dilution due to a larger sum of money and wealth now in circulation. Moreover, as the general-population requires more and more wealth to acquire commodities, as it did between 2005 and 2009, it begins to rely increasingly on credit, credit which eventually increases household debt for the general-population. And, between 2005 and 2009, this is exactly what happened for most of the general-population.

Consequently, through a combination of the dilution of value embodied in money (wealth) and the appropriation of greater sums of profit and value from the general-population, via inflation and exaggerated price mark-ups, global financial inequality has drastically increased between 2005 and 2009, resulting in a greater debt-load across the general-population coupled with greater profits and a greater value-transfer for the most well-off.  In effect, value flowed to the 1% during this period, which saw their incomes, purchasing power, and their wealth significantly increase, while the 99%, saw their incomes, their purchasing power and their wealth stagnate or significantly decrease. The reason was the fact that the 1% was able to keep up with the new, artificially fabricated rate of dilution in value, across a broader capital terrain, while the 99% could not keep up with the new, artificially fabricated, rate of dilution in value.

Furthermore, in an ironic twist of fate, through the dilution of value over a greater sum of money and wealth via the instant creation of fiat-money, the general-population has been led to believe it is acquiring more value and is witness to the increasing elimination of financial inequality, due to the fact that it has more wealth and access to wealth in its hands than ever before. However, this is an illusion in the sense that the general-population, although capable of accessing more wealth and is seemingly in possession of more wealth, nonetheless, has the same or less amount of value in its possession, due to the fact that this value is stretched out over a larger sum of wealth and money, coupled with larger amounts of debt.

This process of diluted value, by the central banks and other financial institutions, is nothing but a capitalist scheme by which to get the general-population spending more, namely, by tricking the general-population into believing it is wealthier, which is not factually the case. In fact, by spending more, the general-population invariably lowers the amount of value in its possession and increasingly transfers this precious value to the upper-echelons of the capitalist-pyramid; i.e., the 1%, that is, the state-finance-corporate-aristocracy, through debt, through interest payments and through exaggerated commodity-prices. Namely, through an incessant, financial process of continuous value extraction out of the workforce/population and into the pockets and hands of the state-finance-corporate-aristocracy; i.e., a small set of micro-fascist, oligarchical networks.

Additionally, this leaves the general-population increasingly indebted to the financial institutions of the state-finance-corporate-aristocracy, which invariably increases financial inequality between the general-population; i.e., the 99%, and the state-finance-corporate-aristocracy; i.e., the 1%, at an ever-increasing rate, with every artificial dilution of value. This globalized transfer of value, under the guise of the increasing opulence of the general-population through mass consumerism and financial schemes, essentially picks up steam with the elimination of the gold-standard in the early 1970s, which permitted the state-finance-corporate-aristocracy to increasingly misrepresent the relation of value and money (wealth), through price, value and wage machination, which technically allowed the general-population to superficially have more, but, in fact, to possess increasingly less in terms of value. That is, the manipulation of the amount of value embodied in every dollar, which has been steadily and progressively decreasing with each new magical financial injection of fiat-money (wealth) into the economy, has permitted the perpetuation of this capitalist ruse.

Wherefore, the general-population, technically, possesses more things and commodities, but yet, in fact, increasingly owns less of the total sum of value across the globe, which is embodied in these things and commodities. Of course, the reverse is true for the state-finance-corporate-aristocracy, whereupon value is increasingly being sucked out of the workforce/population across the globe and siphoned into the coffers of the 1%. The result is an ever-increasing share in the total sum of value for the state-financial-corporate-aristocracy, which invariably comes at the expense of the global workforce/population. According to Hardt and Negri, this “monetary instability of finance and speculation, [manifested due to the arbitrariness of derivatives and fiat-money, simultaneously] corresponds to the precarity of labor”.7

In sum, this is a process of generalized global impoverishment, which is concealed behind the mask of capitalist opulence and magnified by capitalist mass consumerism, capitalist instant credit and convoluted capitalist financial mechanisms. Indeed, the overwhelming result of these capitalist schemes is the increasing imprisonment of the general-population into increasing debt. Because every dollar of wealth the general-population possesses, even if it makes more money and possesses more wealth than previous generations, has had its value stretched-out over a greater sum of wealth and money. Meaning, the value embodied in this wealth is less than, or equal to, the value possessed by previous generations, who on the surface seemingly possessed less wealth; i.e., value, than the contemporary workforce/population, but, in fact, own more things and commodities outright.

This is the post-modern capitalist sleight of hand, ushered-in with the abandonment of the gold-standard, wherefore the total sum of value in the world is having to be increasingly spread-out over more money (wealth) than any prior time in human history. Debt is the prime indicator that there is less and less value embodied in wealth and that a million dollars isn’t worth in value what it used to be. Today, the general-population may, theoretically, own their own houses on paper, but their mortgages tell a different story in the sense that, in actuality, the banks own these houses whereupon the general-population is ensnared in rent-to-own schemes where they are dishing out more value than they are getting back. In effect, when they actually own their houses outright after paying-off their mortgages, they will have paid far more in price and in value than the actual worth and value embodied in their homes. Today, houses have less value embodied in them, and moreover, due to inflationary real-estate schemes and outlandish property mark-ups, the general-population may only own, in actuality, the front-door on their dwellings while the banks own the rest. It is in this regard that the general-population is sinking ever deeper into debt-slavery and is increasingly falling under the thumb of the state-finance-corporate-aristocracy.

Indeed, Yogi Berra was right, more so than he, himself, realized at the time, when he uttered that magic phrase: “a nickel isn’t worth a dime, anymore”.  However, the frightening prospect is that this dilution process is not over, due to the fact, as Hardt and Negri state, increasingly in our “contemporary [post-industrial] phase, the creation of money is determined primarily by financial instruments, …instruments [which] generate money in the manner of lending banks, that is, by lending more money than they have”.8 And, because of this excess of monetary and wealth creation, which increasingly dilutes value evermore towards nil, soon a dime will be worth less than a nickel is today, and a nickel less than a penny is today, and a penny less than nothing.

Conveniently, all the while the state-finance-corporate-aristocracy, through sleight of hand, will strengthen its stranglehold on humanity and reduce the human condition to corporate-techno-capitalist-feudalism. That is, a plethora of corporate fiefdoms populated by a litany of post-industrial, post-modern, debt-serfs, crushed beneath the overwhelming weight of interest payments, insurmountable debt, and the ever-increasing threat of full automation. As Karl Marx eloquently surmised, in Das Capital (Volume One):

The production of surplus value, or the making of profits, is the absolute law of this [type of capitalist] mode of …[value] extraction…[wherefore] every accumulation becomes the means for new accumulation…[and] the concentration of capital, …[where] capital [eventually] grows to a huge mass in a single hand in one place, because it has been lost by many in [every] other place. [The result is] the accumulation of wealth at one pole [and] the accumulation of misery, …slavery, ignorance, brutalization and …degradation at the opposite pole.9

Indeed, this drawn-out, socio-economic process of value-dilution and value-transfer is gradually engineering capitalist society, through sleight of hand, into one giant, monetary-based, capitalist pyramid. That is, a corporate-techno-capitalist-feudalism where the 1% reap greater and greater portions of global values, while the 99% are increasingly forced into debt servitude. Namely, into a vast, globalized horde of post-industrial, post-modern, debt-serfs, who must accept any sort of degrading work possible, both in order to escape the ravages of unemployment and sate the appetites of their state-finance-corporate overlords, demanding higher profits, less these newly-minted debt-serfs be rendered utterly destitute and excluded.

  1. Michael Hardt and Antonio Negri, Assembly, (London, England: Oxford University Press, 2017) p. 164.
  2. Ibid, p. 186.
  3. See: Money Creation.
  4. Michael Hardt and Antonio Negri, Assembly, (London, England: Oxford University Press, 2017) p. 165.
  5. Ibid, p. 165.
  6. Karl Marx, Economic and Philosophic Manuscripts of 1844, Ed. Martin Milligan (Mineola, New York: Dover Publications Inc., 2007) 21.
  7. Michael Hardt and Antonio Negri, Assembly, (London, England: Oxford University Press, 2017) p. 186.
  8. Ibid, p. 191.
  9. Karl Marx, Capital (Volume One), Trans. Ben Fowkes (London Eng.: Penguin, 1990) pp. 769-799.

Bitcoin, Innovation of Money and Reinventing Activism

Bitcoin’s price explosion made news headlines this last year. Topics of digital assets entered onto dinner tables and friendly chats at work places. Fever of the digital gold rush that has swept mainstream finance became contagious. Institutional funds are now entering into cryptos, seemingly hedging their bets with their “sugar high” bubble economy. Jamie Dimon, the JPMorgan CEO who previously slammed Bitcoin as a fraud is said to be regretting his claim. He now praises the blockchain, the underlying technology of Bitcoin. Goldman Sachs recently acknowledged Bitcoin as money, comparable to gold. The firm is already setting up a trading desk for digital currencies.

While Bitcoin is gaining traction in financial circles, Naval Ravikant, the CEO and co-founder of Angel List saw this technology’s profound socio-political impact. He noted, “Bitcoin is a tool for freeing humanity from oligarchs and tyrants, dressed up as a get-rich-quick scheme.” WikiLeaks founder Julian Assange also recognized the revolutionary power of this money based on math. At the end of 2017, from the Ecuadorian embassy in London where he has been confined more than five years, Assange tweeted, “Bitcoin is a real Occupy Wall Street”.

What is this disruptive force of Bitcoin? The Occupy movement that had spread over dozens of US cities and across many countries created a wave of uprising. It inspired a new vision of politics outside of the electoral arena. Now, years after Occupy’s demise, this new innovation of decentralized digital currency could offer a way to reinvent activism, helping all around the world to organize and create radical social change.

The era of creditocracy

First, let’s look back at the rise of OccupyWallStreet protest. The movement kicked off in New York’s financial district in 2011, uniting people from all walks of life under the banner of the 99% against economic inequality and corporate greed. Occupy emerged within a cultural milieu of transparency, spearheaded by WikiLeaks’ disclosure of documents pertaining to government secrecy and corruption.

The insurgency in lower Manhattan marked a peak of disillusionment about the current state of democracy. People began to wake up to an invisible hand of the market – 1% global oligarchy, that was controlling resources through money based on debt. In the article “Student Debt Slavery: Bankrolling Financiers on the Backs of the Young”, attorney and author Ellen Brown described the advantage of “slavery by debt” over owned slavery, which was an idea argued in a document reportedly circulated during the American Civil War among British and American banking sectors. Brown showed that while slaves need to be housed and fed, “free men could be kept enslaved by debt, by paying wages insufficient to meet their costs of living”.

This debt-based financial system has become what professor and veteran of the Occupy movement Andrew Ross calls a “creditocracy”. In this, ordinary people with student loans, medical and credit card bills have become indentured servants. Ross explains how it is the Western version of a “debt trap”, where debts are piled up with monthly credit card balances or underwater mortgages that cannot be ever paid to ensure continuing revenue for the banks. He notes how this is similar to the developing countries that fell under IMF dependency in the course of the 1970s and 1980s.

In the era of creditocracy, ubiquitous anonymous corporations keep the force of control invisible, making people obey their rules. MasterCard tells their customers who the master is with exuberant charge-back fees and penalties. VISA maintains US hegemony of the world, denying access to finance for refugees and immigrants and assisting US government sanctions on countries like Russia and Iran that challenge dollar supremacy. This is a two-tiered financial patronage network that exempts fees and extends credit lines to the rich and privileged, while it exploits the poor by seizing their funds and engaging in predatory lending.

Creditocracy now expands around the globe and threatens civil liberties. Recently, PayPal came under scrutiny, with their failure to provide services in the West Bank and Gaza, while making its service available in Israel. This payment processing company was accused by pro-Palestinian activists as enacting “online apartheid” against Palestinians.

Vision of new democracy

It is people’s indignation against this systemic economic oppression that sparked revolt at the center of world finance seven years ago. Occupy was unprecedented in its scale and its unique style of no central coordination or formal leadership. It was a move away from electoral politics and top-down decision making to the principle of consensus and direct action, which activist scholar David Graeber described as “the defiant insistence on acting as if one is already free”.

During the early days of this movement, the mainstream media criticized demonstrators for not having a clear mandate. Yet this lack of demand was a strength and refusal to recognize the legitimacy of power structures that protesters were challenging. What unfolded then was a new form of activism that truly channels uncompromising power of ordinary people. It was an activism that doesn’t acknowledge external power or seek for permission. Instead it encourages people to change society by simply building new alternatives.

This was a seed for a real democracy that is horizontal and participatory. It was manifested through activists’ effort of creating people’s libraries, media hubs and kitchens and forming a new way of governance through mic check and General Assemblies. This vision of organizing society through mutual aid and voluntary association went viral, spreading with internet memes and Twitter hashtags, creating solidarity across borders.

Cypherpunks write code

Occupy’s permissionlessness, without a need to refer to central authority, is embodied at the core of Bitcoin. The idea of Bitcoin was introduced in a whitepaper published in the midst of the 2008 financial crisis. It is clear that the anonymous creator of Bitcoin was concerned about deep corruption of government and their mishandling of monetary policies. This was shown in the message embedded in the genesis block of the block-chain. It contained a headline of a newspaper that read “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

Richard Gendal Brown, chief technology officer at software firm R3, provides a summary of the invention of this open source software:

Bitcoin is the world’s first system of digital cash, which allows peer-to-peer value transfer over the internet with no reliance on third parties. It is built on a new invention, the decentralized global asset register. This global asset register is the world’s first decentralized consensus system.

What is behind the protocol of a truly peer-to-peer currency is a revolutionary mind that refuses to obey the command from above and declares independence from all that claim authority. This fierce autonomy is the moral value of cypherpunks, a group that emerged in the late 1980s, who saw a potential of cryptography as a tool to shift balance of power between the individual and the state.

Cryptographer and one of the notable cypherpunks Adam Back, who was cited in Bitcoin’s whitepaper for his invention of Hashcash described the ethos of cypherpunks as that of writing code. This is an idea of making changes by creating alternatives. Back noted how pressuring politicians and promoting issues through the press tends to be slow and create an uphill battle. He pointed out how instead of engaging in the political process through campaigns and appealing to authority for changes, people can simply “deploy technology and help people do what they consider to be their legal right”. Then society would later adjust itself to reflect these values.

Network of resistance

While the mainstream media is obsessed with Bitcoin’s price and investors speculating gains in their portfolios, this technology’s defining feature lies in censorship resistance. The integrity of Bitcoin relies on decentralization, which is a method to attain security by flattening the network and removing levers of control, rather than performing checks and balances of power that tends to concentrate through control points inherent within the system, seen in the existing model of governance. This unprecedented security creates a network of resistance resilient to any forces of control.

When governments that are meant to defend civil rights act against their own people, Bitcoin preserves the network value of public right to free association and speech and distributes this to all users. This right was claimed and exercised in real time. In facing the illegal financial blockades imposed by Bank of America, VISA, MasterCard, PayPal and Western Union, WikiLeaks showed ordinary people how they can circumvent and combat economic censorship with Bitcoin.

As the whistleblowing site continues to publish CIA Vault publications, political persecution intensifies. Now the Freedom of the Press Foundation, an organization that was founded to tackle attacks on free press, decided to terminate processing of donations for WikiLeaks. In response to this new political pressure, Assange urged supporters to continue making contributions with cryptocurrencies and unleash the power of free speech that belongs to all.

As trusted institutions and governments are failing, people around the world are finding their own path of self-determination. In Argentina, as the Peso has been steadily falling since the country’s 2002 economic collapse, Bitcoin adoption has been accelerating. Bitcoin historian and former tech banker who goes by Tweeter handle @_Kevin_Pham noted, “Bitcoin’s killer app can be found in Venezuela, it’s called: ‘not dying.’” As hyperinflation is rendering their national currency worthless, Venezuelans are flocking to Bitcoin as a safe haven to store their savings.

In Iran, the government came on full force, engaging in internet censorship and cracking down on protesters who revolted in response to the country’s long economic stagnation. It was reported that leading up to the civil unrest, the Bitcoin community has grown with more people entering into cryptocurrencies. In Afghanistan, a company that advocates Afghan women’s computer literacy empowered women with bitcoin, helping them gain financial sovereignty.

Permissionless activism

The Occupy movement ignited aspirations for the rule of the common people, verified and upheld by a network consensus created through people’s trust in one another. Yet the enthusiasm for real democracy that was mobilized through social media could not withstand state coordinated police crackdowns. With the eviction of encampments and squares, people’s power that had arisen then dissipated.

Now, with Bitcoin surging, a new stream of disruption is emerging. These old financial engineers aim to protect their dying fraudulent world of central banks by upending their speculative casino with this hyped crypto market. As incumbent banks geared with regulatory arms try to control the bubbling civic power, perhaps this technology calls people to rise once again to halt financial aristocracy by innovating the ‘activism without permission’ – this time with better security and robustness.

Knowledge of computer science empowered by the ethics of cypherpunks now provides a viable platform for people to occupy society with their heart’s imagining. Sovereign individuals can now defy the rule of creditors and create their own rules, ending financial apartheid and discrimination. They can coalesce to fund independent media they support with their money and defund wars that they oppose. Permissionless activism can bring a jubilee, making rapacious debt obsolete through each individual simply walking away from this erroneous system, uniting with those who share goals to create a new economy.

The imagination of this invention opened the potential for a radically different future. From Rosa Parks’ refusal to give up her seat on the bus in Montgomery Alabama to occupiers’ adamant refusal to make demands, Bitcoin’s networked consensus creates an autonomous currency that allows all to move struggles of the past forward.

The rise of Bitcoin is poised to disrupt the world of creditocracy, as we know it. As the price rally continues, many now proclaim the rise and rise of Bitcoin! The question that remains is: Can our imagination rise with the revolutionary force this technology brings? Bitcoin already unleashed a potent power within. The future is now in our hands. It is up to each person to claim this power and show the world what democracy really looks like.

 

How Uncle Sam Launders Marijuana Money

In a blatant example of “do as I say, not as I do,” the US government is profiting handsomely by accepting marijuana cash in the payment of taxes while imposing huge penalties on banks for accepting it as deposits. Onerous reporting requirements are driving small local banks to sell out to Wall Street. Congress needs to harmonize federal with state law.

Thirty states and the District of Columbia currently have laws broadly legalizing marijuana in some form. The herb has been shown to have significant therapeutic value for a wide range of medical conditions, including cancer, Alzheimer’s disease, multiple sclerosis, epilepsy, glaucoma, lung disease, anxiety, muscle spasms, hepatitis C, inflammatory bowel disease, and arthritis pain. The community of Americans who rely on legal medical marijuana was estimated to be 2.6 million people in 2016 and includes a variety of mainstream constituency groups like veterans, senior citizens, cancer survivors, and parents of epileptic children. Unlike patented pharmaceuticals, which are now the leading cause of death from drug overdose, there have been no recorded deaths from marijuana overdose in the US. By comparison, alcohol causes 30,000 deaths annually, and prescription drugs taken as directed are estimated to kill 100,000 Americans per year.

Under federal law, however, marijuana remains a Schedule I Controlled Substance – a “deadly dangerous drug with no medical use and high potential for abuse” – and its possession remains a punishable offense. On the presidential campaign trail, Donald Trump said the issue of marijuana legalization “should be up to the states,” continuing the “hands off” policy established under President Obama. Under the 2013 Cole Memorandum, the Department of Justice said it would not prosecute individuals and companies complying with robust and well-enforced state legalization programs. But on January 4th, Attorney General Jeff Sessions rescinded that memo and gave federal prosecutors the authority to pursue marijuana cases at their own discretion, even in places where the herb is legal under state law. The action has made banks even more afraid to take marijuana cash, which can be prosecuted as illegal “money laundering,” an offense that can incur stiff criminal penalties.

The Government Has “Unclean Hands”

As explained by Dr. Richard Rahn, author of The End of Money and the Struggle for Financial Privacy:

Money laundering is generally understood to be the practice of taking ill-gotten gains and moving them through a sequence of bank accounts so they ultimately look like the profits from legitimate activity. Institutions, individuals, and even governments who are believed to be aiding and abetting the practice of money laundering can be indicted and convicted, even though they may be completely unaware that the money being transferred with their help was of criminal origin.

The law has focused on banks, but all sorts of businesses accept money without asking where it came from or being required to report “suspicious activity.” As Rahm observes, even governments can be indicted and convicted for money laundering. Strictly construed (as Attorney General Sessions insists when interpreting the law), that means the US government itself could be indicted. In fact, the US government is the largest launderer of marijuana cash in the nation. The IRS accepts this tainted money in the payment of taxes, turning it into “clean” money; and it is not an unwitting accomplice to the crime. Estimates are that marijuana business owners across the U.S. will owe $2.8 billion in taxes to the federal government in 2018. The government makes a massive profit off the deal, snatching up to 70 percent of the proceeds of the reporting businesses, as opposed to the more typical rate of 30 percent. It does this by branding marijuana businesses criminal enterprises which are not entitled to deduct their costs when reporting their income. This is not only a clear case of the unequal protection of the laws but is a clear admission by the government that it is knowingly accepting illegal funds. The government is a principal beneficiary of a business the government itself has made illegal.

Under those circumstances, both marijuana businesses and banks should be able to raise the “unclean hands” defense. As summarized in Kendall-Jackson Winery, Ltd. v. Superior Court (1999), 76 Cal.App.4th 970, 978-79:

The defense of unclean hands arises from the maxim, “He who comes into Equity must come with clean hands.” The doctrine demands that a plaintiff act fairly in the matter for which he seeks a remedy. . . . The defense is available in legal as well as equitable actions. . . . The doctrine promotes justice by making a plaintiff answer for his own misconduct in the action. It prevents a wrongdoer from enjoying the fruits of his transgression.

The government is enjoying the fruits of money it considers “dirty.” It has unclean hands, a defense against prosecuting others for the same crime.

Should “Money Laundering” Even Be a Crime?

In an article titled “Why the War on Money Laundering Should Be Aborted,” Dr. Rahn asks whether money laundering should even be a crime. It became a criminal activity in the US only in 1986, and in many countries it still is not a crime. Banks operating in the US must now collect and verify customer-provided information, check names of customers against lists of known or suspected terrorists, determine risk levels posed by customers, and report suspicious persons, organizations and transactions. The reporting requirements are so burdensome and expensive that they have caused many smaller banks to sell out to larger banks or close their doors. According to Dr. Rahn:

[I]t has failed to produce the advertised results and, in fact, has not been cost effective, has resulted in wholesale violations of individual civil liberties (including privacy rights), has violated the rights of sovereign governments and peoples, has created new opportunities for criminal activity, and has actually lessened our ability to reduce crime.

. . . Banks are required to supply the government with not only Currency Transaction Reports but also Suspicious Activity Reports. These reports impose huge regulatory costs on banks and require bank employees to operate as police officers. As a result, the total public and private sector costs greatly exceed $10,000,000 per conviction. This whole effort not only does not make any economic sense, but is clearly incompatible with a free society. The anti-money laundering laws allow almost complete prosecutorial discretion.

One small banker complained that banks have been turned into spies secretly reporting to the federal government. If they fail to comply, they can face stiff enforcement actions, whether or not actual money-laundering crimes are alleged. In 2010, one small New Jersey bank pleaded guilty to conspiracy to violate the Bank Secrecy Act and was fined $5 million for failure to file suspicious-activity and cash-transaction reports. Another small New Jersey bank closed its doors after it was hit with $8 million in fines over its inadequate monitoring policies. The cost of compliance and threat of massive fines for not complying have been major factors in the collapse of the community banking sector. The number of community banks has fallen by 40 percent since 1994 and their share of U.S. banking assets has fallen by more than half, from 41 percent to 18 percent.

“Regulation is killing community banks,” Treasury Secretary Stephen Mnuchin said at his confirmation hearing in January 2017. If the process is not reversed, he warned, we could “end up in a world where we have four big banks in this country.” That would be bad for both jobs and the economy. “I think that we all appreciate the engine of growth is with small and medium-sized businesses,” said Mnuchin. “We’re losing the ability for small and medium-sized banks to make good loans to small and medium-sized businesses in the community, where they understand those credit risks better than anybody else.”

If the goal of the anti-money laundering statutes is to identify and deter criminal activity, strictly enforcing the law could actually backfire in the case of state-legalized marijuana businesses. As noted in a January 9 article in The Daily Beast:

Marijuana businesses have to register and incorporate in states and that puts them on the IRS radar. . . . Sky-high federal taxes on top of state taxes can make it almost impossible to operate a legal business. . . . If the government fails to cut businesses a break, legal marijuana could be sold on the black market to dodge taxes.

On the black market, cash proceeds can be dispersed in a way that avoids banks and makes the money hard either to trace or to tax.

Federal Law Needs to Be Changed

With more than half the states legalizing marijuana for medical purposes, Congress needs to acknowledge the will of the people and remove this natural herb from the Schedule I classification that says it is a deadly dangerous drug with no health benefits. The Tenth Amendment gives the federal government only those powers specifically enumerated in the Constitution, and regulating medical practice is not one of them. Federal courts have held that the federal Controlled Substances Act does not allow the federal government to usurp states’ exclusive rights (pursuant to their inherent police powers) to regulate the practice of medicine.

H.R. 1227, the Ending Federal Marijuana Prohibition Act, sponsored by Virginia Republican Thomas Garrett and 15 cosponsors, would remove marijuana from Schedule I and eliminate federal penalties for anyone engaged in marijuana activity in a state where it is legal. Congress just needs to pass it.

In its zeal for eliminating burdensome, costly and ineffective regulations, the Trump administration might also consider lightening the heavy reporting burden that is killing community banks and the local businesses that have traditionally relied on them for affordable credit. On Tuesday, January 16th, a bipartisan coalition of state attorneys general sent a letter to leaders in Congress requesting advancement of legislation such as the Secure and Fair Enforcement (SAFE) Banking Act to “provide a safe harbor” for banks that provide financial products or services to state-legal marijuana businesses. If the government can accept marijuana money in the payment of taxes, banks should be able to accept it to keep track of it and prevent the crimes associated with storing and transporting large sums of cash.