The Confidential Memo—Excerpts By Greg Palast The Treasury official playing the bankers’ secret End Game was Larry Summers. Today, Summers is Barack Obama’s leading choice for Chairman of the US Federal Reserve, the world’s central bank. It begins with Larry Summers’ flunky, Timothy Geithner, reminding his boss to call the Bank bigshots to order their lobbyist armies to march: “As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs…” To avoid Summers having to call his office to get the phone numbers (which, under US law, would have to appear on public logs), Geithner listed the private lines of what were then the five most powerful CEOs on the planet. And here they are: Goldman Sachs: John Corzine (212)902-8281 Merrill Lynch: David Kamanski (212)449-6868 Bank of America: David Coulter (415)622-2255 Citibank: John Reed (212)559-2732 Chase Manhattan: Walter Shipley (212)270-1380 Let me explain: The year was 1997. US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels. Second, the banks wanted the right to play a new high-risk game: “derivatives trading”. JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets”. Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives. But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws? The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet -- in one single move. It was as brilliant as it was insanely dangerous. How could they pull off this mad caper? The bankers and Summers game was to use the Financial Services Agreement (or FSA), an abstruse and benign addendum to the international trade agreements policed by the World Trade Organisation. Until the bankers began their play, the WTO agreements dealt simply with trade in goods – that is, my cars for your bananas. The new rules devised by Summers and the banks would force all nations to accept trade in bads – toxic assets like financial derivatives. Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives “products”. And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives. And so on – with every single nation bullied into signing. Every nation but one, I should say. Brazil’s new President, Inacio Lula da Silva, refused. In retaliation, Brazil was threatened with a virtual embargo of its products by the European Unions Trade Commissioner, one Peter Mandelson, according to another confidential memo I got my hands on. But Lula’s refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis. China signed – but got its pound of flesh in return. It opened its banking sector a crack in return for access and control of the US auto parts and other markets. (Swiftly, two million US jobs shifted to China.) The new FSA pulled the lid off the Pandora’s box of worldwide derivatives trade. Among the notorious transactions legalised: Goldman Sachs (where Treasury Secretary Rubin had been co-chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation. Ecuador, its own banking sector de-regulated and demolished, exploded into riots. Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans. Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim – and the continent is now being sold off in tiny, cheap pieces to Germany. . Rubin’s deregulation of banks had permitted the creation of a financial monstrosity called “Citigroup”. Within weeks of leaving office, Rubin was named director, then Chairman of Citigroup – which went bankrupt while managing to pay Rubin a total of $126 million. That Obama would, at Robert Rubin’s demand, now choose Summers to run the Federal Reserve Board means that, unfortunately, we are far from the end of the game.
Posted on: Sat, 15 Mar 2014 19:07:15 +0000
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