CHAPTER 42
Another EHM Banking Scandal
The financial world was shaken by another major scandal in 2014. It included a couple of the banks that had been involved in the earlier Libor scandal, and some new ones. Barclays, Citigroup, JPMorgan Chase, and the Royal Bank of Scotland pleaded guilty to rigging the price of foreign currencies and were fined more than $2.5 billion. Within a year these four banks, plus one other, UBS, would be fined an additional $1.6 billion, along with another $1.3 billion in the case of Barclays, to settle related claims.1
Since 2007, the banks had operated what some of their members referred to as “the Cartel.” Among the e-mails and chat room conversations of individuals involved were found their own names for their group: the Bandits’ Club and the Mafia.2
US Attorney General Loretta Lynch described the banks’ foreign currency scheme as “a brazen display of collusion and foreign exchange rate market manipulation.” She went on to call it a “breathtaking conspiracy.”3 The words collusion and conspiracy, spoken by the US attorney general, are especially telling, given that they were used in reference to the secret collaboration of banks that for years had been considered some of the most trusted businesses in the world. The actions of the banks demonstrate that everything — conspiracy, collusion, fraud, unfair competitive practices — is justified by the corporatocracy, so long as it earns large profits.
Articles about this scandal reignited my feelings of guilt. I couldn’t erase the suspicion that by doing what I had done, four decades earlier, I had helped open the floodgates for these tidal waves of seemingly endless corruption. Reading on, however, my feelings once again changed; guilt turned to anger.
Although I had to admit that things I’d done had set the stage, I was struck by the contrasts between the ways we EHMs had operated and the ruthlessness of the modern bankers. In my day, we worked hard to justify debts. We crafted fancy econometric models to demonstrate that our projects would generate economic growth in the targeted countries. In addition to convincing the citizens of those countries, we also needed to convince ourselves. These modern EHMs did not find it necessary to justify their actions. They were blatant. They were defiant. They were utterly ruthless. They relished their roles as bandits and mafiosi, bragged about being part of a cartel. It shocked and infuriated me to see that this new breed took pride in exploiting everyone else.
Then, slowly, I realized that my anger was not limited to the bankers. It included the regulators. This conspiracy had operated with impunity for at least five years. Who was watching? The lack of oversight was testament to the “see no evil, hear no evil, speak no evil” attitude that is pervasive among government agencies. It is another aspect of the EHM system. Those in charge believe they are entitled to do whatever it takes to help the banks — and other corporations — realize the goal of maximizing profits, regardless of the social or environmental consequences.
The magnitude of the punishments also said a great deal about the cozy corporate–government relationships. Although the total fines in the combined Libor and rigged foreign currency prices conspiracies — more than $14 billion — seemed at first like a large sum, on further inspection, I saw that they were minuscule in relation to the assets of the banks. Worse still was the knowledge that not a single officer at any of the banks had been indicted for criminal activities. Not one.
I was struck by how anesthetized the American public has become to being exploited. Our willingness to wear blinders is similar to attitudes in the countries I exploited during the 1970s. In addition to the relatively secret schemes of the bankers, we are exploited by overt measures that we quietly accept as standard practice. These include the skyrocketing student debt caused by state and federal cuts in public education, the constantly increasing medical debt resulting from deficient national health care and insurance policies, predatory payday loans, tax laws that subsidize a few of the richest at the expense of the many, and the outsourcing of jobs to other countries. The mantra “We will do whatever it takes” echoes from bank boardrooms into the halls of Congress.
This was brought home during the 2015 FIFA soccer scandal. The EHM system is so pervasive that it infects all areas of society, even sports. According to charges brought by the US Justice Department against leaders of international soccer’s governing body, the perpetrators employed many of the tools that had been part of my EHM kit, including bribes, fraud, and money laundering, and it was done in collaboration with the big banks. The corruption was unchecked for nearly two decades and cost the communities and taxpayers of many nations fortunes while making a small number of elites wealthy.4
At first, I was relieved that the Justice Department had taken action. This seemed a step in the right direction. The regulators were finally regulating. Then I saw a different aspect.
The soccer scandal was a smoke-and-mirrors diversion. Media attention focused on a nonessential aspect of life — sports — at a time when the real criminals were stealing the global economy. Individual FIFA officials were carted off in handcuffs while bank executives awarded themselves multimillion-dollar bonuses. Why were individual bank officers, whose admitted crimes affected all of us, not indicted?
The obvious answer is that the bankers are members of the corporatocracy, whereas FIFA officials are not. The story that the Justice Department had uncovered so much wrongdoing among the FIFA people and was aggressively pursuing indictments diverted attention from the bigger story. The banking lobby unduly influences the Justice Department. Banks are so wealthy and powerful that they can buy our elected officials, the regulators who serve us, and the media that is supposed to keep us informed.
I found myself once again thinking a lot about Howard Zinn. He and I had discussed the growing power of lobbyists. “We vote,” he said. “But those we elect don’t seem to listen to us anymore. They obey the commands of the people who finance their campaigns, corporate lobbyists.” He pointed out that I’d done something similar. “You obeyed the World Bank.” He paused. “Did you really think the World Bank wanted to end world poverty?”
I saw an image of myself in 1967, while I was still in business school, standing at the entrance to the World Bank and reading the motto “Working for a World Free of Poverty.” I believed those seven words. But not for long. Within a few years, I discovered that the motto was symbolic of the deceptions that characterize the bank’s work.
Since the publication of the original version of this book, I’ve participated on panels and in debates where development professionals try to defend the World Bank. They argue that the work I did, and that the bank has done since, has gone a long way toward ending poverty. The facts, however, tell a different story.5
A recent Oxfam report revealed that almost half of the world’s wealth is now owned by just 1 percent of the population and that seven out of ten people live in countries where economic inequality has increased in the past thirty years.6 Slum dwellers in countries where I promoted World Bank projects, such as Argentina, Colombia, Egypt, and Indonesia, might now have mobile phones, but they are by no means free of poverty. In fact, from a comparative standpoint, they are worse off than when I was an EHM. According to World Bank statistics, 2.2 billion people still lived at a poverty level of less than two dollars per day in 2011 — a huge number of people, considering the billions of dollars paid to global corporations to “free the world of poverty.”7 Although the percentage of officially “impoverished” has declined, due to population growth and standard of living changes the actual numbers have increased.
Over the past three decades, sixty of the world’s poorest countries have paid $550 billion in principal and interest on loans of $540 billion, yet they still owe a whopping $523 billion on those same loans. The cost of servicing that debt is more than these countries spend on health or education and is twenty times the amount they receive annually in foreign aid.8 In addition, World Bank projects have brought untold suffering to some of the planet’s poorest people. In the past ten years alone, such projects have forced an estimated 3.4 million people out of their homes; the governments in these countries have beaten, tortured, and killed opponents of World Bank projects.9
My colleagues and I did whatever we thought it would take to expand the corporate, capitalist empire. That was the real goal. The World Bank motto was a subterfuge. We convinced government leaders that unless they accepted our loans and paid us to train their militaries and build up their infrastructures, their citizens would be ruled by brutal Stalin-style dictators. Corporate capitalism would boost them out of the dark ages of feudalism and into the modern era of US-driven prosperity.
It is a system that has mushroomed since Confessions of an Economic Hit Man was first published. Today, in addition to the World Bank, it is promoted by the private banks — by the individuals who admit to criminal activities and, instead of prison terms, receive multimillion-dollar bonuses. They and their corporate colleagues convince people around the world that success is defined by personal assets rather than by contributions to the greater community, that privatization and deregulation protect the public, that government assistance for the needy is wasteful and counterproductive, that personal debt is better than government investment in social services, and that men and women who live in mansions and travel in private jets and luxury yachts are icons to be emulated.
Howard Zinn understood why a majority of us accept these platitudes. Those in the middle class, he said, who have the material trappings of prosperity, are complacent because they possess the things they were taught to covet, and they don’t want to lose them. Those who live in poverty are complacent because they have to devote their energies toward simply surviving.
All of this is expertly managed by a whole new breed of EHMs.