Saturday, October 11, 2008

The Destructive Rise of Big Finance

WHAT WE FILIPINOS SHOULD KNOW: Note: Bold and/or underlined words are HTML links. Click on them to see the linked postings/articles. Forwarding the postings to relatives and friends, especially in the homeland, is greatly appreciated.

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"What else do bankers do -- walk-in and turn-off the lights in the country." - William Slee, 1978

"I sincerely believe that banking establishments are more dangerous than standing armies." - Thomas Jefferson, 1816

"Historically, the financialization of society has always been a symbol that a nation's economic position has entered a phase of deterioration." - William Wolman & Anne Colamosca, The Judas Economy, 1997

In their 1968 book Lessons of History, Will and Ariel Durant wrote (Chapter 7 :Growth and Decay): "History repeats itself, but only in outline and in the large. We may reasonably expect that in the future, as in the past, some new states will rise, some old states will subside, that new civilizations will begin with pasture and agriculture, expand into commerce and industry, and luxuriate in finance." As they saw it in the histories of Spain, Netherlands, England to name a few; we seem to witness it in the history of the United States.

From Plymouth Rock, .the early Pilgrims and subsequent generations of immigrants came and began to pasture, establish agriculture and accelerate to the manufacturing industries; all these development under the so-called
modernity and progress and all in, historically speaking, relatively short period.

The logic of capitalism drives a business enterprise to grow and pursue growth. the bottom line being maximized profits. It drives the company/corporation to expand, to buy/merge, i.e. kill, competition, under supposedly a synergy or just simply, "bigger is better." Slowly, since the early 1970s the corporation grew by eating like a PacMan, horizontally and vertically into a conglomerate -a humongous transnational/mulitnational company; to gobble up more, to include native businesses of other countries and easily those of poor countries (as happened in our homeland).

The supreme profit motive drove and still drive US manufacturing corporations, including those of other advanced nations, to move from one cheap country to another without a blink; most by now settling in China making the latter the "world's manufacturer." With a quickly vanished industrial manufacturing, the sine qua non for attaining and maintaining a majority middle class, America has become dominated by its financial service sector, boosted by the astronomical foreign debt that puts the country literally in deep shit, amounting to what may be the Third Worldization of America.

The only effective but very difficult solution, if not unrealizable, seems to be for the American citizenry to withdraw from its highly individualistic orientation, merry consumerist ways, etc. and to spend more of its leisure time to learn and know, to understand the whys, whats and hows of the present predicament and decide therefrom to act.

[NOTE: Nationalist Filipinos know and understand what a humongous foreign debt did and still does to the homeland, but unfortunately their analysis and suggested actions were/are not heeded; therefore the ever-worsening predicament to our native majority
and national sovereignty. All these impoverishment and misery thanks to the IMF and WB programs and transnationals via the World Trade Organization (WTO) rules agreed into by the mendicant, traitorous governments of Marcos and successors Aquino, Ramos,Estrada and now Arroyo and their Americanized  technocrats .]

Kevin Phillips (a true conservative -the Barry Goldwater-type, not the now too powerful neoconservatives variety) wrote early this year about the dominant moneymaking enterprises , i.e. financial service sector comprised by FIRE (Finance, Insurance, Real Estate). His article follows.

"The recent quantum leap in the ability of transnational corporations to relocate their facilities around the world in effect makes all workers, communities and countries competitors for these corporations' favor. The consequence is a "race to the bottom" in which wages and social conditions tend to fall to the level of the most desperate." - Jeremy Brecher, historian and author

" What we have is not a market economy. It is a corporately planned and controlled economy. We have a world in which a handful of corporations, detached from any link to any place or community, have extended their power beyond the reach of most governments... The political system ... [is] enormously expensive. The only way you can raise the money to win an election is by appealing to corporate interests, which then means you're in their debt and have to focus on their agendas." - David Korten, economist and internationalist

The Destructive Rise of Big Finance

Posted March 31, 2008 07:48 PM (EST)

Economic, financial and regulatory issues should dominate politics and government in the United States for the next two or three years, which is important enough. National discourse may also have a new and deserving bogeyman. Franklin D. Roosevelt had Big Business, Ronald Reagan had Big Labor, and my guess is that the new president inaugurated next January will have Big Finance.

True, finance has been whupped by presidents before. Thomas Jefferson and Andrew Jackson, for example. But that was in the quill-pen era when the financial sector was a pup. Today's financial services sector, by contrast, is a grasping, gargantuan combination of banks, stockbrokers, insurancemen, loan sharks, credit-card issuers, hedge fund speculators, securitization mavens and mortgage operators. Over the last five years, financial services has reached a swollen 20-21% of U.S. GDP -- the largest sector of the private economy.
Manufacturing led financial services by 2:1 back in the 1970s, but by 2006 beaten goods production had shrunk to just 12% of GDP.

Do most Americans understand this? Of course not. Newspaper front pages have shunned any discussion; 60 Minutes has not even spared the transformation sixty seconds, despite its vast implications. This upheaval is probably "the greatest story never told" about the two decades between, say, 1986 and 2006.

Nor was it an economic accident. Computerization was a prequisite, as was the rise of financial mathematics. However, I would say that the two most important underpinnings of financialization lay in the rise of public and private debt as a mainstay of American culture and economics and the perpetual liquidity and bail-out support of the Federal Reserve Board under Alan Greenspan. During Greenspan's 1987-2005 tenure, the sum of public and private debt in the United States quadrupled from just over $10 trillion to $43 trillion. Finance became the industry that was NOT allowed to fail but was permitted to enlarge and metastasize its behavior almost at will. Regulation was minimal. Favoritism was omnipresent.

The result, alas, has been all over recent headlines. America's biggest ever housing bubble, with 57 varieties of exotic mortgages and home prices now plummeting at rates unseen since the 1930s. The United States turned Credit Card Nation, with a citzenry in thrall to plastic, 20% interest rates and late fees for just about everything. Huge banks like Citigroup feel no shame in paying billion-dollar fines for colluding with Enron's tax and accounting deceits. And since mid-2007, national and world credit markets have been panicked and paralyzed by hitherto obscure instruments -- the stand-outs are collateralized debt obligations (CDOs) -- that not even their designers and packagers can explain.

Adolescent versions of Frankenstein finance became a crash and a disaster for Americans in 1929 when the industry was new and represented only 10-15% of the economic weight of American manufacturing. Now, by contrast, the unraveling of a second financial sector-turned casino involves literally the biggest force in the American economy. Who knows how much of this hubris and malfeasance is going to unwind unpleasantly or how long that will take?

In fact, phony Washington statistics and warped market measurements make it doubly hard to tell. The federal Consumer Price Index is already regarded by many Americans as a con job, and the press periodically quotes investors who state their belief that current U.S. inflation is really 6 to 9 percent a year, not the 2-4 percent the government alleges. I agree. On top of which, because the value of the dollar has dropped so far, the Dow Jones Industrial Average at the end of March was not really 12,200, a number barely up from its 11,700 peak in 2000. If you measure the Dow in Swiss francs or euros, two strong currencies, it has already lost some forty percent of its 2000 value. Too many Americans live in a dream-world of economic misinformation.

I began writing about these matters with a 1990 book entitled The Politics of Rich and Poor, and in several other volumes since then. Today, the economic negligence of Washington and Wall Street, more than two decades in the making, has led to a multi-dimensional crisis in which this country faces an unprecedented convergence of problems: unprecedented debt, tumbling home prices, reckless money supply expansion, growing inflation, insufficient and expensive oil, and an eroding dollar. Sadly, there may no longer be a plausible way out.

Kevin Phillips' new book, Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, is being published in April by Viking.



Anonymous said...

No matter how good the intention of free market and big finance however the corruption by the executives ruins the benefitial goals of an economic system. Most Ivy league top young lawyers and accountants are competiting to get a hands of wall street experience.

This same bright lawyers are the ones who later found loopholes in the system, circumventing regulations, introduce new investment products out trash commercial papers, sweet talks foreign investors, etc. Selfish interest will destroy anything on its way even world economy.

Nonoy Ramos

Bert M. Drona said...

I agree with you Nonoy.

Capitalism per se is based on the human tendency to selfishness/greed. Maybe it's easier for us to be one than to be altruistic. But if we look at a rare exception, i.e. Andrew Carnegie, he made tons of money and then later became a philanthropist by giving all of it back to society.

Adam Smith's belief on absolute free market, taken as biblical truth wherein competing individual self-interests cancel each other and thus cause benefits to society as a whole happen only to a point, the point where big businesses/corporations become dominant, i.e. monopolistic and/or oligopolistic. That point has been reached in the USA a few times during the 20th century, and a few times broken up by federal regulations.

However, the Reagan government in 8 years demolished several of these regulations which was continued by his successors - Democral and Republican alike.

Thus, we saw in the past 2-3 decades the federal/taxpayers' bailouts of Continental Illinois Bank, of bank discount windows, of S&L Banks, of CITIBANK and Bank of New England; not even counting other federal bailouts of foreign countries to stabilize currencies. etc.

Thus the creeping destruction of the American way of life and the mortgaging of the future Americans continue.

More Americans may come to question these assumptions as economic hardships get worse and broader as it surely will.


Anonymous said...


This an excellent posting !

That Kevin Philipps' is writing in the Huffington Post makes the
article less believable but he is so right. On the other hand he is
not on the right. The H Post is one of the most liberal among the

Someday, I want you to do a piece on how the liberal press actually is
aiding in America's decline. Remember how Alan Greenspan was the
darling of the liberal press ?

E Espiritu

Anonymous said...

This generation has been lectured to look up at the greatness of the American legacy, but really, what have they contributed?

Freedom? Government? Education? Technology?

We've seen better days. This era can be called the epoch of American dependency.