Tax cuts as a route to cutting Social Security

Conservatives are fond of saying that if you give a man a fish you can feed him for a day, but if you teach him how to fish you can feed him for a lifetime. This is supposed to tell us that social benefits, such as government programs, are bad for people. A much better example of conservative thought would be to say if I put a fence at the entrance to the pier and don’t let anyone else have access to the water, I can have all the fish for myself.

Let those peasants starve! Such a privatization of fish isn’t distant from the actual mechanics of class warfare as it is practiced, unfortunately.

Take the latest salvo in ongoing class warfare, United States edition: The coming assault on Social Security. Curious as to why the Republican Party’s mania for balanced budgets suddenly vanished? I mean, besides the mind-boggling hypocrisy we can expect from the Right. The immediate cause was to placate their billionaire donors who issued marching orders last June. A “donor retreat” at a Koch brothers’ compound in Colorado was attended by 400 people, and, as The Guardian reported, the “price for admission for most was a pledge to give at least $100,000 this year to the Kochs’ broad policy and political network. Donors decreed that Republicans must pass “tax reform” and reverse the Affordable Care Act (because health care is a socialist plot?) or their checkbooks would be shut.

That the Trump/Republican tax plan will be a bonanza for the wealthiest is well documented by this point, with the “Corker kickback” not only giving “dissident” Republican Senator Bob Corker a multimillion-dollar payday to ensure his vote but giving Donald Trump himself tens of millions of dollars thanks to the special rule benefiting real estate speculators. But lurking behind this devastating corporate offensive is the little matter of the extra $1.5 trillion to be added to the deficit. When Republicans (probably assisted by the more spineless among the Democrats) decide in the near future that deficits matter after all, social benefits will be in the cross hairs, with Social Security and Medicare likely to be the prime targets.

In advance of this, we will be treated to a rerun of horror stories designed to convince United Statesians that Social Security is unsustainable. The claim will once again be that either we’ll have to accept steep cuts to Social Security payments or privatize it, putting our retirements in the hands of Wall Street. This has been the wet dream of financiers for decades, and as an added bonus, Wall Street is another major beneficiary of the Trump tax cuts. “Heads I win, tails you lose” is always the way of Wall Street and here we have it again, pocketing untold millions from tax cuts and then taking away your Social Security when the ensuing deficit mounts.

One way of promoting privatization is to allege that there isn’t enough being paid into the system to cover future claims. It is true that in recent years Social Security has been paying out more than it is taking in, although it is far from broke. Concomitant with that argument is the claim that everybody takes out much more than they pay into it over their working lives. But that isn’t necessarily true — a Congressional Budget Office (CBO) report, issued in 2006, found that people earning near the median income get back about the same as they pay into the fund. Low-income earners do receive more than they pay, but conversely high earns get back less. But Social Security is supposed to be progressive. Indeed, the CBO’s report says, “The Social Security benefit formula is designed to provide beneficiaries who had lower life-time earnings with monthly benefits that are higher, as a percentage of their lifetime average earnings, than those received by higher-earning beneficiaries.”

The corporate interest in gutting Social Security

Those saddled with a lifetime of low or median earnings have spent a lifetime being exploited on the job, so whatever extras are received are pennies on the stacks of dollars extracted from them. Remember that profits come from the usually wide gap between what you are paid and the value of your work, and what financiers haul in is skimming off that pot collected by employers dealing in tangible services and products. There is a symbiotic relationship between financiers and industrialists and although there is much wrangling between them (which is why corporate press releases so often proclaim “enhancing shareholder value” as an important part of their mission), they have a mutual interest in exploiting employees.

That mutual interest extends to gutting Social Security, even if financiers have the more immediate interest. The challenge of funding Social Security isn’t a difficult one. An important reason why that is so is because Social Security taxes are only imposed on income up to $127,200. Anything above that is untouched. So why not raise the bar? Senator Bernie Sanders has introduced a bill that would apply this tax to all income above $250,000. This plan would eliminate 80 percent of the projected shortfall, according to an analysis from the Social Security office of the Chief Actuary. For whatever reason, Senator Sanders’ plan wouldn’t touch income in between. Taxing all income would raise still more money.

New York Stock Exchange (photo by Elisa Rolle)

Another method is suggested by Dean Baker of the Center for Economic and Policy Research. He argues that a payroll tax increase of four percent would be sufficient to fully fund Social Security and Medicare for another 75 years. He acknowledges that such an increase would be difficult for many workers, but he estimates that the loss of income from decades of upward distribution of income to be 40 percent — a loss ten times greater. That figures comes from the gap between the rate of earnings increases for working people and the rate of increases in productivity. He explains:

“[U]pward redistribution over this period has reduced wage growth by more than 40 percentage points. In short, our children are 40 percent poorer than they would otherwise be because of the money going to people like Bill Gates and Steve Zuckerberg rather than ordinary workers.

So by very conservative estimates, a typical person in their twenties or thirties has seen their income reduced by more than 40 percent because of all the money redistributed to those at the top. However, the generational warriors want young people to be upset about the possibility that a bit more than one-tenth of this amount could be used to pay for their parents’ and their own Social Security and Medicare. (This upward redistribution is also responsible for about half of the projected shortfall in Social Security, as more income going to profits and high-income workers escapes the Social Security tax.)

It is also important to understand that government action was at the center of this upward redistribution. Without government-granted patent monopolies for Windows and other Microsoft software, Bill Gates would probably still be working for a living.”

A trillion dollars for Wall Street

Privatizing Social Security would additionally cut benefits because financiers would take hefty cuts. The administrative costs of the retirement portion of Social Security (the bulk of the program) is 0.4 percent. In contrast, Dr. Baker reports, “even relatively well-run privatized systems, like those in Chile or the United Kingdom, are 10–15 percent of benefits.”

Such ratios were Social Security privatized would cost nearly $1 trillion in a decade, he calculates — $1 trillion taken from Social Security benefits and diverted into Wall Street’s bottomless pockets. Consider that the standard payment for hedge-fund managers is to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money. In 2014, the top 25 hedge-fund managers hauled in $11.6 billion despite collectively underperforming the stock market.

Fees for ordinary money managers are not this high, and a privatized Social Security wouldn’t pay fees as exorbitant as those charged by hedge funds. But it would still be huge sums of money. That is why Wall Street has long lusted to get its hands on it.

U.S. Treasury Department under new management (photo by takomabibelot)

Then there is the matter of returns. Would gambling Social Security funds on the stock market really result in better results? Not necessarily. In studying the stock market’s long-term returns for an article I wrote a decade ago, not long after the 1990s bubble had burst, I found that you would have to time your retirement to the peaks of bubbles. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

  • The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
  • The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
  • The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.

The stock market is edging into bubble territory as we begin 2018, and stocks are priced high by historical standards. The basic measure of stock-price sustainability is the price/earnings ratio of the S&P 500, representing the largest companies on U.S. stock markets. The ratio’s average, calculated back to 1872, is 14. Prior to the 1990s bubble, the S&P 500 P/E ratio rose above 20 four times; each time it subsequently fell below 10. A standard measurement of the P/E ratio today is 26. One way to understand that number is that an investor is essentially paying $26 for each dollar of corporate profit, which is considered too high. It is true that the P/E ratio has been almost continually above the historic average since the 1990s bubble, but nonetheless this more recent rise indicates that a stock collapse is looming.

Goodbye retirement, goodbye disability payments

There aren’t any free lunches. A Center on Budget and Policy Priorities study notes that Social Security is not only a retirement program, but also an insurance program that could not be duplicated if privatized:

“Social Security is not only a retirement program but also an insurance program. About one-third of payroll taxes go to fund Social Security disability insurance and survivors insurance. Comparable insurance products would be extremely expensive to buy in the private insurance market, if one could even find such products. Social Security also provides an inflation-indexed annuity: Social Security benefits are adjusted each year for inflation and are paid until death, regardless of how long a beneficiary lives. These features of Social Security provide a valuable form of insurance against the risks of inflation and of outliving one’s savings.”

Nor would sinking funds into stock markets necessarily be a wise gamble, the Congressional Budget Office has said:

“Government investment in private securities does not offer a free lunch: although it would increase the expected value of budgetary resources, it would do so at the cost of exposing the government, future taxpayers, and beneficiaries of federal programs to greater risk. If that risk was taken into account, the returns on private securities would be no greater than the returns on government securities. … Using risky investment portfolios to finance spending by government agencies could weaken budgetary control of federal financial resources.”

That last item, however, is a lure of Republicans and their corporate masters. Create a larger deficit, cut social spending, repeat. This reduces lifespans, reducing payouts through Social Security and corporate retirement plans, for those lucky enough to still have one. Earlier deaths has already been declared a “silver lining” by U.S. corporations.

And let us not forget the sometimes bipartisan nature of Social Security cuts — Barack Obama had proposed a change to the way inflation is calculated for the determination of cost-of-living increases that would have resulted in lower adjustments for inflation, effectively a small yearly reduction. He did so as a bargaining chip in an effort to force Republicans in Congress to agree to modest tax increases. Ultimately, a Democratic Party revolt, spurred by grassroots opposition, forced an end to this plan, but this episode does serve as a reminder that social movements, not hoping for political office holders to do good, is the key to being able to retire some day.

In Chile, in 1998, the government actually asked workers not to retire because of a sustained economic downturn. (The Chilean retirement system was forcibly privatized under Pinochet). Think it can’t happen elsewhere? Keep in mind these words by Stephen Moore of the far right groups Club for Growth and Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

You’ll work until you drop, but Wall Street will profit.

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TPP is not dead: It’s now called the Trade In Services Agreement

One can hear the cry ringing through the boardrooms of capital: “Free trade is dead! Long live free trade!”

Think the ideas behind the Trans-Pacific Partnership or the so-called “free trade” regime are buried? Sadly, no. Definitely, no. Some of the countries involved in negotiating the TPP seeking to find ways to resurrect it in some new form — but that isn’t the most distressing news. What’s worse is the TPP remains alive in a new form with even worse rules. Meet the Trade In Services Agreement, even more secret than the Trans-Pacific Partnership. And more dangerous.

The Trade In Services Agreement (TISA), currently being negotiated among 50 countries, if passed would prohibit regulations on the financial industry, eliminate laws to safeguard online or digital privacy, render illegal any “buy local” rules at any level of government, effectively dismantle any public advantages to be derived from state-owned enterprises and eliminate net neutrality.

TISA negotiations began in April 2013 and have gone through 21 rounds. Silence has been the rule for these talks, and we only know what’s in it because of leaks, earlier ones published by WikiLeaks and now a new cache published January 29 by Bilaterals.org.

Earlier draft versions of TISA’s language would prohibit any restrictions on the size, expansion or entry of financial companies and a ban on new regulations, including a specific ban on any law that separates commercial and investment banking, such as the equivalent of the U.S. Glass-Steagall Act. It would also ban any restrictions on the transfer of any data collected, including across borders; place social security systems at risk of privatization or elimination; and put an end to Internet privacy and net neutrality. It hasn’t gotten any more acceptable.

Photo by Annette Dubois

Photo by Annette Dubois

TISA is the backup plan in case the TPP and the Transatlantic Trade and Investment Partnership don’t come to fruition. Perhaps fearful that the recent spotlight put on “free trade” deals might derail TISA as it derailed TPP, the governmental trade offices negotiating it have not announced the next negotiating date. The closest toward any meaningful information found was the Australian government’s bland statement that the “Parties agreed to reconvene in 2017.”

The cover story for why TISA is being negotiated is that it would uphold the right to hire the accountant or engineer of your choice, but in reality is intended to enable the financial industry and Internet companies to run roughshod over countries around the world. And while “liberalization” of professional services is being promoted, the definition of “services” is being expanded in order to stretch the category to encompass manufacturing. Deborah James of the Center for Economy and Policy Research laid out the breathtaking scope of this proposal:

“Corporations no longer consider setting up a plant and producing goods to be simply ‘manufacturing goods.’ This activity is now is broken down into research and development services, design services, legal services, real estate services, architecture services, engineering services, construction services, energy services, employment contracting services, consulting services, manufacturing services, adult education services, payroll services, maintenance services, refuse disposal services, warehousing services, data management services, telecommunications services, audiovisual services, banking services, accounting services, insurance services, transportation services, distribution services, marketing services, retail services, postal and expedited delivery services, and after-sales servicing, to name a few. Going further, a shoe or watch that measures steps or sleep could be a fitness monitoring service, not a good. A driverless car could be a transport service, not an automobile. Google and Facebook could be information services and communication services, respectively.”

Why is it you are kept in the dark?

Before we get to the details of the text itself, let’s take a quick look at how the world’s governments, on behalf of multi-national capital, are letting their citizens know what they are up to. Or, to be more accurate, what they are not telling you. Many governments have not bothered to update their official pages extolling TISA in months.

The European Union is negotiating TISA on behalf of its 28 member countries, along with, among others, the United States, Canada, Mexico, Australia, New Zealand, Japan, South Korea, Taiwan, Chile, Colombia, Peru, Norway, Switzerland, Pakistan and Turkey.

In the United States, the new Trump administration has yet to say a word about it. The Office of the U.S. Trade Representative web site’s page on TISA still says “TiSA is part of the Obama Administration’s ongoing effort to create economic opportunity for U.S. workers and businesses by expanding trade opportunities.” Uh-huh. President Donald Trump is not against “free trade” deals; he simply claims he can do it better. The Trump administration has issued blustery calls for “fair deals” and braggadocio puffing up Donald Trump’s supposed negotiating prowess. A typical White House passage reads, “To carry out his strategy, the President is appointing the toughest and smartest to his trade team, ensuring that Americans have the best negotiators possible. For too long, trade deals have been negotiated by, and for, members of the Washington establishment.”

overlap-of-trade-dealsMore typical of the TISA negotiators is the latest report from the European Commission, which summarized the latest round, held last November, this way: “Parties made good progress in working towards an agreed text and finding pathways towards solving the most controversial outstanding issues at both Chief Negotiators and Heads of Delegation levels.” The Canadian government’s last update is from last June and declares “Parties conducted a stocktaking session to assess the level of progress on all issues.”

Traveling across the Pacific brings no more useful information. Australia’s government offers this information-free update: “Parties agreed to a comprehensive stocktake of the negotiations, identifying progress made and areas which require ongoing technical work.” New Zealand’s government can’t even be bothered to provide updates, instead offering only discredited, boilerplate public-relations puffery similar to other trade offices.

The one hint that TISA negotiations are experiencing difficulty that could be found through an extensive online search is this passage in a U.S. Congressional Research Service report dated January 3, 2017: “Recognizing that outstanding issues remain and the U.S. position under a new administration is unclear, the parties canceled the planned December 2016 meeting but are meeting to determine how best to move forward in 2017.” Given that the new administration is moving as fast as possible to eliminate the tepid Dodd-Frank Act financial-industry reforms, it would seem TISA’s provisions to dismantle financial regulation globally would not be a problem at all.

But that these talks are not progressing at the present time does not mean the world can relax. It took years of cross-border organizing and popular education to stop the TPP, and this effort will have to replicated if TISA is to be halted.

The details are the devils already known

Commentary accompanying Bilaterals.org’s publication of several TISA chapters stresses that the Trans-Pacific Partnership, despite its apparent defeat, is nonetheless being used as the model for the Trade In Services Agreement. Thus we are at risk of the TPP becoming the “new norm”:

“Several proposed texts from the failed Trans-Pacific Partnership (TPP) agreement have been transferred to TiSA — including state-owned enterprises; rights to hold data offshore (including financial data); e-commerce; and prohibitions on performance requirements for foreign investors. While these texts originated with the United States, they appear to be supported by other parties to the TPP, even though those governments were reluctant to agree to them in the TPP and will no longer be bound by that agreement. That suggests the TPP may become the new norm even though it has only been ratified in two of the 12 countries, and that was done on the basis of U.S. participation that no longer applies. TPP cannot be allowed to become the new ‘default’ position for these flawed agreements.”

Some of the most extreme measures have been dropped (at least for now) and much of the text is not agreed. Nonetheless, there is nothing to cheer about, Bilaterals.org reports.

“The effectiveness of opposition to TiSA has led governments to conclude that they cannot sell some of the more extreme proposals, which have thus been dropped from previous leaked texts. But the fetters on the rights and responsibilities of governments to regulate in the interests of their citizens from what remains would still go further than any single other agreement. There are no improvements on the inadequate protections for health, environment, privacy, workers, human rights, or economic development. And there is nothing to prevent developing countries becoming even more vulnerable and dependent in an already unequal and unfair global economy.”

Hypocritically, TISA would prohibit developing countries from adopting measures that countries like the United States used to facilitate its industrial development when it was an emerging country in the 19th century. In an analysis for WikiLeaks, Sanya Reid Smith of the Third World Network, an international coalition specializing in development issues, wrote:

“[T]he proposals in this text restrict the ability of developing countries to use the development paths taken by many of the developed TISA countries. Some experts call this developed countries ‘kicking away the ladder’ after they have climbed up, to prevent developing countries from developing the same way. … In TISA, the USA is proposing restrictions on host countries being able to require senior managers be citizens of the host country. Yet when it was a capital importer, the USA had the opposite law: its 1885 contract labour law prohibited the import of foreign workers, i.e. the USA required senior managers (and all other staff) be Americans, which increased the chances of skills being passed to locals.”

Letting banks decide what’s good for you

These proposals are more extreme than language in existing bilateral trade agreements. Many of TISA’s provisions are lifted from TPP, but some go beyond the latter’s already extreme proposals For example, not even the TPP contemplated the entire elimination of regulations of any kind against the financial industry. Article 14 of TISA’s annex on financial services, which had contained the most explicit language prohibiting regulation, has been removed, but Article 9 still contains language requiring no limitations beyond those applying to domestic financial firms. In other words, a smaller country would be required to allow a giant bank from a bigger country to take over its entire banking system.

Incredibly, regulations against financial derivatives yet to be invented would be illegal. A Public Citizen analysis states:

“TISA would require governments to allow any new financial products and services — including ones not yet invented — to be sold within their territories. The TISA Annex on Financial Services clearly states that TISA governments ‘shall permit’ foreign-owned firms to introduce any new financial product or service, so long as it does not require a new law or a change to an existing law.”

As another example, the financial-services annex (in article 21) would require that any government that offers financial products through its postal service lessen the quality of its products so that those are no better than what private corporations offer. Article 1 of the financial-services annex states that “activities forming part of a statutory system of social security or public retirement plans” are specifically covered by TISA, as are “activities conducted by a central bank or monetary authority or by any other public entity in pursuit of monetary or exchange-rate policies.”

That social security or other public retirement systems are covered is cause for much alarm because they could be judged to be “illegally competing” with private financial enterprises. It is conceivable that central banks could be constrained from actions intended to shore up economies during a future financial crisis if banks decide such measures “constrain” their massive profiteering off the crisis.

The countries negotiating TISA.

The countries negotiating TISA.

Article 10 of the annex continues to explicitly ban restrictions on the transfer of information in “electronic or other form” of any “financial service supplier.” In other words, EU laws guarding privacy that stop U.S.-based Internet companies from taking data outside the EU to circumvent those privacy laws would be null and void. Laws instituting privacy protections would be verboten before they could be enacted. These rules, if enacted, could also provide a boon to companies like Uber whose modus operandi is to circumvent local laws. The Bilaterals.org analysis accompanying the leaks notes:

“The main thrust of TiSA comes through the e-commerce, telecommunications, financial services and localisation rules and countries’ commitments to allow unfettered cross-border supply of services. Together they would empower the global platforms who hold big data, like Google, without effective privacy protections, and tech companies like Uber, who have become notorious for evading national regulation, paying minimal tax and exploiting so-called self-employed workers. Given the backlash against global deals for global corporations TiSA will simply add fuel to the bonfire.”

Who interprets the rule is crucial

The language of TISA, like all “free trade” agreements, is dry and legalistic. How these rules are interpreted is what ultimately matters. TISA contains standard language requiring arbitration by judges possessing “requisite knowledge”; that language means that the usual lineup of corporate lawyers who represent corporations in these tribunals will switch hats to sit in judgment. The tribunals used to settle these “investor-state disputes” are held in secret with no accountability and no appeal.

The intention of “free trade” agreements is to elevate corporations to the level of governments. In reality, they raise corporations above the level of governments because only “investors” can sue; governments and people can’t. “Investors” can sue governments to overturn any law or regulation that they claim will hurt profits or even potential future profits. On top of this, a government ordinarily has to pay millions of dollars in costs even in the rare instances when they win one of these cases.

Each “free trade” agreement has a key provision elevating corporations above governments that codifies the “equal treatment” of business interests in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or law that might prevent the corporation from extracting the maximum possible profit. Under these provisions, taxation and regulation constitute “indirect expropriation” mandating compensation — a reduction in the value of an asset is sufficient to establish expropriation rather than a physical taking of property as required under customary law. Tribunal decisions become precedents for further expansions of investor “rights” and thus constitute the “evolving standard of investor rights” required under “free trade” agreements. TISA contains the usual passages requiring “equal treatment.”

At bottom, “free trade” deals have little to do with trade and much to do with imposing corporate wish lists through undemocratic means, including the elimination of any meaningful regulations for labor, safety, health or the environment. TISA is another route to imposing more of this agenda. And the TPP itself isn’t necessarily dead — both Chile and New Zealand are holding discussions with other TPP countries to salvage some of the deal. Chile has invited TPP countries, plus China, to a March summit and the New Zealand trade minister is visiting Australia, Japan, Mexico and Singapore.

Working people around the world scored a major victory in stopping the TPP, at least in its current form. The activists who achieved this deserve much credit. But there is far more to do. Capital never rests; nor can we. Here we have class warfare in naked fashion, and there is no doubt on which side the capitalist world’s governments lie.

Wall Street bigger and badder than ever

Being a banker means never having to say sorry. Or worry where that next million is going to come from.

Financial results are in for 2016 for the biggest U.S. banks and — surprise! — profits continue to reach the stratosphere. And with Goldman Sachs in firmer control of the U.S. Treasury Department than ever before, the good times will continue to roll for Wall Street. For the rest of us, that’s another story.

No less than six “Government Sachs” executives have been nominated to high-level posts in the new Trump administration. As a candidate, Donald Trump attacked opponents for their ties to Goldman Sachs during the campaign, but the joke is on those who naïvely believed the real estate mogul was going to “drain the swamp.” Heading the list is the treasury secretary nominee, Steve Mnuchin, who spent years at Goldman Sachs before earning the title “foreclosure king” as chairman and chief executive officer of OneWest Bank.

Occupy Wall Street (photo by David Shankbone)

Occupy Wall Street (photo by David Shankbone)

Mr. Mnuchin, who bought distressed mortgages and evicted thousands of homeowners during the financial crisis, further demonstrated his humanitarian streak when he announced that, as treasury secretary, he would oversee “the largest tax change since Reagan” and said his “No 1 priority is tax reform.” More tax cuts for the wealthy and corporations. Hurray! How many more people would pay for this by losing their ability to keep their homes was not indicated.

The Guardian, however, did report that “Mnuchin went on to sell OneWest last year for more than double what he paid the Federal Deposit Insurance Corporation for the assets in the teeth of the financial crisis.” The California Reinvestment Coalition has calculated that Mr. Mnuchin’s bank was responsible for more than 36,000 foreclosures in in that state alone, and reported he disproportionally foreclosed on seniors. It did so frequently using harassment and other aggressive tactics, even to the point of changing the locks on a senior’s home in a blizzard.

Vampire squid” indeed. Those are the sort of tactics that surely endeared Mr. Mnuchin to President Trump.

Citigroup hopes to replicate destruction of Detroit

No roundup of the year in banking, however, would be complete without the wit and wisdom of JPMorgan Chief Executive Officer Jamie Dimon. When we last checked in a year ago, Mr. Dimon insisted that declining incomes for working people was no big deal, because they are better off by virtue of possessing iPhones, while in 2014 he complained that — oh the humanity! — “banks are under assault.” As we look back at 2016, he has again provided us with comic relief.

Somehow keeping himself composed as he told Bloomberg News that “business [has] been beaten down as if we’re terrible people,” he upheld the work of banks in saving Detroit. You can’t make this up: He said, “Detroit is a perfect example where civil society, not-for-profits, government, business all work together to improve the lives of American citizens. If you can duplicate what they’ve done in Detroit around the country, you’re going to have a huge renaissance.” He finished by declaring “JPMorgan didn’t jeopardize the system. We did not cause the crisis. We have three times more capital than we had back then. We saved 30,000 jobs.”

Goldman Sachs headquarters (photo by Quantumquark)

Goldman Sachs headquarters (photo by Quantumquark)

We’ll pause here so you can enjoy a hearty laugh. There is no need to point out the tremendous damage major banks did to economies around the world, and the trillions of dollars of handouts given to them as a reward for their destructive behavior. There is little need to point out the damage done to Detroit, but as a reminder, complex and poorly understood derivatives were decisive in Detroit’s fiscal downfall.

These derivatives were sold to the city as a form of “insurance” against possible increases in interest rates, but when interest rates fell and Detroit’s credit rating was cut, hundreds of millions were siphoned from city coffers into Wall Street pockets, and the banks that sold the derivatives jumped to the head of the line of creditors. No money for pensions or government services, but plenty for financiers.

Mr. Dimon does seem to be rather well compensated for his difficulties, “earning” $27.6 million for 2015, tops among banking chief executive officers. Goldman Sachs’ Lloyd Blankfein didn’t do too badly himself, hauling in $23.4 million in compensation. Another nine topped $10 million.

Bigger and badder than ever

These bloated salaries did not, so to speak, break the banks. Once again, profits for the six biggest U.S. banks were massive — nearly $93 billion for 2016.

Here’s a breakdown of the six banks for 2016, three of which reported record profits.

  • JPMorgan Chase & Company reported net income of $24.7 billion on revenue of $99.1 billion, the bank’s highest-ever profit, beating out the record set just the year before. These massive profits led to a massive bonanza for speculators — JPMorgan handed out $15 billion in dividends and stock buybacks.
  • Bank of America Corporation racked up $17.9 billion in net income on revenue of $83.7 billion, both increases from a year ago, which, in turn had tripled 2014 earnings. Speculators did well here, too, as Bank of America ladled out $7.7 billion in dividends and stock buybacks, and plans on buying back another $4.3 billion of its stock in the first six months of 2017.
  • Citigroup Incorporated reported net income of $14.9 billion on revenues of $69.9 billion, both a little bit lower than a year earlier. But shed no tear for downtrodden speculators as Citigroup handed out $10.7 billion in dividends and stock buybacks. Five separate violations cost a total of $485 million in government penalties, but that seems to be no more than a minor speed bump.
  • Wells Fargo & Company had net income of $21.8 billion on revenue of $88.3 billion, a dip in profits from 2015 due to having to pay a penalty of $1.2 billion for shady mortgage lending practices and another $185 million in fines because of its illegal practices of opening fake accounts in the name of its depositors. Who says crime doesn’t pay? Speculators certainly won’t say that: Siphoning money from its account holders helped Wells Fargo be in a position to shovel $12.5 billion into financiers’ pockets through dividends and stock buybacks, almost equal to what it handed out a year earlier.
  • The Goldman Sachs Group Incorporated reported net income of $7.4 billion on revenue of $30.6 billion, a bigger profit and profit margin that a year earlier. The company did not break out its expenses for its purchases of the U.S. government in its latest financial report. Goldman Sachs spent $7 billion on buying back its stock and proudly declared itself first in the world in mergers and acquisitions, work that added billions to the investment bank’s bottom line while costing untold numbers of people their jobs. Profits would have been even bigger had it not been for a $5.1 billion fine for selling toxic mortgage securities to unsuspecting investors.
  • Morgan Stanley reported net income of $6.0 billion on revenue of $34.6 billion, a profit about two percent lower than that of 2015. Despite that slight dip in income, the bank somehow found the means to buy back $3.5 billion worth of its stock — a 67 percent increase from what it bought back a year ago. Morgan Stanley would have seen its profits increase for 2016 had it not had to pay $3.2 billion in penalties related to its role in the subprime-mortgage housing debacle.

Beyond the whip of Wall Street

The biggest banks not only extract more money from the rest of the economy than ever, but are bigger than ever — banks with more than $100 billion assets increased their market share from 17 percent in 1995 to 59 percent in 2014. This is the mad logic of capitalism — grow or die. Finance capital, despite being the whip enforcing trends that worsen inequality, is not immune from what it enforces on everyone else. One measure of the cancerous growth of financial products bearing little relationship with actual needs is this: In 11 business days financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year.

Reducing banking and finance to a public utility would be the only way to break the grip of giant banks and financial institutions. One intermediate step that could be taken would be government banks that would fund public infrastructure projects and provide low-cost loans, and which would be the recipient of government revenue rather than commercial banks.

The Bank of North Dakota is an example of such an institution that already exists, with proposals for state banks being floated for Vermont, Washington state, Oregon and California. A New Jersey gubernatorial candidate, Phil Murphy, has made a public state bank the centerpiece of his campaign, arguing that students would benefit from low interest rates for college tuition, more loan capital would be made available and municipal governments would no longer have to pay high interest to Wall Street.

The Left Party of Germany has a detailed plan to bring banks under democratic control. Although the party’s proposal is specific to Germany, its basic ideas are transferable to any country. Any form of democratic control of an economy would be impossible without banking and finance being reduced to a public utility, and thus serving to benefit communities rather than existing as a parasite that exists to profit over every aspect of human activity, no matter the social cost.

Work harder so speculators can get more

Class warfare is poised to reach a new milestone as this year’s combined total of dividends and stock buybacks by 500 of the world’s largest corporations will exceed US$1 trillion.

So large is that figure that, for the second year in a row, the companies comprising the S&P 500 Index (a list of many of the world’s biggest corporations) will pay out more money in dividends and stock buybacks than the total of their profits. Yes, times are indeed good for speculators. Not so good for employees — you know, the people who do the actual work — whose pay is stagnant or declining so that those at the top can scoop up still more.

Although dividends, a quarterly payment to holders of stock, are steadily increasing, the increase in stock buybacks has been steeper. The total of these has tripled since 2009 as financiers and industrialists feverishly extract as much wealth as they can. This is part of why the “recovery” since the 2008 economic collapse has been a recovery only for those at the top.

Times have not changed as much as we think they have ("Baskaks" by Sergei Vasilyevich Ivanov)

Times have not changed as much as we think they have (“Baskaks” by Sergei Vasilyevich Ivanov)

In short, a buyback is when a corporation buys its own stock from its shareholders at a premium to the current price. Speculators love buybacks because it means extra profits for them. Corporate executives love them because, with fewer shares outstanding following a buyback program, their company’s “earnings per share” figure will rise for the same net income, making them look good in the eyes of Wall Street. Remaining shareholders love buybacks because the profits will now be shared among fewer shareholders.

Wall Street and corporate executives both win! Hurrah! Who could by hurt by this? Oh, yes, the employees. They’ll have to suffer through pay freezes, work speedups and layoffs because the money shoveled into executive pay and financial industry profits has to come from somewhere. This sort of activity helps buoy stock prices. So does the trillions of dollars the world’s central banks have printed to sustain their “quantitative easing” programs.

We’re not talking loose change here. The U.S. Federal Reserve pumped $4.1 trillion into its three rounds of quantitative easing; the Bank of England spent £375 billion; the European Central Bank has spent about €1.34 trillion; and the Bank of Japan has spent ¥220 trillion so far. That’s a total of US$8 trillion or €7.4 trillion. And the last two programs are ongoing.

Encouraging investment or inflating bubbles?

The supposed purpose of quantitative-easing programs is to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interest rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

The practical effects of all this is to re-distribute income upward. That is the raison d’être of the financial industry.

What else could be done with the vast sums of money thrown at the financial industry? In the U.S. alone, home to a steadily crumbling infrastructure, the money needed to eliminate all student debt, fix all schools, rebuild aging water and sewer systems, clean up contaminated industrial sites and repair dams is estimated to be $3.4 trillion — in other words, $700 billion less than the Federal Reserve spent on its quantitative-easing program.

The British think tank Policy Exchange estimates Britain’s needs for investment in transportation, communication and water infrastructure to be a minimum of £170 billion, or less than half of what the Bank of England spent on its QE scheme.

Borrowing to give more to speculators

To return to the $1 trillion in dividends and buybacks, a research report by Barclays estimates that those payouts by S&P 500 corporations will total about $115 billion more than their combined net income. As a Zero Hedge analysis puts it:

“[C]ompanies will promptly send every single dollar in cash they create back to their shareholders, and then use up an additional $115 billion from cash on the balance sheet, sell equity or issue new debt, to fund the difference.”

Near-zero interest rates, another central bank policy that favors the financial industry, have enabled this accumulation of debt. Debt not for investment, but simply to shovel more money into the pockets of financiers and executives. But debt can’t increase forever, and someday, perhaps in the not too distant future, central banks will raise interest rates, making debt much less attractive. The Barclays report calculates that 2015 also saw buybacks and dividends total more than net income; the last time there was consecutive years in which this happened were 2007 and 2008.

payouts-of-divdends-and-buybacksIt would of course be too simplistic to interpret this metric as a signal that an economic collapse on the scale of 2008 is imminent, but is perhaps a sign that the latest stock market bubble may be close to bursting.

Another signal that trouble may be looming is that money is now being shoveled into bonds, a sign that confidence in the stock market is waning. A New York Times report suggests that European and Asian investors (the Times of course is much too genteel to use the word “speculator”) are pouring so much capital into U.S. bond markets that a bubble is being inflated there as well. These speculators are seeking higher returns from bonds floated by U.S. corporations than they can get at home. The Times reports:

“The surge in flows echoes a wave of investment in the years right before the financial crisis, when mostly European investors snapped up billions of dollars of mortgage-backed securities before the American housing market imploded.

The current numbers are also arresting. According to [former Treasury Department official Brad W.] Setser’s figures, about $750 billion of private money has poured into the United States in the last two years alone.”

Starved for investment

Setting aside the touch of xenophobia in it, the Times report does at least broach the subject of under-investment. And wealthy investors possessing far more money than can possibly be invested is hardly an unknown phenomenon. As an example, let us examine Wal-Mart, which racked up more than $16 billion in net income for 2015 and seems poised to better that this year.

The Walton family, heirs to founder Sam Walton, owns about half of Wal-Mart’s stock and receive a corresponding share of the billions of dollars in dividends the company pays yearly. It also spends billions more buying back stock annually, an indirect help to the Waltons. This is a company notorious for dodging taxes while paying its employees so little they require government assistance, and is the recipient of vast amounts of government handouts.

The Waltons make tens of thousands times what their ill-paid employees earn. They certainly don’t work tens of thousands harder — or even work at all, as the billions roll in just for being born into the right family. Wal-Mart is far from alone, but does provide an exemplary example of class warfare. An estimated $1 trillion a year goes to corporate profits that once went to wages, according to a PBS Newshour report.

The harder you work, the more the boss, and financiers, make. What sort of system is this?

Regulation of financial industry is history if Trade In Services Agreement passes

The most secret of the international “free trade” agreements being negotiated around the world is the Trade In Services Agreement, which also might be the most draconian yet. If TISA were to go into effect, regulation of the financial industry would be effectively prohibited, privatizations would be accelerated and social security systems would potentially be at risk of privatization or elimination.

The Trade In Services Agreement is multi-national corporations’ backup plan in case the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership are not brought to fruition. It is being promoted as the right to hire the accountant or engineer of your choice, but in reality is intended to enable the financial industry to run roughshod over countries around the world.

Protest against the Trade In Services Agreement

Protest against the Trade In Services Agreement

TISA is being negotiated in secret by 50 countries, with the unaccountable European Commission representing the 28 EU countries. Among the other countries negotiating are Australia, Canada, Japan, Norway, Mexico, New Zealand, Switzerland, Turkey and the United States.

Earlier leaks have revealed that Internet privacy and net neutrality would become things of the past under TISA. European rules on privacy, much stronger than those found in the United States, for example, would be eliminated. Further, any rule that in any way mandates local content or provides any advantage to a local technology would also be illegal, locking in the dominance of a handful of U.S. Internet companies.

The latest snapshot of the ongoing TISA negotiations is provided by WikiLeaks, which released several chapters on May 25.

Say goodbye to your retirement

Among the portions of TISA published by WikiLeaks in its latest publication is the financial services annex. Articles 1 and 2 of the annex are unchanged from an earlier leak in 2014 — there are no limits on what constitutes covered “financial services.” Article 2 specifically references central banks, social security systems and public retirement systems. It is unclear how these would be affected, but it is possible that TISA could be interpreted to mean that no public or other democratic check would be allowed on central banks and that public systems such as Social Security might be judged to be illegally “competing” with private financial enterprises.

Financiers around the world would dearly love to get their hands on social security systems, a privatization that would lead to disaster, as has already been the case with Chile, also a TISA participant. Chileans retiring in 2005 received less than half of what they would have received had they been in the old government system.

Some of the provisions in TISA’s financial services annex includes:

  • Requirements that countries must conform their laws to the annex’s text (the U.S. and EU are proposing the most draconian language) (annex Article 3).
  • A prohibition on “buy local” rules for government agencies (Article 7).
  • Prohibitions on any limitations on foreign financial firms’ activities (Articles 9 and 12).
  • Bans on restrictions on the transfer of any data collected, including across borders (Article 10).
  • Prohibitions of any restrictions on the size, expansion or entry of financial companies and a ban on new regulations, including a specific ban on any law that separates commercial and investment banking, such as the equivalent of the U.S. Glass-Steagall Act. Only one country, Peru, opposes this. (Article 14).
  • A provision that purports to allow protection for bank depositors and insurance policy holders, but immediately negates that protection by declaring such duties “shall not be used as a means of avoiding the Party’s commitments or obligations under the Agreement” (Article 16).
  • The standard language on dispute settlement: “A Panel for disputes on prudential issues and other financial matters shall have all the necessary expertise relevant to the specific financial service under dispute.” The effect of that rule would be that lawyers who represent financiers would sit in judgment of financial companies’ challenges to regulations and laws (Article 19)
  • A requirement that any government that offers financial products through its postal service lessen the quality of its products so that those are no better than what private corporations offer. It is possible this measure could also threaten social security systems on the basis that such public services compete against financial companies. (Article 21).

Rules designed to force privatizations

Some of those article numbers have changed since the earlier financial services annex leak; one change is the disappearance of an article that would have required countries to “eliminate … or reduce [the] scope” of state enterprises. But that may be because there is a chapter with more stealthy language devoted to the topic: The TISA annex on state-owned enterprises.

The annex on state-owned enterprises would restrict their operations, requiring they be operated like a private business and prohibiting them from “buying local.” Furthermore, governments would be required to publish a list of state-owned enterprises, with no limit on what information must be provided if a corporation asks. Article 7 of this annex would enable any single government to demand new negotiations to further limit state-owned enterprises, which would give the U.S. the ability to directly attack other countries’ state sectors or to demand privatizations in countries seeking to join TISA.

Jane Kelsey, a University of Auckland law professor who has long studied “free trade” agreements, notes that these TISA provisions are modeled on the Trans-Pacific Partnership. She writes:

“The goal was always to create precedent-setting rules that could target China, although the US also had other countries’ SOEs in its sights – the state-managed Vietnamese economy, various countries’ sovereign wealth funds, and once Japan joined, Japan Post’s banking, insurance and delivery services. All the other countries were reluctant to concede the need for such a chapter and the talks went around in circles for several years. Eventually the US had its way.”

The substitution of language unambiguously requiring elimination or shrinkage of state-owned enterprises with less obvious language may be a public-relations exercise, so that the specter of forced privatizations will not be so apparent.

Domestic regulations in the cross hairs

Another portion of TISA that has been published by WikiLeaks is the annex on domestic regulation. This annex is so far reaching that it would actually eliminate the ability of governments to regulate big-box retailers. This is one of the goals of corporate lobbyists, a WikiLeaks commentary points out. Referring to a U.S. business group, the commentary says:

“The National Retail Federation not only wants TiSA to ensure their members can enter overseas markets but to ease regulations ‘including store size restrictions and hours of operation that, while not necessarily discriminatory, affect the ability of large-scale retailing to achieve operating efficiencies.’ The National Retail Federation is therefore claiming that a proper role for the public servants negotiating TiSA is to deregulate store size and hours of operation so that large corporations can achieve ‘operating efficiencies’ and operate ‘relatively free of government regulation’ – completely disregarding the public benefit in regulations that foster livable neighbors and reasonable hours of work.”

In other words, behemoths indifferent to the lives of its employees, like Wal-Mart, would have an even freer hand.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

The annex on domestic regulation would also require governments to publish in advance any intention to alter or implement regulations so that corporations can be given time to be “alerted that their trade interests might be affected.” The ability of a government to quickly issue a regulation in response to a disaster would be severely curtailed. Environmental rules, even requiring performance bonds as insurance against, for example, oil spills, would be at risk of being declared unfair “burdens.” The WikiLeaks commentary says:

“This draconian ‘necessity test’ would create wide scope for regulations to be challenged. For example, the public consultation processes that are required for urban development are about ensuring development is acceptable to the community rather than ‘ensuring the quality’ of construction services. They would fail the necessity test as more burdensome than necessary to ensure the quality of the service. Environmental bonds that mining and pipeline companies are required to post in case of spills and other environmental disasters are another licensing requirement that would not meet the test of being necessary to ensure the quality of the service.”

New Zealand has gone so far as to propose a rule that might eliminate standards for teachers and for protection against toxic waste. Wellington proposes that regulations in all areas be “no more burdensome than necessary to ensure the quality of the service”:

“Under New Zealand’s proposals, qualifications for teachers in both public and private schools, hospital standards, and licenses for toxic waste disposal are just some of the regulations that would have be reduced to the very low standard of being no more burdensome than necessary.”

You’re not allowed to know what’s in it

Secrecy protocols for handling TISA documents are in place, similar to those of the Trans-Pacific and Transatlantic agreements. These protocols include these requirements:

“[D]ocuments may be provided only to (1) government officials, or (2) persons outside government who participate in that government’s domestic consultation process and who have a need to review or be advised of the information in these documents.”

What that means in practice is that only the corporate lobbyists and executives on whose behalf these “free trade” agreements are being negotiated can see them. Consider that 605 corporate representatives had access to the Trans-Pacific Partnership text as “advisers” while it was being negotiated, with the public and even members of parliaments and Congress blocked from access. Or that the public-interest group Corporate Europe Observatory, upon successfully petitioning to receive documents from the European Commission, found that that of 127 closed meetings preparing for the Transatlantic Partnership talks, at least 119 were with large corporations and their lobbyists.

Perusing government trade office Web sites for useful information on TISA (or any other “free trade” agreement) is a fruitless exercise. To provide two typical specimens, the European Commission claims that “The EU will use this opportunity to push for further progress towards a high-quality agreement that will support jobs and growth of a modern services sector in Europe” and the Australia Department of Foreign Affairs and Trade asserts that “TiSA is an opportunity to address barriers to international trade in services that are impeding the expansion of Australia’s services exports.”

The same sort of nonsense that we hear about other secret agreements. The economic health of Australia, or any other country, is not likely to be dependent on sending more financial planners overseas. What reads as bland bureaucratic text will be interpreted not in ordinary courts with at least some democratic checks, but by unaccountable and unappealable secret arbitration panels in which corporate lawyers alternate between representing multi-national corporations and sitting in judgment of corporate complaints against governments.

Let’s conclude with some sanity. Almost 1,800 local authorities have declared themselves opposed to the various “free trade” agreements being hammered out, including TISA. The “Local Authorities and the New Generation of Free Trade Agreements” conference in Barcelona, attended by municipal and regional governments and civil society groups, concluded with a declaration against TISA, the Transatlantic Trade and Investment Partnership and the Canada-European Union Comprehensive Economic and Trade Agreement. In part, the declaration says:

“We are deeply concerned that these treaties will put at risk our capacity to legislate and use public funds (including public procurement), severely damaging our task to aid people in basic issues such as: housing, health, environment, social services, education, local economic development or food safety. We are also alarmed about the fact that these pacts will jeopardise democratic principles by substantially reducing political scope and constraining public choices.”

That is the very goal of “free trade” agreements. TISA, like its evil cousins TPP, TTIP and CETA, are a direct threat to what democracy is left to us. It promises a corporate dictatorship that in theory raises the level of corporations to the level of national governments but in reality raises them above governments because only corporations have the right to sue, with corporate “rights” to guaranteed profits trumping all other human considerations. We ignore these naked power grabs at our collective peril.

New right-wing government cedes Argentina’s sovereignty to Wall Street

Argentina’s new right-wing president, Mauricio Macri, pledged to put an end to the country’s sovereignty, and on that he has been true to his word. The capitalist principal that windfall profits for speculators is the raison d’état for the world’s governments has been upheld.

Or, to put it in a different way, the government of Argentina will again be allowed to borrow on international financial markets — so that it can borrow money for the sole purpose of paying billions of dollars to speculators.

Argentina had been one of the few countries that refused to bleed its population to pay off odious debt under the 12-year husband and wife rule of Néstor Kirchner and Cristina Fernández. Their left-wing populism has been overstated — they left capitalist relations untouched and at best merely tolerated the movement of recovered factories — but they did consistently put the interests of Argentine working people ahead of international financiers. The election of the right-wing President Macri has put an end to that, along with his introducing the repression that austerity requires.

Entre Rios province, Argentina (photo by Felipe Gonzalez)

Entre Rios province, Argentina (photo by Felipe Gonzalez)

Argentina’s difficulties have a long history. The fascistic military dictatorship of 1976 to 1983 laid waste to the Argentine economy while unleashing horrific human rights abuses, and subsequent civilian governments sold off state enterprises at fire-sale prices while imposing austerity until the economy crashed at the end of 2001. Upon assuming office, President Kirchner suspended debt payments that would have impoverished the country. He offered to negotiate with bond holders, 93 percent of whom ultimately agreed to accept 30 percent of their bonds’ face value.

There were holdouts, most notably two hedge funds that waged a 15-year battle to extract the full value of the bonds, even though they bought them from the original holders for a fraction of the price. These two funds leading the holdouts were NML Capital, a subsidiary of Paul Singer’s Elliot Capital Management, and another hedge fund, Aurelius Capital Management. Mr. Singer, the type of character for which the term “vulture capitalist” was coined, is notorious for his scorched-earth tactics. At different points, he had an Argentine naval training ship seized in Ghana and attempted to seize Argentina’s presidential plane. His dedication to extracting every possible dollar regardless of cost to others was nicely summarized in 2011 by investigative journalist Greg Palast:

“Singer’s modus operandi is to find some forgotten tiny debt owed by a very poor nation (Peru and Congo were on his menu). He waits for the United States and European taxpayers to forgive the poor nations’ debts, then waits a bit longer for offers of food aid, medicine and investment loans. Then Singer pounces, legally grabbing at every resource and all the money going to the desperate country. Trade stops, funds freeze and an entire economy is effectively held hostage.

Singer then demands aid-giving nations pay monstrous ransoms to let trade resume. … Singer demanded $400 million from the Congo for a debt he picked up for less than $10 million. If he doesn’t get his 4,000 percent profit, he can effectively starve the nation. I don’t mean that figuratively — I mean starve as in no food. In Congo-Brazzaville last year, one-fourth of all deaths of children under five were caused by malnutrition.”

Buy low, demand very high

He’ll make a windfall profit off Argentina as well. The “special master” who presided over negotiations between the holdouts and the Argentine government — a veteran corporate lawyer who specializes in representing financiers and banks opposed to regulation — announced that NML Capital, Aurelius Capital and two other big hedge funds will receive 75 percent of the full principal and interest demanded by the holdouts. How big of a profit will this be? Only the funds themselves know for certain, but the lowest public estimate is a profit of nearly 400 percent.

Even that lowest estimate likely understates the profit. Bloomberg News reports that Mr. Singer will be paid $2.3 billion, or close to four times the $617 million in principal his firm holds. But as he likely paid only a small fraction of that principal, his profit is likely far greater. A Columbia University researcher estimates that NML Capital will receive $620 million for a portion of bonds for which it paid $48 million in 2008. That’s nearly a 13-fold profit in six years! As former President Fernández remarked when refusing to pay anything more than the 30 percent to which the other bondholders agreed, “I don’t even think that in organized crime there is a return rate of 1,608 per cent in such a short time,” adding that Argentina would not “submit to such extortion.”

President Fernández was referring to the profit Mr. Singer would have reaped had she given in to his full demands. She was speaking in a national address following two U.S. Supreme Court decisions in 2014 that upheld U.S. District Judge Thomas Griesa’s ruling that Argentina is not allowed to continue to pay the bondholders who agreed to accept 30 percent (or “haircuts” in financial parlance) until it reached an agreement with the holdouts. The Supreme Court also ruled that federal courts in the U.S. can order sovereign countries to hand over information on their assets to speculators. In other words, U.S. law, wielded to generate windfall profits for the most greedy, was decreed to apply to other countries, as if they are not sovereign.

The Kirchner-Fernández governments refused to yield their country’s sovereignty, but President Macri took office promising to pay off the vulture capitalists. Not only was Argentina’s ability to determine its own policy at risk, but the very concept of debt relief has been put in danger. The bondholders who agreed to take 30 percent made the calculation that something is better than nothing, and it enabled Argentina to recover from a severe economic crisis. The Kirchner-Fernández governments consistently offered the same deal to the holdouts. But now that the holdouts extracted so much more, will those who accepted the earlier deal now demand the same 75 percent given to the holdout funds? If they do, will they seek to enforce that after-the-fact better deal in the courtroom of Judge Griesa, who consistently showed himself biased in favor of the vulture capitalists?

Consider the assessment of two United Nations officials, Juan Pablo Bohoslavsky, the U.N. independent expert on the effects of foreign debt on human rights, and Alfred de Zayas, the the independent expert on the promotion of a democratic and equitable international order:

“A settlement would validate the type of predatory litigation that has been on the increase during the last decade. Such deals will make it more difficult to solve debt crises in a fair, timely and efficient manner by emboldening and rewarding the behavior of those who refuse to participate in debt restructuring efforts. These are no good news for attempts to solve debt crises in a timely and human rights sensitive manner.”

Paying debt through taking on more debt

The Macri government has now committed itself to paying $6.4 billion to the holdouts. How will it pay for that? By borrowing. Argentina had been blocked from borrowing in international credit markets, and as part of the deal will be allowed to borrow in those markets again. Judge Griesa’s injunction against resuming payments to the 93 percent of bondholders is also to be lifted. (That was enforceable because Argentina paid its debts to those bondholders through the Bank of New York, which was prohibited by the judge to pass through those payments under pain of legal penalties. Alternative routes through non-U.S. banks are difficult to use because of U.S. control over the global financial system.)

The deal also requires that the Argentine parliament reverse a law that blocks the country from offering any deal to holdouts better than terms agreed to by others. President Macri’s Let’s Change bloc does not hold a majority in the Chamber of Deputies, but picked up votes from the Peronist opposition to effect the necessary legal reversal this week. The Senate must still vote, but the expectation has been that the bill would have an easier time there.

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

Why is President Macri ceding his country’s sovereignty? Right-wing ideology of course plays a significant role here, but it is also self-interest. While the military dictatorship was conducting a reign of terror against Argentines that ultimately led to hundreds of thousands murdered, “disappeared,” tortured, kidnapped, arrested or forced to flee into exile, Mauricio Macri and his family were adding to their wealth. (Remember that this régime had the approval of Henry Kissinger and was blessed by David Rockefeller, whose loans financed it, with his infamous statement that “I have the impression that Argentina has a regime which understands the private enterprise system.”)

The Macri Society, or Socma, the family business, had close ties to the dictatorship. TeleSUR English reports that Socma “directly benefited” from the dictatorship:

“In 1973, prior to the 1976 military coup that ousted the civilian Peronist government of President Maria Estela de Peron and installed a dictatorship, Socma owned seven companies. When the dictatorship ended 10 years later, in 1983, the Socma corporate empire had expanded to 46 companies. Among Socma’s dozens of companies were various businesses that benefited the Macri family economically by providing services to the dictatorship regime.”

The new president, a director of the family conglomerate from a young age, is opposed to an Argentine parliamentary decision to launch an investigation of people and businesses that participated in the military dictatorship’s crimes, TeleSUR reports. La Nacion, a conservative Buenos Aires newspaper that backed President Macri, the day after the election published an editorial calling for an end of efforts to seek justice for the dictatorship’s victims, denouncing the quest for justice as a “culture of revenge.” Perhaps to emphasize this, the president has appointed as the new secretary for religious affairs Santiago Manuel de Estrada, who served as secretary for social security during the military dictatorship, which presided over severe reductions in wages and living conditions to go along with its death squads and torture facilities.

A monopoly for press backers, repression for opponents

Argentina’s biggest media conglomerate, Clarín, also backs President Macri, and no wonder: He has already moved to eliminate Argentina’s anti-monopoly law, which restricts the number of TV, cable and radio licenses a company can hold at one time, so that a handful of corporations can completely control the mass media. Such laws have precedent; for example, U.S. communications law long restricted anyone from owning more than 14 radio stations and seven television stations until overturned during the Reagan era. The Macri government is moving swiftly to silence opposition — it has forced a popular radio broadcaster, Victor Morales, off the air. According to the Buenos Aires Herald:

“ ‘I’m being kicked out because this company needs government advertising … No radio in Argentina can survive without government ads. They can’t mess with Macri,’ said the journalist.”

Demonstrations against these developments have already taken place, as have a public-sector strike against massive layoffs, demonstrations against the new government’s anti-protest law and protests against the imprisonment of Indigenous leader Milagro Sala. A total of 25,000 public workers have been dismissed as part of the Macri government’s austerity policies, and a new “security protocol” enables indiscriminate arrests and restricts the press’ ability to cover such events, opponents say. A coalition organizing against these new repressive policies states:

“The new protocol implies that every protest is now a criminal offense, and empowers the Security Forces — the same forces that played an active role in Argentina’s last military dictatorship — to allow or forbid any protests. The criminalization of protests violates several judicial decisions that state the right to demonstrate supersedes any occasional traffic problems that may be caused.

This year, on the 40th anniversary of the military coup in Argentina, the Mauricio Macri government has begun a campaign to eliminate an essential human right — the fundamental right to protest and demonstrate. With this new protocol, the government will try to prevent workers from protesting against redundancies or demanding salary increases, or mobilize against power outages and mining projects. This protocol openly defies the constitutional rights of the Argentine people as well as international treaties on human rights.”

Ms. Sala, imprisoned for the past two months, was arrested after protesting the policies of a provincial governor aligned with the president. She was acting in support of an organization she heads that provides social services. Parliamentarians, civil organizations and human rights campaigners across South America have denounced her arrest as political, and the United Nations has called for an explanation of her continued detention. The Buenos Aires Provincial Commission for Memory has issued this statement:

“Organizing collective action does not mean ‘inciting crimes,’ a massive demonstration is not ‘public disturbance’ and to oppose a government decision is not ‘an act of sedition.’ They are all democratic freedoms.”

They should be. But not when a right-wing government is determined to impose the rule of capital, or, in the case of the Macri government, to be a willing subaltern of international capital. The logic of the rule of financiers can only lead to not only intensified austerity, but increased repression.

Let them eat iPhones

You say you are struggling to cover your rising expenses while your pay is stagnant? You should have become an executive at a bank. Break the economy and earn big rewards!

But don’t sweat it — you have a phone and that more than makes up for your lack of adequate wages, declining ability to access health care and lack of a pension. Just ask JPMorgan chief executive officer Jamie Dimon.

Mr. Dimon’s pay is more than 220 times that of the average employee at JPMorgan, reports Business Insider, but he says you underpaid employees shouldn’t complain — because you have iPhones! At least Marie Antoinette’s alleged belief in cake allowed France’s plebeians to eat, more than can be done with a phone. Here is what Mr. Dimon said in his latest attempt to show compassion, according to BloombergBusiness:

“ ‘It’s not right to say we’re worse off,’ Dimon said [last September 17] at an event in Detroit in response to a question about declining median income. ‘If you go back 20 years ago, cars were worse, health was worse, you didn’t live as long, the air was worse. People didn’t have iPhones.’ ”

Cutting the pay of chief executive officers would do nothing to solve inequality, Mr. Dimon proclaimed. Instead, “investing in ‘intelligent infrastructure’ ” is what is needed. If possessing a “smart phone” is the key to happiness, apparently “smart buildings” would make us still happier. There’s progress for you — Marie Antoinette never offered anyone a bakery. But as you apply ketchup to your iPhone, you will surely digest smoothly with the knowledge that the chief executive officers of Goldman Sachs and JPMorgan officially became billionaires during 2015.

U.S. Treasury Department under new management (photo by takomabibelot)

U.S. Treasury Department under new management (photo by takomabibelot)

Goldman Sachs’ chief, Lloyd Blankfein — or Lord Blankcheck, as Occupy Wall Street activists memorably dubbed him — took home US$23 million last year, while Mr. Dimon “earned” $27 million, a healthy 35 percent raise. And shed no tears for those who have yet to reach the corporate pinnacle — three Goldman Sachs executives each took home $21 million and three JPMorgan execs each were awarded more than $10 million in stock alone.

Profits of biggest banks increase again

When we last heard from Mr. Dimon, about this time last year, he complained that “Banks are under assault,” adding that “We have five or six regulators coming at us on every issue.” As the six biggest banks in the U.S., which includes JPMorgan, racked up profits totaling $75 billion for 2014, you will be excused for having doubts about just how tough regulators are.

Profits for those banks were no more endangered in 2015, totaling almost $93 billion. Here is how they fared in the just concluded year:

  • JPMorgan Chase & Company: net income of $24.4 billion on revenue of $96.6 billion. JPMorgan reported its highest-ever net income in 2015, and paid out $11 billion to shareholders through stock buybacks and dividends.
  • Bank of America Corporation: net income of $15.9 billion on revenue of $82.5 billion. Net income more than tripled from 2014, and it nearly doubled the dividend it paid shareholders — the bank said it handed out $4.5 billion through common stock buybacks and dividends.
  • Citigroup Incorporated: net income of $17.2 billion on revenue of $76.4 billion. Although revenue was down slightly, net income more than doubled because Citigroup wasn’t troubled with having to pay out billions in fines over its toxic derivatives as it was in 2014.
  • Wells Fargo & Company: net income of $23 billion on revenue of $86.1 billion. The bank reported it handed out $12.6 billion through stock buybacks and dividends, yet it relentlessly demands its tellers pressure customers to open multiple accounts and pays those tellers too little to live on.
  • The Goldman Sachs Group Incorporated: net income of $6.1 billion on revenue of $33.8 billion. Goldman Sachs’ net income was below that of 2014 due to a $3.4 billion deduction (or “charge”) from its earnings due to its reaching a settlement with government regulators over its toxic mortgage-backed securities; profits would have risen without the fine. But please don’t shed any tears for the investment bank — it proudly reported that it “advised” on corporate mergers and acquisitions worth more than $1 trillion, work that by itself netted it billions of dollars while jobs disappeared.
  • Morgan Stanley: net income of $6.1 billion on revenues of $35.2 billion. Similar to its peer banks, Morgan Stanley shelled out $2.1 billion to buy back its stock in an effort to have its profits shared among fewer stockholders. Despite that profit, the bank has said it will lay off staff as part of an effort to “cut costs” under Wall Street pressure.

The biggest get bigger

Yes, the biggest banks keep getting bigger. The four banks with the largest holdings accounted for a composite 42 percent of all U.S. banking assets in 2014, a total that has steadily increased, both before and after the 2008 crash.

Wells Fargo Plaza, HoustonAnd not even the fines levied by regulators slow them down. Earlier this month, Goldman Sachs announced that it had agreed to $5 billion in penalties to settle claims arising from the marketing and selling of dodgy mortgage securities, although nearly $2 billion of that is “consumer relief” in the form of loan forgiveness, the bank said.

Banks have paid a total of $40 billion to settle claims by financial regulators and prosecutors, yet these penalties are bumps in the road for them, no more than a business expense. In part, perhaps that is because much of these penalties come in the form of mortgage modifications, rather than cash, and often these modifications are to loans that the banks service but don’t actually own — allowing them to get credit for modifying loans belonging to another company.

Banking of course is not the only industry undergoing consolidation. Mergers in 2015 were bigger than ever, with corporate deals worth $4.7 trillion. Investment banks earn huge fees for arranging mergers and acquisitions, none more so than the biggest U.S. banks. Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup ranked as numbers one through five in the world in terms of the value of the deals banks “advised” on.

Competitive pressure accounts for some corporate mergers — the capitalist imperative to grow or die does not abate even for the biggest corporations — but pressure to “enhance shareholder value” plays a significant role. “Enhancing shareholder value” is finance-speak for acceding to speculators’ demands for more short-term boosts to profits and higher stock prices, no matter the cost to others or the long-term damage to the company itself. Hedge-fund billionaires are among the fiercest in pressing these demands, continually demanding cuts to jobs that serve only to fatten their swollen wallets. The big banks, as major Wall Street players themselves, both apply this “market” pressure for the same reasons and further profit from acting as “advisers.”

Reforming such insanity is a hopelessly sisyphean task. What if instead banks became a public utility with an end to speculation? Proposals are being floated in the U.S. to create state banks, perhaps on the model of the successful Bank of North Dakota, and the Left Party of Germany has a detailed plan to bring banks under democratic control. Capitalist propaganda aside, there is no need for banking to exist as an uncontrollable behemoth extracting wealth from all other human activities. Why shouldn’t it be a utility under public control that exists to serve the productive economy? We can’t survive on iPhones alone.