Monthly Archives: July 2014

Banking – The Corrupt Core of a Rotten System

Yesterday it was announced that Lloyds Bank was being fined £218m for fiddling interest rates in order to manipulate the market for its own benefit*. The particularly shocking thing about this incident – the latest in a long line of corrupt practices by the banks – is that the offence happened after the crash of 2008, and involved abuse of the very fund the government had set-up to help the banks survive. (The government was providing emergency cash for when banks were in difficulties, and by fiddling interest rates Lloyds was able to reduce the fees it paid to use this cash). This effectively meant Lloyds was stealing money from the government.

http://upload.wikimedia.org/wikipedia/commons/thumb/0/06/Lloyds_Bank_Newcastle_Haymarket.jpg/320px-Lloyds_Bank_Newcastle_Haymarket.jpg
LLoyds – The latest bank to be fined for manipulating the market. Picture © TubularWorld

Mark Carney, the governor of the Bank of England called the offence ‘reprehensible’, and in reply Lord Blackwell, chairman of Lloyds, described it as ‘truly shocking conduct’ (though whether he was referring to the fact they fiddled interest rates, or just the fact they were careless enough to get caught doing it, is of course open to debate). All were agreed that it amounted to criminal conduct for which individuals ‘could’ face prosecution (don’t hold your breath).

This scandal of course follows other scandals involving Barclays* (fiddling interest rates; fiddling the price of precious metals;  ‘dark pool’ manipulation); Royal Bank of Scotland* (fiddling interest rates); HSBC* (money laundering, fiddling the price of precious metals); and Standard Chartered* (sanctions violations). There is also an ongoing investigation into the fiddling of foreign exchange rates involving, not surprisingly, Barclays and the Royal Bank of Scotland*.

After all the events of the last few years, it’s quite clear that Free Market Capitalism is a completely broken system, whose only purpose is to enrich the clever and the unscrupulous at everyone else’s expense. Banking is at the rotten heart of this corrupt system, and rather than providing a service to the rest of society, it has become an enormous leech whose only function is to accrue as much wealth for itself as it can. Greed and selfishness rule, leading to corrupt and frequently criminal activity, which the criminals then either cover up, or if they can’t do that they try to pass the buck in endless circles, so that no one individual is ever held accountable or responsible. It is now obvious to any decent person that if the private finance sector is to continue at all, it should only be under tight regulation, with severe penalties for those who step out of line. Unfortunately there are still people around who believe in ‘light touch’ regulation, and more importantly the banking sector does its damnedest – through lobbying and the financing of political parties – to fight any changes that might diminish its vast wealth and power (the Tory Party gets over half its funding from the City of London). Which is why we must fight the system as hard as we can from the outside, because it will never reform itself from within.

* Refs: Lloyds: http://www.bbc.co.uk/news/business-28528349 Barclays: http://www.bbc.co.uk/news/business-27536127 and http://www.bbc.co.uk/news/business-18671255 and http://www.theguardian.com/business/2014/jun/26/barclays-shares-tumble-dark-pool-attorney-general  Royal Bank of Scotland: http://www.bbc.co.uk/news/business-21348719 HSBC: http://www.bbc.co.uk/news/business-20673466 and http://www.reuters.com/article/2015/02/24/us-usa-banks-probe-idUSKBN0LS07P20150224 Standard Chartered: http://www.bbc.co.uk/news/business-20669650 Foreign Exchange: http://www.bbc.co.uk/news/business-26526905

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Multinational Corporations Threaten Democracy

STOP PRESS 04/09/15: Canadian miner sues Romanian govt for $4bn – Widespread public protests against cyanide contamination and the loss of historic sites led to the Romanian government refusing to allow Gabriel Resources to mine for gold in the Carpathian mountains. So the company is now suing Romania for a sum of money equivalent to 50% of its entire annual public health budget. http://www.huffingtonpost.com/adam-cernea-clark/whose-sovereignty-gabriel_b_7939596.html

STOP PRESS 22/05/15: Tobacco companies British American Tobacco and Phillip Morris have now filed legal action against the British Govt – As previously threatened, two tobacco companies have now filed legal proceedings in the High Court against the UK Govt’s plans to introduce plain packaging on cigarettes. http://www.bbc.co.uk/news/business-32843205

STOP PRESS 27/02/15: UK tobacco company British American Tobacco has threatened to sue the British Govt –  British tobacco company B.A.T. has confirmed it will definitely sue the British government if it tries to introduce plain packaging on cigarettes. Despite research   proving that plain packaging reduces the incidence of smoking, with all the subsequent health benefits, and despite widespread support for such a ban, B.A.T. becomes the latest company to show that its profits are more important than people’s health, and proves once again that corporations need to be strictly regulated, as they have no interest whatsoever in public well-beinghttp://www.packagingnews.co.uk/news/markets/tobacco/bat-says-will-sue-uk-government-plain-packs/

STOP PRESS 11/09/14:  Oceanagold is suing El Salvador because of their refusal to grant them a licence to mine for gold. Since this blog was written there has been yet another example of corporations exercising power over governments: Australian mining company  Oceanagold has launched a  $301m lawsuit against the govt of El Salvador, even though the refusal of a mining licence was in direct response to overwhelming public concerns over environmental damage, pollution of the water supply, and the impact on public health. http://fpif.org/meet-company-suing-el-salvador-right-poison-water/

STOP PRESS 13/08/14: US tobacco giant Phillip Morris is now threatening to sue the British Govt – American tobacco company Phillip Morris has said it will sue the British government if it tries to introduce plain packaging on cigarettes – figures in the region of £9-11 billion have been mooted. Even though research has  irrefutably shown that plain packaging reduces the incidence of smoking in children, Phillip Morris is showing that corporate profits are more important than people’s health, and gives complete proof, if any were needed, that corporations need to be strictly regulated, not given free rein to destroy our lives. http://www.bbc.co.uk/news/business-28756896

We like to think that we live in a democratic society, where the laws and conditions that we live under are set by the government, which is in turn elected by us. The reality of course is that we live under a corrupted system, which is fixed to return the same two (incredibly similar) parties, and whose policies are controlled more by their financial backers and corporate lobbyists than they are by any desire to serve the people. However, in this era of globalisation, there is now emerging an even greater threat to the democratic process – the rise of the multinational corporation.

In this globalised world so much trade is carried out between countries that national legislation is often insufficient to control what’s going on. However there are also great difficulties in achieving any level of international co-operation, and the international bodies that do exist (the UN, the EU, G8, G20 etc) are often incompetent, dysfunctional, corrupt, undemocratic and inspire little confidence among the people. Consequently there  is a huge democratic gap which multinational companies are currently exploiting for all they’re worth.

One final problem from globalisation is the issue of Regulatory Arbitrage. This is when multinational companies play countries off against each other in order to get the most preferential deals. An obvious way is tax, where companies will offer to set up in whichever country has the lowest tax rates. Countries will then ‘compete’ to see who will charge the least tax – the so-called ‘race to the bottom’, where the only losers are ordinary people, who have to suffer austerity to make up for the lost tax-revenue. However there are also some far more insidious things that happen. For example many corporates like to set up factories in third world countries where employee protection and health-and-safety legislation is weakest, as it’s cheaper for them. The welfare of the workers is of course to them irrelevant – profit before people is all that they care about. This leads to situations such as the recent deaths in Bangladesh, where hundreds of people died in fires and building collapses at dangerous factories, all so that Western companies can manufacture clothes more cheaply and increase their profits. – See more at: http://ourbrokensystem.com/globalisation/#sthash.NW8q92T9.dpuf
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Bangladesh factory collapse – multinationals will operate wherever is cheapest, regardless of human rights. Picture © Rijans

One way they do is through the use of Regulatory Arbitrage. This is when multinational companies play countries off against each other in order to get the most preferential deals. For example in the area of tax, companies will often offer to set up in whichever country has the lowest rates. Countries will then ‘compete’ to see who will charge the least tax – the so-called ‘race to the bottom’, where the only losers are ordinary people, who have to suffer austerity to make up for the lost tax-revenue. Governments will often say they want to increase tax rates, but claim their hand is being forced by multinationals threatening to move elsewhere if they don’t get the deal they like – a form of corporate blackmail. A similar situation occurs in the area of employee protection and health-and-safety legislation, which is why many corporates like to set-up factories in third world countries where  such legislation is weakest, as it’s cheaper for them. (The welfare of the workers is of course to them irrelevant – profit before people is all that they care about.) Again this puts intense pressure on governments to then cave in and weaken the legislation in order to ‘attract business’. Other areas where corporates will head for whichever jurisdiction benefits them the most include animal welfare, use of dangerous chemicals, anti-pollution legislation, and environmental destruction. Again in all these areas governments are pressured into minimising their legislation in order to attract investment, to the benefit of the multinationals and to the detriment of ordinary people and the world around us.

However now we are being faced with an even greater threat – the proposed Transatlantic Trade and Investment Partnership (TTIP). This is a free-trade agreement currently being negotiated between the US and the EU, and its implications are truly chilling. While its supporters claim that more free-trade lowers costs and so makes us all wealthier,  the fact that the negotiations are being carried out in secret should set the alarm bells ringing. And not surprisingly – one of its clauses threatens to give multinational corporations vast power over sovereign governments.

In the interests of the environment Germany stopped nuclear power, and is now being sued. Picture © Avda

The intention is to set up ‘investor-state dispute settlement’, which  would allow businesses to bypass normal courts, and sue governments directly over anything which caused them financial loss. The possibilities here are terrifying. The government wants to stop the use of genetically modified food? Biochemical companies could sue them for potential ‘lost trade’. We decide we don’t want to take the environmental risk of fracking? Fracking companies could sue us for lost business. The government proposes changes to the NHS? Health companies could sue if they think that will cost them money. The government wants to encourage people to cut down on smoking? Tobacco companies could sue for lost revenue. The welfare of ordinary people will come second to the profits of multinationals, and all these disputes will be settled behind closed doors, with only lawyers and corporate cronies having a say in the outcome.

And if you think this is all scaremongering and conjecture, then just consider that between countries where similar bilateral agreements already exist, such extraordinary cases are already being brought: both Australia and Uruguay are currently being sued by Phillip Morris over anti-tobacco legislation* ; Egypt is being sued by Veolia for increasing the minimum wage*;  Costa Rica is being sued by Infinito Gold for its decision to limit mining activity to protect the environment*; Canada is being sued by Lone Pine Oil over its ban on fracking*; and Germany is being sued by Vattenfall for deciding to abandon nuclear power*.

What all these cases demonstrate is that if the TTIP, and other agreements like it, go through, we can wave goodbye to any notion that we live in a democracy or the people have any control over their own laws. Multinational corporations will have total power, and corporate executives, lawyers, and no end of faceless men in grey suits will control how we live, what we can and can’t do, and they will use this power to extract ever-more of society’s wealth for themselves at all our cost.

* Refs: Australia: http://www.ag.gov.au/tobaccoplainpackaging Uruguay: http://www.globalpost.com/dispatch/news/regions/americas/140714/uruguay-v-philip-morris-tobacco-smoking Egypt: http://aftinet.org.au/cms/veolia-vs-egypt-workers-2014 Costa Rica: http://www.ticotimes.net/2014/02/10/infinito-gold-files-lawsuit-against-costa-rica-over-canceled-gold-mining-contract Canada: http://www.canadians.org/media/lone-pine-resources-files-outrageous-nafta-lawsuit-against-fracking-ban Germany: http://www.dw.de/vattenfall-seeks-recompense-for-german-nuclear-phaseout/a-16473507

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The Injustice of Free Market Capitalism

This year there has been a flurry of excitement with the release of the book Capital in the Twenty-First Century, written by the French economist Thomas Piketty . In it Piketty explains how the inevitable result of Free Market Capitalism is ever-greater levels of inequality in society – and after a couple of centuries the only reason levels of inequality are not higher now than one might expect, is because two world wars effectively hit the ‘reset’ button on our economic system. However, nearly 70 years after the end of World War II, levels of inequality are now approaching the levels they were prior to the outbreak of World War I.

Piketty provides plenty of statistical evidence to support his claim – however we only need to look around us to see everything he predicts happening before our very eyes.  So what have we got? The government is currently claiming that the economy is on the up (annual GDP growth of 3.1%), the job market is vibrant (unemployment down to just under 2.2m),  the number of people in poverty is falling, and the booming property market is adding to the (theoretical) wealth of millions of homeowners. Everything is therefore great – except of course it’s not.

Deepening inequality is not incompatible with a booming economy, it just means the wealth is being ever-more concentrated in the hands of the privileged. The economy growing? Well if the wealthy get wealthier faster than the poor get poorer then of course overall wealth is going up. Job market vibrant? Well 2.2m still don’t have a job, and with 1.4 million people now on zero-hours contracts one has to seriously question the validity of those statistics anyway. Number of people in poverty falling? Well the poverty rate is still near 20% (over 12 million people) and new Food Banks are still opening every week to feed  a need which is growing not diminishing. Booming property market? Yes, great if you’re a home-owner, awful if you’re a renter who is seeing increased property prices once again feeding through into higher rents.

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Martin Sorrell – one wonders how he can justify paying himself a salary of £30m/year. Picture © Eirik Solheim

We’re a country of two halves, and nowhere is this more apparent than in some of the news items this week. Firstly Freshfields, the law firm, has announced that  last year its partners earned an average salary of an extraordinary £1.5 million each. Even more extraordinary, WPP, the advertising agency, has just announced that its boss, Martin Sorrell, has been given a pay-rise – and he now takes home (I can’t bring myself to say ‘earns’) £30 MILLION per year! And then last week the yacht manufacturing industry gleefully announced that at the luxury end of the market business is once again booming, with a record number of super-yachts on order (presumably as all those ridiculously rich people like Martin Sorrell and the Freshfields lawyers have to decide what to do with all their money.)

However at the same time as all this is going on, the government has confirmed that there will be no above-inflation pay-rises for public sector workers for the next four years, citing the perilous state of government finances. Coming after several years of pay-freezes, this means that many key workers (eg firefighters, teachers, care-workers etc) have seen a sustained fall in leaving standards since the recession, and are now, on average, £2,245/yr worse off than when the coalition came to power. As a result of this the TUC has called a one-day strike* – and the response of the coalition, rather than address the issues being raised, has been to condemn the strike and confirm further planned tightening of anti-union legislation.

Anyone with any sort of moral compass whatsoever has to seriously question a system that allows some people to earn many millions of pounds per year, while vast swathes of the population are in poverty and visiting foodbanks. You also have to question what sort of a society it is that justifies inflicting austerity on nurses and teachers, while heaping ever-greater rewards on bankers, lawyers and advertising executives. However as long as we have a system of government where lobbying and party funding mean the levers of power are controlled by those with money, I guess little will change.

http://www.theguardian.com/politics/2014/jul/09/million-public-sector-workers-prepare-strike

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