How Americans became poor

There is no doubt that majority of Americans have gotten poorer over the last few decades even while the top 10% or so have done extremely well. In a world of slogans and minuscule attention span, the media and the pundits either completely deny this fact or justify it by focusing on advancements in technology or turn it into a partisan blame game. The reality is that multiple developments contributed to this decline of prosperity, much of it due to deliberate but gradual social and financial engineering. Without assigning ranking or weight, here is a look at twelve major reasons why Americans became poor.

Demise of Labor Unions and Reduction of Wages/Benefits

The 20th century saw the biggest gains as well as the most painful losses for the American worker. On one hand, workers earned the right for collective bargaining – which meant good wages and job security – and myriads of benefits such as 2-day weekends, paid vacations, paid sick days, pensions, healthcare etc. The golden era for the American worker was from 1945-1980 and it really peaked in 1974 (this was the time when the U.S. completely got off the Gold Standard — more on that later).

In the mid-1940s, more than 1/3rd of the U.S. labor force belonged to private labor unions. It went on a steady decline and is about 6% now. Another 6% of the labor force now belongs to the public sector labor unions – teachers, government employees etc. – which started to grow in the 1960s.

This decline did not happen by chance. Dismantling labor unions and cutting wages/benefits were done deliberately and slowly by corporate elites. (Privatization is another tool to attack public labor unions now). Pensions were replaced with false promises of programs such as 401-K which was basically letting the fox (Wall Street banksters) into the henhouse (pension plan). Making it easier to layoff people meant scared employees worked harder and corporations could easily replace a worker with someone willing to work for less. Corporate lobbyists also fought hard against raising the minimum wage, which became even harder after the 1990s when NAFTA, WTO and illegal immigration put a tremendous downward pressure on wages.

Inflation & Cost of Living

There are other ways to rob the average person without their knowledge, and that involves inflation and cost of living. Although these two terms are sometimes used interchangeably, there is a difference. Inflation is the term for devaluing the currency, which then makes things more expensive. This happens when the government creates money out of thin air – physically or digitally. Under the Bretton-Woods system or the gold standard, the U.S. was supposed to print dollars only based on the amount of gold it had. Thus every dollar was backed by and could be redeemed for actual gold. However, the U.S. cheated during the 1960s to fund the Vietnam war and the welfare system, and by the early 1970s, the U.S. was forced to switch to fiat currency – money that’s backed by nothing but faith in the government. This was why inflation rate went from 4% in 1972 to 14% by 1980. By the way, there are different ways to measure the inflation rate and the official government number is constantly tweaked every few years to make inflation look less than it actually is.

The cost of living can go up regardless of and above the inflation rate. Over the last 75 years, Americans have come to spend more real money – adjusted for inflation – on housing (100% more), transportation (200% more), healthcare (200% more) and education (400% more). The two items which cost less are food and clothes, thanks to harmful processed food and cheap labor in poor countries to make our clothes. On a side note, most people don’t realize that cheap food leads to much more expensive healthcare.

Thus the three main culprits so far have been slashing of wages/benefits, inflation due to fiat currency, and rise in cost of living. Onto the rest.


Since the 1970s, the financial sector – should really be known as Casino Capitalism – has grown tremendously. Wall Street profits rose from less than 10% in 1980 to 40% of all corporate profits by 2003. People who create nothing managed to become the masters of the economy. Manipulating the price of stocks and commodities while sitting in front of a computer became a lucrative way to make billions. Derivatives and other exotic tools were given exemptions from full disclosure, which enabled blatant rigging and insider trading. Financialization also meant that corporations were now controlled by large shareholders and financial corporations that made decisions solely to influence stock price and dividends. This vulture capitalism involved slash-and-burn activities such as buying companies to raid their pension funds, forcing a company to use debt to buy back their own shares (to boost the stock price), wantonly laying off employees to spur short-term profits and so on. End result? Fewer corporations, less creativity, fewer innovations, fewer workers and decreasing wages.

Federal Reserve Bank

Although many people are waking up to the biggest financial scam, most people still don’t understand that the Federal Reserve Bank is controlled by private banks and behind-the-scene plutocrats. The power to create money out of thin air cannot be overstated. The Fed can create and burst economic bubbles, start wars between nations, and control every aspect of the nation – media, politicians, corporations and the distribution of wealth. The Fed distorts capitalism and free market by determining the winners and losers in an economy, and the American worker has not been the winner. The effect of gold-based currency versus fiat currency (since 1971) is clearly reflected in the chart below:

In the 1950s, the top income tax bracket for an individual was more than 90%. This was slowly chipped away every few years and brought down to 28% by the time Ronald Reagan left the office in 1988. To compensate for the loss of revenue, payroll tax and other taxes were quietly and steadily increased, which negatively impacted the middle class. Meanwhile, complex loopholes were introduced in the tax system that allowed global corporations and billionaires to minimize their tax burden and squirrel away trillions in offshore accounts.


Although there are undeniable benefits to trading with other countries, U.S. corporations used globalization to ship many American jobs abroad in order to leverage cheaper labor. High-paying jobs in the U.S. were replaced with low-paying service jobs. Thus globalization translated to equalization of wages and living standards. America got poorer and countries such as China and Mexico got richer. The chart below shows how the GDP of U.S. and China performed over the last 35 years.


In the 1950s and ‘60s, Americans were told that automation and computers were so awesome that within a few decades, Americans will be working less than 20 hours a week and the biggest challenge in life will be figuring out what to do with the leisure time! Ha ha, ha ha. You were punked! It was probably deliberate propaganda to ensure there was no resistance to technology and automation. Millions of jobs become obsolete every year and this trend is going to become only more acute as robots become smarter and more skilled. There are now robotic kitchens, self-driving cars, robotic nurses in hospitals and even robots that do farming! Automation is a double-edged sword, for sure.

Immigration & Women in Workforce

If you put aside politics and social considerations, women in workforce and immigration simply increased the supply of workers and thus decreased wages. It’s simple economics. In 1950, only 10% of mothers worked, while more than 65% of American mothers work now. Essentially this influx of women into labor force cut the wages in half, and thus many families now need two incomes to survive. Same applies to immigration which brings in people who are willing to work harder for less money – a fact that applied to low-skilled jobs before but now is increasingly true for many high-paying jobs.

Single-Parent Families

Again, without being moralistic, the objective fact is that nuclear families are financially better off than single-parent families. The extraordinary rise in divorce and single-parent households over the decades have also contributed to the decline in wealth of the average American family.


Starting with Edward Bernays in the 1920s, America’s elites deliberately cultivated consumerism – your worth as a human being is based on what you own/buy. Of course, this meant Americans typically save far less than Europeans or Asians. This was fine during the boom years, from 1945-1975. Then, even as the economy changed, the habit of consumption remained. As Americans started to become poorer since the 1970s, debt became the tool to obscure that fact. Credit cards, easier auto loans and smaller mortgage down payments, for example, hid the negative wealth effects. The ever-decreasing interest rates – artificially done so by the Fed – over the last 30 years kept up the fake growth, but this has created terrifying dangers for the economy.

Endless Wars

The military-industrial complex that Eisenhower warned us about has been unstoppable since World War II. Empire-building and wars are simply too lucrative and profitable. Destroy-Build-Destroy is a good business model for the elites. Trillions of dollars have been wasted in meaningless wars that have left us with fewer allies, more debt and a less safe country.


Finally, it really boils down to education and attitude. If people wield critical thinking and take the time to research issues on their own, they will elect the right leaders, demand the right policies and create the ideal communities. Of course, this is exactly what the elites don’t want to happen. As Rockefeller once said, “I want a nation of workers, not thinkers.” Hence we have schools that excel in dumbing down our students, and corporate mainstream media that triumph in spreading fake news. Hollywood and the entertainment complex distract and confuse people – especially the young ones – with trivial, vulgar, violent and nihilistic beliefs. If we want to create a vibrant middle class, we have to abandon slogans and simplistic solutions, understand the bigger picture, tackle multiple and complex issues simultaneously, and work together as Americans in a non-partisan way.

— source By Chris Kanthan

India, From the Destabilization of Agriculture to Demonetization, “Made in America”

A version of the following piece was originally published in June 2016. However, since then, India’s PM Narendra Modi has embarked on a ‘demonetisation’ policy, which saw around 85 percent of India’s bank notes becoming invalid overnight.

Emerging evidence indicates that demonetisation was not done to curb corruption, ‘black money’ or terrorism, the reasons originally given. That was a smokescreen. Modi was acting on behalf of powerful Wall Street financial interests. Demonetisation hascaused massive hardship, inconvenience and chaos. It has affected everyone and has impacted the poor and those who reside in rural areas (i.e. most of the population) significantly.

Who does Modi (along with other strategically placed figures) serve primarily: ordinary people and the ‘national interest’ or the interests of the US?

Convenient bedfellows

We don’t have to dig too deep to see where Modi feels at home. Describing itself as a major ‘global communications, stakeholder engagement and business strategy’ company, APCO Worldwide is a lobby agency with firm links to (part of) the Wall Street/US establishment and functions to serve its global agenda. Modi turned to APCO to help transform his image and turn him into electable pro-corporate PM material. It also helped Modi get the message out that what he achieved in Gujarat as Chief Minister was a miracle of economic neoliberalism, although the actual reality is really quite different.

In APCO’s India brochure, there is the claim that India’s resilience in weathering the global downturn and financial crisis has made governments, policy-makers, economists, corporate houses and fund managers believe that the country can play a significant role in the recovery of the global economy. APCO’s publicity blurb about itself claims that it stands “tall as the giant of the lobbying industry.”

The firm, in its own words, offers “professional and rare expertise” to governments, politicians and corporations, and is always ready to help clients to sail through troubled waters in the complex world of both international and domestic affairs.

Mark Halton, former head of Global Marketing and Communications for Monsanto, seemed to agree whenhe praisedAPCO for helping the GMO giant to:

… understand how Monsanto could better engage with societal stakeholders surrounding our business and how best to communicate the social value our company brings to the table.

If your name isseverely tarnishedand you need to get your dubious products on the market in countries that you haven’t managedto infiltratejust yet, why not bring in the “giant of the lobbying industry.”

As a former client of APCO, Modi now seems to be the go-to man for Washington. His government is doing the bidding of global biotech companies and is trying to push through herbicide-tolerant GM mustard based on fraudulent tests and ‘regulatory delinquency‘, which will not only open the door to further GM crops but will possibly eventually boost the sales of Monsanto-Bayer’s glufinosate herbicide. In addition, plans have been announced to introduce 100% foreign direct investment in certain sectors of the economy, including food processing.

Neoliberal dogma

This opening up of India to foreign capital is supported by rhetoric about increasing agricultural efficiency, creating jobs and boosting GDP growth. Such rhetoric mirrors that of the pro-business, neoliberal dogma we see in APCO’s brochure for India. From Greece to Spain and from the US to the UK, we are able to see this rhetoric for what it really is: record profits and massive increases in wealth (ie ‘growth) for elite interests and, for the rest, disempowerment, surveillance, austerity, job losses, the erosion of rights, weak unions, cuts to public services, bankrupt governments and opaque, corrupt trade deals.

APCO describes India as a trillion-dollar market. Note that the emphasis is not on redistributing the country’s wealth among its citizens but on exploiting markets. While hundreds of millions live in poverty and hundreds of millions of others hover above it, the combined wealth of India’s richest 296 individuals is $478 billion, some 22% of India’s GDP. According to the ‘World Wealth Report 2015’, there were 198,000 ‘high net worth’ individuals in India in 2014, while in 2013 the figure stood at 156,000.

APCO likes to talk about positioning international funds and facilitating corporations’ ability to exploit markets, sell products and secure profit. In other words, colonising key sectors, regions and nations to serve the needs of US-dominated international capital.

Paving the way for plunder

Modi recently stated that India is now one of the most business friendly countries in the world. The code for this being lowering labour, environmental, health and consumer protection standards, while reducing taxes and tariffs and facilitating the acquisition of public assets via privatisation and instituting policy frameworks that work to the advantage of foreign (US/Western) corporations.

When the World Bank rates countries on their level of ‘Ease of Doing Business’, it means nation states facilitating policies that force working people to take part in a race to the bottom based on free market fundamentalism. The more ‘compliant’ national governments make their populations and regulations, the more attractive foreign capital is tempted to invest.

The World Bank’s ‘Enabling the Business of Agriculture’ – supported by the Bill and Melinda Gates Foundation and USAID – entails opening up markets to Western agribusiness and their fertilisers, pesticides, weedicides and patented seeds.

Anyone who is aware of the Knowledge Initiative on Agriculture and the links with the Indo-US Nuclear Treaty will know who will be aware that those two projects form part of an overall plan to subjugate Indian agriculture to the needs of foreign corporations (see this article from 1999). As thebiggest recipientof loans from the World Bank in the history of that institution, India is proving to be very compliant.

The destruction of livelihoods under the guise of ‘job creation’

According to the neoliberal ideologues, foreign investment is good for jobs and good for business. Just how many actually get created is another matter. What is overlooked, however, are the jobs that were lost in the first place to ‘open up’ sectors to foreign capital. For example, Cargill may set up a food or seed processing plant that employs a few hundred people, but what about the agricultural jobs that were deliberately eradicated in the first place or the village-level processors who were cynically put out of business so Cargill could gain a financially lucrative foothold?

The Indian economy is being opened-up through the concurrent displacement of a pre-existing (highly) productive system for the benefit of foreign corporations.For farmers, the majority are not to be empowered but displaced from the land. Farming is being made financially non-viable for small farmers, seeds are to be privatised as intellectual property rights are redefined, land is to be acquired and an industrialised, foreign corporate-controlled food production, processing and retail system is to be implemented.

The long-term plan is tocontinue to starve agricultureof investment and have an urbanised India with a fraction of the population left in farming working on contracts for large suppliers and Wal-Mart-type supermarkets that offer highly processed, denutrified, genetically altered food contaminated with chemicals and grown in increasingly degraded soils according to an unsustainable model of agriculture that is less climate/drought resistant, less diverse and unable to achieve food security. This would be disastrous for farmers, public health and local livelihoods.

Low input, sustainable models of food production and notions of independence and local or regional self-reliance do not provide opportunities to global agribusiness or international funds to exploit markets, sell their products and cash in on APCO’s vision of a trillion-dollar corporate hijack; moreover, they have little in common with Bill Gates/USAID’s vision for an Africa dominated by global agribusiness.

And, finally, to demonetisation

Modi rode to power on a nationalist platform and talks about various ‘nation-building’ initiatives, not least the ‘make in India’ campaign. But he is not the only key figure in the story of India’s capitulation to Washington’s agenda for India. There is, for instance,Avrind Subramanian, the chief economic advisor to the government, and Raghuram Rajan who was until recently Governor of the Reserve Bank of India.He was chief economist at theInternational Monetary Fundfrom 2003 to 2007 and was a Distinguished Service Professor of Financeat theUniversity of Chicago Booth School of Businessfrom 1991 to 2013. He is now back at the University of Chicago.

Aside from Rajan acting asa mouthpiecefor Washington’s strategy to recast agriculture in a corporate image and get people out of agriculture in India, in arecent article, economist Norbert Haring implicates Rajan in the demonestisation policy. He indicates that the policy was carried out on behalf of USAID, MasterCard, Visa and the people behind eBay and Citi, among others, with support from the Gates Foundation and the Ford Foundation.

Haring calls Rajan the Reserve Bank of India’s “IMF-Chicago boy” and based on his employment record, memberships (not least of the eliteGroup of Thirty which includes heads of central, investment and commercial banksand links, place him squarely at the centre of Washington’s financial cabal.

Haring says that Raghuram Rajan has good reason to expect to climb further to the highest rungs in international finance and thus play bow to Washington’s game plan:

He already wasa President of the American Finance Association and inaugural recipient of its Fisher-Black-Prize in financial research. He won the handsomely endowed prizes of Infosys for economic research and of Deutsche Bank for financial economics as well as the Financial Times/Goldman Sachs Prize for best economics book. He was declared Indian of the year by NASSCOM and Central Banker of the year by Euromoneyand by The Banker. He is considered a possible successor of Christine Lagard at the helm of the IMF, but can certainly also expect to be considered for other top jobs in international finance.”

The move towards a cashless society would secure a further degree of control over India by the institutions who are pushing for it. Securing payments that accrue from each digital transaction would of course be very financially lucrative for them. These institutions are therefore pursuing a global ‘war on cash’.

Small, wealthy countries like Denmark and Sweden can bear the impact of a transition to a cashless economy, but for a country such as India, which runs on cash, the outcomes so far have been catastrophic for hundreds of millions of people, especially those who don’t have a bank account (almost half the population) or do not even have easy access to a bank.

But, regardless of the large-scale human suffering imposed as a result of demonetisation, it could kill two birds with one stone: 1) securing the interests of international capital, including the eventual displacement of the informal (i.e. self-organised) economy; and 2) acting as anotherdeliberate nail in the coffinof Indian farmers, driving even more of them out of the sector. The US’s game plan remains well and truly on course.

Not really a case of ‘make in India’. Some 50 years after independence, as a state India remains compromised, weak and hobbled. More a case of made in Washington.

— source By Colin Todhunter

Traditional banking model is dying

The truth about the traditional banking model: it is dead. Ok, to be temporally current, it is dying. Six reasons why:

1) Banks can’t price risk in lending – we know as much since the revelations of 2007-2008. If they cannot do so, banks-based funding model for investment is a metronome ticking off a crisis-to-boom cyclicality. That policymakers (and thus regulators) cannot comprehend this is not the proposition we should care to worry about. Instead, the real concern should be why are equity and direct lending – the other forms of funding – not taking over. The answer is complex. Informational asymmetries abound, making it virtually impossible to develop retail (broad) markets for both (excluding listed equity). Tax preferences for debt is another part of the fallacious equation. Habits / status quo biases in allocating funds is the third. Inertia in the markets, with legacy lenders being at scale, while challengers being below the scale. Protectionism (regulatory and policy) favours banks over other forms of lending and finance. And more. But these factors are only insurmountable today. As they are being eroded, direct financing will gain at the expense of banks.

The side question is why the banks are no longer able to price risks in lending, having been relatively decent about doing so in previous centuries? The answer is complex. Firstly, banks are legacy institutions that have knowledge, models, memory and intellectual infrastructure that traces back to the industrial age. Time moved on, but banks did not move on as rapidly. Hence, today’s firms are distinct from Coasean transaction cost minimisers. Instead, today’s firms are much more complex entities, dealing with radically faster pace of innovation and disruption, with higher markets volatility and, crucially, trading in the environment that is more about uncertainty than risk (Knightian world). Here, risk pricing and risk management are not as closely aligned with risk modeling as in the age of industrial enterprises. Guess what: if firms are existing in a different world from the one inhabited by the banks, so are people working for these firms (aka banks’ retail customers). Secondly, banks’ own funding and operations models have become extremely complex (see on this below), which means that even simple loan transaction, such as a mortgage, is now interwoven into a web of risky contracts, e.g. securitisation, and involves multiple risky counterparties. Thirdly, demographic changes have meant changes in risk regulation environment (increased emphasis on consumer protection, bankruptcy reforms, data security, transparency, etc) all of which compound the uncertainty mentioned above. And so on…

2) Banks can’t provide security for depositors – we know, courtesy of pari passu clauses that treat depositors equivalently with risk investors. The deposits guarantee schemes are fig leaf decorations. For two reasons. One: they are exogenous to banks, and as such should not be used to give banks a market advantage. Of course, they are being used as such. Two: they are only as good as the sovereign guarantors’ willingness / ability to cover them. Does anyone, looking at the advancement of the cashless society in which the state is about to renew on its own promissory fiat at least across anonymity and extreme risk hedging functions of cash, really thinks the guarantees are irrevocable? That they cannot be diluted? If the answer is no, then that’s the beginning of an end for the traditional deposits-gathering, but bonds-funded banking hybrids.

More fundamentally, consider corporate governance structure of a traditional bank. Board and executives preside (more often, executives preside over the board due to information asymmetries and agency problems). Shareholders are given asymmetric voting rights (activist institutional shareholders are treated above ordinary retail shareholders). Bondholders have direct access to C-suite and even Board members that no other player gets. And the funders of the bank, the depositors? Why, they have no say in the bank. Not even a pro forma one. This asymmetry of power is not accidental. It is an outrun of the centuries of corporate evolution, driven by pursuit of higher returns on equity. But, roots aside, it certainly means that depositors are not the key client of the bank’s executive. If they were, they would be put to the top of the corporate governance pyramid.

Still think that the bank is here to protect your deposits?

3) Banks can’t provide efficient platforms for transactions – we know, courtesy of #FinTech solutions. Banks charge excessive fees for simple transactions, such as currency exchanges, cross border payments, debt cards, some forms of regular utility payments, etc. They charge to issue you access to your money and to renew access when it deteriorates or is lost. They charge for all the things that many FinTech platforms do not charge for. And they provide highly restricted (i.e. costly) platform migration options (switching banks, for example). Some FinTech platforms now offer seamless, low cost migration options, e.g. aggregators and some new tech-enabled banks, e.g. KNAB. Anecdotal evidence to bear: two of my banks on two sides of the Atlantic can’t compete on fees and time-to-execute lags with a small firm doing my forex conversions that is literally 10 times cheaper than the lower cost bank and 5 days faster in delivering the service.

If you want an analogy: banking sector today is what music industry was just at the moment of iTunes launch.

4) Banks can’t escape maturity mismatch and other systemic risks – we know, courtesy of banks’ reliance on interbank lending and securitisation. The core model of deposits being transformed into loans is hard enough to manage from the maturity mismatch perspective. But when one augments it with leveraged interbank funding and securitisation, we end up with 2007-2008 crisis. This is not an accident, but a logical corollary of the banking business model that requires increasing degrees of leverage to achieve higher returns on equity. Risks inherent in lending out of deposits are compounded by risks relating to lending out of borrowed funds, and both are correlated with risks arising from securitising payments on loans. The system is inherently unstable because second order effects (shutdown of securitised paper markets) on core business funding dominate the risk of an outright bank run by the punters. Worse, competitive re-positioning of the financial institutions is now running into the dense swamp of new risks, e.g. cybercrime and ICT-related systems risks (see more on this here: No amount of macro- or micro-prudential risk management can address these effects. Most certainly not from the crowd of regulators and supervisors who are themselves lagging behind the already laggardly traditional banking curve.

As an aside, consider current demographic trends. As older generations draw down their deposits, younger generation is not accumulating the same amounts of cash as their predecessors were. The deposits base is shrinking, just at the time as transactions volumes are rising, just as weak income growth induces greater attention to transactions fees. Worse, as more and more younger workers find themselves in the contingent workforce or in entrepreneurship or part time work, their incomes become more volatile. This means they hold greater proportion of their overall shrinking savings in precuationary accounts (mental accounting applies). These savings are not termed deposits, but on-demand deposits, enhancing maturity mismatch risks.

5) Banks can’t provide advice to their clients worth paying for – we know this, thanks to the glut of alternative advice providers, and passive and active management venues. And thanks to the fact that banks have been aggressively ‘repairing margins’ by cutting back on customer services, which apparently does not damage their performance. Has anyone ever heard of cutting a value-adding line of business without adversely impacting value-added or margin? Nope, me neither. So banks doing away with advice-focused branches is just that – a self-acknowledgement that their advice is not worth paying for.

Worse, think of what has been happening in asset management sector. Fee-based advice is down. Fee-based investment funds (e.g. hedge funds) are shrinking violets. But all of these players bundle fees with performance-based metrics. And here we have a bunch of useless advice providers (banks) who supposed to charge fees for providing no performance-linked anchors?

6) Banks can’t keep up with the pace of innovation. How do we know that? Banks are already attempting to converge to FinTech platforms (automatisation of front and back office services, online banking, e-payments, etc,). Except they neither have technical capabilities to do so, nor integration room to achieve it without destroying own legacy systems and business, nor can their investors-required ROE sustain such a conversion. Beyond this, banking sector has one of the lowest employee mobility rates this side of civil service. Can you get innovation-driven talent into an institution where corporate culture is based on being a ‘lifer’? Using Nassim Taleb’s term, bankers are the ‘IBM men’ of today. Innovation-driven companies have none of these. For a good reason, not worth discussing here.

So WHAT function can banks carry out? Other than use private money to sustain superficial demand for overpriced Government debt and fuel bubbles in assets?

It is a rhetorical question. Banks, of course, are not going to disappear overnight. Like the combustion engine is not going to. But banks’ Tesla moment is already upon us. Today, banks, like the car companies pursuing Tesla, are throwing scarce resources at replicating FinTech. Most of the time they fail, put their tails between their legs and go shopping for FinTech start ups. Next, they will fail to integrate the start ups they bought into. After that, we will see banks consolidation moment, as the bigger ones start squeezing the smaller ones in pursuing shrinking market for their fees-laden services. And they will be running into other financial sector players, with deeper pockets and more sustainable (in the medium term) business models moving into their space – insurance companies and pension funds will start offering utility banking services to vertically integrate their customers. Along this path, banks’ equity capital will be shrinking, which means their non-equity capital (costly CoCos and PE etc) will have to rise. Which means their ROEs will shrink some more.

Banking, as we know it, is dying. Banks, as we know them, will either vanish or mutate. If you are investing in banking stocks, make sure you are positioned for an efficient exit, make certain the bank you are investing in has the firepower to survive that mutation, and be confident in your valuation of that bank post-mutation. Otherwise, enjoy mindless gambling.

— source By Constantin Gurdgiev

Banana protests, paltry fines and a PR problem


Of all the world leaders shamed over hidden wealth stashed offshore, none was more unfortunate than Sigmundur Davíð Gunnlaugsson. The hapless prime minister of Iceland was caught on camera desperately trying to work out how to explain the presence of his signature on the documents of Wintris Inc, a company in the British Virgin Islands that held shares in one of the country’s failed banks.

As many as one in 10 Icelanders protested in front of the Alþingi, the national parliament, demonstrating their anger through the time-honoured tradition of hurling Icelandic yoghurt and waving bananas. Gunnlaugsson eventually resigned – and in so doing, launched a year of political upheaval; this month, the Pirate party was invited to form a government.


Three-time Pakistani PM Nawaz Sharif has spent the whole year trying to face down the discovery that his children had raised loans against multimillion-pound properties on Park Lane in London, owned through offshore companies.

“He is in trouble. I think he is going to find it impossible to govern Pakistan,” opposition leader Imran Khan told the Guardian in April. In November, Khan’s plan to “lock down” the capital Islamabad with a coordinated protest by thousands of his supporters was called off after the supreme court ordered a corruption inquiry. That the revelation prompted so much public anger is all the more striking in light of the fact that Sharif was first linked to the property 16 years ago.

Stolen art

Seated Man with a Cane, an £18m painting by Modigliani, has for years been at the centre of a legal battle between the Nahmads, a family of New York art dealers, and the descendants of Oscar Stettiner, the Jewish gallery owner from whom the painting was seized by the Nazis in 1940.

The Nahmads have long insisted that they don’t own the painting because the International Art Center, a company incorporated in Panama, bought it at auction. But the Panama Papers revealed the Nahmads to be the owners of the company, and within days the Modigliani, which had been languishing in a tax-free Geneva warehouse known as a “freeport”, was seized by Swiss police. The dispute continues.


About 170kg of silver bullion and $150,000 of coins were among the items seized by Australian police in Camp Mountain, Queensland, earlier this year after they conducted raids against suspected tax evaders based on analysis of the papers. More than $2.5bn was reportedly connected to the 1,000 Australians that appeared in the files, with 100 facing compliance action as a result of the revelations.


HMRC has a miserable record of pursuing offshore tax malfeasance, with just a single tax evader prosecuted after it was handed a disc of data naming thousands of British clients of HSBC Private Bank Suisse. So a swiftly created Panama Papers taskforce, set up by Downing Street to “deal with any wrongdoing” brought to light by the investigation, was looked upon by many with a degree of scepticism.

But a statement by the chancellor, Philip Hammond, to parliament in November suggests that, staggeringly, action is being taken: 22 people are now under suspected investigation for tax evasion; 43 high net worth individuals (the super-rich to you and me) are under examination over their links to Panama; two properties have been connected with a National Crime Agency inquiry, and 26 offshore companies with property ownership are considered by the NCA to be “suspicious”.


While the rest of the world focused on the leaked files’ revelations of massive wealth hidden offshore, potential sanctions-busting and the facilitation of grand corruption, the government of Panama called for attention to shift to a much more important problem: the name of the reporting series.

“Despite their name, the Panama Papers are not mainly about Panama,” wrote Panamanian president Juan Carlos Varela in the New York Times. “It’s not about Panama, it’s about one company. Nobody called it the Texas fraud when Enron [went] bankrupt,” agreed Ivan Zarak, the vice-minister of the economy. “It’s unjust. You are holding accountable the whole country for the actions of one company.”

An attempt at crisis management involving an independent report to assess the transparency of the country’s financial system promptly fell apart after the government refused to commit to publishing the findings.

The cellist

Sergei Roldugin, a close friend of Vladimir Putin and an inexplicably wealthy musician, gave a performance in Palmyra in May after the ancient city was liberated from Islamic State control. Beyond simply a celebration of Russian success in the military response to Isis, the spectacle could be interpreted as a public display of the president’s continued affection for the cellist, despite all that offshore awkwardness that exposed Roldugin’s links to Putin’s hidden fortune. Isis was reported to have retaken the city early this month.

Arron Banks

At the time the Panama Papers were published, Ukip financier Arron Banks was having a jolly time campaigning for Britain to leave the European Union and wasn’t about to let journalists spoil his fun by reporting on PRI Holdings Limited. PRI Holdings? Nothing to do with me! You’ll be hearing from my lawyers, sir!

Banks later published a sort of self-congratulatory EU referendum diary, in which his entry for 5 April 2016 suggests that this steadfast denial might not have been entirely accurate.

“At first I denied having anything to do with it as it just didn’t ring any bells,” he explained. “However, I got someone at the office to look into it and discovered that we did actually use a law firm to set up a couple of companies for a project that didn’t end up happening.” Banks was “thousands of miles away on a boat in the British Virgin Islands” at the time, where it’s probably quite easy to forget about offshore companies.

David Cameron

The then prime minister’s four days of April prevarication over how to respond to the discovery of his father’s offshore fund in the Panama Papers was widely described as his “worst week ever”, which seems naive, post-everything else in 2016, but felt reasonable at the time.

In his rushed-out political memoirs, Cameron’s media adviser Craig Oliver revealed that he was worried the PM might have to resign over the scandal, and that Cameron had also invested “in something called the Vietnamese Enterprise Fund”. Oliver describes a remarkably chaotic press operation, with the Camerons spending hours on the phone with accountants and Oliver not actually discovering the PM had owned offshore shares until two days after the story first broke.

Mossack Fonseca

Mossack Fonseca, the offshore services firm at the centre of the entire scandal, continues to operate. The British Virgin Islands, where it incorporated most of its clients’ companies, administered a “record” fine of just under $500,000 (£404,000) and cheerfully allowed them to continue incorporating new shell companies.

However, the firm, which continues to insist it did nothing wrong, has had nine of its offices around the world, including in Jersey, Guernsey and the Isle of Man, closed down. Several of its staff have been arrested, including one junior Venezuelan employee currently being held in a military prison in Caracas.

— source By David Pegg

The city of Seattle is divesting from Wells Fargo

The Seattle City Council voted unanimously Tuesday to withdraw $3 billion from the bank, in part because it is funding the Dakota Access Pipeline, and the city’s mayor said he would sign the measure. The vote delivered a win for pipeline foes, albeit on a bleak day for the #NoDAPL movement. Earlier in the day, the U.S. Army Corps of Engineers announced that it will allow construction of the pipeline’s final leg and forgo an environmental impact statement. Seattle will withdraw its $3 billion when the city’s current contract with Wells Fargo expires in 2018.

While $3 billion is just a small sliver of Wells Fargo’s annual deposit collection of $1.3 trillion, the council hopes its vote will send a message to other banks.

— source

Capitalism Is the Problem

Over the last century, capitalism has repeatedly revealed its worst tendencies: instability and inequality. Instances of instability include the Great Depression (1929-1941) and the Great Recession since 2008, plus eleven “downturns” in the US between those two global collapses. Each time, millions lost jobs, misery soared, poverty worsened and massive resources were wasted. Leaders promised that their “reforms” would prevent such instability from recurring. Those promises were not kept. Reforms did not work or did not endure. The system was, and remains, the problem.

Inequality likewise proved to be an inherent trend of capitalism. Only occasionally and temporarily did opposition from its victims stop or reverse it. Income and wealth inequalities have worsened in almost every capitalist country since at least the 1970s. Today we have returned to the huge 19th-century-sized gaps between the richest 1 percent and everyone else. Rescuing the “disappearing middle class” has become every aspiring politician’s slogan. Extreme inequality infects all of society as corporations and the rich, to protect their positions, buy the politicians, mass media and other cultural forms that are for sale.

Recent Crises in the History of Capitalism

Capitalism in Western Europe, North America and Japan — its original centers — has boosted profits in four basic ways since the 1970s. First, it computerized and robotized, not to lessen everyone’s work time, but instead to raise profits by reducing payrolls. Second, it exploited low-wage immigrant labor to offset wage increases won by years of labor struggles. Third, it moved production to lower-wage countries such as China, India, Brazil and others. Fourth, it divided and weakened the labor unions, political party groups and other organizations that pursued labor’s interests. As a result, inside nearly every country of the global capitalist system, the rich-poor divide deepened.

The Great Depression provoked economic “reforms,” such as FDR’s New Deal. These included regulations restricting risky bank and other market practices. Reforming governments also established public pensions, unemployment insurance, public employment systems, minimum wages, monetary and fiscal policies, and so on. Advocates believed that such reforms would end the 1930s depression and prevent future depressions. They dismissed critics who diagnosed depressions as systemic and prescribed system change (or “revolution”) as the necessary solution. “Reform versus revolution” was then a hot debate.

In the US, the reformers defeated the revolutionaries as preparation for war — and then war itself — finally ended the Great Depression. As capitalism rebounded after 1945, capitalists increasingly evaded the Depression-era reforms, using their growing wealth to buy the political influence needed to gut many reforms. Later, Reagan led the frontal assault, repackaged as “globalization” and “neoliberalism” to undo the New Deal. When that rollback of reforms culminated in the 2008 crash, it exposed capitalism’s instability and inequality yet again.

The continuing post-2008 economic crisis has reproduced both the kinds of suffering that happened after 1929 and the reform-versus-revolution debates. The difference this time is that we know what happened last time. While the reformers then defeated the revolutionaries, their reforms failed to prevent the continuation of capitalism’s instability and inequality, and their harmful social effects. Reformism today advocates the same (or a slightly varied) set of reforms as last time. It thus represents a refusal to learn from our history. The revolutionary alternative now makes more sense. “Revolutionary,” however, need not evoke romantic notions of storming barricades: Today, revolutionary refers to the recognition that system change, not another reform, is our primary task.

What System Change Requires

What differentiates system change from reforms? Reforms refer to government interventions that still leave employers in the exclusive position to make the basic enterprise decisions: what, how and where to produce and what to do with profits. Reforms include minimum wage laws, redistributive tax structures, and enterprises owned and operated by the government. They range from the mildly Keynesian (the New Deal) to the democratic socialist (what we see in Scandinavian countries) to the state socialist (the model of the USSR and People’s Republic of China). All such reforms retain the core relationship inside enterprises as that of employer-employee, with private or public directors controlling the mass of workers and making the basic enterprise decisions.

In contrast, system change means reorganizing the core human relationship inside the factories, offices and stores of an economy. That relationship connects all who participate in production and distribution of goods and services. It shapes (1) who produces what, how and where; (2) how much surplus or profits are available; and (3) the disposition of the surplus or profits.

Truly moving beyond capitalism means breaking from the employer-employee core relationship. It means no longer assigning a relatively tiny number of people inside each enterprise to the employer position of exclusively making the sorts of decisions outlined above. In private corporations the employers are the boards of directors selected by the major shareholders. In state or public enterprises of the traditional socialist economies, the employers are state officials. Instead of either kind of employer-employee relationship, system change installs a different core relationship inside enterprises. A different group of people — all workers in the factory, office or store — democratically makes those same decisions. The rule is “one worker, one vote,” and in general, the majority decides. The difference between employer and employee dissolves.

Such system change beyond capitalism means something quite different from shifting to public directors from private directors, which is a reform. System change entails the democratization of the workplace. The logic governing the economic system, then, would no longer be capital-centric (making decisions (1) through (3) in such a particular way that the capitalist employer-employee relationship in production is reproduced). The particular connecting relationship at the core of capitalism will have been superseded: rather like what happened earlier to the slave-centric core relationship (master-slave) and the feudal-centric core relationship (lord-serf). Instead, the post-capitalist core relationship will be democratically worker-centric, with the central type of workplace being the worker cooperative.

Among the goals driving an economy based on democratic worker coops, job security, quality of workers’ lives and reproduction of the worker coop core relationship in production will weigh more heavily than enterprise profits. Because different people will be making the key enterprise decisions and because those people will be driven by different goals, the post-capitalist society will develop very differently from the capitalist. Democratic worker coops will likely (1) not relocate themselves overseas, (2) distribute incomes far less unequally than capitalist enterprise, (3) not install ecologically damaging technologies near where their families and neighbors reside, and so on.

Responding to reductions in demands for their outputs, worker coops will more likely stress sharing any reduced work hours among all workers rather than forcing a few into unemployment. The needless social irrationality of capitalist downturns — when unemployed workers coexist with unutilized means of production to leave social needs unmet — will be much more apparent and thus widely unacceptable.

In an economy built on worker coops, children, retired people, people living with disabilities or illness and others outside the labor force would be sustained from the worker coops’ “surplus.” The latter comprises what the coop labor force produces above and beyond what it consumes and requires to replace used-up means of production. Adults in and out of the coop labor force would together and democratically determine the sizes and recipients of all the distributions of the surplus. They would decide how much of the surplus would go to expanding production, to provisions for future contingencies, to providing for children, for those in other social institutions, and so on. In place of capitalists (a social minority) distributing the surpluses produced by and appropriated from their employees, a genuine democracy would govern that distribution, much as it governs other worker coop decisions.

Worker coops mark a qualitative and quantitative advance beyond capitalism. They represent a system change adequate to key problems capitalism has shown it cannot overcome, even after centuries of failed efforts to do so.

— source