Committee for the Abolition of Illegitimate Debt

No measures designed to avoid further crises have been imposed on the private finance system. Governments and the various authorities meant to ensure that the regulations are respected and improved have either shelved or significantly attenuated the paltry measures announced in 2008-2009. The concentration of banks has remained unchanged, as have their high-risk activities. There have been more scandals implicating the fifteen to twenty biggest private banks in Europe and the United States— involving toxic loans, fraudulent mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. credits, manipulation of currency exchange markets, of interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. (notably, the LIBOR LIBOR
London Interbank Offered Rate An average rate calculated daily, based on transactions made by a group of representative banks. There are several LIBORs for some ten different currencies and some fifteen duration rates, from one day to twelve months. ) and of energy markets, massive tax evasion, money-laundering for organised crime, and so on.

The authorities have merely imposed fines, usually negligible when compared to the crimes committed. These crimes have a negative impact not only on public finance but on the living-conditions of millions of people all over the world. People in charge of regulatory bodies, such as Martin Wheatley, former director of the Financial Conduct Authority in London, have been sacked for trying to do their job properly and being too critical of the behaviour of banks [1]. George Osborne, the Chancellor of the Exchequer, dismissed Martin Wheatley in July 2015, nine months before the end of his five-year contract [2].
Although obviously to blame, no bank director in the United States or Europe (with the exception of Iceland) has been convicted, while traders, who are mere underlings, are prosecuted and sentenced to between five and fourteen years behind bars.

As was the case for the Royal Bank of Scotland in 2015, banks that were nationalised at great public expense to protect the interests of major private shareholders have been sold back to the private sector for a fraction of their value. Salvaging the RBS cost £45 billion of public money, while its reprivatisation will probably mean the loss of a further £14 billion [3]. We have seen the same thing happen for SNS Reaal and ABN Amro in the Netherlands, the AIB group (Allied Irish Banks) in Ireland or part of the defunct Banco Espirito Santo in Portugal. In every case, the losses to the public purse are tremendous.

ECB ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html policy has undergone superficial changes, but nothing far-reaching. Since early 2015, the Frankfurt-based institution has embarked upon an active policy of quantitative easing, buying up €60 billions’ worth of bonds a month from private European banks. The ECB encourages the banks to create structured products which it then buys. It also buys covered bonds and sovereign debt Sovereign debt Government debts or debts guaranteed by the government. paper from countries which implement neoliberal policies. At the same time, the ECB lends to private banks at an interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. -rate of 0.05% (the rate in force since September 2014) [4].

The Fed FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ has put a stop to quantitative easing, having practised it from 2008 until 2014. It no longer buys structured Mortgage-Backed Securities from banks. Early in 2014, it announced plans to raise interest-rates for the first time since 2006. Theoretically, this should come about before the end of 2015; but potential negative fall-out for the country’s economy has led to hesitation. Indeed, raised interest-rates are bound to attract massive capital inflow to the United States, which would push up the value of the dollar against other currencies and thus cause a reduction in US exports, in the present context of a weak global economy. Furthermore, many private companies are likely to run into trouble when the time comes to refinance their debts. Add to this that the cost of repaying the public debt will increase automatically. Although this last factor may count for little in the Fed’s hesitations, the impact on emerging economies will be very negative as masses of their capital will be transferred to the United States for better returns and security.

Neither central banks’ policies nor those adopted by governments have succeeded in boosting productive investment. The big private corporations are sitting on mountains of liquidities Liquidities The capital an economy or company has available at a given point in time. A lack of liquidities can force a company into liquidation and an economy into recession. , on both sides of the Atlantic. For non financial companies in Europe, this means that more than €1000 billion remain in company treasuries instead of being used to increase investment and productivity. Corporations use their profits in great quantities, especially to buy up their own shares on the stock market with a view to keeping prices up, or preventing them from falling, and to make sure that their shareholders get juicy returns. At the same time, the share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of profits that goes to shareholders in the form of dividends continues to rise, which of course means that there is even less incentive to invest.

Clearly, governments’ and central banks’ policies are causing a speculative bubble Speculative bubble An economic, financial or speculative bubble is formed when the level of trading-prices on a market (financial assets market, currency-exchange market, property market, raw materials market, etc.) settles well above the intrinsic (or fundamental) financial value of the goods or assets being exchanged. In such a situation, prices diverge from the usual economic valuation under the influence of buyers’ beliefs. on the stock markets. This bubble may burst at any moment. In 2015 the phenomenon has started in China and is imminent in Europe and the United States.

Meanwhile, the prices of several primary materials are falling (e.g. oil, solid minerals, and more). The dramatic fall in the price of oil put an end to the shale-gas boom in the United States leaving many companies in that sector on the verge of bankruptcy. Large oil-exporting countries such as Venezuela and Nigeria have been badly hit by the fall in oil prices.

A key thesis of Bankocracy is that central banks and governments are pursuing two major objectives: first, to rescue the large private banks, their principal shareholders and their top management, while guaranteeing that their privileges will continue. There is little doubt that, had it not been for the actions of the central banks, the big banks would have failed and governments would have been forced to take strong and forceful measures against their directors and principal shareholders. The second objective is to participate and support Capital’s offensive against Labour, so that corporate profits increase, making the big European corporations more competitive on the global market. These two objectives are shared by the Fed, the Bank of England, the ECB and the Bank of Japan.

The ECB itself has two further specific objectives which complement each other. The first is to defend the euro, which acts as a straitjacket
for the weaker economies of the Eurozone and indeed, for all the populations of Europe. The euro is an instrument that serves both the large private corporations and the ruling classes of Europe, that is, the wealthiest 1%. Having adopted the euro, Eurozone countries cannot devalue their currency. Yet the weaker Eurozone economies would have every interest in devaluing, if they are to become competitive again in the face of Europe’s economic giants – Germany, France, the Benelux Union (Belgium, the Netherlands and Luxembourg) and Austria. Belonging to the Eurozone has proved to be a financial snare for countries like Greece, Portugal, Spain or Italy. In times of crisis, the European authorities and their national governments apply what they call internal devaluation Devaluation A lowering of the exchange rate of one currency as regards others. : they force salaries down, to the sole benefit of the management of large private corporations. The second of the ECB’s specific objectives is to strengthen the domination of Europe’s leading economies (especially Germany, France and Benelux) where the largest private European corporations are based. This implies maintaining a markedly asymmetrical relationship between the strongest and weakest economies.

The victory, in January 2015, of an anti-austerity left-wing coalition in Greece was seen as a direct threat by the ECB, the European Commission, the large corporations and all the other governments of the EU (not only those in the Eurozone). Defeating Syriza’s project became the main goal of the ECB and all the European leaders; they finally achieved it in July 2015. The ECB literally strangled Greece financially, forcing the Tsipras government onto its knees. To avoid capitulation, the Tsipras government could have turned to alternative solutions [5] such as those described in the final chapter of Bankocracy. They should have made use of the results of the audit carried out by the Truth Committee on the Greek Public Debt [6]. Instead, they chose a more moderate path, despite the fact that it was bound to lead to failure.

Nevertheless it has become clear over the last few years that since the 2007-2008 crisis, with the ensuing intensification of neoliberal austerity policies, populations are ready to opt for radical solutions. This is evident from the growing popularity of the radical left-wing proposals of Syriza in Greece, Podemos in Spain and even Jeremy Corbyn in the United Kingdom and Bernie Sanders in the USA. One of the central lessons of Greece’s capitulation in July 2015 is that we need political forces that are determined to carry through the measures they call for, integrating them into a coherent programme that breaks with the system. Another lesson is that left-wing governments must really get to grips with issues such as illegitimate debt, private banks, taxes and public services. This is the only road to social justice and the way to get the energy and environmental transition started.There are no other ways of solving the crisis for the benefit of the 99%.

Bankocracy, by Éric Toussaint, is being published by Resistance Books, the IIRE (International Institute for Research and Education) and the CADTM. It’ll be available soon. Contents: Foreword and Acknowledgements - p.9 Author’s Preface - p.12 2007-2008 – the explosion of private debt - p.16 The impact of banking deregulation - p.29 Thirty years of financial deregulation - p.38 Banking methods at the root of the crisis - p.55 The quest for maximum Return on Equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. - p.65 Banks expand their assets - p.69 The banking collapse of 2008 - p.75 Permission to reduce equity/asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). ratios - p.81 Basel II: neoliberal euphoria and maximum permissiveness - p.89 Banking regulations: truth and lies - p.98 The nature of the major European banks - p.109 The art of deception - p.117 High leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. is maintained - p.121 Structured products – time-bombs ticking - p.123 New crises ahead - p.129 Sovereign debt is not to blame - p.133 Speculation on raw materials and food - p.137 Currency speculation and exchange-rate manipulation - p.148 Giants with feet of clay - p.152 The ‘Too Big to Jail’ doctrine - p.157 Abusive foreclosures in the United States - p.162 HSBC’s drug money scandal - p.164 Tampering with interest-rates - p.174 Tax evasion and fraud by UBS - p.178 Impunity - p.183 Governments’ and central banks’ collusion - p.185 The Fed bails out Wall Street - p.193 The ECB since 2010 - p.197 The European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England. ECB : http://www.bankofengland.co.uk/Pages/home.aspx ’s priorities - p.203 Policies that fail - p.210 The German model - p.215 Capital’s global offensive against Labour - p.223 Discord between IMF IMF International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates. When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments. As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change). The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%). The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries. http://imf.org and EU? - p.230 The central banks’ dilemma - p.234 Banks from Karl Marx’s day to the present - p.242 Alternatives - p.249 Postscript - p.275

Éric Toussaint will be presenting is new book, Bankocracy, in London on September, 10^th: