“The seriousness of this crisis is such that we cannot expect any solution within the system and certainly not from the US administration, certainly not from the G-20 because within that group, except for a couple of exceptions, is the dominant Washington consensus of the neoliberal agenda, ” said Michel Chossudovsky, a progressive economist and academician.
“In the Philippines, this crisis will be extremely severe because it is imposed upon an existing situation…of dependency, lack of sovereignty, crisis of the real economy, and poverty of the large majority of the population.”
BY RONALYN V. OLEA
Debunking claims of financial analysts, a scholar asserted that the global economic crisis is a result of financial manipulation. Michel Chossudovsky, director of the Centre for Research on Globalization, also said that the current proposed solutions to the crisis will ultimately fail.
In a forum entitled “Global Financial and Economic Crisis: Exposing Capitalism, Looking for Alternatives” held February 10 at the Asian Center of the University of the Philippines in Diliman, Chossudovsky, said, “We are at the crossroads of the most serious crisis of our history. Its comparison is with the Great Depression of the 1930s… we are really dealing with the first major global economic crisis.”
The forum is part of the two-day lecture of Chossudovsky organized by the Bagong Alyansang Makabayan, Ibon Foundation and RESIST!.
Chossudovsky has taught at universities and academic institutions in North America, Western Europe, Latin America, Asia and the Pacific. He is currently teaching in the International Development and Globalization Studies Program at the University of Ottawa.
He is the author of several international best sellers including The Globalization of Poverty and the New World Order (2003) and America’s “War on Terrorism” (2005) and more than 500 articles. His writings have been translated into more than 25 languages.
Chossudovsky said, “We must understand that it’s not a spontaneous downturn as some financial analysts suggested that this is some kind of downturn of a business cycle and it goes up again. This crisis is a result of financial manipulation. It is the result of derivative exposure, the use of very complex speculative instruments which have the capacity of moving markets up and down.”
Chossudovsky said that in Southeast Asia and the Philippines, this crisis takes its roots in the debt crisis of the 1980s. “It is a continuum but at the same time there are sub-stages which have led up to the meltdown of the global financial markets.”
He said that 1980s is the beginning of neoliberal economic policies which led to the Western countries’ restructuring of the State, the phasing out of social programs, privatization of state assets. “It is essentially an agenda which serve the interests of financial institutions and large corporations at the expense of the social project which emerged in the post-war years which is largely based on the notion of welfare state…”he said.
Chossudovsky continued, “They also established a new agenda in the developing countries which is an imposition of strong economic medicine under the auspices of the International Monetary Fund (IMF)-World Bank.”
He said that there were impositions of deadly macroeconomic reforms resulting from the increase in the levels of external debt in the Philippines and other developing countries. The IMF and WB lend money with strings attached, the structural adjustment programs (SAPs), which according to Chossudovsky, include prescriptions such as closing down schools and hospitals, sending off the state assets to the private capital, liberalizing trade, cutting subsidies to agriculture, among others.
“They [IMF-WB] lend money to trigger the reimbursement of the debt and in the process, they impose conditions which in effect establish a parallel government, there is no sovereignty under that kind of arrangement,” Chossudovsky explained.
1997 Asian crisis
Chossudovsky said that from the 1980s onwards, the structure affecting developing countries remains the same. “It’s part of the same process, it leads into another major occurrence which is the Asian crisis of 1997,” he said.
He maintained that the Asian crisis is somewhat a variant of the traditional IMF-WB reform because it was an attempt on the part of Western financial institutions to destabilize currencies and to trigger the collapse of the national currencies with the view of gaining control of essential bank reserves and of gaining control over assets. Countries most affected Korea, Indonesia, Thailand, Philippines were targeted by institutional speculators. The region was impoverished.
Chossudovsky said the whole movement from ‘97 onwards has been essentially to develop a whole range of speculative instruments which have led financial markets, commodity markets, foreign exchange markets, oil markets to go up and down using speculative instruments.
Chossudovsky said the Wall Street conglomerate were largely but not exclusively behind the onslaught of these speculative attacks.
He said that Malaysia was the only country in Southeast Asia which managed to resist the attacks of speculators. “They did this because they have some carefully-designed mechanisms to protect their foreign exchange market and defend themselves against the speculators.”
Chossudovsky said that in the wake of the Asian crisis, the 1999 Financial Services Modernization Act (FSMA), a major piece of legislation in the United States, came. He said the FSMA is important in understanding the present crisis.
The FSMA repealed the Glass-Steagall Act of 1933 which prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. Enacted during the Great Depression, it protected bank depositors from the additional risks associated with security transactions.
Chossudovsky deemed, “The FSMA allows for the formation of global financial conglomerates through the merger of the commercial banks and the stock brokerage companies, export banks, merchant banks together with the large insurance companies and accounting firms.”
He cited as an example the JP Morgan Chase which is the integration of Chase Manhattan, a commercial bank and JP Morgan.
Chossudovsky said, “This is extremely important because it essentially means that the functions of credit now are overseen by institutions which are involved in speculative activity and the reason why they introduced this separation in the 1930s was precisely to prevent the kinds of occurrences.”
The Act, said Chossudovsky allows speculators to control the financial system. He said there are several speculative actors operating commodity markets and energy markets which push the price up and down . “Then you have a situation where the oil market has absolutely no link to the actual cost of production of a barrel of oil. The price has no relationship to the real cost of the commodity which is the object of speculation. The same thing with food commodity where speculators push up the prices of rice, grain using exactly the same mechanism,” he explained.
Chossudovsky further said, “When I say global financial architecture is that once it was established on Wall Street that commercial banks and stock brokerage firms coalesce, it became a worldwide process. Today, we no longer have a tight separation between commercial banks and stock brokerage firms and that means that financial institutions are increasingly controlled by speculators and then we have the development of all the derivative instruments, the fact that the hedge funds are not regulated in any way. All the US banks have their hedge funds where they can transfer money. The hedge funds are essentially controlled by fund managers who are private individuals but they may be connected to the interest of particular financial institutions or banks.”
“In the present context, it is interesting to note that every single financial institution in America, JP Morgan Chase, Bank of America say they are technically bankrupt. Now you say why are they technically bankrupt? They’ve been taking money from their own bank and transferring this money to their related hedge funds and they are also using the money from the bailout to enrich themselves. What you have is that FSMA setting the stage for the current crisis,” he added.
Architects of economic disaster
Chossudovsky said the architects of the FSMA which create these global financial institutions are very powerful.
He said that the the people who are behind the global financial architecture are precisely the people who are part of the new Obama economics team.
He said that Timothy Geithner, chief executive officer (CEO) of Federal Reserve Bank of New York, has been appointed to head the Treasury and Lawrence Summers who was the architect of the Financial Services Modernization Act of 1999 has been appointed as economic adviser of the White House, chairman of the council of economic adviser.
“The CEO of the Federal Reserve Bank of New York which is a private banking institution controlled by the major banking conglomerate is appointed to the Treasury and the Treasury now is in charge of acting on behalf of taxpayers. In effect, the whole process has been hijacked and what we are dealing with is a tremendous accumulation of private wealth by these Wall Street financial conglomerate,” he said.
“What you see is that the architects of economic disaster, those who set the financial agenda in 1999, Lawrence Summers, Robert Rubin, members of the financial establishment, the Rockefeller family and so on, these people are now part of the new economic team,” he added.
“There’s continuity. We have to understand that continuity. The Obama administration does not break that continuity,” Chossudovsky said.
He said that the same people who are behind the financial crisis mainly the Wall Street banks, the big players such as the JP Morgan Chase which is closely linked to the Rockefeller family, Bank of America, the oil companies, what we refer to as military industrial complex which are the major Anglo-American defense contractors, the producers of weapons – the Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, Boeing, British Air Space remain in control.
Chossudovsky said, “The architects of economic disaster are those who are being called in to provide solutions. Within that frame of reference, there are no solutions because the solutions lead to the exacerbation of the crisis, they don’t lead to resolution of the crisis.”
He said that the logic of the first bank bailout which was implemented by the Bush administration is very similar to the logic of Obama’s stimulus package with some differences.
Solutions first proposed by the Bush administration, the Troubled Assets Relief Program (TARP) at the time was a $700-billion rescue package which was to help the troubled financial institutions.
Chossudovsky said that even with this bailout, you will never resolve the problem of the accumulated debts in the banking system.
He explained, “You have a $700 billion Treasury emission which requires running on a budget deficit. You can’t hand over $700 billion to the banks out of thin air. The Treasury needs to finance this. What do they do? They remit $700 billion worth of government bonds and Treasury bills. Now, who is going to buy 700-B worth of government bonds and Treasury bills? Maybe the Chinese, Japanese and some stupid people in Southeast Asia will buy these but they have to go through the banks, they are the brokers of this public debt so that they will help the Treasury to transact this public debt but they will also hold a portion of the public debt.”
He said further, “The mechanics is the following: The banks say we need $700-billion to get rid of this toxic asset etc. The money goes into acquisition of other financial institutions, a part of it is diverted to the hedge fund, it goes into the hands of private financiers connected to the financial institutions.” “The recipients of the bailout are also the creditors of the state which are financing, providing them the money either directly by holding a portion of the debt but also by selling of the debt in the international market.”
Chossudovsky said that to finance this bank bailout, the Treasury needs to slash public expenditure in a massive way. He said, “…[I]n effect, the US state is financing its own indebtedness, it is handing money to the bank and then it is asking the banks to help them finance the deficit and in turn, the public debt goes up dramatically. And I’m not talking about one bailout package, there were several others and then what happens is the whole structure of the public finances of the country goes damn, you can’t fund the schools, you can’t fund the hospitals why? Because you have to give money to the banks.”
“You lend money to the bank and the bank lends you money to finance the money that you handed to them and then they impose also a very major repacking of old categories of expenditure and virtually a situation where the state becomes totally privatized…What is happening in the US is the situation where the banks are overshadowing the entire structure of public expenditure,” Chossudovsky continued.
Chossudovsky said that the financial institutions which call the shots in public policy will then start to transform this massive amount of paper wealth. “What is happening is that this massive concentration of private wealth in the hands of financiers. There’s a lot of cash money capital available at this moment in the hands of a handful of institutions and wealthy individuals and they will start buying up airlines, automobile companies, high-tech firms, universities etc, hospitals. In other words, we’re going to see this shopping spree where the upper echelons of the financial establishments will start buying up the real economy.”
Chossudovsky said even stimulus packages will not solve the crisis. He said it is the IMF and World Bank, the financiers, which will set the guidelines for stimulus packages. “And the IMF-WB are institutions or bureaucracies which in effect are controlled by the Wall Street. They don’t have any authority in their own right, they are very much integrated into the Wall Street establishment,” he said.
He said that any kind of stimulus package has to go to Washington.
“This stimulus package is really based on an existing structure of interference and hegemony in the internal affairs of the Philippines…it goes back more than 20 years and is precisely on that basis, on this type of environment of conditionalities and economic reforms imposed by the creditors that this stimulus package is going to be implemented,” he said.
He added, “And it’s going to be implemented on borrowed money obviously because the external creditors are there and they are also now imposing particular directives on how the money is going to be spent.”
Chossudovsky said there are two programs of the WB that is important in the present context. One is called the PIP or the Public Investment Program which essentially is a list of investment projects and is entirely under the control of the WB. The second one, he said, is the Public Expenditure Review.
“They say there is some corruption in the allocation of the WB fund but they [WB] are complicit in that corruption because they deal with the people [involved in corruption],” he said.
“The seriousness of this crisis is the fact that as far as solutions are concerned, we cannot expect any solution within the system and certainly not from the US administration, certainly not from the G-20 because within that group, except for a couple of exceptions is the dominant Washington consensus of the neoliberal agenda,” Chossudovsky said.
“In the Philippines, this crisis will be extremely severe because it is imposed upon an existing situation…of dependency, lack of sovereignty, crisis of the real economy, and poverty of the large majority of the population. The measures which are currently being formulated must be challenged in a very consistent and meaningful way.”