At present there are often other issues in focus of media coverage, since the financial and economic crisis has by and large disappeared from the front pages of the daily newspapers unless something extraordinary happens, as the development in Greece seems to offer. If that is the case, the general public is inundated with press releases and newspaper articles, experts are questioned and the media propaganda is in full swing. However, the reader is rarely much wiser after reading what he is served. It is also a fact that the concomitant human consequences hardly find entrance into the official world of information.
Allegedly all countries except Greece are on track. Thus, public opinion is turned against a small EU country because the Greek government is not willing to put up with entirely all of the dictates of the so-called Troika. However, the development in Greece is (unfortunately) no exception. In the end, it all comes down to the question of what kind of world with what type of economy we want to live in. Vice Director of the Department of Banking and Finance at the University of Zurich, Professor of Finance and Head of RPP “Finance”, Marc Chesney, has contemplated this question in his book “Vom Grossen Krieg zur permanenten Krise - der Aufstieg der Finanzaristokratie und das Versagen der Demokratie.” (From the great war to the permanent crisis – the rise of the financial aristocracy and the failure of democracy).
Marc Chesney bluntly expounds the machinations of the financial groups and their effects on the community, and – as the title already leads us to expect – their effects on democracy. And all countries are affected by them. In his study Marc Chesney takes an ethical stance that is all that one can wish for, precisely in the financial sector. His outrage at the greed of banking institutions and their managers as well as their lacking sense of responsibility is pleasant and refreshing. It calls for political, and also educational, action because a different ethical attitude can hardly be brought about by new laws, even though they are also very important. Here we need a change of thinking orientated much more towards public spirit, the common good, human sympathy, benevolence and ethics and, in the long run, towards an education for more democracy.
In the introductory chapter the author draws a comparison between the beginning of the First World War and today’s war at the financial centres, whose principal weapons are gigantic speculative bubbles which have a devastating impact and can tear entire economies into the abyss. According to Chesney “die europäische Jugend [stirbt] nicht mehr massenhaft in den Schützengräben oder auf den Schlachtfeldern (…) und doch wird sie in diesen Krieg der anderen Art hineingezogen, den Finanzkrieg, unter dem sie häufig zu leiden hat.” (p.18) (Europe’s youth no longer dies ‘en masse’ in the trenches or on the battlefields (…) and yet it is drawn into this war of another type, the financial war, under which it frequently has to suffer.) The high numbers of unemployed young people are a reflection of these disastrous consequences brought about by the rampant money economy on the financial markets.
A departure from the post-war period economy began, according to Marc Chesney, with the election of Ronald Reagan as the President of the US and of Margaret Thatcher as the Prime Minister of Great Britain. What followed was the implementation of the neoliberal economic policy, which, starting from these two countries, was enforced in all the other Western countries, as well. After the collapse of the Soviet Union and its opening towards the West, this policy also established itself more and more in the former “satellite states”. According to Francis Fukuyama the introduction of neoliberalism should have launched and characterised an era of peaceful coexistence. “Ihm zufolge sollte es mit dem Ende des Kalten Krieges zum internationalen Konsens einer liberalen Demokratie kommen.” (p.20) (According to him, the end of the Cold War should have led to an international consensus on liberal democracy.) This is not the case, as so-called democratic countries such as the US, Great Britain, and also Germany, Italy and France, all states defining themselves as democracies, have been actively involved in the wars of the past 25 years – all of them wars of aggression and instigated by Western democracies. Thus already in 1917 the US entry into the war was by no means an act of selflessness and altruism, even if the then US President Woodrow Wilson initiated his legendary 14 point plan of March 1918 on exactly this premise. As Chesney aptly remarks, “Angst vor kolossalen finanziellen Verlusten für die amerikanischen Banken, die England und Frankreich Gelder geliehen hatten” (fear of colossal financial losses of the US banks that had lent funds to England and France…) was “… einer der wichtigsten Faktoren für den Eintritt Amerikas in den Krieg.” (… one of the most important reasons for America’s entry into the war.) (p. 21) The parallels are obvious. Although in war lives are destroyed physically, financial crises destroy human existences in other ways. It can hardly be expressed more aptly than as follows: “Die neue Religion des Neoliberalismus fordert Opfer auf dem Altar der Kasino-Finanzwelt. Der Versuch, die Finanzmärkte zu beruhigen, ist illusorisch.” (p. 23) (The new religion of neoliberalism requires sacrifices on the altar of the casino world of finance. The attempt to calm the financial markets is illusory.)
At several points Marc Chesney draws comparisons between war rhetoric and “financial propaganda”. “Während des Ersten Weltkriegs waren es die Nationen, die aufs Podest gestellt wurden, die Opfer verlangten. (…) Heute verlangen die ebenfalls zum Gott erhobenen Finanzmärkte fortwährende Befriedigung und die damit verbundenen Opfer.” (p.26) (During the First World War it was the nations that were put on a pedestal and demanded sacrifices (…) Today, the equally deified financial markets also demand perpetual satisfaction and the ensuing sacrifices.) Initially these sacrifices were of a financial kind. “Südeuropa und besonders Griechenland sind ausgeblutet, nachdem ihnen brutale Sparprogramme auferlegt wurden.” (Southern Europe and particularly Greece have been bled dry after brutal austerity measures were imposed on them.) But not only in these countries are people suffering. In Germany, which is being referred to as an economic engine per se, nearly 12 million are living below the poverty line, that is, about 15% of the population. This is outrageous: in Italy it is 12%. Given these figures the question arises, where the money is going that has positively been pumped into the financial system by the Central Banks? Why did the affected people not benefit? Down what throats were the horrendous amounts thrown? “Der Versuch, die Finanzsysteme zufriedenzustellen, gipfelte bisher darin, dass das Bankensystem auf Kosten des Steuerzahlers gerettet wurde, ohne dass eine wirkliche Gegenleistung erwirkt wurde.” (The attempt to satisfy the financial systems has so far culminated in the rescue of the banking system at the taxpayers’ expense without obtaining any real quid pro quo.” (p.27) The sums with which it was attempted to rescue the European banks are exorbitant. “Seit 2008 haben die europäischen Staaten an die 400 Milliarden Euro ausgegeben, um ihre Bankensysteme zu retten. Doch in die Wirtschaft und zu den geprellten Bürgern ist das Geld nicht geflossen.” (Since 2008 the European states have spent almost as much as 400 billion euro in order to rescue their banking systems. But the money did not go to the economy and to the short-changed citizens.) In a high-street bank the popular consolation was that the crisis had to be ridden out for the moment so that afterwards business might go on as usual. Chesney explains what this “business as usual” means: “Die im grossen Stil von der EZB in das Finanzsystem gepumpten Gelder sind keine echten Investitionen in die Wirtschaft. Die Prioritäten der Grossbanken liegen eindeutig woanders. Statt sich auf ihre eigentliche Kerntätigkeit zu konzentrieren, nämlich den europäischen Unternehmen für ihre rentablen Investitionsvorhaben Kapital zu leihen, lassen sie sich auf gewinnbringende Aktivitäten wie die genannten Arbitragegeschäfte und den Vertrieb von komplexen und häufig toxischen Finanzprodukten ein. (…) Diese in den Finanzsektor eingebrachten Gelder erzeugen hohe Renditen an der Börse, während die Krise in der Wirtschaft anhält.” (p.28) (The funds pumped into the financial system on a large scale by the ECB are no real investment in the economy. The priorities of the big banks clearly lie elsewhere. Instead of focusing on their core function, namely supplying European companies with capital for their profitable investment projects, they enter into profitable activities such as the above-mentioned arbitrage activities and the distribution of complex and often toxic financial products [...] These monies introduced into the financial sector generate high returns on the stock market, while the crisis in the economy persists.” Chesney speaks of two waves of globalisation, which have already overrun the people of the modern age. By the way, the belief that globalisation had simply been there, is as unhistorical as the assertion that there is no alternative. Actually Europe experienced a phase of “globalisation” already once during the period of high imperialism from about 1870 until the end of the First World War. This “globalisation” was characterised by the conquest of a number of continents, by an unbridled free trade and the shameful exploitation of the colonial countries, partly by means of brute force. The First World War and the Great Depression then caused people to search for new answers. In the US, for example, free trade was restricted, the state created economic stimulus packages, and there were attempts to set up barriers to restrain stock jobbers, but these attempts were not consistent. The Second World War promised profits in billions to the US defence contractors, especially as companies like Ford or General Motors had their own offices in the German Reich.
The second wave of globalisation is determined most notably by the neoliberalism of US-American provenance. US military power and dollar dominance allow America to live beyond its means. “Auch die USA spielen im Rahmen der zweiten Globalisierungswelle eine Schlüsselrolle. Sie sind die Verfechter eines anderen Eldorados: des ungezügelten Neoliberalismus. Seit den 1980er Jahren sind die US-amerikanischen Grossbanken in der Finanzwelt hinsichtlich der Schaffung von zweifelhaften und toxischen Produkten federführend. Überdies verleihen ihre militärische Macht und die Dominanz des Dollars den USA einen eindeutigen Vorteil, wodurch sie über ihre Verhältnisse leben können.” (p.39) (Also the United States play a key role in the second wave of globalization. They are the champions of another Eldorado: unbridled neoliberalism. Since the 1980s, the US major banks have been leaders in the financial world with regard to the creation of dubious and toxic products. Moreover, their military power and US dollar dominance confer a distinct advantage to the US, which allows them to live beyond their means.)
According to Chesney, another phenomenon, characterising this second wave of globalisation can be observed: the distribution of income. In the US in 1910 1% of the population obtained 18% of the sum of all incomes. In 1970, however, they only received 8%. Today we are back to 18%. These figures seem incredible, if you keep in mind that 40% of the world population have to live on less than two dollars per day and that 870 million of them suffer from chronic malnutrition. Jean
Ziegler describes the consequences of these facts in his book “We let them starve” . In this book he argues that chronic malnutrition in childhood leaves lasting damages, which cannot be regenerated even up to adulthood. Where malnutrition does not lead to death, it nevertheless harms human beings severely. But things could be different. For as Ziegler argues in his latest book with the telling title “Change the World!” that our Earth has so much agricultural potential that it could feed 12 billion people, ie. almost twice as many as it could feed today, if this were not prevented by other interests.
The discrepancies in assets, income and property among people are huge. Nearly 3 billion people have less than 2 dollars a day at their disposal, however “dem Ranking der Agentur Bloomberg vom 2. Januar 2014 zufolge [besitzen] die reichsten 300 Milliardäre der Welt (…) ein Gesamtvermögen von 3,700 Milliarden.” (p.44) (according to the ranking of the agency Bloomberg of 2 January 2014, the richest 300 billionaires of the world possess 3.7 trillion in total assets.”) In these facts, Chesney perceives “das Symptom einer unersättlichen Gefrässigkeit der Finanzwelt und der Logik, die dieser Sektor der Wirtschaft auferlegt. Dies ist eine Krankheit, die den Menschen schadet, da sie den Grundprinzipien widerspricht, die den meisten seit ihrer Kindheit unabhängig von Herrschaft, Kultur oder Religion eingeschärft werden.” (p.44) (the symptom of the financial world’s insatiable voracity and of the logic which this sector imposes on the economy. This is a disease that harms human beings since it contradicts the basic principles which most of us have been inculcated with since our childhood, regardless of rule, culture or religion.” Most notably since the spread of neoliberalism exorbitant managers’ wages have been established evermore. Tens of millions, which were also paid if the group in question was in the red, have nothing in common with the sense of responsibility and the assumption of obligations, but they are an expression of a development where everything revolves around mere self-enrichment. “Die Wirtschaft braucht Manager, die sich der Verantwortung bewusst sind, die sie nicht nur gegenüber den Aktionären, sondern auch gegenüber ihren Mitarbeitern, Kunden und allgemein gegenüber der Gesellschaft haben.” (p.45) (The economy needs managers who are aware of their responsibilities not only towards their shareholders, but also towards their employees, their customers and towards society in general.)
What is being only selectively perceived in the current debate, is the horrendous national debt of almost all industrial nations: “In den USA beträgt die Verschuldung insgesamt (Privatleute, Unternehmen, Staat, Finanzsektor) 340% des Bruttoinlandprodukts.” (p. 46) (In the US the overall debt (private individuals, businesses, state, financial sector) amounts to 340% of the gross domestic product) US government debt alone amounts to 18 150 billion dollars (http: //www.haushaltssteuerung.de/schuldenuhr-staatsverschuldung-usa.html). In other industrialised nations the figures look no better. The levels of public debt entail the absolute dependence of these states on their investors. The example of Greece makes this obvious to everyone. There are almost no ways or means to get out of the debt trap. New loans are obtained to repay the ones that are due for payment – this is no way to escape the spiralling debt. More often than not the new loans are subject to conditions based on the neoliberal economic policy and boiling down to a sell-out of state property. Thus Greece must currently introduce a massive VAT increase, cut pensions and civil servants’ salaries and privatise even more state-owned enterprises, which is tantamount to throwing the “family silver” onto the market. The country is being requested to economise itself to death.
The financial crisis clearly showed that the growth of national economies is not based on prudent and sustainable economic activities but on a kind of casino economy which focusses first and foremost on short-term profits instead of long-term planning for the benefit of the current as well as future generations. Chesney notes accordingly: “Schliesslich scheint die Unsichtbare Hand von Adam Smith in der Finanzwelt zunehmend unwirksam zu sein. Das Verfolgen individueller Interessen fördert immer weniger die Interessen der Gesellschaft.” (When you come to think of it, the invisible hand of Adam Smith seems to be increasingly ineffective in the financial world. The pursuit of individual interests furthers the interests of society less and less.)
In the chapter about “Characteristics of the financial Casino” Chesney shows what the specific properties of this Financial Casino world look like. One of them is the trade in Milliseconds. While a stock-market trader would hold on to his shares for 5 years on average in 1940, this average time has come down to one minute in the US today. This way the stock exchange has turned into one gigantic casino and has utterly lost its original function, namely to provide cash to industrial enterprises. A big proportion of the trade transactions are done “over the counter”, i.e. outside the stock-market, which renders them totally non-transparent. Apart from these ways of transactions the financial institutes have developed a whole bunch of new products, including so-called credit default swaps. These are insurances one can buy to be insured against a company not being able to repay credits – even if has not granted a credit to this particular company. In fact these are bets on a company going out of business or going bankrupt. Moreover there are similar CDS’s with which one can bet on the death of a sick person or the imminent bankruptcy of enterprises or states. “Je älter der Versicherte ist, je schlechter sein Gesundheitszustand und seine wirtschaftliche Lage sind, desto interessanter ist er als Kunde. Die wichtigste Variable bei dieser Rechung ist die Sterblichkeitsrate. Je früher der Tod eintritt, hesto höher ist der Profit des Investors.” (p.54) (The older the insured, the more problematic his health and financial situations are, the more interesting he gets as a customer! The most important variable in this equation is the mortality rate. The sooner he dies, the higher the profit of the investor.) It is certainly quite hard to think of something more perverse than this.
Structured products, a combination of derivates, are another blend of bets from the “financial casino world”. Big banks can speculate on these and due to their gigantic capital volumes potentially make horrendous profits. For private customers the risk is much higher and consequently the probability to lose money rises. But banks can lose severely that way, too, as shown by the bank crisis of 2007/2008. In the worst scenario this will lead to banks going out of business, and with the “too big to fail”-theory the state will assist the challenged financial institutes in most cases. Those banks which still do what their original purpose used to be, namely provide cash to the economy in order to enable enterprises to invest, seem to have been marginalised for a long time, now.
The extremes of a capitalism running havoc in the way Marc Chesney describes it are outrageous, and so is the fact that no real change has been implemented to this day, instead the banks returned to their old speculation orgies. Years ago the directors of the US mortgage banks Freddie Mac and Fanny Mae announced that they held just the same amount of toxic assets in their portfolio as before the crisis, but this time it did not pose a problem because of the state guarantee. It goes without saying that nothing will improve under such conditions and that it is only a matter of time when the next crisis will erupt and tax payers will be made liable for the bank losses.
However, Marc Chesney does not just presents these depressing analyses of reality but he also tries to offer several recipes for a solution in his last chapter. There he demands in clear words: “Der Finanzsektor sollte im Dienst der Wirtschaft stehen, statt diese zu beherrschen, wie es aktuell der Fall ist.” (p.83) (Rather than ruling it, as it is the case at present, the financial sector should serve the economy.) Moreover he argues that as long as the “too big to fail”-paradigm is upheld banks have no reason to be inclined towards less risky trade habits. That means the special privileges of big banks and investment funds are harmful to the economy and the common good.
Since it provides the opportunity to the people to initiate a referendum against laws or to challenge the extremist behaviour of banks with initiatives, direct democracy is the only efficient remedy against the arbitrary rule of the financial markets and a policy which is dedicated more to the corporations than to the citizens. The initiatives against exaggerated manager boni, the so-called “rip-off artists initiative” of Thomas Minder is the classical example of how an initiative may be launched by like-minded citizens and the people as the sovereign at the end decide on the issue. While in other countries this opportunity does not exist as yet, Chesney argues that it should be created by all means. “Eine echte Demokratie muss eingeführt werden, wie es zum Beispiel in der Schweiz der Fall ist, damit sich der Bürger zu kontroversen Themen äussern kann, über die mit Hilfe eines Referendums abgestimmt wird. (…) Es ist unbegreiflich, dass in angeblich demo-kratischen Ländern wichtige politische und energetische, soziale, wirtschaftliche oder finanzielle Fragen nicht wirklich demokratisch entschieden werden können.” (p.85) (A real democracy has to be established, as it is the case in Switzerland, so that the citizens may voice their opinions in controversial issues and vote on them in referendums. (…) It is beyond comprehension that there is no opportunity to vote on important political and energy-related, social, economical and financial questions in supposedly democratic countries.)
Chesney’s endorsement of Swiss direct democracy is a blessing and should be carved in stone for all those who believe democracy were the ritual of castings votes for political parties every four years, as is customary in most European countries, or who think that the issues were too complex and therefore could not be decided by the people. Anybody familiar with Swiss history and the development of direct democracy will know that its introduction was preceded by long and stubborn fights. What was true for Switzerland will be the case even more in other countries with different histories and traditions. The strong federalism, the tradition of co-operatives, the love of freedom and the insight from painful experiences that staying neutral as a state was preferable to competition with foreign powers – all those paved the way which led from the old political system of the mid 19th century together with the ideas of enlightenment to the creation of what Switzerland is today. A civil society like no other in the world.
Apart from the necessity to strengthen democratic control and develop towards direct democracy in other countries, Chesney identifies other areas where action is urgently needed for the regulation of markets and banks. His comprehensive proposals are all worth discussing and provide an excellent platform from which to control and correct the extremes of the capitalist system and re-establish an economy oriented towards the common good.
“Last but not least the implementation of those measures requires the politicians to have the abilities of analysis and … courage. They bear responsibility towards present and future generations who are entitled to a decent life in dignity.” •
“Whatever party they may belong to, the only policy politicians are allowed to pursue is the one the financial markets would like to see. This is a special blend of dictatorship. It was in November 2011 when Giorgos Papandreou, then still prime minister of Greece, had the guts to announce a referendum in which the Greek citizens were to get the opportunity to voice their opinion about the financial aid offered by Europe to their country and the austerity measures coming with this aid. He lost his job a couple of days later. In our supposedly democratic system, such an opportunity to have a say about how their tax money is used and other questions relevant to them would be desirable not only for Greek, but also for German and French citizens!” (pp. 31)
“In the year 2000, the fiscal deficit of Greece had been partially covered up by Forex swaps, a complex financial product of the Goldman Sachs Bank, one of the big actors in the financial markets. Although it might have been better not to join the euro zone, the hidden deficit contributed to the erroneous assumption that Greece would fulfill the Maastricht criteria and were therefore entitled to join. Mario Draghi, the president of the European Central Bank mentioned above, used to serve Goldman Sachs Europe as their deputy chairman. Notably he has never criticised these cover-ups in public as yet. Another important cog in the wheel of this transaction was Loukas Papadimos, who used to be governour of the Greek central bank at that time and later became prime minister of Greece in 2011.” (p. 32)
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