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Finance: global or international ?

July 19th, 2014

I have a piece in The National Interest, looking at various recent events including the latest round of the Argentinian debt crisis, in which a New York court ruled in favor of a group of ‘vulture’ investors, led by a New York billionaire, and the agreement of the US Department of Justice and Citibank, involving a financial settlement to avoid a lawsuit over bad mortgage deals and CDOs in the pre-crisis period.

My central observation is that while legal forms are being observed, these are obviously political processes, with outcomes reflecting relative political power rather than any kind of neutral application of the law. So, the world financial system is part of international power politics: it matters a lot that Citibank is a US bank, while BNP Paribas is French and so on. This is very different from the picture of a global financial system independent of, and standing in judgement on, national governments that seemed to be emerging in the 1990s.

As an illustration, I found this ad put out by the ‘vultures’. To see my point, try interchanging “US” and “Argentina” throughout and assuming an adverse judgement by an Argentinian court against the US government.

ATFA-Full-Image

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  1. Marcia Keegan
    July 19th, 2014 at 13:19 | #1

    I seriously thought that picture was intended to be ironic.

  2. bjb
    July 19th, 2014 at 14:19 | #2

    You just have to look at the US vs Antigua WTO dispute to see how much notice the US takes when a ruling goes against it.

  3. Ikonoclast
    July 19th, 2014 at 15:23 | #3

    “… while legal forms are being observed, these are obviously political processes, with outcomes reflecting relative political power rather than any kind of neutral application of the law. So, the world financial system is part of international power politics… ”

    Absolutely! I could not agree more. That is the Realpolitik of it.

    The US position is breathtakingly arrogant as usual in these times. The rest of the world must obey US law while the US does pretty much what it likes in all aspects of international politics and finance. But it’s not because they are Americans, it’s simply because power breeds arrogance. Always has, always will. The behaviour of other large powers like China and Russia is no different within their respective spheres of influence.

    The US and the West now have a lot to fear as the poles of world power appear likely to flip. The OECD may well be superseded in world power terms by the Shanghai Cooperation Organisation; especially if India joins it.

    This change of power (especially eclipse of the USA by China) would be all but inevitable were it not for Limits to Growth. LTG will have major ramifications that make it difficult to predict national economic and political-military power trends over the next several decades.

  4. July 19th, 2014 at 20:23 | #4

    Pr Q said:

    the latest round of the Argentinian debt crisis, in which a New York court ruled in favor of a group of ‘vulture’ investors, led by a New York billionaire,

    The NY billionaire is Paul Singer whose vulture fund has an annualised return of 14% since 1977, compared to the industry standard S&P return of 11%. Compounded that gives a vulture hedge fund a 250% larger jack pot after 37 years.

    Not bad for a loan shark and debt-collector who uses US government as his bag man. I sure hope the Argies stiff him on this claim, they need some consolation after losing the World Cup.

    His MO is based on the secret purchase of discounted debt which is then presented to courts when debts are settled through international bil-outs or debt-restructuring. One of his victims was the Republic of Congo from which he managed to gouge $117 million in return for some fancy pixel shuffling.The Argentinian finance minister has more on this charming piece of work:

    Paul Singer could be branded as the inventor of vulture funds; in 1996 he won a case against the Peruvian government for a 400 percent profit. After this success, Singer sued the Republic of Congo for $400 million for a debt it acquired for $10 million and ended up with $127 million. Needless to say, this is money that should be going to build roads, schools and other poverty reduction programs. Worst, these nations are often on the receiving end of debt alleviation and international funding — which then goes to line the pockets of said vulture funds.

    I’m sure that the citizens of the Congo are relieved that Mr Singer only made a 1300% profit instead of a 4000% profit. They got off lightly!

    Reinforcing Pr Qs point about the bankstas real politik, the minister reveals that Singer is a heavy donor to the REPs although he is also not above a little bi-partisan switch hitting when the political wind changes:

    In this game political connections play an important role. Though Paul Singer has been the biggest donor to the Republican campaigns for many years, he leaves nothing to chance: when the polls reflected a political sea change during George W. Bush’s presidency, he appointed Democrats to lead a task force created to lobby against Argentina.

    And of course, youd never guess, the search-and-seizure arm of his operations is based in in off-shore tax haven:

    The crude truth is that NML [a subisidiary of Singers Hedge] is based in the Cayman Islands just to avoid paying taxes in the U.S.

    Ah hedgies, dont you just love the way they never leave one god-damned red-cent on the table.

    But there is a silver-lining on the Singer cloud. He is a massive player in the gay-marriage push that comes out of a clique of New York REP hedge fund managers who, for some reason, seem to be all Jewish.Apparently Singer has a gay son, but I doubt that this is a factor in all of them. The venerable Jewish Telegraph Agency does not rub its eyes in disbelief:

    The New York Times runs a piece today on how the big money behind the push for sanctioning gay marriage in New York State is coming from Republicans. The figures named are also Jewish, which isn’t too surprising, considering that state’s tradition of Jewish socially moderate Republicans. (The four named philanthropists are also hedge fund managers.)
    But I mean every name. Here’s what a quick Google search came up with:
    – Paul Singer: on the boards of Jewish Institute for National Security Affairs and Commentary
    – Daniel Loeb: Appeared at events for YIVO and the Jewish Enrichment Center.
    – Clifford Asness: Likened Obama’s proposed tax policies to pogroms.
    – Steven A. Cohen: Cohen’s philanthropy does not have much of a Jewish slant.
    And then there’s former Republican National Committee chairman, Ken Mehlman, who’s organizing the whole GOP push, and New York Mayor Michael Bloomberg, who also backs the initiative
    Anyway, like I said, not surprising — but striking.

    So thats the deal being offered by the heavy-hitters of post-modern liberalism. They get more money than God by digital card-sharping. And we get a slim chance to score an invite to a gay marriage.

    Never give a sucker an even break.

  5. Midrash
    July 19th, 2014 at 20:29 | #5

    Thank you for the introduction you provided to your articles in The National Interest. A pity I hadn’t read your piece on the Bitcoin bubble before I was confronted by a smart entrepreneur and academic who told me how all the major power centres were going to have their business models destroyed by the new discreet power wielders: the Six Sigmas of The Valley. Bitcoin’s danger to DC was the one I immediately started quibbling about but I had thitherto shrugged off the idea that Bitcoin had a future so wasn’t adequately prepared. A pity because I like winning arguments with “Six Sigmas”.

    I was interested too in your realism about gold. Gold bugs have aways amazed me. Some still seem to think of it as a store of value. They don’t seem to notice how much better one would have done on average over a range of investment terms if one had bought long dated US Treasury bonds yielding 2 or 3 per cent instead of gold. Gold is definitely good for shrewd speculators.

    But I would quibble with you analysis of Argentina’s legal misfortunes. Whether it is the prospect of almost anyone being tried in a state court in the South by a local jury before an elected judge and prosecuted by sn elected prosecutor or being publicly defamed by the prosecutor under protection of the First Amendment to soften you up for a plea bargain or victimisation even of powerful US corporations by a highly politicised Justice Department you won’t beat me on pretty well informed criticism of the US’s loose collection of closely related legal systems. But I see little evidence that the superior courts would not be exemplary upholders of the rule of law in its purest traditional sense when deciding a contract case like that involving the Argentinian bonds. What could the improper motivations of those highly diverse and tenured for life Supreme Court judges be in refusing Argentina’s appeal? I object as much as anyone to US legal imperialism with its extra-territorial reach (and by Australia’s supine forelock tugging attitude to it) but I don’t believe you have accurately identified the right villains in this case (at least in your imputations against the juiciary rather than the DC and New York based prosecuting authorities).

    I would blame the foreign banks and their lawyers for failing to protect themselves against their troubles with US sanctions (assuming they felt justified out of making money that way). It is surely possible to avoid the critical point which gave the US courts jurisdiction which seems to be settlement of debts not just in $US but in the American banking system. In the case of Argentina it agreed to accepting US jurisdiction and probably wouldn’t have got their deal with the creditors initially or when some agreed to take a haircut if they hadn’t accepted US – or maybe UK – jurisdiction.

  6. Midrash
    July 20th, 2014 at 03:36 | #6

    @jack strocchi
    Thanks Jack. Interesting. But would you agree that the vulture fund managers/owners are not reprehensible in the way the shysters who gave us the GFC were (with central bank help they didn’t have to ask for)? You could even argue that just as money may well be better used by casino owners than by the suckers who feed them, Paul Singer is much less likely to squander money than any Argentinian politician or general you have ever heard of. By contrast those responsible for the GFC were fraudulent – or just stupid if you are charitable – and caused immense economic waste and destruction.

  7. J-D
    July 20th, 2014 at 19:46 | #7

    Would I tell a judge that I was going to break the law? I might. It would depend on all the circumstances, and especially what the law was that I was going to break. At his trial for sedition in 1922, Gandhi was explicit in his statement to the court about his intention to break the law, and the attitude displayed by the judge suggests that he did not see that as disrespectful.

    Mind you, in my view courts and judges should be paid only as much respect as they have earned by their actions; no more than that.

  8. paul walter
    July 21st, 2014 at 11:09 | #8

    Midrash, they are basically one and the same.. Strocchi joined the dots.

    Of course, it is not just Jewish people involved- no way are Murdoch and the Koch brothers for example remotely Jewish- but there seems a culture or millieu that creates such creatures, particularly as capitalists seem to developed a seige mentality and retreatto neo feudalism; control and surveillance.

    Free association is replaced by propaganda and wealth is misappropriated or capriciously wasted rather than employed to create it through effort and long term investment in science and technology and other forms of thinking, all to some point.

    Paul Singer, like Israel in Gaza, or Murdoch at his worst, is just the ugly, lazy face of the current oligarchy with the mask torn away. They think they have won and probably have, if instigating and entrenching a rotten system is the goal and they no longer much care that people see what they really are.

    Whether the species can survive and prosper from this point in history can only be known by future generations, should these be extant some time in the distant future.

  9. derrida derider
    July 21st, 2014 at 21:24 | #9

    I think Mr Singer has done his dough here.

    A billion dollars is too much for Argentina to want to pay as go-away money. But it’s also too little for the US government to be willing to seriously upset all its neighbours (not to mention US corporations with trade interests in the region) by really heavy action. Long gone are the glory days when the United Fruit Company could just ask the Marines to get its money back.

    I expect the Obama administration will make some appropriate noises then do nothing.

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