ADDRESS TO BDC 2015 BY PATRICIA KING, GENERAL SECRETARY, JULY 8 2015 Delegates Income Inequality is a complex topic and the solutions cannot be reduced to a single answer. We know that growing income disparities are part of a global trend. We know that for decades this Island of Ireland has been subjected to a
Main Street 824 (Proprietary) Limited is the home of Walmart in the Republic of Ireland. No, it’s not a giant superstore selling bullets to frozen pizza’s. It is one of Walmart’s 78 subsidiaries in countries with no Walmart Stores yet holding over $76 billion worth of the Companies assets. Americans for Tax Fairness (ATF), a
Both authors are scholars of political economy and members of the World Association for Political Economy (WAPE). As freelance researchers and journalists they publish also in left-wing papers (like KAZ or Junge Welt) in the FRG. In the World Review of Political Economy (Pluto Journals) they have published: “Financial and Currency Crisis Undermines the Euro
ADDRESS TO BDC 2015 BY PATRICIA KING, GENERAL SECRETARY, JULY 8 2015
Delegates Income Inequality is a complex topic and the solutions cannot be reduced to a single answer. We know that growing income disparities are part of a global trend. We know that for decades this Island of Ireland has been subjected to a system of Neo Liberal economics, dominant in the English speaking world, the most prominent exponents of which were people like Regan and Thatcher.
We know that the main policies of this dogma were to promote free trade, cut public spending, eliminate regulation, encourage wealth creators and reduce the role of Trade Unions and Collective Bargaining all of which have over those years caused considerable hardship and damage to the lives of workers and their families. You only have to consider the circumstances in Greece today to appreciate how far they will go to pursue this dogma without much regard to the deprivation to be visited on the ordinary people of that country. Delegates inequality isn’t the price to be paid for rising prosperity, Inequality makes rising prosperity possible. It is the engine driving this economic philosophy.
What does a properly functioning economy mean? Well it means that citizens who need a home can access one affordably, that everyone who needs healthcare can receive it through a universal system rather than a dual system which is solely based on how much wealth you own. It’s the availability of quality childcare , at reasonable rates, rather than the exorbitant sums currently required and it is an economy where people are not afraid to grow old but are assured of adequate income and care in their elder years.
Full speech can be read here patrica_king_address_bdc_2015
Main Street 824 (Proprietary) Limited is the home of Walmart in the Republic of Ireland. No, it’s not a giant superstore selling bullets to frozen pizza’s. It is one of Walmart’s 78 subsidiaries in countries with no Walmart Stores yet holding over $76 billion worth of the Companies assets.
Americans for Tax Fairness (ATF), a tax justice campaigning group, released a report in June of this year that reveals Walmarts vast network subsidiaries located in 15 overseas tax havens including Mauritius, Cayman Islands, Panama, Barbados, Cyprus, Gibraltar and of course Ireland! This reaffirms Dr Stephen Nolan’s (Trademark) remark that Ireland is a tax haven with bad weather!
The full report can be read here TheWalmartWeb-June-2015-FINAL
Both authors are scholars of political economy and members of the World Association for Political Economy (WAPE). As freelance researchers and journalists they publish also in left-wing papers (like KAZ or Junge Welt) in the FRG. In the World Review of Political Economy (Pluto Journals) they have published: “Financial and Currency Crisis Undermines the Euro and National Sovereignty”, Summer 2011; “Where Will the Euro-crisis Take US To: Germany´s Third Attempt?” (Together with Stephan Müller), Spring 2012 and “Subprime Crisis and Marx´s Theory on Ground Rent”, Summer 2014.
Full interview on PDF here Interview with Ernst Herzog and Richard Corell
Q: You quote Lenin on a United States of Europe being impossible or reactionary. Well it exists now so what do you make of the European Union and how do you define it?
A: Today we can say that the more the United States of Europe become a real possibility, the more reactionary they become.
After two world wars, after the foundation of the European Coal and Steel Community, after the foundation of the EEC and finally the European Union (EU), in 1998 there began a currency union between several of the EU member states. The introduction of the euro currency is based on a temporary compromise of the ruling classes of the monopoly bourgeoisies of France and the Federal Republic of Germany (FRG). The intention is:
- To strengthen their position against the US and Japan
- To share out together the Eastern parts of Europe after the crush of the USSR (Russia, part of Europe is excluded from the EU by the imperialists)
- To oppress small capitalist nations in Western Europe
- To also oppress any resistance by the European peoples and the working-class
- To make a stand against socialist China
We call this alliance reactionary, backward-looking and hostile to any social and democratic progress. It attempts to preserve, defend and indeed strengthen capitalism, a socio-economic system which is obviously past its time.
Eastern European states, annexed to the EU after 1989 including the German Democratic Republic, as well as smaller capitalist countries affiliated to the EU, are economically dependent on EU imperialist states because of their size and their own national industrial and banking system, as yet not fully developed. While French and German imperialism endeavour to strengthen their dominant position through the EU and to create, for example, an “economic government” of European countries, those states are becoming increasingly dependent politically. Their national sovereignty is increasingly endangered. In this context, to make a clear difference between nations which oppress other nations and those nations which are oppressed is manifestly sensible. Yet the European Union is neither a new nation nor a new state. It is, in fact, the agency of historically notorious imperialist states in Europe—a temporary alliance with developing major internal contradictions.
The obvious contradiction between oppressor and oppressed nations is concretely demonstrated in the manner in which EU member states Greece and Ireland were dealt with after the outbreak of financial and economic crises.
Q: You emphasise the role of the State as a key structure in the system and describe it is a ‘state of usurers’. What do you mean by this?
A: Writing “Imperialism, the Highest Stage of Capitalism,” in 1916, Lenin develops the term “rentier state” or “usurer state.” “Imperialism is an immense accumulation of money capital in a few countries… Hence the extraordinary growth of a class, or rather, of a stratum of rentiers, i.e. people who live by ‘clipping coupons’, who take no part in any enterprise whatever, whose profession is idleness.” Imperialist states become rentier states in which a perpetually growing part of the bourgeoisie lives by lending money, or in other words by investing money, buying and selling bonds and shares, gaining interest and dividends, and the world “has become divided into a handful of usurer states and a vast majority of debtor states.” “The rentier state is a state of parasitic, decaying capitalism.” The cause thereof is:
The surplus value extracted from the working class within the capitalist countries finds lesser fields for being reinvested in productive manner, in industrial and rural production. It exists as money-capital in the hands of the rich eager for interest, after all for fixed income on the highest possible level. They have the banks, their consultants and their governments to guarantee an effortless and riskless life. This development encroaching on those countries makes them living more and more from fixed income, from the tributes or the rents they gain with different forms of credits, loans, bonds, shares and other forms of fictitious capital from outside their countries. The development of a so-called service society based on a tremendous deindustrialisation in the last four decades proves well Lenin’s concept of the usurer state.
The imperialist state, still existing in the form of a national state and not able to overcome this form, has the task to secure the dominant role of the monopoly bourgeoisie internally against the working class and to safeguard the interests of the monopolies externally against the imperialist competitors. After the financial crisis 2008 the rentiers (investment banks, hedge funds, etc. with the rich families behind them) used the governments and the state apparatus to pass on their losses to the working people.
Q: Marx’s theory on ground rent has renewed relevance in the context of the crisis today. What is the connection between the monopoly of land ownership in Marx’s time and the monopoly of land/housing today?
A: Marx was the first economist who developed a general “theory of ground rent”. This theory, reflecting the relationship between the three classes (labourers, capitalists and landowners) of bourgeois society, is valid for all capitalist relations of production, also today. Marx underlines: “With a correct conception of rent, the first point to arise was of course that it does not originate from the land but from the product of agriculture, that is, from labour, from the price of the product of labour, for instance of wheat; in other words, from the value of the agricultural product, from the labour applied to the land, not from the land.”
With his theory of the ground rent Marx has developed a profound theory of monopoly. He shows some consequences of this exclusive power of disposal of parts of the planet.
Since Marx`s times, capitalism has changed into monopoly capitalism.
Besides the monopoly of land ownership, which came into existence with the capitalist system, since the last third of the 19th century, monopolies have developed in the sectors of industry, trade and finance.
Under monopolist-capitalism, superseding capitalism with freedom of competition, monopolies come into existence in industry, bearing features previously subject to private property. They represent obstacles to non-monopolistic capital penetrating their markets. They can realize prices exceeding the value and realize monopolistic profits, above average rate of profit. They impose a tribute on society chargeable to the working class, the petty bourgeoisie and the non-monopolistic bourgeoisie. By their ambition to rule world-markets, monopolies stamp down the autonomic development of bourgeoisies and capitalism in many countries worldwide too. To safeguard their rule, monopolies form an alliance with semi-feudal big landowners in the less developed countries in the same way as they did in imperialist countries before. The monopolists of industry and banks, the financial oligarchy, form an alliance with the big landowners; even so the contradictions between them are not sublated. In dominating the access to land they can decide whether a piece of land is used or not used for building houses or whether wells of crude oil or other sources of raw materials are exploited or not.
Insofar the survival of the monopoly on private property of land is closely related to the survival of the financial capital and both contribute to increasing parasitism and decay of imperialism. At the same time however, contradictions between the factions of monopolists are not overcome, as soon as it concerns the share of the tribute, or the prey, and the transfer of losses resulting of crises.
Since the time of Marx these contradictions have increased, prices for housing in cities grew exorbitant, a growing number of humans are living in slums, land grapping takes place in big dimensions, wars about raw materials are on the increase as well as debt bondage for a growing number of people by mortgage loans, etc. These mortgage loans and their financialisation played a major role in the development of the 2008 crisis as described in our article in WRPE, (World Review of Political Economy; Vol. 5, Nr. 2, Pluto Journals),
Q: You draw interesting connections between finance capital, low interest rates, the price of land and the underdevelopment of peripheral countries today. Can you explain this?
A: Though, unworked land has no value, because it is not a product of human labour, it is the object of buying and selling. The reason for that is the historic transformation of land into private property. Buying and selling of land creates per se not a cent in favour of land fertility, new machinery, or jobs. On the contrary buying and selling deprives resources of productive use.
For the owner of the ground, price for land is principal rent for a certain period of use. The principal amount of rent must at least yield the same rate of return, as the rate of return of savings deposits for the same amount of money would deliver.
“It follows, then, that the price of land may rise or fall inversely as the interest rate rises or falls if we assume ground rent to be a constant magnitude” (Marx). The price of land is all the higher, the higher the rent and the lower the interest rate.
If the interest rate by tendency approaches zero— and the real interest rate (adjusted by the rate of inflation) had this tendency since the nineteen eighties—price for land tends to go to infinite and this is regardless whether ground rent has the form of rent, lease or other forms. The same principle also explains why Warren Buffet and others were on solid ground at first glance, thus negating the risk of decreasing prices for land as a result.
The tendency of price of land to rise is also supported by other facts. Beside the “growing demand for shelter” Marx states “. . . agriculture becomes relatively less productive in relation to the industrial product the value of the agricultural product rises and so increases ground rent”. Similarly, the like has to be considered for the building industry which, in spite of important technical achievements, is still relatively underdeveloped (low organic composition of capital) and contributes therefore to an increasing rent.
The financial capital penetrates the sphere of landed property and ground rent more and more. The main connecting piece thereby is the institute of mortgage and the instrument of mortgage loans. These allow increasing control of landed property and access to land by the financial capital. After the expropriation of land in the present imperialist countries in former decades; in the period of “globalisation” the banking system and the mortgage loans were used by the financial capital to export capital in underdeveloped countries. This led to expropriation of farmers, small industries and parts of the national bourgeoisies in those countries by the take-over of agricultural land, mines and wells of resources and building sites in Asia, Africa, South America, etc. by multinational companies. In most of these cases the borrowers could not serve their loans after diverse crises broke out (currency, prices for raw material, etc.) triggered by speculations of the financial capital in those countries. Then the financial capital took over to extract more surplus value from those countries.
Q: How does Germany fit into this within the Eurozone?
A: To become a world power again, Germany pursuit mainly three goals. First goal was reached through the annexation of the GDR in 1989/90. Second goal was, to expand its influence to the eastern countries (former part of the Warsaw Pact); this happened by exporting goods and capital to those countries and through their integration into EU. And thirdly it tries to become the leading power within the EU to make a stands against the US and the US$.
Making large-scale dealings in real estate in the former GDR and former Warsaw Pact countries, taking over the important parts of their banking system and using the well-trained industrial workers from the GDR to dump the wages domestically, German imperialism developed new strength with the consequence that the German business models are becoming more unbalanced and hazardous.
As the US-investment banks had socialised the risks of MBS and CDOs by securitisation, rating and selling this bonds to banks and investors all over the globe; also German banks were involved in this crisis from 2008 on heavily. While Deutsche Bank was part of the party issuing those AAA rated but then defaulting bonds; other German banks – as well as most banks in the EU – were hit massively by those losses and are under the guarantee of the state. The row about sharing the losses was intensive. Neither the German banking system nor that of the EU has properly recovered from this. Still governments and media are forced to tell different versions about the same facts. While Irish people know that their government (by issuing guarantees for the banks and, under the pressure of the Troika, paying back the speculative money to the big US, German, French and British investors) has saved also the German banks; in Germany, people are told Germany had saved the Irish State and banks. Germany is the main power using its influence on the ECB to put on the losses of the crisis to the smaller European countries and to the working people in the EU.
Also, contradictions between the German imperialism and the US imperialism have increased since the outbreak of the crisis.
Q: Is it not overdramatic to suggest this is Germany’s third attempt to become a world power?
A: The question here is, how could German imperialism, after it had missed out during the sharing of the world between the Great Powers in the 19th century and after it had tried 1914 in the First World War to push through a redistribution of the world for its own benefit according to its economic strength and how could it to a day 65 years after its defeat by May 8th 1945 climb in such a position again (being the leading power in “solving” the Euro-crisis). Where does the power, where does the strength of financial sources result from? How did German tycoons succeed after their defeat 1945 not only to survive, under protection of the dominating capitalist power US, but also to soar into a leading imperialist power again?
On the one hand they could use the contradiction between the socialist and the capitalist camp, which developed after 1945 into cold war. On the other hand the crippled German financial oligarchy could profit on the fact that the French imperialists had get under US-hegemony too and wanted to get rid of US supremacy again. Together with the US the German tycoons perused the split of Germany and of Europe by introducing the Marshall-plan, European Steel and Coal Community and the EEC. In coalition with France they transferred the EEC into the EU to dominate Europe und to rival with the US.
The basis for the present position of German imperialists during this period was that its capital accumulation was growing faster as those of their competitors that is to say, they have been forced and they are forced to make higher profits.
Starting from scratch 1948 without government debt, more modern production facilities and lower wage costs German Imperialism became the strongest power in Western Europe from the 1970s on. As mentioned before, the annexation of the GDR and the expansion to the East later strengthened the German position enormously.
Currently, the result is that the US is still the most powerful imperialist state which has the largest economy, based on, by far, the biggest military potential. However, it has become more difficult to force its will on the other capitalist countries. In the present development the US will continue to lose influence as leading power of the capitalist world.
We want to try to answer your question with another question. Which alternative has an imperialist country like Germany, driven by its big monopolies – which are in need of markets and raw materials to realise profits – as to take this path to become a world power again? What is different to the situation of the first and the second attempt?
Behaving like an imperialist world power can be seen in the handling of the Greek debt crisis, dictating austerity policy for all EU-countries a. s. o. As Germans we know what aspirations for supremacy meant to our people and for other peoples. That is why we try to reveal the truth on this new attempt and to fight against it together with all true patriots.
Taken from http://www.globalresearch.ca/brics-and-the-fiction-of-de-dollarization/5441301
The BRICS New Development Bank (NDB) was set up to challenge two major Western-led giants – the World Bank and the International Monetary Fund. NDB’s key role will be to serve as a pool of currency for infrastructure projects within a group of five countries with major emerging national economies – Russia, Brazil, India, China and South Africa. (RT, October 9, 2015, emphasis added)
More recently, emphasis has been placed on the role of China’s new Asia Infrastructure Investment Bank (AIIB), which, according to media reports, threatens to “transfer global financial control from Wall Street and City of London to the new development banks and funds of Beijing and Shanghai”.
There has been a lot of media hype regarding BRICS.
While the creation of BRICS has significant geopolitical implications, both the AIIB as well as the proposed BRICS Development Bank (NDB) and its Contingency Reserve Arrangement (CRA) are dollar denominated entities. Unless they are coupled with a multi-currency system of trade and credit, they do not threaten dollar hegemony. Quite the opposite, they tend to sustain and extend dollar denominated lending. Moreover, they replicate several features the Bretton Woods framework.
Towards a Multi-Currency Arrangement?
What is significant, however, from a geopolitical standpoint is that China and Russia are developing a ruble-yuan swap, negotiated between the Russian Central Bank, and the People’s Bank of China,
The situation of the other three BRICS member states (Brazil, India, South Africa) with regard to the implementation of (real, rand rupiah) currency swaps is markedly different. These three highly indebted countries are in the straightjacket of IMF-World Bank conditionalities. They do not decide on fundamental issues of monetary policy and macro-economic reform without the green light from the Washington based international financial institutions.
Currency swaps between the BRICS central banks was put forth by Russia to:
“facilitate trade financing while completely bypassing the dollar. “At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries.” (Voice of Russia)
While Russia has formally raised the issue of a multi-currency arrangement, the Development Bank’s structure does not currently “officially” acknowledge such a framework:
“We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system]” (Governor of the Russian Central Bank, June 2014, Prime news agency)
India, South Africa and Brazil have decided not to go along with a multiple currency arrangement, which would have allowed for the development of bilateral trade and investment activities between BRICs countries, operating outside the realm of dollar denominated credit. In fact they did not have the choice of making this decision in view of the strict loan conditionalities imposed by the IMF.
Heavily indebted under the brunt of their external creditors, all three countries are faithful pupils of the IMF-World Bank. The central bank of these countries is controlled by Wall Street and the IMF. For them to enter into a “non-dollar” or an “anti-dollar” development banking arrangement with multiple currencies, would have required prior approval of the IMF.
The Contingency Reserve Arrangement
The CRA is defined as a “framework for provision of support through liquidity and precautionary instruments in response to actual or potential short-term balance of payments pressures.” (Russia India Report April 7, 2015). In this context, the CRA fund does not constitute a “safety net” for BRICS countries, it accepts the hegemony of the US dollar which is sustained by large scale speculative operations in the currency and commodity markets.
In essence the CRA operates in a similar fashion to an IMF precautionary loan arrangement (e.g. Brazil November 1998) with a view to enabling highly indebted countries to maintain the parity of their exchange rate to the US dollar, by replenishing central bank reserves through borrowed money.
The CRA excludes the policy option of foreign exchange controls by BRICS member states. In the case of India, Brazil and South Africa, this option is largely foreclosed as a result of their agreements with the IMF.
The dollar denominated $100 billion CRA fund is a “silver platter” for Western “institutional speculators” including JP Morgan Chase, Deutsche Bank, HSBC, Goldman Sachs et al, which are involved in short selling operations on the Forex market. Ultimately the CRA fund will finance the speculative onslaught in the currency market.
Neoliberalism firmly entrenched
An arrangement using national currencies instead of the US dollar requires sovereignty in central bank monetary policy. In many regards, India, Brazil and South Africa are (from the monetary standpoint) US proxy states, firmly aligned with IMF-World Bank-WTO economic diktats.
It is worth recalling that since 1991, India’s macroeconomic policy was under under the control of the Bretton Woods institutions, with a former World Bank official, Dr. Manmohan Singh, serving first as Finance Minister and subsequently as Prime Minister.
Moreover, while India is an ally of China and Russia under BRICS, it has entered into a new defense cooperation deal with the Pentagon which is (unofficially) directed against Russia and China. It is also cooperating with the US in aerospace technology. India constitutes the largest market (after Saudi Arabia) for the sale of US weapons systems. And all these transactions are in US dollars.
Similarly, Brazil signed a far-reaching Defense agreement with the US in 2010 under the government of Luis Ignacio da Silva, who in the words of the IMF’s former managing director Heinrich Koeller, “Is Our Best President”, “… I am enthusiastic [with Lula's administration]; but it is better to say I am deeply impressed by President Lula, indeed, and in particular because I do think he has the credibility” (IMF Managing Director Heinrich Koeller, Press conference, 10 April 2003 ).
In Brazil, the Bretton Woods institutions and Wall Street have dominated macro-economic reform since the outset of the government of Luis Ignacio da Silva in 2003. Under Lula, a Wall Street executive was appointed to head the Central Bank, the Banco do Brazil was in the hands of a former CitiGroup executive. While there are divisions within the ruling PT party, neoliberalism prevails. Economic and social in Brazil is in large part dictated by the country’s external creditors including JPMorgan Chase, Bank America and Citigroup.
Central Bank Reserves and The External Debt
India and Brazil (together with Mexico) are among the World’s most indebted developing countries. The foreign exchange reserves are fragile. India’s external debt in 2013 was of the order of more than $427 Billion, that of Brazil was a staggering $482 billion, South Africa’s external debt was of the order of $140 Billion. (World Bank, External Debt Stock, 2013).
External Debt Stock (2013)
Brazil $482 billion
India $427 billion
South Africa $140 billion
All three countries have central banks reserves (including gold and forex holdings) which are lower than their external debt (see table below).
Central Bank Reserves (2013)
Brazil $359 billion
India: $298 billion
South Africa $50 billion
The situation of South Africa is particularly precarious with an external debt which is almost three times its central bank reserves.
What this means is that these three BRICS member states are under the brunt of their Western creditors. Their central bank reserves are sustained by borrowed money. Their central bank operations (e.g. with a view to supporting domestic investments and development programs) will require borrowing in US dollars. Their central banks are essentially “currency board” arrangements, their national currencies are dollarized.
The BRICs Development Bank (NDB)
On 15 July 2014, the group of five countries signed an agreement to create the US$100 billion BRICS Development Bank together with a US dollar denominated ” reserve currency pool” of US$100 billion. These commitments were subsequently revised.
Each of the five-member countries ”is expected to allocate an equal share of the $50 billion startup capital that will be expanded to $100 billion. Russia has agreed to provide $2 billion from the federal budget for the bank over the next seven years.” (RT, March 9, 2015).
In turn, the commitments to the Contingency Reserve Arrangement are as follows;
Brazil, $18 billion
Russia $18 billion
India $18 billion
China $41 billion
South Africa $5 billion
Total $100 billion
As mentioned earlier, India, Brazil and South Africa, are heavily indebted countries with central bank reserves substantially below the level of their external debt. Their contribution to the two BRICs financial entities can only be financed:
- by running down their dollar denominated central bank reserves and/or
- by financing their contributions to the Development Bank and CRA, by borrowing the money, namely by “running up” their dollar denominated external debt.
In both cases, dollar hegemony prevails. In other words, the Western creditors of these three countries will be required to “contribute” directly or indirectly to the financing of the dollar denominated contributions of Brazil, India and South Africa to the BRICS development bank (NDB) and the CRA.
In the case of South Africa with Central Bank reserves of the order of 50 billion dollars, the contribution to the BRICS NDB will inevitably be financed by an increase in the country’s (US dollar denominated) external debt.
Moreover, with regard to India, Brazil and South Africa, their membership in the BRICS Development Bank was no doubt the object of behind closed doors negotiations with the IMF as well as guarantees that they would not depart from the “Washington Consensus” on macro-economic reform.
Under a scheme whereby these countries were to be in be in full control of their Central Bank monetary policy, the contributions to the Development Bank (NDB) would be allocated in national currency rather than US dollars under a multi-currency arrangement. Needless to say under a multi-currency system the contingency CRA fund would not be required.
The geopolitics behind the BRICS initiative are crucial. While the BRICS initiative from the very outset has accepted the dollar system, this does not exclude the introduction, at a later stage of a multiple currency arrangement, which challenges dollar hegemony.
by PETE DOLACK
The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though that total is, it is barely more than half of what the top 25 took in a year earlier.
All together now: Awwww. Yes, somehow these speculators will have to get by on a paltry average of $467 million.
Institutional Investor’s Alpha magazine — one can hear their editors’ teeth gnashing at their heroes’ bitter fate — lamented that 2014 was the worst year since the 2008 stock meltdown for hedge-fund managers in announcing its “Rich List.”
Nonetheless, some observers might believe that these moguls earned somebody serious money to collect such enormous paychecks. But that wasn’t necessarily the case. For the sixth consecutive year, hedge funds fell short of the average stock-market performance, returning a composite average of three percent. Perhaps the 25 hedge-fund managers who hauled in the most money for themselves were better? Not really. Alpha reports that the hedge funds of at least 12 of the individuals on its top 25 list posted gains below the 2014 average.
The S&P 500 Index, the broadest measure of U.S. stock markets, gained 11.4 percent in 2014 and the benchmark Dow Jones Industrial Average gained 7.5 percent. So somebody throwing darts, or parking their money in a passive fund that tracks a major index, would have done as well or better in many cases. Despite their subpar performances, hedge-fund managers continue to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money.
So it’s heads, Wall Street wins and tails, Wall Street wins. And hedge funders pay less in taxes. Much of their income is classified as capital gains under U.S. tax law, and the tax rate on capital gains are much less than on regular income.
Imposing austerity on others is a job never finished
What is that hedge-fund managers do to “earn” such enormous sums of money? Let us take a look. The top person on the 2014 list is Kenneth Griffin of Citadel Capital, who hauled in $1.3 billion for the year. Citadel makes lots of money through computerized high-speed trading — buying and selling securities in microseconds to take advantage of momentary price changes. Apparently allowing computers to do the work leaves Mr. Griffin with time to pursue his hobby of widening inequality still more.
Not content with the fact that his 2014 earnings are equal to the combined median wage of 26,000 U.S. workers, he contributed $10 million to an Illinois campaign that seeks to cut workers’-compensation benefits, make it illegal for employees to contribute to political campaigns through their union, abolish prevailing-wage laws and render union dues collections much more difficult. He’s also contributed millions to the Koch brothers’ war chest. Mr. Griffin’s firm also owns a stake in ServiceMaster, a company that profits from the privatization of public services by firing employees and rehiring them at lower wages.
A Huffington Post article, noting that Mr. Griffin is also a major donor to Chicago Mayor Rahm Emanuel, nonetheless reports that he believes Mayor 1% is too soft on public employees despite the mayor’s attacks on pensions and teachers. The article said:
“Griffin, alone, could fund all of Chicago’s pension liabilities for  (estimated at $692 million) and still have $208 million [from his 2013 income] left to scrap by on. Yet Griffin is terribly worried that the mayor is being too soft on retirees. He castigated Chicago and Illinois politicians for not making ‘tough choices,’ blaming Democrats who control city, county and state government for not fixing pension, education and crime problems.”
Second on the hedge-fund list is James Simons of Renaissance Technologies. Although Alpha reported that he no longer runs his firm on a day-to-day basis and “spends a good chunk of the year on his 226-foot yacht,” Mr. Simons hauled in $1.2 billion in 2014. His firm employs physicists, others scientists and mathematicians to develop models for its computerized trading. Alas, speculation pays much more than scientific research that might benefit humanity.
Buy, strip, profit, repeat
Third on the list is Raymond Dalio of Bridgewater Associates, who took in $1.1 billion in 2014. He specializes in bond and currency speculation. Fourth on the list is William Ackman of Pershing Square Capital Management, who is what the corporate media likes to call an “activist investor.” In other words, someone who buys stock in a company and immediately demands massive cuts so he can make a large short-term profit is an “activist investor” because he does this more loudly than others.
Mr. Ackman hauled in $950 million in 2014. Forbes magazine, as consistent a cheerleader for the corporate overclass as any institution, summed him up this way last year:
“[H]edge fund billionaire William Ackman has tried to destroy a company that sells diet shakes, played a prominent role in nearly driving a 112-year-old retailer into the ground [and] helped launch a hostile takeover of a pharmaceutical company in a way that the Securities & Exchange Commission is reportedly examining for potential violations of insider trading law. Now, Ackman is suing the U.S. government.”
He is suing the U.S. government because it is taking the profits from federal housing-loan programs Fannie Mae and Freddie Mac to recoup money used to bail them out rather than handing the profits over to speculators such as himself. Never mind that the government spent hundreds of billions of dollars bailing out speculators. Among his most recent exploits, he was involved in two separate deals that would have moved a U.S. corporation’s headquarters to Canada so that it could avoid paying taxes, savings that would be earmarked for speculators’ wallets.
No summation of hedge-fund greed would be complete without a mention of Paul Singer, another entrant on the Alpha list. The vulture capitalist specializes in buying debt at pennies on the dollar and then demands to be paid the full face value, regardless of human cost. Among other exploits, he has seized an Argentine naval ship, demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two banks he bought four years earlier.
The outsized renumeration of financiers is due to the disproportionate size of the financial industry. A rough calculation estimates that in 11 business days speculators trade instruments and contracts with a value greater than all the products and services produced by the entire world in one year. In other words, a year’s worth of gross world product is traded in about two weeks on the world’s stock, bond, derivative, futures and foreign-exchange markets.
Such frenzied trading, often involving high-speed computers and ever more exotic betting, has little to do with actual economic needs and much to do with extracting money by ever more imaginative needs. Such is a system that values financial engineering more than human life.
Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.