Jake JOHNSON

President-elect Joe Biden’s transition team in recent weeks has quietly brought aboard alumni of Wall Street titan Goldman Sachs, tech giants Google and Facebook, and notorious consulting firm McKinsey, heightening alarm among watchdog groups that have urged the incoming administration to steer clear of the corrupting influence of corporate America.

Without the public announcements that accompanied the president-elect’s cabinet picks and original members of the transition, Team Biden has added to its agency review groups Monica Maher, vice president for cyber threat intelligence at Goldman Sachs; Eric Goldstein, an 18-year Goldman Sachs veteran; and Josh Zoffer, a former engagement manager at McKinsey who now works at private equity firm Cove Hill Partners.

On or around Thanksgiving, Politico reported, Biden’s transition also “quietly added four Facebook and Google employees to its agency review teams,” despite pressure on the president-elect to resist Big Tech’s efforts to “co-opt” his administration. As Reuters pointed out earlier this month, there are currently “more tech executives than tech critics on Biden’s transition team.”

Goldman Sachs’ global headquarters, in center, in New York’s lower Manhattan, 2010. (Dismas, CC BY-SA 3.0, Wikimedia Commons)

Eleanor Eagan, research assistant at the Revolving Door Project (RDP), an initiative that scrutinizes executive branch appointees, told Common Dreams Tuesday that the Biden team appears to have been counting on “people not paying quite as much attention” to later additions to the transition team.

“This move by the transition team to slip in these revolving-door figures later in the game certainly is a troubling indication of what could be to come” as Biden begins staffing lower-profile but powerful positions in his administration, said Eagan.

As part of its ongoing effort to shine light on industry influence on the upper reaches of the federal government, RDP on Tuesday morning unveiled a Personnel Map that aims to visualize and track “the breadth and depth of corporate America’s interest in the executive branch.”

News of Biden’s latest additions to his transition team “fits very well with what we’re trying to highlight with the Personnel Map,” said Eagan.

“Corporate America is meticulous in its pursuit of influence over the executive branch, targeting not only the highest profile spots but the full slate of relatively obscure, powerful positions beneath them,” Eagan added in a statement. “The Revolving Door Project believes it is time for groups with the public interest at heart to think just as expansively about executive branch governance.”

With Biden’s cabinet beginning to take shape following his picks to lead the State Department, the Pentagon, the Agriculture Department, Housing and Urban Development, and other key agencies, progressives are growing increasingly concerned about the corporate ties and business-friendly records of several of his nominees.

Tom Vilsack, Biden’s pick to lead USDA, is a dairy industry lobbyist; retired Gen. Lloyd Austin, the president-elect’s nominee for defense secretary, currently serves on the board of Raytheon, one of the largest military contractors in the world; and Antony Blinken, Biden’s secretary of state pick, co-founded a consultancy firm that has worked on behalf of corporate clients in the tech, finance, and arms industries.

“I think there are some red flags or, in this case, some discouraging blue flags,” Norman Solomon, national director of the progressive advocacy group RootsAction.org, told the Associated Press over the weekend, pointing specifically to Neera Tanden, Biden’s pick to lead the Office of Management and Budget.

Progressives have also been vocalizing their frustration with what they view as a lack of representation among the president-elect’s nominees thus far. Sen. Bernie Sanders (I-Vt.) told Axios last week that given the significant role it played in Biden’s decisive victory, “the progressive movement deserves a number of seats—important seats—in the Biden administration.”

“Have I seen that at this point? I have not,” the Vermont senator said. “I’ve told the Biden people: The progressive movement is 35-40% of the Democratic coalition. Without a lot of other enormously hard work on the part of grassroots activists and progressives, Joe would not have won the election.”

Evan Weber, political director of the youth-led Sunrise Movement, told The Washington Post over the weekend that “we cannot move forward in a new direction with just the same people, including some of the people who are responsible for the mess we are in.”

“We would like to see more young progressives in roles in the Biden administration,” said Weber.

Common Dreams via consortiumnews.com

Firstly, when talking about corporations taking moral stands we should never forget the dirty  past of these multinational giants. Volkswagen for example, was a creation of the Nazis that went on to “fight” on the side of a Democratic West Germany as a symbol of how great capitalism is. Now they are more than happy to show themselves as an SJW/LGBT organization. Why is this so? Because businesses serve any master who comes to them with money and if the current status quo in Germany is rainbow gay then VW will orient its sexuality to said status quo. If there was to be a Nationalism/Nazi takeover of Germany in the upcoming years VW would somehow “find the courage” to remember their “heritage”. This is not to demonize Volkswagen as all big multinationals do exactly the same thing. This logic, of course, applies to Goldman Sachs as well.

In fact, for the foreseeable future this new diversity policy only applies to the Western World. Ikea catalogues in the West are full of gay couples, in Russia they have only nuclear families and in Saudi Arabia they feature only men. When push comes to shove and money is at play morality in business becomes flexible. Goldman Sachs even admitted that “it intends to eventually expand its board-diversity mandate beyond the U.S. and Europe”. By eventually they mean, at the point in time when being diverse becomes cool/trendy in those countries, which could be the day after never. Goldman Sachs with this move is just trying go play ball in the West where their financial world currently sits.

Secondly, it is always best to be skeptical of any sort of corporate philanthropy and morality not just because they will lick any boot presented to them but because their hypocrisy is rampant. If we remember back to the Greek Debt Crisis of just a few years ago, our TV screens were filled with images of young people fighting with police in Athens as employment for those in their 20s was approaching zero. Furthermore, the elderly and many state employees were seeing a lot of their social securities/guarantees dry up right in front of their eyes and it is very possible that Goldman Sachs is directly to blame for all this.

As The Nation writer Robert B. Reich put it “The investment bank (Goldman Sachs) made millions by helping to hide the true extent of the debt, and in the process almost doubled it.“ Additionally, and also relatively recently, the US Department of Justice found Goldman Sachs liable for their role in the 2008 (subprime) financial crisis in the United States, which had a lot of international blowback as well affecting economies globally. According to Business Insider up to 10,000,000 homes were lost between 2006-2014 as a result of the crisis that Goldman Sachs bears partial responsibility for.

Meaning that when it comes to the real life suffering of millions of Americans and Greeks (and beyond) who lost their jobs, homes, or social safety net, Goldman Sachs doesn’t give a damn. Forcing a handful of diversity hires (even if these were demonstrably proven to be a boon for society) would be one drop of generous blessing in a canyon of financial sins.

Large companies and media organizations are quick to throw relatively tiny amounts of money at charity, but completely unwilling to do anything to actually help society. This attempt at mandating diversity (only in the West) is a 21^st century means of playing ball and playing up to certain people’s current moral absolutes of the month. If they really and truly wanted to put a human face to a massive financial giant they could at least pull some sorts of stunts or projects that would get thousands of Greek youth into the workforce, better the lives of an untold number of Greek elderly or try to find a viable way to get millions of Americans into homes they can afford thus partially undoing the 2008 crisis.

But that will never happen. Diversity is a word used for virtue signaling, which costs nothing and impresses the exact type of people who don’t care about the millions of diverse Americans who lost their homes. Diversity is our strength because it gets results while requiring zero actual action.

It was an amazing act of displacement activity and a virtuoso performance by Trump. Probably the greatest confidence trick he has pulled off in his entire career. Indeed, it was hard to imagine that a billionaire who has many, many friends on and deep ties to (not to mention debt) Wall Street and has built his career on trampling over working people when their interests did not coincide with his own quest for profits, was able to dupe so many Americans that he was going to be the great champion and saviour of the American blue collar worker and make sure the «rigged» DC/Wall Street system worked for average folks. One need only examine the people Trump has stuffed his Cabinet with to understand that was simply a ploy to appeal to the embittered and largely uneducated white working class of the rust belt. After years of being semi-persona non grata in Washington DC with the center of gravity having shifted, ever so slightly against Wall Street – in the aftermath of the 2008 Global Financial Crisis – and a Democratic Party in control of the White House and coming increasingly under the influence of anti-Wall St crusaders such as Senator Elizabeth Warren and Senator Bernie Sanders, Wall Street in the Era of Trump is back big time. 

Of all the American Wall Street investment banks, it is Goldman Sachs, which stands as the most egregious, sinister and dangerous. In many ways you cannot really call it a bank. It is more akin to a deeply corrupt criminal racket. A Mafia. Rolling Stone magazine carried out a thorough analysis of Goldman Sachs's unethical practices and christened it the great «Vampire Squid». The list of Goldman Sachs corruption is an extensive one, a whole book would be needed to cover it adequately. Its role in the subprime mortgage scandal which triggered the Global Financial Crisis and Great Recession has been well documented. As has its role in the Greek debt crisis which almost destroyed the Euro. There is the regular and high level of fraud it engages in against its clients. The laundering of money for brutal sadistic regimes. The greed of its executives such as its CEO Lloyd Blankfein, a stereotypical money grubbing troll if ever there was one, who was paid $23 million in 2015. No matter how you slice it, no one, let alone a banker, is worth that much for one years work, perhaps only vital public servants such as doctors and teachers, but alas it is those who work to make already rich people and (themselves) rich who get paid such obscene amounts. Then there is the revolving door between Goldman Sachs and the American Government. In many ways, the American economy is run by Goldman Sachs. Bill Clinton's Treasury Secretaries, Robert Rubin and Larry Summers, were Goldman Sachs employees, as was George W Bush's Hank Paulson. 

Now, Wall Street and Goldman Sachs are enjoying a takeover like no other with the impending Trump administration. Steve Bannon, Trump's Chief Political Strategist, is a former Goldman Sachs employee. Trump's pick to be steward of the US Economy as Treasury Secretary, a man called Steven Mnuchin, is a former Goldman Sachs employee. The President of Goldman Sachs, Gary Cohn, will be Trump's Director of the White House National Economic Council. This is the same Trump who who said Goldman Sachs had «total, total control» over his rivals Hillary Clinton and Ted Cruz. Trump often referenced Clinton's speeches to Goldman Sachs accusing her of meeting «in secret with international banks to plot the destruction of U.S. sovereignty». But then as Trump's former campaign manager Corey Lewandoski put it: «This is the problem with the media: You guys took everything that Donald Trump said so literally». Indeed, if only the voters who have given Trump the White House realised that what Trump said was to be taken with a heavy pinch of salt then perhaps the coming catastrophe of the Trump Presidency and all the damage it will wrought could have been averted. But then as that great American television character JR Ewing put it: «Never underestimate the stupidity of the American public. One must at least given Trump a little credit, he is perhaps the greatest Con Artist of our time.

What do they mean?

Before I give an explanation, let’s be sure we all know what an explanation is. An explanation is not a justification. The collapse of education in the US is so severe that many Americans, especially younger ones, cannot tell the difference between an explanation and a defense, justification, or apology for what they regard as a guilty person or party. If an explanation is not damning or sufficiently damning of what they want damned, the explanation is interpreted as an excuse for the object of their scorn. In America, reason and objective analysis have taken a backseat to emotion.

We do not know what the appointments mean except, as Trump discovered once he confronted the task of forming a government, that there is no one but insiders to appoint. For the most part that is correct. Outsiders are a poor match for insiders who tend to eat them alive. Ronald Reagan’s California crew were a poor match for George H.W. Bush’s insiders. The Reagan part of the government had a hell of a time delivering results that Reagan wanted.

Another limit on a president’s ability to form a government is Senate confirmation of presidential appointees. Whereas Congress is in Republican hands, Congress remains in the hands of special interests who will protect their agendas from hostile potential appointees. Therefore, although Trump does not face partisan opposition from Congress, he faces the power of special interests that fund congressional political campaigns.

When the White House announced my appointment as Assistant Secretary of the Treasury, Republican Senator Bob Dole put a hold on my appointment. Why? Dole had presidential ambitions, and he saw the rising star of Republican Representative Jack Kemp as a potential obstacle. As I had written the Kemp-Roth bill that had become Reagan’s economic policy, Dole regarded me in the Treasury as a one-up for Kemp. So, you see, all sorts of motives can plague a president’s ability to form a government.

With Trump under heavy attack prior to his inauguration, he cannot afford drawn out confirmation fights and defeats.

Does Trump’s choice of Steve Mnuchin as Treasury Secretary mean that Goldman Sachs will again be in charge of US economic policy? Possibly, but we do not know. We will have to wait and see. Mnuchin left Goldman Sachs 14 years ago. He has been making movies in Hollywood and started his own investment firm. Many people have worked for Goldman Sachs and the New York Banks who have become devastating critics of the banks. Read Nomi Prins’ books and visit Pam Martens website, Wall Street on Parade (wallstreetonparade.com). My sometimes coauthor Dave Kranzler is a former Wall Streeter.

Commentators are jumping to conclusions based on appointees past associations. Mnuchin was an early Trump supporter and chairman of Trump’s finance campaign. He has Wall Street and investment experience. He should be an easy confirmation. For a president-elect under attack this is important.

Will Mnuchin suppport Trump’s goal of bringing middle class jobs back to America? Is Trump himself sincere? We do not know.

What we do know is that Trump attacked the fake “free trade” agreements that have stripped America of middle class jobs just as did Pat Buchanan and Ross Perot. We know that the Clintons made their fortune as agents of the One Percent, the only ones who have profited from the offshoring of American jobs. Trump’s fortune is not based on jobs offshoring.

Not every billionaire is an oligarch. Trump’s relation to the financial sector is one as a debtor. No doubt Trump and the banks have had unsatisfactory relationships. And Trump says he is a person who enjoys revenge.

What about the hot-headed generals announced as National Security Advisor and Secretary of Defense? Both seem to be death on Iran, which is stupid and unfortunate. However, keep in mind that Gen. Flynn is the one who blew the whistle on the Obama regime for rejecting the advice of the DIA and sending ISIS to overthrow Assad. Flynn said that ISIS was a “willful decision” of the Obama administration, not some unexpected event.

And keep in mind that Gen. Mattis is the one who told Trump that torture does not work, which caused Trump to back off his endorsement of torture.

So both of these generals, as bad as they may be, are an improvement on what came before. Both have shown independence from the neoconservative line that supports ISIS and torture.

Keep in mind also that there are two kinds of insiders. Some represent the agendas of special interests; others go with the flow because they enjoy participating in the affairs of the nation. Those who don’t go with the flow are eliminated from participating.

Goldman Sachs is a good place to get rich. That Mnuchin left 14 years ago could mean that he was not a good match for Goldman Sachs, that they did not like him or he did not like them. That Flynn and Mattis have taken independent positions on ISIS and torture suggests that they are mavericks. All three of these appointees seem to be strong and confident individuals who know the terrain, which is the kind of people a president needs if he is to accomplish anything.

The problem with beating up on an administration before it exists and has a record is that the result can be that the administration becomes deaf to all criticism. It is much better to give the new president a chance and to hold his feet to the fire on the main issues.

Trump alone among all the presidential candidates said that he saw no point in fomenting conflict with Russia. Trump alone questioned NATO’s continued existence 25 years after the collapse of the Soviet Union.

Trump alone said that he would work to bring middle class jobs back to America.

And Trump said that he would enforce immigration laws. Is this racism or is this a defense of citizenship? How is the US a country if there is no difference between illegal aliens and citizens?

Commentators of all stripes are making a mistake to damn in advance the only government that campaigned on peace with Russia, restoring middle class jobs, and respect for the country’s borders. We should seize on these promises and hold the Trump administration to them. We should also work to make Trump aware of the serious adverse consequences of environmental degradation.

Who is blowing these opportunities? Trump? Mnuchin? Flynn? Mattis?

Or us?

The more Trump is criticized, the easier it is for the neoconservatives to offer their support and enter the administration. To date he has not appointed one, but you can bet your life that Israel is lobbying hard for the neocons. The neocons still reign in the media, the think tanks, university departments of foreign affairs, and the foreign policy community. They are an ever present danger.

Trump’s personality means that he is likely to see more reward in being the president who reverses American decline than in using the presidency to augment his personal fortune. Therefore, there is some hope for change occuring from the top rather than originating in the streets of bloody revolution. By the time Americans reach the revolutionary stage of awareness the police state is likely to be too strong for them.

So let’s give the Trump administration a chance. We can turn on him after he sells us out.

paulcraigroberts.org

If ever the grubby «revolving door» relationship between the EU bureaucratic elite and big business needed an illustration, it is the news of Jose Manuel Barroso taking up a post with the US investment giant Goldman Sachs.

Barroso was President of the European Commission from 2004 to 2014 – the top administrative position in the EU. He was in that job during the global financial crisis of 2008 when Goldman Sachs and other Wall Street banks are accused of precipitating the worldwide crash through unethical lending practices using subprime housing mortgages. Goldman Sachs was later fined $5 billion by the US Department of Justice for its «misconduct» in falsely selling off insecure debts that led to the stacking up a disastrous financial house of cards.

The repercussions from the financial crisis were felt no less in Europe where entire countries became mired in bankruptcy and subsequently public austerity policies to offset bank bailouts. Austerity that still dominates public policy – eight years after the initial crash.

Goldman Sachs reportedly had a direct hand in saddling Greece with ballooning national debt by knowingly concealing the country’s shaky finances. The Greek debt crisis has threatened to tear down the entire EU, which has only been averted by brutal public spending cuts and immiseration borne by Greek workers, families and pensioners. The Greek debt time-bomb was primed during the years up to 2010 when Jose Manuel Barroso was head of the EU’s de facto central government – the unelected European Commission based in Brussels.

Barroso, who was previously Portuguese prime minister, is taking up his non-executive chairman advisory role at Goldman Sachs with a brazenness that has infuriated EU governments.

He stepped down from the EC Presidency in 2014 when he was succeeded by Jean-Claude Juncker. Barroso claims that the two-year period removes any allegations of a «conflict of interest». But many observers disparage his claims as betraying a contempt for public office and public decency.

The French government in particular has slammed Barroso’s move into the private sector as «scandalous» and has called on the former EC president to resile from his new Wall Street perch.

France’s EU affairs minister Harlem Desir told his fellow parliamentarians: «It’s a mistake on the part of Mr Barroso and the worst disservice that a former Commission president could do to the European project at a moment in history when it needs to be supported and strengthened».

French finance minister Michel Sapin was scathing of what he inferred was Barroso’s self-aggrandizement. «If you have loved Europe, you shouldn’t do this to it, especially not now… But this doesn’t surprise me from Mr Barroso», added Sapin.

This week, French President Francois Hollande is to hold further meetings with German Chancellor Angela Merkel and Italian premier Matteo Renzi. It is the second summit between these leaders since the shock British referendum result on June 24, which called for Britain to quit the bloc after 43 years of membership.

The governments of France, Germany and Italy are at pains to maintain EU stability in the wake of the Brexit. There is palpable concern that the British decision to leave the bloc is unleashing similar anti-EU sentiments across Europe. Almost every member state has seen a dramatic electoral rise in political parties that are opposed to the EU project.

France’s National Front led by Marine Le Pen is probably the most significant of these anti-EU parties. From relative obscurity, Le Pen’s party has become a serious contender to win government power in next year’s presidential elections. The success of the anti-EU campaign in Britain has emboldened the political platform of France’s National Front, and those of like-minded parties in Germany, Italy and elsewhere.

What we are witnessing is a popular revolt across Europe against an unaccountable EU bureaucracy that is seen to be unresponsive to the needs of the bloc’s 500 million citizens. Cronyism and pandering to the profit interests of big business and financial elites, while the vast majority endure relentless economic austerity and neoliberal nostrums, seem to have become the «normal» functioning of the EU and its mainstay national governments.

The economic and financial rack of the EU on its citizens is also seen to be part of the Atlanticist agenda of increasing NATO militarism as demanded by Washington. Even though this agenda of antagonizing Russia has only compounded hardships on EU citizens from trade sanctions and counter-sanctions, as well as causing deep concern that a military conflict is looming from this slavish adherence to US-led policy.

Jose Manuel Barroso’s appointment by Goldman Sachs smacks of a tawdry sweetheart deal. As a former unelected senior EU official he was seen to have used his position as a public servant to advance the commercial interests of Goldman Sachs and other Wall Street banks in Europe, which, in turn, led to catastrophic economic and social impacts.

In advising his new employer on investment decisions following the Brexit, Barroso will avail of his EU contacts and insider knowledge that he gained while supposedly acting as a public servant – and no doubt be reimbursed with a lucrative salary for his services.

Barroso is thus the ultimate embodiment of EU bureaucratic cronyism in league with big business. Such elitist conduct – impervious to democratic accountability – is a major driving force for why the British electorate hit back with the stunning vote to reject the EU.

In the ferment of the Brexit result, Barroso’s flagrant grasping of opportunity at a Wall Street bank – a bank that has inflicted so much social pain on Europe – is a further lightning rod for public anger against the EU. And that is what alarms EU-supporting governments like the French, Germans and Italians.

The Portuguese politician is by no means the first to have slipped through the revolving door between EU senior public servants and big business. And it is probably not his move per se that is the reason for the outcry from EU governments. After all, the head of the European Central Bank Mario Draghi was previously a Goldman Sachs executive, as was former Italian premier Mario Monti. Current French economy minister Emmanuel Macron is a former private banker with Rothschild. Former British premier Tony Blair is believed to have been paid millions as a «consultant» for JP Morgan Chase since he left public office.

The list of big business-government cronyism in the EU goes on and on. (The same goes for the US.) «Conflict of interest» is a misnomer. The concern is actually a de facto policy of «confluence of interest» at the highest levels of purportedly democratic government.

Barroso’s offense in the eyes of EU governments is not so much that he is taking the well-established, if less-known, revolving door. Rather, it is the indelicate timing of the brazen move. It speaks of everything that citizens perceive as rotten about the EU, giving them further reason to revolt against incumbent governments.

And that is why, one suspects, EU politicians are really upset by Barroso grabbing a sweetheart deal at Goldman Sachs. It’s not really about ethics. Instead, it’s more about damage control to salvage the sinking EU ship in the aftermath of the Brexit torpedo.

According to the aggregate Bloomberg World Oil & Gas Index, in the first week of the new year the world’s 60 largest oil companies lost about $100 billion due to falling prices.  

A lively discussion of the causes of the unprecedented fall in prices for this black gold has long been underway. Fewer and fewer still believe that such a decline is the result of «natural» changes in the market. 

Often the actions of Saudi Arabia are cited as a reason for the nosedive in prices on the global market. And it’s true that that country has unilaterally (without other OPEC members’ agreement) boosted its oil production and begun dumping oil in an attempt to dominate the world market for black gold. This could account for a drop of a few dollars per barrel in global prices, but the fact is that the total decline is now about $100 (measured from its peak in 2008). And if calculations are based on the average price in 2014, which was almost $100 (for Brent crude), that comes out to a drop-off of almost $70/barrel since the beginning of 2016. It would take a concerted effort by all the major oil-producing countries in the world to shake up the market that much.

There is hardly a serious expert today who considers OPEC – the organization known as the oil cartel – to be a significant factor. Naturally there are suspicions that the oil market is being manipulated. Stockpiling is a traditional method for manipulating any market. Hoards of black gold, labeled as strategic reserves, are being amassed by many countries, especially the United States. Selling off a stockpile can force prices down. And the US has sold part of its reserves before, but the effect of such sales is very short-lived and impacts prices by no more than a few dollars per barrel.

In the last days of 2015, the media published a string of reports blaming the banking cartel for the dramatic fluctuations in the oil market. One of the first was an article by the American financial consultant Michael McDonald, claiming it is not OPEC that steers the market for black gold, but that it is controlled by the banking cartel, which uses energy-related loans made to companies in the oil industry and other energy sectors as a tool. According to McDonald, total outstanding loans to the US energy sector (the oil and gas industry) amount to $4 trillion. And US banks currently hold only about 45% of all US loans to energy companies, while another 30% are held by foreign banks, and 25% by non-bank entities like hedge funds. 

McDonald’s first conclusion seems reasonable: it’s true that OPEC has not controlled the oil market for a long time. And it’s even fair to say that banks operating as a cartel have begun to steer the market. But his third conclusion – his claim that energy loans are being used as a tool for directing the market – is questionable.

McDonald himself cites data that cast doubt upon his own conclusion. The author states that loans to the energy sector make up only 3% of the total US loan market. That’s not enough to prompt major changes in the market for oil and other energy resources. Obviously Wall Street banks do not view the energy industry as their top priority when setting their lending policies. Hypothetically, bank loans could be a means for pursuing a long-term structural policy. Some experts hint at precisely that, claiming that the drop in oil prices is «real and long-term». But such opinions have to be backed up with statistics showing investment in the development of alternative energy that are edging out traditional oil, but there is no such evidence. Banks, at least, in recent years have not noticeably increased their lending for green-energy projects.

This suggests that the fall in prices for black gold results from price manipulation. Bank loans cannot be used as an instrument of such manipulation. Loans of course have an impact on prices, but a loan’s effect cannot be seen until several years have passed. However, prices react to manipulation immediately, or within a few weeks at most. McDonald claims that in the past year banks have cut back on their financing of the oil industry and are likely to continue to do so in 2016. But one could expect that that will have the opposite effect, resulting in higher prices for black gold, since credit restrictions will reduce the supply of oil.

The manipulators of the oil market are the largest banks. They do this by using oil futures contracts and other derivatives tied to oil. It seems counterintuitive, but daily prices (for spot trades) are set by the prices for future deliveries (in a year’s time, for example).

And futures prices are the result of what are called «expectations». «Expectations», in turn, are created by the rating agencies, the community of experts, and the mass media. All of these are under the control of the largest banks. Banks simply place an order for the «needed» expectations.

Since the late 1970s a robust market has been growing for «paper oil», i.e., a market for futures contracts that do not culminate in a physical shipment of oil. This is a game of chance for speculators, which causes a great deal of suffering for anyone in the business of producing, refining, or using oil or oil products in the real economy. Currently the market for «paper oil» sees ten times the number of transactions as the market for physical oil. The trading volume for oil futures contracts on the two major exchanges – New York’s NYMEX and London’s ICE – is already more than 10 times higher than annual global oil consumption.

All the derivatives markets are controlled by banks, chiefly Wall Street banks, as well as some of the largest banks in the City of London and continental Europe. The market for «paper oil» is no exception. According to some estimates, 95% of the global market for oil derivatives is controlled by US banks.

The biggest dealers in oil derivatives are Goldman Sachs, J.P. Morgan Chase, and other banking giants that use oil futures, first of all to profit from fluctuations in oil prices, and second – in order to ensure their own role as financial intermediaries. What’s more, the bank’s clients include both players in the market for physical oil – oil companies, refineries, airlines, etc. – as well as financial players such as hedge funds. In order to increase the commercial impact of their monopoly of the «paper oil» market, many giant banks also trade in physical oil (it is obvious that these banks have an advantage over players on the so-called free market when it comes to arranging prices for black gold). In 2003, the US Federal Reserve decided to allow banks to act as commodity traders, and J.P. Morgan, Morgan Stanley, Barclays, Goldman Sachs, Citigroup, and a number of other major banks eagerly leapt into trading physical oil. 

The financial crisis of 2007-2009 was triggered largely by the fact that derivatives markets emerged in which US banking giants could run wild and which was outside the control of financial regulators. The US Federal Reserve, the US Securities and Exchange Commission, the US Department of Justice, and European financial regulators have all tried to bring some sense of order to the derivatives markets. In 2010, the US passed the Dodd-Frank Act, which sketched out a plan for tighter regulations on the financial market, but that act is only a framework. Its practical application would require a great many more specific laws and statutory instruments.

For several years the US has been investigating the activities of Wall Street banks and the largest European banks before and during the crisis of 2007-2009. In particular, ties have been identified linking bank transactions on the oil futures markets with their transactions involving physical oil. In 2012, an investigation was launched into actions taken by Goldman Sachs, Morgan Stanley, and J.P. Morgan to manipulate commodity prices (including oil), and legitimate charges were brought against those banks in 2014.

Most of the major banks are staying in the financial derivatives markets for now. This includes the oil futures market. Therefore we must be prepared for the oil «market» to continue to perform all kinds of circus stunts.

In conclusion, it should be noted that the banks that are manipulating the prices of black gold truly are operating as a cartel. However, this is not a specialized cartel, with activity limited to a single product market. This is a global cartel, bearing the official title of «the US Federal Reserve System». With access to a printing press to manufacture global legal tender (dollars), the regional Federal Reserve banks effectively control all of the financial and most of the commodity markets.

For example, in Greece this was done by the bank Goldman Sachs, which issued «off-balance-sheet» loans to that eurozone member, and the resulting debt was never factored into the country’s official statistics. No one has forgotten about that, but today it is all attributed to greed and chicanery on the part of the bank. There are substantive reasons to believe that this was a special operation carried out by the «money masters» (the shareholders of the US Federal Reserve), who were planting a «time bomb» under all of Europe. Incidentally, Goldman Sachs itself is one of those «money masters» (specifically – it is under the control of the Rothschild family) and is a shareholder of the Federal Reserve.

There have been many sovereign defaults in recent history (table 1).

Table 1.

The largest sovereign defaults of recent decades

Here are some explanatory details about the defaults listed in this table.

Mexico. On Aug. 12, the Mexican ministry of finance announced a three-month moratorium on the payment of its foreign debt. In December 1982, the IMF approved a three-year assistance program for Mexico worth $3.8 billion. Then the country was granted two more three-year packages before 1993, for a total equal to 5.2% of Mexico’s GDP.

Yugoslavia. On Jan. 19, the federal government announced a default on the repayment of the principal of the debts owed by the central government, Yugoslavia’s constituent republics, and its state-owned enterprises (they continued to pay the interest). In the summer of 1983 Belgrade successfully pay off debts, plus interest, totaling $1.9 billion that were held by private foreign creditors (about 600 Western banks). In early September of that same year, an agreement was signed with creditors to restructure her unpaid balance and receive a new loan of $600 million.

Brazil. By late 1987, the Brazilian ministry of finance had already signed agreements with her banks to resume interest payments. The next year Brazil signed a comprehensive agreement with her creditor banks to reschedule her debt payments.

Russia. On Aug. 17, 1998, the Russian government announced a payment freeze on ruble-based securities (short-term government bonds known as GKOs), a significant percentage of which belonged to foreign investors. On Aug. 17, 1998, a 90-day moratorium was also declared on repayments of monetary loans obtained by commercial banks from non-residents. This meant a de facto default on the banking sector’s foreign debt. After negotiating with the holders of the GKOs, that debt was restructured: the old securities would be exchanged for cash (equal to 10% of the face value for non-residents) and for new government bonds with maturities of up to five years.

Argentina. The default announced by the government on Dec. 24 was preceded by widespread bank runs within the country. Argentina’s debt was restructured twice, in 2005 and 2010. Frozen bonds were exchanged for new ones with a face value up to 75% lower. A small number of investors (about 7%), represented by what are known as vulture funds, did not agree to the terms of the restructuring and decided turn to the courts to seek full repayment of the original amount. In 2012, a New York court ordered Buenos Aires to settle its old debts. But Argentina has refused to comply with the court’s demands. In July 2014, the rating agencies and the negotiations mediator appointed by the US court declared an official default.

Ecuador. In 2008, the government debt audit commission found numerous instances of violations and corruption that accompanied the floating of bonds on international financial markets. In late 2008, the government announced a moratorium on servicing global bonds maturing in 2012 and 2030 with a nominal value of $3.2 billion. In 2009, Ecuador, completely refusing to negotiate with investors, redeemed those bonds at a huge discount of only 35% of their nominal value.

All the above defaults originated with statements by the governments of the debtor countries that they were imposing a moratorium, i.e., suspending their debt payments. The exception was Argentina. In the summer of 2014, it was not the government of that country that declared a default, but the international rating agencies.

Based on the standards set in previous decades, last May’s passage by Ukraine’s Verkhovna Rada of a law that gives the country’s president the right to impose a moratorium on foreign debt payments might already qualify as a de facto default.

No further comments can be made about Greece. She missed a scheduled IMF debt payment, which would have previously not only qualified as default, but default «in spades». But all the established rules and practices are disappearing, and debt issues are now resolved «under the table,» based on political expediency.

In practice, two primary methods have been employed in recent years to pull a country back (to withdraw) from default: a) by providing new loans, or b) by restructuring debt through negotiations with creditors. But even here we note one unusual situation. In the case of Ecuador, that nation forced its securities to be redeemed at a lower rate. We call this option «unilateral debt restructuring». The Greek government has never discussed such an option, as far as I know. The Ecuadorian «precedent» is being hushed up because it was unacceptable to the «money masters». In addition, some investors did not agree to the unilateral restructuring. Specifically, in late 2014, GMO Trust, a Boston investment company, filed a lawsuit in New York, trying to recover the original value of the debt it purchased from Ecuador.

Digging a little deeper into the history of the 20th century, we soon find even more large-scale defaults. The default announced in 1971 by the United States of course springs to mind. Washington does not like to discuss that. On Aug. 15 of that year President Richard Nixon appeared on television and stated that the US would temporarily stop exchanging dollars for gold, as had been established by the Bretton Woods Conference in 1944.

But that was a very specific default. It is believed that Washington entered into a commitment at that conference to keep the dollar freely convertible into precious metal. But first of all, that was not a debt commitment. Second, that was a commitment that was never recorded in any special document. It was in essence a pledge made by Washington. Aug. 15, 1971 was just one example of how easily Uncle Sam goes back on its promises. No doubt if Uncle Sam declared a default on government debt today, it would do it in a graceful and civilized manner, just as it did in 1971.

After World War I there were also slew of sovereign defaults. Their number increased after October 1929, when the global economic crisis began. But the German default is the most interesting and sinister story from that time. Especially because after the war she was still living under the shadow of her prewar debts. And to those were now added astronomical demands for reparations payments. At the Paris Peace Conference in 1919 the victors of WWI insisted on a sum of reparations that was insupportable, equivalent to the value of 100,000 tons of precious metal. That was more than all the gold in every vault of every central bank and treasury in the world.

One member of the British delegation, the renowned economist John Maynard Keynes, was outraged by the greed of the Entente Powers and even quit the conference in protest. He estimated that the victors were demanding reparations equal to at least three times the entire economic potential of Germany. During the 1920s, heated conflicts continually arose between the victorious countries and the Weimar Republic (as Germany was then known). France even occupied the Ruhr Valley in order to ensure that Berlin met its reparations commitments.

But not even military pressure could help – in part because Germany simply could not meet her commitments (as her economy did not recover), and in part because she did not want to (she was looking for ways to evade the cash payments and supplies of goods required under reparations). Therefore it can be said that Germany was in a state of permanent default. There were periodic restructurings of the Weimar Republic’s reparations commitments, both in terms of the amount of the reparations as well as the payment (supply) schedules. What happened between the victorious countries and the Weimar Republic is very reminiscent of what is happening today between Athens and the «Big Three» creditors – the European Commission, the IMF and the ECB. Back then it was the German people who were being humiliated and economically steamrollered, and today the «Big Three» are humiliating and economically devastating Greece.

As we know, in the early 1930s, the attitude of the «allies» toward Germany suddenly underwent a dramatic shift. First, investments and loans flooded into the Weimar Republic. This was why the Bank for International Settlements (BIS) was established in 1930 in Basel. Formally, the BIS was intended to facilitate German reparations payments, but in fact the bank became the financial channel for «pumping up» the German economy. How can such a reversal in the West’s policy toward Germany be explained? It seems that Russia, then known as the USSR, had launched a powerful renaissance in the East.

After its first five-year plan, the Soviet Union had already achieved the world’s second-highest industrial output and had begun to build up its military might. At that time the decision was made to beef up Germany’s military and economic potential and to redeploy her armed forces in an eastward direction. After 1931 Berlin no longer had much difficulty getting agreements signed with the victors of WWI, which lightened Germany’s debt load. Even the implacable France, who in the 1920s almost began a new war with Germany in order to «force» Berlin to meet its reparations commitments, completely changed her tune in the early 1930s. Between June and July 1932, a conference was held in Lausanne that closed the books on the «allies’» reparations claims against Germany. Ninety percent of those claims were withdrawn, and the rest converted into debt securities.

When Adolf Hitler came to power in 1933 this turned the final page in the story of the dismantling of the German debt by the victorious nations. The period of bilateral settlement of debt issues had come to an end. And a period of unilateral decisions had begun. Those decisions were made by the leader of the Third Reich, Adolf Hitler. For example, on June 14, 1934 the Reichsbank (the Central Bank of Germany at that time) announced the suspension of payments on foreign debts, including interest. Instead, creditors received certificates, which they could convert to three-percent bonds with a maturity of 10 years. During 1934, German debt (excluding reparations) was reduced by 97%, which saved Germany more than one billion marks that year alone.(1) And this is the most surprising. The «allies» were in no way outraged by such unilateral decisions from Berlin. Moreover, the US, Great Britain, and other Western countries continued to provide economic support to the Third Reich.

The history of how Germany’s debt problems were resolved during the interwar period is very instructive. It once again reminds us that a nation’s debt problems can be used to achieve the geopolitical goals of the «money masters». There can be no doubt that the current debt problems of Greece and Ukraine will be resolved (and are already being resolved) with consideration for the «Russian factor», which those masters, both in the 20th century as well as now, see as the main threat to their plans for world domination.

(1) For more details see: Katasonov, Valentin. Genuezskaya Konferentsiya v Kontekste Mirovoi i Rossiiskoi Istorii. – Moscow: Kislorod, 2015 // Part 6. «Sudba Germanskikh Reparatsii Posle Genui».

In all the years of testing, the majority of US banks have received a rating of ‘satisfactory’, and even then with a stretch of the imagination. Some banks have had to retake the exam. The examiners are financial regulators, first and foremost the US Federal Reserve System, while the examinees are systematically-important banks that are said to be too big to fail. This means that these banks have such a huge number of links and these links are so wide-ranging that their bankruptcy would have catastrophic consequences for the economy as a whole.

Table 1.

Assets of major US banks (as of 15 September 2014)

As Table 1 shows, the total assets of the ‘big six’ US banks as of 30 September 2014 equalled $9.85 trillion. At that point in time, the total assets of the whole banking system equalled $15.35 trillion. In other words, six banks accounted for almost two thirds of all the assets of the US banking system.

Let us also add the assets of the next six banks to the total assets of the ‘big six’ (trillions of dollars): U.S. Bancorp. (0.39); Bank of New York Mellon (0.39); PNC Financial Services Group (0.33); Capital One (0.30); HSBC North America Holdings (0.28); and State Street Corporation (0.27). It works out that the assets of the ‘big twelve’ equal $11.81 trillion, or 76.8 per cent of the total assets of the entire US banking system. The asset figures of banks outside the top 20 are falling sharply. The Synovus Financial Corporation, for example, which is 50th in the list of US banks, has assets equal to $26.5 billion, i.e. almost 100 times less than JP Morgan Chase.

Incidentally, at the beginning of 2014 there were 6,981 banks in the US. It turns out that a vast number of banks are nothing but small fry in comparison with the ‘big six’ and the ‘big twelve’. Every year, the banking giants on Wall Street consistently swallow up small, medium and even relatively large banks. The FRS has monitored the number of banks in America since 1934. At its peak in the mid-1980s, there were more than 18,000 banks in the US. Over the last three decades, more than 11,000 banks have ceased to exist. In 2013, the number of banks fell below 7,000 for the first time, which is less than there were in 1934. The 2007-2009 financial crisis, when most of the banks with assets of less than $100 million exited the market, played its part in purging the US banking sector.

Financial regulators are only interested in the largest US banks. Every year, 20-30 banks undergo stress testing. The main benchmark for getting a positive mark in the exam is sufficient capital. The bank needs to have its own capital and it needs to be liquid capital so that it will be able to cover its obligations (to customers with deposit accounts, other lending banks etc.) in case of emergency. Unlike companies in other sectors of the economy, banks are allowed to work while partially covering its obligations. But the real secret of their resilience lies in the fact that the Central Bank (the creditor of last resort) and the government rush in to save them at critical moments, providing loans to a drowning bank or increasing a bank’s equity capital. According to various estimates, between $1 trillion and $2 trillion of public money was pumped into the US banking system during the 2007-2009 financial crisis. Despite such generous handouts, however, not all the banks were saved. The biggest loss during the crisis was the banking giant Lehman Brothers. On the eve of the financial crisis, incidentally, some of the leading Wall Street banks (Citigroup, Morgan Stanley and others) had a capital adequacy indicator of around 4 per cent.

So how do matters stand with this figure after the crisis? Here are the 2014 stress testing results for the ‘big six’ US banks (%): Wells Fargo – 8.2; Citigroup – 7.2; Goldman Sachs – 6.9; JP Morgan Chase – 6.3; Morgan Stanley – 6.1; and Bank of America – 5.9.

There were no radical changes in 2015 from the year before. The capital adequacy assessment was 6.5 per cent for JP Morgan Chase, 6.3 per cent for Goldman Sachs, 6.2 per cent for Morgan Stanley and so on. Of the major banks that make up the top ten, the Bank of New York Mellon came out top with 12.6 per cent. Experts believe that the value of this indicator across the US banking system as a whole is at the 5 per cent level. This is considered to be the minimum level allowed for banks undergoing testing. In other words, the situation regarding the stability of US banks is far from satisfactory.

Banks are also being tested in Europe, but there are stricter examinee requirements there than in America. In comparison with American financial organisations, some European banks seem like A-star students. Deutsche Bank, for example, has a capital adequacy ratio of 34.7 per cent.

The US Federal Reserve System is not hiding the fact that four of the leading banks on Wall Street only just passed the test in 2015. These are JP Morgan Chase, Morgan Stanley and Citigroup Inc. The banks have been presented with conditions and restrictions in implementing proposed financial and investment plans. The main restriction is in the payment of dividends to shareholders. Problem banks are also being presented with restrictions in buying back their own shares (as you know, this kind of operation is a way of increasing a bank’s market capitalisation).

Citigroup’s top managers are pleased with even a relatively satisfactory mark, since the bank has completely failed the test twice before. This reflected badly on its ranking and market capitalisation, and dividend payments were postponed to a much later date.

This year, two US subsidiaries of European banks – Deutsche Bank AG and Banco Santander SA – took part in the Federal Reserve’s stress tests and both failed. Some experts are referring to these ‘fails’ as a biased assessment, a kind of banking protectionism. European banks like Credit Suisse, Barclays and UBS had said they are were going to put their US subsidiaries forward for the Federal Reserve’s annual exam, but the failure of the European banks in the latest exam has forced them to rethink.

Wall Street banks are currently paying for the lack of control that existed in the US financial sector from the beginning of the 1980s to the 2007-2009 financial crisis. Under Ronald Reagan, a process began to ‘deregulate’ the banking sector. In particular, interest rate restrictions on banks’ deposit operations were lifted. An important milestone was reached in 1999, when the Glass-Steagall Act, one of the first banking laws passed under President Franklin Roosevelt in 1933, was repealed. The law had introduced a strict separation of banking into commercial and investment, allowing the speculation of bankers on financial markets that would risk customers losing their money to be curbed. The final major act in the ‘deregulation’ of banking activities took place under George W. Bush. In 2004, the US Securities and Exchange Commission allowed investment banks to extend unlimited amounts of credit for the purchase of securities (which is exactly what led to the 1929 stock market crash). Banks did not fail to take advantage of this right, having already started to pump up the bubble on the mortgage-backed securities market.

Today, Wall Street banks are stuck between a rock and a hard place. On the one hand, shareholders are demanding generous dividend payments and an increase in the market capitalisation of banks, i.e. share prices, and senior bank managers are unhappy that their bonuses were cut dramatically after the crisis. On the other, financial regulators are trying to curb the greedy aspirations of shareholders and managers. The 2007-2009 financial crisis has still not faded from the minds of Americans, and regulators are giving very specific recommendations. On the results of last year’s stress test, Morgan Stanley was strongly advised to increase its equity capital by $13.66 billion, Goldman Sachs by $9.46 billion, and JP Morgan Chase by $8.38 billion.

The results of the stress testing shows that America is living on a delayed-action mine called the US banking system, and sooner or later this mine is going to explode. According to Simon Johnson, a former chief economist of the IMF, the fact that banks have too little equity capital in conjunction with the sluggishness of financial regulars is creating a serious threat to the US economy. Today, says Simon Johnson, the situation in the American economy is reminiscent of the events that led to the financial crisis: «We already saw this movie, and it ended badly. Next time could be an even worse horror show»

Is just a few per cent of share capital enough to effectively manage a bank? At this point there are at least three things that should be taken into account. 

Firstly, large shareholders of leading US banks are long gone. Officially, there is not a single shareholder of these banks with more than a 10 per cent stake. The overall number of institutional shareholders (investors) of US banks is around one thousand. It works out that an average of one institutional shareholder accounts for approximately 0.1 per cent of capital. In reality it is less, since there are also mutual funds (accounted for separately) and many thousands of individuals. In a number of banks, shares are owned by employees. In the case of Goldman Sachs, nearly 7 per cent of the share capital is held by individuals. Finally, some of the shares are floated on the stock market. In view of the fact that share capital is dispersed among tens of thousands of security holders, owning just one per cent of the shares in a Wall Street bank is a very powerful position. 

Secondly, one and the same owner – the ultimate beneficiary – could be behind a few (or many) officially independent shareholders. Let us say that the owners of the financial holding company Vanguard Group hold shares in Goldman Sachs both directly and through mutual funds that fall within the holding company’s sphere of influence. Chances are that the share of the Vanguard Group in the capital of Goldman Sachs is more than 4.9 per cent (the percentage of the parent company) and more than 8.49 per cent (the percentage in view of the three mutual funds under its control). Neither should one disregard the individual shareholders, whose specific weight is far greater than their percentage of the share capital since they are senior managers who were put into management positions by the ‘ultimate beneficiaries’. 

Thirdly, there are shareholders whose influence on the bank’s policies is greater than their percentage of the share capital because they own so-called voting shares, while other shareholders own so-called privileged shares. The latter give their holders privileges like receiving a fixed dividend, but deprive them of the right to vote at shareholder meetings. By way of example, a shareholder may hold shares in the capital of the bank equal to 5 per cent, but his share of the total number of votes could be 10, 20 or even 50 per cent. The privilege of a casting vote for Wall Street banks could be of much greater value than the privilege of receiving a guaranteed income. 

Let us look back at Table 1 in the first part of this article. It shows that the main shareholders of almost all the US banks are financial holding companies. Moreover, while the names of the leading Wall Street banks are today familiar to all of us, the names of the financial holding companies that own large stakes in these banks only mean something to a very small circle of financiers. But they are the ones who ultimately control the US banking system and the Federal Reserve System. For example, the investment fund Franklin Templeton Investments, which bought up Ukrainian debt securities for $7-8 billion and is taking an active part in the country’s economic strangulation, has been mentioned rather a lot of late. This fund is a subsidiary of the financial holding company Franklin Resources Inc., which is a shareholder of Citigroup (with a share of 1.24 per cent) and Morgan Stanley (1.4 per cent). 

Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. 

Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same ‘big four’ either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.

Table 4.

Leading institutional shareholders of the main US banks

Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies’ main assets, while in others they also include assets that have been transferred over to the companies’ control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world’s banks ranked by asset size with assets totalling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion). 

It is interesting that the ‘big four’ financial holding companies control trillions of dollars worth of assets with a rather modest number of employees. With total assets of around $15 trillion, the ‘big four’ has less than 100,000 employees. For comparison: Citigroup alone has nearly 250,000 employees, while Wells Fargo has 280,000. Wall Street banks seem like workhorses in comparison with the financial holding companies of the ‘big four’. 

In terms of controlled assets, the ‘big four’ financial companies are in a heavier weight category than the ‘big six’ US banks. The tentacles of the ‘big four’ financial holding companies do not just extend to the US banking system, but to companies in other sectors of the economy in both the US and overseas. Here we can recall a study by specialists from the Zurich Institute of Technology in Switzerland, the aim of which was to reveal the controlling core of the global economic and financial system. In 2011, the Swiss specialists calculated that there were 1,128 companies and banks at the core of global finance at the beginning of the financial crisis (2007). An even denser core of 147 companies was revealed within this conglomerate. The authors of the study estimated that this smaller core controlled 40 per cent of all corporate assets in the world. The Swiss researchers ranked this core group of companies. Here is the top ten: 

1. Barclays plc

2. Capital Group Companies Inc

3. FMR Corporation

4. AXA

5. State Street Corporation

6. JP Morgan Chase & Co

7. Legal & General Group plc

8. Vanguard Group Inc

9. UBS AG

10. Merrill Lynch & Co Inc.

An important fact is that all ten places in the Swiss list are occupied by financial sector organisations. Of these, four are banks whose names everyone is familiar with (one of them, Merrill Lynch, no longer exists). I will make particular mention of the US bank JP Morgan Chase & Co. This is not just a bank; it is a bank holding company that holds shares in many other US banks. As can be seen from Table 1, JP Morgan Chase holds shares in every ‘big six’ bank with the exception of Goldman Sachs. There is another remarkable bank in the US banking world that is not officially one of the ‘big six’, but which has invisible control over some of the ‘big six’ banks. I am referring to The Bank of New York Mellon Corporation. This bank holds shares in Citigroup (1.24 per cent), JP Morgan Chase (1.48 per cent) and Bank of America (1.25 per cent). 

But six of the places in the Swiss list belong to financial companies rarely mentioned in the press. These are financial holding companies that specialise in acquiring shareholdings in companies in various sectors of the economy around the world. Many of them set up various investment funds, including mutual funds, and manage their clients’ assets on the basis of trust agreements etc. The list includes three of the ‘big four’ financial companies in Table 4: Vanguard Group Inc, FMR Corporation (Fidelity), and State Street Corporation. These financial holding companies, along with the company BlackRock (which has strengthened its position considerably since 2007) also make up the core of the US banking system. 

It is interesting that the ‘big six’ are also well represented in the bank holding company JP Morgan Chase: Vanguard Group – 5.46 per cent; State Street Corporation – 4.71 per cent; FMR Corporation (Fidelity) – 3.48 per cent; and BlackRock – 2.75 per cent. Another of the bank holding companies mentioned above, The Bank of New York Mellon Corporation, is controlled by three of the ‘big four’ financial companies: Vanguard Group – 5.15 per cent; State Street Corporation – 4.72 per cent; and FMR Corporation (Fidelity) BlackRock – 2.62 per cent. 

After revealing the controlling core of the US banking system made up of a small number of financial holding companies, a number of new questions arise. Who are the owners and ultimate beneficiaries of these financial holding companies? How far does the influence of these financial holding companies extend sectorally and geographically? And can we say that the approach to explaining what goes on in the sphere of global finance based on the concept of the struggle between the Rothschild and Rockefeller clans’ has now become obsolete? 

However, these are subjects for another discussion. 

During the 2007-2009 global financial crisis, the FRS quietly gave out more than $16 trillion worth of credit (virtually interest free) to various banks. The owners of the money gave out the credit to themselves, that is to the main shareholder banks of the Federal Reserve. Under strong pressure from US Congress, a partial audit of the FRS was carried out at the beginning of this decade and the results were published in the summer of 2011. The list of credit recipients is also a list of the FRS’ main shareholders. They are as follows (the amount of credit received is shown in brackets in billions of dollars): Citigroup (2,500); Morgan Staley (2,004); Merrill Lynch (1,949); Bank of America (1,344); Barclays PLC (868); Bear Sterns (853); Goldman Sachs (814); Royal Bank of Scotland (541); JP Morgan (391); Deutsche Bank (354); Credit Swiss (262); UBS (287); Leman Brothers (183); Bank of Scotland (181); and BNP Paribas (175). It is interesting that a number of the recipients of FRS credit are not American, but foreign banks: British (Barclays PLC, Royal Bank of Scotland, Bank of Scotland); Swiss (Credit Swiss, UBS); the German Deutche Bank; and the French BNP Paribas. These banks received nearly $2.5 trillion from the Federal Reserve. We would not be mistaken in assuming that these are the Federal Reserve’s foreign shareholders. 

While the makeup of the Federal Reserve’s main shareholders is more or less clear, however, the same cannot be said of the shareholders of those banks who essentially own the FRS’ printing press. Who exactly are the shareholders of the Federal Reserve’s shareholders? 

To begin with, let us take a good look at the leading US banks. Six banks currently represent the core of the US banking system. The ‘big six’ includes Bank of America, JP Morgan Chase, Morgan Stanley, Goldman Sachs, Wells Fargo, and Citigroup. They occupy the top spots in US bank ratings in terms of indices such as amount of capital, controlled assets, deposits attracted, capitalisation and profit. If we were to rank the banks in terms of assets, then JP Morgan Chase would be in first place ($2,075 billion at the end of 2014), while Wells Fargo is in the lead in terms of capitalisation ($261.7 billion in the autumn of 2014). In terms of this index, incidentally, Wells Fargo came out on top not only in America, but in the world (although in terms of assets, the bank is only fourth in America and does not even figure in the world’s top twenty). 

There is some shareholder information on the official websites of these banks. The bulk of the big six US banks’ capital is in the hands of so-called institutional shareholders – various financial companies. These include banks, which means there is cross shareholding.

At the beginning of 2015, the number of institutional shareholders of each bank were: Bank of America – 1,410; JP Morgan Chase – 1,795; Morgan Stanley – 826; Goldman Sachs – 1,018; Wells Fargo – 1,729; and Citigroup – 1,247. Each of these banks also has a fairly clear group of major investors (shareholders). These are investors (shareholders) with more than one per cent of capital each and there are usually between 10 and 20 such shareholders. It is striking that exactly the same companies and organisations appear in the group of major investors for every bank. Table 1 lists the major institutional investors (shareholders). 

Table 1.

Major institutional shareholders of US banks and their percentage of the share capital of each bank (as of 31 December 2014)

Source: finance.yahoo.com

As well as the institutional investors identified in Table 1, the list of shareholders of the leading US banks also includes the following organisations: Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Mitsubishi UFJ Financial Group, Inc., Berkshire Hathaway Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., The Bank of New York Mellon Corporation and several others. I have only named those organisations that appear as shareholders of at least two of the six leading US banks. 

The institutional shareholders listed in the financial statements of leading American banks are various financial companies and banks. Separate records are maintained with regard to shareholders such as individuals and mutual funds. In a number of Wall Street banks, a substantial proportion of the shares are owned by the employees of these banks. Obviously these are top managers rather than ordinary employees (although ordinary bank workers may also have a symbolic amount of shares). With regard to mutual funds1, many of these fall within the sphere of influence of exactly the same institutional shareholders listed above. 

A list of the largest shareholders of the US bank Goldman Sachs that qualify as mutual funds may be given by way of example (Table 2). 

Table 2.

Largest mutual fund shareholders of Goldman Sachs (as of 31 December 2014)

Source: finance.yahoo.com

At least three of the funds listed in Table 2 fall within the sphere of influence of the financial corporation Vanguard Group. These are Vanguard Total Stock Market Index Fund, Vanguard 500 Index Fund, and Vanguard Institutional Index Fund-Institutional Index Fund. The Vanguard Group holds 4.9 per cent of the share capital in Goldman Sachs, but the three mutual funds that are part of this financial holding company provide an additional 3.59 per cent. The Vanguard Group’s actual position in Goldman Sachs is therefore determined by a share of 8.49 per cent rather than 4.9 per cent. 

A number of Wall Street banks also have an individual shareholder category. These are usually the banks’ senior executives, both active and retired. The table below contains information on the individual shareholders of Goldman Sachs (Table 3). 

Table 3.

Largest individual shareholders of Goldman Sachs (as of 27 February 2015)

Source: finance.yahoo.com

Altogether, the five individuals listed in Table 3 hold more than 5.5 million shares in Goldman Sachs, which amounts to approximately 1.3 per cent of the bank’s total share capital. This is the same amount of shares as an institutional shareholder like Northern Trust. Who are these people? They are senior managers at Goldman Sachs. Lloyd Blankfein, for example, has been the chairman and CEO of Goldman Sachs since 31 May 2006. John S Weinberg has been a vice chairman of Goldman Sachs since around the same time. He is also a member of the management committee and was co-head of the investment banking division (he left the latter post in December 2014). The three other individual shareholders also fall into the category of Goldman Sachs senior management, and they are all current employees of the bank. 

(To be concluded…)

(1) A mutual fund (MF) is a portfolio of shares acquired by professional financiers through investments by many thousands of small investors. By the beginning of the 21st century, there were several thousand mutual funds in operation in the US. By 2000, 164.1 million accounts had been opened under the framework of mutual funds, which is to say nearly two per family.