by Michel Chossudovsky
November 9, 2008
from GlobalResearch Website
Most Serious Economic
Crisis in Modern History
The October 2008 financial meltdown is not the result of a cyclical economic
phenomenon. It is the deliberate result of US government policy instrumented
through the Treasury and the US Federal Reserve Board.
This is the most serious economic crisis in World history.
The "bailout" proposed by the US Treasury does not constitute a "solution"
to the crisis. In fact quite the opposite: it is the cause of further
collapse. It triggers an unprecedented concentration of wealth, which in
turn contributes to widening economic and social inequalities both within
and between nations.
The levels of indebtedness have skyrocketed. Industrial corporations are
driven into bankruptcy, taken over by the global financial institutions.
Credit, namely the supply of loanable funds, which constitutes the lifeline
of production and investment, is controlled by a handful of financial
With the "bailout", the public debt has spiraled. America is the most
indebted country on earth. Prior to the "bailout", the US public debt was of
the order of 10 trillion dollars.
This US dollar denominated debt is composed of
outstanding treasury bills and government bonds held by individuals, foreign
governments, corporations and financial institutions.
"The Bailout": The US
Administration is Financing its Own Indebtedness
Ironically, the Wall Street banks - which are the recipients of the bailout
money - are also the brokers and underwriters of the US public debt.
Although the banks hold only a portion of the public debt, they transact and
trade in US dollar denominated public debt instruments Worldwide.
In a bitter twist, the banks are the recipients of a 700+ billion dollar
handout and at the same time they act as creditors of the US government.
We are dealing with an absurd circular relationship: To finance the bailout,
Washington must borrow from the banks, which are the recipients of the
The US administration is financing its own indebtedness.
Federal, State and municipal governments are increasingly in a
straightjacket, under the tight control of the global financial
conglomerates. Increasingly, the creditors call the shots on government
The bailout is conducive to the consolidation and centralization of banking
power, which in turn backlashes on real economic activity, leading to a
string of bankruptcies and mass unemployment.
Will an Obama
Administration Reverse the Tide?
The financial crisis is the outcome of a deregulated financial architecture.
Obama has stated unequivocally his resolve to address the policy failures of
the Bush administration and "democratize" the US financial system.
President-Elect Barack Obama says that he is committed to reversing the
"Let us remember that if this financial
crisis taught us anything, it’s that we cannot have a thriving Wall
Street while Main Street suffers. In this country, we rise or fall as
one nation, as one people."
(President-elect Barack Obama, November
4, 2008, emphasis added)
The Democrats casually blame the Bush
administration for the October financial meltdown.
Obama says that he will be introducing an entirely different policy agenda
which responds to the interests of Main Street:
"Tomorrow, you can turn the page on policies
that put the greed and irresponsibility of Wall Street before the hard
work and sacrifice of men and women all across Main Street. Tomorrow you
can choose policies that invest in our middle class and create new jobs
and grow this economy so that everybody has a chance to succeed, from
the CEO to the secretary and the janitor, from the factory owner to the
men and women who work on the factory floor."
(Barack Obama, election campaign,
November 3, 2008)
Is Obama committed to "taming
Wall Street" and "disarming financial markets"?
Ironically, it was under the Clinton administration that these policies of
"greed and irresponsibility" were adopted.
The 1999 Financial Services Modernization Act (FSMA) was
conducive to the the repeal of the
Glass-Steagall Act of 1933.
A pillar of President Roosevelt’s "New Deal",
the Glass-Steagall Act was put in place in response to the climate of
corruption, financial manipulation and "insider trading" which resulted in
more than 5,000 bank failures in the years following the 1929 Wall Street
Bill Clinton signs into law
the Gramm-Leach-Bliley Financial Services Modernization Act, November 12,
Under the 1999 Financial Services Modernization
Act, effective control over the entire US financial services industry
(including insurance companies, pension funds, securities companies, etc.)
had been transferred to a handful of financial conglomerates and their
associated hedge funds.
The Engineers of
Who are the architects of this debacle?
In a bitter irony, the engineers of financial disaster are now being
considered by President-Elect Barack Obama's Transition Team for the
position Treasury Secretary:
Lawrence Summers played a key role in
lobbying Congress for the repeal of the Glass Steagall Act. His
timely appointment by President Clinton in 1999 as Treasury
Secretary spearheaded the adoption of the Financial Services
Modernization Act in November 1999. Upon completing his mandate at
the helm of the US Treasury, he became president of Harvard
University (2001- 2006).
Paul Volker was chairman of the Federal
Reserve Board in the 1980s during the Reagan era. He played a
central role in implementing the first stage of financial
deregulation, which was conducive to mass bankruptcies, mergers and
acquisitions, leading up to the 1987 financial crisis.
Timothy Geithner is CEO of the Federal
Reserve Bank of New York (FRBNY), which is the most powerful private
financial institution in America. He was also a former Clinton
administration Treasury official. He has worked for Kissinger
Associates and has also held a senior position at the IMF. The FRBNY
plays a behind the scenes role in shaping financial policy. Geithner
acts on behalf of powerful financiers, who are behind the FRBNY. He
is also a member of the Council on Foreign Relations (CFR)
Jon Corzine is currently governor of New
Jersey, former CEO of Goldman Sachs.
Larry Summers (left) and
At the time of writing, Obama's favorite is
Larry Summers, front-runner for the position of Treasury Secretary.
Harvard University Economics Professor Lawrence Summers served as Chief
Economist for the World Bank (1991–1993). He contributed to shaping the
macro-economic reforms imposed on numerous indebted developing countries.
The social and economic impact of these reforms under the
sponsored structural adjustment program (SAP) were devastating, resulting in
Larry Summer's stint at the World Bank coincided with the collapse of the
Soviet Union and the imposition of the IMF-World Bank's deadly " economic
medicine" on Eastern Europe, the former Soviet republics and the Balkans.
In 1993, Summers moved to the US Treasury. He initially held the position of
Undersecretary of the Treasury for international affairs and later Deputy
Secretary. In liaison with his former colleagues at the IMF and the World
Bank, he played a key role in crafting the economic "shock treatment" reform
packages imposed at the height of the 1997 Asian crisis on South Korea,
Thailand and Indonesia.
The bailout agreements negotiated with these three countries were
coordinated through Summers office at the Treasury in liaison with the
Federal Reserve Bank of New York and the Washington based Bretton Woods
institutions. Summers worked closely with IMF Deputy Managing Director
Stanley Fischer, who was later appointed
Governor of The Central Bank of
Larry Summers became Treasury Secretary in July 1999. He is a protégé
He was among the main architects of the infamous
Financial Services Modernization Act, which provided legitimacy to inside
trading and outright financial manipulation.
Larry Summers and David
"Putting the Fox in Charge of
the Chicken Coop"
Summers is currently a Consultant to Goldman Sachs and managing director of
a Hedge fund, the D.E. Shaw Group. As a Hedge Fund manager, his contacts at
the Treasury and on Wall Street provide him with valuable inside information
on the movement of financial markets.
Putting a Hedge Fund manager (with links to the Wall Street financial
establishment) in charge of the Treasury is tantamount to putting the fox in
charge of the chicken coop.
Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank
Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play
golf together; they have links to the
Council on Foreign Relations and
the Bilderberg; they act concurrently in accordance with the interests of Wall
Street; they meet behind closed doors; they are on the same wave length;
they are Democrats and Republicans.
While they may disagree on some issues, they are firmly committed to the
Washington-Wall Street Consensus. They are utterly ruthless in their
management of economic and financial processes. Their actions are profit
driven. Outside of their narrow interest in the "efficiency" of "markets",
they have little concern for "living human beings". How are people's lives
affected by the deadly gamut of macro-economic and financial reforms, which
is spearheading entire sectors of economic activity into bankruptcy.
The economic reasoning underlying neoliberal economic discourse is often
cynical and contemptuous. In this regard, Lawrence Summers' economic
discourse stands out.
He is known among environmentalists for having
proposed the dumping of toxic waste in Third World countries, because people
in poor countries have shorter lives and the costs of labor are abysmally
low, which essentially means that the market value of people in the Third
World is much lower. According to Summers, this makes it far more "cost
effective" to export toxic materials to impoverished countries.
A controversial 1991 World Bank memo signed by
of Chief Economist Larry Summers reads as follows (excerpts, emphasis
DATE: December 12, 1991
Lawrence H. Summers
"'Dirty' Industries: Just between you and me, shouldn't the World Bank
be encouraging MORE migration of the dirty industries to the Less
I can think of three reasons:
The measurements of the costs of health
impairing pollution depends on the foregone earnings from increased
morbidity and mortality.... From this point of view a given amount
of health impairing pollution should be done in the country with the
lowest cost, which will be the country with the lowest wages. I
think the economic logic behind dumping a load of toxic waste in the
lowest wage country is impeccable and we should face up to that.
The costs of pollution are likely to be
non-linear as the initial increments of pollution probably have very
low cost. I've always though that under-populated countries in
Africa are vastly UNDER-polluted, their air quality is probably
vastly inefficiently low compared to Los Angeles or Mexico City.
Only the lamentable facts that so much pollution is generated by
non-tradable industries (transport, electrical generation) and that
the unit transport costs of solid waste are so high prevent world
welfare enhancing trade in air pollution and waste.
The demand for a clean environment for
aesthetic and health reasons is likely to have very high income
elasticity. [the demand increases when income levels increase]. The
concern over an agent that causes a one in a million change in the
odds of prostrate cancer is obviously going to be much higher in a
country where people survive to get prostrate cancer than in a
country where under 5 mortality is is 200 per thousand.... "
Summers stance on the export of pollution to
developing countries had a marked impact on US environmental policy:
In 1994, "virtually every country in the
world broke with Mr. Summers' Harvard-trained "economic logic"
ruminations about dumping rich countries' poisons on their poorer
neighbors, and agreed to ban the export of hazardous wastes from OECD to
non-OECD [developing] countries under the Basel Convention.
Five years later, the United States is one
of the few countries that has yet to ratify the
Basel Convention or the
Basel Convention's Ban Amendment on the export of hazardous wastes from
OECD to non-OECD countries.
Larry Summers' War Against the Earth,
The 1997 Asian Crisis
- Dress Rehearsal for Things to Come
In the course of 1997, currency speculation instrumented by major financial
institutions directed against Thailand, Indonesia and South Korea was
conducive to the collapse of national currencies and the transfer of
billions of dollars of central bank reserves into private financial hands.
Several observers pointed to the deliberate manipulation of equity and
currency markets by investment banks and brokerage firms.
While the Asian bailout agreements were formally negotiated with the IMF,
the major Wall Street commercial banks (including Chase, Bank of America,
Citigroup and J. P. Morgan) as well as the "big five" merchant banks
(Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney)
were "consulted" on the clauses to be included in the Asian bail-out
agreements. [Note: These are 1997 denominations of major financial
The US Treasury in liaison with Wall Street and the Bretton Woods
institutions played a central role in negotiating the bailout agreements.
Both Larry Summers and Timothy Geithner, were actively involved on
behalf of the US Treasury in the 1997 bailout of South Korea:
[In 1997] "Messrs. Summers and Geithner
worked to persuade Mr. Rubin to support financial aid to South Korea.
Mr. Rubin was wary of such a move, worrying that providing money to a
country in dire straits might be a losing proposition..."
(WSJ, November 8, 2008)
What happened in Korea under advice from Deputy
Treasury Secretary Summers et al, had nothing to do with "financial aid".
The country was literally ransacked.
Undersecretary of the Treasury David
Lipton was sent to Seoul in early December 1997. Secret negotiations were
initiated. Washington had demanded the firing of the Korean Finance Minister
and the unconditional acceptance of the IMF "bailout".
A new finance minister, who happened to be former IMF and World Bank
official, was appointed and immediately rushed off to Washington for
"consultations" with his former IMF colleague Deputy Managing Director
"The Korean Legislature had met in emergency
sessions on December 23. The final decision concerning the 57 billion
dollar deal took place the following day, on Christmas Eve December
24th, after office hours in New York. Wall Street’s top financiers, from
Chase Manhattan, Bank America, Citicorp and J. P. Morgan had been called
in for a meeting at the Federal Reserve Bank of New York.
Also at the Christmas Eve venue, were
representatives of the "big five" New York merchant banks including
Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney.
And at midnight on Christmas Eve, upon receiving the green light from
the banks, the IMF was allowed "to rush 10 billion dollars to Seoul to
meet the avalanche of maturing short-term debts".
The coffers of Korea’s central Bank had been
ransacked. Creditors and speculators were anxiously awaiting to collect
the loot. The same institutions which had earlier speculated against the
Korean won were cashing in on the IMF bailout money. It was a scam.
(See Michel Chossudovsky,
The Recolonization of Korea,
subsequently published as a chapter in The Globalization of Poverty and
the New World Order, Global Research, Montreal, 2003.)
"Strong economic medicine" is the
prescription of the Washington Consensus. "Short term pain for long term
gain" was the motto at the World Bank during Lawrence Summers term of as
World Bank Chief Economist.
IMF, World Bank Reforms Leave Poor Behind,
Bank Economist Finds, Bloomberg, November 7, 2000)
What we dealing with is an entire " old boys
network" of officials and advisers at the Treasury, the
Federal Reserve, the
World Bank, the Washington Think Tanks, who are in permanent liaison
with leading financiers on Wall Street.
Whoever is chosen by Obama's Transition team will belong to the Washington
The 1999 Financial
Services Modernization Act
What happened in October 1999 is crucial.
In the wake of lengthy negotiations behind closed doors, in the Wall Street
boardrooms, in which Larry Summers played a central role, the regulatory
restraints on Wall Street’s powerful banking conglomerates were revoked
"with a stroke of the pen".
Larry Summers worked closely with Senator
Phil Gramm (1985-2002),chairman of
the Senate Banking committee, who was the legislative architect of the the
Gramm-Leach-Bliley Financial Services Modernization Act, signed into law on
November 12, 1999 (See Group Photo above). (For Complete text see US
As Texas Senator, Phil Gramm was closely
associated with Enron.
In December 2000 at the very end of the Clinton mandate, Gramm introduced a
second piece of legislation, the so-called Gramm-Lugar Commodity Futures
Modernization Act, which paved the way for the speculative onslaught in
primary commodities including oil and food staples.
"The act, he declared, would ensure that
SEC nor the Commodity Futures Trading Commission (CFTC) got
into the business of regulating newfangled financial products called
swaps - and would thus "protect financial institutions from
overregulation" and "position our financial services industries to be
world leaders into the new century."
(See David Corn,
Foreclosure Phil, Mother Jones, July
Phil Gramm was McCain's first choice for
Secretary of the Treasury.
Under the FSMA new rules – ratified by the US Senate in October 1999 and
approved by President Clinton – commercial banks, brokerage firms, hedge
funds, institutional investors, pension funds and insurance companies could
freely invest in each others businesses as well as fully integrate their
A "global financial supermarket" had been created, setting the stage for
massive concentration of financial power. One of the key figures behind this
project was Secretary of the Treasury Larry Summers, in liaison with
Rockefeller. Summers described the FSMA as "the legislative foundation of
the financial system of the 21th century".
That legislative foundation is
among the main causes of the 2008 financial meltdown.
There can be no meaningful solution to the crisis, unless there is a major
reform in the financial architecture, implying inter alia the freezing of
speculative trade and the "disarming of financial markets".
The project of
disarming financial markets was first proposed by
John Maynard Keynes in the
1940s as a means to the establishment of a multipolar international monetary
(See J.M. Keynes,
Activities 1940-1944, Shaping the Post-War World:
The Clearing Union, The Collected Writings of John Maynard Keynes, Royal
Economic Society, Macmillan and Cambridge University Press, Vol. XXV, London
1980, p. 57).
Main Street versus
Where are Obama's "Main Street appointees"? Namely individuals who respond
to the interests of people across America.
There are no labor or community
leaders on Obama's list for key positions.
The President-elect is appointing the architects of financial deregulation.
Meaningful financial reform cannot be adopted by officials appointed by Wall
Street and who act on behalf of Wall Street.
Those who set the financial system ablaze in 1999, have been called back to
turn out the fire.
The proposed "solution" to the crisis under the "bailout" is the cause of
further economic collapse.
There are no policy solutions on the horizon.
The banking conglomerates call the shots. They decide on the composition of
the Obama Cabinet. They also decide on the agenda of the Washington
Financial Summit (November 15, 2008) which is slated to lay the groundwork
for the establishment of a new "global financial architecture".
The Wall Street blueprint has already been discussed behind closed doors:
the hidden agenda is to establish a unipolar international monetary system,
dominated by US financial power, which in turn would be protected and
secured by US military superiority.
Neoliberalism with a
There is no indication that Obama will break his ties to his Wall Street
sponsors, who largely funded his election campaign.
J. P. Morgan Chase
Bill Gates' Microsoft,
...are among his main campaign contributors.
Warren Buffett, among the the world's richest individuals, not only
supported Barak Obama's election campaign, he is a member of his transition
team, which plays a key role deciding the composition of Obama's cabinet.
Unless there is a major upheaval in the system
of political appointments to key positions, an alternative Obama economic
agenda geared towards poverty alleviation and employment creation is highly
Barack Obama. November 7
Joe Biden (far left), newly appointed chief of staff Rahm Emanuel (far
right). Photo: Charles Dharapak
What we are witnessing is continuity.
Obama provides a " human face" to the status quo. This human face serves to
mislead Americans on the nature of the economic and political process.
The neoliberal economic reforms remain intact.
The substance of these reforms including the "bailout" of America's largest
financial institutions ultimately destroys the real economy, while
spearheading entire areas of manufacturing and the services economy into