The Ascendancy of Finance Capital: Record Profits and
Rising Authoritarianism
James
Petras
March 28,
2006
Introduction
No sector of the US economy, in recent years, can
match the rate and size of profit which have accrued to the
biggest financial institutions. For the first quarter of
February 2006, Goldman Sachs (GS) broke Wall Street records
by reporting new profits of $2.48 billion dollars
(annualized at over $10 billion dollars). Earnings were up
64% over the same period last year (which was also a very
lucrative year). Return on equity rose to 38.8%, topping
the record for a top investment house. Total revenues rose
$10.3 billion dollars. GS has had record earnings in five
of the past nine quarters (Financial Times (FT) 3/15/2006, p
1). Morgan Stanley reported a 17% increase in net income to
$1.64 billion dollars for its first quarter in February
2006. Revenues rose by 24% compared to 19.7% last year.
Lehman Brothers reported a 24% increase in profits in the
first quarter to Feb. 2006 to a record $1.1 billion
dollars. Revenues increased 17% to $4.5 billion dollars.
Bear Stearns (BS) joined the dance of the billions of Wall
Street, reporting first quarter profits of $514 million
dollars; earnings were up 34% from the year earlier. BS new
revenues grew 19% to $2.3 billion, while return on
stockholders equity rose 20.1% in the first quarter of 2006.
The combined profits of these 4 banks total $5.73 billion
dollars for the quarter November 2005 – February 2006, or
$22.9 billion annually – and that does not include the
profits for three of the top 5 banks (Citigroup, JP Morgan
and Merrill Lynch) whose quarter runs January to March 2006,
which are expected to have equally high returns, doubling
the new profits to over $12 billion dollars for the first
quarter and increasing profits to nearly $50 billion for
2006.
No other sector of the economy can boast such high rates of
return, nor can any top seven enterprises even approach the
record profits. The banks draw their biggest profits in
facilitating the concentration and centralization of capital
(dubbed “mergers and acquisitions”), charging lucrative fees
for “advising” and underwriting bonds to fund the mergers
and acquisitions. The second source of profits is
speculating, including debt trading, betting on global
equity markets – especially in energy where Goldman and
Morgan “have been making a fortune in recent quarters”.
While US consumers, demagogic politicians and anti-war
activists have blamed the oil producing countries, they have
entirely overlooked the big speculative banks in pushing up
the price of oil.
The key political point is that the driving force of the
most important economic sector – services – in the US is the financial sector, the one
least engaged in productive activity, meaning
production of goods and services for the population.
Moreover its high profits, the astronomical bonuses and
income of its leading elites, and its role in promoting the
concentration of capital play a major role in increasing
income inequalities. The costs they impose on enterprises
for their “services” contribute to indebtedness which in
turn leads to massive layoffs, reduction in health and
pension benefits, as part of the “advisory” messages of the
implicated banks.
In addition to their speculative activity, the banks have
become significant equity holders in non-banking sectors.
They play a major role in cutting labor costs as a
route for maximizing short-term profits as the expense of
long-term investments in research and technology. Finally
the most lucrative and dynamic source of speculative profits
is in overseas expansion, particularly in Europe and
especially in Asia. For
example, Lehman Brothers announced in mid-March 2006 an
“aggressive expansion in Asia”. While overall revenues were up 17%, overseas
revenues rose 30%, while Asian revenues rose by 67%. David
Goldfarb, Chief Administrative Officer stated that Asian
expansion was Lehman’s “number one priority”. All the major
banks have or are in the process of securing beachheads in
the banking sectors of China and India.
Financial imperialism is becoming a major vehicle for
market-driven empire building in the 21st
Century.
Finance
Capital: Political Power and Economic Policy
Financial capital wields enormous power over government
economic policy through its direct representation in the
controlling body of US monetary
policy via the President and Executive Board of the Federal
Reserve. The key explicit criteria for the appointment of
the President of the Federal Reserve is the “confidence”,
close ties and solid relations which the candidate has with
Wall Street. The same criteria are applied to all the key
economic appointees, including Treasury, Commerce, World
Bank and International Monetary Fund. Long time Federal
Reserve President Greenspan was highly respected and lauded
not for his abysmal economic performance but for his
favorable policies to Wall Street Bankers. Under
Greenspan’s Presidency, the US economy
de-industrialized, accumulated huge trade and budget
deficits and went through two speculative bubbles
(information technology and savings and loans). He presided
over an economy which reached unprecedented levels of public
debt – doubling in five years. Greenspan’s backing of
Bush’s tax cuts for the rich (income, capital gains etc)
contributed to the huge budget deficit and widening
inequalities. His policy of low interest rates fueled the
speculative bubbles at the expense of productive
investments. His backing for unregulated capital (dubbed
“globalization”) led to the re-location of US
multi-nationals abroad (many of whom export to the US) and led to huge trade and balance
of payment deficits. Yet all these policies which led to
the disastrous state of the national economy, created
extraordinarily favorable conditions for the domestic and
international expansion of finance capital, as well as the
concentration and centralization of banks into ten
controlling units.
Wall Street’s impact on the economy and social structure can
be best illustrated by examining
New York City – its center of
operation. The distribution of assets in
New York City is among the most
unequal in the world. Slightly over 1% of the population
control over 80% of the assets – comparable to land
inequalities in Guatemala
and
Brazil. Secondly, Wall Street is
closely tied to real estate capital in New York, and both were instrumental in
raising property values and rents, leading to the
destruction of over 500,000 manufacturing jobs over the past
three decades. Most of the former industrial properties
were “redeveloped” to provide office space for finance
related activities and high end housing for wealthy
financiers. New York Senator Schumer, a notorious backer of
Wall Street, leads the US in scapegoating China for the loss of manufacturing jobs,
ignoring the essential role of finance – real estate in
deliberately destroying the manufacturing sector in
New York City. Of course, the demise
of manufacturers in
New York city
was not only due to finance capital; the local garment
capitalists and the trade unions were also partly
responsible. The former relied on low-wage labor to compete
– a losing proposition against China – instead of upgrading its
technology, computerizing design and production and
specializing in high-end products. The trade unions
(International Ladies Garment Workers Union – ILGWU, later
re-named UNITE) reinforced the failed cheap labor strategy
of garment bosses, by discretely allowing de facto wages to
fall below the minimum wage and what was stipulated in
collective bargaining contracts. No doubt the ethnic-class
differences between the six-figure salaried Jewish labor
bosses and the low-paid Asian and Latino workers and the
common class-ethnic positions of the labor bosses and the
manufacturers facilitated these failed policies: loss of
manufacturing competitiveness and loss of jobs for workers.
Finance
Capital and the War in the Middle East
Finance capital was until recently predominantly made up of
white Protestants and Jews. In the most recent period, Wall
Street’s ethnic and religious base has broadened as
corporate capital has taken over from family-owned banks.
Nevertheless among the new generation of upwardly mobile
speculators, there is a pronounced disproportion of
individuals of Jewish origin, who are not necessarily
religious or involved in Jewish or Israeli communal
activities, fund raising or politics. Nevertheless a
significant affluent minority of prominent Jewish banking
and real estate millionaires are active in financing and
promoting Israeli policy either directly or through the key
pro-Israel lobbies like AIPAC and the President of the Major
Jewish Organizations. These lobbies have been in the
forefront of promoting the Iraq War, a boycott or military
attack on
Iran and the ethnic cleansing of
Palestinians. The political muscle of this minority of
Israel-First wealthy Jewish financiers is not countered by
any countervailing organization by other Jewish financial
bankers or for that matter by Gentile, Muslim or Hindu
financial tycoons. Through the political use of their
wealth, strategic location and high status, this minority of
politically active financiers is in a position to establish
the parameters and policies of Middle
East policies vie their dominant role in funding
political parties (especially the Democratic Party),
candidates and congressional representative.
The Jewish and Gentile critics of the war deliberately
exclude the role of the minority of wealthy Jews and their
political lobbies in shaping US policy in the Middle East by focusing on the
US and overseas oil companies (“No
blood for oil!”). There is an abundance of evidence for the
past 15 years that:
<!--[if !supportLists]-->1.
<!--[endif]-->The oil companies
did not promote a war policy
<!--[if !supportLists]-->2.
<!--[endif]-->The wars have
prejudiced their interests, operations and agreements with
prominent Arab and Islamic regimes in the region
<!--[if !supportLists]-->3.
<!--[endif]-->The interests of
the oil companies have been sacrificed to the state
interests of Israel
<!--[if !supportLists]-->4.
<!--[endif]-->The power of
financial capital via the pro-Israel lobbies exceeds that of
the oil companies in shaping US Middle East policy.
A thorough search through the publications and lobbying
activities of the oil industry and the pro-Israel lobbies
over the past decade reveals an overwhelming amount of
documentation demonstrating that the Jewish lobbies were far
more pro-war than the oil industry. Moreover the public
records of the oil industry demonstrate a high level of
economic co-operation with all the Arab states and
increasing market integration. In contrast the public
pronouncements, publications and activities of the most
economically powerful and influential pro-Israel Jewish
lobbies were directed toward increasing US government
hostility to the Arab countries, including maximum pressure
in favor of the war in Iraq, a boycott or military attack on
Iran and US backing for Israeli assassination and ethnic
cleansing of Palestinians.
The most striking illustration of Jewish power in shaping US policy in the Middle East
against the interest of Big Oil is demonstrated in US-Iran
policy. As the Financial Times notes: “International
oil companies are putting multi-billion dollar projects in
Iran on hold, concerned about the diplomatic standoff (sic –
US economic-military threats) over the country’s nuclear
programme” (FT March 18/19, 2006 p.1). Despite the
fact that billions of dollars in oil, gas and petro-chemical
contracts are in play, the pro-Israel lobby has influenced
Congress to bar all major US oil companies from investing in
Iran. Through its all out campaign
in the US Congress and Administration, the US-Jewish-Israeli
lobby has created a war-like climate which now goes counter
to the interests of all the world’s major oil companies
including BP, the UK-based gas company, SASOL (South Africa,
Royal Dutch Shell, Total of France and others.
The myth of “war for oil” is circulated by almost all the
major progressive Jewish intellectuals and parroted by their
Gentile followers, who are in word and deed prohibited from
mentioning the AIPAC word in any public meetings or
manifestos. The power of the minority of politically active
Jewish financiers in the pro-Israel lobby is spreading far
beyond the area of US foreign policy into the cultural, academic and
economic life of the US. Three major events immediately
come to mind.
In New York City, a major theater production of the life of
Rachael Corrie, an American humanitarian volunteer murdered
in the Occupied Territories by an Israeli Defense Force
soldier driving a bulldozer, was cancelled because of Jewish
pressure and financial threats. The theater admitted that
the cancellation had to do with the “sensitivities” (and
pocket book) of the issue to Israel-Firsters. The
pro-Israel lobby’s defense and support of a minority opinion
in favor of
Middle East aggression is now extending its
authoritarian reach into undermining the basic freedoms of
American to free and open expression.
The second example of the growing tyranny of the pro-Israel
minority over our civil liberties is the virulent campaign
waged by all the major Jewish publications and pro-Israel
organizations against a well-documented essay written by
Professor Walt of Harvard
University and Professor Mearsheimer of
University of
Chicago critical of the
lobby’s influence on US Middle East policy. From the
ultra-rightwing Orthodox Jewish Press (which claims
to be the largest “independent” Jewish newspaper in the US),
to the formerly Social Democratic Forward, to the
Jewish Weekly , all have launched together with all the
major Jewish organizations, a propaganda campaign of
defamation (“the new Protocols of Zion”, “anti-Semitic”,
“sources from Neo-Nazi websites…”) and pressure for their
purge from academia. The Jewish authoritartians have
already partially succeeded. Their press releases have been
published by the mass media without allowing for rebuttal by
the academics under attack. Harvard University has demanded the identification of the
Harvard
Kennedy School be removed from the paper. The
financier of the professorial chair (in his name) which
Professor Walt, as academic dean, occupies at the Harvard
Kennedy School, is no longer mentioned it in his
publication. Ultra-Zionist Professor Dershowitz and his
fellow Harvard zealots call into question their moral and
academic qualification to teach. Both in the
United States and
France, legislation is being prepared
to equate anti-Zionism with anti-Semitism and to criminalize
as a ‘hate crime’ the free expression of outrage over
Israeli atrocities and any criticism of the Lobby’s control
of US Middle East policy. In the US, the proposed legislation would take the form
of withdrawing federal funding from any academic institution
where the policies of Israel are criticized. As yet there
is no organized opposition in the US by Jewish or Gentile academics or
journalists to this erosion of free expression or a defense
of the integrity of the two critics of the Lobby. There is
no group of Jewish investors or financiers willing to fund a
civil rights campaign in defense of free speech, academic
and artistic freedom, to counter the minority Zionist
financial elite. It is business as usual.
Some Myths
and a Few Insights: Capitalism and War
In addition to the myth of the “war for oil” there are
several facile misconceptions:
Myth 1)
- the dominance of financial capital leads to war: There is
no evidence that financial capital performs better under war
time conditions than in peace. In fact recent history
demonstrates that ‘crisis’ provokes market volatility and
sudden disruption which prejudices important financial
‘bets’ even as other benefits. Most of financial profits
accrue from mergers and acquisitions with tend to increase
due to competitive market conditions – not wars. The
financiers who support war do so for their own
personal-ideological reasons, ethnic identification and
usually do so via ethnic-affiliated organizations not
through financial associations. Thus the big contributions
by a minority of Jewish financiers to the pro-war Zionist
lobbies have less to do with their class affiliation and
more to do with their identification with Israel First
organizations.
Myth 2)
– While financiers are a major funding source for the
bellicose pro-Israel lobbies and their congressional
spokespeople, they are a minority among Jewish investment
bankers, whose prime concern is maximizing the earnings of
their banks and hence their incomes, and engaging in many
non-Jewish social cultural and professional activities.
Over half do not even marry within the Jewish community.
Myth 3)
- Many writers cite polls which suggest that most Jews, like
other Americans now oppose the Iraq war. The fact remains however
that they are not willing to criticize the pro-war Jewish
lobby or to mention
Israel’s involvement in
precipitating the war through its occupation of Palestine.
Myth 4)
– The pro-Israel lobby is just like many other lobbies. The
Jewish pro-Israel lobby is uniquely powerful because it
commands a vast network of grass roots organizations,150
full-time functionaries in Washington operating under discipline and commitment to a
foreign power, Israel. Moreover the lobby is
financed by wealthy individuals in highly lucrative growth
sectors (such as in the banking sector). Thirdly its long
established reputation of threats and rewards to
recalcitrant and to loyal Congress people, executives and
opinion makers makes it an extraordinary and dangerous
lobby.
Conclusion
The ascendancy of finance capital and its influence over US
economic policy has had major, largely negative,
consequences for the US economy,
especially our living standards, external accounts and
budget. The deregulated financial markets have led to
record profits for Wall Street but it has also led to a
series of speculative bubbles, which have bankrupted
millions of retail investors.
The loss of
US industrial competitiveness is
largely the result of the transfer of capital from
productive innovations which increase competitiveness to
speculative activity several times removed from the actual
production of goods and services. “Derivative” and “Hedge
funds” now equal the size of the US economy at $12 trillion dollars…a
financial collapse waiting to happen. Financial capital in
its most advanced stage of derivatives is based on bets on
bets on bets…which has vastly increased the likelihood of
economic collapse even as it widens the chasm between
bankers and wage earners.
The political power of finance capital has been exercised in
the realm of economic policy and executive appointments; it
has not been directly involved in formulating or benefiting
from the war policies. However it has been compatible,
supportive and benefited from its close ties and relations
with the militarist policy elite in Congress and the
Executive. The relation is mutually supportive. The
Executive deregulates financial markets, lowers taxes, cuts
social spending, appoints Wall Street friendly Federal
Reserve Presidents, and in exchange Wall Street supports the
imperial war ministers in the Cabinet and in Congress.
Investment banks have been deeply involved in recycling Arab
petroleum funds and engaging in large-scale mergers and
acquisitions in the Middle East, while a minority but deeply
engaged Jewish financiers have funded the pro-Israel lobbies
pushing for a more bellicose US policy toward the Arab and Islamic
world.
Wall Street’s position on the erosion of democratic freedoms
has ranged from ambiguous to authoritarian. While backing
the Administration’s Patriot Act, they opposed the blocking
of Dubai’s purchase of
US port terminal management. While
an active minority backed the banning of the Rachael Corrie
theater production and funds pro-Israel organizations
attempting to purge academics critical of
Israel, the majority look on with
indifference.
Rising authoritarianism and lucrative financial profiteering
are compatible with the ascendancy of finance capital.