The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ To stop banks running amok, governments put brakes on money creation by enforcing reserve requirements, which restrict how much they can lend out in relation to their deposits. The Euromarkets had none of these brakes. Eurodollar lending, a Bank of England memo noted, “is not controlled, as regard amount, nature or tenor: reliance is placed on the commercial prudence of the lenders.” Prudent bankers won’t indulge in an orgy of reckless lending, whatever the official constraints are, but the British were assuming that everyone operating in the Euromarkets was prudent.

      US authorities soon began to notice these new Atlantic ripples, and in 1961, two years after US banks joined the party in London, US officials warned the Bank of England that the market posed a “danger to stability.” Benjamin J. Cohen, then at the Federal Reserve Bank of New York, remembers being asked to look into Eurodollars in 1962. “It was in the manner of ‘There’s this development over in London we want to understand better,’” Cohen recalled. “‘Go over there and find out about it.’” It was quickly obvious that this interconnected system of financial centers was already amplifying and propagating financial shocks, sluicing rising tides of financial capital back and forth across the world. Worried US officials began calling the markets “disruptive forces” and a dangerous “transnational reservoir” of rootless money. By 1963 messages were flying between Washington and New York as higher interest rates in the Euromarkets drew dollars out of the United States to London and beyond. A memo from the time lamented “the undercutting of New York as a financial center” and slammed the Euromarkets for generating the same kinds of risks that caused the crash of 1929. The Federal Reserve Bank of New York and the US Treasury complained that the markets were making “the pursuit of an independent monetary policy in any one country far more difficult” and aggravating a “world payments disequilibrium.” Robert Roosa, a top US Treasury official, told US bankers using the markets that they should “ask themselves whether they are serving the national interest.” But others in the US administration, more in favour of Wall Street interests, were gung ho for the new market. Hendrik Houthakker, a junior staff member of the Council of Economic Advisers who wanted to alert President Kennedy to the market, was told “no, we don’t want to draw attention to it.” As one analysis of the markets put it, it was “almost as if [US authorities] wanted to create a financial centre outside their own shore.”¹²

      At the start of the 1960s, Euromarket deposits already amounted to $1 billion, the equivalent of perhaps $50 billion in today’s money. Between 1960 and 1970 the dollar sums circulating in these markets multiplied tenfold.¹³ A top Bank of England official captured the spirit of the City in a comment to a financier setting up an Italian bank in London in that decade: the banker could do whatever he wanted, as long as he didn’t “do it in the streets and frighten the horses.” In the late 1970s Roosa warned of speculative global capital flows moving around the globe “in magnitudes much larger than anything experienced in the past, massive movements.” Then, from 1970 to 1980, volumes expanded tenfold again.¹⁴

      The Vietnam War, which heated up in the early 1970s, added to the flames, as the United States was sending more dollars overseas for military spending than it was receiving back in foreign earnings. The result was a growing overhang of dollars in the global system, feeding the Euromarkets further. The twin oil price shocks of the 1970s accelerated the flows, generating giant new surges of petrodollars—more accurately, petro-Eurodollars—which the large banks recycled out of the oil-producing countries via the giant turntable in the City of London back into disastrous, crime-soaked cycles of Third World lending. Those loans would often be looted by national elites through bogus development schemes or outright theft and sent back for safekeeping into the Euromarkets, where nobody would ask questions about the money’s origins, and then re-lent again back into those looted countries. With each turn of this whirligig, the bankers took a profitable cut.

      When Mexico’s Harvard-educated president Miguel de la Madrid took power in 1982, he lectured his fellow citizens about “belt-tightening” while starting to accumulate tens of millions in his own foreign bank accounts—$162 million in 1983 alone, according to US intelligence reports. Most of this was first obtained by squirrelling away the proceeds from official Mexican loans via the Euromarkets, and pretty much all of it was then stashed offshore via the Euromarkets in Geneva, London, and elsewhere. “You have many friends here, not least in the City of London,” gushed British prime minister Margaret Thatcher at a luncheon for him in London in 1985. “We shall continue to offer the widest possible trade opportunities to you.”¹⁵

      As the murderous Jean-Claude “Baby Doc” Duvalier of Haiti and the grasping Ferdinand Marcos of the Philippines looted their treasuries, American and British bankers in London and Zurich got rich. By some estimates, over half the money borrowed by Mexico, Venezuela, and Argentina in the late 1970s and early 1980s “effectively flowed right back out the door, often the same year or even month it flowed in.” In Venezuela it was nearly dollar for dollar. The ordinary citizens of these countries had to shoulder the burden of crushing debt repayments. In the unpoliced Euromarkets, there was nobody to stop it.¹⁶ The American financial system was increasingly intertwined in complex webs with those of other countries, “no more reducible to Wall Street than the manufacture of iPhones can be reduced to Silicon Valley,” as one account put it.¹⁷ Tax evasion, crime, bad accounting, bank scams, gray-zone semilegal rip-offs, pump and dump schemes, and especially lax financial regulation: it all came together in one unholy, messy, fast-growing festival of finance centered in London.

      Long after the formal trappings of the British Empire had crumbled, here was another giant looting machine run out of the City of London. It needed no British soldiers and was predicated on tight secrecy. It was all but invisible.

      The Euromarkets grew some more and just kept growing. The Bank of England routinely rebuffed American requests for ideas on how to tackle the growing problems and tensions. “However much we dislike hot money we cannot be international bankers and refuse to accept money,” a Bank of England memo said. “We shall do lasting damage.” The Americans pressed further, and the British screw-you became more explicit. “It doesn’t matter to me whether Citibank is evading American regulations in London,” said James Keogh, a top Bank official. “I wouldn’t particularly want to know.”¹⁸

      Like a slow-motion explosion, the Euromarkets rapidly accelerated financial globalization. They metastasized beyond Britain, beyond dollars, and beyond anyone’s control, morphing into a frenzied financial battering ram, which would combine with Hayek’s and Friedman’s ideological pushback against government intervention to smash holes in exchange controls and the cooperative international infrastructure. More and more cracks were appearing in the walls of the dam, and the massive oil price surges of the 1970s threw everything into further confusion. The Bretton Woods system was rubble. And so began a new era of free finance, engendering massive profits for the financial sector—and in turn much slower global growth, rising inequality, global crime, and more frequent financial crises across the Western world.¹⁹ It was precisely what Keynes had warned about.

      As this chaos had been unfurling, another set of darker developments, umbilically linked to the Euromarkets, was gathering pace. This particular variety of mayhem goes back as far as you like, but a good place to start is with the Wall Street financier Wallace Groves, an associate of the Meyer Lansky crime syndicate that was operating casinos out of Miami in the 1950s. The US Mob ran offshore gambling and crime operations in nearby Cuba and had thoroughly corrupted the government there, ultimately triggering a populist revolt that began in 1953 and eventually brought the Communists to power under Fidel Castro.

      Groves had settled in the nearby Bahamas, an old offshore pirates’ den that had once hosted the notorious Blackbeard and the bloodthirsty Henry Morgan (who was so successful as a pirate that the Queen knighted him and appointed him lieutenant governor of Jamaica). Groves set up casinos and other profitable businesses in the British-ruled Bahamas, catering heavily to American clients outside the reach of US law enforcement, and he deployed his profits to subvert the thuggish Bahamian elite, known as the Bay Street Boys. As the Communist СКАЧАТЬ