The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ compensate for this economic sluggishness, and to escape from politically difficult choices, successive governments have filled the holes with policies of financial loosening, which have unleashed oceans of credit into the economy in the past forty years, puffing up finance. You’d expect a larger financial sector to be a fountain of investment capital for other sectors in our economy, but in fact the opposite has happened. As recently as 1995 over half of bank lending went to small businesses, which are the economy’s lifeblood, creating two out of three jobs. Now the share is less than a quarter. Most of the credit now unleashed on the economy has been circulating inside the financial sector, unmoored, disconnected from the real economy and from the people it is supposed to serve. This book will show how these self-serving parts of finance have increasingly overshadowed and even preyed on other parts of the economy, which must struggle to survive, like seedlings starved of light and water under the canopy of a giant, deep-rooted, and invasive tree.

      And there’s another whole dimension to this, which the academics have hardly measured in any useful way: the rise in global organized crime and abusive quasi-legal activities that spew out of modern finance. It’s impossible to convey the scale of this, but one approach can be found in a list entitled “Robert Jenkins’ partial list of bank misdeeds,” a kind of running score regularly updated by a former Bank of England official.⁹ Each element on his list is a shocker. There are many elements that are widely known: “mis-selling interest rate swaps” and “mis-selling of mortgage-backed securities” (“mis-selling” is a euphemism for “fraud”). Coming in at number 11, there’s “abusive small business lending practices,” a hallmark of modern finance. At number 16, there is the humble “aiding and abetting tax evasion”—a sport that has cost treasuries around the world hundreds of billions. Next comes “aiding and abetting money laundering for violent drugs cartels,” a reference to, among other things, the role played by HSBC in washing hundreds of millions of dollars for Russian gangsters and Mexico’s Sinaloa cartel. Number 19 is “manipulation of Libor,” referring to the numbers used to calculate payments in the $800 trillion derivatives market and a lot more besides. Number 61 is the less weighty “offers to procure prostitutes to curry favor with SWF [sovereign wealth fund] clients.” Tucked away at number 114, there’s “facilitating African money laundering on a grand scale.” At the time of this writing, the list contained 144 items; each represents a large can of villainous worms. And this is only a partial list of the misdeeds—and even then, this refers only to banks. There’s a whole zoo of “shadow” financial players outside the regulated banking system whose members enjoy less oversight, so often behave even worse (we’ll meet some of them soon). And the list hardly touches on the national security aspects of oversized finance, as shadowy foreign players use secretive Delaware shell companies to insert silent crowbars into America’s economy and political system. Trying to get your arms around the scale of all this damage feels a bit like trying to convey to a child the distances between galaxies in the known universe.

      The transformation that has happened in the era of financialization has had little to do with the needs of ordinary business and ordinary people. Financial cheerleaders would like us to believe that Wall Street is the wealthy goose that lays America’s golden eggs. The finance curse shows it to be a different bird: a cuckoo in the nest that is crowding out other parts of the economy.

      We all need finance. We need it to pay our bills, to help us save for retirement, to redirect our savings to businesses so they can invest, to insure us against unforeseen calamities, and also sometimes for speculators to sniff out new investment opportunities in our economy. We need finance, but the measure of its contribution to our economy isn’t whether it creates billionaires and big profits, but whether it provides useful services to us at a reasonable cost. Imagine if telephone companies suddenly became insanely profitable and began churning out lots of billionaires, and telephony grew to dwarf every other economic sector—yet our phone calls were still crackly and expensive and the service unreliable. We’d soon smell a rat. All this wealth is a sign of sickness, not health.

      To unpack the idea of the finance curse, we’ll go on a century-long journey that spans the globe, from the era of robber barons in the early twentieth century, to the City of London as it rediscovered a role for itself after the fall of the British Empire as a crime-infested, deregulated offshore playground for Wall Street in the 1950s, to the birth of modern tax havens in the Caribbean in the 1960s, to the myth of Ireland’s Celtic Tiger economy (contrary to received wisdom, it wasn’t based on low corporate taxes), to the shocking truths about London’s role in generating the global financial crisis—something that parochial Americans have spent too long ignoring. After the crisis we travel to South Dakota and the peculiar world of wealth managers, then follow twisting corporate trails leading from a shattered local newspaper in New Jersey up to the glittering offices of secretive private equity titans and hedge fund moguls in Manhattan, and from there to Iowa’s bitter, financialized, hog farming communities. And we will see how, all along the way, evidence has been beaten, twisted, and abused to perpetrate a great hoax upon the public, persuading us that all this activity is normal, necessary, and even a good thing. It is anything but.

       CHAPTER ONE

       Sabotage

      Some economists behave like aliens who sit in spaceships high above Earth, watching us through powerful telescopes. They record all the scurrying back and forth, then build theories and mathematical models about what we’re up to, without properly accounting for folly, cruelty, sex, friendship, patriotism, credulity, and the general rough-and-tumble of our crazy, emotional lives.

      One economist who perceived both the economic behavior and the emotional complexity, and can consequently help us understand the finance curse, was an early-twentieth-century Norwegian American called Thorstein Veblen, an extraterrestrial of a different kind. An unlikely figure, he perched himself outside the normal range of human experience, and this enabled him to sit far enough back from humanity to observe our foibles clearly, so he could use them as a starting point for properly understanding the world of money and business. Veblen rebelled against the conventional wisdom. He has been called an American Karl Marx and the Charles Darwin of economics, but in truth his varied output is too diverse and weird to categorize. Yet his nuanced understanding of messy human behavior is exactly what makes his ideas so remarkable—and useful. By linking economics with uglier truths about how we as humans really behave and think, he discerned many of the deepest principles that underpin the finance curse.

      Veblen was an economist, sociologist, womanizer, and misfit. He made his own furniture but didn’t make his bed in the morning, and he would let his dishes pile up in tottering heaps before washing them all in a barrel with a hose. It is said he once borrowed a sack from a neighbor just so that he could return it with a hornet’s nest inside. In his florid, peculiar writing style he described religion as “the fabrication of vendible imponderables in the nth dimension,” the main religious denominations as “chain stores,” and their individual churches as “retail outlets.” At the fiercely religious Carleton College in Minnesota he poked fun at mathematical economics by asking a student to calculate the value of her church to her in kegs of beer, and he provoked uproar with a speech entitled “A Plea for Cannibalism.” A lank-haired weirdo genius, he observed society unencumbered by strictures of religion, economic conventions, or the petty airs and graces of the early twentieth century that kept the grubby workers down and the landed gentry in their rightful place. His apartness let him see things others couldn’t and helped him say the unsayable.

      Born to Norwegian immigrant parents in rural Wisconsin in 1857, Veblen was the sixth and the smartest of twelve children. The farmstead where he grew up was so isolated that when he left he was, as one historian put it, “emigrating to America.” His brilliance took him from these humble beginnings to Yale, where he got a PhD in 1884, before going to ground and mooching around listlessly СКАЧАТЬ