The Politics of Banking and the Banking of Politics — Campaign Finance

Courtesy of a post on reddit, information has surfaced regarding the top 5 campaign contributors for both the Obama and the Romney campaigns. They are as follows:

Barack Obama:

University of California – $491,868
Microsoft Corp – $443,748
Google Inc – $357,382
DLA Piper – $331,715
Harvard University – $317,516

Mitt Romney:
Goldman Sachs – $676,080
JPMorgan Chase & Co – $520,299
Morgan Stanley – $513,647
Bank of America – $510,728
Credit Suisse Group – $427,560

The first obvious connection one makes with these figures is of the difference in fiscal policy that historically divides the two parties. Democrats want to tax the rich more while Republicans want to give them tax cuts. These stats should come as no surprise on ideological grounds—some of the richest financial institutions are backing Romney because they’ll benefit from what would surely be less they would have to pay in taxes and less regulation and red tape to worry about in conducting business. But there is a deeper concern one mustn’t ignore when information like this becomes public record, and that’s to understand just who these people are that are influencing the electoral process in contributing enormous sums of money. Some of you might have an idea as to where this is going. Let’s explore.

One of the central themes of this election is the state of the economy, an issue that is significant enough to affect just about everyone—and just about everyone knows it exists—but very few people actually know why it exists. Now I alluded to this in my previous entry—you can’t blame people for not knowing. Economics is anything but an exact science. Many economic indicators like measures of private consumption, inflation, interest rates, and government spending have correlational relationships, meaning that there are too many variables to properly observe causes and effects. And these concepts aren’t easy for the average citizen to understand in full. But there’s one cause and effect scenario that is scientifically unquestioned, and that’s the implication of finance in recession.

Finance is essentially the discipline of keeping one’s money in situations that allow for further growth while minimizing risk. Over the past few decades, we’ve seen a massive shift from what was an economy built up and based on manufacturing to one defined by heavy finance, also called deindustrialization. This shift has created a number of problems that—we’re told—will work themselves out thanks to the turn-of-the-century logic of “markets know best” or state nonintervention in the economy. This, after all, is what scholarship on free market principals preaches—you lift regulations on businesses, let the markets work their magic, and in turn we get things like iPhones and iPads and even, if we so oblige, the unhindered opportunity to participate in the free market, where we can make as much money as we could possibly dream of making. “Prosperity for all in the golden era of capitalism,” they said.

But we’re seeing a number of trends that have coincided with the financialization of the economy. Wages for the median middle class worker have not seen an increase in over thirty years. The disparity between the rich and poor is increasing at an unprecedented rate. And most alarming is the concentration of wealth accumulation, where the nation’s top 1% of income earners are becoming so obscenely, impractically rich—and they’ve become so in periods of high insolvency for banks and other financial institutions. There’s plenty of evidence to support these assertions as nearly-perfect correlations to the practices of finance. Perhaps the most compelling piece of evidence is the story of the economic collapse of 2008, one that deserves an open and honest retelling.

The financial crisis of 2008 is just one tragic example of how the American people were gamed by the investment banking industry. The corruption was so widespread that the task of punishing those implicated was just impossible. Millions of Americans lost their jobs, their homes, their investments, and their savings. Yet amidst all of this, hedge-fund managers, CEOs, and other top executives of the very banks that caused the crash received record bonuses. Without going into too much detail, the crash itself was a result of disingenuous trading between buyers and sellers in the housing market. Investment banking is an industry that capitalizes on market trends. In the years leading up to the crisis, the perception was that the housing market was experiencing a boom and investors quickly flocked to securitize (to organize neatly) presumed safe bundles of mortgages en masse that they purchased from various lending agencies. These transactions yielded high returns for all parties involved in the form of commissions, fees, interest payments, and houses. It was a perfect situation, as it always appears. Of course the truth of the situation, as it was later revealed—and undoubtedly suspected at the time, was that lenders were issuing subprime loans (loans to people who had difficulty repaying) to virtually anyone who walked in the door. The mortgage securities became toxic, the asset bubble bursts, and banks imploded. According to the wisdom of Friedmanites, “prosperity trickles down.” Except in this instance, miraculously, prosperity was in fact created out of collapse, and it made its way up to the very top. Some of the investment banks that had individuals that were found complicit in this scandal include: Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, Lehmen Brothers, Bear Sterns, Wachovia, ect.

Financial gaming—the sort of gaming played with speculation—is a well-defined feature of our capitalist economy, and is an accurate description of what took place in 2008 as well as what is sure to take place again. It’s by no structural accident that we have economic crises; they are a product of the very nature of capitalism. It’s systemic. Traditionally, investment banks existed to help raise capital for businesses and individuals alike. However, many banks—like Goldman Sachs—primarily bring in revenue through proprietary trading (other activities such as trading currency, commodities, and derivatives), which is essentially the kind of risky speculative behavior that arguably does nothing for anyone outside of those immediately benefitting.

Now the question is: Should we hold the institutions themselves responsible for the collapse or the individuals that concocted the fraud? It would seem to me that so long as we support an economic system that romanticizes over the idea of freedom from regulations and unlimited growth, you won’t see an end to the corruption. It seems as though there’s news every day that highlights the very nature of investment banking—that it’s often a corrupt enterprise that operates in secrecy and possesses enormous lobbying power. We know of the relationship between bankers and politicians. It’s a friendly one to say the least. And when one sees that the biggest contributors to a presidential candidate’s campaign are investment banks, it should more than alarm you.

What exactly is finance? It’s numbers on a balance sheet, it’s electronic interest payments, it’s credit cards and debt—there’s nothing tangible about it. It’s a game. We’re buying things with money we don’t have. It’s not real. What is real is the pain and suffering it causes. Two billion people live on less than a dollar a day. Whole populations are being driven off their land and displaced. These people don’t consume, they don’t produce, and they don’t borrow from banks—and if they do, their participation is conditionally dictated by the World Bank and the IMF (international financial institutions). They are irrelevant according to the logic of our system—a system that has become part of our global culture. It’s a kind of culture that has virtually the whole world in debt, in crisis, and okay with both.

Should we accept this? Should anyone accept this?

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