'How the banks robbed the world'.

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Weird Nature and Horizon on Easter Island.

The 9 january 2003 was an evening for moralists on BBC2. Weird Nature showed how ingeniously life adapts to its environment. Man, too, is amongst the most unique adaptors. Popular biology used to burst with pride at the thought of man's opposable thumb and its brain-stimulating dexterity. Human forelimbs were freed, for this purpose, by uprightness -- physical uprightness, that is. ( Subsequent programs, that night, were to cast doubt on the moral uprightness. ) This is exceptional, except perhaps from a species of mangrove swamp monkeys that have learned to walk in the water, if not walk on water. Some think that deep wading is how man learnt the trick of his 'funny walk'.

The next BBC2 show was a new serving of Easter Island, from the Horizon science series. The series shows how scientists go about their work. I dont describe that here, just mentioning a few findings of this program. The main observation was how the islanders mass produced stone statues, and were able to transport them around the island, incidentally committing ecological mass suicide, by cutting down all the trees and losing the soil.

A moral, there, for this island earth and the inadaptible weird nature of man.

Easter Island was the world's largest bird colony, which disappeared upon the trial of man's arrival, as did the surrounding abundance of edible sea life.

Ethologists' trials on birds showed, in preference to their own eggs, the greater stimulus of over-size egg mock-ups to brood on. The natural behavior of some birds seems to have gone on from egg-rolling to stone-rolling.
Man's idol worship may be less big-brained than bird-brained. Indeed, it is evident that the islanders did have a giantist fetish, carving bigger and bigger statues.
Maybe, the more man believes he is a religious spirit, removed from the influence of the environment, the more he is obeying the stimulus of some primitive instinct, that may not be adaptive in the circumstances.
When man finds himself on a longer environmental tether than other animals, he often uses the extra rope, he has been given, to hang himself with.

Over-confidence, in the godly protection of the statues, is suggested by the fact that these 'living ancestors' in stone were turned upon, many being toppled, when the population was reduced to starvation.

The later cult of a 'bird-man' suggests a more humble worship of man's integral part of nature. This cult was a ritual competition which replaced war-fare's destruction with an orderly food distribution.

By the way, religions need not be always heedless of the good of the world. May-be the belief in re-incarnation, not only held by Indians, is more environmentally friendly than some scientists' or positivists' naive religion of there being 'nothing' after death of the body and its senses. This 'nothing' is akin to a sort of nirvana or independence from wordly attachments, that some spiritual teaching holds only to be achieved by much moral trial and error, even thru many life-times.

The islanders, isolated for a millenium, were as shocked by three ships, as the Earth would be, by visiting space-ships. By the time the Dutch arrived on Easter day in 1722, the natives had saved themselves, only to be almost exterminated by Western disease and slavery and more disease.

The scientists on Horizon pointed out the parable of Easter Island for the modern world, as relentlessly destroying its irreplacable natural resources, disrupting and threatening a collapse of the global eco-system.

Cue BBC2's third program, that evening's viewing, with the curiously forth-right title of 'How the banks robbed the world'.

'How the banks robbed the world'.

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The following account is indebted to the BBC2 program, titled above. ( Their web-site is: www.bbc.co.uk/business ) People, including myself, are so ignorant of 'high finance' that I hope the program-makers wont mind this abridged re-telling of their research.
Please note that this Democracy Science web-site is largely about the democratic alternative to the force and fraud in political economy, that the following story of the banks scandal exemplifies.

Clinton became President with the populist policy of limiting executives' pay to one million dollars a year. So, the practise grew of giving company bosses stock options, at a set price no matter what the market price. They could get huge profits by pushing up the stock price of their firms.

This looked like a capitalist incentive for those running the firm to make it thrive. But it didnt work out that way. The BBC2 program traced events in a series of five 'scams'.

Scam one: secret loans.

The system of share options tempted executives to cook the books to make money. Profits were inflated by including predicted profits. That didnt bring in cash. But the banks were eager to help in side-stepping the accounting rules and tax rules. The apparent attitude was: 'Give me a rule and I'll work around it.'

Citibank funneled $125m cash into a secret off-shore bank. 'Delta Energy' then pretended to buy gas from Enron. Enron claimed this cash as income in its accounts. Enron's shareholders were deceived. By another fake deal, Citibank got its money back plus interest. This sham transaction was the first of many such secret loans.
The share price rose; the executives won again.

According to Robert Roach, Chief Investigator, Senate Sub-committee on Investigations: Enron could not have engaged in the deceptions, it did, without the full knowledge and full assistance of the financial institutions.
They provided the means and the funding and were as much as anyone to blame.

Scam two: kick-backs.

Because WorldCom was buying up so many companies, the banks had a lot of lucrative deals to fight over. Some were so greedy, they dreampt up a second scam: kick-backs.
A Citibank subsidiary, Salomon launched a new share flotation. Most were disappointed of the expected profits from this so-called Initial Public Offering. But for an executive making $2m profit, it was almost like giving him cash.

Salomon's reward was the handling of a record-breaking $37bn take-over, making WorldCom the world's second telecom company. They boasted of perhaps taking over British Telecom, the defeated bidder.

For starters, a Securities lawyer is suing Salomon over such IPOs as amounting to bribery.

Scam three: the 'Pied Piper' financial adviser.

Financial analysts are supposed to give unbiased advice to the public, and not be compromised by interests, the public are unaware of, as was the case. Banks could employ an analyst, whose pay was linked explicitly to the value of the banking deals he brought in. The BBC2 program gave a snippet of how the 'Pied Piper' financial adviser made out anyone would be dumb beyond consideration not to buy into WorldCom.
It was stated that wherever he went, banking clients would follow with multi-million dollar deals. With his support, the WorldCom share price quadrupled over three years.

Another financial advisor, who refused to write rosy reports about Enron, was gotten sacked from two Wall Street firms. A favorable analyst replaced him.

Scam four: shell companies.

Citibank shoveled nearly $4bn into Enron in secret loans dressed up as deals. This was still not enough to cover-up Enron's debts. So, a complex of secret companies was set-up as an accounting manouvre to hide debts and create very controversial earnings.
It took a professor of economics to sort out the tangle between some 4,300 such 'boxes'. Not one appeared to match a real business purpose.

Merrill Lynch had the lucrative job of raising finance for one of the key shell companies, designed to hide Enron's debts. Half Wall Street was invited and told the purpose of the company was to buy up Enron businesses not making enough money and under-mining the share price.

They were promised such fabulous rates of return that many of the bankers invested millions personally. The investors' presence was being bought. Because of the scam, Enron claimed profits of $1bn, when there were in fact none. The chief of Enron had $180m in share options.

WorldCom's chief had $325m in share options with his company boasting profits of $2½bn. Yet 'incredibly' he still needed cash. Citigroup gave him a nearly $500m dollars personal loan to help buy thousands of acres of American forest.
This should have been disclosed to World Com shareholders, with respect to the law on Securities Fraud.

Within six months, Citigroup was chosen to under-write a $4bn WorldCom bond issue. Citigroup made $15m on the deal. A year later, it happened again.

Scam five: ignoring costs.

In march 2000, the Stock Market collapsed. The 'Pied Piper' changed his analysis to one of revenues, instead of profits, ignoring costs altogether.

Costs went out of control as prices fell. WorldCom executives began to record day to day costs as spending on assets, to account for them as long-term spending, and so boost short-term profits. This mis-accounted $9bn.

Executives were secretly selling stock and the Pied Piper was still urging the buying of shares even as they were collapsing.

Scam six: the three-shell game.

The BBC2 program doesnt name this as a sixth scam but I am still closely following their account. The three-shell game is a fair-ground attraction where the public has to guess under which of three shells a nut has been put. The game's promoter tries to deceive by sleight of hand and win the bet.

When the public were shown an investment version of the three-shell game, they were deceived even from knowing they were being drawn into a game of deceit. Citibank set up a new company called Yosemite to persuade out-side investors to lend cash to Enron. This time, Enron used the cash to pay off debts to Citibank. So, the public and not Citibank would lose money when Enron collapsed.
The BBC2 program showed a man playing the three-shell game, with three shells, labeled Yosemite, Enron and Citibank, hiding the public's bank-roll.

Scam seven: letting the banks off lightly.

Ive called the lenient treatment of the offending banks a seventh scam.

The shell companies accountants apparently became too clever for their own good. The economics professor pointed out that they failed to make one box own 3% of another box, as it should have. Hence, a legal demand was made that two boxes be combined, resulting in a $1.2bn reduction in stock-holder equity.
This was 'the first step in the avalanche' that led to investigations, stock price collapse and bankruptcy. Enron borrowed billions but couldnt save itself.

Other company accounting scandals were exposed. It seemed everybody had been at it. The biggest falls came from where executives were given the biggest options.
They remind of the birds prefering to roost on 'eggs' the size of an American foot-ball, or the Easter Islanders, destroying their environment, to build bigger and bigger statues.

The belief that 'greed is good' worked its ruin on the Stock Market.

A largely corporate-staffed administration was obliged to promise a corporate clean-up. President George W Bush is regarded, by a blue-collar representative like Michael Moore, as the front man for corporate America. The President said on 9 july 2002: The business pages of American newspapers should not read like a scandal sheet.

Hauled before Congress, WorldCom executives took the fifth amendment. Some WorldCom and Enron executives have been arrested for trial. A case is under-way with regard to the biggest fish. But the boss of Citibank wont face charges. Their disbarred analyst, 'the Pied Piper' has been discharged from their employ with what amounts to a scores-of-millions dollar sweetener.

New York's Attorney General is credited with some of the toughest banking reforms since the nineteen-thirties. Wall Street is barred from bribing company bosses with share issues. New rules are meant to ensure the independence of analysts.

The chief investigator believed the abuses, of any number of rules, will go on, while financiers lack a moral compass.

The banks have been fined: Merrill Lynch $100m, CSFB $150m. The rest have also settled. The biggest fine of $300m was to Citibank. America's biggest financial services company can afford it. In the current year, they will make $16bn profit.

The BBC2 program says Citigroup did the most to help WorldCom and Enron deceive the world. Its boss had most to gain with an options package of almost $1bn.
2002 was the year the depths of Wall Street's corruption was finally exposed. Only because of the big financial houses could WorldCom and Enron destroy $240 bn of investors' money.

Sarah Teslik, of the Council of Institutional Investors, concluded: The people who can least afford to lose money have lost collectively billions of dollars -- because of fraud, because of greed -- that has been transfered out of their pay checks and out of their pensions to the pockets both of the corrupt executives and the Wall Street investment bankers who enabled them.

Richard Lung.

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