Vultures' Picnic, page 36
(Sutherland was dubbed “the father of globalization” by Mickey Kanter, a former U.S. Trade chief, now a lobbyist, who has been dubbed “the little bastard of globalization,” and thus a relation.)
The question for the group was how to influence the World Trade Organization to make banking and financial services a trade issue. Thereby they could use the WTO as the battering ram for deregulation.
Certainly, Sutherland had some helpful clues: he was the founding Director-General of the WTO.
Sutherland is a busyman. Besides Goldman, he was, at the same time, Chairman of BP. Sutherland is the Energy-Finance Combine in one bespoke suit.
And the man has impeccable timing. He left the Generalship of the WTO just before the spam hit the fan—and left his post as Chairman of BP just a few months before the Deepwater Horizon blew out.
It is quite unusual for one man to hold the chairmanship of two giant multinational corporations like Goldman and BP at the same time. Few men are so flexible they can kiss their own ass.
And only one little bearded man had the courage to kick it.
ELECTRICAL WORKERS’ UNION BEACH HOSTEL, NEAR SÃO PAULO
In 1998, after killing a little cask of Zeb’s homemade pinga and a couple caipirinhas (a mixture of three parts lime and seven parts brain solvent) at the Synergia electrical workers’ union beach hostel outside São Paolo, I felt the need to tell a young Brazilian, even if she couldn’t understand English, that she was the most beautiful woman I’d ever seen in my life; and, that accomplished, I gently fell face forward into the sand.
The next morning I realized that she may not have been all that beautiful or young or even a woman, and given my condition, I was in no shape to meet with a little bearded guy named Lula.
Luiz Inácio Lula da Silva is an unschooled, rough-hewn union leader and head of Brazil’s Socialist Workers’ Party. At the time, Brazil was heading into economic meltdown, Greece before Greece, and had accepted an IMF bail-out. Its collapse occurred in the nineties after a World Bank economist named Larry Summers demanded Brazil deregulate its banking sector. After the banking bubble popped, the economy dropped into the flames. In return for bail-out funds from the International Monetary Fund, Brazil’s President, the pontificating but well-dressed Fernando Henrique Cardoso, had agreed, in secret, to fire sales of national assets, beginning with “opening” Brazil’s oil reserves to Shell and other foreign operators. Next on the auction block was the electrical system, sold off cheap to American, French, and British Corporations, notably our boys from Georgia, Southern Company, and my Texans, Houston/Reliant/NRG. When Houston took over the Rio de Janeiro Light Company, the Texans decided to fire a bunch of the workers and pocket their salaries. Then Houston found there was no map or diagram of the Rio Light system; it was known only by the guys they had fired. Locals renamed the company Rio Dark.
Now Brazil’s Gas and Electric workers, either jobless or waiting for the pink slip, were plying me with caipirinhas and playing choros on their guitars, including songs about their “beautiful generators.” They assumed I would be sober enough within a week to help them.
Lula, the union’s party leader, wanted solutions, so he had my academic writing on regulating the energy industry translated for him into Portuguese. Lula’s advisor, economist Ildo Sauer, wanted my ideas for when Lula took over the country. They would kick the U.S power pirates out on their keisters. Sure. I assumed it was the caipirinha talking. I skipped Lula. I didn’t want to waste time on meetings with a guy who was forever running laughable fringe campaigns for President.
A decade later, when the financial planet fell face forward into the dirt, one nation stood up unharmed. Bestride the wreckage of the Western world like a colossus stood Brazil’s President Lula.
The bankers would not tolerate it.
Under Lula, elected in 2002, Brazil ended the “liberalization” mania in banking and unhooked itself from the brave new world’s free-for-all finance system. Brazil survived and thrived while the Great Recession knocked the West on its ass. From behind a border barricaded against the contamination of derivatives-crazed bankers, Brazil’s economy rocketed up by nearly 70 percent while Lula held office.
And that drove the banks crazier still. That Brazil thumbed its nose at the bankers’ plan and saved its economy will never be forgiven.
It was in 1998 when Brazil was Greece’d. And that’s why I’ve dragged you back to Latin America and my pinga-fuzzed memory cells. Brazil, like Greece, had opened up its banks to ravishing by New York, London, and Swiss financiers. The moment that happens, money floods in to buy up a nation’s assets quickly and cheaply. It looks like an economic boom, but you’d look rich too if you sold your house and threw a party. But when the party’s over, you can’t go home.
When the party ended for Brazil in 1998, the “hot” foreign money fled and the panicked rich of the nation sent their money with them. Brazil’s foreign currency reserves dropped from $70 billion to $26 billion. The hot money hadn’t stayed long enough to burn toast.
To pay for the demands of investors and the local rich to take their money out of the country, Brazil had to raise the funds by selling its electric companies cheaply as well as the cell phone system and more. That wasn’t enough. To keep the money from leaving, the International Monetary Fund told Brazil to raise interest rates to 70 percent—seventy percent—and that meant credit cards and business loans would cost consumers up to 200 percent interest. The economy was dying.
The result: insta-depression, the whole disaster a result of the deregulation of the banking system.
Suddenly, Lula was no longer a joke but a serious candidate for President. The foreign financiers nearly shit themselves.
The threat of a Lula Presidency drove all the globalizers mad, but not Peter Mandelson. He’d already arrived. And on the way, taking a vacation from corruption, the Prince of Darkness stopped in Brazil to endorse Lula’s opponent, quite odd for a subject of the Queen, but not if you see Brazil as a financial colony. His attacks on Lula were squeezed in between bargain hunting state assets for British multinationals and samba dancing in the sand with Reinaldo.
Robert Rubin doesn’t samba, but the U.S. Treasury Secretary knew the Brazilian dance and was more effective than Mandelson. He and his successor, Summers, helped arrange a $41 billion bail-out loan to Brazil just before the election, so that Cardoso could eke back into office.
Cardoso defeated Lula, then, just fifteen days after the election, the U.S. Treasury let Brazil’s currency crash, interest rates rise again, and its economy go to hell.
The IMF’s loan money came in and shot out. Cardoso’s solution: more privatizations and a giant cut in pensions—Lula’s greedy union workers were the real cause of the disaster, the IMF and Cardoso agreed.
Fire-sale privatizations, cuts in pensions, mass lay-offs of government workers . . . are you smelling the Greece yet? There is nothing new under the sun. Except that in Brazil, the IMF and vultures went after the crude oil, not the olive oil. These old dogs don’t need new tricks so long as our amnesiac press gets its periodic brain scrubbings.
There is no shame: The bankers tried to pull the same trick in 2002, when Lula and Cardoso faced off again. This time, another IMF line of credit was offered. But the secret terms were harsher: Brazil would have to turn over its state government banks to private financiers. I’m not guessing about this, either. A sixty-some-page agreement marked CONFIDENTIAL AND DOCUMENT OF THE INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE27 is an agreement signed by Cardoso’s Finance Minister just three weeks before Lula was about to take office. (Brazilians, unlike Americans and Britons, are rarely fooled twice.) The Banco Do Brasil had already been sold off, but now Cardoso’s man agreed to sell off the five state banks. From the confidential document:A court has delayed the privatization of the Bank of Santa Catarina, the largest of the four federalized state banks. The privatization of one other federalized state bank is on track for end-2002, while that of the two remaining federal banks is now expected to be completed by January 2003.
These public sources of funding had kept Brazil breathing when the international bankers were choking the country. But they had to go . . . to the international bankers. Like Sandy Weill, the lenders had learned the easiest way to rob a bank is to steal it from halls to walls.
The new President, Lula, resisted, despite the gun of bankruptcy threats in his face and the deals Brazil signed before he was sworn in. But Lula told the IMF to jam it and body-blocked privatizations, especially of the state-owned banks. Instead of begging international financiers for scraps, he opened the vaults of the state bank and lent out over half a trillion dollars for factories, farms, infrastructure—but not for one real for derivatives, hostile takeovers or collateralized debt obligations. During his two terms in office, Lula’s state banks gave their citizen-owners more credit than the IMF gave to over hun-dered nations. And Brazil’s economy went from the swamp to the stars.
Then Brazil struck oil, lots of it, in deep Atlantic waters. In the old days, that is, a decade ago, Chevron, Shell, and BP would have been onto those reservoirs like ticks, sucking up Brazil’s oil. And, of course, giving up state ownership of Brazil’s vast oil supply was one of the IMF bail-out conditions.
But Lula’s Director of Oil and Gas, my drinking comrade Ildo Sauer, told the oil majors to go fly. Via Brazil’s once-small state oil company, Petrobras, Ildo and Lula planned to keep ownership of the oil in public hands. How was Lula, the guy telling Big Oil to kiss off, going to raise the capital to get to his mid-Atlantic reserves? With flippers and a snorkel?
Ildo and Lula had another problem: Brazil has to sell the oil. Brazil itself doesn’t need much; electricity is water-powered and Lula has forced Brazil to go cold turkey on its gasoline addiction. Most cars run mainly on biomass ethanol. That means Brazil must sell its oil (and its excess ethanol) to the petroleum junkies of the United States and Europe.
But now, Lula was told, let the U.S. and European banks in or drink your oil and ethanol yourself, and your orange juice too. Uncle Sam hit Lula where it hurt, right in the biomass, slapping a 54-cent tariff on each gallon of the clean fuel imported to the United States.
This was meant to be a lesson to Brazil, to Greece, to Spain, and any other weakened nations that might dream of resisting.
The lesson wasn’t sticking. In September 2010, Brazil’s Petrobras successfully raised $70 billion in the largest share offering in world history. Apparently, a whole lot of capitalists felt more secure with their own money in the hands of socialists, even though each mid-ocean oil derrick is a floating middle finger to Summers and Rubin.
Most important, Lula sealed the borders against new financial “products” from foreign banks. Guards were ordered to shoot derivatives on sight.
Brazil dodged the bullet in the 2008–11 worldwide Recession by rejecting credit default swap bingo and sub-prime blind-man’s bluff. Foreign banks are particularly incensed that they couldn’t open shop in Brazil without a “presidential decree,” that is, Lula’s personal approval. And he approved of very little.
It saved his nation’s life.
Such conduct would not be indulged. Lula must be spanked, his allowance taken away, and his banks and his ass-kicking economy. Matty Pass scored a copy of the plan for punishment, the confidential “EC Request to Brazil.” The EC, the European Commission, does not make requests, it makes demands. This demand, still on the table, was whipped up by the EC’s Trade Commissioner at the time, Lord Peter Mandelson.
GENEVA
“Brazil has not yet accepted the Fifth Protocol,” the “Request” begins in a huff. Brazil sure as hell hasn’t.
“The Fifth Protocol” sounds like some Satanic torture ritual. It is. The Fifth Protocol of the Financial Services Agreement, that new law of lawlessness, requires nations to allow foreign banks to open shop and sell almost anything they want at the teller window (CDOs, CDSs, whatever). The signing nation may not restrict the “form” of the bank, i.e., no Glass-Steagall-type laws may keep savings accounts out of the hands of speculators.
Just about every nation had signed up to at least part of this FSA protocol. But not Lula, not Brazil, virtually alone out of 153 nations.
And this drives the bankers nuts. They can’t stand it. This behavior must end.
So the European negotiators, with the blessing of the United States, are still, as I write this, planning to squeeze Brazil until its coconuts scream unless Brazil agrees to spread wide open for the Royal Bank of Scotland. The U.S. banks will ride in right after.
I brought the confidential Mandelson/EC/U.S. demand with me into the baroque WTO conference room to show Director-General Lamy.
Wasn’t it plain psycho, I asked, after all that just went down with the collapse of banks, to demand Brazil invite the lepers in? To force derivatives trade down Brazil’s throat? The EC document called it “progressive liberalization.” The WTO chief began,“All depends on what you mean by ‘liberalization’ which, by the way, is a very ambiguous English word that can mean two things which are different in other languages. . . .”
We were entering a multi-lingual vortex. Lamy went on,“Sharing derivatives across borders is about interdependence. . . .”
Sharing? I don’t remember Goldman “sharing.”
Badpenny and I left Geneva late and got lost, distracted by the moon-tinted Alps.
I was thinking about General Lamy’s pale, bloodless lips. They never lost their smile. He knew and I knew: The WTO survived the Battle of Seattle, Greece in flames, and a Depression it had a hand in creating. It would certainly survive Greg Palast. Thug wins. Biggest rock and all that.
But the Frenchman had given me what I needed: authentication of the documents. Now, the gods, the BBC, and budget willing, I could take them back to South America, where they might be of some use.
So pretty, the Swiss chalets, even the modern towns. But pretty in a violent way, imposed, intolerant of any suspected deviance. And safe. The Swiss have fitted out thousands of caves like armed shopping malls, where the entire population can live for a century in case of attack. But no one is attacking. Penny said, “Terrorists don’t bomb their own bank.”
We were starving and lucked upon a lone rustic eatery serving, to our dismay, fondue only. Worse, by local custom, every time a fondue is served, they dim the bar lights and, with a special flashlight, project the Swiss flag, a white cross on red, on the melted cheese. Everyone clapped to some national military anthem. Except Penny. The stultifying order that drove her into exile from her homeland of carnivorous financiers remained stuck in her spleen.
The clapping burghers shoved a huge Swiss flag in her hand and she smiled while looking for a hole to crawl into and die.
Here was Switzerland’s “industry”: regimentation and a commitment to secrets and complicit silence, a nation restrained by the trusteeship of Other People’s Money, that highly addictive OPM, guardians of the neutral ground for the World Trade police and dictators’ shoe shops.
The guilt that comes with this geld has a psychic price she will not pay.
QUITO, ECUADOR
On May 6, 2010, the day after the Greek riot, The Wall Street Journal quoted a finance analyst on its government’s imposition of the draconian IMF cuts to jobs, pensions, and pay. “There is no doubt that the deaths ease some of the political pressure” on the Greek government. On May 21, the Journal headline read, “In Greece, Anarchists Fear They’ve Given Austerity a Helping Hand.” They had. The bank burning had pulled the moral steam out of the protests of the desperate citizenry, and now the whip could come down.
I’d seen this story before, but not in Greek.
The first riot I remember came quickly after Geithner had lit the FSA fuse in Geneva. In 1999, Ecuador’s banks, deregulated, ran wild, and the nation’s hard currency ran off to party in Miami. Ecuador’s banks were quickly bankrupted by their owners freed of old-fashioned rules. The IMF then forced the government to take over the failed banks’ debts. According to an IMF document that was slid onto my desk, Ecuadorans would pay for this through a 66 percent to 92 percent hike in the price of gasoline, a 50 percent hike in electricity charges, pension cuts, and, most painfully, an increase in the price of bottled gas used for cooking, which would rise by up to 333 percent.
Quechua-speaking women who had to pay off the banks’ debts disagreed with the IMF’s policy suggestions. They came down from the Andes Mountains to Quito, the capital, banging pots and pans—then began to burn the city.
The whip came down, the tanks moved into the street. The armor defeated the women and the IMF diktats were imposed. Ecuador, like Greece, lost its own currency as part of the deal. Ecuador agreed to pay the United States to use dollars, an annual penalty that Rubin and Summers collected with joy.
Then in 2000, Argentina blew, also following the collapse of banks after deregulation. And again, there were women banging empty pots and pans, school teachers hunting for food in garbage cans. Riots, whips, then IMF “reform.” And so on, from Indonesia to Hungary. Bank deregulation, collapse, riot, whip, IMF reform. You could mark your calendar in advance.
It was so regular, so predictable, you’d think it was the plan.
It is, and I have a copy. It is called the “Poverty Reduction Plan” for Ecuador, a World Bank document with the usual confidential, not for public distribution , and all those warnings that give me such pleasure to ignore.
