[Marxism] Let's Not Conceal the Criminal Dimension of the Financial Crisis

["Darrel Furlotte" <darrel.furlotte@xxxxxxxxx>]

http://www.lefigaro.fr/debats/2008/12/20/01005-20081220ARTFIG00002-ne-pas-occulter-la-dimension-criminelle-de-la-crise-financiere-.php


Let's Not Conceal the Criminal Dimension of the Financial Crisis
Tuesday 16 December 2008



by: Jean-François Gayraud and Noël Pons, Le Figaro



Jean-François Gayraud, divisional commissioner of the National Police, and Noël 
Pons, adviser at the Central Service for the Prevention of Corruption, 
establish a connection between criminality and the financial crisis.


    No one contests that the subprime crisis has both structural (the orgy of 
credit) and cyclical (the bursting of the real estate bubble in the United 
States) dimensions. However, no one appears to see the criminal aspects of this 
globalized financial crisis. A surprising omission, since history teaches us 
that all financial crises "contain" a criminal dimension, either by the 
intrusion of organized crime, or by the repetition of criminal operations 
committed by normal market actors; and sometimes also through the association 
of these two universes. In our comments, we desire neither to reduce a systemic 
crisis to gangsterism, nor to flush out any improbable scapegoats, but rather 
are concerned to remind everyone that crime - whether organized or not - 
infiltrates everywhere where money reigns, including the financial markets.

    Crime accompanies, amplifies and sometimes provokes financial crises. 
Besides, how can one not be troubled by the strange public alert American 
Attorney General Michael Mukasey launched in May 2008 on the growing threat to 
national security represented by "organized crime's penetration of the markets?"

    Practically everyone seems to have obscured the fact that the Western world 
has already lived through two big crises with a strong "criminal smell" during 
the 1980-1990 period, also in a context of careless real estate lending and 
market deregulation.

    First of all, there were the savings and loan failures in the United States 
during the 1980's, one of the worst financial disasters of the twentieth 
century. Its cost to the American taxpayer has been estimated at close to $500 
billion, including interest. Had the American federal government not 
intervened, the very heart of the American economy - and by contagion, a part 
of the global economy - would have been put in danger.

    The source, at the epicenter of the disaster, was large-scale criminal 
frauds conducted by executives at these savings and loans, along with outside 
beneficiaries, sometimes even known Mafiosi. Seventy to 80 percent of these 
savings and loan bankruptcies were due to criminal activity.

    At the same time, Japan was experiencing a comparable crisis the country 
has still not fully recovered from. In a context of easy money and 
deregulation, banks shortsightedly lent to companies and entrepreneurs "with a 
tang of Yakuza," the Japanese mafia. When banking and real estate bubbles 
burst, the Japanese financial system found itself battered, trapped by the 
masses of unrecoverable loans, estimated in 1998 at $600 billion. In 30 to 40 
percent of cases, these "questionable loans" proved, in fact, to be "mafia 
loans," hence impossible to recover.

    The subprime crisis probably began with the multiplication of real estate 
loans to beneficiaries unable to reimburse them. First of all, basic scams 
affecting loan quality were in evidence. The second period (securitization and 
insurance derivatives) gave rise to convoluted scams, still caused by the 
attraction of bonuses and the very complexity of the operations themselves. The 
fraud changed in nature; conflicts of interest between rating agencies and 
banks, banks and insurance companies multiplied along with appraisals and 
contracts. Above all, the burdensome loans were leaving balance sheets. 
Veritable "gasworks," in which the fictive was incorporated with the real, were 
set up. At the moment of final reckoning, losses must be regularized: balance 
sheets manipulated and accounting statements falsified. The specter of Enron 
reappears!

    The third period, that of the passage through hedge funds and investment 
banks, saw the subprime crisis intensify, grow and burst when toxic products 
had been diffused worldwide.

    Frenzied speculation generates other kinds of montage: money laundering, 
given the omnipresence of the structures installed in tax havens and the total 
absence of transparency that reigns there; manipulation of the news in order to 
create a call for new investors who will feed the machine once the situation 
has begun to deteriorate. Then, market speculation of the churning variety 
(ramping position-taking, late trading, leveling and so many other scams) arise 
during the recapitalizations of bank, near-bank and insurance companies by 
using short sales. And, in the end, games designed to "assist" competitors' 
fall by artificially depressing their stock price, which creates serious 
problems for the collective. To conclude, let us remember a famous retort from 
the film, "The Sting": "No sense in being a grifter if it's the same as being a 
citizen."

    --------

    Translation: Truthout French language editor Leslie Thatcher.
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