Financial War - How Banks and Bandits Endanger our Democracy
Political failure follows market failure. Participation in system criminality is without risk of prosecution. The financial crisis is not only a system failure. It was caused by human actions in the banking sector that are objectively punishable. State authorities helped in a grossly negligent way.
Attack on the Social Peace in Europe
by Wolfgang Hetzer
[Capitalism is out of control. International capital markets have whole states in their sights and pursue their strategies of profit maximization with near military precision. They accept the risk that the peacemaking order of the postwar time will gradually dissolve. Can we get a grip on this explosive situation?]
[This foreword of Wolfgang Hetzer's 2013 book "Finanzkrieg. Angriff auf den Sozialen Frieden in Europe" is translated from the German on the Internet, http://westendvertrag.de/westend/buch.php?p=77&n=leseprobe.]
The financial markets of this world have changed into battlefields. Proxy wars are waged there and are marked by national and particular interests and a special way of exercising power. The debt-, credit- and interest-policy of governments, central banks, commercial banks and other financial institutions led to spreading fires. The assets of whole generations amassed through years of hard and honest work smolder. Capitalism has become a challenge to a middle class world largely defined in the past by performance ethics. Modern "financialization" resembles a warmongering of power cliques in the economy and politics. Individual personal happiness and social order come into the sights of the attackers who sacrifice the public interest to unbridled personal enrichment greed. More than the social peace is endangered in Europe. In shocking abundance and clarity, the 20th century showed that economic problems, ethnic tensions and misuse of state power are always the harbingers of bloody slaughters. At the beginning of the 21st century, there are more new fires than ever. All the preconditions for wars and civil wars collide into one another.
The situation of the Euro-zone recalls times when an immediately imminent military attack on a territory was feared. States were then always ready to abandon sovereignty on a large scale. Today the West faces hard times. The destruction of money has damaged the spirit of secular societies. If the Euro should break down, that could trigger more than enormous economic turbulence. Europe's political integration could be in peril. Historians may interpret the Euro-crisis as the third European civil war. Whether this war will be waged only with "peaceful" means is not yet decided.
The arising risks are consequences of extensive political failure. Beside the economic after-effects, the abdication of politics is one of the worst consequences of the financial crisis. This abdication of politics also led to the most damaging events of modern economic history. With pied-piper formulas, a disgraceful exchange culture was built. The markets were the place of social justice. As many decisions as possible could be left to them. The alleged reasonableness of market processes made a discussion about the meaning of certain market processes seem unnecessary.
However the past years of the financial crisis revealed the illusory if not deceitful character of this philosophy. Through their own failure, the states have submitted to the financial markets. Everyone knows markets are not self-regulating. They are not programmed to serve the public interest. Highly professional bankers admitted they didn't understand the securities they purchased for billions. Even worse, they assumed that nearly all their rivals had stocked up on this toxic waste. Therefore they were not creditworthy any more. There should be no credit without a state guarantee. That was the birth-hour of a paradoxical world: the states had to bailout the banks, not vice versa.
In politics and in the economy, a condition appeared that calls to mind war-like conditions since it is marked by the absence of reason and logic. In the course of wars, an independence often occurs and ultimately the institutionalization of misanthropic madness. As people are ready to follow victorious generals in wars, people today believe "governments of experts" can remove the toxic waste left behind by actors on the financial markets. Democratically legitimated governments are less and less able to prevent the further spread of toxic waste in the vaults of commercial and Central Banks. They operate in a smoking wasteland caused by cliques of financial management in the manner of degenerate mercenary armies without regard to losses.
The question is raised more clearly than ever whether the present crisis is great enough to come to another capitalism and whether governments need a catastrophe to do what is necessary. At the same time people are confronted with a paradoxical situation: a financial- and economic crisis of historic dimensions has hardly left any permanent traces in the everyday consciousness of the German population. The crisis is still managed in a largely economic-, fiscal- and labor market way. In Germany, the crisis does not stand in the center of greater social conflicts. There is no simultaneity of crisis and conflict. This seems to be changing in Greece, Spain and Portugal. Perhaps people there understood that a "spectacle of pure folly" is carried out on the venues of international financial management. The trillions of Euros stashed in "bailout umbrellas" did not unite Europe but drove a wedge between the peoples again and threw them back on their national traditions.
The dynamic of development has led to a constant race with time... A complete chronology of the financial-, debt- and euro-crisis is impossible. A compendium of world improvement proposals was not intended. The social peace in Europe is seriously threatened...
BOOK REVIEW: WOLFGANG HETZER, "FINANCIAL MAFIA - HOW BANKS AND BANDITS ENDANGER OUR DEMOCRACY"
by Wolfgang Lieb
[This book review published March 11, 2011 is translated from the German on the Internet, http://www.nachdenkseiten.de.]
In his new book, Wolfgang Hetzer, director of the "Intelligence: Strategic Assessment and Analysis" division in the European Office for Combating Fraud in Brussels tackles the question "whether the international financial markets have become the hotbed of a special kind of organized criminality that it created in a milieu of the greatest criminal energy, exquisite specialized training and corrupt linkage to destroy the connections between labor, performance and success as a foundation of a middle class society and a constitutional culture in an unrestrained selfish enrichment orgy over years" (p.12). As a lawyer and a "fraud investigator," he is occupied with the criminal elaboration of the financial crisis.
"The disloyal destruction of foreign capital is a criminal offense." That is the first sentence in the Introduction. However there is no statutory offense of "capital destruction" and no one has been legally prosecuted for causing the financial crisis (p.11). The obvious question who is responsible for the massive damage leads into "Nirvana," from the view of former German finance minister Steinbruck. Participation in system criminality is manifestly without risk of prosecution. The criminal law is not fit for that in its present state. The attempts to define organized criminality or corruption are inadequate in view of the criminal energy that comes to light in the financial crisis. Still the practices used in financial management have led to a "structural and functional overlapping with organized criminality" (p.124). Nevertheless the teamwork of economic interests, political ambitions and national egoism (in the past) lies outside the range of criminal norms. These processes follow "the primacy of politics" (p.13).
The attribution of criminal responsibility is a demanding process. Historical experience shews that accusations established in the criminal law were quasi meaningless if certain behavior patterns were irrational or contradictions mutate into functioning principles. Thus rating agencies that blamed bankers for their "errors" could resist compensation lawsuits with the (absolutely absurd) appeal to the right of freedom of expression. They justified themselves saying individual actors do not bear responsibility since they are "part of the system" (271).
There are hardly any criminal offenses or a capital market criminal law with a binding definition.
Hetzer is skeptical whether there will ever be a functional change of the criminal law with a repertoire of sanctions that would do justice to the challenges of "system criminality" (p.151). In 12 pages of the book (172-184), Hetzer shows that a criminal law proscription of disloyalty is very difficult. He concludes that an initial suspicion exists to undertake criminal investigations under certain presuppositions. But he admits the debate over the possible criminality of bank managers has only begun in the legal literature and in jurisprudence. There is no talk of sanctioning politicians called to monitoring.
The financial crisis "is not only a system failure, Hetzer concludes. It was caused by human actions in the banking sector that are objectively punishable. State authorities helped in a grossly negligent way" (202).
Hetzer sharply criticizes the scandal that no efforts were made to confiscate the illegitimate spoils from pseudo-winnings of the past or rashly paid inappropriate bonuses. The praxis of securing the spoils simply continued in state bailed-out banks. Nevertheless it is high time that the criminal law traditionally used against the "lower class" be applied equally against the "upper class." If there ever was a field where this is overdue, it is the financial crisis" (203).
Despite this flaming appeal, Hetzer comes to a rather sobering and disappointing conclusion. "Whether applying the criminal law to individual actors in the economy, financial industry and politics could have preventive and repressive effects is extremely uncertain since the necessary clarification process has only begun regarding constitutional prosecutions and effective sanctions."
Hetzer decries the machinations and intrigues of the managers of the private banks Sal Oppenheim and HSH Nordbank as "lessons" on the amateurism and failure of managers and inspectors. He discusses in detail the "unholy alliance of politicians and bankers" in connection with the deal of a regional Bavarian bank with the Hypo Group Alpe Adria. The question whether or not organized criminality occurs here must be raised for everyone who looks behind the scenes of this cooperation between governments, financial institutes and economic enterprises.
In his last chapter, Hetzer tackles the question whether or not corruption has become the model culture. The profit intention s of economic subjects, the ambitions of politicians, the financing needs of parties and the greed for money of officeholders were often linked. This cannot be ignored any more. Given the critical corruption that arises, the comparatively simple terms of criminal law must crash. "When marketability forms the inner character of a community, legal obedience degenerates to a ridiculous attitude" (276).
As befits a lawyer, Hetzer describes in the first third of his book the facts on which he bases his criminal law discussions and tries to subsume the statutory offenses of disloyalty, fraud, organized criminality and corruption.
The outbreak of the "most serious global financial crisis since the Great Depression" is usually dated from the summer of 2007. The great crisis is in no way at an end. For many years, top politicians have known this development. Politics in most countries has not begun to understand what has happened. The media give the impression of an event beyond farsighted control. This view is simply false and the product of a skilful media policy of the decision-makers and rulers and not only misleading.
Economic interests and political calculus are hidden behind the term "crisis." This usage implies an episodic character. The media try to delude us with controlability. Politicians even represent themselves as protectors of the public interest. However in a mixture of ambition and incompetence, the decision-makers in the economy and politics created the conditions "under which international financial management changed into a battlefield" (p.34). "Shameful failure in the executive suites triggered this financial crisis, not a natural phenomenon" (p.34).
The trigger of the financial market crisis was a threefold state failure in the US, namely a low interest policy of the Federal Reserve for years, refusal to regulate the financial markets and renunciation on bailing out Lehman Brothers. Airspace was opened to the "grasshoppers" in Germany since 2004 with the Investment Modernization Law. The "Red_Green" German government encouraged the triumphant advance of the financial markets and pushed the dissolution of "Germany Inc" in the form of "Rhine capitalism." In 2003 the German government wanted to increase the efficiency and attractiveness of Germany as an investment location with the Investment Modernization Law under finance minister Eichel. With a risk-oriented assessment of consequences, hedge funds (the "model wolves of international speculation" (p.101) and other investment products competitive with foreign investment strategies were allowed to reduce capital flows abroad. Ultimately the legislators invited all "global players" to more successful money laundering. The social-democratic German government created the legal foundations so Germany fell into the maelstrom of international finance capitalism. (p.104). This also happened because the majority of economists, politicians, journalists and regulators believed in the neoliberal promise that unfettered financial markets would promote efficiency and growth worldwide. The abdication of macro-economic thinking occurred.
In the example of the bailout of Hypo Real Estate, Hetzer describes how politics was out-manoevered by the bankers and how the public wastes its energy in bonus debates instead of recognizing that banks can only act that way because they expect to be bailed out by the state in case of crisis because of their significance for the economy.
Hetzer entered into a detailed crisis analysis of the former finance minister Peer Steinbruck. "The money crises of the present are not expressions of market failure, crises of capitalism, arguments against greed or even evidence of the nonsense of manager salaries and profit goals. Rather they are manifestations of a state capitalist system failure" (p.31). So Hetzer criticizes the former finance minister. To an incredible extent, the German government maneuvered into dependence on financial management and thus handed over the general public to a world of banking fallen out of joint. "The politicians acted like extras in a theater whose directors defined the plot in the bank towers."
All promises of remedial action have been ineffective up to now. Politics allows the financial world to finance itself according to its own rules. Banks were not barred from money through security-oriented regulations on capital holdings whose observance would be rigorously monitored and sanctioned. All politics remains mere "gesticulating."
Hetzer argues on his field of organized criminality rather than on the field of the economy and financial-economic analysis. "The financial crisis offers many graphic examples that OC developed in an extremely alarming way and even became a security problem of the first order." Corruption was at the center. Governments allowed the financial system and its most important representatives to get out of control. Financiers and economic decision-makers organized a general enrichment orgy without any rules. Armies of auditors, accountants and lawyers enabled legal and illegal industries like mercenaries to hide dirty businesses or have the appearance of legitimacy. "Rating agencies and consulting services taught businesses deceitful conduct. The offshore financial centers accept money of any origin and do not ask any questions. The corrupt core of the financial crisis lies there which is almost a fountain of youth for OC" (p.127).
On the Cayman Islands alone, at least 2 trillion euro are "stashed away" tax-free. German banks and financial institutes are obviously integrated in the system of tax evasion and fraudulent investments. The profits from this kind of organized criminality surpass many times the spoils of perpetrators of the caliber of Madoff. However "the partial (and inappropriate) individualization of guilt and the exploitation of a cheap scapegoat function cannot cover up the fact that the core business of the whole worldwide financial management was and is unstable. A great part consists of fraudulent plots and criminal-conspiratorial cooperation and were initiated by governments or tolerated according to the standards of economic expectations" (p.129).
The book gives many interesting insights. Its glossary strives to bring the non-expert nearer to the world of finance. Solid and critical information is given on the strategies of hedge fund managers, their methods of money laundering, the absurdity of credit-failure insurance, inscrutable complex securities and the dubious role of rating agencies. Unfortunately the book altogether is like a rag rug of the overall picture that is hard to grasp. While lacking a clear structure, the book is compiled of a huge number of very readable essays.
Abnormal behavior on the financial markets, the wrong way of privatization and the state debt crisis are put abruptly side by side. Hetzer is not an economist. A more far-reaching analysis would have been helpful instead of an abundance of isolated cases and lists of the roots (p.141) of the financial crisis. In many chapters, the same ideas appear again and again. The term crisis is a minimization of the drama. Hetzer rightly criticizes the claim that the crisis is overcome.
Hetzer meticulously enumerates a vast number of risky developments on the financial markets (like credit failure insurance). He enters the breakdowns of the "economic physicists" in analyzing the financial bubbles. He criticizes the automation of international financial transactions ("techno-capitalism") but usually doesn't go beyond descriptions of this phenomenon. Instead he makes a rather trivial diagnosis that "the innovations in the financial branch, regulatory gaps and hum,an errors" brought about an increased risk that ultimately changed suddenly into a crisis (p.71).
Hetzer regards the control- and counter-measures of the European Parliament and the European Commission as reasonable... The book can be a reference work for the criminal machinations that led to the financial crisis and how the law attempts to deal with the actors... Finding a central thread is difficult.
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