“Capitalists earn what they spend, and workers spend what they earn.” - Kalecki
Last week, we started talking about white collar crimes and the Apple-like schemes allowing big corporations to avoid paying taxes (and thus their social duties). Over the last few days, we’ve skimmed news for white collar crimes and found quite a bit, mostly in the banking industry: large banks actually manage money for Mexican drug cartels, terrorist organizations, dubious individuals or black listed states, on a no-questions asked basis.
The worst part is that even though they are eventually found guilty, no individual gets jailed and the fines account for a low percentage of the profits reaped from such activities. In other words, it would be irrational for them NOT to engage in illegal activities. The regular scandals uncovered over the years are unlikely to stop as long as punishment is not a strong enough deterrent for these activities.
As explained last week, white collar crimes are much more costly to society. For example, Well’s Fargo’s employees opened credit account for customers without their knowledge or consent. The customers are now suffering from poorer credit scores (meaning they pay more) while Well’s Fargo employees were fired, though not individually punished. The bank paid a fine equivalent to 3.3% of its USD 5.6 billion net income for Q2 2016. We won’t even talk about 2008-2009’s bailout money that went straight to the pockets of big banks executives instead of plugging the holes in their balance sheets.
Globalization, partly driven by advances in new technologies, allowed large corporations and individuals to play a massive shell game coupled with a bargaining position that helps them putting different countries or regions in competition, a race to the bottom in which consumers are the losers. Besides the local benefits of employment, society will actually lose more than it will gain: less taxes paid and no trickle down since most benefits actually go to shareholders when the large companies are listed entities.
The same companies argue that they need high net income to reinvest into R&D and maintain employment. This is true. But the fact is that these companies do not reinvest their profits into their operations but into share buybacks and dividends. In other words, shareholders, which includes corporate executives whose performance is partly assessed based on share prices, a situation that can easily lead to misplaced incentives for the latter.
This asymmetric distribution of profits then leads to rising inequalities and eventually to crisis: rich people have a proportionally much lower consumption share of income and higher rates of savings, which soon crowd out productive investments, leading to bubbles (blind yield chasing) and then crisis. The question is thus not whether our current system can continue to exist, but what system can substitute to it.
Science, General Knowledge & Environment
Comment l’application Telegram a tout fait pour se mettre hors de portée des Etats – (Hat tip Lao Ho) – “Depuis sa création, l’application de messagerie a tout fait pour se mettre à l’abri des Etats, que ce soit en matière fiscale ou judiciaire.
History & Geopolitics
Refonder la sécurité nationale – (Hat tip Lao Ho) – “La suspension de fait des accords de Schengen et la construction de murs aux frontières des pays d’Europe centrale, pour couper la route des Balkans, ont démontré qu’elle ne dispose ni de la capacité de maîtriser son territoire et sa population, ni d’un dispositif de contrôle efficace de ses frontières extérieures. En outre, l’Europe ne dispose plus d’une garantie de sécurité effective depuis le retrait relatif des Etats-Unis du continent.“
What Happens After ISIS Falls? – “The pretext of fighting ISIS delayed the conflicts and the protest movements across the Middle East. Eliminating ISIS will bring back the conflicts everywhere. And it will embolden the people who had been holding back on demanding reforms by their countries’ regimes because they were concerned about ISIS.” And Al Quaeda is still lurking in the background, extending its web while ISIS attracts the attention.
International diplomatic incidents bring benefits for China – (Hat tip Lao Ho) – “Another feature of China’s system is its ability to pursue policy objectives using multiple agencies. In contrast, western political systems are internally adversarial by nature, making it difficult to have a broad range of agencies acting in concert, especially since they are often established with the explicit purpose of checking each other’s power.“
How China bought its way into Cambodia – “Cambodia gets a lot in return. It gets foreign aid, it gets debt forgiveness and for a government that is very dependent on foreign aid, it gets critical Chinese aid. And the Chinese don’t ask questions on human rights.”
Finance & Economics
The tide of globalisation is turning – “The failure — a profound one — lies in not ensuring that gains were more equally shared, notably within high-income economies. Equally dismal was the failure to cushion those adversely affected.“
Comment combattre la stagnation séculaire – (Hat tip Lao Ho) – “Une partie du monde semble embourbée dans une croissance faible voire négative. Heureusement, les facteurs freinant l’économie ne sont pas tous hors de contrôle.“
Europe’s banks turning Japanese, analysts warn – “Mr Abouhossein said that, if anything, European banks were “behind the curve” relative to Japanese rivals because they “haven’t done any of the cost-cutting which Japanese banks have done” or carried out the necessary “balance sheet clean-up”.“
Law Enforcement Losing War on White Collar Crime – “We have lost most of the major battles and all of the wars. The number of people benefiting from large-scale, economic crime is immense, the number of victims is immense, but the number of prosecutions is limited by small and declining budgets.“
Why It’s Unlikely Anyone Will Go to Jail Over Wells Fargo’s Massive Fraud Scheme – “Each scandal is different, but they share one commonality, other than the massive sums of money involved: “In all those cases I’ve listed, not one single individual spent a single day in jail for the criminal activity that justified those monetary penalties”“
The Bahamas’ Giant, Fist-Pumping Screw-You to the Civilized World – “Like Panama, [the Bahamas] generally had a greater tolerance of dirty money than most modern offshore centres: more of a willingness to turn a blind eye and to overlook noncompliance by Bahamas-based actors of its own rules and laws.“
Picture of the day: Back to school
About Carlito Riego
"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi