Donald Trump is a master of populist demagoguery. He knows exactly when to turn up the volume on his most controversial ideas, and he knows when to dial down again and present an image of “business-as-usual.” In throwing red meat to his base — through committing to mass deportations, promising to eliminate huge swathes of the federal government, and handing the Justice Department over to…
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Rural La Paz County, Arizona, positioned on the Colorado River across from California, is at the center of a growing fight over water in the American Southwest. At the heart of the battle is a question: Should water be treated as a human right, to be allocated by governments with the priority of sustaining life? Or is it a commodity to be bought, sold and invested in for the greatest profits?
This post was originally published on Latest – Truthout.
Democrats have introduced bicameral legislation this week to take a step toward getting Wall Street out of the housing market amid a crisis during which house prices have soared to record highs. The bill would ban hedge funds from buying and owning single-family homes. The legislation would require hedge funds to sell off their stock of single-family homes over the next 10 years and would then…
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On March 15th, the Surface Transportation Board (STB)—the federal agency that regulates the U.S. freight rail industry—gave final approval to the acquisition of Kansas City Southern by Canadian Pacific. Approving this merger between America’s sixth- and seventh-largest railroads was a dire mistake, which will have enormous economic and social costs that resound for decades.
In a nation committed to a competitive market, in a sector that’s already as consolidated as American freight rail, it’s important to evaluate mergers very carefully, because once big companies absorb smaller ones, it becomes impossible to pull them apart again. And as economics researcher Eric Peinert of the American Economic Liberties Project puts it, “Nothing in the history of rail consolidation suggests this particular merger is a good idea.”
Allowing these two railroads to merge is likely to reduce competition in the industry, leading to higher shipping prices, reduced service, and job cuts. It will impair the ability of small businesses to operate. It will lead to increased safety risks and have environmental impacts on the communities where rail traffic will increase. And as cost-cutting pressure from railroads’ predatory hedge fund investors continues to mount, it will likely contribute to even more aggressive cuts in service than we have seen over the past five years.
The STB knew all that. They got 2,000 public comments about the merger, from industry experts, researchers, lawmakers, and the general public—hundreds of them laying out reasons why it shouldn’t get the green light. On behalf of people across America, U.S. Senators and Representatives weighed in with their concerns, which the STB ignored.
“Cost-cutting demanded by the industry’s hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through…”
The most obvious risks are to the competitive marketplace, with both rail customers and rail workers paying the biggest price. Sen. Elizabeth Warren (D-Mass.) called for the merger application to be denied outright on antimonopoly grounds. As Rep. Katie Porter (D-Calif.) put it, as America’s Class I freight railroads have dwindled from 33 to just seven, “lack of competition has allowed railroads to gut capacity, capture and extort businesses, fire thousands of workers, and threaten the integrity of America’s freight transport network and supply chains – all while extracting monopoly profits.”
For American businesses, precision scheduled railroading (PSR), the approach these giant railroads are taking to providing as little service as they can get away with and doing it as cheaply as possible, has meant less frequent, less reliable, and more expensive shipping options. And for the freight rail workforce, it’s meant job cuts of 28% across the industry with onerous contract terms and more dangerous working conditions for those who remain.
In the wake of the hazardous Norfolk Southern derailment at East Palestine, Ohio and a string of other high-profile derailments earlier this year, industry-watchers of all stripes have noted that cost-cutting demanded by the industry’s hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through, like the Chicago suburbs.
According to employees, extreme schedule pressures under PSR push workers to their physical limits, leaving them with as little as 60 seconds to conduct railcar safety inspections. And due to investor pressure to save money by running fewer, longer trains, it’s more and more frequent to see trains as long (150 cars) as the one that derailed in Ohio. Sarah Feinberg, former head of the Federal Railroad Administration (FRA), says that even trains as short as 80 cars can pose size risks.
The American Economic Liberties Project describes the hyper-consolidated U.S. freight rail giants as operating under a “financially extractive business model,” which makes but money for the railroads’ hedge fund investors at great cost to the public welfare. And Peinert says yet another merger will make things even worse. “This deal sets the stage for future disasters like East Palestine, and will likely lead to even further railroad staffing cuts, even higher cargo loads, and other profit-driven safety shortcuts.”
Despite the recent statement by STB chair Martin Oberman that this merger “will be an improvement for all citizens in terms of safety and the environment,” their own environmental impact study found that the opposite would be the case in numerous communities along busy rail routes: the merger will increase hazardous cargo transportation along 141 of the 178 rail segments, totaling 5,800 miles of track in 16 states. And even basic public services like Metra passenger rail service—a critical economic engine for the 10-million-population three-state Chicago metro area, which operates on Canadian Pacific tracks, competing with freight services—are at risk. Along some of those track segments, freight traffic is projected to triple, with much of the new cargo slated to include hazardous materials.
In response to the market consolidation concerns raised by merger opponents, the STB has imposed some conditions. They will require that interchanges within other railroads be kept open, that a process be provided for challenging rate increases, and that the companies provide data so the STB can monitor compliance. But as Sen. Warren noted, these measures are insufficient. That’s especially true given that there’s already evidence that Canadian Pacific and Kansas City Southern may have been violating antitrust law against collusion, by sitting down together at a luxury hotel in Florida to plan the future of the company in early February, even before the merger was approved.
Cutting routes, service, and workers may be good for profits, but it’s bad for American competitiveness, for workers, for industry, and for public safety and quality of life. The only win here is for freight rail’s hedge fund investors, who are squeezing operating cash out of these railroads—cash they used to use to pay employees, fund service, and finance safety improvements—and taking it to the bank.
This post was originally published on Common Dreams.
Janine Jackson interviewed CSG Advisors’ Gene Slater about the affordable housing crisis for the November 11, 2022, episode of “CounterSpin.” This is a lightly edited transcript. Janine Jackson: Home ownership is a key ingredient in what is still called the “American Dream.” Beyond the meaningful symbolism of having one’s own patch, home ownership is instrumental in wealth creation — the…
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As millions of Americans struggle to afford rent and mortgage rates, U.S. Sen. Jeff Merkley on Wednesday unveiled legislation intended to stop major Wall Street investors and hedge fund predators from continuing to exacerbate the nation’s housing crisis. “Everyone should have a safe, affordable place to call home,” the Oregon Democrat said in a statement. “In every corner of the country…
Federal committees reported receiving nearly $347.7 million during the 2022 midterm election cycle from private equity and hedge fund employees and PACs, an OpenSecrets analysis of Federal Election Commission disclosures available on Aug. 15 found.
Sen. Kyrsten Sinema (D-Ariz.) made headlines in August for her stalwart opposition to a provision in the Inflation Reduction Act — signed into law by President Joe Biden on Aug. 16 — that would have closed the carried interest tax loophole. The existing loophole allows private equity executives and some hedge fund managers to claim large portions of their income as investment gains at a substantially lower tax rate.
Lobbyists for these firms barraged Sinema’s office with calls the day before the Senate voted to pass the Inflation Reduction Act, reported CNBC. Senate Majority Leader Chuck Schumer (D-N.Y.) said his party had “no choice” but to remove that piece from the legislation.
Schumer, Sinema and Sen. Joe Manchin (D-W.Va.) — three key architects of the Inflation Reduction Act — are among the top recipients of contributions from the private equity and investments industry in the 2022 election cycle, according to data tracked by OpenSecrets.
Private equity and investment firms have steered $351,000 to Sinema’s campaign and leadership PAC, Getting Stuff Done PAC, so far this election cycle — more than half of the $766,000 Sinema’s political operation has received from the industry since 2012.
Blackstone Group has given the most money to Sinema’s political operation since 2012, with individuals contributing $60,900 to Sinema’s campaign and $20,500 to her leadership PAC. Employees at Carlyle Group and the firm’s PAC contributed $40,100 to her campaign and $8,400 to Getting Stuff Done PAC, and individuals at Welsh, Carson et al gave $47,100 and $5,000 respectively.
In the last five years, Sinema’s campaign received nearly $2.3 million in PAC giving and campaign contributions from the overall securities and investment industry, according to data tracked by OpenSecrets. Her leadership PAC brought in $256,200 from the industry during that same period — more money than it received from any other sector.
The senator had been “clear and consistent for over a year that she will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” a spokesperson told OpenSecrets.
Manchin faced significant criticism for his reluctance to pass the Inflation Reduction Act — and its Build Back Better predecessor — in an evenly divided Senate. Although Manchin’s political operation reported receiving over $369,000 from the private equity and investments industry during the 2022 election cycle, the West Virginia senator has been a vocal opponent of the carried interest loophole, helping to introduce the Carried Interest Fairness Act in 2021.
Referred to the Senate Finance Committee, the bill has not advanced since May 2021.
Individuals and PACs affiliated with the securities and investment industry also contributed $1.7 million to Manchin’s campaign during the 2022 election cycle, and his leadership PAC received over $190,000 from the industry.
Schumer’s political operation has received by far the most money from the private equity and investments industry during the 2022 midterms. The Senate majority leader’s campaign received over $1.2 million in contributions from industry individuals and PACs in the 2022 cycle alone, and his leadership PAC received $251,000.
A spokesperson for the majority leader told the Financial Times that Schumer “worked until the very end to try to keep the provision in the legislation and will continue to seek opportunities to eliminate it.” Schumer’s office did not return OpenSecrets’ request for comment.
The Inflation Reduction Act is not the first time the private equity firms and hedge funds flexed political influence to protect the carried interest tax loophole. Individuals and PACs at private equity firms including Blackstone Group, KKR & Co. and Carlyle Group as well as hedge funds including Soros Fund Management and Citadel have poured hundreds of millions of dollars into the political process in recent decades.
The private equity industry steered $223.5 million to federal candidates since 1990, according to data compiled and coded by OpenSecrets, including $23.5 million in contributions to 2022 midterm campaigns reported to the FEC.
Private equity firms also spent $245.5 million on lobbying from 1998 through the second quarter of 2022, according to OpenSecrets data. The industry also boasts an experienced bench of lobbyists — over three-quarters of lobbyists representing private equity firms in 2022 swung through the revolving door between the public and private sectors.
Hedge funds contributed over $107.2 million to federal candidates during the 2022 midterm election cycle, including nearly $10.4 million this cycle alone. The hedge fund industry spent over $119.7 million on federal lobbying during the same period. Just under two-thirds of the industry’s lobbyists in 2022 were former government employees.
Both private equity firms and hedge funds ramped up lobbying in 2007 as the 2008 financial crisis loomed. Hedge funds in particular were heavily invested in mortgage-related securities at the time of the crash, according to the final report on the causes of the crisis prepared by the Financial Crisis Inquiry Commission.
Money from individuals and PACs of private equity firms and hedge funds is flowing to politicians this election cycle, including hundreds of millions of dollars to outside spending groups.
Individuals at private equity firms have contributed at least $49.8 million to federal candidates and committees during the 2022 midterms, which reported receiving an additional $770,000 from private equity PACs as of Aug. 15. Private equity and hedge fund donors gave $52 million and $214 million respectively to outside groups. Hedge fund employees contributed just under $30.6 million to federal candidates.
One of the hedge fund industry’s top donors this election cycle is Ken Griffin, the billionaire CEO of the hedge fund Citadel. Griffin is the third largest individual donor and the second largest conservative donor for federal committees in the 2022 midterms. He has also given over $56 million to state-level candidates this election cycle — including $50 million to Illinois gubernatorial candidate Richard Irvin, who lost the GOP primary to state Sen. Darren Bailey (R), and $5 million to the Friends of Ron DeSantis PAC.
The Citadel CEO poured $8.8 million into a pro-David McCormick super PAC — Honor Pennsylvania — that spent over $19.3 million in the Keystone State’s contentious Senate GOP primary. Hedge fund affiliates and PACs poured nearly $229,000 into the campaign for McCormick, who lost the Pennsylvania Senate GOP primary to celebrity heart surgeon Mehmet Oz.
Several other hedge fund executives poured millions into Honor Pennsylvania, including D1 Capital Partners founder Daniel Sundheim and Paul Singer, founder and president of Elliott Management Corp.
Carried interest is “not really an issue” for hedge funds like Citadel, which turn over portfolios on a short-term basis compared to private equity firms, a company spokesperson told OpenSecrets.
A recent ProPublica article found hedge fund managers including Griffin are often taxed at higher rates than private equity executives if they earn income through short-term trades. Carried interest generally benefits private equity executives more than other industry stakeholders, as their management fees are taxed at a lower rate than the wages of their salaried employees.
But, when asked about his stance on the carried interest tax loophole at the Economic Club of Chicago in 2013, Griffin said the U.S. tax code “favors the creation of wealth” and therefore “the nature of the income that is created should flow through to those that create it.” Although Griffin added he didn’t have “a lot of skin in the game,” he was interested as “a matter of principle.”
Griffin also spent $54 million opposing a 2020 ballot measure that would have raised taxes for ultra-wealthy Illinoisians like himself, ProPublica found, noting Griffin was the second largest taxpayer in the U.S. from 2013 to 2018. The measure failed.
George Soros, the billionaire founder of Soros Fund Management and the philanthropic Open Society Foundations, is the top individual donor to outside groups this election cycle. Soros poured $125 million into his super PAC, Democracy PAC II, earlier this year. The Fund for Policy Reform, a 501(c)(4) nonprofit backed by Soros, contributed another $25 million.
Other private equity and hedge fund executives top the individual donor list compiled by OpenSecrets include Blackstone Group chairman and CEO Stephen Schwarzman, Susquehanna International Group co-founder Jeffrey Yass, and Lone Pine Capital founder Stephen Mandel. All three men are multibillionaires, according to Forbes.
The term “private equity” is a tasteful rebranding of “leveraged takeovers,” Carter Dougherty, communications director with Americans for Financial Reforms, told OpenSecrets. Americans for Financial Reform is a left-leaning nonprofit organization formed in the wake of the 2008 crisis to study and advocate for policies that advance a more just, equitable financial system. Using data compiled by OpenSecrets on a curated list of private equity firms, hedge funds and their subsidiaries, the organization developed a 2021 report on industry spending.
Private equity firms pull together big pots of money from pension funds, endowments and wealthy individuals, Dougherty explained — generally any place that wants to get a return on their investments. These firms can then use that money to take over a company, restructure it and sell it at a profitable margin.
There always seems to be a key politician siding with the industry, Josh Kosman, private equity expert and author of Buyout of America, told OpenSecrets. He added that these politicians, like Sinema, have swung votes that have basically been saving the industry for decades.
The private equity industry has had a huge influence over both Republican and Democratic officeholders, especially in the last 15 to 20 years, according to Kosman. Affiliates of these firms have given almost evenly to Democrats and Republicans in recent years, OpenSecrets’ research shows, with slightly higher contributions to Democrats.
Dougherty and Kosman also pointed out an amendment exempting private-equity-owned companies with under $1 billion in revenue from paying the 15% minimum corporate tax. While firms could own hundreds of companies with combined revenue of over $1 billion, Kosman told OpenSecrets, the amendment assured each will be seen as an individual company for tax purposes.
The private equity sector currently controls more than $6 trillion in assets, according to a recent ProPublica article.
This post was originally published on Latest – Truthout.
Cyn Rodriguez, an organizer with the Puerto Rican independence group Colectiva Solidaridad (Collective Solidarity), was sitting in the 350-seat auditorium of the Alexander Hamilton U.S. Custom House when they recorded a man who rose from his seat during the Fiscal Oversight and Management Board’s (FOMB) 31st “public meeting” on December 17, 2021. The man began shouting: “Puerto Rico not for sale! Not for sale! Not for sale!” He had interrupted Puerto Rico’s Department of Economic Development and Commerce Secretary Manuel Cidre Miranda, a “businessman” who once told Forbes that he believes in “reducing regulations [and] making Puerto Rico a one-stop shop for investors.”
Economic development agencies and the Puerto Rican government are slated to privatize more and more sectors of the economy as part of the FOMB’s debt restructuring plan and its “modernization” campaign. Two men in suits approached the protester and started removing him from the premises. He struggled to resist them, saying, “How dare you stand there and tell lies?” He was one of four attendees who disrupted the meeting that day to draw attention to the injustice of exploitative proposals — and to the exploitation and subjugation that Puerto Rico has faced both in recent years and throughout its colonial history.
“I was angry the whole time,” Rodriguez said. “They [the FOMB] were talking about Puerto Ricans like they were nothing but labor, and about the archipelago like it was a playground for the gringos — the rich and tourists.” Rodriguez said Puerto Ricans have been suffering due to the cruel austerity measures imposed by “La Junta,” the Spanish sobriquet for the FOMB, an unelected board created by the Obama administration in 2016 through the Puerto Rico Oversight, Management, and Economic Stability (PROMESA) Act. The FOMB oversees the restructuring of Puerto Rico’s $72 billion debt.
Before the meeting, several protesters gathered outside the Custom House and held a banner that read (in Spanish and English): “We bring machetes to the vultures and say ‘get out of my island.’” The phrase was adapted from a Puerto Rican folk song’s lyrics. The protesters called on incumbent Puerto Rican Gov. Pedro Pierluisi to resign from office and demanded the immediate abolishment of the FOMB.
Hedge funds, also called vulture funds, have spent decades perfecting predatory investment practices that target financially distressed countries around the world; Puerto Rico, Argentina, Greece and the Republic of the Congo are among the countries preyed upon. Some of the most prominent vulture investors, many of whom are based in New York, include Paul Singer of Elliott Management, Kenneth Dart of Dart Enterprises, Steven A. Tananbaum of GoldenTree Asset Management and Mark Brodsky of Aurelius Capital Management, among others.
These vulture investors “have followed a well-established playbook” to manipulate the $119 trillion bond market, according to a recent report published as part of the joint “Not a Game. It’s People!” corporate accountability project, which seeks to challenge predatory investment practices globally.
Maggie Corser, Rob Galbraith and Natalia Renta — in collaboration with consultants at Hedge Clippers, the Center for Popular Democracy and adjacent grassroots organizations — authored the report, titled, “Pain and Profit in Sovereign Debt: How New York Can Stop Vultures from Preying on Countries,” to reveal the ways in which vulture funds extract wealth from indebted countries and propose policy recommendations for New York lawmakers. “Because most sovereign debt contracts are governed by either New York State or English law, New York is uniquely positioned to step in and pass laws that would disrupt the vulture fund playbook and stop them from profiteering at the expense of countries in financial trouble,” the report stated.
According to the report, predatory financial actors use vulture fund playbook strategies to “extract debt payments to enrich themselves while communities face regressive taxes, slashed public services [and] privatized public goods.” Vulture investors knowingly purchase sovereign debt for “pennies on the dollar” from debtors that are desperate for credit and, in the process, impose exorbitant interest rates to maximize profits at the expense of local communities.
The report notes that asset management firms “often average a rate of return 300–2000% on their initial purchase of distressed sovereign debt.” Vulture funds also prolong debt restructuring processes by refusing to cooperate with debtors, use “high-powered lawyers” and “ruthless legal tactics” to sue indebted countries so that courts can mandate repayment in full and, finally, benefit from forced austerity policies and international debt relief initiatives, which they use to “hold both other creditors and the debtor country hostage.”
New York law has played a central role in enabling vulture funds’ predatory investment practices. Policy prescriptions outlined in the report look to establish a framework for countries to restructure their unsustainable debt, eliminate the capital gains tax loophole that vulture funds have long exploited and strengthen champerty law, “which is intended to prevent predatory financial actors from buying financial instruments for the purpose of filing a lawsuit.” In 1999, Elliott Management sued the national bank and government of Peru to demand full repayment of the country’s debt that it had purchased (with interest, of course). Ultimately, the outcome of the case was a Court of Appeals decision that weakened the champerty law, rendering it null.
Billionaire vulture investor and Elliott Management founder Paul Singer got his way. And so, the vultures kept circling — they had what they needed to “suck the blood out of” debt-ridden countries around the world, according to Julio López Varona, co-director of community dignity campaigns at the Center for Popular Democracy and longtime consultant for the corporate accountability campaign. “These are human beings making decisions.”
Not only is New York in a crucial position to disrupt the vulture fund playbook, but nearly a quarter of the state’s residents are immigrants who, sources say, tend to come from communities that have been impacted by these predatory investment practices. New York Communities for Change (NYCC), a grassroots organization involved in the corporate accountability campaign, has been staging direct action against vulture investors and engaging in legislative advocacy in recent years. The coalition of working families is over 20,000 members strong.
“This is a moral fight,” NYCC Program Director Alicé Nascimento told Truthout. “It’s really about the poorest countries in the world versus the richest people in the world, who are made rich because these countries are poor.”
Thanks to the work of organizers, awareness of these injustices is growing, Nascimento said.
“Now, there’s this realization — not just in the U.S. but around the world — that these are not good faith players and that they’re out betting on many countries’ economic failures for their own profit,” she continued. “This is something that has affected our membership since we’ve come into this fight.”
Over the past three years, the New York State Legislature has increased taxes on New York’s wealthiest residents, passed incremental police reform legislation and built upon the Climate Leadership and Community Protections Act to combat environmental racism statewide. Nascimento believes that these reforms have created a ripe political environment for the report’s policy recommendations to be passed.
“There is an environment … here and a disposition to challenge concentrated wealth that we have not seen before,” Nascimento said. “People are really seeing what’s behind the veil.”
Members of the corporate accountability project have sent the report directly to most lawmakers in the legislature. State Sen. Gustavo Rivera and Assemblywoman Maritza Davila are co-sponsoring Senate Bill S6627 and Assembly Bill A7562 which, if passed, would prevent predatory creditors from holding out during debt negotiations. Assemblymember Ron Kim is sponsoring the Capital Gains Tax (S2522/A3352) bill along with Senator Rivera. This bill would force vulture funds to pay taxes on income generated from investments. The Carried Interest Tax bill, which seeks to tax “the carried interest income vulture investors as traditional earned income,” is being co-sponsored by State Sen. Brad Hoylman and Assemblymember Jeffrion L. Aubry.
Together, these bills represent a coordinated policy effort by lawmakers to disrupt the vulture fund playbook.
“You can’t squeeze water from a stone,” Joseph Stiglitz, former chief economist at the World Bank and Nobel Laureate in Economics, told the crowd at the 2021 Growth Policy Summit. “If they can’t pay, they can’t pay.”
But this is precisely what vulture funds have been doing to debtors.
Asset management firms have jeopardized the long-term economic well-being of debt-ridden countries — the majority of which are located in the Global South — through ruthless litigation and lobbying. Vulture investors engage in extortion on a global scale, impeding sustainable development, draining indebted countries’ resources through endless cycles of litigation and weaponizing international debt relief processes to demand more from indebted countries, which, in turn, deepens economic stagnation.
Natalia Renta, senior policy strategist at the Center for Popular Democracy, told Truthout that although the focus of the organizations’ work is on New York, “international institutions [e.g., the International Monetary Fund] should be more responsive to the needs of debt-ridden countries instead of the greed of wealthy investors.”
The prevailing market-based or private contractual approach to sovereign debt restructuring is skewed toward vulture funds. It is decentralized, deregulated and lacks sovereign immunity protections. Despite this, the aforementioned limitations can be overcome in two ways: a multinational statutory solution (using international economic law) or a “soft law” approach (via the quasi-judicial system) that drastically improves sovereign debt agreements by making them more equitable and efficient.
There are a multitude of places where the effects of vulture capitalism are being felt.
“We need to do more to build bridges between countries where this is happening,” López Varona said. “The suffering that happens in Puerto Rico … is not disconnected to the suffering of other places.”
Puerto Rico has lacked a “mechanism to force creditors to the negotiating table” since 1984, according to the “Pain and Profit in Sovereign Debt” report. Vulture funds have fought to maintain the status quo, which is why former Gov. Alejandro García Padilla announced that Puerto Rico’s debt was “unpayable” instead of declaring bankruptcy in 2015. Under U.S. rule, Puerto Rico cannot control its economy, as it lacks access to international markets, debt relief and the ability to negotiate its debt, some of which is of “questionable legality,” according to Stiglitz. Moreover, Stiglitz has made it clear that the current restructuring plan will “further weaken” the Puerto Rican economy and leave it with “an unsustainable level of debt.”
“Independence is the only way for us to be free,” Colectiva Solidaridad’s Rodriguez said. “This is a struggle that has lasted 123 years.”
Rodriguez explained that the group’s demands include independence for Puerto Rico, canceling its debt, abolishing “La Junta,” repealing the Jones Act and Act 60, and securing reparations for “heinous crimes” committed by the U.S. These include land grab exploitation, human experimentation, mass sterilization, torture and murder, according to Rodriguez.
Colectiva Solidaridad, which started as a group that provided support to mutual aid organizations in the archipelago, has shared educational materials (in English and Spanish) about the impact of U.S. imperialism and other issues on Puerto Rico via social media. Cycling between in-person and remote support amid the pandemic, Colectiva Solidaridad has collaborated with myriad independence groups both on the mainland and in the diaspora to stage direct action. It will be launching a campaign against La Junta and the debt in early 2022.
Solidarity, education and direct action are needed to mount pressure on lawmakers to establish a multinational framework that either improves upon or goes beyond the prevailing contractual approach. Much of the solution boils down to simple economics.
“If you grow very rapidly, you can repay more. But if you don’t grow, you can’t repay,” Stiglitz said at the summit. “It isn’t really in the interest of the creditors to demand too much of [indebted countries].”
This post was originally published on Latest – Truthout.
High-stakes institutional investors are increasingly exposing themselves to the volatile cryptocurrency market, raising fears that the digital asset industry could wreak havoc throughout the economy — a development that would harm people who can’t afford to own any financial asset, digital or otherwise.
One in seven hedge funds now hold between 10-20 percent of their entire portfolios in cryptocurrency and one in four hedge funds are on the verge of investing in the asset class, according to a recent survey conducted by the auditing firm PricewaterhouseCoopers. The cohort demonstrates that segments of the financial industry have a large appetite for risk. The survey also shows that 21 percent of all hedge funds own some cryptocurrency, with the average invested firm having just 3 percent of its portfolio in digital assets.
The statistic on firms with up to one-fifth of their portfolios invested in cryptocurrencies was referenced during a June 30 hearing on cryptocurrency before the House Financial Services Committee. Chair Maxine Waters (D-California) cited the findings after announcing that the panel has “begun a thorough examination of this marketplace.”
Waters said she is particularly interested in “the systemic risks presented by hedge funds rushing to invest in highly volatile cryptocurrencies and cryptocurrency derivatives.” The price of Bitcoin, the most popular cryptocurrency, has fluctuated wildly in 2021, including a 48.4 percent decline during nine days in May, when the price of Bitcoin plunged from $59,519.35 to $30,681.50.
Alexis Goldstein, a Truthout contributor and an expert witness called on by Democrats to testify, said cryptocurrency markets are particularly attractive to hedge funds because rules on disclosure don’t require them to reveal what cryptocurrency they own. Popular cryptocurrency exchanges also allow customers to borrow heavily to buy digital assets.
“Hedge funds are the perfect client to use those sorts of leverage,” Goldstein remarked. Lending in cryptocurrency, which is known as decentralized finance, has increased this year alone by a factor of 25, according to one measure: The value of assets pledged as collateral in decentralized finance loans has ballooned from $2 billion to $50 billion.
If the cryptocurrency market takes another nosedive — like it did in May, shedding some $1 trillion, or 40 percent of its global market cap — investors will scramble to cover their losses on leveraged bets. This could generate a ripple effect, bringing down commercial ventures outside of the financial sector, which would harm those least likely to own any financial asset, digital or conventional. Economic downturns disproportionately harm the poor, and 45 percent of Americans own no stock, according to a Gallup poll conducted last year, while only 14 percent of Americans own cryptocurrencies.
“What happens if a huge number of hedge funds who have prime broker relationships with too-big-to-fail banks all happen to be in similar crypto positions, whether it’s long or short, and there’s massive volatility in the market? They may have to sell some of their other assets,” said Goldstein, the director of financial policy for the Open Markets Institute and a former Wall Street banker who left the industry in 2010. She told the committee that losses on cryptocurrencies could lead to “forced liquidations” of non-crypto assets (stocks and bonds of other companies in hedge funds’ portfolios).
In March, for example, the failure of a private family fund called Archegos Capital dealt a blow to banks and non-financial firms alike, sending shock waves across the economy. Archegos had bet on the stock prices of certain companies to rise, including media conglomerates ViacomCBS and Discovery, by borrowing four to five times the amount of capital that it owned. When those bets started to go sour, Archegos’ creditors — major banks such as Credit Suisse, Morgan Stanley and Goldman Sachs — sold off some $35 billion in stock, as it became clear that their client would struggle to pay them back. The banks themselves also took hits: Credit Suisse lost more than $5 billion, and Morgan Stanley and Goldman lost about $1 billion each, The stock prices of ViacomCBS and Discovery fell 35 percent as Archegos’ creditors liquidated the shares they bought on behalf of the company.
As Goldstein warned, similar fire sales could happen because of hedge funds invested in wildly fluctuating cryptocurrency, especially considering rules on disclosure and leverage. Archegos didn’t have to reveal its stake in ViacomCBS and Discovery, like investors in cryptocurrency don’t have to do, because it had purchased derivatives based on the firms’ share prices, instead of directly investing in the companies’ stock. And while Archegos leveraged up to five times its capital, some cryptocurrency exchanges, like Binance, which has processed trillions in transactions this year alone, let clients purchase digital assets with $125 in borrowed money for every $1 of the client’s own money.
Financial markets may be able to weather a few major failures in normal times, but a sudden uptick in the number of hedge fund failures and corporate bankruptcies could lead to a wider crisis of confidence, increasing the potential for more asset sales, the failure of financial markets, mass layoffs and a recession. The potential for the broader economy to suffer from financial sector wheeling and dealing in any market is particularly acute at the moment. Corporate debt reached record levels in 2020 driven by promises of pandemic bailouts of bondholders from the Federal Reserve, and it climbed to new heights this year with “higher-risk, speculative-grade bonds … now on pace to set their own record,” as the Wall Street Journal said on June 14.
Goldstein told the committee that this market structure reminded her of working the derivatives trading desk at Merrill Lynch before the 2008 financial collapse — a catastrophe caused, in part, by exponential growth in the market for derivatives like credit default swaps that were traded “over-the-counter,” or without a central exchange to monitor excessive risk. Insurance giant AIG imploded in 2008 after entering into too many credit default swap agreements, which investors purchased as insurance to protect themselves from the failure of mortgage backed-securities. The contracts bankrupted AIG after the mortgage market collapsed in a failure that led to a $182 billion government bailout for the firm.
Another expert witness called by the Democrats to testify — Sarah Hammer, managing director of the Stevens Center for Innovation in Finance at the Wharton School of Business — echoed Goldstein’s concerns. Hammer said the lack of central clearing mechanisms remind her of the market conditions that allowed AIG to accumulate so much exposure to credit default swaps. Rules requiring derivatives to go through central clearing exchanges have been strengthened by Congress and the executive branch since the crisis. Hammer also warned that the market for cryptocurrencies is larger now than the market for subprime mortgages was before the 2008 financial crisis. She called for an interagency body created after that crisis to examine the cryptocurrency situation.
“I do believe systemic risk is a key concern. I do believe that the Financial Stability Oversight Council (FSOC) is the proper authority to consider systemic risk,” she said, noting that FSOC “has a specific mandate to do so.”
“The fact is that cryptocurrency has really infiltrated many different aspects of our financial system,” Hammer added. “Regardless of what we may think the benefits and costs of that may be, that is the reality of the situation today. Not only do investors hold crypto in their individual portfolios, we see it in private funds,” like hedge funds, and “we see it in banks.”
One major concern with cryptocurrency surrounds questions about its true value, with many people believing that the current price of popular digital assets like Bitcoin is wildly inflated on the back of irrational speculation. Cryptocurrency, for example, doesn’t pay out regular dividends like stocks and bonds. Michael Burry, the hedge fund manager made famous for predicting the 2007-2008 collapse of the mortgage market (he was portrayed by actor Christian Bale in the 2015 film The Big Short) recently predicted that cryptocurrency will lead to the “mother of all crashes.”
“If you don’t know how much leverage is in crypto, you don’t know anything about crypto, no matter how much else you think you know,” Burry also said, in a series of deleted tweets.
Some, including world-renowned economist Nouriel Roubini, have questioned whether cryptocurrency has any inherent utility.
However, because cryptocurrencies are based on “blockchain” — public ledgers that keep records of transactions and asset ownership with encrypted information — they can offer users privacy protection, if nothing else. Federal Reserve Vice Chair of Supervision Randal Quarles, who said in late May that regulators were engaged in a “sprint” toward a framework for cryptocurrency regulations, said on June 28 that Bitcoin’s “attractions are its novelty and its anonymity.”
Hedge funds appear to have seized on the latter benefits, according to Goldstein, who told the committee that it’s incredibly difficult for regulators to discern who is investing in cryptocurrencies. Institutional investors aren’t required to reveal cryptocurrencies holdings in mandated quarterly disclosures because digital assets aren’t “seen as an ownership interest,” she said. In the words of the Securities and Exchange Commission, the disclosure reports “generally include equity securities that trade on an exchange,” other assets based on company equity, “shares of closed-end investment companies, and certain convertible debt securities.”
“Regulators are essentially totally in the dark about what hedge funds’ cryptocurrency positions are,” Goldstein said. “They have to rely on the financial press or try to figure out based on the transactions on the blockchain,” she added. Hammer also noted that the federal government currently lacks an official data source for cryptocurrency activity, saying that, without one, “we’re a little bit in the dark about what the proper regulatory framework should like.”
Despite the opacity and the leverage allowed by cryptocurrency exchanges, conservatives were indignant at the thought of telling the financial industry what to do.
“It really frustrates me when I hear members of this committee imply that Americans are not smart enough to know that investing in cryptocurrencies carry risk,” said Rep. William Timmons (R-South Carolina), an incredible statement that glosses over the collateral damage done by the financial sector over the past 40 years. Wall Street has caused a crisis about once per decade since the 1980s, when the Reagan administration solidified the consensus in Washington around neoliberalism and deregulation, leading to the failure of 1,043 savings and loan associations later in the decade and in the early 1990s.
A hands-off approach to the financial industry also fueled the dot-com bubble around the turn-of-the-century, and the Great Recession a few years later. The latter, a much more severe crisis, was characterized by rosy pronouncements about the benefits of financial innovation. In 2005, then-Federal Reserve Chair Alan Greenspan declared that subprime mortgages brought credit to “once more-marginal applicants” because “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”
“Especially in the past decade, technological advances have resulted in increased efficiency and scale within the financial services industry,” Greenspan said. “Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants.”
Still, the cryptocurrency industry and its allies appear to be approaching the matter of regulation with a techno-utopian view of financial innovation. During the June 30 congressional hearing, Republican witness Peter Van Valkenburgh, director of research for the D.C.-based think-tank Coin Center, said that cryptocurrency counters rising inequality because “an open blockchain network is accessible to people that banks and tech companies ignore rather than serve,” neglecting to acknowledge that it requires capital to acquire digital assets in the first place.
Research indicates that the average crypto investor has an income of $110,000, which is about three times the size of the median personal income in the United States. As Goldstein noted in her opening statement, blockchain records show cryptocurrency markets themselves reflect gaping levels of wealth inequality.
“The concentration of particular cryptocurrency assets into a small handful of addresses raise concerns about power concentrations,” Goldstein said, pointing to Dogecoin, a digital asset that started out as a joke but increased in price earlier this year by 12,000 percent before. It [dogecoin] lost about one-quarter of its value during a 24-hour period in May, during cryptocurrency sell-offs, and is now worth about 25 percent of what it was at its peak. “As of February, the top 20 largest Dogecoin addresses held half of the cryptocurrency’s entire supply,” Goldstein said.
This post was originally published on Latest – Truthout.
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“There’s a catharsis to actually making money off their pain a little bit,” Justin Speak, a 27-year-old evangelical pastor from California, told The New York Times in reference to his part in the great GameStop caper that saw small-time investors, coordinated on Reddit and other platforms, sabotage a series of Wall Street hedge funds by “revenge buying” the ailing video game retailer’s stock.
Speak himself made a cool $1,700 thanks to the way he and others used online stock-trading platforms like Robinhood to pump up demand for (and therefore the value of) the shares of GameStop, the movie theatre chain AMC, and other well-known brands that have a soft spot in consumers’ hearts but that have been hard-hit by the pandemic. While this “movement” began in online stock advice forums that purport to share tips about how to find “undervalued” companies whose shares can be bought cheap now to be sold dear later (“going long,” as it is called in the industry), it soon found a more political orientation.
By January 28, it had reached such a frenzy that Robinhood began to severely limit users’ powers to prevent what represented a kind of reverse run on the bank. In typical financial panics, spooked consumers seek to withdraw their investments for fear of collapse, triggering banks to slam their literal or metaphorical doors for fear of bankruptcy. In this case, Robinhood and other platforms were pressured by financial and government forces to take measures to discourage consumers from investing because it threatened to upset the financial order.
The enthusiasm of small investors swarming, seemingly out of nowhere, toward otherwise undesirable shares created havoc for several big Wall Street hedge funds. These funds’ strategy had been to “short” these underperformers — to bet against their future rise in value. Hedge funds are essentially pools of very rich people’s money that borrow even more money to make risky bets on the market based on careful research into market niches. They were among the major culprits behind the frenzy of predatory lending that led to the 2008 financial meltdown. Hedge funds bet on both sides of that crisis and many came out ahead. In that calamity’s wake, hedge funds used their connections and acumen to benefit from the bailouts. And during the pandemic, when millions have been thrown out of work and suffer economic precarity and hardship, hedge funds have been enjoying record profit.
So, when it turned out that a rag-tag swarm of investor-trolls with seemingly little coordination could bring one or two financial giants down by weaponizing what former Federal Reserve chair and neoliberal eminence Alan Greenspan once called “irrational exuberance,” it was, for many, sweet revenge. “Eat the rich,” Speak’s wife chimed in, echoing her husband with what has become the slogan of the GameStop “movement.”
But while such revenge can indeed be sweet, those who hunger for social and economic justice should think again. This incident will largely be remembered as a momentary, comical blip on the financial sector’s otherwise untroubled ascent to power and wealth. Moreover, this form of resistance is a reflection of, rather than an opposition to, the financialization of society and the imagination. And it resonates with a growing tendency toward revenge politics that all too often substitute symbolic victories for meaningful social change and the kinds of organization of the oppressed it would take to achieve it. The silver lining here is that, in this mass act of financial disobedience, tens of thousands of people have come to, for a moment, exercise their collective power. What comes next is the question.
While the GameStop caper represents a victory in the battle against the hubris of Wall Street, it actually represents a step backward in the war against the power of capitalism’s financial sector. Over the past three decades, financialization has advanced in lockstep with the ideology of neoliberalism, which holds that the best and fairest way to organize society is around the needs of markets. Accordingly, public services have been cut, industries (including finance) have been deregulated, and taxes on the rich and on corporations have been slashed, with the ultimate effect being a world where the rich are getting richer and the poor even poorer as the fabled “trickle-down” principle fails to manifest its bounty for most people. The effects have been highly racialized, with graver impacts on Black, Indigenous and People of Color (BIPOC) communities.
Over this same period, the financial sector has grown in wealth, power and influence, and used its position to further drive forward both financialization and neoliberalism. The fact that, in the wake of the 2008 financial crisis that it caused, the sector escaped any real repercussions, punishment or loss, made it clear that finance, rather than governments, is ultimately in charge of policy. This fact has been rammed home by the fact that, around the world, in both liberal and conservative governments, the finance minister or their senior staff are almost always alumni of large investment banks — which, as we also know, are very generous benefactors of political candidates and parties the world over.
But this economic and political power is also matched by a social and cultural power. As most of us have become poorer and more precarious, and as shared government services (housing, health care, old age and disability insurance and the like) have been slashed, we have been sold the lie that we have been liberated from government paternalism and empowered to embrace our potential as a miniature financier. From education to housing to hobbies to personal relationships, we have been encouraged to reimagine nearly every aspect of our lives as assets to be leveraged in an unforgiving, competitive world. This is financialization: the way the ideas, ideologies and methods of finance begin to seep into every aspect of our lives.
On the one hand, the GameStop caper saw thousands of small-time individual market actors swarm together in a way that, for a brief moment, caught the dominant financial powers off-guard and off-balance. A few hedge funds lost a lot of money. But it relied on individuals that have already adopted the disposition and the tools of the miniature financier: precisely the endgame of financialization.
Indeed, the most intelligent and (for all I disagree with them) freedom-oriented of neoliberal philosophers predicted such things should happen: For them, the unseating of power corporations by upstarts is an essential part of the triumphant progress of markets. For these thinkers, the usurpation and “disruption” of “business as usual” by uninvited guests is evidence that free markets are working, not failing, because it allows for (disruptive) innovation and the ruthless creative destruction of market inefficiencies and abnormalities.
So, while the GameStop caper can feel like revenge, it is not really. In my recent book on the politics of revenge in our moment, I explore how small revenge fantasies can become transformative avenging imaginaries capable of transforming power at its root.
Revenge fantasies are, in our own individual lives, incredibly common: As ugly as they may be, we all have them, especially in a world where so many of us suffer systemic oppression, inequality and exploitation, or where these manifest on the level of everyday life in forms of interpersonal cruelty or violence. In fact, revenge fantasies can be quite important and healthy: They’re often based on and help us remember that what we suffer or have suffered is not our fault, and that we have value and are owed something for harms we have endured. Revenge fantasies can, of course, become dangerous infatuations. But they are often most dangerous not because they lead us to take revenge, but because we satisfy ourselves by endlessly nursing a grudge, neither forgiving and forgetting nor finding the courage to claim the debt. The fantasy becomes our home.
On a collective, political level, revenge fantasies can be opportunities for solidarity when we recognize that we share a common source of pain, that we are owed a collective debt. Sometimes we don’t know how to change the system that caused the injury or pain or oppression, and so the only grounds for our protest and passion is refusal and a common dream of getting back at those who have harmed us. But these sentiments can be easily manipulated, and often by precisely those people who caused the harm in the first place. On one level, U.S. society in the grips of financialization endlessly dreams of revenge in the form of television and film: “Game of Thrones,” the works of Quentin Tarantino, and other popular spectacles offer a kind of cathartic expression for the unnamed vengefulness that many of us feel as we ensure and are made to participate in a financialized society.
But it gets more dangerous still. Financialized capitalism, which transforms us each into a competitive risk-taker in a world of unmanageable risks, necessarily produces profound alienation, a sense of being cheated, a rage at being unable to live as we imagine we ought to be able to live, and these can find horrific political expressions. Throughout the history of the United States, the ruling classes, many of them enriched by finance, have stoked and harnessed the vengefulness of non-elite whites to foment racial violence, lynchings, extrajudicial murder and racial terrorism, of which Donald Trump and his armed legions of reactionaries are only the latest incarnation.
I am not arguing these are the woeful “left behinds” with “legitimate grievances” as some do; they are heinous expressions of the very worst. But their significant popularity draws its energy from the way they embody a revenge fantasy that flourishes in white supremacist financialized society where the sources of social pain and discord are willfully misidentified as migrants, feminists and queer folk, “unruly” Black people and intellectuals, rather than the system of capitalism.
The GameStop caper is a kind of vivified revenge fantasy, a dream of getting back at the powerful come to life, if only for a moment. Such revenge fantasies can be important for the struggle for social and economic justice, but are also very dangerous. On the one hand, the momentary realization of the fantasy can be mistaken for a substantial change in reality, but we would be foolish to presume that the momentary upsetting of financial business-as-usual will result in any real change. And in some ways, this kind of “activism” is what finance has always intended: the recoding of our dreams such that even rebellion takes a financialized form.
On the other hand, this revenge fantasy can easily be harnessed by reactionary forces, and in many ways already has reactionary characteristics. Famously, the Nazis made a central plank of their rise to power the promise to bring to heel the speculative financiers who were, according to their ideology, ruining things for the good, faithful, earnest and honest German workers and small business owners. Then as now, the line between antagonism towards finance and antisemitism is far from sharp, and critiques of parasitical financiers often slides easily into conspiracy theories about the Rothschilds or George Soros. No less dangerously, when “Main Street” is nostalgically presented as the hapless victim of Wall Street’s predation, we neatly forget that Main Street was also the site of many lynchings, race riots and other acts of racist cruelty.
For these reasons, we must be wary of the way challenging finance can serve to perpetuate its power or to elevate reactionary politics. This easily happens when an analysis of finance and financialization is detached from an equally critical approach to the way it works in tandem with capitalism, patriarchy, white supremacy, and other systems of power, and when we mistakenly imagine that all that it will take to achieve social and economic justice is “improving access” to markets.
What would it mean for the GameStop caper to move from a revenge fantasy to an avenging imaginary?
Revenge fantasies are brewed by individuals and collectives in a moment of powerlessness, hurt and anger and, as a result, often bear the hallmarks of a kind of poetic justice: The same cruelty that was once used against you becomes the form of retribution against your tormentor. After years of being the abject loser, one is now the winner and one exacts on the enemy the same injustice. How does it feel, Wall Street, to have your own tools used against you; to be, for a moment, the victim of the same unfair, manipulative and destructive instruments that you arrogantly wielded for so long? Revenge is sweet.
But what distinguishes an avenging imaginary is an abolitionist and feminist worldview: it does not seek to claim the power of the oppressor for its own, but to annihilate that power so that it can no longer harm anyone. An avenging imaginary is a way of coming together around a dream where revenge means the destruction and replacement of the systems that cause pain, oppression and injustice in the first place.
In the case of the GameStop caper, an avenging imaginary would dream not simply of tweaking the nose of Wall Street, but of abolishing the financial sector as we know it. Maybe that would look like nationalizing the banking sector so it could be used to support investment in a Green New Deal. Maybe that would mean a minimum and a maximum income to redistribute the financial sector’s misbegotten wealth. Maybe it would mean reappropriating that wealth to fund excellent and universal health and social care. Maybe it would mean abolishing household and student debt. Maybe it would mean the much broader goal of abolishing the system of capitalist exploitation as a whole.
An avenging imaginary is a collective leap of the radical imagination that opens new horizons of how we might live and work together beyond the neoliberal, financialized, capitalist model where we each compete with one another until the Earth is destroyed.
The glimmer of possibility in this GameStop caper is that, in a flash, some new “we” came to recognize that “we” indeed have power when we act together. The same neoliberal financialized capitalist system that oppresses, exploits and seduces us has bestowed us with powerful digital tools to coordinate and communicate. How could we use these to rebel, not only as individual investors or for the fun of it, but in the name of collective liberation?
The GameStop caper offered a potentially important moment of shared vindictive laughter as the powerful, for a moment, appeared weak. But if, as has been often said, the best revenge is the laughter of our children, how will we make the most of this moment to create a post-capitalist world where they can enjoy the wealth of human potential and ecological justice?
This post was originally published on Latest – Truthout.
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