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From: berman@psuvax1.UUCP (Piotr Berman)
Newsgroups: net.politics.theory
Subject: Re: capitalism vs. democracy???
Message-ID: <1938@psuvax1.UUCP>
Date: Sat, 21-Dec-85 15:36:16 EST
Article-I.D.: psuvax1.1938
Posted: Sat Dec 21 15:36:16 1985
Date-Received: Sun, 22-Dec-85 21:04:59 EST
References: <286@frog.UUCP> <28200410@inmet.UUCP>
Organization: Pennsylvania State Univ.
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[ Discussion about undemocratic power of banks ]

> >>>>I don't think so.  Large private corporations, which are basically
> >>>>anti-democratic institutions, wield a lot of power in the US.
> >>>
> >>>With such economic significance, these corporations become
> >>>quasi-nations unto themselves in the world of international finance.
> >>
> >>What does this mean?  Does it mean that you believe only nations
> >>should be above a certain size?  If so, on what basis do you make
> >>the case?
> >
> >I was not making any prescription for change, simply pointing out the fact
> >that there is little democracy (self-determination) in the world, in part due
> >to the economic hegemony of the first-world over the third.
>
> >>>When <random third world leader> approaches the Chairman of Chase
> >>>Manhattan Bank for a loan, it is the banker who has the upper hand.
> >>
> >>Larry,  I don't think you understand what's going on here.  The statement
> >>is trivially true (whenever I offer you a deal, I have the "upper hand"
> >>because you may refuse it or not, but I can't (having already offered it)).
> >
> >Except for the fact the the third world needs the money a lot more than
> >the banks need to lend it to them.
>
> Then ask yourself, why should a bank lend to third world countries?
> (Actually, I'll bet a lot of bankers are asking themselves this question).
> They do it because they stand to gain something, and they're not so
> moral that they'll charge lower interest rates than they can get.
>
> >>>Thus, David Rockefeller has the ability to drastically affect the
> >>>fortunes of millions of people the world over.  Was he elected by
> >>>them?  No.
> >>
> >>Nope.  The person who sought out David Rockefeller was not some random
> >>swine who was appointed by the gods to be able to assume a debt in the
> >>name of the country, but the head of some government or other.
> >>
> >>Such governments typically claim to be democracies, and if they act
> >>anti-democratically by selling their economic future to David
> >>Rockefeller (who is, by the way, not the only bidder) then it is
> >>the governments you should criticize, not the moneylenders.
> >
> >Just like, "well you're starving, and I own all the food in town, but
> >you certainly have the right not to deal with me."
>
> No, Larry.  David Rockefeller doesn't own all the "food", or money.
> Not even the US banking community owns all the money (remember,
> there's always the Soviet Union (dangerous as that it) the Swiss and
> Cayman Island banks, and so forth.  The situation YOU describe is much
> more like a statist society (they generally find they have to
> partially decontrol agriculture in fairly short order, but don't do it
> enough) where the government controls all the food (and water, and
> air).
>
> Let's be clear what we're talking about though -- we're talking about
> money for industrial development, not food.  Industrial development is
> nice, but it's not as if it MUST be powered from outside, or by
> positive government action.  Indeed, I'll bet all the government of,
> say, Ethiopia, would have to do is get out of the way.
>
> This is difficult NOW because the banks have done some pretty stupid
> things -- they've overextended themselves, and begun to make loans
> just so the bad debts don't appear on their balance sheets.
> Folks, can you say "impending bubble-burst"?
>
> >Freedom entails
> >(among other things) control over your own destiny.  If you are
> >constrained by lack of resources just to stay alive, any other
> >"freedom" is irrelevant.
>
> A familiar, if almost inapplicable (in this case) argument.  The
> degree to which those loans are squandered on useless, cosmetic, and
> counter-productive projects is appalling.  This is not to say that
> loans should never be made (they should be, when all parties freely
> agree), but merely that corrupting a bunch more officials in Nigeria,
> or building the world's longest power line in Zaire (to a region that
> has a fair amount of hydroelectric potential) doesn't keep anyone from
> dying.  Indeed, wasteful but politically popular use of those funds no
> doubt accounts for a fair amount of misery in the Third world.

I think that the subject "power of the banks" is far from clear.
The decision are made in a secretive way, and one can make inferences
about the issue only with quite a bit of a guesswork.

I would make several points:

1.  Banks are run by wealthy people, which have quite large
    conservative bias.  Example: if you have two equaly efficient/
    /inefficient leaderships of a country (say, Jamaica), one
    with pro-western posturing, another with socialist posturing,
    guess who gets trouble getting loans?  The problem here is that
    both government are almost equally credit worthy/unworthy.
    Alliende in Chile experienced a credit cruch, while truckers
    union, striking to paralize economy, could easily secure loans.
    Subsequently, Pinochet doubled (at least) the national debt.
    It is quite clear that we have a group of people exercising
    quite substancial political clout, who helped to topple more
    than one government with motivation being not profit alone,
    but political as well.
2.  Frequently, loans are made in a way which assures future
    dependency of the debtor, rather than development.  Of
    course, corrupt elites of debtor countries are to be blamed,
    but the lenders who cooperate with them do not have clear
    hands either, and sometemes take most of the profit from
    the corruption.  It is fishy that country like Zair has
    positive trade balance for years and years, only to be
    heavily in debt (Argentina, Venezuela are also examples of
    that).
    Banks routinly neglect to perform economical analysis of
    their own, which could help tremendously the unsophisticated
    lenders.  Instead, they operate as inefficient bureaucracies,
    blindly helping to finance inefficient projects and outright
    scams.
3.  High interest rates charged to debtor countries are justified
    by higher risk.  Still, banks want to have everything: the risk
    diminished by governmental support and the risk premium.
4.  My general impression is that banks behave often irresposibly,
    because with their size and clout they can afford to.
5.  Having to deal with several banks as a consumer, I got impression
    that the larger the bank is, the more arrogant it is.  It
    charges larger fees, is less responsive to the situation of
    the client, tends to communicate with ypu exclusively via
    computer printouts (pretty dumb at that, like counting
    the same charge twice) etc.
    Of course, competition helps.  If you can change money at
    CitiBank and DeakPereira, never go to CityBank (possibly,
    you should avoid CitiBank under any circumstances, but the
    same can go with Chemical, First of Boston etc.).  One of
    the problems of underdeveloped countries is that they cannot
    go to a nice bank like First National of Centre Hall, but
    they must deal with CityBank and alike.
6.  Banks are not in the bissness of being Santa Claus.  Still,
    they do not behave responsibly.  Current credit crisis
    of US farms originated partially because banks behaved like
    pushers of loans.  The situation in third world is similar.
    The problem is that very large number of people is affected
    by the decisions of relatively few.
    The reasons of Great Depression are debatable, but the
    stock exchange panic for sure was facilitated by banks,
    which with they lending policies helped to overheat the
    market up to a point of great instability.  Money supply
    may be blamed, but who had the clout to influence it?

    Piotr Berman