CORRUPTION IN THE USA Referring to CMUTUNGA"s recent contribution about corruption in Kenya, I wish to add the following extracts from my PhD thesis about corruption in the USA that led to the current financial crisis.
Those in charge in the USA often accuse elected officials in the developing countries of corruption but corruption in those countries amount to pennies when compared to the scale of corruption that led to US$50 trillion of wealth stolen from poor people worldwide when public officials in collusion with wealthy bankers created, facilitated and presided over the greatest crime ever against humanity . Below are extracts from my thesis :
There were also behaviours of pride, arrogance and hubris among financiers, economists, regulators and governments; all convinced that their knowledge and skills were superior, that they had no reason to submit to the supervision of others or that they were above the law (Torres 2009 ). Hubris was clearly exhibited by the US representative at the UN who described the UN’s commission on the financial crisis as “a farce” and that “the UN does not have the expertise or mandate to serve as a suitable forum or provide direction for meaningful dialogue on a number of issues addressed in the document, such as reserve systems, the international financial institutions, and the international financial architecture.
Another brilliant and highly rated economist, Larry Summers clearly suffers from the hubris syndrome. In 2005, a clear two years before the crisis, at the annual Jackson Hole, Wyoming, conference of the world's leading central bankers and economists, the chief economist for the International Monetary Fund, Raghuram Rajan, presented what was described by many of those present as “a brilliant paper" that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."
When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, warning that increased regulation would reduce the productivity of the financial sector. Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience and were seen huddled together with Summers after Rajan’s presentation.
This is clear evidence that the Bush administration was fore-warned about the coming crisis at least two years before the bubble burst. Two other prominent third world economists made famous for predicting the crisis: Nassim Taleb (of “Black Swan” fame) and Nouriel Roubini were ridiculed for alerting economists and the financial industry about the impending crisis. No doubt those in the administration not only suffered from hubris but also had their own agenda.
Failure of those in the Bush administration for not heeding the advice of many prominent economists about the impending crisis at least two years before the burst of the bubble does not border on negligence but was actually reckless and negligent.
Elected officials, politicians, regulators and business managers in the US invented and presided over and profited from this financial crisis which negatively affected the lives of over six billion innocent bystanders. Yet no one has accepted responsibility for this heinous crime. Perhaps it is now necessary more than ever before for the establishment of an international watchdog organisation under the auspices of the UN, the IMF and World Bank to monitor and raise or highlight early warning signals through the United Nations of any situation that is likely to pose systemic risk to the world economy.
No one has been charged or held accountable for these reckless adventures which destroyed the jobs, savings and lives of hundreds of millions of people worldwide.
Moreover, powerful appointed officials in the Treasury Department, the SEC, the Federal Reserve System and other agencies responsible for financial market oversight are often former employees of large financial institutions who return to their firms or lobby for them after their time in office ended. Their material interests are best served by letting financial corporations do as they please in a lightly regulated environment. In the US they have, in the main, proverbially appointed foxes to guard their financial chickens.
The system served a few large corporations and powerful individuals very well and they were deeply interested in its preservation. This highly centralised system bestowed enormous wealth on some individuals in controlling positions. These named in Time Magazine’s “25 People to Blame for the Financial Crisis’’ included: Franklin Raines the CEO of Fannie Mae who earned more than $90 million from 1998 to 2003, Angelo Mozillo, the co-founder and CEO of Countrywide who received nearly $500 million in the five years preceding the collapse of his company in 2008, Joseph Cassano of AIG who made $280 million. The influence of a small group of individuals who often shared the same world view was also remarkable. Cassano and his traders for instance, may have facilitated a trillion dollars in mortgages and triggered a substantial portion of the increase in housing prices in the USA in 2004 and 2005. Great malfeasance was unnecessary to topple this system, although malfeasance and self-dealing were hardly scarce. The mistakes and calculated carelessness of a few who mattered was enough.