By Paul Rogers, professor in the department of peace studies at Bradford University, northern England. He is openDemocracy’s international security adviser, and has been writing a weekly column on global security since 28 September 2001; he also writes a monthly briefing for the Oxford Research Group. His latest book is Irregular War: ISIS and the New Threat from the Margins (IB Tauris, 2016), which follows Why We’re Losing the War on Terror (Polity, 2007), and Losing Control: Global Security in the 21st Century (Pluto Press, 3rd edition, 2010). He is on Twitter at: @ProfPRogers. Originally published at openDemocracy
A decade after the financial crash, an epic repeat is on course.
Two reports by Swiss banks, published within a week of each other, offer further revealing evidence on the growth of a wealthy transnational overclass. Credit Suisse finds that the fortunes of the very wealthiest people in the United Kingdom (those owning over $50 million) have been growing at a much faster rate than the general population.
These ultra-high-net wealth individuals (UHNWI) number 4,670, an increase of 8.5% over the year. In the United States, the number is 70,540, with over 6,000 joining that group, making it the largest such category in the world; the next is in China at 16,510. In global terms the richest 1% own just under half of total assets (see Gráinne Gilmore, “The world’s super rich populations are growing but where is growth strongest?”, KnightFrank, October 2018).
In parallel, a joint UBC-PwC report focuses less on UHNWIs overall than on the seriously super-rich, the world’s dollar billionaires. They now number 2,158 and collectively increased their wealth by $1.4 trillion in the past year. Much of the growth in wealth is taking place in the United States and western Europe, but a huge change in recent years is the increasingly transnational spread of the extremely wealthy, China again being a prime example. Twelve years ago, there were just 16 billionaires in the PRC; today there are 373.
Perhaps most significant is the rate of increase in wealth. In the UK in 2017, the richest 1,000 people increased their wealth collectively by £66 billion ($85bn), meaning the average individual rise in wealth was £66 million. Moreover, that figure was not exceptionally high – the previous annual jump had been even higher.
The British government has long insisted that the financial crisis of 2008 and subsequent years meant that there was no alternative to its austerity policies, although the impact of that crisis had at worst a temporary and limited impact on the super-rich. Now, prime minister Theresa May saysthat austerity is over, but few believe her. The mood is more one of “there never was any austerity for the wealthy, only for the rest, where that is still the order of the day”.
Just one canard of British politics, which in this case took root after the financial crash, was that it was all the Labour government’s fault. That version of events was consolidated in the three months following the general election of 2010, when Labour was preoccupied with electing a new leader after its loss of power. Where Labour really had been in error, especially in the early years of its governance from 1997, was the vacuum where effective financial regulation of the City of London should have been – although any such attempt would have met huge resistance from the Cityand the Conservative opposition.
The age of casino capitalism
The origins of the 2008 crisis actually lie nearly four decades earlier, when the election of Ronald Reagan as United States president in 1980 ushered in the era of neo-liberal economics. An important measure of the Reagan administration was the Garn-St Germain Depository Institutions Act (1982), which opened to a far laxer era of financial regulation. Among its effects was the partial dismantling of the Franklin Roosevelt-era Glass-Steagall Act (1933), whose separation of commercial from investment banking had in turn been prompted by the Great Crash of 1929.
As the US pushed through more deregulation in the 1980s, the Margaret Thatcher Government in Britain followed a similar path, especially with the “big bang” bonfire of regulations in 1986. It was this pattern that Labour failed to alter, thus permitting a culture of light-touch treatment of the City to become embedded.
The neo-liberal system came to dominate economic analysis, and was given an immense boost by the collapse of the Soviet Union at the end of the cold war in 1989-91. At the end of the 1990s, the international-relations scholar Susan Strangepinpointed the dangers lurking beneath the surface. In her last book Mad Money: When Markets Outgrow Governments(1998) – published only two weeks before her death, coincidentally in the very midst of the financial panic – she identified five key issues: money dominates politics; state control of economies has lessened; taxes are not effectively collected; inequality is rising; greed rules.
Strange had earlier published Casino Capitalism(1986), a prescient study of how the financial markets’ escape from democratic accountability prefigured major problems. It is sad that she did not live to see what she had so assiduously warned against. (Her LSE colleague Fred Halliday recalled “a person of indomitable optimism, humour and mordant tongue” whose “favourite slogan was: ‘Always attack the economists!’” [see “The revenge of ideas: Karl Polanyi and Susan Strange”, 24 September 2008]). Even without the benefit of her analysis it should not have been hard to read the signs in the early 2000s at latest, but most analysts contrived to miss them.
The origins of the 2008 crisis layspecifically in the hugely risky toxic loans made to low-income house-owners, especially in the United States, and the manner in which they were bundled into credit-default swaps (CDSs) and traded as investments, as well as being further bundled into collateralised debt obligations (CDOs). By the time that Lehman Brothers failedin September 2008, the domino effect of unsustainable mortgages was unstoppable.
Despite the many warning signs of crisis, as far back as the collapseof Baring Brothers in 1995, the whole system was unprepared. The explanation lies partly with the five factors listed by Strange, but to these must be added two more. First, the detailed quantitative analyses of risk that were key parts of the system, but not fully understood by senior management; second, and perhaps most important of all, the sheer arrogance and hubris that permeated the entire, inadequately regulated system.
Ten years later, there are many claims that lessons have been learned. To a certain extent that is true of the mortgage industry, yet the overall hubris persists. Those two Swiss bank reportsare evidence enough that this remains an exceedingly good time to be part of the high-end overclass.
Once more, the signs of a gathering storm are being ignored. In several areas of the world, managerial arrogance continues to exceed any kind of good sense. CDOs, for example, may now be traded more cautiously, but that is far less true for collateralised loan obligations (CLOs): invested bundles of loans to a wide range of businesses, many of them as shaky as the toxic mortgage loans of a decade ago.
The core problem, as Susan Strange wrote twenty years ago, is that no one is in control of financial markets: neither governments nor major intergovernmental organisations such as the International Monetary Fund and the Bank for International Settlements (BIS). The risk now is of a repetition of 2008, quite possibly on an even larger scale. Both past experience and current evidence suggest that the super-rich will come out of it even richer – not a good way to run the world.
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Pickettty argues that this growth is accelerating.
Capital begets flows of income ftom rentierism and is well protected in tax havens and secrecy jurisdictions. It grows at a swiftly increasing velocity.
The lie of the eCon model is that the rest of us are subject to stagnant growth. There’s no such thing.
The large accumulation in the upper ranges firstly means dramatically less purchasing power (hateful term – really negotiating power or standard of living) for the rest of us.
In addition, it comes with wage suppresion and their cornering of all markets, thus extracting more rent.
Finally it means captive government and sequestered opportunities that would redistribute the wealth – thereby serving to impoverish us more, -and that’s the kind end of the spectrum; at the other end lie arms dealing, african resource conflicts, fomenting civil wars for pipelines in the middle east.
Through stock diversification they own quasi-everything. Really this a class of people to whom we pay rent for every breathing second. Every bit of quotidian activity, like taking the bus or buying groceries, is extracting from your pocket and linjng theirs.
Yup
Where can I find a report on the constituents of their wealth?
Here’s an article previously linked in NC that at least for the nominally “American” looters, lays out the “Interlocks and Interlinks,” https://whorulesamerica.ucsc.edu/power_elite/interlocks_and_interactions.html , that power up the power elite.
good ole Jackson WY
… largest accumulations by state
It is a good principle to never cheat someone who has nothing left to lose. With more and more former middle and working class people being thrust into impoverishment and wealth concentrating into fewer and fewer hands who could not possible spend that money personally if they had millennia to do so, the pressure is being ramped up.
If the ultra-wealthy are not prepared to tolerate a Solon the Reformer, then I can only see this being resolved through violence as a point will be reached when all other possibilities have been shut out – and that will include their enablers as well. Not a very happy prognosis but there it is. You cannot enable an economy based on rentors if you do not also supply them the means to be able to earn the rent in the first place.
Amen, Reverend. JFK summed it up: “those who make peaceful reform impossible make violent revolution inevitable.”
We are witnessing rising violence already — blind homocidal rage or an invisible rise in suicide by people attacking innocent targets, including themselves. It’s bewildering to people whose salaries depend on perpetuating the senselessness of it all, of course; I’m sure there’s an app for that, or a stink tank.
All we need to do is look under the smothering, now smouldering blanket of propaganda and its expertly contrived divisiveness. Once this carefully fabricated veil is stripped away, the parasitic rich will know real terror. At some point an organized insurgency is likely to rise.
‘You shall know the truth and the truth shall set you free ” — CIA(?)
I’d guess that those in control feel confident that with their surveillance technology and militarized security forces they can control any uprising.
Speaking of surveillance, this Chinese movie “Dragonfly Eyes” is amazing — it was made entirely with surveillance camera footage, no actors, no camera crew. Edited and with dialog added after the fact. https://hooktube.com/watch?v=H4JsoR25DP4
Interview with the director — https://hooktube.com/watch?v=9K91-QbwIIw
Thanks, great link and site.
Hmm. Time to take up knitting you reckon?
They’re weaving their tangled web of deceit furiously, but the rate of unraveling is increasing.
It’s hard for me to believe in the “things will change because times are so bad and people can’t take any more” idea, although I understand the appeal.
Human history tells us that things can get bad and stay that way for a long, long time. In fact, that’s the norm/the whole story. The post-war uptick in working class living conditions is a tragically brief episode.
Thinking of labor strikes/activism, one thing that previous generations never had to contend with was a database.
Try getting a job with an arrest record.
Human history also tells us that things can get bad and at some point people snap and things change — though not necessarily getting better.
Yes, I seem to remember that the French Revolution took two goes before things settled down and the modern Republique was established.
Your comment reminds me of a Solzhenitsyn quote from the movie “Cloud Atlas”
“You only have power over people so long as you don’t take everything away from them. But when you’ve robbed a man of everything he’s no longer in your power — he’s free again.“
I prefer revolutionaries that have a plan for after the violence.
Aspect of crisis capitalism is to create a crisis if one doesn’t happen naturally. Cost of food is going up on the corporation’s schedule.
The election is a sign of an impulse though preening Pelosi is nothing
but a damper.
Economics ignorance reigns.
Just one canard of British politics, which in this case took root after the financial crash, was that it was all the Labour government’s fault.
Ably helped by biitterite red tory liam byrne mea sorta culpa here
I can’t remember much being said by the loyal oppostion during cameron’s coalition about the causes of the crash.
They were all too busy trying to get a boot in to show they were definitely not the party of the poor.
The core problem, as Susan Strange wrote twenty years ago, is that no one is in control of financial markets
The problem is that everyone is
coercedrequired to indulge them.“The core problem … is that no one is in control of financial markets.”
I think Goldman Lloyd Blankfein was at the meeting when that statement was issued…might have been at the 1MBD embezzlement-facilitation meeting, which he did in fact attend. All the little Lord Bankfiends invest a portion of their loot in sophisticated agitprop to convince decent people that their problems are caused by opposing partisans, lower classes, other races, genders, and religions. “Free” markets are merely an inevitable force of nature, quite elegant in fact. And if we don’t like them, we’re all free to pool resources and buy our own legislators, regulators, judges, spies and presstitutes.
The’ve managed to weave an invisibility cloak for themselves, but when it all unravels, and it will, everyone will know they’re not wearing any underwear.
The credit creation privilege is just that, a privilege. If left in the hands of the financial system it should at least be subject to annual licensure under public rules (i.e.; public law).
An entity that breaks the rules would lose their public license to exercise the credit creation privilege.
Oh, licensure would be a revenue source, one tied to the stock side of economics more than to the quotidian aspects noted in a comment above; that is, the consumption that attends to our basic lives (where too much of the public finance burden is laid now).
Annual licensure of this privilege, transparent application and disclosure duties with huge oversight resources applied.
UHNWI — I love this as an acronym, because it’s pronounced just like what it means: ultra-high-net-worth individuals truly are a breed apart: the Un-We!
I was reading it as “ennui” which is what I imagine the ultra-rich (and even just the plain-rich) are trying to deal with through their ridiculous hoarding.
Ha! I love this place! Oh, curse the terrible discontents of affluence! (sighing whimper)
Boredom is fairly high on the fear hierarchy, and hence a proven a method of torture, so extended isolation and sensory deprivation is utterly commonplace in our for-profit penal system and global gulag archipelago. The most excruciating torment probably afflicts dissonant minds that are least conscious of their core inner self(ves) and need continual external stimulus-reward to maintain meaning and coherence.
That joyless and ever-needy state of mind is not at all rare among the rich, so we ought to have more empathy for our overlords. Cue the violins.
This massive wealth and income inequality is a primary reason why home sales are rolling over in what is supposed to be one of the most robust housing markets in the country. Economists are still in denial, but the structural issues are plainly evident if you bother to look…https://aaronlayman.com/2018/11/denton-county-home-sales-slide-october-2018/
My impression is that Jimmy Carter began implementing neo-liberal policies and Reagan increased the level of them.
Carter deregulated airlines. I call it Carter kicking out the chocks so Reagan could get the wheels moving, allowing Clinton to push it over the edge.
i am reminded of a joke abt yeltsin which describes him opening a speech with, “russia has been standing on the edge of a precipice, but today she takes a step forward.”
Are you sure that was Yeltsin and not Pelosi’s
vichyvictory speech on Tuesday?the democrats pushed and passed the legislation, and carter signed it, anyway.
While this initiative was in process in the Gerald Ford administration, the United States Senate Judiciary Committee, which had jurisdiction over antitrust law, began hearings on airline deregulation in 1975. Senator Ted Kennedy took the lead in these hearings.
The committee was deemed a more friendly forum than what likely would have been the more appropriate venue, the Aviation Subcommittee of the Commerce Committee. The Gerald Ford administration supported the Judiciary Committee initiative. then reagan extended the process whereever he could.
so you can blame ford, but then nixon started the process on trucking so maybe it’s nixon’s fault. or maybe it’s lbj for walking back his plans for the great society and devoting his administration to the vietnam war.
i largely blame reagan, because his administration focused on deconstructing the society and remaking it to milton friedman’s liking.it’s wasn’t just a normal sea change, it was a tsunami.
Looks like I will be adding some Susan Strange to my reading list. Whenever a bunch of people are saying “nobody could have foreseen…!” usually there is actually a Cassandra in the back of the group who was giving a warning all along.
“A decade after the financial crash, an epic repeat is on course.”
From an article in today’s Kansas City Star (Bloomberg news origin) entitled
“Almost half of big US banks fail to satisfy Fed”
“More than 40 percent of major US lenders are failing to satisfy the Federal Reserve’s expectations in key areas of risk management…
The Fed’s Supervision and Regulation Report… shows how risks may come from mismanagement, cyberattacks and failures to protect the banking systems…”
The more things change…
“gathering storm…managerial arrogance exceeds good sense.”
Complements Marshall Auerback’s piece from yesterday. Reagan in 1982 rolled back SEC regulations to prevent what was regarded as market manipulation: stock buy-backs by companies. After, looting and hollowing out of stable and productive players in the economic system escalated. Now, what was previously seen as corrupt masquerades as good mangement and value. Casino capitalism. Sorta like Trump, who bailed out his own casinos with millions in laundered chips (NYTimes), is a great businessman.
It was around 1980-82 Devo had their greatest hits. Devolution.
It was before that- the release of “Are We Not Men?” was in 1978.
Rubin and Summers were Treasury secretaries in the Clinton years and both favored more deregulation. Events that happened in that time frame added just a little more gasoline onto the process.
Famously Rubin joined Citigroup once the glass Steagall barrier completely tumbled down.
A minor quibble and request. If the authors and proprietors of this site insist on fanning flames about how the game is stacked & how much more wealth is accumulating to the top 5%, may you also offer suggestion on personal finance coaching and making some plan for retiring or investing for the future?
Like I said, a minor quibble. Being born broke shouldn’t mean also dying broke. I am not a die hard flag waving capitalist. This is a curious tone to see.
TY Griffen. There are plenty of ‘coaches’ on NC and my take on the gloom, and it takes a while to parse the message, is prepare for abrupt changes to your life (and try to anticipate them)…
Financial advice – look elsewhere, eh?