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Ear to the Ground

Larry Summers and the ‘End-Game’ Memo

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Posted on Aug 25, 2013
Greg Palast

A 1997 memo retrieved from the filing cabinet of investigative reporter Greg Palast shows the involvement of Lawrence Summers—Obama’s current favorite for chairman of the Federal Reserve—in a successful plan to help big bank CEOs “rip apart financial regulation across the planet.”

In the memo, future Treasury Secretary Timothy Geithner reminds “his boss to call the then most powerful CEOs on the planet and get them to order their lobbyist armies to march” to tear down financial safety regulations in all 156 nations party to the World Trade Organization.

“As we enter the end-game of the WTO financial services negotiations,” the memo begins, “I believe it would be a good idea for you to touch base with the CEOs….”

Regarding the purpose of the “end-game,” Palast writes:

The year was 1997.  US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks.  That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks.  It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game:  “derivatives trading.”  JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as “assets.”

But their work wouldn’t end there. Prudent financial controllers who wanted to protect their wealth rather than just get rich could simply move their investments to countries with safer banking laws. That would have to be changed. So the leaders of Goldman Sachs, Merrill Lynch, Bank of America, Citibank and Chase Manhattan sought to “eliminate controls on banks in every nation on the planet — in one single move.

To do this, Palast writes, they used “the Financial Services Agreement, an abstruse and benign addendum to the international trade agreements policed by the World Trade Organization.”

“Until the bankers began their play,” Palast continues, “the WTO agreements dealt simply with trade in goods—that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in ‘bads’—toxic assets like financial derivatives.”

“Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives ‘products.’ ”

“And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.”

The banks then strong-armed the member nations into abandoning their previous trade-in-goods deals by threatening to block international sales of the nations’ key exports. Every single bullied nation signed.

Why is this obscure deal made 16 years ago important? Because Summers, the man directly involved in destroying the financial protections previously held by all these countries—to the effect of “26.3% unemployment in Spain, desperation and hunger in Greece [and] riots in Indonesia”—is the man President Obama wants to appoint as chairman of the Federal Reserve.

—Posted by Alexander Reed Kelly.

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