In every era, there are certain people and institutions that
are held in the highest public regard as they embody the prevailing
values of society. Not that long ago, Albert Einstein was a major public
figure and was widely revered. Can you name a scientist that commands a
similar presence today?
Today, some of the most celebrated individuals and institutions are
ensconced within the financial industry; in banks, hedge funds, and
private equity firms. Which is odd because none of these firms or
individuals actually
make anything, which society might point
to as additive to our living standards. Instead, these financial
magicians harvest value from the rest of society that has to work hard
to produce real things of real value.
While the work they do is quite sophisticated and takes a lot of
skill, very few of these firms direct capital to new efforts, new
products, and new innovations. Instead they either trade in the
secondary markets for equities, bonds, derivatives, and the like, which
perform the 'service' of moving paper from one location to another while
generating 'profits.' Or, in the case of banks, they create money out
of thin air and lend it out
– at interest of course.
Banking was conceived in iniquity and was born in sin.
The bankers own the earth. Take it away from them, but leave them the
power to create money, and with the flick of the pen they will create
enough deposits to buy it back again. However, take away from them the
power to create money, and all the great fortunes like mine will
disappear, and they ought to disappear, for this would be a happier and
better world to live in. But, if you wish to remain the slaves of
bankers and pay the cost of your own slavery, let them continue to
create money.
~ Josiah Stamp – Bank of England Chairman, 1920s
Because these institutions and individuals accumulate vast sums of
money for their less-than-back-breaking efforts, they are well respected
if not idolized by most. Many of the most successful paper-accumulators
are household names. They get invited to the best parties, are lured by
major networks to appear on their shows, speak at the biggest
conferences, and their views and words find an easy path to the ears of
millions.
But this is more than just an idle set of observations for the
curious. It's actually a critically important phenomenon to be aware of.
For the current configuration of financially powerful entities has, at
the tail end of a decades-long debt-based money experiment, achieved an
astonishing concentration of power, money, and influence.
We raise this topic because our work centers on changing the
conversation towards the things that really matter while there is still
time to engineer a better outcome, and
that requires
illuminating the status quo and having a conversation about whether it
needs to be modified. Unfortunately, those at the center of the status
quo are not at all interested in having any such conversation, because
all of their accumulated power depends on maintaining things as they
are.
Money
is power.
And history has shown that power is never ceded spontaneously or willingly.
The Network That Runs the World
A couple of years ago, I came across a study that has stuck with me
ever since and I want to share it with you. It's really important if we
want to understand the likelihood of a graceful transition for our
current society into a future of prosperity.
Unlike prior studies seeking to quantify the degree of concentration
of wealth and influence, this study simply pored through all of the
available public data to build an empirical map of the network of power.
Its findings are quite startling and deserve a bit of pondering:
Oct 2011
AS PROTESTS against financial power sweep the world this week,
science may have confirmed the protesters' worst fears. An analysis of
the relationships between 43,000 transnational corporations (TNCs) has
identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.
(...)
Previous studies have found that a few TNCs own large chunks of the
world's economy, but they included only a limited number of companies
and omitted indirect ownerships, so could not say how this affected the
global economy - whether it made it more or less stable, for instance.
The Zurich team can. From Orbis 2007, a database listing 37 million
companies and investors worldwide, they pulled out all 43,060 TNCs and
the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.
The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20.
What's more, although they represented 20 per cent of global operating revenues,
the 1318 appeared to collectively own through their shares the majority
of the world's large blue chip and manufacturing firms - the "real"
economy - representing a further 60 per cent of global revenues.
When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.
Just 147 companies control over 40% of the wealth of the entire
network of companies. It should be pointed out that such a network does
not have any borders and operates on a global basis, meaning that
regional analyses
– such as how Germany compares with the U.S.
– might be less relevant than typically portrayed.
After all, if decisions being made by a tightly knit group of
companies are being made to benefit a network that has no borders, then
actions by the German or U.S. governments are only a part of the story.
And perhaps a minor one, compared to those made the entities that
actually control the real wealth of each nation.
It wasn't that many decades ago that a list of the top companies with
the most wealth and influence would have been dominated by companies
that produced real, tangible products
– that is, those that
created wealth by adding value to goods by transforming resources into
products. Companies like GE, GM, IBM, Exxon, and other industrial giants
would have been the wealthiest, because, well, they create actual
wealth.
Today the top fifty companies in the 'super-entity' list of 147 from
the above study is concerning. Out of the fifty, 17 are banks, 31 are an
assortment of investment, insurance, and financial services companies,
and only 2 are non-financial companies (Walmart and China Petrochemical)
The top 50 of the 147 superconnected companies
1. Barclays plc
2. Capital Group Companies Inc (Investment Management)
3. FMR Corporation (Financial Services)
4. AXA (Investments & Life Insurance)
5. State Street Corporation (Investment Management)
6. JP Morgan Chase & Co (Bank)
7. Legal & General Group plc (Investments & Life Insurance)
8. Vanguard Group Inc (Investment Management)
9. UBS AG (Bank)
10. Merrill Lynch & Co Inc (Bank)
11. Wellington Management Co LLP (Investment Management)
12. Deutsche Bank AG (Bank)
13. Franklin Resources Inc (Investment Management)
14. Credit Suisse Group (Bank)
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp (Bank)
17. Natixis (Investment Management)
18. Goldman Sachs Group Inc (Bank)
19. T Rowe Price Group Inc (Investment Management)
20. Legg Mason Inc (Investment Management)
21. Morgan Stanley (Bank)
22. Mitsubishi UFJ Financial Group Inc (Bank)
23. Northern Trust Corporation (Investment Management)
24. Société Générale (Bank)
25. Bank of America Corporation (Bank)
26. Lloyds TSB Group plc (Bank)
27. Invesco plc (Investment mgmt) 28. Allianz SE 29. TIAA (Investments & Insurance)
30. Old Mutual Public Limited Company (Investments & Insurance)
31. Aviva plc (Insurance)
32. Schroders plc (Investment Management)
33. Dodge & Cox (Investment Management)
34. Lehman Brothers Holdings Inc* (Bank)
35. Sun Life Financial Inc (Investments & Insurance)
36. Standard Life plc (Investments & Insurance)
37. CNCE
38. Nomura Holdings Inc (Investments and Financial Services)
39. The Depository Trust Company (Securities Depository)
40. Massachusetts Mutual Life Insurance
41. ING Groep NV (Bank, Investments & Insurance)
42. Brandes Investment Partners LP (Financial Services)
43. Unicredito Italiano SPA (Bank)
44. Deposit Insurance Corporation of Japan (Owns a lot of banks' shares in Japan)
45. Vereniging Aegon (Investments & Insurance)
46. BNP Paribas (Bank)
47. Affiliated Managers Group Inc (Owns stakes in 27 money management firms)
48. Resona Holdings Inc (Banking Group in Japan)
49. Capital Group International Inc (Investments and Financial Services)
50. China Petrochemical Group Company
(Source)
How is it that companies that produce nothing and only move digital
representations of money from point to point now control far more wealth
than the companies that actually produce the things that makes money
useful at all?
Well, that's just how the system works. And this is something that nobody in power wants to talk about.
While we may decide that such as system is just, or unjust, or evil,
or good, such judgments are merely the emotionally laden descriptors we
might assign to a system that
– by its very design
– accumulates wealth from the many to the few.
This is why compound money systems have been tried and tried again,
yet have never proved sustainable. Even ancient religious texts
described them as requiring a Jubilee every 7 periods of 7, or 49 years.
The Jubilee, of course, was a reset mechanism that wiped out the
inevitable concentration of wealth so that things could start all over
again with a fresh slate.
An imbalance between rich and poor is the oldest and most fatal ailment of all republics.
~ Plutarch
So it really should not be any surprise that banks, in particular
– with
their extraordinary power to lend money out of thin air (that's what
'fractional reserve' allows) and their unlimited-duration corporate
lives
– are able over time to accumulate, accumulate some more, and finally end up owning everything.
While we're not
quite there yet, we are well on the way.
A few are beginning to notice the seeming unfairness of it all, such as the author of this recent article in The New Yorker:
July 16, 2013
What do these large dollar numbers have in common: $6.5 billion, $5.5
billion, $4.2 billion, and $1.9 billion? They represent the latest
quarterly net profits made by too-big-to-fail banks—in order, JPMorgan
Chase, Wells Fargo, Citigroup, and Goldman Sachs, the last of which
reported its second-quarter figures before the market opened on Tuesday.
Five years after being bailed out by the federal government, the U.S.
banking system hasn’t merely recovered from the financial crisis that
brought it to the brink of collapse. It is generating record profits—the
sorts of figures usually associated with oil giants like ExxonMobil and
Royal Dutch Shell. During the past twelve months, for example, JPMorgan, the country’s biggest bank, has earned $24.4 billion in net income.
Let’s begin with trading. In the aftermath of 2008, there was much
talk of banks getting back to basics, which meant concentrating on
lending to businesses and households, and jettisoning many of their
investment bankers, whose generously remunerated antics had helped to
bring on the financial crisis. (...) In the latest quarter, Citigroup’s
investment-banking arm generated more than sixty per cent of the bank’s net profits, and JPMorgan’s investment bank generated more than forty per cent of the firm’s net profits.
What exactly did JPM do to 'earn' more than $24 billion over the past
12 months? Did they build millions of appliances? Install thousands of
critical power systems? Build and install high-definition CT scanners?
In fact they did none of these things, which are just three out of
hundreds of accomplishments of GE, which reported a 12-month net profit
of just $17 billion while employing over 300,000 workers.
What JPM did was: trade on the markets, lend to speculators, and use
its inside advantage to skim what it could off of the Fed's monthly $85
billion of free money. Not that there's anything illegal with that, but
perhaps we should really be asking ourselves if this truly serves our
society to anoint financial players with the privilege of walking off
with the vast majority of our total national and global income.
Unsustainable Systems Ultimately End
The alarming growing wealth gap in developed nations is a predictable
indicator of the obvious inequities involved in this system. Those not
in the top 1% are finding themselves as modern-day feudal subjects
– bound by debt or lack of property
– to a global corporatocracy (corporations being the new aristocrats).
But the stability of this parasitical system begins to weaken quickly
when the lifeblood it depends on begins to dry up. And that's when
things can begin to go south in a hurry: a crack-up of the financial
system, civil unrest, government breakdown
– that kind of scary strife.
In
Part II: The Indicators of Instability to Watch For,
we discuss the 3 most important danger indicators to monitor. These are
the areas where the cracks will first appear, and will give those
watching closely advance warning to adopt extremely defensive financial,
physical, and emotional positions.
The vast concentration of wealth into so few hands is creating
systemic instability, and if it continues long enough, it will prove to
be a fatal ailment of not just any one particular republic, but all of
them.
Click here to read Part II of this report (free executive summary;
enrollment required for full access)
