Corruption

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April 30, 2013 by Rachel

Is Austerity a Mistake?

A new paper from researchers at the University of Massachusetts, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff, has set the wonk world ablaze by debunking a 2010 study from Carmen Reinhart and Kenneth Rogoff, Growth In a Time of Debt. Reinhart and Rogoff claimed to have found a “main result is that…median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” According to Michael Konczal,

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan’s Path to Prosperity budget states their study “found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth.” The Washington Post editorial board takes it as an economic consensus view, stating that “debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.”

However, when their results were replicated by Thomas Herndon, Michael Ash and Robert Pollin, they discovered a trifecta of mistakes and biases that essentially invalidated the study – whimsical weighting of national economies, selective exclusion of data that didn’t support their premise, and a coding error on the original Excel spreadsheet that failed to include five countries in the overall average.

ESCANDALO! Liberal economists who had expressed serious misgivings about the study since it was released quickly jumped into the fray, from Matt Yglesias’s thorough series of critiques to Paul Krugman’s history lesson on the tumultuous love affair that number-crunchers must have with their harsh mistress, Excel. However, as exciting as it is to watch guys in glasses argue over coding and spreadsheet columns, Jonathan Chait reminds us that the Rogoff and Reinhart paper was A) the starting point for the Bowles-Simpson Commission and B) the intellectual justification for a massive, devastating rise in unemployment here, and in Europe.

However, if any politician who used the flawed Rogoff and Reinhart study as a justification for embracing austerity measures changes their position now that it has been proven to be junk science, I will mail $5.00 to your home tomorrow.*

*First come, first serve until I run out of $5 bills. So, basically one person.

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April 7, 2013 by Rachel

Lifestyles of the Rich and Shady


Video: In this animation, see how investors can create companies and trusts in offshore jurisdictions, where an estimated one-third of the world’s worth resides. The Washington Post, April 6, 2013.

Oligarchs, politicians, and one-percenters around the world went into panic mode today as the International Consortium of Investigative Journalists (ICIJ) released details from a multi-year investigation of a mammoth leak of documents that describe the dirty dealings associated with offshore companies and trusts in a number of notorious offshore tax havens.

The ICIJ’s analysis of the coordination between shady offshore banks and large, equally shady European giants like HSBC and UBS on behalf of wealthy elites from around the world uncovered a massive, methodical, and frequently illegal transfer of trillions of dollars per year from nations to individuals. While politicians in the US and Europe lament their deficits and resort to austerity, the “…cross-border flows of global proceeds of financial crimes total between $1 trillion and $1.6 trillion a year,” landing in one of many unregulated hideaways where both ill-gotten gains and those who scammed, stole or extorted them are shielded.

The collapse of the Greek and Cypriot banking systems, the Russian Magnitsky Affair, and a shocking variety of other scandals and meltdowns are directly rooted in this deliberate effort to shield criminals from accountability, taxation and prosecution. While the techniques used by large banks, island governments, and unethical accountants are quite complex, the ICIJ provides a comprehensive breakdown of the specific workarounds tavailable to the very wealthy.

By the numbers: economist James S. Henry claims that between $21 trillion and $32 trillion of wealth is hidden in offshore tax havens – equal to 1/3 of the world’s wealth, according to the Washington Post, or approximately the entire economies of Japan and the United States combined; ICIJ found that “Among the 4,000 U.S. individuals are listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.” 2.5 million documents have been leaked by confidential informants to the ICIJ. 86 reporters representing The Guardian, the BBC, Le Monde, Süddeutsche Zeitung, Norddeutscher Rundfunk, The Washington Post, the Canadian Broadcasting Corporation (CBC) and dozens of other media outlets in the ICIJ have been sifting through the documents, using both data mining and more traditional investigative techniques, for over 15 months.

While not every individual and corporation who banks in the Caymans is laundering money, evading taxes, or perpetrating financial fraud, every category of high-level financial crime requires an offshore account. By not recognizing the regulations, laws, or judicial rulings of any country, a network of tiny islands around the world have created a shadow system for the often-illegal flow of money from corrupt politicians, embezzling executives, and tax-dodgers.

According to the Post, these crooked dealings represent an existential threat to the ability of governments to fund themselves, and lobbying efforts by anonymously funded interests, including the banking and accounting industries and a conservative nonprofit group, the Center for Freedom and Prosperity, have stymied the attempts of lawmakers to rein in the hemorrhaging of tax funds as deficits rise. Founded by Andrew Quinlan, a senior economic analyst for the Republican National Committee, and Daniel J. Mitchell, a Senate Finance Committee staffer and tax expert for the conservative Cato Institute, CF&P refuses to divulge whether their donors are based offshore. “I don’t think it matters what percentage of the money comes from which donor,” Quinlan told the Washington Post.

Thomas Ward, the cofounder of Commonwealth Trust Ltd. (CTL), one of the worst offenders on the banking rolls, shares Quinlan’s coyness. “I regard myself as an ethical person. I don’t think I intentionally did anything wrong…I certainly didn’t aid and abet anybody doing anything illegal.” Now, however, email chains in the leaked documents show that Quinlan was fully aware of many clients’ probable criminal activity.

It has long been an open secret that corrupt politicians and individuals stash legal and illegal profits in a sketchy alternate economy where they are neither required to contribute to the infrastructure that created their wealth, or answer for their crimes. It’s high time that the mask of anonymity is stripped away, and the names and actions of the ultra-wealthy are exposed to the bright tropical sunshine.

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March 17, 2013 by Rachel

The Divine Comedy: Habemus Papam edition

Italy’s recent elections featured the return of legendarily corrupt, thrice-indicted bunga-bunga enthusiast Silvio Berlusconi in a three-way tie with a comedian and a career politician – only a few days before his conviction and sentencing on a corruption charge. The juries are still out on his other pending charges of sex with an underage prostitute and tax fraud.

Berlusconi and Benedict, 2009. Image: ALESSANDRA TARANTINO/AP/Press Association Images

Zooming into the country within a country, Italy’s legally distinct Siamese twin the Vatican also is roiled by sex-and-corruption farces and tragedies that have led to the first and only Nazi pope clicking his red Prada heels as he relinquishes the divine right to pontificate.

Because the Italian state has proven so adept at self-governance, Milanese archbishop Angelo Scola was the pre-conclave frontrunner for the papacy – until his offices were raided by anti-mafia police over corruption charges in the hours leading up to the first vote. The candidacies of Brazilian and Angolan clergy also raised the tantalizing possibility of a pope who more accurately reflects the modern, global south oriented face of Catholicism; but in the end, the cardinals split the difference and chose an Italian from Argentina, 33-to-1 dark horse Jorge Bergoglio. Beyond the personalities, however, lie deep-rooted structural issues of modernity and morality, wherein the horrific abuse of children and demonization of women has led to a subsequent global collapse of both authority and funding that must be resolved if the Holy See is to survive.

Significantly, the College of Cardinals who made up the conclave are themselves implicated in many of the worst of these abuses. Bergoglio, who took the name Francis I, also has his share of quickly unearthed skeletons, both individual and systemically shared with his brethren. For instance, per reporter Marco della Cava,

“The word that spread Friday was of Pope Francis’ actions during Argentina’s “dirty war” between 1976 and 1983, when the ruling military government abused and killed countless citizens suspected of being Communists. At issue is whether Jorge Mario Bergoglio, then a young priest in his 30s…was complicit in allowing two Jesuit priests, Orlando Yorio and Franz Jalics, to be apprehended and tortured for five months.”

Rumors swirled, fueled by different agendas – from glowing reports that the new Pope had hidden and perhaps saved the priests’ lives, to sinister assertions that he had not only given them up, but had actually participated in their brutal “interrogations.” Father Jalics, the lone survivor, issued a statement that forgave Francis, but declined to exonerate him, closing the investigation in a disconcerting but presumably final manner.

As troubling as the shadowy allegations from the Dirty War are, however, non-war-crimes related revelations pose an even greater existential threat to both his papacy specifically, and the Catholic church at large. Though the 76-year old Bergoglio’s history of advocating for the impoverished in Latin America shows great promise, his conservative approach to other issues of social justice are closely in line with his demographic and peers. His attacks on gay marriage as “destructive to God’s plan” in 2010 were so vitriolic, they were widely considered to have backfired, boosting the efforts of pro-equality activists in Argentina.

Similarly, a range of experts from Bergoglio’s biographer to Vatican insiders have unanimously affirmed that when the Cardinals say they want ‘reform,’ they are not referring to ordaining women into the priesthood, green-lighting contraceptive use, or prosecuting those within the Church who covered up abuse and shuffled child-rapists from parish to parish. In other words: the anachronistic, doctrinal cancers that are currently rotting Catholicism from the inside will remain firmly in place, at least for the 5-10 years that the elderly Francis is likely to serve as the infallible mouthpiece of God.

Pope Francis waves to the crowd from the central balcony of St Peter’s Basilica at the Vatican. Photo: AP

If he can tackle the hornet’s nest of Italian politicians in priest’s robes within the Vatican – and that is a very large if, both in terms of sheer historical difficulty, and in the face of mounting evidence that Benedict intends to play the Putin to Francis’ Medvedev – there is a significant chance that Bergoglio can at least lay the groundwork for genuine reforms within one of the world’s oldest, richest, most corrupt and most influential institutions. If he is successful, perhaps he will allow the Italian Senate to copy his homework as they attempt to institute a prime minister who is not both a convicted criminal and a global punchline. And if not, at least Rome and the Vatican are conveniently located for access to non-stop bunga-bunga parties.