By Pam Martens and Russ Martens: April 27, 2015
Last Monday, former Fed Chairman Paul Volcker held a press conference at the National Press Club to release his nonprofit’s plan for reforming U.S. bank regulation. Volcker’s plan includes elevating the Federal Reserve to even greater heights as a super regulator of a consolidated system. That’s exactly the opposite of what Congress has in mind as it holds hearings on fatal conflicts of interests between the Fed and Wall Street.
At the press conference, Volcker delivered a thoroughly discredited statement suggesting some deep-pocketed backers are putting words in his mouth. Volcker said: “The Federal Reserve is the best-equipped, the most independent and most respected financial agency of the United States government.”
Volcker’s views on financial reform must be seen against the backdrop of Volcker’s myriad conflicts and ties with the global ruling elite. His non-profit organization, The Volcker Alliance, has multiplied its income by a factor of 30 in one year. From 2012 to 2013, The Volcker Alliance went from $500,000 in contributions to over $15 million. It fails to list its donors on its public IRS 990 tax form. And then there is the matter of Volcker’s personal investments in unseemly foreign bank deals alongside global banks that are serially charged with breaking the law.
In December of last year, Simon Clark of the Wall Street Journal reported that Volcker had just completed his third investment stake in a foreign bank. Clark wrote that Volcker is well known for taming inflation in the 1980s (as Fed Chairman) but “Less well known is the 87-year-old former Fed chairman’s penchant for investing in banks around the world.”
According to Clark, since 1999, Volcker has invested in three separate foreign bank deals put together by private equity firm, Ripplewood. The most recent deal is for a stake in Latvia’s Citadele Bank. Earlier deals include the 1999 takeover of the Long-Term Credit Bank of Japan (now known as Shinsei Bank) and the 2006 investment in Egypt’s Commercial International Bank.
The Latvia deal looks like an attempt by Ripplewood to replay the maneuver it perfected in the Shinsei Bank deal. Both Citadele Bank and Shinsei Bank were bailed out by taxpayers before Ripplewood came up with its offers.
The Shinsei Bank deal has failed to pass the smell test among the myriad book authors and business journalists that have written about how the deal was conducted.
In The Making of Global Capitalism: The Political Economy Of American Empire, Sam Gindin and Leo Panitch describe the lead up to the purchase of Shinsei Bank, at the time known as LTCB for Long-Term Credit Bank. The authors write:
“…Paul Volcker was recruited as an advisor to Ripplewood, the obscure American firm that was interested in buying the LTCB. He flew over to meet with Kichi Miyazawa, Japan’s Finance Minister, whom he had first come to know in the ‘intimate settings’ of the old G10 meetings, where they had built up a reserve of mutual trust.”
Goldman Sachs was selected by the government of Japan to represent its side since it had nationalized the bank when it failed in October of 1998. Interestingly, paring up with Ripplewood was Chris Flowers who had only recently left Goldman Sachs as a partner heavily engaged in mergers and acquisitions among financial institutions.
Reports from the myriad books and reports in the Wall Street Journal, Los Angeles Times and New York Times, each divulging a few more names of those entities that invested alongside Paul Volcker in the Shinsei deal, suggests a coziness not heretofore understood between Volcker and the Wall Street elite. Investors included David Rockefeller, Citigroup, UBS, Deutsche Bank, Grupo Santander, GE Capital, Mellon Bank, ABNAmro, Gap’s controlling Fisher family, and AIG.
The investors made billions of dollars in profits when the bank went public in 2004 and a secondary offering in 2005. Japanese taxpayers, meanwhile, were forced under the deal to take back loans that turned sour over the next three years on top of the tens of billions of dollars they had already poured into the bank in the nationalization.
Some of those investors have a sordid record here in the U.S. Citigroup and AIG became insolvent during the 2008 financial crisis and were bailed out with massive infusions from taxpayers. Both Citigroup and Deutsche Bank have been charged by various regulators with serial violations of banking and/or securities laws. Both Citigroup and Deutsche Bank would like nothing better than to thwart any serious financial reform. Indeed, Citigroup effectively legislated its own repeal of a core part of the Dodd-Frank overhaul legislation late last year.
On January 3, 2010, the The Scotsman newspaper published a revealing look at the Shinsei deal and Volcker’s involvement. At that time, Volcker was ensconced as Obama’s Wall Street reform guru, serving as the Chairman of the President’s Economic Recovery Advisory Board from 2009 to 2011. The Scotsman found these troubling conflicts:
“After months of fighting talk, US President Barack Obama unveiled his plan to tame America’s banks by telling them they should no longer own, invest in or sponsor hedge or private-equity funds, nor trade on their own account.
“Towering behind him was its author, Paul Volcker, a former chairman of the Federal Reserve…It is difficult, however, to reconcile his avowed wariness of private equity and proprietary trading with his nine years as senior adviser to Japan’s Shinsei Bank, from 2000-09…
“This private equity stake in Shinsei has aroused widespread suspicions of a conflict of interest. Billionaire Christopher Flowers, a former Goldman Sachs partner before starting his own firm, sits on Shinsei’s board, and has admitted the bank and his fund have been involved together in many deals. One such deal was the purchase of 24.9 per cent of German property lender Hypo Real Estate in June 2008… Hypo was later nationalised by the German government…
“In Japan, controversy has dogged Shinsei ever since Flowers and other investors bought the failed Long-Term Credit Bank of Japan (LTCB) from the government…
“Flowers and his partners then reaped billions of dollars in profits by selling shares in the bank when Shinsei finally went public. ‘This may be the most profitable private-equity deal of all time,’ David Rubinstein, co-founder of the Carlyle private equity group was quoted as saying in 2004 after Shinsei’s initial public offering.
“But the deal left the Japanese public furious. According to Kenichi Ohmae, a former chairman of McKinsey in Tokyo, taxpayers were ‘taken to the cleaners’…”
The article notes further that shortly after the Shinsei Bank was taken over by the U.S. investors, it invested about $3.7 billion in corporate bonds, including those of WorldCom. Four years later, the value of the corporate bond portfolio had shrunk to $900 million. This was the very kind of high risk proprietary trading the Volcker Rule was meant to guard against. Volcker sat as a Senior Adviser to the Shinsei Bank as this and other high risk gambles occurred.
Volcker is also affiliated with organizations perceived by the public to represent the interests of the global elite. Volcker serves on the Executive Committee of the Trilateral Commission, founded by David Rockefeller. He is Chairman Emeritus of the Group of 30, a body of international bankers and central bankers. Volcker also serves as a Global Counselor at the Conference Board, a group representing 1200 businesses around the globe, among numerous other affiliations.