- The Washington Times - Thursday, March 19, 2009




Political Science majors can be forgiven for recycling Karl Marx’s prediction, made 160 years ago, that capitalism would sow the seeds of its own destruction by widening the gap between workers and “capitalists.” Since the end of the Cold War and the defeat of communism 20 years ago, board room-authorized CEO emoluments in the Fortune 100 have gone from 40 times to 300 times factory floor wages.

Profit projections three months out have long displaced forecasts for long-term growth. And democratic capitalism morphed to casino capitalism and, since the Enron scandal in 2001, metastasized into bandit capitalism. Bernard L. Madoff made off, not with the $50 billion first announced in a new world record for criminal Ponzi schemes, but with an estimated $67 billion, leaving thousands penniless. President Obama may not think it’s as bad as we think; in fact, it’s a great deal worse.

U.S. taxpayers ponied up $170 billion to save insurance giant AIG. But Edward M. Liddy, AIG’s newly appointed CEO, still awarded $165 million for bonuses and retention pay. Mr. Obama’s top economic adviser Larry Summers called it “outrageous.” The world’s largest insurance firm was, in effect, insuring bets on the failure of an investment portfolio without having to own any part of it, gambling obfuscated as “credit default swaps.” Eighty percent of some $62 trillion in such swaps on the books in 2008 were tantamount to casino gambling.

It is disingenuous for bankers to say today they were the victims of a once in a lifetime financial tsunami that could not be avoided. The four bankers who appeared last October before the Senate Banking Committee looked more like characters out of the old Soviet satirical weekly Crocodile as they testified they didn’t have a clue what happened. If they hadn’t been blinded by gargantuan greed, they would have known what to do.

Now, says William D. Cohan (“House of Cards: A Tale of Hubris and Wretched Excess on Wall Street”), perhaps a subpoena-wielding panel Sept. 11 Commission should be created to administer a little truth serum.

The American “body economic” is on life support for the indefinite future. National Intelligence Director Dennis C. Blair called the financial crisis “our greatest threat.”

For 40 years, the capitalist world faced the challenge of communism and socialism, the equal sharing of miseries, which kept democratic capitalism - the unequal sharing of blessings - on the straight and narrow. With the collapse of the Soviet Empire and its satellites and client states, capitalism tossed off its code of conduct. Insider trading, among close friends in New York, London, Paris, Zurich, Hong Kong and Tokyo became commonplace.

Russian Organized Crime, which succeeded communism, engulfed the entire planet (even in Guam). Choice real estate in London, Paris, Rome, Marbella in Spain, the French Riviera’s priciest Cap d’Antibes, Italy’s Amalfi Drive, Cyprus, Rhodes and other Dodecanese Greek Islands, disappeared into the hands of Russia’s newly minted billionaires - all paid for in cash.

One real estate operator in Antibes told us about suitcases filled with $100 bills for the purchase of one $70 million property. In the 1990s, some $230 billion was plundered from Russia and moved to secret numbered accounts abroad. Those who knew the Western system were usually KGB agents who had worked in West European capitals.

The subprime mortgage cancer, which was first detected but ignored in 2006, had spread to the whole world by summer 2007. It was criminal predatory lending whose worthless mortgages were repackaged to look like secure investments and peddled all over the world.

Now Americans have seen retirement savings halved. U.S. households’ net worth tumbled a mind-blowing $11 trillion - in a single year. This is the same figure as the combined annual output of Germany, Japan and the United Kingdom. Gone are the second homes, rising retirement nest eggs, rising expectations generally.

TV news now brings us tent cities from Seattle to Athens, Ga. for newly destitute Americans; homeless shelters are filled to overflowing (e.g., 2,000 beds in Sacramento spoken for). Santa Barbara has designated a parking area for people who sleep in their cars. And the World Bank predicts another 53 million falling below the level of “extreme poverty” this year. What began with criminal subprime mortgage predators is now hurting those who can least afford it - both at home and abroad.

Europe’s hot new love affair with Mr. Obama has already cooled into the usual trans-Atlantic spats. The Europeans are resisting calls for more global fiscal stimulus, pointing out that the real problem is a systemic crisis that requires above all else a Herculean cleaning of capitalism’s Augean stables. The unacceptable face of capitalism must be replaced with the kind of financial and economic regulation that will avert catastrophe in the future.

Britain, France and Germany want the upcoming G-20 summit April 2 to fulfill previous pledges to clean up and remake global capitalism so globalization doesn’t become easy street for the enrichment of sleight-of-hand operators who know no borders and conceal their ill-gotten gains in remote pinhead nations on the map. Tall order for a one-day conference.

About 52,000 American tax dodgers, according to the Internal Revenue Service, concealed billions in Switzerland’s UBS. Protecting wealthy clients from their tax authorities to the tune of $2.2 trillion has been a cornerstone of the country’s wealth. UBS paid a fine of $780 million and agreed to turn over the names on 250 numbered accounts suspected of massive tax evasion. Liechtenstein with 35,000 people and Andorra with 80,000 are also amending banking secrecy laws. Monaco, the size of New York’s Central Park, is still standing firm.

Meanwhile, thousands of fund transfer orders are currently moving vast amounts of money to new shelters in Hong Kong, Dubai - and Nauru, the world’s smallest (8.1 square miles) island nation in the South Pacific with 12,000 people.

Some 30 nations still decline to share bank information with foreign tax authorities. They have no laws against tax evasion. Thus, about $12 trillion remains hidden by the offshore banking industry. And Americans who squirrel assets abroad fail to pay about $100 billion a year in taxes.

Arnaud de Borchgrave is editor at large at The Washington Times and at United Press International.

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