GOVERNMENT SACHS (cont.)
by Pam Martens and Russ Martens / January 5, 2017
“The rationale for Donald Trump’s selection of Jay Clayton, a law partner at Sullivan & Cromwell which has represented Goldman Sachs since the late 1800s, to be the next SEC Chairman grew exponentially fuzzier after Wall Street On Parade reviewed political donation records at the Federal Election Commission. FEC records show that 59 of Clayton’s fellow lawyers at the firm made over $900,000 in donations to the Hillary Victory Fund while one lone lawyer, Donald Korb, made two $2700 donations to Trump’s primary and general election campaign. Donations from three other lawyers at the firm, Justin Decamp ($2700), Robert Giuffra ($25,000), and Diane McGimsey ($5,000) to the Trump Victory committee came after Trump was already elected President, according to images of receipts filed with the FEC.
Donors to the Hillary Victory Fund included Sullivan & Cromwell Senior Chairman, H. Rodgin (Rodge) Cohen, who donated $250,000 on May 12, 2016 and another $35,000 the following month. During the Wall Street panic and crash in 2008 and 2009, Cohen darted from representation of one failing institution to another. The Wall Street Journal dryly noted in the midst of the crisis that Cohen was “in demand because he helped mold the financial system that is now under assault. He helped draft the rules that led to the emergence of powerful national banks, waged the first hostile bank takeover in the U.S. and lobbied, in the early 1990s, to expand the Federal Reserve’s power to provide the emergency loans now being employed by the government.”
Why would President-elect Donald Trump discredit himself further by nominating a Goldman Sachs outside counsel to run the already discredited SEC when the law firm’s partners were funneling serious money into his opponent’s campaign to make sure he didn’t win. Trump has already earned the wrath of the public by stocking his administration with Goldman Sachs alumni. Steven Mnuchin, a 17-year veteran of Goldman Sachs and operator of a foreclosure mill bank has been nominated by Trump to be Treasury Secretary; Stephen Bannon, another former Goldman Sachs banker, will be Trump’s Chief Strategist in the White House; and Gary Cohn, sitting President & COO of Goldman Sachs, has been tapped to head the National Economic Council.
Jay Clayton’s nomination for SEC Chair also raises the question of what kind of vetting is being done by Trump’s transition team – or is it simply taking its marching orders from power brokers on Wall Street, which has now become the norm regardless of which political party is in power. Not only has Clayton been Goldman Sachs’ outside counsel for years but Clayton’s wife, Gretchen, has worked at Goldman for the past 17 years, currently holding the title Vice President, according to her LinkedIn profile.
Under 18 U.S.C. § 208, the basic criminal conflict of interest statute, an executive branch employee is prohibited from participating personally and substantially in a government matter that will affect his own financial interests, as well as the financial interests of his spouse. This effectively means that the SEC Chair will have to recuse himself permanently from any matter involving Goldman Sachs, one of the largest investment banks and holders of derivatives in the world.”
POPULIST CENTRAL BANKERS
Dangerous precedent of populist German banking: Parallels with Germany in the 1930s
by Wolfgang Münchau / Feb 8, 2016
“Rereading John Weitz’s biography of Hjalmar Schacht, Hitler’s Banker, I noted some interesting parallels between the 1930s and now that I had not considered before. It is well-known Hitler relied on Schacht, his central banker, to help fund his rearmament plans. But Weitz also pointed out – and this is potentially relevant to the situation in the euro zone today – that Schacht was only able to pursue his unorthodox policies at the Reichsbank because he had the backing of a dictator. If an extremist leader came to power in a large euro zone country – France or Italy, say – what would happen if they were to appoint a central banker with the acumen of Schacht? And what would be the chances that such a team could succeed in increasing economic growth in the short term? I am not comparing anyone to Hitler – or indeed to Schacht. My point concerns what an unorthodox central banker can do if he or she has the political support to break with the prevailing orthodoxy.
Schacht had two stints as president of the Reichsbank – in the 1920s, when he brought an end to the hyperinflation then crippling Germany, and again from 1933 to 1939. It is hard to identify him with a single economic outlook: in the 1920s he was in favour of the gold standard but then, in the early 1930s, he opposed the consensus that promoted the policies of austerity and deflation. Schacht argued, rightly, that Germany was unable to meet the reparation payments specified in the Young Plan, which was adopted in 1929. On returning to the Reichsbank, Schacht organised a unilateral restructuring of private debt owed by German companies to foreigners. The German economy had already benefited from withdrawal from the gold standard in 1931, and Schacht piled stimulus upon stimulus. One reason for Hitler’s initial popularity in Germany was the speedy recovery from the depression, which was no doubt helped by a loose fiscal and monetary policy mix.
The current policy orthodoxy in Brussels and Frankfurt, which is shared across northern Europe, has some parallels to the deflationary mindset in the 1930s. Today’s politicians and central bankers are fixated on fiscal targets and debt reduction. As in the early 1930s, policy orthodoxy has pathological qualities. Whenever they run out of things to say, today’s central bankers refer to “structural reforms”, but never say what such reforms would achieve. In principle, the euro zone’s economic problems are not hard to solve: the European Central Bank could hand each citizen a cheque for €10,000. The inflation problem would be solved within days. Or the ECB could issue its own IOUs – which is what Schacht did. Or else the EU could issue debt and the ECB would buy it up. There are lots of ways to print money. They are all magnificent – and illegal.
There are no Nazi parties in the euro zone today, except in Greece. But France and Italy have populist parties on the right that are clearly outside the current policy consensus. Imagine a scenario in which Beppe Grillo, leader of Italy’s Five Star Movement, were to win the Italian election in 2018. The term of Ignazio Visco, governor of the Bank of Italy, expires in November that year. Mr Grillo would be in a position to appoint his own central banker. Perhaps he would choose someone as resourceful and ruthless as Schacht and able to plot Italy’s way out of the euro, via a parallel currency regime for a transitional period, defaulting on foreign debt in the process. The devaluation and the increase in public sector investment possible under a new regime could bring instant growth.
If Marine Le Pen were to become president of France in 2017, she might have to wait four years before she could seize the Bank of France. The term of François Villeroy, the governor, does not expire until 2021. Given the power vested in the French presidency, however, Le Pen might not need the support of her central banker to do whatever she wanted. I have no doubt any populist government in Europe would end in disaster but they might succeed in raising growth, and this makes them so dangerous. We should not expect an exact rerun of the past, however. As Karl Marx put it, this will be history repeating itself first as tragedy, then as farce. Even this cuddlier version of the 1930s would be a tragedy of sorts. The period of ever-closer union in Europe would be over and the euro experiment would have ended in failure.”
“To understand what is happening now  in the U.S., it is useful to compare the parallel developments that occurred in Nazi Germany. The German central bank, the Reichsbank, was far more restricted by law (before 1939) than our central bank, the Federal Reserve (Fed) in the kinds and amounts of loans it could make. The Fed, in this sense, is far more powerful than the Reichsbank was before 1939. The Reichsbank was, like the Fed, independent of the government. The German government could not order it to make loans to the government, for example.
This situation changed in 1939 when the Nazi government needed more funds to finance its armament build-up. At that point, the government basically absorbed the Reichsbank. It helps to read the words of Hjalmar Schacht, who headed the Reichsbank between 1933 and the time of his dismissal in early 1939. Schacht is something of a controversial figure in history. In 1946 he was tried as a war criminal at Nuremberg where he testified. Dr. Schacht, who was acquitted, had ended up in a concentration camp. An extended discussion of Schacht’s activities that brings out the negatives is contained here. A less critical account is here.
Schacht makes crystal clear that the central bank was essential for the government to be able to arm the country and make war. Without the bank, Hitler “could not go on.” He would not be able to use the bank “for any future financial purpose” such as paying for armaments. Furthermore, if the bank would not cooperate, then “an end had to be put to the independence of the Reichsbank from governmental decrees.” That having been done by Hitler, the president of the bank “became a mere bank teller for the credit demands of the Reich or, that is to say, of Hitler.”
These observations about the role and necessity of the central bank in supporting the government, usually in its war efforts, and of the threat to the bank’s independence are as true of the United States as they were of Nazi Germany. As bad as the Fed is, our liberty declines even more when, as, and if the Fed becomes a direct arm of the government. This has happened before. The Fed supported the U.S. government bond market during World War II, which laid the foundation for the resulting inflation:”The Federal Reserve System formally committed to maintaining a low interest rate peg on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock.”
Central banks are brought into being and allowed extraordinary powers with the overriding aim of supporting government borrowing, often for purposes of making war, and with inflation being the accompanying method by which this support is rendered. I quote: “Many on the Board of Governors, including Marriner Eccles, understood that the forced obligation to maintain the low peg on interest rates produced an excessive monetary expansion that caused the inflation.” Similarly, we are told concerning Schacht: “Schacht had always feared an inflation in Germany. As early as 8 May 1936, he emphatically stated that he would never be party to an inflation’ (1301-PS). In January 1939, Schacht was convinced that ruinous inflation was, in fact, imminent (EC-369). There was, it appears, ample basis for his fear. The Finance Minister, von Krosigk, had already recognized the situation in September 1938, and had written to Hitler warning that we are steering towards a serious financial crisis…”
Because Schacht’s official central banking powers were not as great as the Fed’s, he hid what he did to get around the law and help finance Hitler. In the U.S., the Fed has so much power that it can do openly what Schacht did secretly. In that sense, we are further along the path of collective dictatorship than Germany in the 1930s. Schacht set up a dummy corporation, called MEFO for short, that “bought” arms from the arms manufacturers. It accepted the (mefo) bills of these manufacturers who then were able to discount them at banks and get paid. The banks then discounted them with the Reichsbank. Lo and behold, inflationary finance paid for the arms production in huge amounts, circumventing the law’s prohibitions.
Bernanke makes Schacht look like a piker. In the U.S., the Fed has no statutory limits on its finance. It is openly financing whatever institutions it pleases. It has extended $56 billion to AIG, another $298 billion for the commercial paper of various companies, and $407 billion to banks using its own holdings of Treasury securities. The critics of these loans are vastly outnumbered by those applauding the Fed’s inflation as the means of saving America. The sycophants eagerly await the Fed’s next moves. The Fed is preparing the way by leaking to the press hints of “unconventional steps.”
These will involve interventions in markets such as mortgage markets. Bernanke and Company seem to have none of the fear that Schacht had of inflation or being held responsible for inflation. When a dictatorship obtains the unlimited ability to finance its purposes, there is no stopping it except by restraining its powers; and that takes a revolution or, at a bare minimum, the deposition of persons from the government and replacement by those willing to abridge the government’s powers, if such a thing is possible.”
Hjalmar Schacht (left), Hitler’s finance minister, with his close friend Montagu Norman, Governor of the Bank of England from 1920 to 1944
SEE ALSO : BANK of INTERNATIONAL SETTLEMENTS
Secret war documents may reveal that Germany had staunch allies at the Bank of England
by Chris Blackhurst / 29 March 1997
“In a vault in Basle, Switzerland, lie some of the most politically sensitive documents of the Second World War. Historians uncovering the story of the gold trade that financed the Nazi war machine would love to have sight of them – not because they will provide further evidence of Swiss guilt in the trade but because they could expose other countries involved, including Britain. In the saga of Nazi gold, it is always the Swiss who are to blame; the Swiss who were prepared to accept bullion looted from the victims of German oppression to the extent that the war was prolonged longer than necessary. But if the historians are right, these papers will go to the heart of the British financial establishment and raise questions about the allegiance of one of the most powerful figures of his day, former Governor of the Bank of England, Sir Montagu “Monty” Norman. Academics believe the archive will show that the Bank, led by Sir Monty, bent over backwards to help the Nazi war machine. In an age without television and media access, Norman’s was a household name. Famed for his supercilious manner, bad temper and contempt for the political leaders of his day, he was a banker’s banker, whose aim was to create a network of central bankers like himself, free of the control of governments.
That, at least, is one explanation for Norman’s behaviour in the years before the Second World War. There is another: that Norman was a German sympathiser, who wanted to ensure the German economy could fuel the country’s war machine and that the Nazis had an outlet for their looted gold. So concerned were the Americans about Norman that in the summer of 1942 President Roosevelt sent a report on his activities to Sir Winston Churchill. The British Prime Minister asked Anthony Eden, his Secretary for War, to look into the American concerns, in particular the allegation that Norman had met Hjalmar Schacht, a senior German official in neutral Sweden, in May 1941. Herr Schacht was thought to be trying to broker some sort of peace deal. Norman was his chosen conduit. Papers filed in the Eden archive at Birmingham University reveal what must have been an unprecedented exchange: Churchill’s right-hand man quizzing the Governor of the Bank of England about his allegiances. Norman denied seeing Herr Schacht for over a year.
For Churchill, this was not good enough. In a memo to Eden, the Prime Minister pointed out the war was now three years old, not one year. Norman’s answer, thought Churchill, was inadequate. He instructed Eden to dig deeper. But at this point, the file goes dead: what further details Eden extracted from Norman are not recorded. Typically, Churchill did not want the Americans to know of his concerns. They were sent a bland reassurance that all was well with Norman. So what was the Governor up to? Scott Newton, lecturer in modern history at Cardiff University, says there is “nothing in the file to clear Montagu Norman of the American charge”. He was rightly suspected, says Newton, of being involved in “an unsavoury peace deal behind the government’s back. Bearing in mind the report came from the US President, it would have relied upon good intelligence.”
Norman, says Newton, “was trying to prevent the war developing to the point where the Bank of England was in danger of losing the prestige it had built up between the wars. Norman had a view that the world ought to be run by central bankers. He was not in any sense a democrat and he was worried the war would undermine the contacts he had created.” Churchill, says Newton, “could not stand him; he distrusted him enormously”. The extent of the Bank of England’s involvement has still not been disclosed. Documents from the period have convinced several historians that the Bank, through its redoubtable Governor, played a pivotal role. But the records which could reveal the detail remain inaccessible to historians in the Bank of International Settlements based in Basle, Switzerland.
Established after the First World War to smooth the system of compensation by Germany to the Allies for the conflict, BIS is a bank for central banks. It is more than a mere mechanism for moving money between governments, however. The meetings of its board are talking shops for the world’s most powerful financial figures, a club where they can talk without interference from politicians and government officials. One of its most influential members in the years before the Second World War was Sir Montagu Norman. On 15 March 1939, Hitler completed his rout of Czechoslovakia, making a triumphant entrance into Prague. One of his first acts was to order the directors of the Czech national bank to hand over the country’s gold reserve. For Hitler, the Czech gold was a vital replenishment of rapidly dwindling reserves. An increasingly isolated Germany needed gold to barter for raw materials.
The Czech directors told the Germans it was too late; the gold had already been deposited via BIS in the Bank of England. The Germans ordered them to retrieve it. BIS did not deal in physical transfers of money or bullion – most of them took place on paper, by central banks adjusting their accounts with each other. The Czechs called BIS, which contacted London. Norman obliged, instructing BIS to deduct the gold’s value, some $40m (pounds 24m) at 1939 prices, from the Bank of England’s account in Basle. The gold went back to Czechoslovakia, and to the Reichsbank in Berlin. News of the trade did not leak out for two months. Then, in May 1939, prompted by a tip from a journalist, George Strauss, the Labour MP, asked Neville Chamberlain, the Prime Minister, if it was true that the national treasure of Czechoslovakia was being given to Germany.
The Government, advised by Norman, said it was impossible to determine who was the real owner of gold that passed through BIS; that the Basle institution was heavily protected by international protocols; and that as a banker for central banks, its dealings had to remain confidential. In fact, Norman knew all along who was the rightful owner of the gold. He had told a Whitehall committee on 22 March 1939 that he had received a call from the Governor of the Bank of France, on behalf of BIS, asking for the return of the gold. “We did absolutely nothing,” says historian Scott Newton. “Here was Czechoslovakia that had been invaded, and here was Monty Norman approving the transfer of its gold to the Reichsbank.”
Norman’s agreement, says Newton, was no surprise. “Monty Norman and the leading merchant banks in the City were up to their necks in helping to prop up the German financial system. The Germans owed a lot of money to British banks.” The bankers did not want the Americans to emerge from the war with the upper hand, economically. Dr Neville Wylie, research fellow in Modern History at Cam- bridge University, says “there was a strain of German sympathy within the Bank and the City. The alternative – of dealing with the rampant capitalists across the Atlantic – did not appeal.” How far that sympathy went, beyond the Czechoslovakian deal, will only be revealed when the BIS records are finally opened.”