A Gorilla in the Global Economy?

“Let them eat credit” was a line written by Prof. Raghuram Govind Rajan, and it remains as cleverly appropriate as any on our descent into The Great Recession.  Among the many factors ...

These are structural concerns, not party differences. 
Both parties have brought us here over decades. 
Despite heroic attempts, neither candidate or party
has yet addressed adequately our national concerns
in this arena.

In the U.S., our middle and lower classes scrambled to get by in a decade-long decline of wages and salaries.  The government, the FED, and Wall Street gave us their solution; we were offered cheap credit as a substitute for wage improvements. 

We took it.

Then it took us - and the country, and much of the world - to the cleaners.  The U.S., the E.U. and most national economies were wagged like a dog's tail by the risk-taking (and errors) of a corporate few.

 

Red companies are super-connected, yellow are very connected.
At the core, just 147 corporations, mainly banks

We're beginning to understand why and how the upheaval happened.  Among our discoveries, it seems there's a large gorilla at the heart of the global economy.

 

A surprising study recently by the University of Zurich discovered just 147 corporations* at the core of the entire world's economy (illustrated here).   According to Forbes, those few hold the reins to the entire global economy.

*Their analysis of the relationships between 43,000 transnational corporations has identified a tightly interconnected core group, mainly banks, with disproportionate power over the global economy.

There are too many corporations in this newly identified core to be a conspiracy for world rule, something that will disappoint the radical conspiracists.  They are also too few in number and too poorly regulated to be particularly predictable, but they are perhaps worth watching.  It's just a naturally-forming network where newcomers connect preferentially to highly connected members.  The structure is inherently unstable and has been subject to large-scale manipulation.

Sample of the international financial network, where the nodes represent

major financial institutions belonging to the core and the links give the

strongest existing relations among them; node colors indicate different

geographical areas: EU (red), US (blue), other countries (green); the 

width and the darkness of the links show their weight; only the most 

prominent links are shown; the network shows a high connectivity, 

with many mutual cross-shareholdings as well as longer cycles; this 

indicates that the financial sector is strongly interdependent, which 

make the network vulnerable to instability.

Many of these firms are financially larger than all but a few of the world's wealthiest countries.  Many are officially identified as 'too big to fail', a vulnerability increased by the interconnectedness of their ownership and control structures.

That the economic future of the world is in the hands of so few is troubling... 

There is nothing wrong with working hard, contributing meaningfully to the marketplace, and becoming wealthy.  What we have, though, is a broken system that funnels most of the world's productivity and most of the power into the hands of the ultra-wealthy and the gigantic corporations that they own.  Their business model, of course, is focused not on serving the citizens of the world but on their bottom line.

There are perhaps benefits to such an economic model, but the likely risks and downside continue to increase in magnitude.  The model is outside the regulatory pervue of any one nation and beyond our national and international attempts to rein it in as yet.

From a local (national, governmental) view, America's contribution to this juncture distributes across Republicans and Democrats.  This trends began in the last century with deregulatory initiatives which each administration has supported at the behest of industry.  Attempts at regulatory reform have had mixed results so far, and are considered inadequate. 

So, who are these few who can so shake the world with their actions?

The top 50 of the super-connected, transnational companies ...

1. Barclays      GB

2. Capital Group Companies Inc    US
3. FMR Corporation                        US
4. AXA                                     FR
5. State Street Corporation            US
6. JP Morgan Chase                      US                      ... some familiar names.
7. Legal & General Group GB                          45 of these are financial sector corporations.
8. Vanguard Group Inc                   US            Together, these 50 control 40% of the world marketplace.
9. UBS AG                       CH                            A third of these are on the 'too big to fail' list.*
10. Merrill Lynch & Co Inc*           US         Several have been caught illegally manipulating the market.
11. Wellington Management Co     US        Each has a history of 'bottom line' motivation.
12. Deutsche Bank AG    DE                        None can claim having served the interests of their host nation.
13. Franklin Resources Inc              US         Many are suspect for illegal market manipulation at
14. Credit Suisse Group       CH                       governmental behest (foreign and domestic firms).
15. Walton Enterprises LLC            US         There are documented cases where such activity
16. Bank of New York Mellon        US            was only inadvertently discovered and thwarted.
17. Natixis                               FR
18. Goldman Sachs Group Inc       US

19. T Rowe Price Group Inc             US
20. Legg Mason Inc                          US
21. Morgan Stanley                       US
22. Mitsubishi UFJ Financial  JP
23. Northern Trust Corporation       US
24. Société Générale               FR
25. Bank of America                      US
26. Lloyds TSB Group plc        GB
27. Invesco plc                          GB
28. Allianz SE 29. TIAA        DE
29. TIAA                                           US
30. Old Mutual Public Limited GB
31. Aviva plc                             GB
32. Schroders plc                      GB
33. Dodge & Cox                             US
34. Lehman Brothers*                   US
35. Sun Life Financial Inc     CA
36. Standard Life plc               DE
37. CNCE                                    FR
38. Nomura Holdings Inc     JP
39. The Depository Trust Company  US
40. Massachusetts Mutual Life        US
41. ING Groep NV         NL
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon

46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company
* Lehman still existed in the 2007 dataset used

Here's a Wikepedia breakout of the 2007–2012 global financial crisis elements: Major dimensions 2000s energy crisis 2008–2012 global recession Automotive industry crisis of 2008–2010 Dodd–Frank Wall Street Reform and Consumer Protection Act European sovereign-debt crisis Financial Crisis Inquiry Commission Subprime crisis impact timeline Subprime mortgage crisis United States housing bubble United States housing market correction Countries Belgium Greece Hungary Iceland Ireland Latvia Russia Spain Ukraine Causes Causes of the 2007–2012 global financial crisis Causes of the 2008–2012 global recession Causes of the United States housing bubble Credit rating agencies and the subprime crisis Government policies and the subprime mortgage crisis Summits 34th G8 summit (July 2008) 2008 G-20 Washington summit (November 2008) APEC Peru 2008 (November 2008) 2009 G-20 London Summit (April 2009) Government legislation and spending Banking (Special Provisions) Act 2008 Economic Stimulus Act of 2008 Emergency Economic Stabilization Act of 2008 Housing and Economic Recovery Act of 2008 Term Asset-Backed Securities Loan Facility Troubled Asset Relief Program (TARP) 2008 European Union stimulus plan 2008 United Kingdom bank rescue package Chinese economic stimulus program China–Japan–South Korea trilateral summit Anglo Irish Bank Corporation Act 2009 American Recovery and Reinvestment Act of 2009 Green New Deal 2008–2009 Keynesian resurgence Emergency Economic Stabilization Act of 2008 Economic Stimulus Act of 2008 American Recovery and Reinvestment Act of 2009 Federal Reserve responses to the subprime crisis Government intervention during the subprime mortgage crisis National fiscal policy response to the late 2000s recession Regulatory responses to the subprime crisis Subprime mortgage crisis solutions debate Company bailouts, buyouts, or bankruptcies General Motors Chrysler Northern Rock Bear Stearns,  New York City Catholic Building Society Countrywide Financial, Calabasas, California Alliance & Leicester Roskilde Bank Fannie Mae and Freddie Mac Derbyshire Building Society Cheshire Building Society Merrill Lynch,  New York City American International Group, New York City Lehman Brothers, New York City  HBOS Washington Mutual, Seattle, Washington Lehman Brothers Bradford & Bingley Fortis Dexia Wachovia, Charlotte, North Carolina Landsbanki Glitnir Kaupthing Bank BankWest (subsidiary of HBOS) Sovereign Bank, Wyomissing, Pennsylvania Barnsley Building Society National City Bank, Cleveland, Ohio Commerce Bancorp, Cherry Hill, New Jersey Scarborough Building Society IndyMac Federal Bank Anglo Irish Bank BTA Bank Alliance Bank Bank of Antigua Straumur Investment Bank Dunfermline Building Society Caja de Ahorros Castilla La Mancha Philippine American Life and General Insurance Company Chesham Building Society (100% Bought) CajaSur So, what happens next?  We could leave such conversation to the wingers, R or L, and go on our plebeian way.  After all, these things are difficult and one person can't make a difference anyway.     Northern Rock Bear Stearns,  New York City Catholic Building Society Countrywide Financial, Calabasas, California Alliance & Leicester Roskilde Bank Fannie Mae and Freddie Mac Derbyshire Building Society Cheshire Building Society Merrill Lynch,  New York City American International Group, New York City Lehman Brothers, New York City  HBOS Washington Mutual, Seattle, Washington Lehman Brothers Bradford & Bingley Fortis Dexia Wachovia, Charlotte, North Carolina Landsbanki Glitnir Kaupthing Bank BankWest (subsidiary of HBOS) Sovereign Bank, Wyomissing, Pennsylvania Barnsley Building Society National City Bank, Cleveland, Ohio Commerce Bancorp, Cherry Hill, New Jersey Scarborough Building Society IndyMac Federal Bank Anglo Irish Bank BTA Bank Alliance Bank Bank of Antigua Straumur Investment Bank Dunfermline Building Society Caja de Ahorros Castilla La Mancha Philippine American Life and General Insurance Company Chesham Building Society (100% Bought) CajaSur So, what happens next?  We could leave such conversation to the wingers, R or L, and go on our plebeian way.  After all, these things are difficult and one person can't make a difference anyway.

A man with a duck on his head ....

If you see a man walking down the street with a duck on his head, you will probably say that you saw a man walking down the street with a duck on his head.  No spin required.  You won't seek out someone to say for you that it was a duck walking down the street with a guy on its derriere.

Feel free to disagree; I'm sure the duck will appreciate your efforts.

Our observations span decades, you and I of the boomer generation.  Here's what we've seen ...

A better quality of life; the decline ...

This first graph looks at the years with high taxes and growing inflation  (1949-1979) compared to the following three decades (1979-2009) that saw lower taxes and declining inflation.

Real income growth has disappeared since the 1960's for all except the wealthy, and the gap between the rich and the rest has widened dramatically.  It's more significant in the marketplace than most of us realize.  The solution we were offered... 'Let them eat credit.'  A crash followed where the middle class suffered much more than the wealthy, and the poor most of all.

The ever-widening gap between rich and poor. 

Here, the average income (which reflects the overbalanced effect of the wealthy few) is compared to the median (which better reflects a midpoint for us all).  Note the accelerating change.

The middle class produces more each year and receives a
progressively smaller and smaller share of the benefit.

As the middle class strangles, the wealthy take a larger and larger bite out of the national economy and out of the profit of our labor. Their disproportionate and continually increasing share of national productivity (chart, left) indicates systemic flaws in national policy, law, and governance.  The middle and lower classes have received a progressively smaller share of the rewards of their labor. Neither the Republicans nor the Democrats, it appears, have offered a plan for mitigation of the risk inherent in such imbalance.

Still rudderless ...

Balance of trade, a balanced budget, and a reasonable tax structure are all missing from the agendas we're offered by the candidates, their parties, and the media.

Financial reform is still in the 'pretend' stages.

"There are three big fault lines — one is rising inequality, which pushes inappropriate spending such as encouraging households to buy houses subsidized by government lending. Second is the inadequate safety net which causes a whole lot of inappropriate stimulus in bad times, and I'd say especially stimulus coming from the Federal Reserve in the form of low interest rates. Third is the fact that many countries have grown in a way that emphasizes exports, which leads to overconsumption in countries like the U.S."

~ From the economist who predicted the '08 crash in detail.  Read more HERE> 

Bi-partisan attempts at regulating the financial marketplace follow the recommendations of the financial industry rather than sound principles.  Changes favor a continually more powerful position for the financial behemoths.  Patchwork legislation continues to ignore the underlying problems.  Neither party, despite good intentions, offers a coherent solution.

The frustrating failure of leadership ...

The graphic right shows the growth of government over the last 40 years.  Our income is up a quarter, and our government expenditures are up more than ten times that amount.  That's government spending, not industry growth.

The graphic below shows that the ability or inability to balance the budget is truly bi-partisan.

Click on this graph to see the details.

Just so we're clear, that's what we've seen.  This or that politician becoming president, this or that party ruling in congress offers no suggestion that these things will change.  The issues are not partisan, they're systemic and fundamental.

Living the Dream

A 'simple home', available to only the wealthiest of the world's families

The American Dream! 
What does that mean to you and your life?

Ever talk about it?  Your life goal, I mean.


Most of us see the American Dream as described here (right) with perhaps minor variations across the generations. 

But is this 'American Dream' big enough to qualify as your life goal?

Is it a great enough purpose to fill your mind and hours and efforts?  Is it worth all your days going to work and all the years of commitment?

Or might the dream by itself be somewhat narrow?  What if it focuses so much on 'me and mine' that it misses some larger purpose and opportunity that being an American offers you and your family.  What if you wanted to be a world changer?  Could you add 'change the world for the better' to the top of the list above?

Got guts?  Read on.

What if by choice and plan, we lived simply and well within our means?  We and our family would perhaps have some financial flexibility, and we could pitch in where it mattered for someone else.    We'd be a little odd, perhaps, from our friends' point of view.   So?  Could we live with that; being a little odd?  Or even a lot odd?

A friend of mine in Texas was old and wealthy. I didn't know about the 'wealthy' part until after he'd died; he and his family lived simply and generously. He paid for me to go Colorado when I was 18 to attend a summer youth festival (another story) which pretty much reshaped my thinking. I owe him, big time. So do a lot of other folks from those days, apparently.  Odd fellow, right?

R. G. LeTourneau was another screwball.  As a multi-millionaire, LeTourneau gave 90% of his profit to God's work and kept only 10% for his own purposes. He also founded a university that is thriving to this day.

LeTourneau said that the money came in faster than he could give it away.  He was convinced that he could not out-give God.  "I shovel it out,” he would say, “and God shovels it back, but God has a bigger shovel."

LeTourneau planned his life around a dream larger than just what he could own personally or how comfortably he might live. He is considered to this day to have been the world’s greatest inventor of earth-moving and materials handling equipment. And his generosity was extraordinary.  An odd fellow indeed.


On LeTorneau's grave - "Seek ye first..."

We can spend our lives chasing the American Dream, you and I. We'll probably achieve it in some measure, and we'll probably wish, when we reach the end, that we'd dreamed bigger.

Jesus was odd, too. So were his disciples and the folks in the churches. The world didn't receive them well, but they lived the dream for real. I wonder what it would look like if we did too.