In every era, there are certain people and institutions that are held in the highest public regard as they embody the prevailing values of society. Not that long ago, Albert Einstein was a major public figure and was widely revered. Can you name a scientist that commands a similar presence today?
Today, some of the most celebrated individuals and institutions are ensconced within the financial industry; in banks, hedge funds, and private equity firms. Which is odd because none of these firms or individuals actuallymake anything, which society might point to as additive to our living standards. Instead, these financial magicians harvest value from the rest of society that has to work hard to produce real things of real value.
While the work they do is quite sophisticated and takes a lot of skill, very few of these firms direct capital to new efforts, new products, and new innovations. Instead they either trade in the secondary markets for equities, bonds, derivatives, and the like, which perform the ‘service’ of moving paper from one location to another while generating ‘profits.’ Or, in the case of banks, they create money out of thin air and lend it out – at interest of course.
Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take away from them the power to create money, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.
~ Josiah Stamp – Bank of England Chairman, 1920s
Because these institutions and individuals accumulate vast sums of money for their less-than-back-breaking efforts, they are well respected if not idolized by most. Many of the most successful paper-accumulators are household names. They get invited to the best parties, are lured by major networks to appear on their shows, speak at the biggest conferences, and their views and words find an easy path to the ears of millions.
But this is more than just an idle set of observations for the curious. It’s actually a critically important phenomenon to be aware of. For the current configuration of financially powerful entities has, at the tail end of a decades-long debt-based money experiment, achieved an astonishing concentration of power, money, and influence.
We raise this topic because our work centers on changing the conversation towards the things that really matter while there is still time to engineer a better outcome, and that requires illuminating the status quo and having a conversation about whether it needs to be modified. Unfortunately, those at the center of the status quo are not at all interested in having any such conversation, because all of their accumulated power depends on maintaining things as they are.
Money is power.
And history has shown that power is never ceded spontaneously or willingly.
The Network That Runs the World
A couple of years ago, I came across a study that has stuck with me ever since and I want to share it with you. It’s really important if we want to understand the likelihood of a graceful transition for our current society into a future of prosperity.
Unlike prior studies seeking to quantify the degree of concentration of wealth and influence, this study simply pored through all of the available public data to build an empirical map of the network of power. Its findings are quite startling and deserve a bit of pondering:
AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis of the relationships between 43,000 transnational corporations (TNCs) has identified a relatively small group of companies, mainly banks, withdisproportionate power over the global economy.
Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.
The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then theyconstructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.
The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20.
What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy - representing a further 60 per cent of global revenues.
When the team further untangled the web of ownership, it found much of it tracked back to a“super-entity” of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. ”In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.
Just 147 companies control over 40% of the wealth of the entire network of companies. It should be pointed out that such a network does not have any borders and operates on a global basis, meaning that regional analyses –such as how Germany compares with the U.S. – might be less relevant than typically portrayed.
After all, if decisions being made by a tightly knit group of companies are being made to benefit a network that has no borders, then actions by the German or U.S. governments are only a part of the story. And perhaps a minor one, compared to those made the entities that actually control the real wealth of each nation.
It wasn’t that many decades ago that a list of the top companies with the most wealth and influence would have been dominated by companies that produced real, tangible products – that is, those that created wealth by adding value to goods by transforming resources into products. Companies like GE, GM, IBM, Exxon, and other industrial giants would have been the wealthiest, because, well, they create actual wealth.
Today the top fifty companies in the ‘super-entity’ list of 147 from the above study is concerning. Out of the fifty, 17 are banks, 31 are an assortment of investment, insurance, and financial services companies, and only 2 are non-financial companies (Walmart and China Petrochemical)
The top 50 of the 147 superconnected companies
1. Barclays plc2. Capital Group Companies Inc (Investment Management)3. FMR Corporation (Financial Services)4. AXA (Investments & Life Insurance)5. State Street Corporation (Investment Management)6. JP Morgan Chase & Co (Bank)7. Legal & General Group plc (Investments & Life Insurance)8. Vanguard Group Inc (Investment Management)9. UBS AG (Bank)10. Merrill Lynch & Co Inc (Bank)11. Wellington Management Co LLP (Investment Management)12. Deutsche Bank AG (Bank)13. Franklin Resources Inc (Investment Management)14. Credit Suisse Group (Bank)15. Walton Enterprises LLC16. Bank of New York Mellon Corp (Bank)17. Natixis (Investment Management)18. Goldman Sachs Group Inc (Bank)19. T Rowe Price Group Inc (Investment Management)20. Legg Mason Inc (Investment Management)21. Morgan Stanley (Bank)22. Mitsubishi UFJ Financial Group Inc (Bank)23. Northern Trust Corporation (Investment Management)24. Société Générale (Bank)25. Bank of America Corporation (Bank)26. Lloyds TSB Group plc (Bank)27. Invesco plc (Investment mgmt) 28. Allianz SE 29. TIAA (Investments & Insurance)30. Old Mutual Public Limited Company (Investments & Insurance)31. Aviva plc (Insurance)32. Schroders plc (Investment Management)33. Dodge & Cox (Investment Management)34. Lehman Brothers Holdings Inc* (Bank)35. Sun Life Financial Inc (Investments & Insurance)36. Standard Life plc (Investments & Insurance)37. CNCE38. Nomura Holdings Inc (Investments and Financial Services)39. The Depository Trust Company (Securities Depository)40. Massachusetts Mutual Life Insurance41. ING Groep NV (Bank, Investments & Insurance)42. Brandes Investment Partners LP (Financial Services)43. Unicredito Italiano SPA (Bank)44. Deposit Insurance Corporation of Japan (Owns a lot of banks’ shares in Japan)45. Vereniging Aegon (Investments & Insurance)46. BNP Paribas (Bank)47. Affiliated Managers Group Inc (Owns stakes in 27 money management firms)48. Resona Holdings Inc (Banking Group in Japan)49. Capital Group International Inc (Investments and Financial Services)50. China Petrochemical Group Company
How is it that companies that produce nothing and only move digital representations of money from point to point now control far more wealth than the companies that actually produce the things that makes money useful at all?
Well, that’s just how the system works. And this is something that nobody in power wants to talk about.
While we may decide that such as system is just, or unjust, or evil, or good, such judgments are merely the emotionally laden descriptors we might assign to a system that – by its very design – accumulates wealth from the many to the few.
This is why compound money systems have been tried and tried again, yet have never proved sustainable. Even ancient religious texts described them as requiring a Jubilee every 7 periods of 7, or 49 years. The Jubilee, of course, was a reset mechanism that wiped out the inevitable concentration of wealth so that things could start all over again with a fresh slate.
An imbalance between rich and poor is the oldest and most fatal ailment of all republics.
So it really should not be any surprise that banks, in particular – with their extraordinary power to lend money out of thin air (that’s what ‘fractional reserve’ allows) and their unlimited-duration corporate lives – are able over time to accumulate, accumulate some more, and finally end up owning everything.
While we’re not quite there yet, we are well on the way.
A few are beginning to notice the seeming unfairness of it all, such as the author of this recent article in The New Yorker:
July 16, 2013
What do these large dollar numbers have in common: $6.5 billion, $5.5 billion, $4.2 billion, and $1.9 billion? They represent the latest quarterly net profits made by too-big-to-fail banks—in order, JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs, the last of which reported its second-quarter figures before the market opened on Tuesday.
Five years after being bailed out by the federal government, the U.S. banking system hasn’t merely recovered from the financial crisis that brought it to the brink of collapse. It is generating record profits—the sorts of figures usually associated with oil giants like ExxonMobil and Royal Dutch Shell. During the past twelve months, for example, JPMorgan, the country’s biggest bank, has earned $24.4 billion in net income.
Let’s begin with trading. In the aftermath of 2008, there was much talk of banks getting back to basics, which meant concentrating on lending to businesses and households, and jettisoning many of their investment bankers, whose generously remunerated antics had helped to bring on the financial crisis. (…) In the latest quarter, Citigroup’s investment-banking arm generated more than sixty per cent of the bank’s net profits, and JPMorgan’s investment bank generated more than forty per cent of the firm’s net profits.
What exactly did JPM do to ‘earn’ more than $24 billion over the past 12 months? Did they build millions of appliances? Install thousands of critical power systems? Build and install high-definition CT scanners?
In fact they did none of these things, which are just three out of hundreds of accomplishments of GE, which reported a 12-month net profit of just $17 billion while employing over 300,000 workers.
What JPM did was: trade on the markets, lend to speculators, and use its inside advantage to skim what it could off of the Fed’s monthly $85 billion of free money. Not that there’s anything illegal with that, but perhaps we should really be asking ourselves if this truly serves our society to anoint financial players with the privilege of walking off with the vast majority of our total national and global income.
Unsustainable Systems Ultimately End
The alarming growing wealth gap in developed nations is a predictable indicator of the obvious inequities involved in this system. Those not in the top 1% are finding themselves as modern-day feudal subjects – bound by debt or lack of property – to a global corporatocracy (corporations being the new aristocrats).
But the stability of this parasitical system begins to weaken quickly when the lifeblood it depends on begins to dry up. And that’s when things can begin to go south in a hurry: a crack-up of the financial system, civil unrest, government breakdown – that kind of scary strife.
In Part II: The Indicators of Instability to Watch For, we discuss the 3 most important danger indicators to monitor. These are the areas where the cracks will first appear, and will give those watching closely advance warning to adopt extremely defensive financial, physical, and emotional positions.
The vast concentration of wealth into so few hands is creating systemic instability, and if it continues long enough, it will prove to be a fatal ailment of not just any one particular republic, but all of them.