In Griftopia—another must-read for anyone wishing to understand the roots of the Occupy movement—Matt Taibbi takes us through the corruption of our government from the Age of Reagan on, from the rule-bending of the savings-and-loan collapse to the real-estate bubble, commodities speculation, and the near destruction of the world economy. As he notes, this is how the puppet masters of our banks and speculators “have stripped the last meat off the bones of American prosperity”—to the point where we’re having to sell off parking meters and turnpikes to foreign investors to make ends meet.
We’ve noted herein through the writings of Greg Palast how the “New World Order,” in the guise of the IMF and WTO, has bought and sold the Third World, and in Griftopia we see that the process is well under way in this country. Taibbi quotes an acquaintance who worked at the “derivatives desk of one of the more dastardly American investment banks. After a few years of that he decided to rake a step up morally and flee to the Middle East to go to work advising a bunch of sheiks on how to spend their oil billions.”
“I was in a meeting where a bunch of American investment bankers were trying to sell us the Pennsylvania Turnpike,” he said. “They even had a slide show. They were showing these Arabs what a nice highway we had for sale, what the toll booths looked like . . .”
I dropped my fork. “The Pennsylvania Turnpike is for sale?”
He nodded. “Yeah,” he said. “We didn’t do the deal, though. But, you know, there are some other deals that have gotten done. Or didn’t you know about this?”
As it turns out, the Pennsylvania turnpike deal almost went through, only to be killed by the state legislature, but there were others just like it that did go through, most notably the sale of all the parking meters in Chicago to a consortium that included the Abu Dhabi Investment Authority, from the United Arab Emirates.
There were others: A roll highway in Indiana. The Chicago Skyway. A stretch of highway in Florida. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities. A port in Virginia. And a whole bevy of Californian public infrastructure projects, all either already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.
America is quite literally for sale, at rock-bottom prices, and the buyers increasingly are the very people who scored big in the oil bubble. Thanks to Goldman Sachs and Morgan Stanley and the other investment banks that artificially jacked up the price of gasoline over the course of the last decade, Americans delivered a lot of their excess cash into the coffers of sovereign wealth funds like the Qatar Investment Authority, the Libyan Investment Authority, Saudi Arabia’s SAMA Foreign Holdings, and the UAE’s Abu Dhabi Investment Authority.
Go back to the beginning of the Iraqi war to trace the roots of this development. Remember, too, that the formation of OPEC following the Yom Kipur War in the ’70s left a Middle East totally pissed at the United States for its role in restocking Israel with military equipment, leading to the 1973 oil embargo and ultimately a quadrupling the price of oil—from $3 and barrel to $12.
So now it’s 2004. The United States and George W. Bush have just done an interesting thing, going off the map to launch a lunatic invasion of Iraq in a move that destabilizes the entire region, again pissing off pretty much all the oil-rich Arab nationalist regimes in the Middle East, including the Saudi despots although, on the other hand, fuck them.
The price of oil pushes above forty dollars a barrel that year and begins a steep ascent. It’s also around then that the phenomenon of the sovereign wealth fund began to evolve rapidly. According to the Sovereign Wealth Fund Institute:
Since 2005, at least 17 sovereign wealth funds have been created. As other countries grow their currency reserves, they will seek greater returns. Their growth has also been skyrocketed by rising commodity prices, especially oil and gas, especially between the years 2003-2008.
Taibbi then links the development of these sovereign wealth funds (SWFs) with the rocketing speculation in commodities—oil as well as foodstuffs—which he also details along with its resultant problems:
We’ve seen how banks like Goldman Sachs and Morgan Stanley helped engineer an artificial run-up in commodity prices, among other things by pushing big institutional investors like pension funds into the commodities marker. Because of this lack of transparency, we can’t know exactly how much the SWFs also participated in this bubble by pouring their own money into energy commodities through hedge funds and other avenues.
The CFTC’s own analysis in 2008 put the amount of SWF money in commodity index investing at 9 percent overall, but was careful to note that none of them appeared to be Arab-based funds. The oddly specific insistence in the report that all the SWF money is “Western” and not Arab is particularly amusing because it wasn’t like the question of Arab ownership was even mentioned in the report—this was just the Bush administration enthusiastically volunteering that info on its own.
Adam White, director of research at White Knight Research and Trading, says not to put too much stock in the CFTC analysis, however.
“I am doubting that result because I think it would be easy for an SWF to set up another company, say in Switzerland, or work through a broker or fund of funds and therefore not have a swap on directly with a bank but through an intermediary,” he says. “I think that the banks in complying with the CFTC request followed the letter of the law and not the spirit of the law.”
He goes on: ”So if a sovereign wealth fund has an investment in a hedge fund—which they have a bunch—and that hedge fund was then invested in commodities, I expect that a bank would report that as a hedge fund to the CFTC and not a sovereign wealth fund. And their argument would be, ‘How can we know who the hedge fund’s investors are?’ even if they know darn well.
“I think that this is very much a national security issue because the Arab states might be pumping up oil prices and siphoning off huge amounts of money from our economy,” he adds. “A rogue state like Iran or Venezuela could use their petrodollars to keep us weak economically.”
Between 2003 and 2008, investments in commodities markets soared from $13 billion to $317 billion—driving up not only the price of oil (further bloating the SWFs) but also the price of food worldwide. But it was the price of oil that ultimately led to the selling off of American assets:
The explosion of energy prices—thanks to a bubble that Western banks and perhaps some foreign SWFs had a big hand in creating—led to Americans everywhere feeling increased financial strain. Tax revenue went down in virtually every state in the country. In fact, the correlation between the rising prices from the commodities bubble and declining tax revenues is remarkable.
According to the Rockefeller Institute, which tracks state revenue collection, the rate of growth for state taxes hit its lowest point in five years in the first quarter of 2008, which is when oil began its surge from around $75 to $149 a barrel.
In the second quarter the institute reported continued slowdowns, and in the third quarter, the quarter in which oil reached that high of $149, overall tax growth was more or less flat, at 0.1 percent, the lowest rate since the bursting of the tech bubble in 2001-2.
The sell-off would soon follow, with the Chicago parking-meter affair one of the most egregious examples:
Mayor Daley, who had already signed similar lease deals for the Chicago Skyway and a series of city-owned parking garages, had been working on this deal for more than a year. He approached a series of investment banks and companies and invited them to submit bids on seventy-five years’ worth of revenue on the city’s 36,000 parking meters. Morgan Stanley was one of those companies.
Here’s where it gets interesting. What Morgan Stanley has to do from there is two things. One, it has to raise a shitload of money. And two, it has to find a public face for those investors, a “management company” that will be presented to the public as the lessee in the deal.
Part one of that process involved the bank’s Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan’s Infrastructure desk who took their presentation to the Middle East and pitched Chicago’s parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.
Here’s how they pulled off the paperwork in this deal. It’s really brilliant.
At the time the deal was voted on in December 2008, an ”Abu Dhabi entity,” according to the mayor’s office, had just a 6 percent stake in the deal. Spokesman Peter Scales of the Chicago mayor’s office has declined to date to identify which entity that was, but by sifting through the disclosure documents, we can find a few possibilities, including a group called Cavendish Limited that is headquartered in Abu Dhabi.
Apart from that, most of the investors in the parking meter deal at the time it was voted on look like they were either American or from nations with relatively uncomplicated relationships with America. The Teacher Retirement System of Texas had a significant stake in one of the Morgan Stanley funds at the time of the sale, as did the Victorian Funds Management Corporation of Australia and Morgan Stanley itself. A Mitsubishi fund called Mitsubishi UFJ Financial Group also had a stake. There were a variety of other German and Australian investors.
All of these companies together put up the $1.2 billion or so to win the bid, and once they secured the deal, they created Chicago Parking Meters LLC, a new entity, which in turn hired an existing parking management company called LAZ to run the meter system in place of cityrun parking police.
But two months later, Morgan Stanley finished off the deal:
In this case, after the Morgan Stanley investor group’s $1.15 billion bid was accepted and approved by the City in December 2008, Morgan Stanley sought new investors to provide additional capital and reduce their investment exposure—again, not an unusual move.
So, while a group of several Morgan Stanley infrastructure funds owned 100% of Chicago Parking Meters, LLC in December 2008, by February 2009, they had located a minority investor—Deeside Investments, Inc.—to accept 49.9% ownership. Tannadice Investments, a subsidiary of the government-owned Abu Dhabi In vestment Authority, owns a 49.9% interest in Deeside.
So basically Morgan Stanley found a bunch of investors, including themselves, to put up over a billion dollars in December 2008; a big chunk of those investors then bailed out to make way in February 2009 for this Deeside Investments, which was 49.9 percent owned by Abu Dhabi and 50.1 percent owned by a company called Redoma SARL, about which nothing was known except that it had an address in Luxembourg.
And what has been the effect of this in Chicago?
To start with something simple, it changed some basic traditions of local Chicago politics. Aldermen who used to have the power to close streets for fairs and festivals or change meter schedules now cannot—or if they do, they have to compensate Chicago Parking Meters LLC for its loss of revenue.
So, for example, when the new ownership told Alderman Scott Waguespack that it wanted to change the meter schedule from 9 a.m. to 6 p.m. Monday through Saturday to 8 a.m. to 9 p.m. seven days a week, the alderman balked and said he’d rather keep the old schedule, at least for 270 of his meters. Chicago Parking Meters then informed him that if he wanted to do that, he would have to pay the company $608,000 over three years . . .
But the most obnoxious part of the deal is that the city is now forced to cede control of their streets to a virtually unaccountable private and at least partially foreign-owned company. Written into the original deal were drastic price increases. In [aldermen] Hairston’s and Colon’s neighborhoods, meter rates went from 25¢ an hour to $1.00 an hour the first year, and to $1.20 an hour the year after that. And again, the city has no power to close streets, remove or move meters, or really do anything without asking the permission of Chicago Parking Meters LLC . . .
“It’s just something that’s going to be hard from now on,” he says. In the first year of the deal, Alderman Hairston went to a dinner on Wacker Drive near the Sears Tower (now the Willis Tower, renamed after a London-based insurer), parked her car, and pressed the “max” button on a meter, indicating she wanted to stay until the end of that night’s meter period. She got a bill for $32.50, as Chicago Parking Meters LLC charged her for parking overnight.
“There are so many problems—I’ve had so many problems with them,” says Hairston. “It tells you you’ve got eight minutes left, you get back in seven, and it charges you for the extra hour. Or you don’t get a receipt. It’s crazy.”
But to me, the absolute best detail in this whole deal is the end of holidays. No more free parking on Sunday. No more free parking on Christmas or Easter.
As Matt Taibbi says, “Welcome to life in the Grifter Archipelago.” Money does not just disappear, not when the Fed is pumping billions, nay trillions, into propping up those “too big to fail.” In the great balance sheet, those who are debited—the destitute, the veterans, the working poor, the women, the middle class in general—are offset by credits elsewhere—to the financiers, the bankers, the shysters, the speculators, and, yes, the scumbag politicians, whose “tweaking” of the laws and regulations from the Age of Reagan on have allowed this whole crapshoot to happen.
Reblogged this on Downtown Local.