Derivatives and Impoverishment
by Jim Harney

I spend time exploring the world of derivatives. Few know about this financial instrument taking the breath out of Wall Street. It brings unprecedented profits to the elite. The elite prefer to keep it secret; shared only by wealth accumulators, folks with excess wealth who can play casino capitalism and bring home huge profits. It means they can continue making profits without having to account to anybody other than their portfolio of investments: the bottom line is the dollar.

I know little about derivatives myself, but I want to crack the wall of an imposed secrecy that the financial community sets up to keep this world distant from common folk. Derivatives have Wall Street on an economic roll producing mega profits, the likes of which have never been recorded in human history.

Wealth accumulators with vaults of money at their disposal, wondering how to use it, and if they lose a billion, they don’t lose any sleep over it. This financial instrument that has Wall Street on a tear is off limits to wage earners, too many of them at a point of falling into poverty even though they spend hours working to meet basic needs.

We’ve got a class system going throughout the world that would make those who lived in the time of Louis XIV blush at how wide the divide lies between rich and poor. The wealth gap between those who have and those who don’t in our country, never mind the rest of the world living in slave-like conditions on $2 or less, is the widest in industrialized countries.

I spend time traveling to Latin America, hanging out with the humiliated of the planet, the folks growing poorer by the minute, impoverished by powerful institutions that come down hard on their backs. I try not to use the word poor, for it doesn’t imply that institutions make people poor, some get rich off the poor, there are impoverished people because there are the rich. I photograph faces impacted by economic decisions made in distant parts of the world that prioritize money; dismiss human beings and the earth. And I spend time talking about derivatives: some say I’m crazy. A few say the conversation on the matter needs to continue for there is too much at stake not to do so.

I work on a premise that it makes sense to tackle this issue: if I don’t a recent trip to Mexico talking with mostly Central Americans means that I’m shy of the mark in opening up a space where a bit of utopia made from the bottom up can take place in the battle against capital. Or as Ignacio Ellacuría put it so well: to create a civilization of poverty over against capital. When Ellacuría referred to poverty, he meant living in a way that has relationship built into it with each other and the earth around us; living in a way that doesn’t have badgering built into it. Derivatives exist in a world absent of relationship, production, a hands-on take about the daily lives of most people on the planet. It doesn’t produce a tortilla, no peanut butter, and little job creation behind them. It’s one of the explanations as to why poverty creation continues to grow in the wealthiest country in the world where 35 million people; mostly children, live at the bottom of the world.

But instead of anything real produced our prison system grows; alienation abounds, little money pours in public sectors to support generations to come. Workers go to work and experience “presentism” – daydreaming, not concentrating, and causing corporations to worry at the loss of more than $1 billion in production.

A recent article in the Financial Times about derivatives says that a particularly juicy one called “credit derivatives” has a market worth $12 trillion; to put it in perspective it’s the size of the U.S. economy. It’s digital money moving around the world quickly seeking profits wherever they are regardless of consequences to local populations when money, overnight, is pulled out: Brazilians know what it’s about; Argentines know what it’s about, as do Mexicans, Russians and Thais. When capital abandoned these areas the market came tumbling down leaving millions of further impoverished human beings in its wake .

I come to the issue of derivatives out of “an option for the poor” frame of reference that drove many in Latin America to place themselves in situations where they lost their lives because they spoke publicly about “structural violence,”– faith-based communities used “structural sin” as a way of describing the challenge that brought them to do things that captured the attention of the world. They organized. They asked hard questions as to why so many fell into impoverishment; they dug deep to find the spiritual, political and economic reasons for the poisoning of society that made a few rich and many poor.

In broaching the topic of derivatives most people yawn. To get two minutes on the subject in political conversation brings a smile of success. Yet, it’s a topic that the mega rich know about and have people spending huge chunks of time diving into them making them richer by the minute.

Hedge funds, private investment companies that skirt regulations, arrange deals with investors that are peculiar to the needs of institutions, companies and individuals who have excess money to hurl into high risk bets take a liking to derivatives. Hedge funds have a field day dealing in derivates. They’re opaque. They’re unregulated. They thrive in secrecy. The Securities and Exchange Commission has a hard time controlling them. No one knows what they’re about - even those who bet on them, even those who lose billions on them. These private, secret firms manage a trillion and a half dollars: no small change.

It comes as no surprise that hedge funds will invest 28% more using this financial instrument of recent creation over the last couple of decades. Hedge funds charge big money to do business with them and provide huge profits; they take big fees for their services. They’re the talk of the town on Wall Street; the Brits are getting into them big time as well, so much so that they’re competing with the Street. Citigroup, the world’s largest financial institution, has their best people breaking off and opening hedge funds, and the world’s largest financial institution providing start up - billions of dollars to get them going on the right path.

Derivatives, whose niche lies in the secret belly of hedge funds, are off limits to most of us who will never play casino capitalism on an economic roulette world that always falls on red. They play a huge role in widening the divide between those who have and those who don’t. Between 1972 and 2001, beginning when the dollar fell off the gold standard and the ruination of a self imposed regulation of capital meaning a company couldn’t invest any more than they had in gold reserves, taking the dollar off of the gold standard meant an unparalleled amount of capital flooded the market, the income of the top one percent of the population grew 87 percent. One-tenth of one percent of the population saw its wealth balloon by 181 percent and then the wealth of one-half-of-one percent saw it reach skyscraper heights rising to 497 percent. Between now and the year 2050 the super-rich will transfer money to sons and daughters roughly an “estimated $41,000 billion-$136,000 billion.” There is plenty of money out there, yet inequality in the world grows. The US of all industrial countries has become the most unequal in the distribution of capital.

Derivatives, an economic of weapon of mass destruction; the crack cocaine of financial markets abets an environ of unemployment, imprisonment and death because they have little to do with the real world. They make a few rich.  The billionaire club rose by a hundred last year: now the number is 793.  When I look around the internet I still see people saying the “club of 500 billionaires.”  Life moves so fast and we just can’t keep up with it even around the statistics.  But one thing is for sure: there is more poor than ever before.  Yet corporate profits are at a 35 year high.  It’s taken for granted now that a company dumps a subsidiary if it can’t come up with 20% profit. 

Then because of insane consumer demand, and competition trying to get a product in Wall-Mart space in one of their giant boxes, companies are merging to compete with the retail monster that thrives off of pushing for the cheapest deal, regardless of the violence and bloodletting necessary to keep it that way.  Remember that Wall-Mart has as many people working for it (1.3 million) as our country has military people. 

Some of the reading that I’ve come across in the FT has to do with unilateral trade agreements the US has pulled off which amount to 18; CAFTA (the Central American Free Trade Agreement) just one of them.  There was some hope in recent Costa Rican elections that took place that CAFTA might die dead in its tracks.  The two candidates had dramatically different opinions about the trade deal that includes the Dominican Republic.  Otto Solis ran against center-right Nobel Lauriat Oscar Arias who supports CAFTA and lost. Hope hasn’t totally turned to dust with the Arias victory.  Solis’ Party controls enough seats in the Assembly that it might be able to block the needed votes for the trade agreement to go through. 

The CAFTA agreement is insignificant in the bigger picture of those who control the world because financial capital looms much larger in other parts of the world like emerging market economies in Argentina, Brazil, Korea and Thailand.  Asia draws much more attention on the part of investors. Chomsky talks about the importance of taking into consideration a tripolar situation that exists in the world made up of the US, European Union and Asia. Investors call Japan, China and the US, the “dollar zone.” Hedge funds are becoming legion in all three areas. The Chinese are now considering it, but concerned at what would happen if the Juan appreciates which the Bush Administration wants to see happen and how that would attract speculative money into the area reaping the benefits of strong juan. In currency markets where people buy and sell money profits are high, it’s one of the most prominent derivates, along with bonds and the buying and selling of debt as emerging markets like Argentina, Brazil and Mexico have done much to the delight of investors, most of whom live in the US, EU and Japan.

Little financial capital gravitates to Central America; although CAFTA will benefit, a Salvadoran elite who control Salvadoran Banks gain access to hundreds of thousands of Salvadorans living in the States and who send home over $2 billion in remittances every year to their families. Salvadoran Consulates give out identity cards meant to bring the undocumented into financial markets where they can take out loans, and a mortgage on a home; but they’re still not citizens. The identity cards bring them into financial flows know as remittances: worldwide, migrants account for $169 billion in money sent to their families in country of origin.

No wonder Central Americans flee their country and head to the states; there is little production other than in the maquila industry – the sweatshop world that thrives on poor wages for mostly women, in the Mass-sized country, which is now virtually doomed by Chinese largess in the sweatshop business, making it number one in foreign direct investment (FDI).     

Speaking about unilateral trade deals: Colombia just entered one with the US.  Those who look at Uribe, the President, as the US’s man in Latin America, say that more than 2.5 million jobs stand to go down the drain.  With trade deals, mergers and acquisitions (M&A), US pension funds where bullish liquidity abounds, actual money in hand, going into derivatives (a financial tool that derives profit off of some asset like debt, mortgages, buying and selling money) one thing is for sure: more job loss. Most trade deals come in big on the service sector which comprises 20% of the US economy.  It’s where the “new economy” lies.  All the while in Latin America the informal sector, where people use their own imagination to eke out an existence continues to grow throughout the Southern Hemisphere.  It’s in that part of the economy where people live on less than a dollar a day.  

Last year Colombia held the prize as the most bullish stock market in Latin America.  Why? Because the state privatizes everything. The World Bank, and IMF (International Monetary Fund) stress privatizations as part of market fundamentals; shy away from them and a country doesn’t get a loan.  Privatizations generate money to finance debt.  For workers it creates dread: unemployment when the private sector takes a company over and scotches workers.  A move that pleases investors; it means more profits.  Those lucky to hold a job have salaries frozen, they work longer hours.  It’s a set up that leads to violence; exacerbated hunger and widespread discontent amongst the impoverished.      

The financial system in vogue, supported by armies and bloodletting, has a profound effect/affect on the people that I met when I visited that war-torn country in 2001.  

What does it take to bring home the point that war in Colombia rages, neither because of drugs, nor concern for democracy, or assistance to the poor.  It’s about capital, about property.   

A vicious battle takes place to make capital move even faster as the Doha Round of the WTO battles on with powerful transnationals backing it, badgering fragile economies to give in on the agricultural-capital penetration of markets.  The transnationals want the service sector to expand because that’s the area where surplus pension money wants to go to yield astronomical profits.  The US prizes capital and the market that embellishes it, makes it Mammon regardless of consequences.  It remains a question as to whether the US and EU will budge on subsidies to agriculture in a way that will accommodate G-20 countries that want them eliminated.

As I write I’m am trying to mix feeling, passion, love for possibilities to open up a new work where something new can insert itself and take us by surprise: energize us.  In the midst of this reflection an insight from Delegate Zero, you know, he was the guy known as Subcomandante Zero who moved in the mountains of Chiapas.  Now he walks the streets of the country, speaks public places. 

Zero reflects on theory in a Mexican Plaza.  Masked and with his pipe in hand he says: “If the police and army are overseers of the good conduct of a citizen while people are displaced, exploitation and racism common, then who takes care of the good conduct of intellectuals in their theoretical analysis? 

“If the juridical system is ‘rational and human’ the violent imposition of capital has judges, watchman, police and jails.  What are the equivalents in the Mexican culture, in research and in the academy, in theoretical production, in analysis and debate about ideas?” 

Zero proposes an answer:

“The Answer: The intellectuals from above tell us what is science and what is not, what is serious and what is not, what is worth debating and what is not, what’s true and false, in short what is intelligent and what isn’t.”

He says that “capitalism not only recruits intellectuals but produces them.” 

I often wonder how the tradition that we cherish produces intellectuals ready to reach out to others, to the threatened.  Certainly the capitalist class doesn’t support that kind of passion for learning that leads one to real life where suffering and death goes on daily, while so many look the other way, refusing to bear the pain, bring it to an understanding of themselves in relationship with others.  If that were the case and people did, how would the market be able to survive, with it’s craving to destroy community unconnected to consumption, focusing on things rather people. 

A prioritization of the Other brings a human being in conflict with capital and those who watch over it.  For once the other appears and we listen to her than there is little room for objectivity and neutrality, words that Zero talks about as deadening the human spirit. 

But what I’ve always liked about Zero both as Subcomandant and Delegate is his passion for those threatened by capital: today its humanity.  It’s all of us. That’s a hard one to take in, for it requires a posture that breaks with the times that says it’s the others who threaten.  Civilized, educated people are the ones who keep order in the world, meanwhile most of humanity keeps bellowing out about the need for peace and justice in the world.  The cry falls on deaf ears.

We’ve got our work cut out for us.