(with acknowledgements to Sarah Farrow)
'A (Crumbling) Wall of Money: Financial Bricolage, Derivatives and Power'
'Taking it Private: Consequences of the Global Growth of Private Equity'
Even without really understanding the current 'financial 9/11', one can pick up a sense of fear, panic and uncertainty. Blame for the crisis is attributed to 'greed and fear' . . . or insufficient regulation . . . or too high bonuses paid to financial whizz kids . . . or irresponsible lenders pushing cheap loans . . . or irresponsible individuals accepting them . . . and so on. But the crisis also needs a deeper structural analysis of how financial markets have changed over the past 2-3 decades -- because it is these changes that lie behind the current financial meltdown, particularly those changes associated wtih the evolution of 'new financial instruments' and 'vehicles' such as derivatives and private equity. And because the neoliberal edifice has been so spectacularly shaken inthese past few months, the crisis also provides an opportunity for the public to redefine what constitutes 'the public interest' and to reassert its claims over how finance should be managed and allocated and in whose interest.
For the past couple of years, The Corner House and its colleagues have been trying to understand the impacts of the new finance on the ground --for instance, on communities affected by mining or plantations -- and to analyse what difference it might make to solidarity strategies with affected communities: Is capital just capital, whether it comes from hedge funds, private equity, banks or the state? Or does the very structure of this new finance create new challenges?
Our work on this is still unfolding, but with the financial landscape changing by the day, we thought we should share with you now our analysis to date.So we have posted on our website two papers:-one exploring the 'shadow banking system'-the other private equity.
Because events are still unfolding so rapidly, however, we are posting them as 'works in progress' that we aim to update as soon as we can. Within the next few weeks, we hope to post other papers on sovereign wealth funds, hedge funds, and the liberalisation of the banking and financial system that enabled the crisis to happen. We hope you find them the papers useful. Your comments and feedback are always welcome.best wishes from all at The Corner House1)
'A (Crumbling) Wall of Money:Financial Bricolage, Derivatives and Power'by Nicholas Hildyard
The current financial crisis is closely linked to the emergence of a'shadow banking system' that financial entrepreneurs have created overthepast 30 years. Their goal in doing so was not only to make huge profits,largely for themselves, but also to circumvent regulation and to offloadrisk onto others throughout the financial system.This system relied on the creative use of 'new financial instruments'--in particular what are called derivatives -- that allowed financiers to generate easy credit by taking high risk bets while offloading the risks on to others.
The 'wall of money' they created fuelled a boom in corporate mergers and acquisitions across the United States and Europe (see also private equitypaper). It provided huge sums for companies involved in mining, biofuels, private health care, water supply, infrastructure and forestry to expand their activities.When the 'bets' began to go wrong, however, the pyramid of deals begantumbling down - the bankers have certainly suffered but it is the public that will continue to carry the costs for many years to come.
This paper explores and summarises:-how the shadow banking system was constructed and why;-the history of the derivatives, 'hedges' and speculation that underpinned this new finance;-how derivatives are being used to get around banking, accounting, tradingand public finance rules;-the negative impacts on the ground even before the current crisis;-recommendations put forward in the past few months on how to fix a broken system; and-how best to seize the moment to pursue a different system that has agenuine public interest at its centre.
'Taking it Private:Consequences of the Global Growth of Private Equity'by Kavaljit Singh
Private equity is now an integral component of the world's financial system. It was behind many of the multi-billion buyout deals, and mergers and acquisitions that swept across the US and Europe. Its activities havecreated a new type of corporate conglomerate that has reshaped the way business is conducted. As a new form of corporate ownership, private equity poses new challenges to labour unions, NGOs and community groups; it has a significant anddistinctive influence on taxation policy, corporate governance, labour rights and public services, and thus deeply affects society, human rights and the environment alike.
These challenges are especially clear in Asia, which has become more attractive for private equity firms since the 'credit crunch' diminished the scope for huge deals in Europe and North America.This paper looks at the global growth of private equity and its social, environmental and political impacts, using India as a case study of itsgrowing importance in Southern countries.It concludes with an outline of private equity's vulnerabilities that may provide opportunities for public concerns to be addressed.
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