THE PRIVATIZATION OF FINANCIAL
GOVERNANCE
AND THE US BANKING COMPLEX
Dr. Oscar Ugarteche Galarza
IIEC UNAM
SNI I
ugarteche@iiec.unam.mx
The development of the
international financial
architecture 1.


.
For the past two hundred years the
international financial architecture has been
built by major leaps. As risk becomes
unmanageable, institutions develop to cover
un wanted risk.
This was ther case in the 1870’s with the
Corporation of Foreign Bondholders and what
came with it in terms of instruments including
the gold standard.
The development of the
international financial
architecture 2



Again in the 1930’s a major shift was observed as
the existing institutions did not foresee the crisis nor
were able to resolve it. Thus came the Hoover
year, the end of the gold standard, the exchange
stabilization fund,the foreign bondholders
committee, and the seeds of the IMF
The IMF would do the information gathering in a
grander scale.than the Office of Economic
Intelligence of the League of Nations and before
that the London CFB did,
All of that was meant to stabilize the world
economy.
The development of the
international financial
architecture 3
 Then
came the crisis of the 1970’s, the end
of the keynsian revolution and of Bretton
Woods.
 This was followed by a process of financial
deregulalion starting from the United
States with the Mac Kinnon and Shaw
concept of interest rate lliberalization and
the end of financial repression..
A new financial system
developed
 The
question is if what developed was a
system in scientific terms or if what
happened was the development of a
financial and banking complex that led to
a banking complex.
 The relevance of this is what we are going
to address
The concept of a banking
complex paraphrasing
Eisenhower

“This conjunction of an immense financial
establishment and a large banking industry is
new in the American experience. The total
influence -- economic, political, even spiritual
-- is felt in every city, every State house, every
office of the Federal government. We
recognize the imperative need for this
development. Yet we must not fail to
comprehend its grave implications. Our toil,
resources and livelihood are all involved; so is
the very structure of our society.”
The incidence of the banking
complex
 Public
policy formulation in the United
States must be explained. The combined
action of the banking sector on the
Government - through the lobbies – ends up
in the representation of banking sector
interests in the Government– through the
naming of the Secretary of the Treasury.
This is the role of the banking complex
How can a complex be
identified?
 Size
in the economy
 Size as employer
 Fiscal benefits
 Political presence in the executive power
 Incidence in the legislative
 Financial Results
Size in the economy
CUADRO 1
Estados Unidos - PIB (Por producto)
(Percentaje del PIB)
Transaccion
1970 1980 1990 2000 2009
PIB
100 100 100 100 100
Valor agregado bruto a precios básicos,
90.94 91.25 92.58 93.31 93.09
total actividad
 Agricultura, caza and bosques;
3.12 2.63 1.92 1.11 1.03
pesquería
 Industria, incluyendo energia
26.23 25.89 21.72 17.20 14.40
 Construcciòn
4.75 4.51 4.24 4.67 3.86
 Ventas al por mayor y menor,
reparaciones; hotelerìa y restauraciòn; 21.43 20.99 20.25 18.70 16.92
transporte
 Intermediaciòn financiera; bienes
15.95 17.98 22.95 29.55 31.56
raices, arrendamiento financiero y otros
 Otras actividades de servicios
19.46 19.26 21.49 22.07 25.31
Impuestos menos subsidies en productos
8.41 7.15 6.89 6.69 6.91
Discrepancia estaditica
0.65 1.60 0.53 0.00
Source: OECD, National Accounts
2010
100
93.10
1.10
15.13
3.49
16.95
31.21
25.22
6.90
-
Size as employer
Finance,
insurance, real
estate, rental,
and leasing
Finance and
insurance
Federal
Reserve banks,
credit
intermediation,
and related
activities
Securities,
commodity
contracts, and
investments
Insurance
carriers and
related activities
Funds, trusts,
and other
2004
2005
2006
2007
2008
2009
2010
8137
8267
8428
8382
8223
7844
7735
5973
6067
6193
6159
6029
5784
5720
2850
2909
2953
2898
2750
2618
2566
768
796
825
858
871
816
803
2270
2274
2325
2315
2319
2265
2266
Fiscal benefits
PIB
Total bancos, valores, seguros,
fondos, bienes raíces,
alquileres,
y arrendamiento financiero
excedente/PIB
salarios/PIB
impuestos/PIB
2004
2008
2009
2010
100%
100%
100%
100%
79.77%
14.99%
79.90%
14.81%
80.68%
13.87%
80.27%
14.18%
5.24%
5.29%
5.45%
5.56%
Executive Power: before and
after 1979
David M.
Kennedy, Utah Jan. 22, 1969 - Feb. 11,
1971
John B.
Feb. 11, 1971 - Jun. 12,
Connally,
Texas
1972
George P.
Shultz, Illinois Jun. 12, 1972 - May 8,
1974
William E.
May 8, 1974 - Jan. 20,
Simon, New
Jersey
1977
W. Michael
Jan. 23, 1977 - Aug. 4,
Blumenthal,
Michigan
1979
Lawyer Continental
Illinois Bank
Lawyer oil industry
Lawyer oil industry
Business Lawyer
CEO Bendix, Unisys,
Industrial Military
complex
illiam Miller,
Aug. 6, 1979 - Jan. 20, 1981
Former president of the FED
Donald T. Regan,
Jan. 22, 1981 - Feb. 2, 1985
CEO Merril Lynch Pierce fenner
and Smith Investment bank
Corporate lawyer oil industry
James A. Baker, III, Feb. 3, 1985 - Aug. 17, 1988
Nicholas F. Brady,
Sep. 16, 1988 - Jan. 20, 1989
Jan. 20, 1989 - Jan. 17, 1993
CEO Dillon Read investment
bank
Lloyd M. Bentsen, s Jan. 22, 1993 - Dec. 22, 1994
Consolidated American Life y Lincoln
Consolidated, Seguros antes
Robert E. Rubin,
Jan. 10, 1995 - Jul. 2, 1999
Lawrence H.
Summers,
Jul. 2, 1999 - Jan. 20, 2001
CEO Goldman Sachs
imnvestment bank
Academic on finainclal issues
Paul H. O'Neill,
Jan. 30, 2001 - Dec. 31, 2002
Military industrial complex
John W. Snow,
Feb. 3, 2003 - June 29, 2006
Military industrial complex
Henry M. Paulson,
Jr.,
Jul. 10, 2006 - Jan. 20, 2009
CEO Goldman Sachs
imnvestment bank
Timothy F. Geithner, Jan. 26,2009 - Present
Former undersecretary of Rubin
and Summers and ex Pres of NY
FED
GRAFICO 1. PIB Y Finanzas, seguros, bienes raíces,
Alquileres y arrendamientos financieros
(Porcentaje de crecimiento)
Source: Real Value Added by Industry , Bureau of Economic Analysis
RANGO
Sector
MONTO
Peso
1
Finanzas/segur/bienes raices
$372,005,817
21.1%
2
3
4
Otros
Negocios varios
Abogados y lobbistas
$262,610,710
$239,380,099
$156,747,409
14.9%
13.6%
8.9%
5
6
7
Ideologia/tema unico
Salud
Comunicaciones/Electronica
8
Energia/Recursos naturales
9
10
11
12
13
Construcción
Trabajo
Agronegocios
Transporte
Defensa
Total
$69,899,432
$69,573,860
$50,231,068
$42,840,528
$17,579,225
$1,766,311,682
4.0%
3.9%
2.8%
2.4%
1.0%
100%
Who is giving
$149,878,483
8.5%
to the 8.3%
$147,136,594
$108,870,209
6.2%
presidential
$79,558,248
race? 4.5%
Contribuyent
e
Goldman
Sachs
Bain Capital
National Assn
of Realtors
Clarium
Capital
Management
Crow Holdings
Jw Childs
Assoc
Friess Assoc
Bank of
America
Monto
$5,448,003
$4,663,378
$4,069,474
$3,787,200
$3,697,600
$2,792,700
$2,598,889
$2,529,637
Who in the
financial sector
The financing of the
presidentail campaign
THE TEN LARGEST BANK
HOLDING COMPANIES
k
Institution Name (RSSD ID)
Location
Total Assets
1
JPMORGAN CHASE & CO.
(1039502)
NEW YORK, NY
$2,290,146,000
2
BANK OF AMERICA
CORPORATION (1073757)
CHARLOTTE, NC
$2,162,083,396
3
CITIGROUP INC. (1951350)
NEW YORK, NY
$1,916,451,000
4
WELLS FARGO &
COMPANY (1120754)
SAN FRANCISCO,
CA
$1,336,204,000
5
GOLDMAN SACHS GROUP,
NEW YORK, NY
INC., THE (2380443)
$948,981,000
THE TEN LARGEST 2
6
METLIFE, INC. (2945824)
NEW YORK, NY
$825,188,490
7
MORGAN STANLEY
(2162966)
NEW YORK, NY
$748,517,000
8
U.S. BANCORP (1119794)
MINNEAPOLIS,
MN
$353,136,000
9
BANK OF NEW YORK
MELLON CORPORATION, NEW YORK, NY
THE (3587146)
$330,490,000
10
HSBC NORTH AMERICA
HOLDINGS INC. (3232316)
NEW YORK, NY
$317,482,38
MUCHAS GRACIAS