Corner House Papers On Background To The Crisis

The following Corner House papers are useful contributions to debate around the current global financial and economic turmoil:

1) 'A (Crumbling) Wall of Money: Financial Bricolage, Derivatives and
Power'

http://www.thecornerhouse.org.uk/pdf/document/WallMoneyOct08.pdf


2) 'Taking it Private: Consequences of the Global Growth of Private
Equity'

http://www.thecornerhouse.org.uk/pdf/document/PrivateEquitySept08.pdf


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 in
these 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 House


1)
'A (Crumbling) Wall of Money:
Financial Bricolage, Derivatives and Power'
by Nicholas Hildyard

http://www.thecornerhouse.org.uk/pdf/document/WallMoneyOct08.pdf

The current financial crisis is closely linked to the emergence of a
'shadow banking system' that financial entrepreneurs have created over
the past 30 years. Their goal in doing so was not only to make huge profits,
largely for themselves, but also to circumvent regulation and to offload
risk 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 equity
paper). 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 began
tumbling 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, trading
and 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 a
genuine public interest at its centre.


2)
'Taking it Private:
Consequences of the Global Growth of Private Equity'
by Kavaljit Singh

http://www.thecornerhouse.org.uk/pdf/document/PrivateEquitySept08.pdf

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 have
created 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 and
distinctive 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 its
growing importance in Southern countries.

It concludes with an outline of private equity’s vulnerabilities that may
provide opportunities for public concerns to be addressed.