1997 Asian crisis
Chossudovsky said that from the 1980s onwards, the structure affecting developing countries remains the same. “It’s part of the same process, it leads into another major occurrence which is the Asian crisis of 1997,” he said.
He maintained that the Asian crisis is somewhat a variant of the traditional IMF-WB reform because it was an attempt on the part of Western financial institutions to destabilize currencies and to trigger the collapse of the national currencies with the view of gaining control of essential bank reserves and of gaining control over assets. Countries most affected Korea, Indonesia, Thailand, Philippines were targeted by institutional speculators. The region was impoverished.
Chossudovsky said the whole movement from ’97 onwards has been essentially to develop a whole range of speculative instruments which have led financial markets, commodity markets, foreign exchange markets, oil markets to go up and down using speculative instruments.
Chossudovsky said the Wall Street conglomerate were largely but not exclusively behind the onslaught of these speculative attacks.
He said that Malaysia was the only country in Southeast Asia which managed to resist the attacks of speculators. “They did this because they have some carefully-designed mechanisms to protect their foreign exchange market and defend themselves against the speculators.”
Financial conglomerate
Chossudovsky said that in the wake of the Asian crisis, the 1999 Financial Services Modernization Act (FSMA), a major piece of legislation in the United States, came. He said the FSMA is important in understanding the present crisis.
The FSMA repealed the Glass-Steagall Act of 1933 which prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. Enacted during the Great Depression, it protected bank depositors from the additional risks associated with security transactions.
Chossudovsky deemed, “The FSMA allows for the formation of global financial conglomerates through the merger of the commercial banks and the stock brokerage companies, export banks, merchant banks together with the large insurance companies and accounting firms.”
He cited as an example the JP Morgan Chase which is the integration of Chase Manhattan, a commercial bank and JP Morgan.
Chossudovsky said, “This is extremely important because it essentially means that the functions of credit now are overseen by institutions which are involved in speculative activity and the reason why they introduced this separation in the 1930s was precisely to prevent the kinds of occurrences.”
The Act, said Chossudovsky allows speculators to control the financial system. He said there are several speculative actors operating commodity markets and energy markets which push the price up and down . “Then you have a situation where the oil market has absolutely no link to the actual cost of production of a barrel of oil. The price has no relationship to the real cost of the commodity which is the object of speculation. The same thing with food commodity where speculators push up the prices of rice, grain using exactly the same mechanism,” he explained.
Chossudovsky further said, “When I say global financial architecture is that once it was established on Wall Street that commercial banks and stock brokerage firms coalesce, it became a worldwide process. Today, we no longer have a tight separation between commercial banks and stock brokerage firms and that means that financial institutions are increasingly controlled by speculators and then we have the development of all the derivative instruments, the fact that the hedge funds are not regulated in any way. All the US banks have their hedge funds where they can transfer money. The hedge funds are essentially controlled by fund managers who are private individuals but they may be connected to the interest of particular financial institutions or banks.”
“In the present context, it is interesting to note that every single financial institution in America, JP Morgan Chase, Bank of America say they are technically bankrupt. Now you say why are they technically bankrupt? They’ve been taking money from their own bank and transferring this money to their related hedge funds and they are also using the money from the bailout to enrich themselves. What you have is that FSMA setting the stage for the current crisis,” he added.
