Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

Where do the loyalties of players like Geithner, Summers, and Rubin lie? Of course, they and their network fiercely argue that their ideas are good for the entire economy, while flouting both the competition of business and the accountability of government. They insist that their intentions are always the best. Yet with their feet so firmly planted in their own powerful network, it is reasonable to ask to what extent their interests converge with ours.

Another notable characteristic of shadow elites is that they “fail up.” Summers’s career epitomizes that principle, one that depends on flexian ways and means and on being part of a powerful trust-based network. One might think that with his track record both in government and as president of Harvard, 82Summers would have been the last person under consideration in July 2013 as it emerged that he was a leading candidate to become chairman of the Federal Reserve, the single most powerful position in global finance. While he eventually withdrew his name from consideration amid criticism from a number of quarters, he was apparently within a hair’s breadth of being named to the post by President Obama.

While failing up, members of shadow-elite networks also rewrite history. Rubin, after the fact, has tried to fudge the story of his opposition to derivatives regulation. 83Summers is just as brazen, if not more so. He said in a speech that he wasn’t convinced that financial “innovation” had caused the crisis, a convenient narrative if ever there was one. 84(And a bit hard to square with what he’d said the previous year on PBS when asked if he had any responsibility for the crash. He contended that credit default swaps were “the center of the issue now,” and this financial innovation “barely existed [during his tenure at Treasury].”) 85Interestingly, in that same interview, he used the words “mistakes,” “error,” or “failure” five times, pointing not at himself but squarely at Wall Street and corporate America. 86

Given Rubin’s and Summers’s roles in helping foment economic crisis, their accounts of history are at best a radically incomplete telling of their roles and, at worst, deceptive in their revisionism. As the likes of Rubin and Summers fail up and cover up, meanwhile, we’re the ones who feel the repercussions of the economic crisis. That is not all: while touting the virtues of the “free market,” their set has helped facilitate exactly the opposite, markets that are intermeshed with the power and billions of the state. Much has been made of the failure of the “free market” in the financial calamity of the past few years, but what is free about a market that has been “regulated” by executives, insiders and lobbyists, not to mention shadow lobbyists and shadow elites? It is set up not just to vastly enrich insiders, but also to protect them from the consequences of failure that a true free market would demand. Within this closed culture, the ideals of the free market are espoused in repeated performances by insiders—but not upheld. This disconnect between how the system purports to work and how it actually does is stark—and reminiscent of communism.

And the public, once again, is left with little to trust.

THE LOCOMOTIVES: WITHHOLDING INFORMATION

A phenomenon like systemic decline in accountability may be easier to see on a much smaller canvas than the United States. Looking across the Atlantic, we encounter a similar shadow-elite network, dubbed the Locomotives, who brought Iceland’s economy to its knees as the economic crisis was unfolding in 2008. With the largest banking collapse in history relative to the size of a country’s economy, Iceland’s leaders brought about sustained devastation from which the country is still reeling. 87The group had its origins in the early 1970s, when students at the University of Iceland took control of a journal called The Locomotive . These young “free market” ideologues were attempting to bust the stranglehold that the country’s traditional family-based elite—known as the Octopus—had over life and advancement in the country. Over the next few decades, they would succeed in pushing Iceland down a reform path of deregulation and privatization (dubbed by some “neoliberalism”), that the United States under Ronald Reagan and the United Kingdom under Margaret Thatcher also were traversing. 88But the so-called Locomotive Group’s free-market fervor would lead Iceland to ruin. Ironically, but perhaps not surprisingly, the new interlocking, corrupt elite with a tight grip on power—that is, the network that they created—turned out to resemble the Octopus that they had infiltrated.

How did this happen?

David Oddsson and Geir Haarde, two of the original Locomotives, are key members of this group. Oddsson became prime minister of Iceland in 1991 and stayed in office until 2004, when the job went to his protégé Haarde, who had served as finance minister. During this time, fellow Locomotives fanned out across spheres of influence in business, law, academia, and the media, promoting the philosophies of Reagan and Thatcher. Oddsson, far from retiring in 2004, reappeared soon after stepping down—this time as head of the central bank. Oddsson and Haarde’s friend Hannes Hólmsteinn Gissurarson, described as the “leading ideologist of Icelandic neoliberalism” by a scholar at the University of Iceland, was a ubiquitous voice in Icelandic media there to support them as well as their compatriots in business, law, and other spheres of influence. 89

The Locomotives made sure that they and their allies occupied key roles in official and private venues that were essential to achieving the network’s goals. During the Oddsson era, the Locomotives privatized the publicly owned industries, with themselves and their allies in crucial institutions, such as banks, and as prime beneficiaries. There were, of course, also spillover effects. As the banks exploded in size, Iceland took on a boom feel and moved from a fishing to a banking economy. 90These policies of deregulation and privatization encouraged an incestuous intertwining of state and private power that is the essence of shadow-elite strength. On leaving office, cabinet ministers maintained the network’s influence by taking on directorships and consultancies. As journalist Roger Boyes, who wrote a book on the subject, explains: “The state was divesting some of its economic power, through deregulation and privatization, yet it wanted to retain influence. How did it do so? Through networks that ensured the placement of like-minded people in the economic engine room.” 91

The Locomotives and their allies were effective in large part because they exerted control over information and its interpretation. Often that meant withholding crucial data from the public. With vital information in their exclusive hands, shadow elites can fashion it for public consumption and thereby control the message so the public doesn’t know, literally, what it is missing. Until faced with the consequences, that is.

Claiming that their own central bank and commercial banks conducted superior research, in 2002 Oddsson shut down the government’s National Economic Institute, known for its independent analysis, when it started to question Iceland’s stability. 92A chorus of independent scholars pushed another government agency, Statistics Iceland, to publish a more accurate calculation of the country’s skyrocketing income inequality, according to two scholars who studied the case, Robert Wade and Silla Sigurgeirsdóttir. The agency continually dragged its feet. One last hope might have been an economics institute at the University of Iceland, but it was pushed to self-fund. 93That meant that it sometimes became more of a researcher-for-hire; the wider-perspective papers that might have shown severe cracks in Iceland’s economy went unwritten.