By - - and Roberto Savio
ROME, Jul 11 2011 (IPS)

The behaviour of the banks reminds one of the Balkan folk dancers who face and applaud each other and then turn their backs. They lend more money than they have available to creditors who will not be able to repay it, knowing that the government will rescue them with public funds to keep them from going bankrupt and causing economic chaos. Once they get their hands on the money, the cycle begins again.

No one knows how long this dance will go on for. What is certain is that in Europe, the crisis is not in Athens but in Brussels. The governments of the eurozone allowed Greece into the monetary union without performing the necessary evaluations despite suspicions that its balance sheets contained false entries and that Athens’ deficit was far higher than it declared.

Once the truth came to light there were two alternatives: accept that Greece was bankrupt and pass the bill to all who helped it build up its colossal debt, including US and European banks, or make the governments of the region pay. EU governments are making monumental loans to Greece to keep it afloat knowing full well that it will never be able to pay them back. In effect the more Athens cuts social spending, the less revenue it will take in and the fewer jobs there will be. The result: tax revenues plummet as the deficit remains unchanged.

But whatever happens, the banks remain untouchable. Every possible step is being taken to contain fiscal deficits and avoid the downgrading of a country’s bonds by the same ratings agencies (Moody’s, Standard & Poor’s, Fitch) that vouched for the soundness of Wall Street before the financial disaster of 2008.

Fiscal deficits are effectively being swapped for social deficits, by firing tens of thousands of workers and cutting health care, education, and other state services that, according to the current economic fashion, could be better provided by the private sector at a lower cost and more ethically.

But a glance at recent figures immediately raises doubts about the “ethics” of the private sector:

RG associates, an independent research agency in Baltimore, examined 500 “top” Standard & Poor’s companies and found that executive pay rose by an average of 13.9 percent in 2010 to a total of 14.3 billion dollars, the equivalent of the GDP of Tajikistan, a country of 7 million inhabitants.

While the market value of these 179 companies fell from 2008-2010, their executives were getting raises. In the case of a large insurance company, the executives received an average of USD 2.6 million in pay, which was half of the firm’s earnings. Many companies paid their executives well over what their valuation would have warranted.

Another issue that is not mentioned is the foreign earnings by US companies held overseas to avoid paying taxes on them -an estimated USD 1.5 trillion. There are calls for a reprise of George W. Bush’s 2004 Homeland Investment Act that would allow companies to repatriate these funds at a reduced tax rate of 5.25 percent rather than the standard 35 percent rate.

The argument is that the influx of these funds, including the USD 50 billion that would not go to taxes, would be used by the companies to create employment in the US. Company lobbyists speak of 40,000 new jobs, but they fail to note that after the 2004 amnesty, 92 percent of the USD 312 billion brought into the country was distributed to stockholders as dividends while very little was reinvested. Even worse, the largest 15 companies used the money to fire workers, close factories, and start new operations overseas while waiting for a future amnesty deal.

The case of the pharmaceutical giant Merck is a perfect example. It repatriated 15.9 billion dollars and spent it on closing two plants and laying off 7,000 employees while shifting operations abroad.

And yet today the US financial press is arguing that repatriation of foreign earnings would be a great deal for the government and, despite what happened under Bush, are not calling for any regulation of how these funds are used. Only an entrepreneur, they argue, can understand how to best defend a company’s interests, which, they also claim, coincide with the common good.

But, an objective observer would point out, the US is in a grave financial crisis and the Congress and White House are paralysed and unclear about how to address the situation. If US entrepreneurs actually shared the ethic that is attributed to them and were truly interested in the well-being of their country, they would agree to pay the 35 percent tax rate stipulated by law. The resulting hundreds of billions in government revenue could, if well invested, solve some of the problems of the US economy. But they don’t.

In other words, for Wall Street ethics is the virtue that places the concerns of business above all other values. (END/COPYRIGHT IPS)

(*) Roberto Savio is founder and president emeritus of Inter Press Service (IPS) news agency.

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