Sabotage: The Hidden Nature of Finance

by Anastasia Nesvetailova, Ronen Palan

Overview

I don't like the word 'sabotage',"—a former Goldman Sachs trader admitted. "It's just harsh.... Though, frankly, how else do you make money in this business...I mean, real money."


The fundamental motive for financial innovation is not to make the system work better, but to avoid regulation and oversight. This is not a bug of the financial system, but a built-in feature. The president of the US is not a tax avoider because he is an especially fraudulent financier; he's a tax avoider because he is a wealthy man in a system premised on such deceit. Finance is an industry of sabotage.

This book is a brilliant, intellectual detective story that traces the origins of financial sabotage, starting with the work of a prescient American economist who saw the capacity for banks and businesses to dissemble and profit as early as the 1920s. What was accomplished modestly in the first half of the 20th century became a booming global industry in the 1980s. Financialization took over everything, culminating in instruments so complex and confusing their own creators were being destroyed by them in 2008.

With each financial bust, people expect to hear who the culprit was, and cynically know to not expect much punishment to ever reach them. But the innovation of this book is to show that each individual gaming the system isn't a crook—the whole system is sabotage.

Product Details

ISBN-13:	9781610399685
Publisher:	PublicAffairs
Publication date:	01/28/2020
Pages:	272
Sales rank:	690,133
Product dimensions:	5.50(w) x 8.30(h) x 1.10(d)

About the Author

Anastasia Nesvetailova is Professor of International Political Economy at City, University of London, where she also directs City Political Economy Research Centre (CITYPERC). Her main research focuses on the structure of the global financial system and processes of financialization, financial crises and governance. Her publications include Financial Alchemy in Crisis: The Great Liquidity Illusion (2010) and Shadow Banking Scope, Origins Theories (2017). She is based out of London.


Ronen Palan is an Israeli-born economist and Professor of International Political Economy at City, University of London. His work focuses on offshore financial centers and tax havens. He is the author or editor of a number of books, including The Imagined Economies of Globalisation (with Angus Cameron, Sage, 2004) and Tax Havens: How Globalization Really Works (with Richard Murphy and Christian Chavagneux, Cornell University Press, 2010). He is based out of London.

Table of Contents

Abbreviations and Terms ix

Introduction: Everyone Wants to Be like Goldman 1

Part 1 Sabotage as an Economic Concept 17

1 Sabotage in the Financial System 19

2 We All Are in It Together: Sabotage and the Cycle of Debt 40

3 Be First, Be Smarter and Cheat: Sabotage by Financial Innovation 60

Part 2 'No Conflict, No Interest' Sabotaging the Clients 79

4 Dead Souls at the Royal Bank of Scotland 83

5 'Our People Are Our Greatest Asset': Goldman's Abacus 95

6 'A Simple Premise:' Wells Fargo 102

Part 3 Hosticide: Sabotaging Each Other 107

7 Who Let the Bear Down? 111

8 What Goes Around Comes Around: The Rise and Fall of RBS 120

9 Beware Good Advice: Deutsche's Helping Hand in Iceland 129

Part 4 The Big, the Bad and the Crypto: Sabotaging the State 137

10 The Big: Too-Big-to-Fail (and Jail) Banking 139

11 The Bad: Derivatives, Tax Avoidance and Evasion 148

12 The Crypto: Mining the Money 157

Part 5 Conclusion 171

13 Old News 173

14 So What? 191

Acknowledgements 201

Bibliography 203

References and Notes 217

Index 243

Editorial Reviews

11/25/2019

The finance industry profits not by making productive investments but through fraud and other crimes, according to this provocative yet haphazard exposé. Nesvetailova and Palan, economists at City, University of London, rehash a litany of misdeeds by financial institutions: Goldman Sachs sold clients investment deals it knew would lose money; Wells Fargo created accounts for clients without their knowledge and charged them extra fees; HSBC helped Mexican drug cartels launder money; mortgage lenders signed up unqualified borrowers and sold the bad mortgages to unsuspecting investors; and banks and insurance companies concocted murky financial instruments like credit default swaps and collateralized debt obligations to bamboozle investors, and used a variety of methods, including Cayman Islands shelters and bitcoin, to evade regulations and taxes. Nesvetailova and Palan argue that these scams and dodges aren’t the work of a handful of bad actors or the effects of deregulation, but a form of “sabotage” of competitive financial markets that companies must undertake to earn profits. Their evidence for this theory is anecdotal, however. Meanwhile, their explications of byzantine banker cons are sometimes unclear, and their case for a return to New Deal–style financial regulation is short on specifics. Though the authors don’t produce the most substantive critique of the financial sector, their ideas about the industry’s intrinsic tendencies towards malfeasance will stimulate progressive readers with a strong interest in the subject. (Jan.)

Publishers Weekly

2019-10-28
Two London-based economics professors argue that banks make much of their profit not by serving depositors and borrowers fairly but rather by cheating.

Nesvetailova (Financial Alchemy in Crisis: The Great Liquidity Illusion, 2010, etc.) and Palan (The Offshore World: Sovereign Markets, Virtual Places, and Nomad Millionaires, 2003, etc.) explain that they chose the title after extensive consideration about its explosive implications. As the authors clearly show, the institutions highlighted in the book—Goldman Sachs, Wells Fargo, Royal Bank of Scotland, Bear Stearns, Deutsche Bank, among others—act dishonestly with their clients, their competitors, and their national governments as a matter of everyday operations. Even if they observe the letter of the law, they rarely observe the spirit of the law. At times, note the authors, the cheating crosses into the realm of criminal conduct. Of course, greed underlies much of this behavior; operating honestly can lead to lower-than-desired earnings and limited bonuses. Government regulators become so focused on maintaining the financial stability of the banks—an admirable goal—that unsavory practices go unnoticed or at least mostly unpunished. The authors look backward for much of their evidence, relying heavily on the economic theories of American economist and sociologist Thorstein Veblen and on a congressional investigation from the 1930s led by Sen. Ferdinand Pecora. Nesvetailova and Palan state that the findings from the Pecora investigation closely resemble banking industry sabotage that is widespread in the current markets. As the authors consider reform, they insist that everybody involved must abandon the traditional binary dichotomy of "market vs. regulation." The dilemma of excessive profitability should become the core of how to proceed with reform. They close with a series of "simple but important intellectual steps towards a more adequate regulatory framework." The last step is "to stop thinking about finance as a business for managing ‘other people's money.' Finance is the business of creating and managing our wealth, and it needs to be understood and regulated as such."

Useful reading for readers seeking a mostly accessible overview of the banking industry.

Kirkus Reviews