The CIA on Egypt's Economy, Financial Deregulation and Protest

The ongoing demonstrations in Egypt are as much, if not more, about the mass deterioration of economic conditions and the harsh result of years of financial deregulation, than the political ideology that some of the media seems more focused on. Plus, as Mark Engler cross-posted on Alternet and Dissent yesterday, the notion that the protests in Cairo are 'spontaneous uprisings' misses the mark. As he eloquently wrote, "there are extraordinary moments when public demonstrations take on a mass character and people who would otherwise not have dreamed of taking part in an uprising rush onto the streets. But these protests are typically built upon years of organizing and preparation on the part of social movements."

That got me thinking about what else has been building up in Egypt under Mubarak's 29-year as President, but more specifically over the past decade, and in particular the years leading up to the world economic crisis catalyzed by the US banking system - and that would be, extreme financial deregulation and the increased influx of foreign banks, capital, and "investment" which tends to be a euphemism for "speculation" when it belies international funds looking for hot prospects, no matter what the costs to the local population.

According to the CIA's World Fact-book depiction of Egypt's economy, "Cairo from 2004 to 2008 aggressively pursued economic reforms to attract foreign investment and facilitate GDP growth." And, while that was happening, "Despite the relatively high levels of economic growth over the past few years, living conditions for the average Egyptian remain poor."

Unemployment in Egypt is hovering just below the 10% mark, like in the US, though similarly, this figure grossly underestimates underemployment, quality of employment, prospects for employment, and the growing youth population with a dismal job future. Nearly 20% of the country live below the poverty line (compared to 14% and growing in the US) and 10% of the population controls 28% of household income (compared to 30% in the US). But, these figures, as in the US, have been accelerating in ways that undermine financial security of the majority of the population, and have been doing so for more than have a decade.

Around 2005, Egypt decided to transform its financial system in order to increase its appeal as a magnet for foreign investment, notably banks and real estate speculators. Egypt reduced cumbersome bureaucracy and regulations around foreign property investment through decree (number 583.) International luxury property firms depicted the country as a mecca (of the tax-haven variety) for property speculation, a country offering no capital gains taxes on real estate transactions, no stamp duty, and no inheritance tax.  

But, Egypt's more devastating economic transformation centered around its decision to aggressively sell off its national banks as a matter of foreign and financial policy between 2005 and early 2008 (around the time that US banks were stoking a global sub-prime and other forms-of-debt and leverage oriented crisis). Having opened its real estate to foreign investment and private equity speculation, the next step in the deregulation of the country's banks was spurring international bank takeovers complete with new bank openings, where international banks could begin plowing Egyptians for fees. Citigroup, for example, launched the first Cards reward program in 2005, followed by other banks.

According to an article in Executive Magazine in early 2007, which touted the competitive bidding, acquistion and rebranding of Egyptian banks by foreign banks and growth of foreign M&A action, the biggest bank deal of 2006 was the sale of one of the four largest state-run banks, Bank of Alexandria, to Italian bank, Gruppo Sanpaolo IMI. This, a much larger deal than the 70% acquisition by Greek's Piraeus Bank of the Egyptian Commercial Bank in 2005, one of the first deals to be blessed by the Central Bank of Egypt and the Ministry of Investment that unleashed the sale of Egypt's banking system to the highest international bidders.

The greater the pace of foreign bank influx and take-overs to 'modernize' Egypt's banking system, inevitably the more short-term, "hot" money poured into Egypt. Pieces of Egypt, or its companies, continued to be purchased by foreign conglomerates, trickling off when the global financial crisis brewed full force in 2008, though not before Goldman Sachs Strategic Investments Limited in the UK bought a $70 million chunk of Palm Hills Development SAE, a high-end real estate developer, in March, 2008.

When a country, among other shortcomings, relinquishes its financial system and its population's well-being to the pursuit of 'good deals', there is going to be substantial fallout. The citizens protesting in the streets of Greece, England, Tunisia, Egypt and anywhere else, may be revolting on a national basis against individual leaderships that have shafted them, but they have a common bond; they are revolting against a world besotted with benefiting the powerful and the deal-makers at the expense of ordinary people. 

Obama's Speech and America, Inc.

Watching Obama deliver his State of the Union Speech last night, reminded me of all the rah-rah quarterly meetings that we had to attend as Managing Directors at Goldman, where senior management would remind us all of how great we were, and if there were any areas of competitive weakness relative to our adversaries at other banks, all we had to do was step up our game, innovate and globalize (or something like that.)

Obama wasn't delivering a summary of what has, or is, going on for most Americans last night, no such negative status report. And, if you didn't expect him to, he gave good speech - full of reminders of how it is America's destiny and the American dream to be great and powerful, "robust democracy" that we are.

There was a massive pink elephant in the room called reality though. So, when he waxed proud when he said, "We are poised for progress. Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing." I had a different reaction.

My reaction was wtf? Two years after the worst recession? After? Really? What about the 26 million people unemployed or underemployed in the country? What about the 4.4 people applying for every job, compared to the 2.9 people per job after the 2000s recession? What about the 4.4 million jobs that should have been added, just accounting for a population coming of job age alone, forget any kind of growth, compared to the fact that instead, the job pool declined by a quarter of a million people in the past two years, because the time required to get a job is at record highs? What about the nearly 8 million FAMILIES that have been foreclosed upon because of the reckless investment bank race to create $14 trillion dollars worth of toxic assets in the five years leading up to the financial crisis and leave them to shatter lives and the non-stock market evaluated economy? What about the fact that the government fiscally stimulated the banking system by a multiple of 20 times more than it stimulated its citizens, with nary a fight from the politicians our democracy is so lucky to have as representation?  What about all that warm, cuddly multi-trillion dollar support from the Fed and the Treasury Department on our country's way to Sputnikian economic greatness?

"The rules have changed," said Obama.

Yes, they certainly have. Businesses can offshore jobs because it is in their best profit and shareholder and stock value interest to do so, with no federal incentive to alter this strategy - that's why corporate profits and CEO salaries are up, whereas the average median employee salary on a comparative basis is stuck somewhere in the 1970s. That's why staring at the abyss of potential bankruptcy in the fall of 2008, Goldman Sachs and Morgan Stanley got the Fed's blessing to become federally subsidized bank holding companies. And we, taxpayers, are still on the hook for the Fed's $29 billion of backing of Bear Stearn's assets taken over by JPM Chase in a government sponsored merger in the Spring of 2008 and coming with a bunch of still-being-wrangled lawsuits, not to mention gleeful federally backing of the further consolidation of the banking system to fewer, more powerful, more obtuse, more risky players.

All of which, though technically not a result of changing rules, but rules staying the same and working for the reckless, were still rubber stamped by the Obama administration (yes, and Bush too, and Clinton's deregulatory team, etc.) and its financial king's, Tim Geithner, until recently Larry Summers, and incoming JPM Chase's Bill Daly and GE's Jeffrey Immelt as job czar. (GE and JPM Chase, having been happy bailout recipients, of course.) Small businesses can't hire as many people, because they can't afford their financing, even if banks will give them usefully sized loans, they don't get the 0.25% interest money the banks get from the Fed when they need it. Individuals got hosed, meanwhile, by shady home loans and shadier modifications and higher fees on all sorts of credit, from cards to student loans (a record $884 billion of which are outstanding to students whose tuitions rise as their job and loan-payback prospects fall). 

We're not talking just about steel mill job eliminations over the years, we're talking about the solidification of the administration's decision to ignore the mistakes and devastating consequences of Big Finance and Obama suggesting last night, that people consider becoming teachers, with a smile. No disrespect to teachers, of course, they work much harder and make do with much less than traders, but you don't see Vikram Pandit, Citigroup CEO rushing out the door to become one, no you see him getting approved for a RAISE, of the sort a teacher can only dream about, from a base salary of $1 million to $1.75 million this year, after Citigroup's survival was ensured only because of massive government stimulus. Why? Because he is now valued at a 75% pay increase, that Washington, and Obama would like to believe is due to his hard work, and not to a government handout. America at its best.

There were some useful elements to his otherwise CEO like speech (you department heads sitting out there - you work together so America, Inc. can be the best it can be.) They included adopting a fair immigration policy that doesn't chuck people out of the country because the path to being here is so laden with decade long bureaucracy and cost, keeping some elements of an otherwise insurance-company gift of a health care reform bill that the GOP House just repealed and that doesn't reform the cost of health care - such as covering pre-existing conditions and people up to the age 26 under their parents' plan (if their parents have a plan, that is) even though Obama backed off from even trying to convince the room to consider full coverage for all without egregious premiums, and wanting to increase the spread of clean energy initiatives (that he said will create 'countless jobs' as opposed to the countable 5 million he said it would create during is campaign.)

But, in the end, Obama's practiced eloquence in delivery, peppered with a few American success stories - who can deny the hero behind the Chilean mine worker rescue his due? -  and the now-debated investment over spending word choice, belied a strong dose of something akin to condescension. If you don't have a job, it's because of the Internet, not the banks hoarding $1 trillion that we gave them at the Fed. If we're falling behind China in education, it's because bad teachers should be removed, good ones rewarded and parents (who apparently aren't doing as good as job as they could of this) are not focusing on the education process more at home. If America, has the 'most prosperous economy in the world' for its corporations and financial insitutions, its because we all share a common, attainable dream.

So, just go out and innovate and compete and get it. We'll be here watching the banks' backs.

Elementary School Washington DC

For the past couple of weeks, I've been tucked away in 1929, finishing up revisions on my historical novel, Black Tuesday, for my agent. But, coming up for a breather, it seems to me that Washington is stuck in a time warp of its own, only its mentality is far more juvenile then back then.

First, there's today's pre-announcement from the FCIC (Financial Crisis Inquiry Commission) regarding their pending announcement expected this Thursday. The commission will report their findings regarding the reasons behind the financial crisis and recommend that the Department of Justice do some more investigating. And that would be really special were it not for the fact that unlike in 1933, the so-called financial reform bill already passed before these findings were completed, plus, the findings aren't even unified.

Now, not only is the banking landscape as loosely regulated as it was before the 1929 market crash and Great Depression, but the inquiry commission's solution is schizophrenic-partisan. Six Commission Democrats think that the crisis was a result (more or less) of greed, fraud, and general shadiness (none of which the reform bill does anything about), three Republicans think it was because of the government sponsored entities, Fannie Mae and Freddie Mac and giving poor people the chance to buy homes, and one Republican wants to have a think and create a third super-minority report.

The Pecora Commission's findings in 1933 blasted the banking community and resulted in actual structural reform, like the Glass-Steagall Act which split up the risk-taking from the deposit taking institutions which received subsequent federal support, the Securities Exchange Act of 1934 that established the Securities Exchange Commission (which needs a total overhaul today, but for real, not for rhetoric), and the Federal Deposit Insurance Corp. to back citizens' deposits at real bank holding companies (not ones like Goldman Sachs and Morgan Stanely that faked that status to get Fed. access.)

Today's findings are a sad reflection of partisan leanings and childish one-upmanship, not of a rigorous intent and dedicated desire to reduce unnecessary financial and economic risk and concentrated institutional power. As such, they will not and can not possibly make a real difference.

Elsewhere in Washington, as it gears up for Obama's State of the Union Address tonight, which has already been pre-punditized to-death,  members of the Supreme Court, notably Justice Alito, are exhibiting a kind of 5th grade type hissy fit over whether they should attend, because Obama was mean to them last time. In addition, various news shows are running reports and analysis over which politicians will be sitting next to which other politicians, kind of like being back at the cafeteria.  Yes, it's all politics as usual, but also somehow, gets a whole lot more juvenile every year.