Occupy London Tours: Canary Wharf

Tour summary

1. Bankers’ Plaza: introduction

What we said

• Hi! • A short history of Occupy Tours - an offshoot of the 2011 protests. • The Canary Wharf estate is in fact fully privately owned - and there’s

an injunction against people ‘connected’ with protest in force. • We’re here to de-mystify, not vilify (well, maybe a little bit)

Key facts

• Tower Hamlets had the 2nd highest rate of severe child poverty in the UK in 2011 (www.bbc.co.uk/news/education-12544372)

• The majority of UK bankers work in Canary Wharf - roughly 45,000 t o t h e C i t y ’ s 4 4 , 0 0 0 ( h t t p : / / w w w . f t . c o m / c m s / s / 0 /f280f2bc-9cf3-11e1-9327-00144feabdc0.html#axzz38mDPWCFf)

• Of 3,200 workers in the financial sector paid over 1m Euros in Europe in 2012 - 75% (2,400) worked in the UK - next highest country total is Germany with 170.

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2. Lehman Brothers: Derivatives & the Financial Crisis

What we said

• That the financial crisis was immediately caused by the unchecked creation of Collateralised Debt Obligations (CDOs).

• CDOs were financial products used to combine different portions of risk associated with different lending (mostly mortgages with respect to the crisis).

• They were then sold to investors who took on the risk, in return for a number of payments over time, thus removing the risk from bank balance sheets.

• CDOs became very lucrative for banks - due to the fees they could charge investors to buy them - and demand was plentiful.

• This led to increased manufacture of them, which required ‘sub-prime’ mortgages to be created, lending to those who couldn’t afford it.

• Eventually this led to too much ‘toxic’ debt in the system - which in turn led to collapse as the value of CDOs plummeted.

• Lehman Brothers went bankrupt due to its large exposure to mortgage derivatives - and due to business done predominantly from its European HQ in Canary Wharf.

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Key Facts

• Andy Haldane (Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England) estimates that the ‘ingredients list’ of a complex CDO would be 1,000,000,000 pages long.

• Lehman Brothers went bankrupt on 15th September 2008 (http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers)

• JP Morgan helped lay the foundations for the commercial CDO market with their ‘BISTRO’ scheme, developed in the 1990s (http://w w w . f t . c o m / c m s / s /0/51f425ac-351e-11de-940a-00144feabdc0.html#axzz38mDPWCFf)

3. Moody’s: AIG, Credit Default Swaps & Risk

What we said

• Credit Default Swaps (CDSs) were financial products used to insure (or bet against) other financial assets - regardless of whether or not the purchaser of the CDS owned the asset(s) being insured.

• This enabled an enormous - virtually unregulated - market to emerge in this kind of derivative.

• This market was played in a big way - most famously by Goldman Sachs who insured products they were selling to their own clients.

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Goldman Sachs were betting against (by selling credit default swaps (CDSs)) the products that they were selling (collateralized debt obligations (CDOs)).

• AIG was rescued by the US taxpayer on 16th September 2008 with an $84bn bailout, having been unable to meet their obligations to pay owners of CDSs they had sold - business done predominantly in London.

• $8bn of this went straight to Goldman Sachs. • Credit Ratings Agencies are responsible for rating financial products

on behalf of those selling them. • They give ratings ranging from AAA to ‘junk’ on the basis of the risk/

value associated with any given product. • CRAs played a significant role in facilitating the crisis by failing to

advertise the risk associated with toxic CDOs and CDSs. • They were subject to serious conflicts of interest as they stood to

profit from providing favourable ratings to banks and other financial institutions for their products.

• One way to improve your credit rating – perversely – is to be Too Big To Fail: which means risky derivatives trading continues to this day.

• Quite simply we needed way better financial regulation and oversight. It’s not cool for the only people assessing the risk to be in the game themselves.

Key facts

• The size of the CDS market in 2008 was $68tn, 50x the size of the CDO market, and equivalent to global GDP.

• Credit ratings agencies waved through 90% of CDOs with AAA ratings.

• Between 2002-6 Moody’s share price doubled, and its revenue tripled. • Just 0.8% of UK tax revenue comes from ‘very mobile’ banking - which

often is the riskiest anyway; banks often state that they can simply move elsewhere if they are more tightly regulated.

• The Too Big To Fail subsidy is worth a third to a half of the profits of the largest EU banks, according to the EU Commission.

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4. Citigroup – Inequality, Debt & Money Creation

What we said

• High levels of debt in our country (and elsewhere) is closely linked to the massive increase in the money supply.

• Increasing inequality has been a defining feature of the UK and US economies since the 1970s - the income of the top 1% and 0.1% has soared, much of it accounted for by incomes in the financial services.

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• Since the 1970s, ordinary real wages have stagnated. • De-regulation of the financial services industry and credit in the

1980s is seen by many as a response this - by enabling ordinary • people to spend again by accessing credit easily (i.e. credit cards), and

therefore boost demand for goods and services. • There has been a rapid expansion of the UK money supply since the

1970s, with new money created by private banks. • Private banks create new money instantaneously as digital loans (i.e.

money-as-debt). • This is represented on their balance sheets as a ‘liability’ (promise to

pay the loanee) and ‘asset’ (promise of the loanee to repay the loan, with interest) - see below.

• Banks could only sustain excessive, risky, lending with the use of derivatives to remove the loan ‘liabilities’ from their balance sheets.

• But the fees for derivatives became the primary motivation for the creation of new loans - the long-term ability for the borrower to repay became irrelevant.

• Banks created the majority of new money for mortgages and lending to financial institutions for speculation, often on derivatives, in the run up to the financial crisis.

• This created a feedback loop in which people felt more compelled and confident to take on debt - which simply pushed prices up and began the process over again!

• Nothing has really changed - we’re likely to see another crash if we continue as we are.

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• If banks are to retain their unique guarantees and privileges – including the power to create money - they must be obliged to use those privileges in the public interest. There must be better rules and guidance over how much money to create and what for.

Key facts

• It takes the average FTSE 100 CEO 24 hours to surpass the annual average UK wage (highpaycentre.org/blog/fatcat-wednesday-for-ftse-100-ceos).

• The 5 richest families in the UK are wealthier than the poorest 20% of the population (http://www.oxfam.org.uk/blogs/2014/03/5-richest-families-in-uk-are-wealthier-than-poorest-20-pc)

• Just under half of all spending in the UK economy is consumer spending (www.neweconomics.org/blog/entry/what-george-osborne-didnt-mention-in-his-autumn-statement)

• The amount of money circulating in the UK’s economy doubled between 2000 and 2008 (from roughly £1tn to £2tn)

• 97% of the UK money supply is created by private banks, digitally, in the form of loans.

• In the UK £192m is paid to banks each day in the form of interest payments on money in circulation (https://twitter.com/positivemoneyuk/status/406171432528261120/photo/1/large)

• Oxfam estimates there is $100,000 of derivatives exposure for each person on the planet.

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• In the run up to the financial crisis just under 80% of new money created by private banks went into mortgages (roughly 40%) or lending to financial institutions for speculation (roughly 37%).

• Globally, debt as a share of GDP has risen from 246% in 2000 to 286% in 2014.

5. Barclays: LIBOR, Blame

What we said

• Barclays was a key player in the LIBOR (London Interbank Offered Rate) scandal.

• LIBOR is an interest rate used to set the cost of borrowing on mortgages and loans and regulates the returns on many kinds of investment.

• It was set - until 2012 - by the British Bankers Association (now by the Intercontinental Exchange) by averaging the estimations of 16 major London-based banks as to what interest rate they would be charged to borrow from other banks.

• It was rigged in order to give a pretence of stability during the crisis - and since to make enormous sums through trading with insider information.

• Media coverage often emphasizes that financial crimes are perpetrated by isolated individuals, ‘bad apples’. Tom Hayes, was one

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of them - a former derivatives trader at UBS and Citigroup and is the first to face a jury trial on LIBOR-related charges.

• His boss tried to keep him at Citigroup (before he moved to UBS) because of “his strong connections with Libor setters”.

• There’s lots of evidence to show co-ordination, including discussions in online forums.

• In order to rig LIBOR, multiple banks needed to coordinate a simultaneous lie.

• LIBOR fixing is not just negligence. It is straightforward criminal behaviour.

Key facts

• The total value of assets affected by LIBOR is around $450tn - 300x the CDO market in 2008.

• Barclays was fined a UK record £290m in 2012 for its role in LIBOR-fixing.

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6. KPMG: Tax Evasion, Accounting

What we said

• The ‘Big Four’ auditors (KPMG, Ernst & Young, Deloitte & PWC) are responsible for ensuring the accounts of major corporations are in order - including the banks.

• But they saw nothing in the run to the financial crisis in 2008. • Transfer pricing is a legal method for corporate tax avoidance

implemented by transnational companies, with the assistance of auditors.

• It is achieved by creating fictitious prices for trade between subsidiaries, enabling profits to be shifted from point of origin to tax jurisdictions with lower rates.

• It is enabled by the ‘arms-length principle’, which treats international trade between subsidiaries as if it were between unconnected parties.

• Perhaps we should think not of a ‘crisis in public spending’ but of a ‘crisis in public revenue’.

Key Facts

• The ‘Big Four’ audit 99 of the FTSE 100 companies.

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• Starbucks paid no corporation tax in the UK between 2009-2012, and only £8.6m in total since 1997, despite sales of £3bn.

• The Department for Work and Pension’s estimate of the cost of benefit fraud is £1.2bn.

• HMRC’s estimate of tax revenue evaded, avoided or uncollected is £30bn.

• The Tax Justice Network’s estimate of tax revenue evaded, avoided or uncollected is £120bn

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7. HSBC: Remuneration, Empire, Neo-Empire

What we said

• The Opium Wars were fought by Britain in the 19th century to open the Chinese market to opium once more, after the Qing Dynasty banned its import.

• Hong Kong became a colony after a British victory and the Hong Kong and Shanghai Banking Corporation (HSBC) was created to finance new trade. It is a British bank.

• Hong Kong was part of the British Empire - and now joins other old imperial outposts, such as Bermuda and the Cayman Islands, in a global network of tax havens.

• The global HQ of this network is the City of London - and the UK is effectively the largest tax haven in the world.

• UK citizens are therefore in a unique position to pile the pressure onto the government to use the powers it has, via the Queen as head of state of many ‘secrecy jurisdictions’, to close these tax havens.

• HSBC was fined $2bn in 2013 for assisting the removal of Mexican drug-cartel profits from the US in physical dollars (and other offences) - but was deemed too big to jail by US Attorney General Eric Holder.

• HSBC helped move $7bn in physical dollars out of the US and into Mexico as part of this. They were fined $2bn by the US Government, but were not criminally prosecuted because they were Too Big To Jail!

• HSBC are also relevant to (a lack of) regulation.

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• HSBC bought a bank called the ‘Home Finance Company’ (HFC) which specialized in sub-prime mortgage lending. A lawyer, Nicholas Wilson, noticed illegal fees being added to accounts that were in arrears. Which was illegal.

• Wilson informed his bosses, and was ignored. He reported them to the Law Society, and was sacked in 2006.

• In 2012, he took his case to the regulator…

Key facts

• The First Opium War was fought between 1839-42, and the Second between 1856-1860.

• 33 African countries have missed out on approximately $1tn in tax evasion since the 1970s, which dwarves their external debts (taxjustice.blogspot.co.uk/2013/11/a-letter-to-her-majesty-queen-about.html)

• At least $21tn is sitting in tax havens worldwide - the equivalent of the annual output of the Japanese and US economies combined.

• 1/2 - 1/3 of the market of global offshore financial services is accounted for by the UK’s network of ‘secrecy jurisdictions’.

• HSBC’s Mexican subsidiary moved $7bn in physical dollars across the US-Mexican border, which included proceeds from drug sales in the US.

9. Financial Conduct Authority (FCA)

What we said

• Formerly the Financial Services Authority (FSA)). • Nicholas Wilson (the lawyer from HFC) got nowhere with the

then-FSA, so he lodged a Freedom of Information request asking why.

• The response from the regulator and a separate response from HSBC to a journalist, Joel Benjamin, who was inquiring into the same case were identical. Meaning? The regulator asked HSBC about the case, and simply forwarded on their message without challenging it.

• This is illustrates the cosy relationship between banks and the regulator.

• The regulator is funded by the banks that it regulates, a conflict of interest.

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• The regulator’s ability to robustly regulate is constricted, also, by its sister organisation, the Prudential Regulation Authority (PRA), which is there to stop banks and the banking system going broke.

• If the FCA regulates too heavily and risks creating instability, the PRA will step in. This is another example of how banks are Too Big To Fail.

Key Facts

• The FCA is known to have copy and pasted a response from HSBC – which it’s supposed to regulate – in response to the HFC fraud.

• The Financial Conduct Authority (FCA) is funded by the banks that it regulates.

• The Prudential Regulation Authority (PRA) – the FCA’s sister organization – is there to stop banks and the banking system collapsing. This can result in the PRA stopping the FCA regulating banks if that regulation might cause instability.

• Lord Green, chairman of HSBC during the Mexican drug scandal and during the HFC fraud, was promoted to David Cameron’s coalition Government as Trade Minister in 2010.

9. Conclusion

What we said

• We didn't come here just to look at the scenery, but to change it. None of this has to be – and while these towers look solid and imposing, we've learned today just how close they came to tumbling a few years ago.

• The more we refuse to be mystified by what goes on in them, and the wider we can share our knowledge, the more successful we'll be in building an alternative.

Key facts

• You can find more info and ideas for action here on our website, occupytours.org

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