Yves here. We’re delighted to have Matthew Cunningham-Cook post at Naked Capitalism for the first time. Please give him a warm welcome. And, assuming you take his warning to heart, I hope you’ll call or e-mail your Senators (contact information here) and Representative (contact information here) and tell them how the TPP is a danger to American sovereignty and financial stability, and that even trade economists agree that any countervailing benefits on the trade side will be miniscule.
By Matthew Cunningham-Cook, who has written for the International Business Times, The New Republic, Jacobin, Aljazeera, and The Nation and has been a labor activist
In response to the mantra, repeated ad nauseam in the media, of “Too Big To Fail”, activists around Occupy Wall Street developed “TIBACO” – that is, too interconnected, big, and complex to oversee.
By reframing the issue that large banks, insurance companies, and hedge funds hold positions in so many areas of the market that it is impossible to engage in any type of effective oversight, it becomes clear that the problem is a financial industry out of control. “Too big to fail” argues that big banks that are so essential to the adequate functioning of the global economy that they need the government to provide a backstop to whatever activities they pursue. TIBACO, on the other hand, makes the case that the system needs to be disaggregated to allow for effective regulatory oversight and to prevent trusts and monopolization.
It’s this framework – TIBACO – that should guide any analysis of the TPP’s financial services chapter, which is outside of ISDS, the most important, and of course, least reported on, part of the TPP. This chapter recreates the condition for an explosion of financial industry consolidation – magnifying the effects of a future financial crisis.
There are two clear issues with the TPP’s financial services chapter:
1) It mandates that nations – particularly Vietnam and Malaysia- – treat foreign banks in the same manner that they treat their own domestic banks. This will give rise to rapid market consolidation dominated by predominantly American financial firms.
2) It will mandate the partial privatization of Japan Post’s life insurance business – by far the largest untapped life insurance market in the world, with over $1.2 trillion in assets (total life insurance assets in the US were $3.2 trillion in 2011).
Likely the biggest beneficiary from the TPP’s rules – which essentially mandate that any marketing that Japan Post does for its own insurance business must allow for compensated equal time for other TPP partners – is Prudential, the US’s second-largest life insurer, which has worked aggressively, a la Commodore Perry, over the past fifteen years to penetrate the Japanese insurance market. MetLife, the largest life insurer, is also penetrating the Japanese insurance market. In 2011 AIG purchased the Fuji insurance company, one of Japan’s largest, which also has a life insurance subsidiary in Japan.
All three, Prudential, AIG, and MetLife, have been designated as systemically important financial institutions (SIFIs), by Dodd-Frank’s Financial Stability Oversight Council largely because of their “size” and “interconnectedness.”
Giving three of the largest and most interconnected financial firms in the world access to the largest untapped life insurance market worldwide will only increase their size and interconnectedness.
The latter point seems to be self-explanatory, but what we have here is a tension between two stated goals of the Obama administration: the argument that the TPP will help eliminate market inefficiencies and create wealth, and the administration’s stated rejection of the Bush administration’s too big to fail doctrine.
Nowhere in the TPP’s financial services chapter are concerns about financial market contagion or too big to fail addressed. Indeed, the chapter’s explicit rejection of Vietnam’s “economic needs tests” precludes these types of questions, apparently deemed ancillary by trade negotiators. If Vietnamese regulators wanted to ask: ”Should a bank that required $45 billion in federal money just to remain solvent be allowed to have a wholly-foreign owned presence in Vietnam?” such a question would be considered illegal by the standards of the TPP.
Combined with making the investment climate standardized and on the whole evening the playing field for the forces of international finance capital at the expense of smaller domestic capitals, the TPP’s financial services chapter is a recipe for consolidation – and, like how the difference between a flu outbreak at a rural school and a city block is the difference between a manageable public health problem and a public health crisis – contagion.
That consolidation is likely to take place in the form of mergers and acquisitions, legally spurred by the TPP. 2014 saw an astounding 47% jump in M&A from 2013, with global dealmaking reaching $3.5 trillion. Of course, 2007 continues to hold the record high for M&A at $4.38 trillion in M&A activity – activity that occurred despite the fact that most observers had already concluded that the economy had entered recession. The relationship high M&A activity and financial instability is one more of causation than correlation, in my opinion, because it leads exactly to the contagion we saw in 2008: firms are so diversified that a crisis that begins in a single area quickly “diversifies” to the entire global economy.
Easing the investment climate via investor-state dispute settlement, getting rid of pesky controls on international finance capital, and privatizing arguably the world’s greatest public financial institution, Japan Post, are integral to worldwide growth in M&A. That in turn greases the skids for capital that moves at the speed of light, and crises that explode, seemingly out of nowhere, allowing insiders to profit while the economy – and the 99% – collapses. That’s what’s in it– for us – in the TPP’s financial services chapter.