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Class loyalty will tell: The state hires Merrill Lynch as financial advisers

category national | anti-capitalism | feature author Monday January 26, 2009 11:01author by James O'Brien - Workers Solidarity - personal capacity Report this post to the editors

Is the government trying to go bankrupt?

featured image
Playing Monopoly without going to Jail

The Irish government has called in as financial adviser Henrietta Baldock of the remarkable loss making machine that is Merrill Lynch

The Irish Times has reported that the government has taken on two outside advisers, Pádraig Ó Ríordáin of Arthur Cox solicitors and Henrietta Baldock of Merrill Lynch. Arthur Cox are one of Ireland’s premier firms of corporate lawyers. Merrill Lynch, formerly one of the big five Wall Street investment banks, is a much bigger fish. In 2008, however, they became a global laughing stock due to their regular quarterly announcements of billions of euros in loses.

Their net loss for 2007 was $7.8 billion 1. John A. Thain, chairman and chief executive officer, was quoted as saying that although the results were “unacceptable”, he looked forward in 2008 to “…delivering growth and increased profitability for our shareholders and employees”. 2

But reality trumped rhetoric and Merrill Lynch suffered $1.96 billion in first quarter losses, $4.65 billion in the second quarter, and $5.2 billion in the third. But that wasn’t enough. As the banking crisis was going nova last September, US Treasury secretary, and former investment banker, Hank Paulson convened the weekend meeting of American bankers which set in motion the massive tax-payer subsidies for the super-wealthy.

During that meeting, Bank of America agreed to take over Merrill Lynch, thereby saving it from extinction. After some €18 billion in losses in less than 2 years, it was hoped that Merrill Lynch would have reached the bottom.

Far from it. Instead it announced in January 2009 that it suffered a further €20 billion in losses for the fourth quarter alone, despite the huge subsidies being thrown at it by the US Treasury. The massive losses were enough to jeopardise the future of the Bank of America itself, and so, yet again, the state stepped in and handed over another €20 billion of tax-payers’ money.4 Naturally, after losing so much money, Merrill Lynch executives paid themselves huge bonuses.5

Other Merrill Lynch Highlights
• The Irish government previously employed Merrill Lynch together with AIB to advise them on the privatisation of Telecom Eireann at a cost of some £70 million.5

• Merrill Lynch misled investors on Enron, and had to pay some €280 million in compensation.6

• Last year, Merrill Lynch, including Henrietta Baldock, advised the Royal Bank of Scotland consortium in its takeover of Dutch bank ABN-AMRO. Widely considered one of the worst transactions of 2008, the RBS led consortium lost some €15-20 billion in the deal. Meanwhile, Merrill Lynch picked up €300 million in fees.7

$40 billion down the tube
Merrill Lynch didn’t just lose some €40 billion dollars due to bad luck. It’s not as if there were any natural disasters, government rules, or even competitors’ actions that destroyed their investments. Rather, over a period of years they helped build up the asset bubble to a completely unsustainable extent. They didn’t just make a few misplaced predictions of the viability of this or that enterprise. It takes hard work, arrogance, and copious amounts of idiocy, a rather dangerous cocktail at the best of times, to sustain that sort of black hole.

After all, losing €40 billion is actually pretty hard to do. There is plenty of talk about the Irish state running a deficit in 2009 of well over €5 billion. But at least the state will provide education, medical care, and public transport as well running the fire brigade, street cleaning and a myriad of other public services.

When a corporation like Merrill Lynch, which doesn’t have the public service obligations of the state, manages to chalk up losses of that magnitude it can only be put down to incompetence and a truly world-class level of intellectual dimness.

Naked Class Interests
Naturally, those who are demonstrably clueless about economics should not be employed as senior advisors to any government. That much is obvious. But there is a further reason for dispensing with the services of Merrill Lynch as well as Irish corporate lawyers: class interest.

Ó Ríordáin and Baldock will carry with them the baggage of their professions, namely, that of being legal and financial advisors to major capitalists. Apart from the dubious nature of their expertise, their advice is overwhelmingly likely to favour the class interests of the super-wealthy. Since there is only so much money available – and less and less of that as the bankers’ incompetence comes to light – it is increasingly important that it is not simply handed over to rescue Irish capitalists, especially those who’ve displayed all the wit and intelligence of your average Merrill Lynch broker. Bailing out Anglo-Irish, AIB and the rest is simply money given to bankers and money denied to public transport, and health care or any sort of socially useful enterprise.

But of course, we know that the Irish state will continue to cut public services, it will attempt to drive down the working conditions of workers in both the public and private sectors. That the state’s ultimate purpose is to defend capitalism becomes clear in times of crises. Its choice of corporate advisers merely reflects this. In contrast, trade union input will consist of being lectured as to how cuts are in the national interest.

Will the advisors from Merrill Lynch and Arthur Cox propose tripling capital gains tax, from the absurdly low 20% it’s currently at? Will corporation tax be bumped up to 40%? Or will the focus be on draining wealth from working people, either in terms of income tax increases or in reduction of social spending?

The response of the government will illustrate clearly the strength of class forces in Irish society. And despite the awesome ineptitude of property developers and banks – from Anglo-Irish to Merrill Lynch - the state still feels confident enough to engage in a huge transfer of wealth from ordinary working people to the major capitalists.

Related WSM Links
US Finance and Global capitalism
Financial Weapons of Mass Destruction
WSM website

1. Merrill Lynch Press release Jan 2008
2. Wall St. Journal, JULY 18, 2008
3. 1st quarter losses 2nd Quarter loss
3rd Quarter loss
4. Bank of America hit by more Merrill Lynch loses
5.Merrill bonuses
6. Merril Lynch and Eircom
7. Merrill to cough up on Enron
8. ABN-AMRO disaster

<small>Baldock (2nd from right) and co.</small>
Baldock (2nd from right) and co.

author by David McCannpublication date Tue Jan 27, 2009 08:51author address author phone Report this post to the editors

Excerpt: "In the case of the joint stock company, established through the issuing of shares, the shareholders, in return for supplying money capital, receive a title to property. They do not have a right to a portion of the company. As a shareholder of a retail chain, you cannot go into a store and claim some of the merchandise, on the grounds that you are a part owner of it. The merchandise is the property of the incorporated person, the company. What you are entitled to is a portion of the profit, in the form of a dividend.

With the development of credit and shareholding we have the creation of new markets—financial markets—in which these titles to income, bonds and shares, are bought and sold. And as the prices of these financial assets rise and fall, so profits can be made by buying and selling them.

Here I want to emphasise that there are not two forms of capital. The money that was supplied, either as credit or through share subscription, has been deployed to purchase labour power and the means of production. It has become productive capital engaged in the process of extracting surplus value from the working class. It does not exist in the form of money as well. The shares and bonds are what Marx called "imaginary" capital, or fictitious capital. They are, in the final analysis, titles to income, to a share of the surplus value extracted by productive capital.

However, in the world of finance, of fictitious capital, it is possible to make great profits by buying and selling financial assets. This is an enchanted world, a world of illusion, because here it is possible to make money simply through the manipulation of money. Money, through the payment of interest, seems to accumulate as a natural function of its existence. Money begets money as Nature herself nurtures the growth of plants and animals. How could labour possibly be the source of all profit when clever manipulations and trades by financial operators can result in the accumulation of vast wealth?" Nick Beams

Related Link: http://www.wsws.org
author by pascalpublication date Sun Feb 01, 2009 01:53author address author phone Report this post to the editors

as vincent browne writes today in the sbp, it is the weakest section of society that will fund the shortfalls which FF aka the builder party have esposed us to, but tripling capital gains tax and higher corporation tax would likely not be a good solution. Last thing we need is to give intel another reason to leave..much better to focus on trasparency and accountability at govt level, we need to find out why the bank guarantee exposing us to ruinous losses was rushed through by cowen and leninhan with not even the opposition having time to react. Even their own party had no say by the look of it, and this was of such collosal import to every single one of us. We need to to question our apathy to politics or we will continue to have our futures sold off. Unfortunately in Ireland there is no civic spirit, its more "as long as im alright jack". In other countries there would be demonstrations by now.

author by redjadepublication date Sun Feb 01, 2009 11:59author address author phone Report this post to the editors

found at: http://bravenewfilms.org/blog/?p=68735
'So, you know about the Treasury’s $700 billion bailout plan. But you probably don’t know that the Federal Reserve has lent out about $2 trillion since September. Few do. And that is what’s irritating bulldog Congressman Alan Grayson. Will he be able to shed a light on the Fed’s secret spending?'

Caption: Video Id: oxuqmPyKqcs Type: Youtube Video
Embedded video Youtube Video

author by ecpublication date Sun Feb 01, 2009 14:32author address author phone Report this post to the editors


A scary tale considering these ML people are also state advisors!

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