American Empire and the Political Economy of Global Finance InternationalPoliticalEconomySeries GeneralEditors:TimothyM.Shaw,ProfessorandDirector,InstituteofInternationalRelations, TheUniversityoftheWestIndies,Trinidad&Tobago Titlesinclude: LeslieElliottArmijo(editor) FINANCIALGLOBALIZATIONANDDEMOCRACYINEMERGINGMARKETS EudineBarriteau THEPOLITICALECONOMYOFGENDERINTHETWENTIETH-CENTURYCARIBBEAN GabrielG.Casaburi DYNAMICAGROINDUSTRIALCLUSTERS ThePoliticalEconomyofCompetitiveSectorsinArgentinaandChile PeterClegg THECARIBBEANBANANATRADE FromColonialismtoGlobalization MattDavies INTERNATIONALPOLITICALECONOMYANDMASSCOMMUNICATIONINCHILE NationalIntellectualsandTransnationalHegemony YvonGrenier THEEMERGENCEOFINSURGENCYINELSALVADOR IdeologyandPoliticalWill IvelawL.Griffith(editor) THEPOLITICALECONOMYOFDRUGSINTHECARIBBEAN JerryHaarandAnthonyT.Bryan(editors) CANADIAN–CARIBBEANRELATIONSINTRANSITION Trade,SustainableDevelopmentandSecurity TriciaJuhn NEGOTIATINGPEACEINELSALVADOR Civil–MilitaryRelationsandtheConspiracytoEndtheWar R.LipseyandP.Meller(editors) WESTERNHEMISPHERETRADEINTEGRATION ACanadian–LatinAmericanDialogue DonMarshall CARIBBEANPOLITICALECONOMYATTHECROSSROADS NAFTAandRegionalDevelopmentalism JuanAntonioMoralesandGaryMcMahon(editors) ECONOMICPOLICYANDTHETRANSITIONTODEMOCRACY TheLatinAmericanExperience LeoPanitchandMartijnKonings(editors) AMERICANEMPIREANDTHEPOLITICALECONOMYOFGLOBALFINANCE Eul-SooPang THEINTERNATIONALPOLITICALECONOMYOFTRANSFORMATIONINARGENTINA,BRAZIL, ANDCHILESINCE1960 HenryVeltmeyerandJamesPetrasandSteveVieux NEOLIBERALISMANDCLASSCONFLICTINLATINAMERICA AComparativePerspectiveonthePoliticalEconomyofStructuralAdjustment HenryVeltmeyerandJamesPetras THEDYNAMICSOFSOCIALCHANGEINLATINAMERICA InternationalPoliticalEconomySeries SeriesStandingOrderISBN0–333–71708–2hardcover SeriesStandingOrderISBN0–333–71110–6paperback (outsideNorthAmericaonly) Youcanreceivefuturetitlesinthisseriesastheyarepublishedbyplacingastandingorder.Please contactyourbookselleror,incaseofdifficulty,writetousattheaddressbelowwithyourname andaddress,thetitleoftheseriesandtheISBNquotedabove. CustomerServicesDepartment,MacmillanDistributionLtd,Houndmills,Basingstoke,Hampshire RG216XS,England American Empire and the Political Economy of Global Finance Editedby Leo Panitch YorkUniversity,Canada Martijn Konings UniversityofAmsterdam,TheNetherlands Introduction,Conclusion,selectionandeditorialmatter©LeoPanitchand MartijnKonings2008Individualchapters©contributors2008 Allrightsreserved.Noreproduction,copyortransmissionofthis publicationmaybemadewithoutwrittenpermission. Noparagraphofthispublicationmaybereproduced,copiedortransmittedsave withwrittenpermissionorinaccordancewiththeprovisionsoftheCopyright, DesignsandPatentsAct1988,orunderthetermsofanylicencepermitting limitedcopyingissuedbytheCopyrightLicensingAgency,90TottenhamCourt Road,LondonW1T4LP. Anypersonwhodoesanyunauthorizedactinrelationtothispublication maybeliabletocriminalprosecutionandcivilclaimsfordamages. Theauthorshaveassertedtheirrightstobeidentifiedastheauthorsofthis workinaccordancewiththeCopyright,DesignsandPatentsAct1988. Firstpublished2008by PALGRAVEMACMILLAN Houndmills,Basingstoke,HampshireRG216XSand 175FifthAvenue,NewYork,N.Y.10010 Companiesandrepresentativesthroughouttheworld PALGRAVEMACMILLANistheglobalacademicimprintofthePalgraveMacmillan divisionofSt.Martin’sPress,LLCandofPalgraveMacmillanLtd.Macmillan®isa registeredtrademarkintheUnitedStates,UnitedKingdomandothercountries. PalgraveisaregisteredtrademarkintheEuropeanUnionandothercountries. ISBN-13:978 0 230 55126 8 hardback ISBN-10:0 230 55126 2 hardback Thisbookisprintedonpapersuitableforrecyclingandmadefromfullymanaged andsustainedforestsources.Logging,pulpingandmanufacturingprocessesare expectedtoconformtotheenvironmentalregulationsofthecountryoforigin. AcataloguerecordforthisbookisavailablefromtheBritishLibrary. LibraryofCongressCataloging-in-PublicationData TheAmericanEmpireandthepoliticaleconomyofglobalfinance/ editedbyLeoPanitch,MartijnKonings. p.cm. (Internationalpoliticaleconomyseries) Includesbibliographicalreferencesandindex. ISBN0 230 55126 2(alk.paper) 1. UnitedStates Foreigneconomicrelations. 2. International finance.I.Panitch,Leo.II.Konings,Martijn,1975- HF1455.A6762008 332’.042 dc22 2008015888 10 9 8 7 6 5 4 3 2 1 17 16 15 14 13 12 11 10 09 08 PrintedandboundinGreatBritainby CPIAntonyRowe,ChippenhamandEastbourne Contents ListofFiguresandTables vii NotesontheContributors viii Preface ix 1 DemystifyingImperialFinance 1 LeoPanitchandMartijnKonings PartI: ContoursandSourcesofImperialFinance 15 2 FinanceandAmericanEmpire 17 LeoPanitchandSamGindin 3 AmericanFinanceandEmpireinHistoricalPerspective 48 MartijnKonings PartII: ConstructingthePillarsofImperialFinance 69 4 USStructuralPowerandtheInternationalization oftheUSTreasury 71 DavidSarai 5 NeoliberalismandtheFederalReserve 90 EricNewstadt 6 USPowerandtheInternationalBondMarket:Financial FlowsandtheConstructionofRiskValue 119 ScottAquanno 7 TowardstheAmericanizationofEuropeanFinance?TheCase ofFinance-LedAccumulationinGermany 135 ThomasSablowski 8 AccountingforFinancialCapital:AmericanHegemonyandthe ConflictOverInternationalAccountingStandards 159 ThomasSablowski 9 FromBrettonWoodstoNeoliberalReforms:theInternational FinancialInstitutionsandAmericanPower 175 RuthFelder v vi Contents 10 TheRoleofFinancialDisciplineinImperialStrategy 198 ChristopherRude PartIII: Conclusion 223 11 ThePoliticsofImperialFinance 225 MartijnKoningsandLeoPanitch Bibliography 253 Index 275 List of Figures and Tables Figures 7.1 ThestructureoftheGermanfinancialsystem,1990–2005 142 7.2 Privatebondmarketcapitalizationinrelation toGDP,1990–2005 143 7.3 StockmarketcapitalizationinrelationtoGDP,1990–2005 143 Tables 7.1 ThetransformationofrelationsofownershipinGermany, 1995and2005:percentageofshareownershipbygroup 148 7.2 ThetenbiggestmutualfundgroupsinGermanyin2006 149 8.1 SelecteddifferencesbetweenHGBandIFRS 162 vii Notes on the Contributors Scott Aquanno previously worked in the financial services industry as an investmentbrokerandsecuritiesconsultantwithamultinationalbrokerage firm.HeiscurrentlycompletingaPhDinPoliticalScienceatYorkUniversity inToronto. RuthFelderiscompletingaPhDinPoliticalScienceandisaResearchAsso- ciateattheCenterforResearchonLatinAmericaandtheCaribbean,atYork UniversityinToronto. Sam Gindin was for many years Research Director of the Canadian Auto WorkersUnionandcurrentlyholdsthePackerChairinSocialJusticeatYork UniversityinToronto. Martijn Konings recently completed a PhD at York University in Toronto on the rise of American finance and is currently a Researcher in the Ams- terdamInstituteforMetropolitanandInternationalDevelopmentStudiesat theUniversityofAmsterdam. EricNewstadtformerlyworkedintheCanadianbankingsectorandisnow completingaPhDinPoliticalScienceatYorkUniversityinToronto. LeoPanitchistheCanadaResearchChairinComparativePoliticalEconomy andDistinguishedResearchProfessorofPoliticalScienceatYorkUniversity inTorontoandtheco-editoroftheSocialistRegister. Christopher Rude has a PhD from the New York School of Social Research andwasaPostdoctoralFellowatYorkUniversityinTorontoduring2004–5. Thomas SablowskiisaResearcherattheSocialScienceResearchCentrein Berlin and was a Postdoctoral Fellow at York University in Toronto during 2005–6. DavidSaraiwasaFulbrightFellowatAmericanUniversity,Washington,D.C. andiscompletingaPhDinPoliticalScienceatYorkUniversityinToronto. viii Preface Therelationshipbetweenstatesandglobalizationisoneoftheburningques- tions of our time. The processes of capitalist globalization, initially widely perceived as bypassing and marginalizing the state, have not only trans- formedtheworld’sstates;atleastsomecapitaliststateshavebeenkeyauthors ofthoseprocesses. Amongthese, theAmericanStatehasbeenmostcentral tolaunchingaglobalizedcapitalismandthetransformationofotherstates, therebyextendingtheuniqueplaceitcametooccupyasanimperialpower inthetwentiethcentury.Justsevenyearsintothetwenty-firstcentury,this activeroleofstates,andabovealloftheAmericanstate,wasevidentamidst theturmoilininternationalmarketsthatbeganinthesummerof2007,start- ing with when the world’s central banks acted in unison on 10 August to provideliquiditytothetuneofhundredsofbillionsofdollars.Whileevery movementinavastarrayoffinancialmarketswasbeingcloselyscrutinizedby USTreasurystaffmassedinfrontoftheirflat-screenmonitorsinthe‘markets room’,TheNewYorkTimesreportedthatSecretaryHenryM.PaulsonJr.,‘spent thedayinhourlycontactwiththeFed,otherofficialsintheadministration, financeministriesandregulatorsoverseasandpeopleonWallStreet–where untillastyearhehadworkedasanexecutiveatGoldmanSachs’.Meanwhile, the staff at the Federal Reserve, where the newly appointed Chairman Ben S.BernankecoulddrawonhisacademicworkasaneconomistatPrinceton Universityinthe1980sonhowthe1929crashcouldhavebeenprevented, were in contact with the European Central Bank, the Bank of England and theBankofJapanastotheroletheywouldplayas‘lendersoflastresort’. Overtheensuingmonths,theUSTreasurywouldorganize,first,aconsor- tiumofinternationalbanksandinvestmentfunds,andthenanoverlapping consortium of mortgage companies, financial securitizers and investment funds,totrytogetthemtotakeconcretemeasurestocalmthemarkets;and officials in the Federal Reserve would stay in close touch with their coun- terparts in the other central banks in deciding what they would each do aboutinterestratesinfaceoftheongoingcreditcrisis.BoththeTreasuryand FederalReservestaffalsoworkedcloselywiththeSecuritiesExchangeCom- mission and Commodity Futures Trading Commission under the rubric of theWorkingGrouponFinancialMarkets,whichfortwentyyearshadover- seen such crisis interventions inside the American state. At the same time, they burnished their close contacts, developed over some three decades of coordinated promotion of both financial globalization and crisis manage- ment, with the finance ministries and central bankers of the G7, and with thoseofthetwenty-sixstatesorganizedundertheFinancialStabilityForum since1999,inorder(asthelatterputitinOctober2007)‘toenhancemarket ix