Sunday, August 10, 2014

‘Differences between Wall Street and vultures have been diluted’

Saskia Sassen is a sociology professor at Columbia University.

By Sebastián Lacunza
Editor-in-Chief

The Herald interviews sociology professor and author Saskia Sassen

Saskia Sassen, the author of Territory, Authority, Rights: From Medieval to Global Assemblages (which has also been published in Spanish), warns from London, where she speaks to the Herald, that the differences between the vultures and Wall Street’s mainstream has been diluted in recent years, thus raising the possibility that Argentina could set a new landmark for the global financial sector.

Sassen, a sociology professor at US Columbia University, wrote this week referring to the International Court of Justice that in her opinion it should have eventually judged the case between Argentina and the vulture funds. “The Hague is a proper venue,” she pointed out.

On Thursday, Argentina asked the International Court of Justice, commonly known as the World Court, to take action against the United States over the country‘s sovereign debt dispute, the latest move in its long-running battle against holdout creditors. Yet on Friday United States government sources said that the Obama administration was not ready to accept the World Court’s jurisdiction.

Sassen, an expert in globalization, believed the ICJ had much to say on this conflict considering that regular US courts have shown themselves unable to deal with a sovereign debt restructuring.

You think that the International Court of Justice at The Hague could be the proper venue for tackling the case between Argentina and the vultures. Had you hoped that the US government would have accepted a foreign jurisdiction in this case?

Basically bringing this type of case to The Hague is unusual. But I think it is important —even if it would just be an opinion, since the US said it does not agree to grant the ICJ jurisdiction on the case. If the Argentine case was accepted, it would have made an historic (not necessarily legal) precedent. And it would have taken the discussion about sovereign debtors and their creditors out of the commercial domestic circuit, where it has now been taken by the US courts including the US Supreme Court. Reducing sovereign debt to a commercial condition is not acceptable. Sovereign debt is not private debt.

From where I look at it, which is also what generates my line of analysis, key institutions of the executive branch of government have incorporated the logics of finance. And this matters because it sets up a context where mutiple and very diverse rules of the game have begun to shift. The recent decision by the US Supreme Court against Argentina’s government is one illustration —as I discuss in the piece you published on Tuesday, August 5, (the Herald published it under the line “The Hage is the proper venue”).

The most extreme case of this shift is probably the Federal Reserve (US Central Bank) secretly putting US$17 trillion dollars to the service of the global banking system to address the 2008 crisis. What it gave publicly was a bit over US$300 billion. I develop this at length in one of my books, Territory...

Wall Street’s big companies are believed to be stronger than the vulture funds in terms of lobbying. But eventually, Paul Singer and other tycoons like him show their effectiveness in being heard by lawmakers and judges. The question is if Wall Street’s mainstream really has diverging interests from the vultures or if they join together at some point.

You make a very good point. I would say that today the differences have been diluted. There are still some differences between the grand banks, JPMorgan and such, and vulture funds. In the 1990s it was different, and perhaps partly due to elitism, and partly due to emergent competition. After all the infamous “junkbonds” of the 1980s — basically bonds without the approval of a rating — that took (US businessman Michael) Milken to jail, became pretty much standard soon after, and are now no longer described as junk bonds. And what were called vulture funds in the 1990s are now increasingly in the US press simply called hedge funds. There is a creeping spread of financial profit as the criterion.

The Argentine government aims to denounce hedge funds before the Security Exchange Commission for an alleged conflict of interests since they are likely to have invested in the credit default swap while they were pushing the country into a default. Do you think that this denouncement could be taken into consideration?

Again, I don’t know whether this is a move that could work. Let us recall, that this is a somewhat unstable period in terms of the relationship between the law and the big banks, which are mostly about finance now rather than traditional banking, and this is very important.

Look at the fines that the US Attorney General has been issuing and they are all accepting these fines and avoiding contesting them. Let me add as a footnote that for many observers these fines, even if in they are in billions, are a very cheap way for these banks to get away with murder... but still, it is an unstable relationship. So going to the SEC (US Securities and Exchange Commission) might well turn out to be more consequential even if (only) to set a precedent, that it would have been before 2008. Argentina has been put in a place where its only option has become to innovate, so it might as well run with that ball.

Some analysts say that new debt restructurings (i.e. Greece) have begun to include collective action clauses, which would avoid a similar situation like the Argentine one. Do you agree?

It is a first step. We have got to start contesting the overwhelming logic of the financial system —as if this system were the one that knows best for a country’s economy.

How independent are the US courts from the financial lobby?

It is not even so much a question of independence. It is a logic: what makes sense, what is just... that has installed itself in more and more institutions. And it is the logic not just of markets. If only! But (also) of the financial sector, which is very different from traditional banking.

The fact that Judge (Antonin) Scalia, one of the most right-wing in the court, wrote that decision against Argentina and that only one judge, the smartest of them all, (Ruth) Ginsburg, dissented, is really interesting. Most judges checked out from making a decision. They cannot handle this new logic.

@sebalacunza