Louis Proyect: The Unrepentant Marxist

The title of this article stems from Honoré de Balzac’s “Père Goriot”. Often seen erroneously (including by me) as the novel’s epigraph, it is actually words spoken by a scheming, malevolent character named Vautrin: “The secret of a great success for which you are at a loss to account is a crime that has never been discovered, because it was properly executed.”

Whatever the exact words, the Balzacian worldview came to mind after reading the NY Times series of articles on the filthy rich and mostly criminal owners of the city’s most expensive condos. They sank in further after watching an episode on “Sixty Minutes” about HSBC, a Swiss bank that facilitated tax evasion and worse.

I suppose that I should have long been inured to the criminality of the super-rich but for some reason I always stop dead in my tracks when I encounter it anew on such a grand scale. I end up feeling like Joe Buck, the Texas hustler who has come to NY to make it as a professional gigolo in “Midnight Cowboy”, standing over a man sprawled out unconscious on the sidewalk as people pass him by with barely a glance. Unlike the rest of humanity, Buck tells himself that something is wrong.

Karl Marx was a big fan of Balzac and even intended to write a study of “The Human Comedy”, a massive collection of novels, short stories and articles about the greed, corruption and power of the bourgeoisie but hardly a paean to the common man. Keep in mind that Balzac was a royalist and hardly a purveyor of “socialist realism”. Engels, another fan of Balzac, told London radical Margaret Harkness in 1888 that his politics were less important than his ability to tell the truth about bourgeois society:

The more the opinions of the author remain hidden, the better for the work of art. The realism I allude to may crop out even in spite of the author’s opinions. Let me refer to an example. Balzac, whom I consider a far greater master of realism than all the Zolas passés, présents et a venir [past, present and future], in “La Comédie humaine” gives us a most wonderfully realistic history of French ‘Society’, especially of le monde parisien [the Parisian social world], describing, chronicle-fashion, almost year by year from 1816 to 1848 the progressive inroads of the rising bourgeoisie upon the society of nobles, that reconstituted itself after 1815 and that set up again, as far as it could, the standard of la viellie politesse française [French refinement]. He describes how the last remnants of this, to him, model society gradually succumbed before the intrusion of the vulgar monied upstart, or were corrupted by him; how the grand dame whose conjugal infidelities were but a mode of asserting herself in perfect accordance with the way she had been disposed of in marriage, gave way to the bourgeoisie, who horned her husband for cash or cashmere; and around this central picture he groups a complete history of French Society from which, even in economic details (for instance the rearrangement of real and personal property after the Revolution) I have learned more than from all the professed historians, economists, and statisticians of the period together.

Monied upstarts pretty much describes the billionaires who bought Manhattan apartments through shell corporations that concealed their identities. The article that introduces the series describes the affinity between NY’s one percent and the human detritus that is artificially inflating an already out-of-reach real estate market:

The high-end real estate market has become less and less transparent — and more alluring for those abroad with assets they wish to keep anonymous — even as the United States pushes other nations to help stanch the flow of American money leaving the country to avoid taxes. Yet for all the concerns of law enforcement officials that shell companies can hide illicit gains, regulatory efforts to require more openness from these companies have failed.

“We like the money,” said Raymond Baker, the president of Global Financial Integrity, a Washington nonprofit that tracks the illicit flow of money. “It’s that simple. We like the money that comes into our accounts, and we are not nearly as judgmental about it as we should be.”

In some ways, officials are clamoring for the foreign wealthy. In New York, tax breaks for condominium developments benefit owners looking for a second, or third, residence in one of Manhattan’s premier buildings. Mayor Michael R. Bloomberg said on his weekly radio program in 2013, shortly before leaving office: “If we could get every billionaire around the world to move here, it would be a godsend.”

In fact the invasion of oligarchs and crooks has been the opposite of a godsend. These condominiums enjoy tax breaks originally intended to stimulate the construction of middle-class housing but real estate developers obviously find it more profitable to build high-rises like the Time-Warner Center that is profiled in the articles. Built shortly after September 11, 2001, the ultra-luxury building was advertised as a fortress for the super-rich that had more to fear from the workers and peasants they were screwing than Islamic radicals.

Here is an idea of the kind of scum that inhabits the Time-Warner Center:

Units 72B and 51E are owned by the Amantea Corporation, which The Times traced to a mining magnate named Anil Agarwal. His company was fined for polluting a major river near a copper mine in Zambia, which sickened nearby residents. And judicial committees in his native India determined that his company had violated the land rights of an indigenous tribe near a proposed mine.

Perhaps the most eye-opening example of how larceny and power politics commingle is found in part five in the series titled “At the Time Warner Center, an Enclave of Powerful Russians”. If you, like me, place little credence in the notion of the Kremlin and its retinue of connected oligarchs as some kind of anti-imperialist vanguard, this profile of Andrey Vavilov is a must read.

Vavilov was Boris Yeltsin’s deputy finance minister and like many of his top officials cultivated ties with American inside-the-beltway policy wonks and power brokers at places like the Brookings Institution. Vavilov was one of the key architects who advised Yeltsin on turning state-owned industry, particularly in the energy sphere, into get-rich-quick bonanzas for the managers benefiting from privatization including himself. Cashing in on a sale of a oil company being sold back to the state under Putin to the tune of $600 million, he was not put off by the price tag of $37.5 million for an 8,275 square foot penthouse in the Time Warner Center. In addition to this penthouse, Vavilov owns an Airbus jet, apartments in Monaco and Beverly Hills, and recently purchased two diamonds for his wife (55 and 59.5 carats) worth a cool $60 million.

He is also a visiting professor of economics at Penn State, where he must be educating a new generation of economists on how to game the system for Wall Street hedge funds and the like.

Like many on Wall Street, Vavilov has managed to avoid a prison cell despite the serious allegations made against him over the years, including the mishandling of nearly a quarter-billion dollars in proceeds from the sale of MIG’s to India. Just around the time the law was breathing down his neck in 2007, he was elected senator to the Russian parliament, which gave him immunity. The case was dropped a year later because the statue of limitations had expired.

Most interestingly, despite Vavilov’s close association to Yeltsin and Putin’s reputation for cleaning up Yeltsin’s privatization mess, he managed to endear himself to the fearless anti-imperialist leader:

Despite Mr. Vavilov’s close association with the Yeltsin administration, much of his wealth was acquired later, as Mr. Putin’s government was consolidating the nation’s oil industry in one state-affiliated super company, Rosneft.

In 2000, Mr. Vavilov had acquired a small oil company, Severnaya Neft, or Northern Oil, for $25 million. When Rosneft purchased Severnaya Neft in 2003 for $600 million, the deal was widely criticized as having been larded with kickbacks for Kremlin insiders.

In a now-legendary confrontation at the Kremlin, Mikhail B. Khodorkovsky, chairman of the oil giant Yukos, challenged Mr. Putin about the purchase. Many people believed that it was Mr. Putin’s anger over the very public encounter that sparked his campaign against Mr. Khodorkovsky, who would be stripped of his company, prosecuted and imprisoned.

For most of the left, particularly those people who remain impressed by NYU professor emeritus Stephen F. Cohen who has the same relationship to Putin that Anna Louise Strong had to Mao Zedong, there’s very little understanding of how Putin continues Yeltsin’s policies rather than breaks with them. In fact, there is an analogy with how Cohen’s wife’s vanity publication, ie. The Nation Magazine, fails to appreciate how much Obama is a continuation of George W. Bush.

For the best analysis of the Yeltsin-Putin continuity, I recommend a Tony Wood review of three recent books on Putin that is unfortunately behind a paywall (contact me if you’d like a copy) but this is the takeaway:

New Year’s Eve 1999 – when Yeltsin appeared on Russian TV screens to announce his resignation as president in favour of Putin – is often taken to mark a major turning point, from the ‘fevered 1990s’ to the stability of the ‘Zero Years’, as the 2000s are known, the moment when Yeltsin’s erratic improvisation gave way to the cold calculation personified in Putin. Economically, the prolonged post-Soviet collapse was followed by recovery after the 1998 ruble crash and then an oil-fuelled boom, while in the media a boisterous incoherent pluralism was replaced by deadening consensus. But there were deeper continuities in the system both men commanded.

Politically, the ‘managed democracy’ of the 2000s was not a perversion of Yeltsinism but its maturation. Faced with a fractious legislature – the Congress of People’s Deputies elected in 1990 – Yeltsin bombed it into submission in October 1993 and then rewrote the constitution along hyper-presidential lines, getting it approved by a rigged referendum that December. Even before that, he had sidestepped democratic accountability by implementing much of the key legislation that shaped the post-Soviet economy through a series of decrees – some of them, notably on privatisation, drafted by Western advisers. Thanks to the notorious ‘loans for shares’ deals of 1995-96, a handful of oligarchs obtained vast holdings in oil and metals companies in exchange for flooding the media outlets they owned with anti-Communist propaganda – a vital contribution to prolonging Yeltsin’s grip on power, though generous financial assistance from the West and electoral violations also played their part. In Chechnya, Yeltsin moved to crush local aspirations to sovereignty, unleashing total war against the civilian population in 1994, though the Russian army had been fought to a standstill by 1996.

On each of these fronts, Putin continued what Yeltsin began, starting in the North Caucasus in September 1999, when he launched a vicious counterinsurgency – officially labelled an ‘anti-terrorist operation’ – to destroy any idea of Chechen independence, eventually imposing a tyrant of his own choosing. Once installed as president, he made use of the autocratic set-up he inherited to reassert central authority, reining in regional elites by appointing plenipotentiaries to head seven new federal superdistricts, okruga; five of the first levy were former military men, underlining their disciplinary function (his first envoy to the Southern Federal District, Viktor Kazantsev, had commanded Russian forces in the North Caucasus). Fiscal reforms increased the federal centre’s tax take at the expense of the regions, with Moscow’s share rising from 50 per cent in 2001 to 70 per cent in 2008. In 2004 Putin further restricted their autonomy, abolishing elections for governors and mayors (though these were partially reintroduced in 2012). The national legislature had been put in its place by Yeltsin, though it showed signs of rebellion in 1998, in the wake of the ruble crisis; Putin brought it firmly to heel, streamlining the party system so that by 2007 there were only four to manage, two of them, United Russia and A Just Russia, the Kremlin’s own creations, while the Communist Party and LDPR (the Liberal Democratic Party of Russia) hardly constituted an opposition. In December 2003, Boris Gryzlov, the Duma chairman, summed up its negligible role by declaring that ‘parliament is no place for political battles.’

I suppose there is very little expectation that Swiss Banks are up to anything except abetting criminals but the segment on Sixty Minutes last Sunday about HSBC was enough to bring out the Joe Buck in me. You can watch the entire thing here.

Bill Whitaker interviews attorney Jack Blum, who was graduating the year I entered Bard College. Blum is a capable investigator whose best-known efforts on behalf of the public interest was an aide to John Kerry in his investigation of the Nicaraguan contra-cocaine connection back in 1986 when he still had a shred of integrity. I never had any contact with Blum but he was a fairly typical young Democrat type of student who at least had the good sense to stay clear of electoral politics.

Jack Blum

Here’s the beginning of the transcript from the “Sixty Minutes” piece:

HIGHLIGHT: The largest and most damaging Swiss bank heist in history doesn`t involve stolen money but stolen computer files with more than one hundred thousand names tied to Swiss bank accounts at HSBC, the second largest commercial bank in the world. A thirty-seven-year-old computer security specialist named Herve Falciani stole the huge cache of data in 2007 and gave it to the French government.

BILL WHITAKER: The largest and most damaging Swiss bank heist in history doesn`t involve stolen money but stolen computer files with more than one hundred thousand names tied to Swiss bank accounts at HSBC, the second largest commercial bank in the world. A thirty-seven-year-old computer security specialist named Herve Falciani stole the huge cache of data in 2007 and gave it to the French government. It`s now being used to go after tax cheats all over the world. 60 MINUTES, working with a group called the International Consortium of Investigative Journalists, obtained the leaked files. They show the bank did business with a collection of international outlaws: Tax dodgers, arms dealers and drug smugglers–offering a rare glimpse into the highly secretive world of Swiss banking.

BILL WHITAKER (voiceover): This is the stolen data that`s shaking the Swiss banking world to its core. It contains names, nationalities, account information, deposit amounts–but most remarkable are these detailed notes revealing the private dealings between HSBC and its clients.

JACK BLUM: Well, the amount of information here that has come public is extraordinary. Absolutely extraordinary.

BILL WHITAKER (voiceover): Few people know more about money laundering and tax evasion by banks than Jack Blum.

JACK BLUM: You have a very serious problem.

BILL WHITAKER (voiceover): He`s a former U.S. Senate staff investigator. We asked him to analyze the files for us.

JACK BLUM: If you read these notes, what you understand is the bank is trying to accommodate the secrecy needs of the client. And that`s the first concern.

BILL WHITAKER (voiceover): Take the case of British citizen Emmanuel Shallop. He was convicted for selling blood diamonds, those illegal gems used to finance conflicts in Africa. The documents show in 2005 HSBC knew Shallop was under investigation, yet helped hide his assets. “We have opened a company account for him based in Dubai…” one entry read, “The client is very cautious currently, because he is under pressure from Belgian tax authorities, who are investigating his activities in the area of diamond tax fraud.”

JACK BLUM: You get into the notes and you find that they offer various products: shell corporations, trusts, various ways of concealing the ownership of the account. They offer products that they`re going to give to the customer that will help with a concealment.

BILL WHITAKER (voiceover): Concealment is what Irish businessman John Cashell got from HSBC. His file contained these notes by a bank employee: Cashell`s “…pre-occupation is with the risk of disclosure to the Irish authorities.” The employee went on, “…I endeavored to reassure him that there is no risk of that happening.” Cashell was later convicted of tax evasion.

The bank files we examined contained more than four thousand names of people with connections to the U.S., holding more than thirteen billion in HSBC accounts. One was a New Jersey realtor. The notes in her file reveal that she and her family wanted assurance that her assets would be well hidden from U.S. tax collectors.

JACK BLUM: And she expresses concerns to the bank, which in turn reassure her that they will find ways to keep her name out of the sights of IRS.

BILL WHITAKER: There seems to be evidence of the bank actively helping clients evade, if not cheat.

JACK BLUM: Of course.

It has been at least 35 years since I read “Père Goriot”. I barely have time nowadays to read the political stuff that is my daily bread but I would like to find the time to read it again before I die since it was a book that gave me deep pleasure. Balzac was a master of rendering character, particularly in the depths of their depravity. His introduction to the novel’s main character will give you an idea of the moral rot that underpins bourgeois society. From the sound of this, Père Goriot would have found the road to riches in Yeltsin and Putin’s Russia or a job with HSBC:

In the days before the Revolution, Jean-Joachim Goriot was simply a workman in the employ of a vermicelli maker. He was a skilful, thrifty workman, sufficiently enterprising to buy his master’s business when the latter fell a chance victim to the disturbances of 1789. Goriot established himself in the Rue de la Jussienne, close to the Corn Exchange. His plain good sense led him to accept the position of President of the Section, so as to secure for his business the protection of those in power at that dangerous epoch. This prudent step had led to success; the foundations of his fortune were laid in the time of the Scarcity (real or artificial), when the price of grain of all kinds rose enormously in Paris. People used to fight for bread at the bakers’ doors; while other persons went to the grocers’ shops and bought Italian paste foods without brawling over it. It was during this year that Goriot made the money, which, at a later time, was to give him all the advantage of the great capitalist over the small buyer; he had, moreover, the usual luck of average ability; his mediocrity was the salvation of him. He excited no one’s envy, it was not even suspected that he was rich till the peril of being rich was over, and all his intelligence was concentrated, not on political, but on commercial speculations. Goriot was an authority second to none on all questions relating to corn, flour, and “middlings”; and the production, storage, and quality of grain. He could estimate the yield of the harvest, and foresee market prices; he bought his cereals in Sicily, and imported Russian wheat. Any one who had heard him hold forth on the regulations that control the importation and exportation of grain, who had seen his grasp of the subject, his clear insight into the principles involved, his appreciation of weak points in the way that the system worked, would have thought that here was the stuff of which a minister is made. Patient, active, and persevering, energetic and prompt in action, he surveyed his business horizon with an eagle eye. Nothing there took him by surprise; he foresaw all things, knew all that was happening, and kept his own counsel; he was a diplomatist in his quick comprehension of a situation; and in the routine of business he was as patient and plodding as a soldier on the march. But beyond this business horizon he could not see. He used to spend his hours of leisure on the threshold of his shop, leaning against the framework of the door. Take him from his dark little counting-house, and he became once more the rough, slow-witted workman, a man who cannot understand a piece of reasoning, who is indifferent to all intellectual pleasures, and falls asleep at the play, a Parisian Dolibom in short, against whose stupidity other minds are powerless.