[NYTr] Blame Wall Street Greed, Not Mexican Corruption, for Illlegal Immigration

[All the News That Doesn't Fit]

Americas Program, Center for International Policy - posted Dec 15, 2007
http://americas.irc-online.org/am/4792

Wall Street and Immigration: 

Financial Services Giants Have Profited from the Beginning

by Peter Cervantes-Gautschi
Written December 4, 2007

Life began to get hard for most Americans beginning in the late 1990s
due to increased family debt. During the same period, life got a lot
harder for most Mexicans for the same reason. The same financial
institutions created and profited from much of the family debt in both
countries.

According to census reports, 70% of the government unauthorized
immigrants in the United States are from Mexico. Most legally
unauthorized Mexican immigrants in the United States are economic
refugees from the 1995 devastation of Mexico's economy.

While it is popular among U.S. presidential candidates these days to
blame Mexican corruption for our huge undocumented immigrant
population, corruption in the United States played a far larger role in
compelling millions of Mexicans to cross our southern border with or
without legal authorization. U.S. corruption came in the form of
politicians implementing and enforcing foreign policies that yielded
unprecedented profits for their well-heeled campaign contributors in
the financial services industry. They probably didn't break U.S. law to
accomplish this, but they did force Mexico to break its own laws to
implement their program.

Led by Wall Street heavies Bank of America, Goldman Sachs, Citi,
Fidelity, Chase, and others, these finance industry leaders got
Congress to permit financial institutions to increase family debt in
the United States by enacting legislation friendly to mega-banks
(financial holding companies) while thwarting consumer-friendly
legislation. The same U.S.-based financial services leaders played a
leading role in increasing family debt to unmanageable levels in Mexico
in the mid to late 1990s through their influence of the U.S. Congress.
Creating Hardship in the U.S.A.

In the mid 90s, the U.S. financial services industry concentrated
campaign contributions to New York Congressman Peter King, currently
the ranking Republican on the House Homeland Security Committee and
adviser to the Giuliani campaign, and to other new majority Republican
leaders on the House and Senate Banking Committees.1

These committees crafted successful legislation that enabled U.S.-based
banking and finance giants, Bank of America, Citi Corp, Fidelity, Chase
and a few others to acquire real estate, insurance, credit card,
brokerage companies, and other banks as well.2 They also passed
legislation that opened the way for banks to triple the charges on
their customers' accounts and to raise interest rates on credit card
balances without fear of legal limits on interest rate increases they
could impose.3

Prior to this legislation, many states had placed limits on credit card
interest rates. These state laws set a maximum number of percentage
points above the Federal Reserve's prime rate as the limit that banks
could charge credit card customers. The new federal legislation pushed
through Congress by the banking and finance sector heavyweights
preempted state laws covering credit cards resulting in the removal of
all legal limits on credit card interest rates.4

Although Democrats Maxine Waters and Charles Schumer tried to curb
banks from surreptitiously abusing customers through ATM use charges
and other account fees, the Republican majority on a banking
Congressional subcommittee killed their efforts. As a result, banks
nationwide gained the go ahead to double charge customers for using
each other's ATMs and to increase fees.5

The impact of increased charges on bank accounts and credit card
balances made life harder for scores of millions of families throughout
the United States. Family credit card debt in the United States rose
62.9% between 1989 and 2004.6 The situation has worsened to the point
where the majority of middle-income families now carry unpaid credit
card balances from month to month while low-income families spend more
than 10% of their annual incomes on credit card debt.7 Profiting From
Hardship in Mexico

On Dec. 22, 1994 the Mexican peso was devalued over 40%. This, coupled
with an increase in the U.S. prime rate enacted by the U.S. Federal
Reserve, rendered Mexico nearly bankrupt largely due to
dollar-denominated bond debt to Wall Street banks.8

The U.S. government got the International Monetary Fund and Canada to
give Mexico money to put together a bailout package to pay its
creditors, most of which were Wall Street banks. The International
Monetary Fund contracted Mexico's bailout loan to the U.S. Treasury
Department.9 Acting in the interest of Wall Street creditors, Peter
King got Congress to adopt legislation that imposed monthly oversight
on the bailout implementation by the Banking Committee.10

To get the bailout money, Mexico was required to meet stipulations that
violated its own Constitution, which limited foreign ownership of the
banking industry to 5% and forbade home mortgage interest rates above
7%.11 The bailout package required that foreign banks get 49% of the
banking market. Limits on interest rates for all loans were eliminated
to pay off Citi, Chase Manhattan, Bank of America, JP Morgan, and the
other foreign bond investors. Another stipulation on the bailout money
required Mexico to put a cap on wages nationwide.12

Although it was a major Mexican bond creditor, JP Morgan became
Mexico's financial adviser.13 An arrangement like this in the United
States would have been seen as a blatantly illegal conflict of
interest. Impoverishing Mexican Families for Profit

Mexico's national bank was forced to raise the money to pay off the
inflated bond debts to the foreign bond investors by dramatically
increasing interest rates on the full spectrum of loans in Mexico.

Over the next two years interest rates on business and farm loans rose
from an average of 11% to an average of 56%. Credit card debt interest
rates went from 7% to 61%, interest rates on car loans went from 7% to
91%, and home loan interest rates rose from an average of 5% to 75%.14
In the same period the Bank of America, Citibank, JP Morgan, Chase
Manhattan, and HSBC acquired most of Mexico's banking market.15

The impact of 1995 loan interest rate increases was more than millions
of people and thousands of businesses could handle. Thousands of farms
and businesses, both large and small, went bankrupt. In 1995 alone over
12,000 of Mexico's businesses filed for bankruptcy, and as economic
activity came to a standstill and demand was cut, orders were canceled
and plants operated at less than minimum levels. Idle capacity in many
branches of the manufacturing sector increased to 70%.16 It became
impossible for millions of workers to support their families by earning
paychecks in their own country. Unable to earn enough to support their
families, millions of workers migrated to the United States to find
family wage work.17

The Wall Street banks profited handsomely. In 1998 for example, after
recouping and profiting from their short-term bond investments through
direct and enabled payments from the bailout package, JP Morgan and
Citi owned over $4.1 billion dollars and $1.9 billion dollars
respectively worth of loans in Mexico. A few years later Citi became
the owner of 23.2% of the Mexican loan market through its acquisition
of Banamex.18 The banking and finance sector rewarded the Republican
members of the banking committees in Congress with millions of dollars
in campaign contributions.19 Juanita and Pablo, A Family Story20

Pablo and Juanita lived in a town in northern Mexico where they grew up
and got married. They had two children. In 1993 they owned a house and
two parcels of vacant land that they planned to give to their children
to build their own homes on.

Pablo had a good job and 25 years seniority in a large successful
company. Taking a cue from many friends and family who had enjoyed
Juanita's cooking at social gatherings over the years, Pablo and
Juanita decided to open a restaurant to bring in more income to finance
sending their children to college. In 1994 they got a $100,000 peso
(US$10,000) loan from a local bank to start Juanita's restaurant.

The restaurant was very successful. The food was excellent, which along
with Juanita's warm personality, attracted a large crowd of happy
regulars.

Although Pablo and Juanita made all their payments on time, their debt
on the loan quadrupled in 1995 because of Mexico's new increased
interest rates. The bank quintupled their monthly payment in 1996. Life
was hard. But with all four members of the family working, they
persevered. The final straw came in 1998 when Pablo's company downsized
and he was forced into retirement. The family was now in danger of
total financial ruin.

Organizations and friends rallied to their aid and raised enough money
through donations to save the house in 2000. But the bank took their
land and Juanita's restaurant.

Pablo's monthly pension check is $2000 pesos (US$200). Their son's
monthly tuition cost, initially less than half of Pablo's pension
check, is now $3,000.

So Juanita came to the United States where she works as a domestic
worker without documents. She works 16 hours a day, six days a week
taking care of a wealthy old woman for $250 a week. Juanita knows she
is working at well below minimum wage, but she doesn't want to assert
her right to minimum wage for fear of losing the job and being
incarcerated and then deported. Profiting From Hardship on Both Sides
of the Border

Today one of the owners of the bank where Pablo and Juanita got their
loan for the restaurant is Bank of America, which acquired 24.9% of
Serfin, Mexico's third largest bank.21 Their son's student loan is
owned by Citi, which acquired Mexico's largest bank, Banamex.22 The
trend begun by the Mexican bond bailout implemented by the U.S.
government at the behest of huge financial holding companies has led to
a Mexico today in which over 80% of the banking market is owned by
foreign banks and there is only one domestically owned nationwide
bank.23 Profits from money wired home from family members who went to
the United States to work is shifting to some of the same financial
institutions that caused so many to flee the country in search of
decent paying jobs.24

Meanwhile in the United States, credit card debt continues to raise the
pressure on families struggling with soaring health care, higher
education, and transportation costs. Wall Street financial institutions
have expanded their reach into capitalizing the credit card market by
acquiring department store, gasoline, airline, telephone, and other
consumer credit cards.

Although credit cards bear the logo of Visa, MasterCard, or one of the
other networks, they are actually issued by banks. The five leading
U.S. bank credit card issuers are Bank of America, JP Morgan Chase,
Citigroup, Capital One, and HSBC Bank.25 Four of these mega-banks
collected billions of dollars in loan payments through Mexican banks
they acquired between 1995 and 1998.26

JP Morgan Chase, which recently owned the largest chunk of the credit
card market in the Untied States, also now owns the company in Mexico
where Pablo worked for 25 years before he was forced to retire.
Profiting from Immigration Raids at Taxpayer Expense

Some of the same Wall Street heavies who profited from the Mexico
bailout package began investing in three private prison companies a
couple of years ago. This past January, the Bush administration gave
contracts to Cornell, the Geo Group, and Corrections Corporation of
America to build and run prisons for immigrants detained by the
Immigration and Customs Enforcement (ICE) arm or the Homeland Security
Department.27

Financial services industry leaders, Bank of America and JP Morgan
Chase are major shareholders in Cornell, while Fidelity is a major
shareholder in the Geo Group, and Corrections Corporation of America.28
Corrections Corporation of America has reported spending over $1.3
million lobbying the federal government on matters involving prison
privatization so far this year.

The market for private prison companies mushroomed when the Bush
administration changed the charge for being picked up without your own
Social Security number from a misdemeanor carrying a maximum of one
year in jail to a Class B felony carrying a minimum of three years in
prison.29

While all three financial services industry leaders have profited
handsomely on their private prisons stock in the wake of subsequent
immigration raids, incarcerations, and deportations,30 the human impact
has been devastating for many.

At a time in which a Google search for "reporting illegal immigrants"
yields 1,760,000 results, ICE agents from New York's Long Island to
Portland, Oregon have seized Latinos from bus stops, light rail
platforms, and even their homes with no more probable cause than their
looks.31

The seized disappear without access to legal counsel and without the
opportunity to contact family and friends. These unfortunate people who
happened to be in the vicinity of ICE agents at the wrong time are
incarcerated with dangerous criminals, and, if unable to prove legal
status on the spot, are forced to sign away their legal rights and then
deported. In the meantime, spouses, children, school teachers, and
childcare providers are left to search for a parent who has disappeared
without a trace.32

As these raids continue, facts and rumors spread a chilling fear
through Latino communities across the country. This is occurring much
to the ignorance of the general public.

As can be expected, the major media has turned much of its attention to
the people who are or would be president of the United States. The
single largest financial source of the campaigns for five of the six
frontrunners for president in the two major parties is the financial
services industry.33

This is a fact that the U.S. major media has missed or ignored, much in
the same way it has ignored the role that the financial services
industry is and has been playing in the issues surrounding immigration.

 
End Notes

 1. Federal Elections Commission campaign contribution reports
1996-2000; Library of Congress Financial Institutions and Consumer
Credit Committee in the 104th, 105th and 106th Congress (1995-1998).
For example, King and four fellow Republicans on this committee, Bob
Ney, Bob Ehrlich, Edward Royce, and Jerry Weller, collectively received
over $2.2 million in campaign contributions from the financial services
industry.

2. In November 1999, Congress adopted the Financial Services
Modernization Act which repealed the restrictions on banks affiliating
with securities firms in existing banking law (Glass-Steagall Act) and
created and authorized "financial holding companies" to engage in
insurance and securities underwriting and agency activities, merchant
banking, insurance company portfolio investment activities, and
"activities that are 'complementary' to financial activities."
Beginning in 1994 Congress had allowed the Treasury Department and the
Securities and Exchange Commission to grant exemptions to anti-trust
and preemption provisions of the Glass-Steagall Act.

3. Riegle-Neal Amendments Act, June 1997.

4. Congressional Record, Financial Institutions and Consumer Credit
Committee in the 104 th and 105 th Congress (1995-98); amendments to
Truth in Lending Act, the Bank Holding Company Act, and enacting the
Financial Institutions Regulatory Relief Act.

5. Congressional Record, Financial Institutions and Consumer Credit
Committee in the 104 th Congress (1995-96).

6. "Pushing the Limit: Credit Card Debt Burdens American Families," By
Christian E. Weller, Senior Economist, Center for American Progress.

7. "Borrowing to Make Ends Meet," Tamara Draut & Javier Silva, ©
September 2003 De-mos: A Network for Ideas and Action.

8. "How Investment Bankers Ruined Mexico: Wall Street Blues," Douglas W.

Payne, New Republic, March 13, 1995; United States Congressional
Record, 104th Congress; House Banking and Financial Services Committee:
Financial Institutions and Consumer Credit sub-committee reports;
United States Federal Reserve, Federal Reserve Bulletin. "The Transfer
of Devaluation Risk from Foreign Investors to the Mexican Government
Throughout 1994 Cost the Government Dear," Stephen Fidler and Ted
Bardacke, The Financial Times Weekend Edition, Jan. 14-15, 1995. "The
Devaluation: A Political Reflection," Current History: A Journal of
Contemporary World Affairs, Castañeda, J. (1995), 94(590): 114-17.
"Market Forces: Some Mutual Funds Wield Growing Clout in Developing
Nations;" "As Investments Abroad Rise, Managers Take on Role Similar to
Banks, IMF," Craig Torres and Thomas T.

Vogel Jr., Wall Street Journal, (Eastern edition), New York, NY, June
14, 1994, p. A1. "Late Night Call to Mexico," Craig Torres and Thomas
T. Vogel Jr., Wall Street Journal, (Eastern edition), New York, NY,
June 14, 1994, p.

A1. "Oops! Peso Forecasts Were Off the Money?Up Until the Crash, Lots
of Analysts Gushed Over Mexico," E.S. Browning, Wall Street Journal,
(Eastern edition), New York, NY, Jan. 6, 1995, p. A8.

9. According to the "Report to the Chairman, Committee on Banking and
Financial Services, House of Representatives" by the United States
General Accounting Office on February 23,1996, President Clinton
announced a $40 billion loan bailout package for Mexico containing
structural adjustment provisions on Jan. 12, 1995 which would be
implemented and enforced by the Secretary of the Treasury, but he
lacked adequate support in Congress for it. The same GAO report states
that the Secretary of the Treasury entered into an agreement with the
IMF on Jan. 31, 1995 for the U.S. Treasury Department and the IMF to
jointly provide Mexico the same package and provisions that Clinton had
proposed on Jan. 12. The IMF issued a press release on Feb. 1, 1995
announcing approval of the package. Clinton notified Congress of the
deal on March 9, 1995 in a letter accompanied by a fact sheet on the
package prepared by the Treasury Department. The fact sheet noted that
Mexico had increased interest rates on short term bonds by 10
percentage points on Feb. 20, 1995. So the Wall Street investors not
only recouped their losses on the short term bonds through the bailout,
they made a 10% profit in addition.

10. United States Congressional Record, 104th Congress 1995-96; House
Committee on Banking and Financial Services: Reports and Hearings on
Bill Requesting the President to Submit Information to the House of
Representatives Concerning Actions Taken Through the Exchange
Stabilization Fund to Strengthen the Mexican Peso and Stabilize the
Economy of Mexico" (King, NY).

11. "The Micro-Economic Impact of IMF Structural Adjustment Policies in
Mexico," Alejandro Nadal, Center for Economic Studies, El Colegio de
México, 2000.

12. "How Investment Bankers Ruined Mexico: Wall Street Blues," Douglas
W.

Payne, New Republic, March 13, 1995; "Mexico Uses $4 Billion from U.S.

Bailout to Pay Investors Series: MEXICO IN CRISIS: Shoring up a shaky
economy." One in an occasional series; [Home Edition], Mark Fineman.
Los Angeles Times, April 5, 1995, p. 1.; "Mexico's Use of U.S. Loans Is
Paying Off. First half of $20 billion credit line went to avoiding bond
defaults.

Peso has stabilized, but crisis is seen as far from over" Mark Fineman,
Los Angeles Times, [Home Edition], July 7, 1995. ; "Mexico Unveils
Program of Harsh Fiscal Medicine?Spending Will Be Slashed, Taxes Raised
to Rein in Prices and Salvage Peso," Paul B. Carroll and Craig Torres,
Wall Street Journal, (Eastern edition), New York, NY, March 10, 1995,
p. A3; "U.S.

unveils rescue plan for Mexico," Tim Torres, Wall Street Journal,
(Eastern edition), New York, NY, Feb 22, 1995, p. A3; "U.S. Loans to
Mexico Used Mostly to Pay Investors," Mark Fineman, Los Angeles Times,
April 4, 1995; IMF Staff Report, June 1995.

13. "Mexico's Debt-Restructuring Plan Stalls?Problems in Repackaging $2
Billion of 'Tesobonos' Add to Nation's Woes," Craig Torres, Wall Street
Journal, (Eastern edition), New York, NY, Feb 5, 1995, p. A14.

14. "How Investment Bankers Ruined Mexico: Wall Street Blues," Douglas
W.

Payne, New Republic, March 13, 1995; "Mexico Uses $4 Billion from U.S.

Bailout to Pay Investors Series: MEXICO IN CRISIS: Shoring up a shaky
economy," One in an occasional series; [Home Edition], Mark Fineman,
Los Angeles Times, April 5, 1995, p. 1; "Mexico's Use of U.S. Loans is
Paying Off. First half of $20 billion credit line went to avoiding bond
defaults.

Peso has stabilized, but crisis is seen as far from over," Mark
Fineman, Los Angeles Times, [Home Edition], July 7, 1995; "Mexico
Unveils Program of Harsh Fiscal Medicine?Spending Will Be Slashed,
Taxes Raised to Rein in Prices and Salvage Peso," Paul B. Carroll and
Craig Torres, Wall Street Journal, (Eastern edition), New York, NY,
March 10, 1995,p. A3. "U.S.

unveils rescue plan for Mexico," Tim Torres, Wall Street Journal,
(Eastern edition), New York, NY, Feb 22, 1995, p. A3; "U.S. Loans to
Mexico Used Mostly to Pay Investors," Mark Fineman, Los Angeles Times,
April 4, 1995; IMF Staff Report, June 1995.

15. Foreign and Domestic Bank Participation in Emerging Markets:
Lessons from Mexico and Argentina by Linda Goldberg, B. Gerard Dages,
and Daniel Kinney; Revision: March 10, 2000.

16. "The Micro-Economic Impact of IMF Structural Adjustment Policies in
Mexico," Alejandro Nadal, Center for Economic Studies, El Colegio de
México, 2000.

17. Ibid.

18. Foreign and Domestic Bank Participation in Emerging Markets:
Lessons from Mexico and Argentina by Linda Goldberg, B. Gerard Dages,
and Daniel Kinney, Revision: March 10, 2000.

19. United States Federal Election Commission 1996, 1998, 2000 campaign
contribution reports of U.S. Reps Peter King, Bob Ehrlich, Bob Ney,
Edward Royce, and Jerry Weller.

20. This is a true story. I have changed the names of the family
members at their request.

21. Wikipedia.org, Bloomberg.com.

22. Wikipedia.org, Bloomberg.com.

23. Banorte, which is supported by World Bank loans, owns about 4% of
the banking market in Mexico, and is now the fourth largest bank in
Texas.

24. "Remittance market draws major players; Banks, cards, credit unions
enter the fray," Carolyn Said, San Francisco Chronicle; Sunday, July
16, 2006.

25. "For credit card issuers, there's plenty of room at the top," by
Jeremy Simon, CreditCards.com, June 6, 2006.

26. Edgar database 10 Q filings, United States Securities and Exchange
Commission; " Foreign and Domestic Bank Participation in Emerging
Markets: Lessons from Mexico and Argentina," by Linda Goldberg, B.
Gerard Dages, and Daniel Kinney; "U.S. Loans to Mexico Used Mostly to
Pay Investors," Mark Fineman, Los Angeles Times, April 4, 1995;
"Mexican Meltdown: Nafta, Democracy, and the Peso," Maxwell A. Cameron,
Cerlac Working Paper Series, January, 1996.

27. 1/18/07 Federal Bureau of Prisons announcement of contract awarded
to Geo Group to incarcerate approximately 2,400 immigrants in Texas;
1/19/07 by the Federal Bureau of Prisons announcement of $119.6 million
contract awarded to Corrections Corporation of America to incarcerate
over 1,500 in Texas; 1/19/07 by the Federal Bureau of Prisons
announcement of $268.8 million contract awarded to Cornell to
incarcerate up to 3,500 in Texas.

28. Geo Group, Corrections Corporation of America, and Cornell
shareholder information: Edgar database, U.S. Securities and Exchange
Commission 10 K, 10 Q filings.

29. "Identity Theft Penalty Enhancement Act," 2004, Library of Congress.

30. Yahoo Finance, share price histories of Geo Group, CXW, Cornell.

31. Interviews with Nadia Marin Molina, The Workplace Project,
Hempstead, NY and Andrea Cano, Oregon Farm Worker Ministry
10/21/07-11/15/07.

32. Ibid.

33. As of the 9/30/07 Federal Elections Commission filings, the
Financial Services industry is the top contributing sector to the
campaigns of Rudy Giulani, Hillary Clinton, Mitt Romney, Barak Obama,
and John McCain; and the second largest contributing sector to John
Edwards (behind contributions by lawyers). Data compiled by the Center
for Responsive Politics.


[Peter Cervantes-Gautschi is co-executive director of Enlace, an
alliance of low wage worker organizations in the United States and
Mexico, and analyst for the Americas Policy Program at
www.americaspolicy.org. Feedback can be directed to
americas(@)ciponline.org or through their website,
http://www.enlaceintl.org.]