Wall Street and Immigration: Financial Services Giants Have Profited from the Beginning
By Peter Cervantes-Gautschi, Enlace Executive Director
Published by the Americas Program
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 Story 20
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.
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.
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.
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 http://www.americaspolicy.org. Feedback can be directed to email@example.com or through their website, http://www.enlaceintl.org.
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