Lagarde’s Loophole, the Trump Effect, and the UN’s Israel Obsession
Here’s What You Need to Know
Last Monday, the Cour de Justice de la Republique, a French court specifically tasked with ruling on charges against current and former government ministers, ruled that former French finance minister and current International Monetary Fund managing director Christine Lagarde is guilty of misusing public funds, but determined she should face no consequences for her guilt.
This lack of consequences for Lagarde could have been implications for the global political and financial elite she represents.
- The Background: The charges in the current case stem from another case that dates back to the 1990s. When businessman-turned politician Bernard Tapie joined the French government, he sold his stake in Adidas in an effort to avoid potential conflicts of interest. The French bank Credit Lyonnais handled the €318 million sale to a group of investors that secretly included a subsidiary of the bank itself. A year later the Adidas stake was sold again for €533 million, netting the bank massive profits and defrauding Tapie. He sued the bank, and because the French government had taken up the failing bank’s liabilities, the eventual verdict awarding Tapie €293 million ended up coming from taxpayers.
- The Charges: The current accusations against Lagarde are that, as French economy minister at the time of the Tapie ruling, she gave him preferential treatment and was negligent in failing to challenge the award of such a large sum of taxpayer funds in the case.
- The Verdict: Monday’s ruling was a bizarre one in its findings and sentencing. The Court found Lagarde guilty of negligence in approving the massive government payout, but despite their capacity to levy a fine of up to €15,000 and sentence her to as much as a year in prison, they sentenced Lagarde to no jail time, levied no fine, and determined that the conviction would not constitute a criminal record. The justification for the lack of punishment was a convoluted combination of references to Lagarde’s good standing and international reputation, and credit for her handling of the 2007-2008 global financial crisis.
The IMF’s board of directors quickly convened a meeting to discuss Lagarde’s future with the organization and determined they would stand by her, despite the ruling. Former Treasury Secretary Lawrence Summers and current Treasury Secretary Jack Lew both voiced their support for Lagarde, and criticized the ruling. With no punishment being handed down and the IMF allowing Lagarde to continue as managing director, this appears to be a strange case of a guilty verdict without any consequence whatsoever for the guilty party. Call it the Lagarde Loophole.
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So why does this ruling matter? In both the U.S. and Europe, populists are on the rise thanks to a wave of frustration with a banking sector that many believe caused the global financial crisis of 2008-2009. While that sector seems to have recovered and suffered few consequences, many workers are still struggling and the only power they have is at the ballot box. With France’s presidential election just a few months away, the Lagarde Loophole could become a decisive issue.
News You Can Use
SILICON VALLEY NEEDS A REBOOT
A new year always offers a chance for reflection, and Katherine Boyle of the Silicon Valley venture capital firm General Catalyst, recently argued the tech industry needs it. According to Boyle, the 2016 election exposed a clear disconnect between average America and tech leaders. To solve this problem, she poses three questions: Are tech innovators investing in products made for average Americans? Are they creating products that help unite people of differing viewpoints? And, are tech executives and investors getting out of the Silicon Valley echo chamber? Versions of these questions are worth asking in the Beltway, on Wall Street, and anywhere the globally mobile class gathers.
THE TRUMP EFFECT
Despite predictions of doom and gloom following Donald Trump’s election as president, the financial markets have almost universally responded with upward movement and positive indications for 2017. Since Trump’s election, the market for interest rate futures has suggested that traders are predicting stronger U.S. growth. So has the cost of insurance on corporate debt. The financial markets seem to be betting on Trump’s stewardship of the U.S. economy. That bet makes sense, according to Ray Dalio, chair of the world’s largest hedge fund, who says the market is anticipating a “profound, president-led ideological shift.” As Dalio explains, “This new administration … wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift … will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, U.S., and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power.” Considering the global economic expansion that followed that last shift, it is no surprise the markets are bullish on Trump.
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UN’S “DISPROPORTIONATE” FOCUS ON ISRAEL
Last week, United Nation’s Secretary-General Ban Ki-moon publicly chastised the organization he leads for its “disproportionate” volume of resolutions against Israel that has “foiled the ability of the UN to fulfill its role effectively.” Ban’s comments come after the UN passed 223 resolutions condemning Israel in the past decade alone. These sentiments were echoed by Israeli Ambassador to the UN, Danny Danon, who commended Ban for admitting “the clear truth” about the UN’s hypocrisy. Ban framed his comments as a warning to incoming UN Secretary-General Antonio Guterres, who will take over the role on January 1st. Though it came in his waning time in power, Ban’s honesty is welcome. Hopefully his successor takes heed, though we won’t hold our breath.
PAY NO ATTENTION TO THE APPOINTMENTS BEHIND THE CURTAIN
The day before President Obama’s last press conference of the year, the White House quietly appointed Dego Adegbile and Catherine Lhamon to six-year terms on the U.S. Civil Rights Commission. The Administration previously attempted to appoint Adebile as head of the Justice Department’s Civil Rights division, but he drew wide criticism from Senators of both parties as well as law enforcement groups due to his defense of a Philadelphia cop-killer and leftist cause celebre. Lhamon also garnered controversy with her key role in the Obama administration’s efforts to mandate transgender bathroom use in public schools and in the now-infamous Rolling Stone article hoax. The long-term appointments are notably aggressive for a lame-duck President, but seem to track with the President’s plan to “run through the tape.”
WHO FACT CHECKS THE FACT CHECKERS?
In the ongoing struggle to combat “fake” news, Facebook has announced it will now weed out some stories that do not live up to the standards of its deputized “fact checkers.” Facebook claims these fact-checkers will include the experts at the Associated Press, ABC News, PolitiFact, and others. But a recent statistical analysis of PolitiFact data clearly displayed a bias against conservatives, with Republican politicians being fact-checked on a more regular basis than Democrats, thus leading to inaccurate data on who is “telling the truth” more often. This revelation raises serious questions for Facebook’s plan to rely on these fact checkers to flag stories as “disputed.”
IF THEY CAN GET ALONG…
Retiring California Democratic Senator Barbara Boxer offered some advice to fellow Democrats who are having trouble figuring out how to work with President-elect Trump and his new Administration: be honest with each other. Boxer formed this conclusion during her more than three-decade long career on the Hill and specifically from a long-time working relationship with Oklahoma Republican Senator Jim Inhofe. As the two legislators have traded the chairmanship of the Senate Environment and Public Works Committee, they have disagreed on more issues than they’ve agreed on, but Boxer described their relationship saying, “We really like each other. And I think, also, what’s important is we know how strongly we feel when we oppose each other, but we never surprise each other by going around someone’s back and sneaking something into a bill… We would never do that.” We shall see if her Senate colleagues heed her advice and seek to find common ground or if Capitol Hill’s partisan gridlock continues.