Think Brazil’s Scandals Have Nothing To Do With US Banks? Guess Again

This weekend, millions of Brazilians took to major city streets (again) to protest the hydra of corruption gushing from Petrobras, Brazil’s largest oil company and the government amidst deepening economic recession. Calls for the impeachment of sitting Workers’ Party (PT) president (and former Chair of Petrobras), Dilma Rousseff filled the air.(I can’t wait to see the frenetic state of things when I swing by there  in two weeks for talks and book research.)

It’s tempting to consider the spectacle as isolated to Brazil’s unique brand of political-corporate collusion, where pillaging state-run companies to line pockets of power players is standard practice.  But that’s doesn’t do the whole story justice.  

In the US, bartering government contracts or certain legislation for billions of dollars of political donations falls under the umbrella of legalized bribery, better known as campaign contributions, including via SuperPacs, the elite’s favorite political currency thanks to Citizens United. Political stars leave Washington for cushy corporate board posts or lucrative speaking engagements, sometimes en route back to DC.

It’s similar in Brazil, where former President “Lula” allegedly bagged $8 million in post-presidential speaking gigs from six companies. Bill Clinton nabbed about $105 million since he left the White House. Exact comparisons of how much of either of those sets of fees were connected to companies practicing corporate corruption will be a topic for my book, or another time. One country’s public sector scandal is another country’s private sector cost of doing business. Let’s not pretend otherwise.

Details aside, establishment corruption is a global virus. It may fester in a certain spot for longer periods or in greater concentration for awhile, but it’s omnipresent. It morphs to adapt to its environment and leaders. It moves like liquid. Because it links money and power, its also snakes through banks and political parties of all persuasions all over.  For now, the scene is Brazil, but the corruption under scrutiny is bigger than Brazil.

Broken Promises

(A version of the next section appeared in the February Issue of Strategic Intelligence where you can see sneak peaks of Artisans of Money and follow my colleagues, Jim Rickards and Tres Knippa.)

Things once looked so promising for Petrobras, Brazil’s state-run mega-oil company. In July 2006, the discovery of a massive pre-salt layer, 300 kilometers off the coast had the potential to transform Brazil into a leading oil producer.

The notion of “oil autonomy” even played a prominent role in Brazil’s 2010 presidential campaign. That platform helped secure the presidency for Lula’s protégé, Dilma Rousseff, who also happened to chair Petrobras’ board of directors from 2003 to 2010. Petrobras was destined to become the biggest oil company in the world.

Naturally, everyone wanted a piece of it. Multinational banks wanted to finance it.  Speculators and pension fund managers bet on its success. Two years after the US financial crisis cratered the global banking system,  the energy sector provided mega banks fresh opportunity to manufactured and leverage debt. Subprime mortgages had gone cold. Oil was hot.Petrobras was really hot.