The Mephistophelean bargains

In Faust’s work, Mephistopheles, the servant of Lucifer, the fallen angel, made bargains with the fallen who traded their souls with him for worldly comforts. Sadly, today we see leaders, across political, military, business and other sectors, making Mephistophelean bargains.

The most dangerous of these bargains are made by political leaders, guided by those promoting their self-interest in the military-industrial-complexes (MIC). The latest example of this is the striking down, by Donald Trump, of the Iran nuclear deal, based on the fake narrative that Iran was building capacity to make nuclear bombs, and was supporting terrorist groups. This is ominous, for, like the fake narratives of Iraq having amassed biological weapons, and, recently, of Syria having used chemical ones, the warnings are precursors to the MIC-induced military actions. Israel has subsequently attacked Syria ostensibly in retaliation for an Iranian attack in the Golan Heights.

The Mephistophelean bargain is that military conflicts bring business to MIC. Israel has apparently discovered huge deposits of oil and gas in the Golan Heights, an area which it had captured from Syria.

How does this cancellation of the Iran deal, and the follow up, matter? Iran is the #2 supplier of crude oil to India and, if sanctions are reinstated, would find it very difficult to obtain this supply. Both shipping and insurance companies would be loath to service this trade.

Reduction in supply (Iran supplied 2.1 million barrels/day) will raise crude oil prices. Brent crude is over $77/barrel and a further rise would severely dent India’s economy, which imports some 80 per cent of its crude oil. This would stoke inflation, leading to higher interest rates, which make it tougher for the equity markets to rise.

Politicians also make Mephistophelean bargains with large banks. They wink when big banks commit frauds, and then collect the ‘soul’ by levying hefty fines later. The fines are not used, or only partly so, to recompense duped investors, but are, in effect, bribes to the regulatory agencies for wearing blinkers when the fraud is taking place.

Think securitised mortgages. Think NINJA loans to borrowers with No Income, No Jobs or Assets. Think collateralised debt obligations. Think manipulation of LIBOR. Think the recent $1-billion fine happily paid by Wells Fargo, after it had defrauded 5,70,000 clients in a car insurance scam. Other than the fine, there was no punishment for employees perpetrating the scam. In the context of a $6-billion profit per quarter, the $1-billion fine was petty change.

Who pays? The duped victims. The banks have made more profits from the scam than the fines paid. The government/regulators have collected fines for wearing blinkers.

Not always, though. Sometimes the scamsters are severely punished, as they should be. Bernie Sanders was awarded a 110-year jail sentence. Dubai recently awarded a 150-year sentence to a scamster perpetrating a Ponzi scheme.

In India, politicians make Mephistophelean bargains with heads of PSU banks, verbally directing them to give loans to crony capitalists, in exchange for things like electoral funding.

It is well past high time that we, as a country, start governing ourselves well and stop making such bargains by selling our souls to the devil. The Indian voter is watching. India has great potential for a multi-year bull run, but must fix this first.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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