The Deep Ties Binding Mexican - US Elites

There’s a misconception that Mexico is a destitute, drug-cartel ridden country bent on stealing U.S. jobs.

The truth is it’s an immensely beautiful country with a diverse economy and entrepreneurial spirit — albeit rife with corruption and risks.

Forget about the wall issue being politicized. There’s far more that unites Mexico and the U.S. — some good, some bad — than divides us. Mexico is our number three trading partner. That means if Mexico buys stuff from us, we make money and products and keep jobs involved in creating those products here. We are Mexico’s number one trading partner. That means we buy stuff from Mexico (about 80% of their exports) that we use to drive our economy.

None of this is perfectly done, but it’s what happens.

But here’s what you don’t know about Mexico and won’t hear from Donald Trump, who is fixated on the wall, or Hillary Clinton, who is fixated on idolizing her husband’s legacy in creating the North American Free Trade Agreement (NAFTA)…

There are international elite political-finance relationships beneath the surface, the same kind I spoke of here.

The elite Mexico-U.S. connection is long standing and solid. There’s one particular Big Six bank that’s operated in Mexico for well over a century, with more market share now than ever. It deserves special attention in the upper echelons of power category.

Never Let a Good Crisis Go to Waste: Mexico Edition

Let’s return to the early days of Bill Clinton’s administration. Clinton enacted two main items that had been on the bipartisan ‘list’ for years. One was NAFTA and the other, Riegle-Neale Act (RN), that allowed big banks to gobble up smaller banks across state lines.

Enter Robert Rubin. Rubin was Clinton’s Chief Economic Advisor, and then Treasury Secretary. These posts were Rubin’s reward for having helped Clinton gather the Wall Street gravitas to get elected while Rubin was co-Chairman of Goldman Sachs.

Goldman was the top international firm advising on Mexican merger and acquisition (M&A) businesses. The peso crisis would upset that applecart. By Jan. 30, 1995, Rubin warned Clinton, “Mexico has about 48 hours to live.”

Clinton deployed his emergency executive powers to direct a $20 billion loan from the Treasury department to save Mexico. But really, it was to save the U.S. banks exposed to Mexico. Congress investigated Rubin’s conflict of interest, but nothing came of it.

Rubin went on to join the Board of Directors of Citigroup just before the 1999 repeal of the Glass-Steagall Act. The repeal allowed Citigroup to become an even bigger conglomerate.

Saving the U.S banks exposed to Mexico, combined with NAFTA, enabled U.S. banks to buy more banks in Mexico.

You’d think the notions of “free trade” with Mexico and Canada (NAFTA) and unfettered interstate banking in the U.S. are separate. Not for big banks. Now, Mexico has the highest percentage of foreign bank concentration because of its loose financial borders (the only borders that matter to international capital flow).

The top five foreign banks in Mexico control 64% of the market. That concentration is a major long-term risk for Mexico, just as it is in the U.S.

Citigroup bought Mexico’s second largest bank, Banco Nacional de Mexico (Banamex) in May 2001 for $12.5 billion. This purchase made Banamex Citigroup’s Mexican subsidiary, and a Mexican financial powerhouse.

Lots came from the marriage of Banamex and Citigroup. Former President Ernesto Zedillo, who was close to Clinton and Rubin during the peso crisis, got a seat on Citigroup’s Board of Directors in 2010.

The revolving door between Citigroup and Mexico rendered Citigroup the lead U.S. bank in Mexico and it got special bailout treatment.

Lastly and most importantly, Banco de Mexico (the actual central bank) became a key collaborator with the U.S. Federal Reserve.

To say these banking elites are connected would be an understatement.


Nomi Prins
for The Daily Reckoning

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