Dominique Strauss-Kahn and the Future of the IMF

“Qu’ils mangent de la brioche!”

English readers will recognize this infamous phrase as, “Let them eat cake.” Marie Antoinette supposedly uttered it. Two centuries later, another member of French royalty comes along to express the phrase in 3-D.

Dominique Strauss-Kahn, the putative “public servant” overseeing the IMF, has been conducting himself in the classic tradition of lecherous, narcissistic, self-indulgent 18th century monarchs. And in the grand tradition of serfdom, we American taxpayers, along with working stiffs from 186 other “member countries,” transport the fruits of our labors inside the castle walls of the IMF. We are the ones who provide the capital that puts the “fund” in International Monetary Fund.

For what reason? So that the IMF can give some of our capital back to us if we get into financial difficulty. At least that’s the stated rationale for this large-scale larceny.

Officially, the IMF functions to:

  • Promote international monetary cooperation.
  • Facilitate the expansion and balanced growth of international trade.
  • Promote exchange rate stability.
  • Assist in maintaining a multilateral system of payments.
  • Provide resources to members experiencing balance of payments difficulties.

Unofficially, the IMF operates to fund the debauchery of lechers, while also bailing out profligate nations who may or may not repay the bailouts. Under the IMF’s existing quota, the US is the largest member, representing 17.75% of the pie. In exchange for this membership, the US has provided the IMF with about $58 billion. Furthermore, this allocation will nearly double, thanks to the IMF’s “Fourteenth General Quota Review.”

Armed with its hundreds of billions of dollars, the IMF scatters bailouts around the globe like pixie dust. But as it turns out, the Chief Pixie, Monsieur Straus-Kahn, has been inhaling unhealthy volumes of this dust, himself. (Let’s call it an occupational hazard).

Not only did he receive a $441,980 salary last year as Managing Director, he also received a supplemental allowance of $79,120 to cover “expenses.” Presumably, such expenses did not include items like $3,000-a-night suites at the Midtown Manhattan Sofitel – an outlay which would probably fall on the IMF’s travel expense line item.

But however one wishes to account for this pixie dust, the source of it is no mystery. US taxpayers contributed about $532.50 toward Strauss-Kahn’s hotel suite, not including incidentals like Evian water from the mini-bar or in-room adult entertainment.

Strauss-Kahn’s self-indulgent extravagance might seem almost tolerable, were it not for the fact that the IMF is, itself, a financial deadbeat. In 2008, the IMF proposed selling its gold holdings to close a projected $400 million budget deficit. This proposal also included spending cuts of $100 million over three years and the elimination of as many as 100 jobs.

At the time, Dominique Strauss-Kahn heralded the proposal as “a landmark agreement that will put the institution on a solid financial footing and modernize the IMF’s structure and operations. We have made difficult but necessary choices to close the projected income shortfall and put the fund’s finances on a sustainable basis,” said Strauss-Kahn, “but in the end it will make the fund more focused, efficient and cost-effective in serving our members.”

Wasting little time, the IMF unloaded 200 metric tonnes of its gold hoard to India in late 2009, raising $6.7 billion in the process…and clearing the way for Strauss-Kahn to violate whatever stood in his path, be it a hotel maid or a taxpayer from 187 countries around the globe.

Here are a few final questions: Will we taxpayers also be financing Strauss-Kahn’s legal defense? And will we be absorbing his future medical expenses?

“Dominique Strauss-Kahn may have more to worry about than a possible prison sentence,” The New York Post reports this morning. “The IMF chief’s alleged sex-assault victim lives in a Bronx apartment rented exclusively for adults with HIV or AIDS, The Post has learned. The hotel maid, a West African immigrant, has occupied the fourth-floor High Bridge pad with her 15-year-old daughter since January – and before that, lived in another Bronx apartment set aside by Harlem Community AIDS United strictly for adults with the virus and their families.”

This is a tragic story, dear readers…on many levels. But at least one part of this tragedy could have a happy ending: Abolish the IMF.

The lessons of the post-2008 crisis are becoming as homogenous as they are numerous: The big helpful hands of financial bureaucracies are no help at all. These hands are usually wrapped around your throat. Abolish the IMF; abolish the Federal Reserve.

Let the free markets dispense credit based on credit-worthiness, period. And let the free markets price credit based on real-world risks, period. Then let the lechers who guide us, or the academics who misguide us, earn money in the private sector to finance their peculiar interests.

If the next time you walked into Starbucks, Dominique Strauss-Kahn or Ben Bernanke or Timothy Geithner were handing you your double latte, would the world be any worse off?

Eric Fry
for The Daily Reckoning

The Daily Reckoning