http://www.washingtonsblog.com/2010/07/ ... onomy.html
The Financial Reform Bill Will (Not) Fix the Economy
As usual with this guy, the hyperlinks are so fast and furious in his article you just have to go there.
Moderators: Elvis, DrVolin, Jeff
by Nordic » Sat Jul 17, 2010 8:40 pm
by vanlose kid » Sun Jul 18, 2010 7:36 pm
by Nordic » Mon Jul 19, 2010 2:48 am
The Secular Problem
Most Americans aren't aware that America once had a national economic plan, and it existed from the days of President Lincoln to President Nixon in one form or another. During that 112 year period America grew from an agrarian, frontier nation, to the most mighty economic power the world had ever seen.
Obviously there had to be something good in that economic plan.
The roots of the American School of Economics go back to Alexander Hamilton, Friedrich List, and Henry Clay of the Whig Party.
The American School of Economics was far different from the dominant economic thought of today.
The key components of the American School directly confront, deny and refute the economic imperialism that the so-called "Free Trade" school championed then by England and imposed by means mostly foul upon Europe over the years. It rejects free trade by imposing a system of duties, tariffs and other measures designed to defend the nation against economic threats by foreign predators. It uses government-directed spending projects meant to provide the infrastructure necessary for individuals to develop into the highly-educated and highly-trained people capable of being the ambitious and enterprising productive people we are famous for being. It chartered a national bank, owned wholly by the government, that administered the lines of credit necessary to get all of this done and otherwise oversaw the monetary policy of the state- and thus remained utterly accountable to the people by way of Congress and the Presidency.
The American School of Economics also involved government support for the development of science and a public school system. Through this economic philosophy America set the standard in manufacturing, higher education, scientific research and development, finance, and general standard of living.
So what happened? Under President Nixon the decision was made to remove protective trade barrier and go to a Free Trade model in 1973.
According to The Myth of Free Trade by Dr. Ravi Batra:
"Unlike most of its trading partners, real wages in the United States have been tumbling since 1973, the first year of the country's switch to laissez-faire...Before 1973, the U.S. economy was more or less closed and self-reliant, so that efficiency gains in industry generated only a modest price fall, and real earnings soared for all Americans....Moreover, it turns out that 1973 was the first year in its entire history when the United States became an open economy with free trade.
"Since 1973 and free trade, the link between real wages and productivity was severed, where its commitment to free trade soared faster than domestic economic activity. Real wages for 80% of the labor force have been steadily shrinking in spite of rising productivity. Free trade skews the real value of manufactured goods, through cheaper foreign labor or weaker foreign currencies in relative prices, despite increased productivity and innovation, in turn creating a shrinking consumer base."
A good example is NAFTA. Despite predictions that NAFTA would create 170,000 American jobs in just the first two years, Congress set up the NAFTA-TAA (Trade Adjustment Assistance) program for displaced workers. Between 1994 and the end of 2002, 525,094 specific U.S. workers were certified for assistance under this program. Because the program only applied to certain industries, only a small fraction of the total job losses were covered by this program.
Remember those car companies that the American taxpayer saved so we could keep some well-paying manufacturing jobs in America? Well, guess what?
General Motors and Volkswagen have invested billions in China, starting more than a decade ago. Ford is rushing to catch up by adding production capacity and expanding its dealer network in China. Ford and its joint-venture partner, Chang'an Ford Mazda Automobile, plan to start producing next-generation Ford Focus models at a new, $490 million plant in Chongqing in 2012.
How can American workers compete with Chinese workers making $5 a day? You can't live on that in America. You literally couldn't keep a roof over your head on that wage. Our "free trade" philosophy is killing the working class of this country.
Any serious national economist who objectively reviews the reality of free trade must eventually come to the conclusion that it is ruinous to a nation. Granted it may seem to work short term in providing "cheap goods" but in the longer perspective it destroys the productive wealth-creating base of a community.
The only ones who benefit from the free trade policy are multi-national corporations and the the wealthy who own them. The workers of this country were never meant to benefit from the free trade policies, but there is an entire industry of talking heads who try to convince you not to believe your own "lying eyes".
The free trade model is a fallacy and every thinking person knows it. However, our corrupt and compromised politicians can't admit it because they are owned by the very people who benefit the most from it.
Besides adopting a free trade model, America has turned away from the other tenants of the American School of Economics. Specifically, it has neglected public infrastructure projects in the hope that privatization of public assets would do a more capable and efficient job. This strategy has also failed miserably.
The third leg of the American School of Economics was to create a financial infrastructure that would "use of sovereign powers for the regulation of credit to encourage the development of the economy, and to deter speculation."
In a trifecta, our rejection of this principle has been an utter failure.
Even after the credit cycle finally runs its course, the country has to overcome its more intractable systemic problems. Fortunately, we have a working model with 112 years of success to operate from.
The primary obstacles between our present situation and a return to wealth-producing prosperity is our politicians and the wealthy class who own them.
by semper occultus » Mon Jul 19, 2010 2:26 pm
Capitalism 4.0: The Birth of a New Economy, By Anatole Kaletsky,
www.ft.com
Capitalism 1 was a world of laisser faire. This concept dominated economics and economic policy from The Wealth of Nations to the Great Depression. Capitalism 2, the product of that depression, recognised the interdependence of politics and economics, and gave government a role in macroeconomic management and the direction of industry. It fell apart in the inflationary malaise of the 1970s.
The coming of Ronald Reagan and Margaret Thatcher inaugurated Capitalism 3, a regime of market fundamentalism in which inequality widened and the financial sector flourished. The credit crunch of 2007-08 is the trigger for an equally substantial revision. Today we face the prospect, not of the demise of capitalism, but of a new form – Capitalism 4.
This is a very different view of capitalism from market fundamentalism, which believes that human progress is best achieved by imposing as few restrictions as possible on a natural impetus towards greed, and that economic decisions are based on rational expectations in efficient markets in which prices incorporate all possible knowledge of the future. In my view Kaletsky is absolutely spot on in this analysis of why capitalism works, and in his explanation of why market fundamentalism has proved such a dangerously misleading guide to policy.
So what does Kaletsky’s Capitalism 4.0, which rejects both laisser faire and any economic model derived from efficient markets or rational expectations, look like? Capitalism 4 controls government spending but prefers Keynesian stimulus to budget-balancing austerity. It favours free markets, but not uncritically, and is concerned to mitigate inequality. Capitalism 4 is, above all, pragmatic. In fact, it looks distinctly like Capitalism 2.
If we could delete the years 1965-85 from history, Capitalism 2 mostly worked pretty well. Why did it go wrong? For Kaletsky, the decisive event was President Richard Nixon’s abandonment of the dollar’s link to gold in 1971, which inaugurated the era of floating exchange rates. But Nixon’s devaluation was less the cause of inflation than the result: price levels around the developed world had been rising at an accelerating rate since the 1950s.
The explanation lies elsewhere. The stability and widely distributed growth achieved under Capitalism 2 created rising expectations that growth was eventually insufficient to satisfy. Inflation was the easiest political response. Capitalism 3 was a reaction to that failure.
....ahh so it was all the fault of pesky voters expecting their lives to improve.....well they sure showed us....
It is good to be pragmatic, but pragmatic policies that are not rooted in any guiding principles are incoherent. That was the experience of Kaletsky’s two principal villains – Nixon; and the man whom Kaletsky holds personally responsible for the credit crunch, Hank Paulson, the former Treasury secretary. The criticism is not unfair – even among politicians Nixon was unusually unprincipled and Mr Paulson unusually incompetent. But Kaletsky’s view of history is one that exaggerates the role of particular individuals and decisions. The collapse of Capitalism 2 was not caused by Nixon, nor the collapse of Capitalism 3 by Mr Paulson: the collapse of these modes of capitalist behaviour was the product of their own internal contradictions, to borrow a phrase, and Capitalism 4 can only thrive if it resolves the contradictions of Capitalism 2 more effectively than did the politicians of the era of the Great Society and “you’ve never had it so good”.
by seemslikeadream » Fri Jul 23, 2010 9:53 pm
7 Banks in Europe Fail ‘Stress Test’ for Scant Capital
Banks to flunk were Hypo Real Estate, a Munich-based bank that is already government-owned after a bailout, ATEBank of Greece and five Spanish savings banks.
By JACK EWING
Published: July 23, 2010
FRANKFURT — Seven of Europe’s 91 largest banks would struggle to survive an unexpected decline in economic growth or a sharp deterioration in the value of European government bonds, and will need to raise more capital, regulators said Friday in releasing results of closely watched bank stress tests.
Multimedia
Document: European Regulators’ Findings in Bank Stress Tests
Banks to flunk were Hypo Real Estate, a bank based in Munich that is already government-owned after a bailout, ATEBank of Greece and five Spanish savings banks.
Several other banks passed the test, but narrowly enough that they may also face market pressure to increase their reserves. That group included Postbank, one of Germany’s biggest publicly traded banks, which is 25 percent owned by Deutsche Bank.
Governments in the countries affected, or the banks themselves, said they were ready with measures to raise more money for banks whose reserves were considered too low to withstand the worst-case outlooks.
After months of turmoil in markets caused by Europe’s sovereign debt crisis and its effects on the banking system, governments and investors alike were looking to the tests to see if Europe could demonstrate that it was finally confronting the problems and dealing with them head on. Whether the tests succeed in reviving confidence depends on whether investors and analysts believe they were severe enough to expose vulnerable banks.
“The stricter the better for the euro,” said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets.
Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics in Washington, called the level of detail released “disappointing.”
“Investors cannot reverse-engineer the results and apply their own assumptions,” he said.
Bank regulators and central bankers insisted that the tests were rigorous and that fears about the stability of European banks were overblown.
“It is a very serious test,” Franz-Christoph Zeitler, a member of the executive board of the Bundesbank, Germany’s central bank, said at a news conference in Frankfurt. “All this criticism was absolutely premature.”
The stress tests, similar to an exercise conducted in the United States last year, were intended to rebuild confidence in European financial institutions that has been shaken by the sovereign debt crisis. Uncertainty about which banks may be sitting on piles of Greek debt and other potentially toxic assets has made institutions reluctant to lend to each other as well as to businesses, and acted as a drag on economic growth.
Some banks had already moved to raise capital ahead of the results. National Bank of Greece, which passed the test, said Friday that it sold €450 million, or $580 million, of 10-year bonds to bolster its regulatory capital. “The sale process was completed within just four days, reflecting the investment community’s confidence in N.B.G.,” the lender said.
Banca Cívica, a merger of three smaller savings banks in Spain, failed the test. But it said ahead of the results that it had signed an agreement with J.C.Flowers, a U.S. buyout firm, to place €450 million in convertible bonds.
Hypo Real Estate said the stress test had “limited relevance” because it was already in the process of transferring troubled assets to a so-called bad bank underwritten by the German government.
Miguel Ángel Fernández Ordóñez, governor of the Bank of Spain, told a news conference that the stress test results vindicated the recent push to force the savings banks, or cajas, to consolidate, as well as the regulatory overhaul to open up their capital to more investors.
The tests were evidence of “the enormous means” of the Spanish banking sector to overcome a crisis, he said. “When there are doubts, you have to be absolutely transparent, and this is what we have done.”
In addition to Banca Cívica, four other unlisted Spanish savings banks failed: Diada, Unnim, Espiga and CajaSur, which was bailed out by the Bank of Spain in May.
In a potential blow to the tests’ credibility, regulators did not examine whether banks could withstand a debt default by Greece or any other European country. European authorities — in contrast to many economists — consider such a possibility unthinkable.
In a compromise, banks were scheduled to detail their holdings of Greek, Spanish, Portuguese and other sovereign bonds. But a report released by the European bank supervisors did not contain that information, which would clear up intense speculation about which banks are most exposed.
To pass the tests, a bank’s Tier 1 capital, a measure of reserves, had to not drop below 6 percent of assets in the face of a new recession and a sovereign debt crisis.
The authorities across Europe were clearly nervous about market reaction to the tests and delayed releasing the results until after European stock markets closed. Trading was relatively flat Friday, although bank shares were down.
Germany’s nine public-sector landesbanks all passed — a result that could encourage skepticism about whether the criteria were harsh enough. Many analysts regard the state-controlled landesbanks, which suffered billions in losses from subprime assets and other ill-advised investments, as overly susceptible to political influence and lacking a strategy to be consistently profitable.
Norddeutsche Landesbank, based in Hanover, passed narrowly, but Mr. Zeitler said it would not need to raise new capital.
The authorities argued that, in contrast to the U.S. stress tests last year, the European tests came after a huge rescue effort in which E.U. countries staked more than a quarter of the bloc’s gross domestic product to prevent the landesbanks and other troubled institutions from failing. Therefore, the authorities said, the comparatively high pass rate was justified. In the United States, 10 of the 19 banks tested were told they needed to raise a total of $75 billion in new capital.
The four main French banks, representing 80 percent of the banking assets in the country, all passed easily. “These result shows that they remain capable of ensuring a strong financing of the economy both under the central scenario and under the highly stressed scenario,” said Christian Noyer, governor of the Bank of France.
Coming days will reveal whether the tests will end banks’ mistrust of one another’s creditworthiness and encourage interbank lending, which is crucial to normal functioning of the financial system and ultimately the overall economy. In May, money markets nearly froze as prices for Greek bonds plummeted, prompting the authorities to take extraordinary measures to prevent a crisis that could have threatened the solvency of some banks.
On May 10, E.U. officials and the International Monetary Fund pledged €750 billion, or nearly $1 trillion, to guarantee the sovereign debt of member nations. The European Central Bank also began buying Greek and other government and corporate debt on open markets to restore trading in the sovereign paper, an unprecedented decision that provoked dissent within the bank.
The E.C.B. is anxious to wean institutions off the almost unlimited cheap loans it has been providing since the beginning of the financial crisis, but cannot do so unless banks resume lending to one another.
In a second round due in two weeks, the tests will be expanded to bank subsidiaries, like the East European institutions owned by banks based in Vienna.
The stress tests were the most extensive ever conducted in Europe, covering 65 percent of the total banking market and 20 countries from Ireland to Poland. Regulators nearly tripled the number of banks participating in part because of prodding from the U.S. Treasury secretary, Timothy F. Geithner, who had expressed concern that the European authorities did not have the sovereign debt crisis under control.
Disclosure of the test results was also unprecedented, and came only after extensive negotiations with banks, which in Germany and some other countries could not legally be compelled to release the data. Previous stress test exercises covered far fewer banks, and the authorities released only general information about the results.
by seemslikeadream » Fri Jul 23, 2010 9:59 pm
Guest Post: Gold Swap Signals the Roadmap Ahead
Submitted by Tyler Durden on 07/23/2010 09:34 -0500
Bank of England Bank of New York Banking Practices Ben Bernanke CDO Central Banks Collateralized Debt Obligations Commodity Futures Trading Commission European Central Bank Federal Reserve Federal Reserve Bank Federal Reserve Bank of New York Germany Global Economy Goldman Sachs Greece Guest Post Hank Paulson International Monetary Fund Mervyn King Money Supply Paul McCulley PIMCO Portugal Quantitative Easing Reality Reserve Currency Shadow Banking Sovereign Debt Switzerland Transparency Trichet
Submitted by Gordon T. Long of Tipping Points
Sultans of Swap: Gold Swap Signals the Roadmap Ahead
The news rocked the global gold market when an almost obscure line item in the back of a 216 page document released by an equally obscure organization was recently unearthed. Thrust into the unwanted glare of the spotlight, the little publicized Bank of International Settlements (BIS) is discovered to have accepted 349 metric tons of gold in a $14B swap. Why? With whom? For what duration? How long has this been going on? This raises many questions and as usual with all $617T of murky unregulated swaps, we are given zero answers. It is none of our business!
Considering the US taxpayer is bearing the burden of $13T in lending, spending and guarantees for the financial crisis, and an additional $600B of swaps from the US Federal Reserve to stem the European Sovereign Debt crisis, some feel that more transparency is merited. It is particularly disconcerting, since the crisis was a direct result of unsound banking practices and possibly even felonious behavior. The arrogance and lack of public accountability of the entire banking industry blatantly demonstrates why gold manipulation, which came to the fore in recent CFTC hearings, has been able to operate so effectively for so long. It operates above the law or more specifically above sovereign law in the un-policed off-shore, off-balance sheet zone of international waters.
Since President Richard Nixon took the US off the Gold standard in 1971, transparency regarding anything to do with gold sales, leasing, storage or swaps is as tightly guarded by governments as the unaudited gold holdings of Fort Knox. Before we delve into answering what this swap may be all about and what it possibly means to gold investors, we need to start with the most obvious question and one that few seem to ask. Who is this Bank of International Settlements and who controls it?
BANK OF INTERNATIONAL SETTLEMENTS (BIS)
The history of the BIS reads with all the intrigue of a spy novel and comes with a very checkered past. According to the BIS web site, as a privately held bank, it decided in recent years to become wholly owned and controlled by the Central Banks of the world - a highly unusual decision for a private enterprise. Lengthy court cases in Le Hague were involved by private members who objected. Something like this is usually called a buy out or takeover, but there are no public records of any of the central banks making such an acquisition - an extremely strange set of events with little media coverage.
I am sure it can all be explained very logically until we get to the size of the balance sheet. We are talking close to a half trillion dollar balance sheet, or more specifically 259 billion SDR’s, which is approximately $400B. Where did the capital or deposits come from? The BIS goes out of its way to specifically assert it only accepts deposits from member central banks, though it does also state confusingly in the financial notes that there are deposits from previous financial statements from recognized international banks. Therefore, are we to conclude that the US Federal Reserve has huge deposits at the BIS? Though I couldn’t find the assets on the Fed’s balance sheet, I’m sure they are there in the small print or on the New York Feds balance sheet somewhere. It would be a legal requirement. It is a forensic accounting nightmare to find these items based on public documents of the various private organizations. Apparently it is just none of our business. For such a major element of the world’s operating financial structure to have such poor visibility, it seems preposterous until you actually do the research. It should be laid out so a freshman Economics class could easily follow the ownership acquisition and money flows. It isn’t and it appears to this researcher that it is intentionally opaque.
Since the BIS goes out of its way to ensure readers in its annual financial report that no private funds are accepted, maybe all we really need to know is what the BIS officially tells us. The BIS is owned and controlled by their member Central Banks. Therefore if the BIS was to do a gold swap of the magnitude of 349 metric tonnes, then board member Ben Bernanke would have known of it in advance and approved it. He would know exactly who the transaction was with and why. If he didn’t then he is legally negligent in his fiduciary responsibility as a BIS board member, because of the size of the transaction and its material effect. Other board members include: Mervyn King, Governor of the Bank of England, Jean-Claude Trichet, President of the European Central Bank, Axel Weber, President of the Deutsche Bundesbank and William C Dudley, President of the Federal Reserve Bank of New York. You can’t have it both ways.
Though we can suspect many things, there is no other conclusion we can reach than the swap is part of an agreed upon plan or concurrence between these board members. So what is the possible understanding or plan?
WHO GAVE UP THE GOLD?
There are not a lot of institutions who possess 349 metric tonnes of gold. So who needs $14B worth of cash and has this amount of gold? That shouldn’t be too hard to find.
Sovereign governments have historically created their wealth by invading other countries to pillage their treasuries which held gold, silver and the crown jewels. The winning and seizure of more land allowed the sovereign to give it to the nobles who used it to tax and tithe the feudal tenets. Recurring wealth flowed upward to the sovereign treasury.
Considering today’s EU membership, where sovereign countries can no longer print their own currency (the politicians first weapon of choice), there are three channels (other than the very politically unpopular increase in taxes and fees) open in modern times to raising money for the treasury:
The public sale of debt offerings instruments such as Bills, Notes and Bonds
The more recent and stealthy approach of selling assets, including revenue streams from such things as taxes, fees, licensing etc. These are sold into the securitization market through complex derivative structures such as Interest Rate and Currency Swaps contracts. This approach, as recently discovered, has been rampant throughout Europe even prior to the creation of the EU.
When you exhaust all of the above, you then sell the family jewels – the sovereign treasury of gold holdings.
The BIS was very quick to respond to public speculation about the massive gold swap when they immediately clarified that the gold swap was with a commercial bank. Since by its own statements, as I mentioned above, it doesn’t accept deposits from non member banks, this seems confusing on the surface. Does it or doesn’t it accept private deposits? It would be respectful to assume that the BIS is telling the truth and that they did in fact conduct the transaction with a private bank who was transacting the swap on behalf of a central bank or sovereign treasury. This would sort of make everything work. For the BIS to be telling the truth in all their statements, the transaction must be with a member central bank with the involvement of an intermediary commercial bank. But something still isn’t right here.
When you work through the details you quickly arrive at an astounding coincidence. Portugal shows it has 348 tonnes of sovereign gold. The swap was for 346. Portugal is a member bank, though does not sit on the Board, but attends the General Meeting as an observer only. Portugal, as a member of the PIIGS, only days after the unearthing of the swap, was again downgraded by Moody’s, thereby making its lending costs even higher than the already elevated levels being demanded by the financial markets. There is a very strong possibility that the swap is with Portugal. Though who the swap is with is important to those trading debt and credit derivatives it isn’t quite as important to those interested in the gold market.
Ben Davies the CEO of Hinde Capital in London and a player in the gold market suspects (12:40) we may have a modified form of swap emerging. There is the possibility that the commercial bank is in fact a major gold bullion bank. Some of the bullion banks have major short positions on gold that far outstrip the annual physical production of gold. The disconnect between physical and paper gold along with rising gold prices is likely causing serious strains on their balance sheet. As Davies points out the gold may be transacted from a central bank to the BIS through a bullion bank while the gold physically remains with the originating central bank; is classified as ‘unallocated’ at the BIS but in fact remains on the books of the bullion bank. It effectively is double accounted for. The increase in gold would allow gold prices to be pushed lower, which in fact is what has been happening. A careful reading of the BIS financial statements shows more clearly the accounting for such a transaction.
There can be little doubt that the Gold Swap is with a central bank where the physical gold remains. The transaction is considered a deposit at the BIS (liability) but has been lent to a commercial bank (likely a bullion bank) as a loan (asset). The question is only why a bullion bank needs to borrow this quantity of gold, remembering it never gets the physical gold because it remains at the originating central bank. The reader is encouraged to read the Financial Policy notes #4,5, 6, 13, 14, 15, 16, 17 and 19 within the BIS Financial Statement for a clearer understanding along with Notes to the Financial Statements #4 and #11.
The BIS is known as the central bank to the central bankers.
The BIS may equally be referred to as the Central Gold Bullion Bank to the Gold Bullion Banks.
The March 31 2010 Financial Statement of the BIS shows 43.0B SDR’s of gold or 16.6% of total assets. According to note #4 to the BIS Financial Statements: “ Included in ’Gold bars held at central banks” is SDR 8,160.1 million (346 tonnes) (2009: nil) of gold, which the Bank held in connection with gold swap operations, under which the Bank exchanges currencies for physical gold. The Bank has an obligation to return the gold at the end of the contract.” It is very important to appreciate this note is pertaining specifically to BIS ‘assets’ which in the case of banks are what the reader would consider ‘loans’. Under Financial Policy notes #5 to the Financial Statement the BIS is clear that under banking portfolios “all gold financial assets in these portfolios are designated as loans and receivables”. Separately, but very interestingly the BIS additionally states “ the remainder of the Banks equity is held in gold. The Bank’s own gold holdings are designated as available for sale”.
SPECIAL DRAWING RIGHT (SDR)
If problems get worse for Portugal, as possibly the global economic climate worsens, then the gold may never legally belong to Portugal. The contracted swap terms at some point may simply reclassify it a net zero sale, if Portugal fails to return the cash portion of the swap. The BIS would have 346 tonnes of gold and Portugal the $14B of Euros it has long since spent to solve a 2010 problem. By then Portugal likely would need even more loans in whatever currency would replace a crumpling or possibly extinct Euro.
Up until 2004 the BIS denominated its financial statements in Gold Francs. It now has made a major shift to denominating itself into Special Drawing Rights (SDRs). The calculation is exactly the same as used for the IMF. The SDR is operating as a defacto currency.
It takes a little arithmetic (which is not done in the financial statements) to be able to get values in any currency that can give the reader a perspective of the scope of the activities at the BIS. The SDR reporting obscures the BIS’s significant size and scope.
FUNDING
For those who followed the European Sovereign Debt Crisis and the negotiations with Greece, you know that the IMF was an unwelcomed intruder into EU financial affairs. Greece on more than one occasion held the IMF as a negotiating ploy and as a funding alternative to the EU’s procrastination and lack of decisiveness.
The IMF’s willingness to interfere created a lot of bad feelings within the EMU and Germany specifically. As Ambrose Evans-Prichard reported: “The ECB is barely on speaking terms with the IMF – the "Inflation Maximizing Fund" as it was dubbed in a Bundesbank memo - - The IMF has not caught up to the reality in Europe said ECB über-hawk Jürgen Stark on July 9th” The final EU bailout in fact heavily involved the IMF participation. The very busy IMF is the dominant crisis lender of last resort throughout all Central & Eastern European current financial problems.
What we are seeing is the emergence of another funding structure based on the SDR - SDR’s that have a degree of gold backing. The BIS now has a total of 12.4% of its deposits (32B SDR) in the form gold deposits. Note #11 to the BIS financial statements states: “Gold deposits placed with the Bank originate entirely from Central Banks. They are all designated as financial liabilities measured as amortized cost”.
ARE WE SETTING THE PINS UP FOR AN ALTERNATIVE RESERVE CURRENCY?
Are we moving towards the BIS and IMF being fractional reserve banks that will create money & credit - a reserve currency that will satisfy Russia and China with an element of Gold backing? A bank such as the BIS could easily assume this role (if it hasn’t already) as could the IMF with possible banking charter adjustments.
The chances are high that this is the roadmap we will find ourselves taking. Like all banking that started as Gold backed you could expect that in this case the little gold backing that starts the process is quickly diminished so a limitless money machine could begin functioning. The gold backing would likely be an initial requirement by Russia and China. The partial gold backing would lend credibility to the acceptance and a possible reserve currency alternative and eventual establishment as the global reserve currency.
SHADOW BANKING REPLACEMENT
The collapse of the Shadow Banking system and its attendant SIV / CDO structures were at the root of the financial crisis. That structure which is representative of a huge amount of the credit growth since the dotcom bubble burst isn’t coming back soon, if ever. The world needs more liquidity than the central banks or sovereign treasuries can currently deliver politically. The central bankers, huddled in their bimonthly board meeting at the BIS in Basel, Switzerland, know this better than anyone. Their discussions in the very halls of the BIS must resonate with them to use all the tools available at their disposal - quickly.
Paul McCulley and Richard Clarida at Pacific Investment Management Co. (PIMCO) have written extensively about the Shadow Banking System and its growth. An extensive slide presentation on the Shadow Banking System can be found on my web site at TIPPING POINTS. I won’t go into the detail here, but suffice it to say that the shadow banking system collapse has created a massive hole in credit creation that central bankers can’t fill in the manner in which they presently appear to be approaching the problem. Of course appearances can be deceiving
The problem has now reached crisis proportions and the central bankers know they must urgently act in a coordinated manner. Deflation now has a firm hand on the global economy and this must be reversed. I have been calling for a US Quantitative Easing QE II of $5T in my writings for some time. This amount is required for the US alone. The entire global requirement is three to four times this amount.
The above chart serves as an illustration to simplify the essence of the Shadow Banking System . The international bankers prefer to refer to the process as Capital Arbitrage. An arms-length agreement allowed the banks to invest in a Structured Investment Vehicle (SIV) as an affiliate investment. The large spread that an SIV captured made it an excellent investment, but more importantly it allowed the banks to use their fractional reserve (10X) money creation abilities to buy risky securitization products without them appearing on their balance sheet. The banks received huge multiplier leveraged returns from the high yielding Collateralized Debt Obligations (CDOs) until the crisis imploded the game.
HOW MUCH LEVERAGE WILL THE CENTRAL BANKER CHOOSE TO COMPOUND? => “x” times “y”
When the financial crisis unfolded you may recall that then US Treasury Secretary Hank Paulson’s (former Chairman and CEO of Goldman Sachs during the explosion of Shadow Banking structures) first solution was to create a $100B Super SIV. The SIV leverage thinking was so entrenched that this was the first ‘go to’ solution to fight de-leveraging. If we were to jump forward to today when we are further along in increasing and unprecedented de-leveraging, what the central bankers need to replace the shadow banking system is a vehicle that will deliver the previous scale of leverage PLUS an order of magnitude more. The answer is the Bank of International Settlements. The SIV model is used as illustrated ‘Shadow Central Banking System’ above.
With the use of the SDR ‘currency’, central bankers can compound fractional reserve lending.
IT’S ALREADY HAPPENING
It is my view this process is already well along. The following Bloomberg global money supply growth chart graphically shows this. As the circles indicate, once again money is flowing into the pipeline or at least into global bank reserves.
CONCLUSION
The advantage of this approach is:
Leverage: Compounding money creation between banks
Partial gold backing: Present BIS levels of 12.4%
SDR: Offers a basket of currencies approach versus a single currency dependency.
Former Communist bloc regime backing: China and Russia would likely support this approach for a number of reasons, which they have already expressed as short comings to the current global reserve situation.
Reserve Currency: The SDR approach offers a migration path from today’s US$ reserve currency to an alternative bank reserve currency to a future global reserve currency.
This may be the final lever required to initiate a Minsky Melt-Up (see: EXTEND & PRETEND - Manufacturing a Minsky Melt-Up) and the $5T in QE II (see: EXTEND & PRETEND: A Guide to the Road Ahead) I have been writing about for some time now.
There are many questions that are raised in the above discussion - many about the future role and safety of gold. Time and space don’t allow for this here. I hope to work through the answers in forthcoming articles.
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The following gave me concern when I first read it many years ago and something for you to think about:
"...the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations."
Professor Carroll Quigley
Tragedy and Hope: A History of the World in Our Time (1966)
President Bill Clinton’s Georgetown Professor
seemslikeadream
Thanks
Banking with Hitler
This investigative film shows in detail the roles played by the Anglo-German banking Cartel (notably the Bank of England controlled by the Rothschild and the Chase National Bank controlled by the Rockfeller as well as the Harriman/Bush’s Bank) through the BIS the Bank of International Settlement not only before the war but during the war. The BIS was originally established in May 1930 by bankers and diplomats of Europe and the United States to collect and disburse Germany’s World War I reparation payments (hence its name).
On its board were key Nazis such as Walther Funk and Hjalamar Schact The president of BIS was an American, Thomas McKittrick, who readily socialized with leading Nazis. Not only the BIS, but other allied banks worked hand in hand with the Nazis. One of the biggest American banks (Chase Bank) kept a branch open in Occupied Paris and, with full knowledge of the managers in the U.S., froze the accounts of French Jews. Deprived of money to escape France, many ended up in death camps.Former Nazi Bank To Rule The Global Economy
The global elite has chosen the Bank For International Settlements, which financed Hitler’s war machine, to boss the financial arm of the new world order
Paul Joseph Watson
Prison Planet.com
Friday, April 30, 2010
European Central Bank chief Jean-Claude Trichet’s announcement that the Bank for International Settlements is to become the primary engine for global governance is a shocking admission given the fact that this ultra-secretive menagerie of international bankers was once controlled by top Nazis who, in collusion with global central banks, funneled money through the institution which directly financed Hitler’s war machine.
During a speech to the elitist CFR organization earlier this week, ECB head Trichet said that the Global Economy Meeting (GEM), which regularly meets at the BIS headquarters in Basel, “Has become the prime group for global governance among central banks”.
The GEM is basically a policy steering committee under the umbrella of the Bank for International Settlements. In its current form, the BIS, which itself is not accountable to any national government, is comprised of banking chiefs from global central banks, most of which are private and also have no responsibility to their nation states or their citizens.
The board of directors who control the BIS include Federal Reserve chief Ben Bernanke and Bank of England head Mervyn King, as well as Trichet himself.
So how did the Bank for International Settlements get started? The BIS was founded in 1930 by Governor of The Bank of England, Montague Norman and his German colleague Hjalmar Schacht, who later became Adolf Hitler’s finance minister.
The bank was initially founded in order to facilitate money transfers related to German reparations arising out of the Treaty of Versailles, but by the start of the second world war, the BIS was largely controlled by top Nazi officials, people like Walter Funk, who was appointed Nazi propaganda minister in 1933 before going on to become Hitler’s Minister for Economic Affairs. Another BIS director during this period was Emil Puhl, who as director and vice-president of Germany’s Reichsbank was responsible for moving Nazi gold. Both Funk and Puhl were convicted at the Nuremberg trials as war criminals.
Other BIS directors included Herman Schmitz, the director of IG Farben, whose subsidiary company manufactured Zyklon B, the pesticide used in Nazi concentration camp gas chambers to kill Jews and political dissidents during the Holocaust. IG Farben worked closely with John D. Rockefeller’s United States-based Standard Oil Co during the second world war.
Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo, was also a BIS director during the war period.
As Charles Higham’s widely acclaimed book Trading With The Enemy, How the Allied multinationals supplied Nazi Germany throughout World War Two points out, several parties at the Bretton Woods Conference in July 1944 wanted to see the Bank for International Settlements liquidated, because its role in aiding Nazi Germany loot occupied European countries during the war. Norway called for the bank to be shut down, a view supported by Harry Dexter White, U.S. Secretary of the Treasury and Henry Morgenthau, but the BIS survived despite its highly contentious Nazi influence.
Higham writes that the BIS became, “A money funnel for American and British funds to flow into Hitler’s coffers and to help Hitler build up his machine,” founded by Nazi finance minister Hjalmar Schacht on the basis that the “Institution that would retain channels of communication and collusion between the world’s financial leaders even in the event of an international conflict. It was written into the Bank’s charter, concurred in by the respective governments, that the BIS should be immune from seizure, closure or censure, whether or not its owners were at war.”
(ARTICLE CONTINUES BELOW)
“The BIS was completely under Hitler’s control by the outbreak of World War II,” writes Higham. “Among the directors under Thomas H. McKittrick were Hermann Shmitz, head of the colossal Nazi industrial trust I.G. Farben, Baron Kurt von Schroder, head of the J.H. Stein Bank of Cologne and a leading officer and financier of the Gestapo; Dr. Walther Funk of the Reichsbank, and, of course, Emil Puhl. These last two figures were Hitler’s personal appointees to the board.”
Higham details how the gold looted from countries invaded by the Nazis was packed into vaults controlled by the Bank for International Settlements, and how Nazis who controlled the bank then forbade any discussion of the theft.
“The BIS was an instrument of Hitler, but its continuing existence was approved by Great Britain even after that country went to war with Germany, and the British director Sir Otto Niemeyer, and chairman Montagu Norman, remained in office throughout the war,” writes Higham, explaining how Washington State Congressman John M. Coffee objected to American money being invested with the bank in 1944.
“The Nazi government has 85 million Swiss gold francs on deposit in the BIS. The majority of the board is made up of Nazi officials. Yet American money is being deposited in the Bank,” complained Coffee.
In 1948, the BIS was finally compelled to hand over a mere £4 million in looted Nazi gold to the allies, and thanks to people like Harry Truman and the Rockefeller family, the bank was not dissolved. One of its most influential directors, Nazi banker Emil Puhl was later invited to the United States as a guest of honor in 1950.
Despite its inglorious past, the Bank For International Settlements continues today as a major management arm of the global elite. The bank wields power through its control of vast amounts of global currencies. The BIS controls no less than 7% of the world’s available foreign exchange funds, as well as owning 712 tons of gold bullion, presumably a sizeable portion of which is the bullion which was stolen from occupied countries by the Nazis who controlled the bank during the war.
“By controlling foreign exchange currency, plus gold, the BIS can go a long way toward determining the economic conditions in any given country,” writes Doug Casey. “Remember that the next time Ben Bernanke or European Central Bank President Jean-Claude Trichet announces an interest rate hike. You can bet it didn’t happen without the concurrence of the BIS Board.”
The BIS is basically a huge slush fund for global government through which secret transfers of wealth from citizens are surreptitiously handed to the IMF.
“For example, U.S. taxpayer monies can be passed through BIS to the IMF and from there anywhere. In essence, the BIS launders the money, since there is no specific accounting of where particular deposits came from and where they went,” writes Casey.
The fact that top Nazis were intimately involved in the activity of a global central bank that is now being touted as the primary powerhouse of the economic arm of world government is frightening. Every time we delve into the origins of the march towards world government, we find that top Nazis were instrumental in setting up and managing the same institutions that today seek to manage the imposition of global government.
Just as with the institutions that comprised the embryonic stages of the European Union, Nazi fingerprints are all over the origins of the move towards a global authority ruling the planet with nation states and sovereignty playing second fiddle. This fact demolishes any notion that global government is benevolent, humanitarian or progressive. Centralization of power into the hands of the few is inherently undemocratic, elitist, and to the detriment of the people.
The Nazis who breathed life into the same framework of global authoritarianism being used to set up world government today may have been usurped by an elite altogether more patient in their bid to impose a dictatorship run by banking dynasties, but the ultimate agenda remains the same – world government by consent or conques
by beeline » Wed Aug 25, 2010 9:48 am
by MinM » Fri Aug 27, 2010 2:03 pm
Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.
Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:
They created fake demand.
A ProPublica analysis shows for the first time the extent to which banks -- primarily Merrill Lynch, but also Citigroup, UBS and others -- bought their own products and cranked up an assembly line that otherwise should have flagged.
The products they were buying and selling were at the heart of the 2008 meltdown -- collections of mortgage bonds known as collateralized debt obligations, or CDOs.
As the housing boom began to slow in mid-2006, investors became skittish about the riskier parts of those investments. So the banks created -- and ultimately provided most of the money for -- new CDOs. Those new CDOs bought the hard-to-sell pieces of the original CDOs. The result was a daisy chain [1] that solved one problem but created another: Each new CDO had its own risky pieces. Banks created yet other CDOs to buy those.
Individual instances of these questionable trades have been reported before, but ProPublica's investigation, done in partnership with NPR's Planet Money [2], shows that by late 2006 they became a common industry practice.
An analysis by research firm Thetica Systems, commissioned by ProPublica, shows that in the last years of the boom, CDOs had become the dominant purchaser of key, risky parts of other CDOs, largely replacing real investors like pension funds. By 2007, 67 percent of those slices were bought by other CDOs, up from 36 percent just three years earlier. The banks often orchestrated these purchases. In the last two years of the boom, nearly half of all CDOs sponsored by market leader Merrill Lynch bought significant portions of other Merrill CDOs [3].
ProPublica also found 85 instances during 2006 and 2007 in which two CDOs bought pieces of each other's unsold inventory. These trades, which involved $107 billion worth of CDOs, underscore the extent to which the market lacked real buyers. Often the CDOs that swapped purchases closed within days of each other, the analysis shows.
There were supposed to be protections against this sort of abuse. While banks provided the blueprint for the CDOs and marketed them, they typically selected independent managers who chose the specific bonds to go inside them. The managers had a legal obligation to do what was best for the CDO. They were paid by the CDO, not the bank, and were supposed to serve as a bulwark against self-dealing by the banks, which had the fullest understanding of the complex and lightly regulated mortgage bonds.
It rarely worked out that way. The managers were beholden to the banks that sent them the business. On a billion-dollar deal, managers could earn a million dollars in fees, with little risk. Some small firms did several billion dollars of CDOs in a matter of months.
"All these banks for years were spawning trading partners," says a former executive from Financial Guaranty Insurance Company, a major insurer of the CDO market. "You don't have a trading partner? Create one." ...
by semper occultus » Sun Sep 05, 2010 7:36 am
by vanlose kid » Sun Sep 05, 2010 9:16 am
by JackRiddler » Mon Sep 06, 2010 1:02 pm
by freemason9 » Wed Oct 13, 2010 10:54 pm
by barracuda » Wed Oct 13, 2010 10:58 pm
by seemslikeadream » Thu Oct 14, 2010 10:44 am
freemason9 wrote:at what point does this become a crisis as predicted by marx
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