$450 Trillion Bubble About to Burst?

[Douglas Caddy]

Bye, Bye Reagan, Hello FDR

The Great Bust of '08

By MIKE WHITNEY

www.counterpunch.org

February 8-9, 2008

http://www.counterpunch.org/whitney02082008.html

On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor.....as of the day of the failure” and return their money as quickly as possible. The agency is “modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions.”

The implication is clear. The FDIC has begun the “death watch” on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDIC's job nearly impossible.

It's worth noting that, due to a rule change by Congress in 1991, the FDIC is now required to use “the least costly transaction when dealing with a troubled bank. The FDIC won't reimburse uninsured depositors if it means increasing the loss to the deposit insurance fund....As a result, uninsured depositors are protected only if a bank acquiring the failed bank will pay more for all of the deposits than it would for insured deposits only.” (MarketWatch)

That's reassuring. And there's more, too. FDIC Chairman Shiela Bair warned that “as of Sept. 30, there were 65 institutions with assets of $18.5 billion on its list of "problem" institutions;” although she wouldn't give names.

So, what does it all mean?

It means that people who want to hold on to their life savings are going have to be extra vigilant as the situation continues to deteriorate.

Right now, many of the country's largest investment banks are holding $500 billion in mortgage-backed securities and other structured investments that are steadily depreciating in value. As these assets wear-away the banks' capital, the likelihood of default becomes greater.

This week, Fitch Ratings announced that it will (probably) cut ratings on the 5 main bond insurers (Ambac, MBIA, FGIC, CIFG,SCA) “regardless of their capital levels”. This seemingly innocuous statement has roiled markets and put Wall Street in a panic. If the bond insurers lose their AAA rating (on an estimated $2.4 trillion of bonds) then the banks could lose another $70 billion in downgraded assets. That would increase their losses from the credit crunch -- which began in August 2007 -- to $200 billion with no end in sight. It would also impair their ability to issue loans to even credit worthy customers which will further dampen growth in the larger economy. Structured investments have been the banks' “cash cow” for nearly a decade, but, suddenly, the trend has shifted into reverse. Revenue streams have dried up and capital is being destroyed at an accelerating pace. The $2 trillion market for collateralized debt obligations (CDOs) is virtually frozen leaving horrendous debts that will have to be written-down leaving the banks' either deeply scarred or insolvent. It's a mess.

There were some interesting developments in a case involving Merrill Lynch last week which sheds a bit of light on the true “market value” of these complex debt-pools called CDOs. The Massachusetts Secretary of State has charged Merrill with “fraud and misrepresentation” for selling them a CDO that was "highly risky and esoteric" and "unsuitable for the City of Springfield.” (Most cities are required by law to only purchase Triple A rated bonds) The city of Springfield bought the CDO less than a year ago for $13.9 million. It is presently valued at $1.2 million -- more than a 90 per cent loss in less than a year.

Merrill has quietly settled out of court for the full amount and seems genuinely confused by the Massachusetts Secretary of State's apparent anger. A Merrill spokesman said blandly, “We are puzzled by this suit. We have been cooperating with the Secretary of State Galvin's office throughout this inquiry.”

Is it really that hard to understand why people don't like getting ripped off?

This anecdote shows that these exotic mortgage-backed securities are real stinkers. They're worthless. The market for structured debt-instruments has evaporated overnight leaving a massive hole in the banks' balance sheets. The Fed's multi-billion bailout plan; the “Temporary Auction Facility” (TAF) is a quick-fix, but not a permanent solution. The real problem is insolvency, not liquidity.

The smaller banks are dire straights, too. They're bogged down with commercial and residential loans that are defaulting faster than any time since the Great Depression. The Comptroller of the Currency,John Dugan -- who is presently investigating commercial real estate loans -- discovered that commercial banks “wrote off $524 million in construction and development loans in the third quarter of 2007, almost nine times the amount of 2006”. The commercial real estate market is following residential real estate off a cliff.

Dugan found out that, “More than 60 per cent of Florida banks have commercial real estate loans worth more than 300 per cent of their capital, a level that automatically attracts more attention from examiners.” (Wall Street Journal) He said that his office was prepared to intervene if banks with large real estate exposure maintained unreasonably low reserves for bad loans. Dugan is forecasting a steep “increase in bank failures.”

“Dozens of U.S. banks will fail in the next two years as losses from soured loans mount and regulators crack down on lenders that take too much risk, especially in real estate and construction," eport Reuters, quoting Gerard Cassidy, RBC Capital Markets analyst. Apart from the growing losses in commercial and residential real estate, the banks are carrying over $150 billion of “unsyndidated” debt connected to leveraged buyout deals (LBOs) which are presently stuck in the mud. Like CDOs, there's no market for these sketchy transactions which require billions in cheap, easily available credit. They've just become another anvil dragging the banks under.

On January 31, Bloomberg News reported: “Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings.” Standard and Poor's added that “it may cut or reduce ratings of $534 billion of subprime-mortgage securities and CDOs as default rates rise.” Another blow to the banks withering balance sheet.

There's an even bigger threat to the financial system than these huge losses at the banks. A default by one of the big bond insurers could trigger a meltdown in the credit-default swaps market, which could lead to the implosion of trillions of dollars in derivatives bets. The inability of the under-capitalized monolines (bond insurers) to “make good” on their coverage is likely to set the first domino in motion by increasing the number of downgrades on bond issues and intensifying the credit-paralysis which already is spreading throughout the system.

MSN Money's financial analyst Jim Jubak summed it up like this:

"Actually, I'm worried not so much about the junk-bond market itself as the huge market for a derivative called a credit-default swap, or CDS, built on top of that junk-bond market. Credit-default swaps are a kind of insurance against default, arranged between two parties. One party, the seller, agrees to pay the face value of the policy in case of a default by a specific company. The buyer pays a premium, a fee, to the seller for that protection.

This has grown to be a huge market: The total value of all CDS contracts is something like $450 trillion..... Some studies have put the real credit risk at just 6 per cent of the total, or about $27 trillion. That puts the CDS market at somewhere between two and six times the size of the U.S. economy.

All it will take in the CDS market is enough buyers and sellers deciding they can't rely on this insurance anymore for junk-bond prices to tumble and for companies to find it very expensive or impossible to raise money in this market." (Jim Jubak's Journal; "The Next Banking Crisis is on the Way", MSN Money)

Jubak really nails it here. In fact, this is what Wall Street is really worried about. $450 trillion in cyber-credit has been created through various off balance sheets operations which neither the Fed nor any other regulatory body can control. No one even knows how these abstruse, credit-inventions will perform in a falling market. But, so far, it doesn't look good.

The enormity of the derivatives market ($450 trillion) is the result of Greenspan's easy-credit monetary policies as well as the reconfiguring of the markets according to the “structured finance” model. The new model allows banks to run off-balance sheets operations that, in effect, create money out of thin air. Similarly, “synthetic” securitization, in the form of credit default swaps (CDS) has turned out to be another scam to avoid maintaining sufficient capital to cover a sudden rash of defaults. The bottom line is that the banks and non-bank institutions wanted to maximize their profits by keeping all their capital in play rather than maintaining the reserves they'd need in the event of a market downturn.

In a deregulated market, the Federal Reserve cannot control the creation of credit by non-bank institutions. As the massive derivatives bubble unwinds, it is likely to have real and disastrous effects on the underlying-productive economy. That's why Jubak and many other market analysts are so concerned. The persistent rise in home foreclosures, means that the derivatives which were levered on the original assets (sometimes exceeding 25-times their value) will vanish down a black hole. As trillions of dollars in virtual-capital are extinguished by a click of the mouse; the prospects of a downward deflationary spiral become more likely.

As economist Nouriel Roubini said:

“One has to realize that there is now a rising probability of a 'catastrophic' financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. That is why the Fed has thrown caution to the wind and taken a very aggressive approach to risk management.” (Nouriel Roubini EconoMonitor)

"In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier." (RealtyTrac Inc.) The banks are presently cutting back on home equity loans which provided an additional $600 billion to homeowners last year for personal consumption. Bush's $150 billion “stimulus package” will barely cover a quarter of the amount that is lost. As consumer spending slows and the banks become more constrained in their lending; businesses will face overproduction problems and will have to limit their expansion and lay off workers. This is the downside of “low interest” bubble-making; a painful descent into deflation.

Bernanke wants direct government action that will provide immediate stimulus. But that takes political consensus and there's still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This week's release of the Institute for Supply Management's Non-Manufacturing Index (ISM) was a real shocker. It showed steep declines in all areas of the nation's service sector---including banks, travel companies, contractors, retail stores etc—The Business Activity Index, the New Orders Index, the Employment Index, and the Supplier Delivery Index have all contracted at a “historic” pace. Everyone took a hit.

“The numbers are so terrible, it's beyond belief,” said Scott Anderson, senior economist at Wells Fargo & Co.

The $2 trillion that has been wiped out from falling home prices, the slowdown in lending activity at the banks, the loss $600 billion in home equity loans, and the faltering stock market have all contributed to a noticeable change in the public's attitudes towards spending. Traffic to the shopping malls has slowed to a crawl. Retail shops had their worst January on record. Homeowners are hoarding their earnings to cover basic expenses and to make up for their lack of personal savings. America's consumer culture is in full-retreat. The slowdown is here.

When equity bubbles collapse; everybody pays. Demand for goods and services diminishes, unemployment soars, banks fold, and the economy stalls. That's when governments have to step in and provide programs and resources that keep people working and sustain business activity. Otherwise there will be anarchy. Middle class people are ill-suited for life under a freeway overpass. They need a helping hand from government. Big government. Good-bye, Reagan. Hello, F.D.R.

The Bush stimulus plan is a drop in the bucket. It'll take much, much more. And, we're not holding our breath for a New Deal from George Walker Bush.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

[Richard Welser]

..................

In a deregulated market, the Federal Reserve cannot control the creation of credit by non-bank institutions. As the massive derivatives bubble unwinds, it is likely to have real and disastrous effects on the underlying-productive economy. That's why Jubak and many other market analysts are so concerned. The persistent rise in home foreclosures, means that the derivatives which were levered on the original assets (sometimes exceeding 25-times their value) will vanish down a black hole. As trillions of dollars in virtual-capital are extinguished by a click of the mouse; the prospects of a downward deflationary spiral become more likely.

snip

Bernanke wants direct government action that will provide immediate stimulus. But that takes political consensus and there's still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This week's release of the Institute for Supply Management's Non-Manufacturing Index (ISM) was a real shocker. It showed steep declines in all areas of the nation's service sector---including banks, travel companies, contractors, retail stores etc—The Business Activity Index, the New Orders Index, the Employment Index, and the Supplier Delivery Index have all contracted at a "historic" pace. Everyone took a hit.

"The numbers are so terrible, it's beyond belief," said Scott Anderson, senior economist at Wells Fargo & Co.

...............

In a word: yes....bubble and decades of voodoo trickle up economics about to go bust....and, of course, the poorer one is the more it will hurt - even kill. I love the 'middle-class people are ill-suited for life under a freeway overpass." Classist writing...but nice imagery....they'll learn soon enough. I've already lost everything, so not much more to loose...but the rest of you....suggest land or precious metals under the mattress, myself. Don't trust banks or financial instruments - ever - less so now. The rich were never to be trusted - less so now.

Peter, never got a chance to thank you for your support on the other thread.

Gotta question. To what degree do you think this fiasco has been engineered, if at all? Couple this with the ongoing collapse in the greenback. And peaking oil resources, etc. Is this the 'calamity' .... with riotous, hungry folks that might serve as the excuse for martial law (perhaps under the next pres), and the implementation of the NAU?

I've got my 'conspiracy antennae' on.....

You probably know this stuff better than I. (not the conspiracy stuff necessarily but the economic 'stuff')

[Ron Ecker]

I'm quite unschooled in economics and money management (you have to have money to manage it), so please excuse my ignorance. Where do the ruling elite keep their money? Aside from stocks and other investments, don't they have to use banks just like other people, for their millions in pocket change?

Here's my financial advice: Keep your money in the same banks where the ruling elite keep theirs.

[Richard Welser]

I'm quite unschooled in economics and money management (you have to have money to manage it), so please excuse my ignorance. Where do the ruling elite keep their money? Aside from stocks and other investments, don't they have to use banks just like other people, for their millions in pocket change?

Here's my financial advice: Keep your money in the same banks where the ruling elite keep theirs.

My guess is that they have hard assets mostly. Vast tracks of land, mansions and castles (yes), transnational industries/corporations etc. across the world. And they own banks. LOTS of BIG banks....... See Rockefeller below.

A most important bank (and I am not sure by whom and or how it is owned (though I intend to research it) is the International Bank of Settlements....

Me, I got plenty of nothin' ... 'cept I owe my soul to the company store.... How's that for mixing songs....

ABOUT THE ROCKEFELLERS:

----

The Family That Preys Together

Although international banking is probably the Rockefellers' most important business, Standard Oil remains the keystone in the arch of the Rockefeller Empire. The family is still better known to the public for its oil properties than for its bank shares.

Petroleum is now the single most important commodity in world trade. lt supplies the fuel, of course, for almost every motor vehicle in the world, it powers most electric generating plants, and it is the most vital raw material for the manufacturing of plastics, chemicals and drugs. All of this has brought huge benefits to the Rockefellers. As Time magazine reported in its, issue of February 18, 1974:

"For 111 years, the business that has been variously known as the Standard Oil Trust, Standard Oil Co. (New Jersey), Esso and now Exxon has survived wars, expropriations, brutalizing competition, muckraking attacks and even dismemberment by the US Supreme Court (in 1911). It has not only survived but has also grown-from a refinery in Cleveland to a global behemoth that sells petroleum in more than 100 countries through some 300 subsidiaries and affiliates that make up a -United Nations of oil." Not only grown but also prospered-so much so that last month it reported the largest annual profit ever earned by any industrial company: $2.4 billion after taxes. "

The explosive growth of Exxon, the tiger of the oil industry, is revealed in the following UPI release fifteen months [May 1975] after the Time article:

"Fortune magazine has just issued its list of the nation's 500 biggest corporations, and never in the 20 years that it has tracked their performance have the rankings been so changed. The reason, the May issue of the magazine reports, is oil. Fortune's new list of the biggest publicly held industrial corporations for 1974 introduces a new No. 1: the Exxon Corporation. lt displaced the General Motors Corporation, which had been America's biggest industrial company for 40 years. Exxon was No. 2 in 1973. Propelled by soaring prices for oil, Exxon's sales-the gauge by which Fortune determines size-surged from $25.7 billion in 1973 to $35.8 billion last year."

To get some idea of the mammoth size of Exxon, consider the following: If Exxon were shorn of all its foreign operations, it would still be the ninth or tenth largest industry in the United States. Yet it gets only 16% of its oil production and 32% of its sales from this country. If Exxon merely transported oil, it would be the world's biggest shipping firm. lt has 155 tankers of its own and varying numbers under charter at sea. It is a substantial international banker, holding fortunes in marks, yen, francs, pounds and dollars all over the world. And on and on it goes.

In order to determine actual Rockefeller family control over Exxon and the other offshoots of the original Standard Oil Trust (Mobil, Standard of Indiana, Standard of California, Chevron, Sohio, Phillips 66, Marathon, et al)we must gather all of the pieces of the puzzle we can find and carefully fit them together. In his testimony before Congress, Dilworth revealed that the Rockefeller family has approximately $324,600,000 worth of oil stock. This represents an average of about 2 % in each of the four giant oil companies. But,in 1966, testimony before the Patman Committee indicated that the nine Rockefeller family foundations also controlled an average of about 3 % in the Standard Oil Trust descendants. This known total of 5% would give the Rockefellers effective working control over the four giant corporations:

In addition, there are shares held in trust by the Rockefeller banks, insurance companies, universities and other groups whose boards of directors and trustees are interlocked with the Rockefellers.

And yet, incredibly, oil is not even the Rockefellers' biggest business. That honor is reserved for international banking. The Rockefeller family banks are the First National City Bank and the Chase Manhattan Bank. The Chase Manhattan is the third largest banking establishment in the world; and while only number three', it is by far the most influential.

The largest bank in the world is Bank of America in California, inventor of the bank credit card, Bank Americard, which now has 39 million cardholders worldwide. Bank of America became a giant through branch banking in California, where it has over 1,000 offices. Until recently, however, when it linked is overseas operations with the Rothschilds of Europe, the Bank of America lacked international horsepower. Now it too has joined the internationalists' crusade for World Government.

Chase Manhattan was created by the union of the Rockefeller-owned Chase Bank with the Kuhn, Loeb controlled Manhattan Bank. The marriage has been a huge success for both families; in 1971 Chase Manhattan claimed $36 billion in assets. This is impressive enough, but the New York Times has pointed out that it is not the whole story:

". . a major portion of their [Chase Manhattan's business carried on through affiliated banks overseas is not consolidated on the balance sheet."

Time also emphasizes the immense power of the Chase Manhattan, noting that "The Chase has 28 foreign branches of its own, but more important, it has a globe encircling string of 50,000 correspondent banking offices."Fifty thousand correspondent banks around the world! if each correspondent bank were worth only a paltry $10 million, it would give Chase potential world wide clout of five hundred billion dollars ! Such a figure is simply incomprehensible. Unfortunately, it is probably a conservative estimate of Chase's power and influence.

Such financial clout would give the Rockefellers the ability to create an international monetary crisis over, night. Could it be that it is they who have been yo-yoing the price of gold, dollars and foreign currencies during the past few years-creating panics for most investors, but profits for themselves?

Every time an international monetary storm blows up hundreds of millions of dollars flow into European banks. When the storm subsides, those who were 'in the know' at the beginning have made enormous sums of money, That the Rockefellers have been very profitably involved through the Chase Manhattan Bank and its overseas facilities, seems more than reasonable.

By almost any standard, Chase Manhattan has become virtually a sovereign state. Except it has more money, than most. lt even employs a full-time envoy to the United Nations.

........... article continues (many more things they own) at http://educate-yourself.org/ga/RF3chap1976.shtml

[Maggie Hansen]

I'm quite unschooled in economics and money management (you have to have money to manage it), so please excuse my ignorance. Where do the ruling elite keep their money? Aside from stocks and other investments, don't they have to use banks just like other people, for their millions in pocket change?

Here's my financial advice: Keep your money in the same banks where the ruling elite keep theirs.

Banks are a good way for the elites to make money. When I was a child banking was described to me something like this; you would have money in a bank account and they would pay interest on it. The bank got the money with which to pay you interest (and pay their operating expenses) from the persons whom they lent the money to and from which they charged a higher interest rate.

Well, it came as something as a shock to me later to realize later that banks are allowed to make their own money, in effect, and to lend it out as loans. They are supposed to have a % of 'real money' in reserves in the bank but I'm not sure that anyone knows what is where anymore. They get 'real money' paid back to them though and they can foreclose on real homes etc. Under an interest payment system there is always a loser. It is built into the system. Just like musical chairs. Its not called a mortgage / death gamble for nothing.

[Richard Welser]

I'm quite unschooled in economics and money management (you have to have money to manage it), so please excuse my ignorance. Where do the ruling elite keep their money? Aside from stocks and other investments, don't they have to use banks just like other people, for their millions in pocket change?

Here's my financial advice: Keep your money in the same banks where the ruling elite keep theirs.

Banks are a good way for the elites to make money. When I was a child banking was described to me something like this; you would have money in a bank account and they would pay interest on it. The bank got the money with which to pay you interest (and pay their operating expenses) from the persons whom they lent the money to and from which they charged a higher interest rate.

Well, it came as something as a shock to me later to realize later that banks are allowed to make their own money, in effect, and to lend it out as loans. They are supposed to have a % of 'real money' in reserves in the bank but I'm not sure that anyone knows what is where anymore. They get 'real money' paid back to them though and they can foreclose on real homes etc. Under an interest payment system there is always a loser. It is built into the system. Just like musical chairs. Its not called a mortgage / death gamble for nothing.

In other words, you might be saying that Banks are a scam..... (and my own view, the Federal Reserve, as a private institution, is a really huge scam....)

[Maggie Hansen]

I'm quite unschooled in economics and money management (you have to have money to manage it), so please excuse my ignorance. Where do the ruling elite keep their money? Aside from stocks and other investments, don't they have to use banks just like other people, for their millions in pocket change?

Here's my financial advice: Keep your money in the same banks where the ruling elite keep theirs.

Banks are a good way for the elites to make money. When I was a child banking was described to me something like this; you would have money in a bank account and they would pay interest on it. The bank got the money with which to pay you interest (and pay their operating expenses) from the persons whom they lent the money to and from which they charged a higher interest rate.

Well, it came as something as a shock to me later to realize later that banks are allowed to make their own money, in effect, and to lend it out as loans. They are supposed to have a % of 'real money' in reserves in the bank but I'm not sure that anyone knows what is where anymore. They get 'real money' paid back to them though and they can foreclose on real homes etc. Under an interest payment system there is always a loser. It is built into the system. Just like musical chairs. Its not called a mortgage / death gamble for nothing.

In other words, you might be saying that Banks are a scam..... (and my own view, the Federal Reserve, as a private institution, is a really huge scam....)

Well, lets say that I think people who rob banks are honest compared to the people who own them and are merely involved in a bit of well deserved expropriation.

[Guest David Guyatt]

The problem related to the foregoing is not with the real money deposited in banks that they lend and use, but what the article called 'cyber' money -- off balance sheet instruments that aren't really real when it comes down to it. This whole thing has the same feel to it as the Savings & Loan debacle back in the 1980's.

I remain suspicious that there is a massive underlying scam involved - above and beyond the inherent blind greed of the fraternity of bankers.

I don't know if I'm right but I suspect that the $450 trillion 'fear' mountain is partly fictitious to the extent that it is not 'naked'. These sums are usually offset to a quite large degree (a debit position balanced elsewhere by a balancing credit position)

But the point is that such a vital business sector as banking is not effectively regulated. In fact, regulation is something of a joke. Only when the most senior members of the board are put in jail for a long time, and all their assets confiscated as a punishment, will there be something measuring up to a deterrent. Such a regulatory framework would also need to prohibit plea bargaining and prohibit fines in lieu of prison for it to have any enduring impact.

But that ain't never going to happen and so we are left to experience an endless reprise of boom and bust, pump and dump.

Richard, the BIS used to be owned by all sorts of entities and even individuals, although it was founded back in 1930 by the then six main central banks of Belgium, France, Germany, Italy, Japan, and the United Kingdom plus three US privatelyt owned banks -- J.P. Morgan, First National Bank of New York and First National Bank of Chicago. Today the BIS is owned entirely by central banks )due to a controversial recent change in the rules). The BIS was always intended to be the central bankers 'club' and, indeed, was founded and structured to control the world politically and economically (see Carroll Quigley's book Tragedy & Hope that details this).

It is, therefore, the primary instrument of global control of the ruling elite.

[Maggie Hansen]

Naomi Klein talks about this in her latest newsletter about Disaster Capitalism and the Shock Doctrine.

http://www.naomiklein.org/shock-doctrine

[Mark Stapleton]

The problem related to the foregoing is not with the real money deposited in banks that they lend and use, but what the article called 'cyber' money -- off balance sheet instruments that aren't really real when it comes down to it. This whole thing has the same feel to it as the Savings & Loan debacle back in the 1980's.

I remain suspicious that there is a massive underlying scam involved - above and beyond the inherent blind greed of the fraternity of bankers.

I don't know if I'm right but I suspect that the $450 trillion 'fear' mountain is partly fictitious to the extent that it is not 'naked'. These sums are usually offset to a quite large degree (a debit position balanced elsewhere by a balancing credit position)

But the point is that such a vital business sector as banking is not effectively regulated. In fact, regulation is something of a joke. Only when the most senior members of the board are put in jail for a long time, and all their assets confiscated as a punishment, will there be something measuring up to a deterrent. Such a regulatory framework would also need to prohibit plea bargaining and prohibit fines in lieu of prison for it to have any enduring impact.

But that ain't never going to happen and so we are left to experience an endless reprise of boom and bust, pump and dump.

Richard, the BIS used to be owned by all sorts of entities and even individuals, although it was founded back in 1930 by the then six main central banks of Belgium, France, Germany, Italy, Japan, and the United Kingdom plus three US privatelyt owned banks -- J.P. Morgan, First National Bank of New York and First National Bank of Chicago. Today the BIS is owned entirely by central banks )due to a controversial recent change in the rules). The BIS was always intended to be the central bankers 'club' and, indeed, was founded and structured to control the world politically and economically (see Carroll Quigley's book Tragedy & Hope that details this).

It is, therefore, the primary instrument of global control of the ruling elite.

It's a massive regulatory failure. Those with 'real money' deposited in banks will learn this if the banks holding their deposits go under.

If the economic collapse is as big as the signs are indicating, there'll be bloody hell to pay. Maybe this is why the US has been gearing up for martial law. There'll be a lot of angry people around.

Politically, it could mean anything. My crystal ball is saying that America will swing sharply left. If the economic deterioration accelerates during the election campaign, there'll be plenty of frustration at the limited choices which the current US political system offers---namely, none.

Edited February 10, 2008 by Mark Stapleton

[Guest David Guyatt]

The problem related to the foregoing is not with the real money deposited in banks that they lend and use, but what the article called 'cyber' money -- off balance sheet instruments that aren't really real when it comes down to it. This whole thing has the same feel to it as the Savings & Loan debacle back in the 1980's.

I remain suspicious that there is a massive underlying scam involved - above and beyond the inherent blind greed of the fraternity of bankers.

I don't know if I'm right but I suspect that the $450 trillion 'fear' mountain is partly fictitious to the extent that it is not 'naked'. These sums are usually offset to a quite large degree (a debit position balanced elsewhere by a balancing credit position)

But the point is that such a vital business sector as banking is not effectively regulated. In fact, regulation is something of a joke. Only when the most senior members of the board are put in jail for a long time, and all their assets confiscated as a punishment, will there be something measuring up to a deterrent. Such a regulatory framework would also need to prohibit plea bargaining and prohibit fines in lieu of prison for it to have any enduring impact.

But that ain't never going to happen and so we are left to experience an endless reprise of boom and bust, pump and dump.

Richard, the BIS used to be owned by all sorts of entities and even individuals, although it was founded back in 1930 by the then six main central banks of Belgium, France, Germany, Italy, Japan, and the United Kingdom plus three US privatelyt owned banks -- J.P. Morgan, First National Bank of New York and First National Bank of Chicago. Today the BIS is owned entirely by central banks )due to a controversial recent change in the rules). The BIS was always intended to be the central bankers 'club' and, indeed, was founded and structured to control the world politically and economically (see Carroll Quigley's book Tragedy & Hope that details this).

It is, therefore, the primary instrument of global control of the ruling elite.

It's a massive regulatory failure. Those with 'real money' deposited in banks will learn this if the banks holding their deposits go under.

If the economic collapse is as big as the signs are indicating, there'll be bloody hell to pay. Maybe this is why the US has been gearing up for martial law. There'll be a lot of angry people around.

Politically, it could mean anything. My crystal ball is saying that America will swing sharply left. If the economic deterioration accelerates during the election campaign, there'll be plenty of frustration at the limited choices which the current US political system offers---namely, none.

Mark, I listened to an interesting discussion on a morning TV show over here a week or so ago (I don't normally watch these magazine programmes btw...) and one journalist made the interesting point that the fundamentals in the market are still pretty sound ad that there is a lot of hype elevating the sub prime to disaster levels because business is trying to depress the cost of lending.

I have no idea if this is an unfounded conspiracy theory or an enlightened insight, but have placed this morsel on the back boiler to remember as things unfold. For a mainstream journalist to propagate this view is, in any event, an interesting perspective

[Mark Stapleton]

Mark, I listened to an interesting discussion on a morning TV show over here a week or so ago (I don't normally watch these magazine programmes btw...) and one journalist made the interesting point that the fundamentals in the market are still pretty sound ad that there is a lot of hype elevating the sub prime to disaster levels because business is trying to depress the cost of lending.

I have no idea if this is an unfounded conspiracy theory or an enlightened insight, but have placed this morsel on the back boiler to remember as things unfold. For a mainstream journalist to propagate this view is, in any event, an interesting perspective

David, I'm not sure I follow.

Was the journo saying that business was trying to reduce the cost of lending i.e. red tape and regulatory requirements, or the cost of borrowing?

With US interest rates low and still falling, the cost of borrowing is almost negligible. The interest rate cuts and Bush's fiscal package makes it look to me like they're administering CPR to a very sick economy.

And when he says the fundamentals are sound, it seems like a cliche. How can the market fundamentals be sound when companies conduct major business 'off the balance sheet' and hence beyond regulatory oversight? Listed companies are supposed to conduct their affairs above board, or that's what I thought. Maybe he believes that regulation has no role in a properly functioning marketplace.

I agree with your earlier comments about the lack of proper regulation as a contributing factor in this mess. And it's a good idea to remember that journalist's name, too.

Edited February 10, 2008 by Mark Stapleton

[Guest David Guyatt]

Mark, I listened to an interesting discussion on a morning TV show over here a week or so ago (I don't normally watch these magazine programmes btw...) and one journalist made the interesting point that the fundamentals in the market are still pretty sound ad that there is a lot of hype elevating the sub prime to disaster levels because business is trying to depress the cost of lending.

I have no idea if this is an unfounded conspiracy theory or an enlightened insight, but have placed this morsel on the back boiler to remember as things unfold. For a mainstream journalist to propagate this view is, in any event, an interesting perspective

David, I'm not sure I follow.

Was the journo saying that business was trying to reduce the cost of lending i.e. red tape and regulatory requirements, or the cost of borrowing?

With US interest rates low and still falling, the cost of borrowing is almost negligible. The interest rate cuts and Bush's fiscal package makes it look to me like they're administering CPR to a very sick economy.

And when he says the fundamentals are sound, it seems like a cliche. How can the market fundamentals be sound when companies conduct major business 'off the balance sheet' and hence beyond regulatory oversight? Listed companies are supposed to conduct their affairs above board, or that's what I thought. Maybe he believes that regulation has no role in a properly functioning marketplace.

I agree with your earlier comments about the lack of proper regulation as a contributing factor in this mess. And it's a good idea to remember that journalist's name, too.

It was the reduced cost of borrowing by business that was driving the media doom and gloom stories, he claimed. He cited figures for all the main underlying economic indicators to support his viewpoint. Can't tell you his name as I came in part way through the programme. As I said, it sounded like an interesting take and one I'm going to keep a weather eye on to see how true it turns out...

Banks have been conducting off balance sheet transactions for decades (I traded a lot of structured instruments, exchange swaps, rate swaps, collars, floors, options and soforth, back in my bad old days -- and that's almost twenty years ago now). Back then one of the main attractions was that they were off balance sheet and not reportable to the Bank of England, and didn't impact/impair balance sheet requirements/reserve ratios. It was because use of these 'exotic' sorts of instruments grew $-wise so exponentially, that the BIS brought in additional weighting requirements/controls in the early mid 1990's. Clearly these were wholly insufficient for the task and one has to assume were enacted for purposes of PR only.

The whole subject of deregulation is worthy of a thread in its own right. Basically it is one of those 'ultra-right free market' fundamentals that completely unshackles business to do as it pleases. Thatcher's rallying cry was that 'the market will regulate itself'. No greater lie (or robber barons belly laugh) has been foisted on an unsuspecting, naive public. It's a scamsters charter. There is no effective regulation of business today (in the UK anyway). The regulatory bodies have their 'rules of engagement' hampered by the written legislation that brought them into being - thanks to the crafty lawyers-cum-politicians who set them up. Everything about them intrinsically favours business and hamstrings the rights of the individual.

Consumer law these days has been downgraded to civil law - not criminal law, and so business (which is intrinsically crooked) relaxes with a contented sigh, and without any threat of censure hanging over it, is content to break the law whenever it pleases. In my certain knowledge and experience, major corporations also break criminal laws on an almost daily basis but no one raises an eyebrow about it -- and certainly decline to take any action when formal complaints are lodged.

This is not regarded as a sexy topic and a great many people are turned off it accordingly. Yet it is at the very coal face where the pickaxe strikes the rock.

[Guest Gary Loughran]

This is not regarded as a sexy topic and a great many people are turned off it accordingly. Yet it is at the very coal face where the pickaxe strikes the rock.

Not for me. I have been trying hard to grasp fundamentals of this topic for some time, as you know. It seems contrived to be unduly complex to understand, so as to make it unsexy, therefore uninteresting.

The difference also in 'white versus blue collar 'crime'' in this area has also puzzled and at times angered me. All over the world financial institutes be they big or small, dealing in Christmas savings or billion dollar loans, screw the punter out of money. Be it through collapse, mismanagement or downright thieveary, the punter is seemingly always out of pocket and the money men get off scot free - undoubtedly richer as well through some scammed accounting. Never really hear of any charges against money men.

Now imagine a punter tries to rob a bank? I know this is wrong, but the punishment is always unduly harsh even if the robbery was just attempted, and without a weapon.

I know this is very crude and poorly written, but it does annoy me.

[Guest David Guyatt]

This is not regarded as a sexy topic and a great many people are turned off it accordingly. Yet it is at the very coal face where the pickaxe strikes the rock.

Not for me. I have been trying hard to grasp fundamentals of this topic for some time, as you know. It seems contrived to be unduly complex to understand, so as to make it unsexy, therefore uninteresting.

The difference also in 'white versus blue collar 'crime'' in this area has also puzzled and at times angered me. All over the world financial institutes be they big or small, dealing in Christmas savings or billion dollar loans, screw the punter out of money. Be it through collapse, mismanagement or downright thieveary, the punter is seemingly always out of pocket and the money men get off scot free - undoubtedly richer as well through some scammed accounting. Never really hear of any charges against money men.

Now imagine a punter tries to rob a bank? I know this is wrong, but the punishment is always unduly harsh even if the robbery was just attempted, and without a weapon.

I know this is very crude and poorly written, but it does annoy me.

I think this attitude goes beyond banking and finance and extends to all of big business. An example I have been quietly campaigning on ma be illustrative. This concerns all the the TV phone-in scams, here millions of viewers were conned out of millions of pounds. The only investigation conducted was an in-house one by Channel Four that unsurprisingly found no criminal intent. I have written to all manner of agencies insisting on a criminal investigation. Al of them pass saying it is nothing to do with them. Fines are imposed by Ofcom. In one case the fine was approx. £2.5 million versus the revenue the broadcaster earned that was in excess of £20 million. As I have pointed out to the Serious Fraud Office, this will be seen in some quarters as simply the cost of doing business. Especially, I believe, in ITV's case where they are 25% owned by Disney, a US corporation that is known to have very close connections to a certain New York Sicilian crime family. My first response from the SFO was tht this case did not meet their "acceptance criteria". I wrote back pointing out that the TV pone-in scams met ever single one of their acceptance criteria and in every respect (am now currently waiting for a decision).

But this can be extended to any other sector of business. Telecoms, Insurance. Retail... you name it. Al of them are replete with examples of unlawful behaviour and in many instances, criminal behaviour. It's just that the Bill isn't looking and doesn't care anymore. This is largely thanks to present and past governments who have all adhered to the free enterprise/markets will regulate themselves bullxxxx.

White collar crime has been awarded a clean bill of health. Blue collar crime, of course, is fallen upon with a ton of bricks.

This is yet another example of how the ruling elite intend the future to unfold.

Think middle ages feudal system and you have it as close as you're ever going to get it.

PS, I, too, get mad -- which is why I have a number of campaigns running including fighting BT's unlawful imposition of a penalty fee of £4.50 per quarter for non automated payment methods to settle their bill. How dare BT charge me a fee for paying their bill on time! (this is quite apart from the fact that under British law it is unlawful to charge any form of penalty fee). A rough rule of thumb estate has BT generating revenue of aprox. 100 million annually from tis appalling state of affairs.

Edited February 11, 2008 by David Guyatt