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RE: The Global Financial Meltdown - Admin - 10-24-2011

Sarah van Gelder, David Korten,Steve Piersanti

Many question whether this movement can really make a difference. The truth is that it is already changing everything. Here’s how.

Before the Occupy Wall Street movement, there was little discussion of the outsized power of Wall Street and the diminishing fortunes of the middle class. The media blackout was especially remarkable given that issues like jobs and corporate influence on elections topped the list of concerns for most Americans. Occupy Wall Street changed that. In fact, it may represent the best hope in years that “we the people” will step up to take on the critical challenges of our time. Here’s how the Occupy movement is already changing everything:

1. It names the source of the crisis.

Political insiders have avoided this simple reality: The problems of the 99% are caused in large part by Wall Street greed, perverse financial incentives, and a corporate takeover of the political system. Now that this is understood, the genie is out of the bottle and it can’t be put back in.

2. It provides a clear vision of the world we want.

We can create a world that works for everyone, not just the wealthiest 1%. And we, the 99%, are using the spaces opened up by the Occupy movement to conduct a dialogue about the world we want.

3. It sets a new standard for public debate.

Those advocating policies and proposals must now demonstrate that their ideas will benefit the 99%. Serving only the 1% will not suffice, nor will claims that the subsidies and policies that benefit the 1% will eventually “trickle down.”

4. It presents a new narrative.

The solution is not to starve government or impose harsh austerity measures that further harm middle-class and poor people already reeling from a bad economy. Instead, the solution is to free society and government from corporate dominance. A functioning democracy is our best shot at addressing critical social, environmental, and economic crises.

5. It creates a big tent.

We, the 99%, are people of all ages, races, occupations, and political beliefs. We will resist being divided or marginalized. We are learning to work together with respect.

6. It offers everyone a chance to create change.

No one is in charge; no organization or political party calls the shots. Anyone can get involved, offer proposals, support the occupations, and build the movement. Because leadership is everywhere and new supporters keep turning up, there is a flowering of creativity and a resilience that makes the movement nearly impossible to shut down.

7. It is a movement, not a list of demands.

The call for deep change—not temporary fixes and single-issue reforms—is the movement’s sustaining power. The movement is sometimes criticized for failing to issue a list of demands, but doing so could keep it tied to status quo power relationships and policy options. The occupiers and their supporters will not be boxed in.

8. It combines the local and the global.

People in cities and towns around the world are setting their own local agendas, tactics, and aims. What they share in common is a critique of corporate power and an identification with the 99%, creating an extraordinary wave of global solidarity.

9. It offers an ethic and practice of deep democracy and community.

Slow, patient decision-making in which every voice is heard translates into wisdom, common commitment, and power. Occupy sites are set up as communities in which anyone can discuss grievances, hopes, and dreams, and where all can experiment with living in a space built around mutual support.

10. We have reclaimed our power.

Instead of looking to politicians and leaders to bring about change, we can see now that the power rests with us. Instead of being victims to the forces upending our lives, we are claiming our sovereign right to remake the world.

Like all human endeavors, Occupy Wall Street and its thousands of variations and spin-offs will be imperfect. There have already been setbacks and divisions, hardships and injury. But as our world faces extraordinary challenges—from climate change to soaring inequality—our best hope is the ordinary people, gathered in imperfect democracies, who are finding ways to fix a broken world.


John Fullerton

Founder and President Capital Institute

I'm a former banker, a one percenter, and I'm mad as hell too.

Let's be clear. The Occupy movement is not a product of frustration, as President Obama, Treasury Secretary Geithner, and now Eric Cantor have suggested. Frustration is passive; anger is active. Martin Luther King was not frustrated. But beyond my anger is a real concern for democracy, for America, for the people of the world, for the planet upon which we all depend, and for my children's future. It's why I do what I do. It's the inspiration for Capital Institute.

This concern led me to Liberty Park Plaza last week to listen, show my support and empathy for the peaceful demonstrators, and learn about the occupation first-hand. I wanted to see if I could build a relationship with some of the organizers -- which I did -- and find out if the prominent media narrative of disorganization and unclear goals was accurate.

I learned that OWS is first and foremost about restoring democracy in America, and that I was right to be concerned about the media's portrayal.

Since the beginning of the protests, leading politicians and members of the media have been asking the question "What does OWS want?" This is the wrong question. Policy priorities are for interest groups, working their battle plans within the system. Proposals are what the media and politicians of the left and right want so they can put the complex issues that led to the occupation into pre-existing boxes before they are fully understood.

OWS as I understand it today, is building a movement of everyday people who are fed up with Wall Street's corrupting influence on our democracy. Wall Street does not mean capitalism, although capitalism's critics are on hand at OWS. It means the socialized losses and the unchecked power, greed, speculative excess, violence, and theft from fellow citizens that has gone unchecked by our bought and paid for government -- Democrats and Republicans alike. But it also means the dominant influence of Wall Street culture on short-term corporate behavior and misbehavior, from Enron's derivatives-enabled fraud to the Koch Brothers' and Exxon's funding of climate change denial, to the health insurance industry's power over lives and affordable health care, to McDonald's and Coke's impact on childhood obesity, all to further short-term corporate and financial interests no matter the cost to "we the people."

This is different from "We are the 99 Percent," a divisive, although clever phrase that has not been formally adopted by the OWS General Assembly. Wall Street's culture is the target because money has corrupted the Republic. Through this power lens, John Boehner, Eric Cantor, Harry Reid, Nancy Pelosi and the rest are mere tools in the system, not worthy of protesting against. Instead, the right question we should be asking is, "what is emerging at OWS?"

It is useful and eye opening to go back to see how OWS began, and to view the original Adbusters blog post dated July 13, 2011. Like the world we live in, the OWS movement is complex and filled with uncertainty.

But the answer is simple: the Occupy movement is a mass experiment in participatory and deliberative democracy. It says "fix government," not "eliminate government."

I engaged with one of the many experienced organizers at OWS during my trip. He was unusually calm, articulate, experienced (a Seattle WTO alum) and well informed -- he had read much of the leading alternative economics literature. He explained that the General Assembly that meets every evening to deliberate the course of the movement had determined explicitly not to develop a set of demands at this time. Instead, he shared, OWS is focused on setting up a governance system for the movement, expecting to be around for the long haul. As of today, any list of demands that you may hear, therefore, are unsanctioned by the governing General Assembly of OWS.

The emergence of the practice of participatory democracy as the movement's only initial priority says everything. OWS is about taking back democracy. Don't be fooled by their clothing, drums, or hand signals. There is something serious afoot here that is organic, influenced by experienced social movement organizers, and yet uncontrolled. Whether it can last is unknowable and not yet determined. It will depend upon how we all react -- politicians, business leaders, police, and most importantly, we the citizenry. Their strategy is to build the power of the movement before seeking to use that power. A million demonstrators speak louder than ten thousand, just like a trillion dollar balance sheet speaks louder than a hundred billion dollar one. Right out of Goldman Sachs' playbook I'd say.

So far, OWS has established working groups, in areas like media, de-escalation (there is an explicit commitment to non-violence -- let us hope there is a discipline to match), the kitchen, first aid, security (they have adopted strict no alcohol and drug use rules), sanitation, and more. The day I was there, they were organizing to create a phone book for the community. There is a library and groups working to promote new economic thinking. OWS's next and overdue priority is how to be better neighbors to their immediate downtown community.

William Blake cautioned that abstraction without the particular becomes demonic. As a society, we became intoxicated with the pursuit of money, and then in our stupor, allowed forces emanating from Wall Street to layer abstraction upon abstraction in the name of innovation. This morphed into nothing but leveraged speculation at best, and into manipulation, conflicts of interest, cynicism, cheating, and fraud. I know because I was there at the creation in the 1980s. Back then, these tools were innovative, purposeful and productive. But they have since metastasized into a cancer. Free market fundamentalism blinded us to a timely diagnosis, and continues to do so today.

It is time for finance to resume its proper and humble place as servant to, not master of, the real economy -- an economy that promotes a more equitably shared prosperity while respecting the physical limits of our finite planet. Such transformation is the Great Work of our age; work that drives the Capital Institute and many other organizations fostering the emergence of a new economy. The restoration of our democracy OWS seeks is an essential step, which may be at hand. It's still a long shot, but we shall see. One thing is for certain: OWS has started a national conversation long overdue.

John Fullerton is the Founder and President of the Capital Institute, whose mission is to explore and effect economic transition to a more just, resilient, and sustainable way of living on this earth through the transformation of finance.


Shamus Cooke

Global Research, October 17, 2011

As the Occupy Movement gains strength nationally and internationally, questions of "what next" are popping up. Although there are no easy answers or ready- to-order recipes for moving forward, there are general ideas that can help unite the Occupy Movements with the broader community of the 99% — which is the most urgent need at the moment. Why the urgency? Writer Chris Hedges explains:

"The state and corporate forces are determined to crush this... They are terrified this will spread. They have their long phalanxes of police on motorcycles, their rows of white paddy wagons, their foot soldiers hunting for you on the streets with pepper spray and orange plastic nets..."

The only reason that surviving occupied spots have been spared is because of the broader sympathy of the 99% combined with the direct participation of large sections of working people at marches and demonstrations. The corporate elite fear a strong, united movement like vampires fear sunlight.

Therefore, city governments are slow-playing the Occupy Movement where it is especially strong — New York and Portland, Oregon, etc. — and are attacking quickly in cities where momentum hasn't caught fire —, Denver, Boston, etc. The massive demonstrations in New York and Portland have protected the occupied spaces thus far, as the mayor, police,and media attempt to chip away at public opinion by exploiting disunity in the movement or focusing on individuals promoting violence, drug use, etc.

To combat this dynamic, the Occupy Movement people needs to unite around common messages that they can effectively broadcast to those 99% not yet on the streets; or to maintain the sympathy of those who've already attended large marches and demonstrations. And although sections of the Occupy Movement scoff at demands, they are crucially necessary. Demands unite people in action, and distinguish them from their opponents; demands give an aim and purpose to a movement and act as a communications and recruiting tool to the wider public. There is nothing to win if no demands are articulated.

One reason that the wealthy are strong is because they are united around demands that raise profits for the corporations they own: slashing wages and benefits, destroying unions, lowering corporate tax rates, destroying social programs, privatization, ending Medicare, Medicaid and Social Security, etc.

To consolidate the ranks of the Occupy Movement we need similar demands that can inspire the 99%. These are the type of demands that will spur people into action — demands that will get working class people off their couches and into the streets! The immediate task of the movement is to broadcast demands that will agitate the majority of the 99% into action.

On a national level these demands are obvious: Tax the Rich to create a federal public jobs program, fully fund Medicare, Medicaid and Social Security and other social programs, fully fund public education, single payer health care, end the wars. These are demands that can unite the Occupy Movement and working people nationally while preventing Democrats and Republicans from taking it over. Poll after poll has recorded that an overwhelming majority of the U.S. population strongly supports these demands, and many unions, including the national AFL-CIO have gone on record supporting them.

On a city and state level these demands can be translated to local issues; cities and states are facing budget deficits that are resulting in cuts to education, social services and resulting in more unemployment. Local Occupy Movements can demand that the local top1% pay more to make up for these, while also demanding that cities and states create jobs with this money.

Corporations are united in their purpose of profit chasing and social service slashing; so too must we be united in saving social services and taxing corporate profits, on a local and national level.

The Occupy Movement has more than room for an umbrella of demands from diverse sections of working class people, but now we must focus on what unites the vast majority, since the corporations have focused on dividing us for decades. The more diverse demands of the working class can find a safe place for expression and growth only within a mass, united movement.

There can be no doubt that the Occupy Movement will either continue to grow into a massive social movement or shrink until the corporate-elite are able to snuff it out. In order for the movement to grow, it must truly attract the broader 99%, not merely the most progressive 10%. Focusing on broad but specific demands that all working people will fight for will attract organized labor, the elderly, students, minorities, i.e., the whole working class.

A working class mass movement has not existed in the United States since the 1930s and 40s when it resulted in spectacular progressive change in America, even if it was cut short before European-style social programs were achieved. Nevertheless, the achievements of the mass movements of past generations are under attack — Social Security, Medicare, Medicaid, and a living wage, etc. Only a real working class movement can save these programs and expand them.

If the Occupy Movement fails, the far right will be emboldened. They are trembling at the potential power of the movement and have lost all momentum themselves. If we lose the initiative, they will immediately seize it to press their agenda further and faster. Only by expanding the movement can we extinguish the power of the corporate elite. We have history on our side; let's not squander it.

The Occupy Movement represents a turning point in history. But in order to achieve its potential, it must reach out to the 99% and draw the majority into its ranks. Then it will have the power to change the agenda of this country, redraw the political map, and create a government that will operate in the interests of the vast majority, not the 1%. Once this change begins to unfold, there are no limits to what it could accomplish.


Finian Cunningham

Global Research, October 17, 2011

"...[O]ur leaders have pursued solutions that are not solving our problems, instead they propose policies that accomplish little ... With democracy in crisis a true grassroots movement pointing out the flaws in our system is the first step in the right direction. Count me among those supporting and cheering on the Occupy Wall Street movement.", Al Gore, former Vice President of the United States.

“They [the Occupy Wall Street Movement] blame, with some justification, the problems in the financial sector for getting us into this mess, and they’re dissatisfied with the policy response here in Washington. And at some level, I can’t blame them.” Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System.  

"There has been class warfare going on,... It's just that my class is winning.  And my class isn't just winning, I mean we're killing them.”, Warren Buffett, Nebraska-based Berkshire Hathaway Hedge Fund, third richest man on the Planet.

"I think it takes that [the Occupy Wall Street Movement] to make things happen sometimes.  ....[Over the past 15 years] we saw large corporations really screw people.... There has never been a time in my lifetime when the government is going to cut an incredible amount of programs that support poor people and feed them." Howard Buffett, son of Warren Buffett

"Actually, I can understand [the OWS protesters'] sentiment, frankly.... And at the same time the decision not to inject capital into the banks, but to effectively relieve them of their bad assets and then allow them to earn their way out of a hole leaves the banks bumper profits and then allows them to pay bumper bonuses. And the contrast between the two I think is a large contingent [of both the Occupy Wall Street protests and the Tea Party movement].” George Soros, Chairman of the  Soros Management Fund.

The Occupy Wall Street movement sweeping across the US faces a tricky dilemma, the outcome of which will determine its historic impact. Up to now, part of the movement’s strength derives from its diffuse, eclectic spread of voices. That enigma makes it hard to define and confront from the authorities’ point of view. However, sooner or later the campaign will have to set out its own agenda by defining demands and aims. Otherwise, it runs the risk of running out of the admirable popular momentum that it has thus far generated; also, such a vacuum allows others who do not share the ultimate concerns of the grassroots to define the direction of the movement – a direction that most likely will lead to a safe, blind alley – again from the authorities’ point of view. Confronting this dilemma inevitably requires political organization, which will require hardnosed choices about which allies and interests are to be aligned.

A good rule of thumb: as long as the mainstream media – and even sections of the so-called progressive media – remain hostile or menacing in its coverage, then we can be sure that the movement is proceeding towards a serious challenge to the powers that be.

Of the public figures that have come out recently to support the Occupy Wall Street movement perhaps the most bizarre are some of the Wall Street financiers themselves. Some of the big names, apparently rallying to the cause, include George Soros, Warren Buffett, Ben Bernanke and Al Gore.

The phrase “poachers becoming gamekeepers” comes to mind. How can financiers and speculators who are the embodiment of everything that is awry with the American economy be part of the solution? This is an example of where the movement needs to make tough political choices and to demonstrate that it understands the structural nature of the challenge that lies ahead. In not doing so, what we will witness is a classic maneouvre to co-opt a grassroots movement that could otherwise pose a serious challenge to the power structure that has so deformed the American economy and society.

The financiers supporting the OWS campaign may articulate popular disdain towards “greedy banksters” – but if the protest movement really does pose a serious challenge to the power structure, then it needs to go beyond personalizing attacks against criminal individuals and understand that the problem at hand is systemic.

What is needed is avoidance of analyzing the challenge in terms of  “good financiers” and “bad banksters”. It is the entire system of finance capitalism that needs to be challenged. Accepting the support of seemingly benign financiers may galvanise certain feelgood populism, but it only obscures the systemic nature of the problem and therefore the solution.

In understanding the systemic challenge we need to see it in historic context. The US economy and that of Europe has exhausted itself from the vast polarization of wealth over several decades. The economy has deteriorated to a deformed state, in which a tiny layer of society has and is accumulating vast wealth while the preponderant majority struggle to make a basic living. This elite financial aristocracy is of a piece with the feudal aristocracy of bygone centuries in Europe who derived their wealth by parasiting off the peasantry. The aristocracy in both instances is not involved in the production of goods or manufactures; they exist by lording it over the masses, extracting from the latter tributes in a web of rentier relationships.

It is something of an historical achievement that the US, which began its modern development free of the feudal ruling class that so exploited the European masses, should now be so dominated by an aristocracy that harks back to the rapacious nobles of Europe. The Republic of America was supposed to herald the ascent of democratic rights, to mark a new beginning for universal common rights, whereby rule by divine right was cast aside. Albeit that the limits of American democracy were defined by what its bourgeois Founding Fathers would tolerate, the US nevertheless represented a radical break from the European order.

In Europe, fearing that the revolutionary impulse would go too far, the emergent European bourgeoisie made its peace with the feudal aristocracy to keep the masses in check. The compromise between “new” and “old” money in Europe can be seen today in the continued constitutional role of royal families and lords, for example in Spain, Holland, Norway and most prominently in Britain. Meanwhile, in the US, not having a feudal past, the new social contract was between the capitalist manufacturers and nascent industrialists and the wider working population. In that way, the US, it could be argued, represented a more progressive democracy, offering greater rights and opportunities to the masses.

But over the past three decades, the progressive nature of American capitalist democracy has been completely eviscerated. The implicit social contract, whereby the workers could expect a fairer share of the wealth that they ultimately produce, has been ripped asunder. The paid and bought lawmakers of the two main political parties have ensured that policies relentlessly siphon off wealth to the ruling class. With rising poverty and likewise plummeting demand, even the traditional capitalists who owned the means of production can no longer find viable markets. The manufacturing bourgeoisie – the architects of the American republic – have now been superseded by a financial aristocracy, who no longer contribute accumulated capital in any productive way. They are an idle class of speculators, who make money off money. The domination of means of exchange over means of production is now the hallmark of late capitalism. This is the systemic nature of the problem and that can’t be altered or mitigated by even the most benign and well-intentioned individual financiers.

The Occupy Wall Street campaign now erupting in hundreds of cities across the US, Canada and Western Europe is a potentially dramatic development. But only if it challenges the system at the root, not by pruning here and there. That root is the capitalist economy that has degenerated into a parasitical aristocracy.

The gratuitous violence that protesters are being met with by the rulers’ henchmen, and the vilification that they are being subjected to by the rulers’ political and media lackeys, are sure signs that the people are pressing a profound challenge. Another sure sign of how seriously the movement is challenging the system will be how far the coterie of supporting financiers appears to stay with the movement. For they are part of the problem, not the solution.

In creating a popular groundswell for potentially radical change that safeguards the interests of the mass of ordinary working Americans, the OWS movement deserves much credit. But not credit from finance capitalists who have bankrupted the US and the world.

RE: The Global Financial Meltdown - Admin - 11-15-2011


David E. McLean

Among other things, I teach business ethics at the university level. I have also been a consultant to Wall Street firms for some 20 years, and have worked in various capacities on the Street since I graduated from high school, in 1979. I know a few things about what ought to be; I know a few things about what is.

I visited the Wall Street protest site in New York City, at Zuccotti Park, on Saturday, October 1. Subsequently, I read Nicholas Kristof’s New York Times column on the subject of the protests, known as “Occupy Wall Street” or, alternatively, the “99 Percenters” (the protests have in recent days and weeks spread across the country, taking on other names). I agree with almost all of what Kristof wrote, which both applauded the protesters and puzzled about their actual objectives.

Like Kristof, I think that the protests and demonstrations are healthy and important, but the absence of visible leadership and “authorized” spokespersons, and the lack of a plan or list of demands, may very well lead to the protest’s (movement’s) demise, giving comfort to those who wish to continue the plutocracy that exists in this country. Kristof was right to suggest a few concrete proposals that the protesters might run with.I went down to the protests to offer to help put some flesh on the bones of what appeared to me to be an immature and anarchic display of not always coherent sentiments, but I found no real leaders with whom I could have an informed and constructive dialogue. (The protesters, so far, pride themselves on their “horizontal” organizational model and anarchic orientation.) So I left.

That said, I am in deep sympathy with the protesters, as horizontal and vague and anarchic as they may be. They have created a kind of energy, and the rest of the country, warm and comfortable in our homes and going about our daily lives, cannot dismiss it.

For my part, I prefer, at least most of the time, the “vertical” and the “defined,” insofar as the vertical and the defined tend to lend themselves to getting things done, more often than not. So it is my belief that what the protesters are in need of is a more or less clear set of proposals for real reform, even if they prefer not to call them “demands.” Because of the sometimes esoteric nature of business and of Wall Street more specifically, some of these proposals will need to be “inside baseball,” so to speak; that much is certain, even though raging against the machine can be more exciting. But that they may need to be “inside baseball” does not mean that the protesters, and other Americans not familiar with corporations, Wall Street, or their lexicons, can’t participate in discussing them. For, at root, the litmus tests to be applied are fairness, justice, proper degrees of transparency, proper levels of accountability, decency – and yes, the characters of our business and political leaders, and of citizens themselves.

Most things that appear complicated to observers of Wall Street are really quite easy to understand – even swaps and mortgage-backed securities. With a little tutoring I believe there is little that the average citizen can’t know well enough to make informed judgments. In time, some of the “inside baseball” of some of the proposals that follow can be made quite clear, especially in the age of Google and Bing (people can do their own research; it is the most autodidactic time in human history, at least for those of us on the wired side of the digital divide).

On the Brian Lehrer show (WNYC radio) on October 4, a few of the protesters dialogued with some seemingly sincere Wall Street operatives as to what is to be done – about where the protest and the protesters are going, or should go. The conversation was civil, but disappointing. It was disappointing because no one had put their finger on the more sweeping cultural changes that need to take place on Wall Street, i.e. in the global financial services industry that the label “Wall Street” represents.

After the show, I decided to take it upon myself to draft 50 proposals/propositions (hereafter “Proposals”) that, taken together, can cause or at least contribute to a series of public conversations and, perhaps, sweeping transformation of not only how Wall Street does business, but also of how it thinks of itself and, maybe, in time, how the country thinks of it. Among the proposals are those that address larger issues that concern the nature of our democracy itself.

Some of the Proposals will be hotly debated and contested by not a few (other) Wall Street insiders. Some have been debated before in arcane and esoteric industry journals, at law firms, by lobbyists, by trade groups, in corporate suites, and in regulatory releases and treatises. Others are so radical and so acidic to the status quo that they will be met with intense resistance. That’s fine. The point is to start a conversation, elicit counter-proposals or refinements, and only afterwards reach for the levers of public policy change. Perhaps this is the sequence of events that the protesters want anyway. Perhaps there is more genius in their methods than meets the eye.

The kind of radical change sought – change that returns real human beings to the center of business and other institutional concerns – will not come about by playing at the margins. On the other hand, there are those who believe that, to use a phrase I have heard from some of my friends on the left, “the whole thing should be burned down.” I do not share the view that “the whole thing should be burned down” and neither, it seems, do many of the protesters. There is much about the current system of capital formation that serves the country, and the world, well. But I understand the sentiment. Since everyone must be part of the conversation, radical voices must be heard and blended into less radical ones, and vice versa. Let us remember that “radical” is not defined by the garb one wears while marching in the street. It is a word that implies that we must look at the foundations and roots of a current set of assumptions and organizing principles.

If this is the beginning of a movement, or of something like a movement, then all must be welcomed at the table – by each other. That said, what the “burn it down” observers must realize is that there are many thousands of people who work in the glass towers of the world’s “Wall Streets” who hold concerns and have fears similar to their own – people like me; people I happen to know and who have contributed to this document. Not everyone on Wall Street is a Gordon Gekko – in fact, there are surprisingly few Gordon Gekkos. Many are indeed misguided, of course, but most folks are just caught up in a system that needs to be reformed – badly. Many of these will greet reform with open arms. They want to serve and give, not just take.

When I was near the completion of this list of proposals, I began to think of more to add, especially after a select group of friends and colleagues offered their suggestions. Indeed, I have more to add, perhaps another 50. But for now, the protesters who are part of the “occupation,” and the rest of us, need, in my view, something concrete, even if sketchy and imperfect, to help launch the dialogues and debates that are needed before reform can take place – something that spans the breadth of concerns, from narrow reforms to sweeping political reforms.

Dodd Frank was just the latest bead in a long necklace that is still being forged, notwithstanding what some insiders in corporate America believe. Indeed, there are many people in corporate America who argue that Dodd Frank is a main cause of the slowness of the economic recovery. What they fail to remember, in their impatience, is that there would have been no Dodd Frank at all if there had not been a near global economic catastrophe caused in large part (but not solely) by Wall Street, to which political leaders had a moral obligation to respond on behalf of the rest of civil society. They also fail to remember that the reason that a recovery is needed at all has to do with the serious economic shock that hit the world’s financial and other institutions and billions of people – indeed, let’s not forget the people. The libertarian idea that we could or should just “walk it off” or “suck it up” is fantastic and untenable, even cruel. To skewer governments for their efforts to prevent the worst from happening is no more than a reflection of ideological commitments and, in some cases, the impatient greed of narrowly focused business leaders. Now is not the time for ideology – neither on the right, nor on the left. Of course, in the coming weeks and months we will, alas, be drowned in it nonetheless. And so it goes at times like this.

None of this is intended to convey the idea that it is only Wall Street and corporate America that are the problem here, as I have intimated. I would like to assert, for the purposes of the conversations to follow (hopefully), that we Americans, too, have lost our way – that the civic engagements necessary to keep even the semblance of a democracy alive have eroded and have been eroding since at least after the victory laps taken at the end of World War II. George F. Will, in his book Statecraft as Soulcraft, wrote: “Americans are overreachers; overreaching is the most admirable and most American of the many American excesses. But in the first half of the nineteenth century, many Americans felt they were reaching for the wrong star. Before and since, there have been episodes of anxiety that something – some sphere of life, perhaps the citizenry itself – was getting out of control, and taking on a pace and style of life, and a dimension of character, that was unworthy of citizens of a city on a hill.” I doubt that Americans, in the first half of the nineteenth century, ought to have seen themselves as citizens of a city on a hill. I doubt that we ought to see ourselves that way now. But the essence of Will’s comment is that we have labored, even in our darkest moments, under the idea that the country has undertaken a journey toward something good, something right, and so in a very qualified sense we labor under the idea that we are all part of something – special.

But specialness does not guarantee success, or virtue, or greatness – not necessarily, and certainly not all of the time. We still have to do the democratic work required for success, virtue and greatness. We now have the sense, and sense enough to recognize it, that “some sphere of life” has indeed gotten out of control – in this century. The Wall Street protesters, and many others, including myself, want to take back control, and remove the sickening sense that we have entered into a mode of living that is unworthy of us and that dishonors the best work, hopes and dreams of our ancestors.

What follows will, I hope, be added to the conversation so that we all will reclaim the meaning of our citizenship. Indeed, to the extent that Wall Street is one of the spheres that has gotten out of control (and that, of course, is to a very large extent) we must not blame only the traders and bankers and CEOs. We ourselves are to blame as well. We have slept for too long. It appears that we are stirring, once again, to wakefulness – perhaps to something more than wakefulness.

50 Proposals for Reform and Reclamation

I. Public Policy and Politics

Proposal 1: Citizens United warrants an amendment to the United States constitution, limiting the rights of legal (artificial) persons, especially in the area of speech and political involvement. Citizens United was wrongly decided – a decision that harkens back to the “business shall rule” climate of the Lochner era. But it is the law of the land. The citizenry, composed of real and not artificial persons, must make it clear that it does not wish to go in the direction that the Court has taken us. Whether or not the notion that “corporations” should maintain and enjoy some of the indicia and regard of natural persons need not be at issue, since such indicia and regard have served useful social purposes. This does not mean, however, that the power of for-profit “corporations” should be permitted to be arrayed against real citizens as is now permitted. The argument of transitive rights rings hollow under the present circumstances of far-reaching corporate power.

Proposal 2: States should adopt statutes that allow for alternative charters and other mechanisms that give shareholders greater voice, including such greater voice as allows managements to use substantial corporate resources to run companies in a way that reflects shareholders’ disparate reasons for investing in the company and that permit longer-term conclusions concerning what encompasses a company’s “best interests” and the “best interests” of equity owners and creditors. Among other things, this will remove or lessen concerns that some shareholders will bring law suits alleging violations of fiduciary duty by boards and managements.

Proposal 3: Self-Regulatory Organizations and their senior officials who violate the public trust, through collusion with the firms they regulate or otherwise, should be subject to severe sanctions, including imprisonment in the case of senior officials.

Proposal 4: Companies in industries that supply vital health and welfare services (pharmaceuticals, medical devices, defense, medical insurance, etc.) and who use Wall Street to raise capital should be barred from the use of Wall Street’s capital-raising mechanisms and firms for a period of two years if they violate the public trust through fraud. Executives of such companies who lie to the public, as was done, for example, in the tobacco industry’s “seven dwarfs” testimony before Congress, should be barred from serving as an officer or director of a public company, or serve in any equivalent capacities for a public company.

Proposal 5: Legislation should be passed that limits the power of lobbyists of for-profit interests, severely restricting the manner and mode of their engagements with elected officials. Lobbying communications, in substantial detail, must be made a part of the public record promptly.

Proposal 6: A financial instruments transactions tax should be implemented over five years. A federal transaction tax of .002 percent on all financial transactions would bring in billions of dollars in new revenue, directly from the industry that continually produces externalities (or equivalent harms) for the rest of society.

Proposal 7: Civics education should become part of the core curriculum in high schools and colleges across the nation.

Proposal 8: Political campaigns should be financed from public funds alone, with attendant accountability for expenditures, and formulas that govern limits but that allow for reasonable expenditures. Political offices should not be for sale to Wall Street or any other commercial interest.

II. Industry-Specific

Proposal 9: “Eat what you kill” must end. The idea that aggressive sales tactics should remain part of the culture must be done away with. As well, the idea that certain Wall Street producers can thrive only by their own efforts is a cancerous part of a rabidly individualistic and hedonistic culture that is in need of real transformation. The very languageof Wall Street indicates a warped ethos, the corrosion and undermining of critical values of community and service to others. Sales and marketing efforts must be focused on the needs of the customer, and not merely the wallets and purses of Wall Street professionals.

Proposal 10: Lawmakers must end the commission system, which provides a constant inducement to “manage” compensation upward, often at the client’s or customer’s expense. The commission system of compensation is based, untenably, on the idea that only variable compensation, with the potential for high financial rewards, is required to motivate people to do their jobs. This is a fallacy.

Proposal 11: Asset-based management fees for retail mutual funds must be dramatically reduced from today’s levels, over a period of five years. The proximity to other peoples’ money does not infer taking a large portion of it for oneself.

Proposal 12: Soft dollars and asset-based selling concessions (such as 12b-1 fees), along with contingent sales charge arrangements work against the investment interests of investors, despite the clever arguments used to support them. The arguments that go to support a system in which investors’ own assets are used to pay for things that financial managers should provide in the ordinary course of business is unfair to people who are trying to save and invest for their own and their families’ futures, especially in view of the substantial financial destruction that has impacted investors’ portfolios in recent years.

Proposal 13: Research must be conducted completely away from sales pressures of any kind. “Sell side” analysts should provide reports based upon, and only upon, their professional analyses and best professional judgments. Sales considerations or pressures should not enter into their thinking. Reforms in this area have not gone far enough, and allow the fundamental conflict of interest to remain, permitting pressure on research professionals to take more veiled forms.

Proposal 14: Brokerage firms must be required to have a formal code of ethics. Amazingly, the “sell side” of the securities business is allowed to operate without a mandated code of ethics. Codes of ethics do not solve all of the ethical problems within a firm, but they help to set a tone and create a corporate ethos that can be useful in guiding conduct.

Proposal 15: The sales mentality should be replaced by the fiduciary mentality. The sales mentality is concerned with the last transaction and the next one. The fiduciary mentality concerns itself with the needs of the customer and with providing a service that encompasses the customer’s general investment or capital formation interests. Brokerage firms should cultivate the fiduciary mentality in its corporate culture and corporate ethos, though it may mean foregoing short term revenues.

Proposal 16: The cost of raising capital must be reduced substantially. The fees charged by corporate lawyers and investment banks must be reviewed. The cost of raising capital should not be prohibitively high to small companies, and capital-raising should not be an opportunity to gouge fees from large businesses simply because they have the money to pay them. Fees should be based upon a model of fairness, and a commitment to the capital raising process as good for the society as a whole.

Proposal 17: The bar of entry to Wall Street should be raised. Full entry into the securities business should be harder than taking a few exams in rapid sequence. The securities licensing model should follow that of Certified Financial Analysts, who only become fully fledged after taking a series of “level” exams over a period of years.

Proposal 18: Compensation of brokers and bankers should be based upon a matrix of achievements. Compensation should be based upon overall performance, including customer satisfaction, avoidance of violations of rules and regulations, and other non-financial variables.

Proposal 19: New brokers must be shadowed by compliance and ethics officers for one year. New entrants to Wall Street should have to meet with compliance and ethics officers for discussions, training and acculturation for one year so that they are not corrupted by Wall Street’s problematic culture and pressures to work against the interests of customers and clients.

Proposal 20: The core brokerage business of a complex of affiliated financial services firms should not sell proprietary mutual funds. Proprietary mutual funds should be sold only by a stand-alone affiliated broker-dealer with no interface with broker-dealer affiliates that are part of the complex of companies. The core brokerage business should sell funds of other fund companies.

Proposal 21: Compensation of executives and managers should depend, in part, upon the level of disciplinary actions initiated against them or their firms. Compensation committees should draft employment agreements that make it clear that overall compensation will depend upon, in part, the recent regulatory history.

Proposal 22: New products must be introduced accompanied by a capital impact study appropriate to the product, along with a risk analysis regarding the impact on the firm and the level of systemic risk that may result. (Whether or not such products as credit default swaps caused the recent financial crisis is debatable. Nevertheless, recent history suggests that the use of certain products warrants impact studies that take into consideration various impact scenarios for both the firm and the financial system. The idea of the “impact study” should be appropriated by Wall Street as one of its risk management mechanisms, and it should be revisited periodically.)

Proposal 23: Risk must be understood as both qualitative and quantitative. The tragic miscalculations and lapses of judgment that led to the financial crisis could not have been predicted by models and algorithms alone. Risk is not merely mathematical. It must be understood holistically. Risk managers must take such factors as human psychology and human relationships into consideration when assessing risks to the firm as well as systemic risks. The “risk triangle” must be used more commonly in enterprise risk assessments.

Proposal 24: The current annual CEO certification requirement for public companies, required pursuant to Sarbanes-Oxley, should be supplemented with a quarterly certification requirement, which certifies that substantial and exigent risk and compliance targets, programs and reporting requirements are being met.

Proposal 25: To recoup the costs that Wall Street has created for society, fees and assessments paid to federal and state regulatory authorities should be indexed to capital so that larger firms pay substantially more than small firms. The fee system on Wall Street is regressive, in many cases. Making it progressive will generate more revenues for federal, state and local governments now involved in redressing Wall Street’s irresponsibility and lapses of judgment.

Proposal 26: The practice of customer portability should be studied in terms of the law of agency and other considerations. The model that holds that customers “belong” to individual brokers or bankers (akin to “franchisees”) creates a lack of loyalty, trust and stability on the part of brokers, bankers, customers and firms. The focus becomes money and money only. Brokers should be “account representatives” hired to service the customers of the firm. The firm should not be seen as, merely, providing a “roof” for the broker-intrapreneur who holds no loyalty to the firm or responsibility for its success. Brokers who voluntarily resign from firms should not be permitted to solicit former clients for 180 days.

Proposal 27: Self-offerings should increase. In the internet age, there is no reason why the role of Wall Street should not shift to that of an advisor. Large companies should be able to effect public and private offerings directly through portals at their web-sites, linked directly with corporate transfer agents. This will allow corporations to save tens of millions of dollars on investment banking fees – money that can be used for business operations, dividends, hiring, expansion, and R & D.

Proposal 28: Research reports should be filed with regulators, via internet portals, with a series of expanded ethical certifications accompanying each filing. Currently, there is no requirement that research reports be filed with industry regulators. Because of abuses that still exist, some of them esoteric, research reports should be filed at the time of publication, accompanied by statements that affirm that the reports were not prepared to, among other things, condition the firm issuing the report for sought after investment banking business from the issuer that is the subject of the report.

Proposal 29: Continuing education requirements should include general ethics education. Business ethics is considerably more than running through a series of vignettes and flipping through a few cases. It requires discussion and reflection. Proper business ethics education opens up students to areas of learning previously alien to the student. An industry as plagued with wrongdoing as Wall Street needs a different model, a more robust one, for ethics education.

Proposal 30: Senior executives of larger firms should be required to respond to risk alerts by the Financial Stability Oversight Council (which shall issue them), and file a written risk self-assessment, within 21 days, of their firms’ vulnerability to the indicated risks.

Proposal 31: Wall Street needs to adopt an “ethics of care” standard. Wall Street should construct a model of ethics that places customer and client care – even in cases where the customer or client is an institution – as the center of the firm’s concern. It needs a transitive standard that looks through to the ultimate beneficiaries of investments and investment decisions – individuals and families. The new ethics of care standard should be codified in new industry rules.

Proposal 32: Larger broker-dealers and investment advisers organized as corporations, limited liability companies or partnerships should be required to have a Management, Ethics and Risk (MER) advisory board (or its equivalent), and should be required to provide an annual report to the MER board and respond to feedback promptly. A majority of the board should be qualified management, ethics and risk professionals; independent persons with no affiliation with the firm; cannot have had any affiliation with the firm for the prior two years; and may not take employment with the firm for at least one year after resignation or removal from the MER board.

Proposal 33: Registered Representatives (brokers) working in a retail environment should receive ongoing education in taxation, estate planning, new securities products and related subjects at an accredited institution, with a minimum of four credits per year, the costs to be subsidized by firms on a discretionary basis.

Proposal 34: Larger Wall Street firms should require Chief Ethics Officers and Ethics Officers with the responsibility to prepare a report to the board of directors or substantially similar body, at least semi-annually. The Chief Ethics Officer should report to the board, and not to another officer.

Proposal 35: Lobbyists for broker-dealers, banks, mutual funds and registered investment advisers should have to prepare monthly reports to the designated examining authorities (regulators) of the broker-dealer indicating their activities and the issues they are addressing, with opportunity for inquiry from industry regulators. Individual lobbyists or lobbying agent-employees of lobbying firms must become registered as “Government Public Relations Officers” (a new designation) with the firms that engage them. They should be required to become qualified by examination administered by the North American Securities Administrators Association (NASAA) to represent those firms, since they are acting on behalf of firms on matters that will or may affect the management of those firms. They should not be permitted to work from under the cloak of “unregulated independent contractor” only.

Proposal 36: Fees and charges imposed on customers and clients must meet tests of reasonableness and fairness. Fees and charges that create disproportionate profits must be delimited. The banking, securities and investment management industries should, working with regulators and consumer agencies, create a series of comprehensive guidelines for fees and other charges, similar to certain guidelines and rules already extant in the securities and investment management industries.

Proposal 37: “Bogle Disclosures”[1] should be contained on the inside first page of all mutual fund prospectuses and “Statements of Additional Information,” and in all mutual fund advertisements, similar to the Surgeon General’s warning. The “Bogle Disclosures” would state that “Studies have shown that investing in lower cost index funds can lead to returns that outperform actively managed funds such as this one. You should consult an investment adviser for more information regarding index investing.”

Proposal 38: “Fairness Disclosures” should be included in all offering memoranda and prospectuses, regardless of whether the offer is with respect to a private or public offering. The disclosures would address fallacies or serious alternative points of view concerning such matters as executive compensation, corporate governance, investment risk, and investor rights under the federal and state securities laws. They will also narrate the regulatory histories of all persons who serve the issuer as placement agent, underwriter, auditor, or servicing agent.

Proposal 39: Selling pressure to move securities or other investments from proprietary accounts of a firm to customer or client accounts of a firm should be prohibited.

Proposal 40: Regulators and Self-Regulatory Organizations must increase efforts to retain personnel. Senior officials should be precluded from taking positions with industry firms, in any capacity, including as consultants, for six months after leaving their jobs.

Proposal 41: Securities, banking and investment management firms should be required to provide at least 100 hours per year of financial literacy education on a pro bono basis, especially in underserved communities.

Proposal 42: Wall Street must do better at providing opportunities to persons from minority communities.

Proposal 43: Rating agencies should be required to have substantial codes of ethics, ongoing ethics education for ratings professionals, ethics committees and ethics officers, with the authority to respond to significant conflicts and to report to the board of directors (or equivalent body) concerning their findings at least semi-annually.

III. General Corporate

Proposal 44: The fallacies of incentive compensation should be exposed, and there should be a new compensation model that shifts senior executive compensation to salary and bonus, with: deductions for missing certain non-monetary organizational targets; claw-back provisions; and delays of severance payments for a period of not less than one year from the time of separation.

Proposal 45: In general, companies that have been found to have violated requirements for material and accurate disclosures should lose their ability to raise capital using Wall Street’s mechanisms and firms for a period of one year.

Proposal 46: Boards of directors, including the directors of mutual funds, should hold meetings bi-monthly rather than quarterly. Members of boards should only receive director’s fees annually, and may have fees withheld because of poor performance, by vote of a majority of the board’s disinterested (outside) directors.

Proposal 47: Directors of public companies must sit for periodic computer-based training regarding board duties, new issues facing directors, and related matters. The computer-based training could be designed by a committee or council comprised of representatives from the SEC, the Department of Commerce, the Business Roundtable (or similar organization), the American Bar Association, and FASB.



Kevin Zeese

With encampments being closed across the country it is important to remember the end goal is not to occupy public space, it is to end corporate rule. We seek to replace the rule of money with the rule of people.  Occupying is a tactic but the grand strategy of the Occupy Movement is to weaken the pillars that hold the corporate-government in place by educating, organizing and mobilizing people into an independent political force.

The occupations of public space have already done a great deal to lift the veil of lies.  People are now more aware than ever that the wealth divide is caused by a rigged economic system of crony capitalism and that we can create a fair economy that works for all Americans.  We are also aware that many of our fellow citizens are ready to take action – extreme action of sleeping outside in the cold in a public park.  And, we also now know that we have the power to shift the debate and force the economic and political elites to listen to us. In just a few months we have made a difference.

Occupying public space involves a lot of resources and energy that could be spent educating, organizing and mobilizing people in much greater numbers.  There is a lot to do to end corporate rule and the challenges of occupying public space can divert our attention and resources from other responsibilities we have as a movement.

When we were organizing the Occupation of Washington, DC – before the occupation of Wall Street began – we were in conversation with movements around the world.  The Spanish Indignados told us that an occupation should last no more than two weeks.  After that it becomes a diversion from the political objectives.  The occupation begins to spend its time dealing with poverty, homelessness, inadequately treated mental illness and addiction – this has been experienced by occupies across the country.

Occupying for a short time accomplishes many of the objectives of holding public space – the political dialogue is affected, people are mobilized and all see that fellow citizens can effectively challenge the corporate-state.  Staying for a lengthy period continues to deepen these goals but the impacts are more limited and the costs get higher.

What to do next?  The Occupy Movement needs to bring participatory democracy to communities.  Occupiers should develop an aggressive organizing plan for their city.  Divide the city and appoint people to be responsible for different areas of the city.  Depending on how many people you have make these areas as small as possible.  Develop plans for house-to-house campaigns where you knock on doors, provide literature, ask what you can do to make their lives better.  Do they need snow removed?  Clothes?  If so, get the occupy team to fulfill their needs, find used clothes, clean their yard – whatever you can do to help.  This shows community and builds relationships.

Plan a march through the different communities in the city.  Make it a spectacle. Have a marching band.  Don’t have one – reach out to local school bands. Organize them.  Create floats, images and signs.  Display yourselves and your message.  Hand out literature as you march. Let people know what the occupy stands for they should join us in building a better world for them and their families.

Plan public General Assemblies in communities across the city.  Teach people the General Assembly process, the hand signals, how to stack speakers, how to listen and reach consensus.  Learn the local issues.  Solve local problems.  Again, build a community that works together to solve problems.

Let people know about the National Occupation of Washington DC (NOW DC), the American Spring beginning on March 30th.  Organize people to come, share rides, hire buses, walk, ride a bike – get people to the nation’s capital to show the united force of the people against the rule of money.  This will be an opportunity to display our solidarity and demand that the people, not money, rule.

How rapidly a movement makes progress is hard to predict. It is never a constant upswing of growth and progress. We may be in for a sprint, or more likely, a marathon with hurdles. If you are hoping for a sprint, note that the deep corruption of the government and the economy has left both weaker than is publicly acknowledged. It may be a hollowed out shell ready to fall.

But, this may also take years to accomplish.  Take the timeline of the Civil Rights movement: 1955 Rosa Parks sits in the front of the bus, not until five years later in 1960, do the lunch counter sit-ins begin. Not until three years later in 1963 does Dr. Martin Luther King, Jr. lead a march on Washington for the “I have a Dream” speech.  No doubt the time between Rosa Parks and the lunch counter sit-ins and Civil Rights Act passing in 1964 seemed slow to those involved.  Looking back it was rapid, transformational change.  In fact, the movement grew in fits and starts and had roots decades of activity before the 1950s.  In those times of seeming lull, work was being done, to educate and organize people that led to the big spurts of progress.

Older movements, when communication was slower, have taken even longer. The women’s suffrage movement held its first convention in 1848 in Seneca Falls, NY.  Twenty years later, Susan B. Anthony and Elizabeth Cady Stanton formed the National Woman Suffrage Association. In 1913, Alice Paul and Lucy Burns formed the National Women's Party to work for a constitutional amendment to give women the vote. Finally, in 1919 the federal woman’s suffrage amendment, originally written by Susan B. Anthony and introduced in Congress in 1878, was passed by the House of Representatives and the Senate, sent to the states for ratification and signed into law one year later.

With mass media, and especially the new democratized media of social networks, the Internet, anonymous leaks and independent media, it is very likely the end of the rule of money will come more quickly.  If we focus on our goal, act with intention and use our energy and resources wisely victory will come sooner.

Our challenge to corporate power ...

The Global Financial Meltdown - Admin - 12-12-2011


Efforts by European leaders to shoe-horn a range of diverse countries into a rigid financial cage are doomed to fail. But that’s all part of a long-term plan for a global super-currency which can only bring more hardship to ordinary working people. A question that more and more people are asking nowadays is, “What on Earth were the Europeans thinking when they agreed to have just one currency for all of Europe?”

In Greek mythology, Procrustes was the son of Poseidon, God of the deep blue seas. He built an iron bed of a size that suited him, and then forced everybody who passed by his abode to lie on it. If the passerby was shorter than his bed, then Procrustes would stretch him, breaking bones, tendons and sinews until the victim fitted; if he was taller, then Procrustes would chop off feet and limbs until the victim was the “right” size…

This ancient story of “one size fits all” seems to have made its 21st Century comeback when Europeans were coaxed into imposing upon themselves an oxymoron; a blatant and conceptual contradiction they call “the euro”. This common supranational currency invented by the French and Germans, boycotted by the UK, ignored by the Swiss, managed by the Germans and accepted by the rest of Europe in blissful ignorance, has finally dropped its mask to reveal its ugly face: an impossible mechanism that only serves the elite bankers but not the working people.

It masked gross contradictions as large, far-reaching and varied as the relative sizes, strengths, profiles, styles, histories, econometrics, labor policies, pension plans, industries, and human and natural resources of the 17 eurozone nations, ranging from Germany and France at one end of the scale, to Greece, Portugal and Ireland at the other.

As we said in a recent article, the euro carries an expiry date; perhaps the eurocrats who were its midwives a decade ago expected that it would live a little longer, maybe even come of age… But they certainly knew that, sooner or later, the euro would die; that it was meant to die.
Because the euro is not an end in itself, but rather a transition, a bridge, an experiment in supranational currency earmarked for replacement by a far more ambitious and powerful global currency issued by a global central bank, controlled by a cabal of global private bankers, obeying a New World Order blueprint emanating from a private Global Power Elite.

The problem today is that what impacted Europe as a financial ripple effect in 2008 has now grown into a veritable financial tsunami threatening to swamp the whole euro system… And more big trouble lies ahead! In fact, today’s euro-troubles are nothing more than one of many variations of sovereignty-troubles. Because when a country’s leaders irresponsibly cede a part or all of its sovereignty – whether monetary, political, financial, economic, judicial or military – it had better take a really good look at what it is doing and what the implications are for the medium and long term.

Ceding national sovereignty means that somebody else, somewhere else, will be taking decisions based on other people’s interests. Now, as long as everyone’s interests coincide, then we are OK. But as soon as the different parties’ interests diverge, then you are confronted with a power struggle. And power struggles have one simple thing in common: the more powerful win; the weaker lose. Now, we have a huge power struggle inside the eurozone. Who do you think will win? Who will impose new policies – Germany or Greece? France or Portugal? Britain or Spain? Germany or Italy?

And that is just on the public scene. You also need to look at the more subtle, less media-highlighted private scene, which is where the real global power decisions are made. Will the new Italian PM, Mario Monti, cater for the needs of the Italian people or for the mega-bankers’ lodge sitting on the powerful Trilateral Commission of which he himself is European chairman? The same question goes for Greek president Lucas Papademos, also a Trilateral member. The same question goes for all the governments of the EU member states where the real power brokers are the major bankers, industrialists and media moguls sitting on the Trilateral, Bilderberg, World Economic Forum and Chatham House think-tanks and private lobbies.

Global elites will do everything to keep the euro on its transitional path towards a global currency that will eventually replace both the euro and the US dollar. This entails engineering the controlled collapse of both currencies, whilst preparing the yellow brick road for a “Global Dollar” or some such new oxymoron. The US dollar will be easy to collapse: all that is needed is for the mainstream media to yell, “The dollar is hyper-inflated!!” and the Naked Emperor Dollar will fall swiftly. The euro, in turn, will simply break up as its member nations revert to the old days of pesetas, lire, francs, escudos and drachmas…

Is the time ripe for that? Maybe not… yet. So, no doubt we will still see more “emergency treatment,” more “financial chemotherapy” to “bail out the euro” just as we’ve seen them “bail out the banks,” even though most banks and the Oxymoron Euro cannot be salvaged but just kept artificially alive, like the “Living Dead…”

So, here’s a question for Greeks, Italians, Spaniards, Portuguese, Irish, even the French and Germans: will you accept the invitation by your Procrustean Leaders in Brussels to lie down on their bed?

The Global Financial Meltdown - Admin - 12-18-2011

Finian Cunningham
The incendiary finance capitalism unleashed by Britain 25 years ago is at the heart of Europe’s raging debt woes

You either have to admire British Prime Minister David Cameron’s brass neck, or wince at his arrogant stupidity. The smart money is probably on the latter option.

For here you had the British leader heading to the European Union summit convened last week to “salvage” the EU from its the terminal debt crisis – a crisis that is threatening the survival of the Euro single currency, the political future of the European Union and may even be sounding the death knell for the faltering capitalist world economy.

Yet, given the stakes involved, all Cameron wanted to do was exploit the crisis in order to claw further concessions for the City of London’s stock exchange. Such self-serving opportunism was rebuffed by his German and French counterparts, whereupon Cameron stomped his feet and declared that Britain would exercise its veto over EU plans for tighter fiscal controls on member states.  The British veto may now hamper the EU’s ability to assuage the financial markets, which are daily extracting pounds of flesh with exorbitant rates of borrowing on government bonds.

Not that the leaders of the other 26 EU states are acting as noble knights in shining armour, vying to protect their populaces from further economic suffering. The revised EU treaty they have in mind will only deepen that suffering by expanding austerity and cutbacks for the majority of people across Europe. The fiscal and economic policies of member states will henceforth be dictated by the European Central Bank and the International Monetary Fund. That is, national sovereignty supposedly serving the people, according to their votes, is to be replaced by the rule of unelected bankers and technocrats. In a very real way, the debt crisis of Europe is serving to usher in a dictatorship of finance capitalism.  As Paul Craig Roberts noted recently on Global Research with regard to the EU – “the banks have taken over” [1].

Ironically, it is German Chancellor Angela Merkel and her French collaborator, Prime Minister Nicolas Sarkozy, who are foremost in marching mainland Europe into the arms of this dictatorship.

However, Cameron’s one-man crusade at the EU summit was no act of Churchillian defiance to defend the rights of the people in the face of financial fascism. Britain under this present Conservative leader has been bludgeoned with one of the most draconian austerity budgets inflicted anywhere across Europe, wielded without mercy against workers and aimed deliberately at placating first and foremost the finance markets. Indeed, Cameron’s government is one of the main advocates of deeper social spending cuts for the rest of Europe.

So the notion that the British leader was in some way making a fight-them-on-the-beaches kind-of stand towards other European leaders/quislings of finance capital is risible.

And what is even more risible is that the sole objective of Cameron and his foreign secretary William Hague was to secure concessions for the City of London. Many people in Europe have good reason to believe that it is the City of London and its brand of finance capitalism that has created and provoked the debt crisis in the first place.

It was Cameron’s much-admired predecessor Margaret Thatcher who oversaw the systematic deregulation of the London Stock Exchange, starting in 1986 with what became known as the “Big Bang” – the wholesale removal of controls on financial transactions. From then on, the British economy went from one based on manufacture and production to one hallmarked by financial speculation. London became the money capital of the world, outflanking New York. The financialisation of other economies would follow the British slash-and-burn economic path, as the new culture of predatory financiers and investors used speculative profiteering to gut manufacturing bases.

The deregulation of financial markets was a showpiece policy of subsequent British governments, whether Conservative or Labour. It spawned a plethora of “financial innovations” such as hostile takeovers, downsizing, short selling and derivative trading, whereby money and debt were recycled and multiplied fictitiously – with inevitable catastrophic consequences. This of course is the ineluctable, historic dynamic of late capitalism. The system tends to mount up massive poverty and thereby becomes incapable of producing goods and services because the conventional profit system becomes exhausted. That is why late capitalism has more and more turned into a form of debt-ridden financial arson in order to recklessly eke out the last reserves of profit.

In previous centuries, it was England that innovated industrial capitalism. At the end of the 20th Century it was the British (and their Anglo-American culprits) who have the dubious honour of unleashing finance capitalism on the rest of the world. The new brand of capitalism can be traced directly to the collapse of banks and institutions, such as Barings, Lehman Brothers and Long-Term Capital Management, and to the collapse of pension funds and property assets dragging millions of people into debt. And now this particular British innovation of incendiary capitalism can be traced to the collapse of entire countries.

The spectacle of bankrupt David Cameron swaggering over to Europe to ask equally bankrupt European governments for more deregulatory concessions for the City of London is about as stupefying as an arsonist returning to the scene of the crime – and asking for more gasoline.


Ellen Brown

“To some people, the European Central Bank seems like a fire department that is letting the house burn down to teach the children not to play with matches.”    

So wrote Jack Ewing in the New York Times last week.  He went on:

“The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis. “The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills . . . the highest interest rate Italy has had to pay to sell such debt since August 1997 . . . .

“But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs.”  

Why not?  According to the November 28th Wall Street Journal, “The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed.”

As with the manufactured debt ceiling crisis in the United States , the E.C.B. is withholding relief in order to extort austerity measures from member governments—and the threat seems to be working.  The same authors write:    

“Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact . . . [that] would make budget discipline legally binding and enforceable by European authorities. . . . European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.”

The Eurozone appears to be in the process of being “structurally readjusted” – the same process imposed earlier by the IMF on Third World countries.  Structural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people.  The latter result has officially been achieved in the Eurozone, which is now dependent on the E.C.B. as the sole lender of last resort and printer of new euros.

The E.C.B. Serves Banks, Not Governments

The legal justification for the E.C.B.’s inaction in the sovereign debt crisis is Article 123 of the Lisbon Treaty, signed by EU members in 2007.  As Jens Eidmann, President of the Bundesbank and a member of the E.C.B. Governing Council, stated in a November 14 interview:

“The eurosystem is a lender of last resort for solvent but illiquid banks. It must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty.”

The language of Article 123 is rather obscure, but basically it says that the European central bank is the lender of last resort for banks, not for governments.  It provides:

“1.  Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.

“2.  Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.”

Banks can borrow from the E.C.B. at 1.25%, the minimum rate available for banks.  Member governments, on the other hand, must put themselves at the mercy of the markets, which can squeeze them for “whatever the market will bear”—in Italy ’s case, 6.5%.

The Real Reason Eurozone Countries Are Drowning in Debt

Why should banks be able to borrow at 1.25% from the E.C.B.’s unlimited fountain of euros, while the tap is closed for governments?  The conventional argument is that for governments to borrow money created by their own central banks would be “inflationary.”  But private banks create the money they lend just as government-owned central banks do.  Private banks issue money in the form of “bank credit” on their books, and they often do this before they have the liquidity to back the loans.  Then they borrow from wherever they can get funds most cheaply.  When banks borrow from the E.C.B. as lender of last resort, the E.C.B. “prints money” just as it would if it were lending to governments directly.

The burgeoning debts of the Eurozone countries are being blamed on their large welfare states, but these social systems were set up before the 1970s, when European governments had very little national debt.  Their national debts shot up, not because they spent on social services, but because they switched bankers.  Before the 1970s, European governments borrowed from their own central banks.  The money was effectively interest-free, since they owned the banks and got the profits back as dividends.  After the European Monetary Union was established, member countries had to borrow from private banks at interest—often substantial interest.

And the result?  Interest totals for Eurozone countries are not readily accessible; but for France , at least, the total sum paid in interest since the 1970s appears to be as great as the French federal debt itself.  That means that if the French government had been borrowing from its central bank all along, it could have been debt-free today.

The figures are nearly as bad for Canada, and they may actually be worse for the United States .  The Federal Reserve’s website lists the sums paid in interest on the U.S. federal debt for the last 24 years.  During that period, taxpayers paid a total of $8.2 trillion in interest.  That’s more than half the total $15 trillion debt, in just 24 years.  The U.S. federal debt has not been paid off since 1835, so taxpayers could well have paid more than $15 trillion by now in interest.  That means our entire federal debt could have been avoided if we had been borrowing from our own government-owned central bank all along, effectively interest-free.  And that is probably true for other countries as well.

To avoid an overwhelming national debt and the forced austerity measures destined to follow, the Eurozone’s citizens need to get the fire hose of money creation out of the hands of private banks and back into the hands of the people.  But how?

Governments Cannot Borrow from the E.C.B., but Government-owned Banks Can

Interestingly, Paragraph 2 of Article 123 of the Lisbon Treaty carves out an exception to the rule that governments cannot borrow from the E.C.B.  It says that government-owned banks can borrow on the same terms as privately-owned banks.  Many Eurozone countries have publicly-owned banks; and as nationalization of insolvent banks looms, they could soon find themselves with many more.

One solution might be for the publicly-owned banks of Eurozone governments to exercise their right to borrow from the E.C.B. at 1.25%, then use that liquidity to buy up the country's debt, or as much of it as does not sell at auction.  (The Federal Reserve does this routinely in open market operations in the U.S. )   The government’s securities would be stabilized, keeping speculators at bay; and the government would get the interest spread, since it would own the banks and would get the profits back as dividends.

Taking a Stand in the Class War

In a November 25th article titled “Goldman Sachs Has Taken Over,” Paul Craig Roberts writes:

“The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.”

He observes that Mario Draghi, the new president of the European Central Bank, was Vice Chairman and Managing Director of Goldman Sachs International, a member of Goldman Sachs’ Management Committee, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and Chairman of the Financial Stability Board.  Italy ’s new prime minister Mario Monti, who was appointed rather than elected, was a member of Goldman Sachs’ Board of International Advisers, European Chairman of the Trilateral Commission (“a US organization that advances American hegemony over the world”), and a member of the Bilderberg group.  And Lucas Papademos, an unelected banker who was installed as prime minister of Greece , was Vice President of the European Central Bank and a member of America ’s Trilateral Commission.

Roberts points to the suspicious fact that the German government was unable to sell 35% of its 10-year bonds at its last auction; yet Germany ’s economy is in far better shape than that of Italy , which managed to sell all its bonds.  Why?  Roberts suspects an orchestrated scheme to pressure Germany to back off from its demands to make the banks pay a share of their bailout.

Europe is in the process of being “structurally readjusted” by a private banking cartel.  If its people are to resist this silent conquest, they need to rise up and, using the ballot box and public banks, throw out the new banking hegemony before it is too late.  


Devon DB

From the European Central Bank headquarters to the halls of the Senate floor in the United States, debt, deficits, and austerity measures are all on the minds of leaders all over the world due to the ongoing world-wide recession. Many facets of the economic crisis have been examined, however, the role of credit rating agencies has been largely ignored, with their being little to no in-depth analysis of the role of rating agencies in relation to the global economic downturn nor their influence on the global economy at large. It seems that while rating agencies can be used to rate the creditworthiness of a nation, they now have undue influence on countries and are able to hold them hostage, thus an examination needs to take place of how they wield such influence on the world at large.

Sovereign Credit Ratings

Credit rating agencies came into being due to the creation of railroad industry. In the 19th century “the growing investing class [wanted] to have more information about the many new securities – especially railroad bonds – that were being issued and traded” [1] and thus credit rating agencies filled that need. In the middle of the 19th century, railroads began to raise capital via the market for private corporate bonds as banks and direct investors were unable to raise the capital needed to construct railroads. This growth in the sale of the different private bonds led to a need for there to be “better, cheaper and more readily available information about these debtors and debt securities,” thus Henry Varnum Poor responded by writing and publishing the Manual of the Railroads of the United States in 1868, containing the financial information of all major railroads companies and providing “an independent source of information on the business conditions of these corporate borrowers.” [2]

With John Moody issuing the first credit ratings in the US in 1909, the credit rating agency had come into its own. Usually the entire process of “shaping investor perceptions of corporate borrowers” was dealt with by banks as they would be putting their reputations on the line by lending to corporations. Thus, if a venture succeeded, the bank’s reputation would go up and if the venture proved a flop, the bank’s reputation would be damaged, making it harder for them to attract new clients. Essentially the creditworthiness of a corporation was certified to the public via the reputation of the bank they had borrowed the money from. Due to this, “the bank as creditor would become more involved in the business of the corporation and become an insider,” [3] yet bond investors would not have access to the same information that the banks did. Thus, rating agencies aided in a leveling of the playing field and improved the efficiency of capital markets.

However, in time rating agencies went from rating the bonds of railroads to rating the bonds of sovereign states. In the 1970s global bond markets were reviving, but the demand for bond ratings was slow to occur as most foreign governments didn’t feel the need to have their credit rated since most already had good credit and for those that didn’t, credit could be attained by other means. However, this changed in the ‘80s and ‘90s when countries with bad credit “found market conditions sufficiently favorable to issue debt in international credit markets.” [4] These governments frequently tapped into the American bond market which required credit ratings, thus, “the growth in demand for rating services [coincided] with a trend toward assignment of lower quality sovereign credit ratings.” [5] While this may have been good for investors as they would be able to now see if a nation was a financial risk, this ability to rate the credit of countries would give them the power to decide a countries economic fate.

Ratings and Economic Policies

Credit ratings, while they can be a potentially positive part of the financial industry, can also have a negative effect on the economic policy of countries. This is especially true for developing nations.

For countries that take out loans, “a rating downgrade has negative effects on their access to credit and the cost of their borrowing.” [6] This could potentially force a government to have to borrow money at a higher interest rate and thus scale down its plans for economic development. The problem that this poses for developing nations is that the only way to increase their credit score is to follow the “orthodox policies [that focus] on the reduction of inflation and government budget deficits” [7] which is favored by such organizations as the IMF and the World Bank. The alternative, which would be to avoid a rating downgrade in the first place, is even worse as it could lead “borrowing countries [to] adopt policies that address the short-term concerns of portfolio investors, even when they are in conflict with long-term development needs.” [8]

This entire state of affairs is rather unfair to the Developing World as they are forced to take on large amounts of debt as they try to industrialize and modernize. This is largely caused due to the fact that they are victims of neocolonialism and that the major means of production are owned mainly by foreigners who don’t contribute much in terms of improving the long-term economic prospects of a country and getting them from under the weight of neocolonialism.

While rating agencies can have an effect on individual countries, they can also effect the global economic system at large as can be seen by their actions in the current global financial crisis.

Global Recession

As we all now know, the major reason for the near global economic collapse was due to a subprime mortgage lending bubble that occurred between the late ‘90s and 2007. The deep financial risk occurred due to the fact that financial corporations sold mortgages to families who could not pay them and used them to create collateralized debt obligations. This “encouraged subprime lending and led to the development of other financing structures, such as “structured investment vehicles” (SIVs), whereby a financial institution might sponsor the creation of an entity that bought tranches of the CDOs and financed its purchase by issuing short-term “asset-backed” commercial paper.” (ABCP) [9] Credit rating agencies came into play due to the fact that favorable ratings that the agencies gave allowed for high ABCP ratings. It is quite crucial to note that the ratings agencies gave were extremely important as they “had the force of law with respect to regulated financial institutions’ abilities and incentives (via capital requirements) to invest in bonds” and due to their friendly relationship with corporate and government bond ratings, many rating agencies were able to influence “many bond purchasers— both regulated and non-regulated—[to] trust the agencies’ rati...

RE: The Global Financial Meltdown - Admin - 12-25-2011

Mohamed A El-Erian

A new economic order is taking shape before our eyes, and it is one that includes accelerated convergence between the old Western powers and the emerging world's major new players. But the forces driving this convergence have little to do with what generations of economists envisaged when they pointed out the inadequacy of the old order; and these forces' implications may be equally unsettling.

For decades, many people lamented the extent to which the West dominated the global economic system. From the governance of multilateral organisations to the design of financial services, the global infrastructure was seen as favouring Western interests. While there was much talk of reform, Western countries repeatedly countered serious efforts that would result in meaningful erosion of their entitlements.

On the few occasions that such resistance was seemingly overcome, the outcome was gradual and timid change. Consequently, many emerging-market economies lost confidence in the "pooled insurance" that the global system supposedly put at their disposal, especially at times of great need.

This change in sentiment was catalysed by the financial crises in Asia, Eastern Europe and Latin America in the late 1990s and early 2000s, and by what many in these regions regarded as the West's inadequate and poorly designed responses. With their trust in bilateral assistance and multilateral institutions such as the International Monetary Fund shaken, emerging-market economies - led by those in Asia - embarked on a sustained drive toward greater financial self-reliance.

Once they succeeded in overcoming a painful crisis-management phase, many of these countries accumulated previously unthinkable levels of international reserves as precautionary cushions. They extinguished billions in external indebtedness by generating and sustaining large current-account surpluses. And they increased the scale and scope of domestic financial intermediation in order to reduce their vulnerability to external storms.

These developments stood in stark contrast to what was happening in the West. There, unprecedented leverage, massive debt creation and a seemingly infinite sense of credit entitlement prevailed. Financial excesses become the rule rather than the exception, facilitated by financial innovation and the erosion of lending standards and prudential regulation.

Suddenly, the world turned upside down: "rich" countries were running large deficits and, in some cases, tipping from net creditor status to net indebtedness, while "poor" countries were running surpluses and accumulating large stocks of external assets, including financial claims on Western economies.

An unusual convergence

Little did these countries know that their divergent paths would end up fueling large global imbalances, and eventually trigger a financial crisis that has shaken the prevailing international economic order to its foundations.

There is no restoring fully that order. Rather than recovering strongly, sluggish Western growth is periodically flirting with recession at a time of high unemployment and multiplying debt concerns, particularly in Europe. In an amazing turn of events, virtually every Western country must now worry about its credit ratings, while quite a few emerging economies continue to climb the ratings ladder. We can now consider the image of Western delegations heading to emerging countries to plead, cap in hand, for financial support, both direct and through the IMF.

At first blush, this unusual convergence between Western and emerging countries seems to reflect what advocates of a new international economic order had in mind. But appearances can be misleading, and, in this case, they are misleading in a significant way.

Advocates envisaged an orderly process in which economic convergence accompanied and facilitated global economic growth. They foresaw a collaborative process guided by enlightened policymaking. But what is occurring is far different and more unpredictable.

Rather than exhibiting enlightened leadership, Western policymakers have consistently lagged realities on the ground, with a bewildering mixture of denial, misdiagnosis and bickering undermining their responses. Rather than proceeding in an orderly manner, today's global changes are being driven by the disorderly forces of de-leveraging emanating from a Europe in deep financial crisis and an America seemingly unable to restore sustained high rates of GDP growth and job creation.

Multilateral institutions, particularly the IMF, have responded by pumping an unfathomable amount of financing into Europe. But, instead of reversing the disorderly deleveraging and encouraging new private investments, this official financing has merely shifted liabilities from the private sector to the public sector. Moreover, many emerging-market countries have noted that the policy conditionality attached to the tens of billions of dollars that have been shipped to Europe pales in comparison with what was imposed on them in the 1990s and early 2000s.

Fortunately, despite having lagged rather than led this process of consequential (and increasingly disorderly) global change, it is not too late for policymakers to catch up. But doing so requires more than just better national policymaking in Europe and America; it is also time for urgent and deep reform of the multilateral system and its main institutions. That process requires joint leadership by the emerging world as a true equal and partner of Western powers.

Mohamed A El-Erian is CEO and co-CIO of PIMCO, and author of When Markets Collide.


As anticipated by LEAP/E2020, the second half of 2011 is seeing the world continuing its unstoppable descent into global geopolitical dislocation characterized by the convergence of monetary, financial, economic, social, political and strategic crises. After 2010 and early 2011 which has seen the myth of a recovery and exit from the crisis shattered, it’s now uncertainty that dominates the States’ decision-making processes just like businesses and individuals, inevitably generating increasing apprehension for the future. The context singularly lends itself: social explosions, political paralysis and / or instability, return to the global recession, fear over banks, currency war, the disappearance of more than ten trillion USD in ghost-assets in three months, widespread lasting and rising unemployment…

Besides, it’s this very unhealthy financial environment that will cause the “decimation (1) of Western banks” in the first half of 2012: with their profitability in freefall, balance sheets in disarray, with the disappearance of trillions of USD assets, with states increasingly pushing for strict regulation of their activities (2), even placing them under public supervision and increasingly hostile public opinion, now the scaffold has been erected and at least 10% of Western banks (3) will have to pass that way in the coming quarters.

However, in this environment, increasingly chaotic in appearance, trends emerge, the outlook sometimes appears positive… and most importantly, the uncertainty is much less than one might think, if only one analyzes the changes in the world within the framework of the world after the crisis rather than with the criteria of the world before the crisis.

In this GEAB issue, our team also presents its 2012-2016 “country risk” forecast for 40 States, demonstrating that one can depict the situations and identify strong trends through the current “fog of war” (4). In such a context, this decision-making tool is proving very useful for the individual investor as well as the economic or political decision-maker. Our team also presents the changes in the GEAB $ Index and its recommendations (gold-currencies-real estate), including of course the means to protect oneself from the consequences of the coming “decimation of Western banks”.

For this GEAB issue, our team has chosen to present an excerpt from the chapter on the decimation of Western banks in the first half of 2012.

First half of 2012: Decimation of Western banks

In fact, it will be a triple decimation (5) culminating in the disappearance of 10% to 20% of Western banks over the next year:

. a decimation of their staff

. a decimation of their profits

. and lastly, a decimation of the number of banks.

It will be accompanied, of course, by a drastic reduction in their role and importance in the global economy and directly affect banking institutions in other regions of the world and other financial operators (insurers, pension funds …).

An example of bank information at the time of a global systemic crisis Intesa SanPaulo’s stress test results compared to its European competitors (and compared to the first casualty: Dexia) (6)

Our team could address this issue like the Anglo-Saxon media, the president of the United States and his ministries (7), Washington and Wall Street experts and, on a wider basis, mainstream media (8), have done recently over all aspects of the global systemic crisis, that’s to say by saying, “It’s Greece and the Euro’s fault!” It would obviously be a virtue to reduce this part of the GEAB to just a few lines and suppress any hint of analysis of the possible causes in the US, the UK or Japan. But, coming as no surprise to our readers, it won’t be LEAP/E2020’s choice (9). As the only think tank to have anticipated the crisis and rather accurately foreseen its various phases, we’re not now going to give up an anticipation model that works well, benefitting from prejudice without any predictive power (Don’t let’s forget that the Euro is still alive and well (10) and that Euroland has just completed the small feat of, in six weeks, putting together the 17 parliamentary votes needed to strengthen its financial stabilization fund (11)). So, instead of echoing the propaganda or “readymade thought” let’s remain faithful to the method of anticipation and stick to a reality that we must uncover in order to understand it (12).

In this case, for ages, when one thinks of “banks” one thinks first of all of the City of London and Wall Street (13). And with good reason, London for over two centuries and New York for nearly a century have both been the two hearts of the international financial system and the lairs par excellence of the world’s major bankers. Any global banking crisis (as any major bank event), therefore, begins and ends in these two cities since the modern global financial system is a vast process of incessant wealth recycling (virtual or real) developed by and for these two cities (14).

The decimation of the Western banks that begins and will continue in the coming quarters, an event of historic proportions, cannot therefore be understood without first of all measuring and analyzing the role of Wall Street and London in this financial debacle. Greece and the Euro will undoubtedly play a role here as we have discussed in previous GEAB issues, but these are triggers: Greek debt is yesterday’s banking venality that is exploding in the public arena today; the Euro is the arrow of the future that is piercing the current financial balloon. These are the two fingers that highlight the problem, but they aren’t the problem. This is what the wise man knows and the fool doesn’t, to paraphrase the Chinese proverb (15).

In fact, one only needs to look at London and Wall Street to anticipate the future of Western banks, since it’s quite simply there that the banking flock gathers together to come and drink its dollar dose every evening. And the condition of the Western banking system can be measured through changes in bank staff numbers, their profitability and their shareholders. From these three factors one can directly deduce their ability to survive or disappear.

The decimation of bank staff numbers

Let’s begin with the numbers then! Here the picture is bleak for banking sector employees (and now even for the “banking system stars”): since mid-2011 Wall Street and London have continuously announced mass layoffs, spread by the secondary financial centers such as Switzerland and Euroland and Japanese banks. A total of several hundreds of thousands of banking jobs that have disappeared in two waves: first of all in 2008-2009, then since the late spring of this year. And this second wave is gradually gaining momentum as the months go by. With the global recession now under way, the drying up of capital flows to the United States and the United Kingdom as a result of the geopolitical and economic changes under way (16), the huge financial losses in recent months, and all kinds of regulations which gradually “break” the super-profitable banking and financial model of the 2000s, the heads of major Western banks have no choice: they must, at any price, cut their costs as quickly as possible and deeply. Therefore, the simplest solution (after that of overcharging clients) is to lay off tens of thousands of employees. And that’s what is happening. But far from being a controlled process, we see that every six months or so Western bank leaders find that they had underestimated the extent of the problems and are therefore obliged to announce further mass layoffs. With the political and financial “perfect storm” looming in the U.S. for next November and December (17), LEAP/E2020 anticipates a new series of announcements of this kind from early 2012. The “cost-killers” in the banking sector have some good quarters in front of them when we see that Goldman Sachs, which is also directly affected by this situation, reduced to limiting the number of green plants in its offices to save money (18). Although, after eradicating the green plants, it’s usually the “pink slips” (19) that flower.

The decimation of the number of banks

In a way, the Western banking system looks increasingly resembles the Western steel industry of the 1970s. Thus the “ironmasters; thought they were the masters of the world (incidentally actively contributing to the outbreak of World Wars); just like our “major merchant bankers” thought they were God (like Goldman Sachs CEO) or at least masters of the universe. And the steel industry was the “spearhead”, the “absolute economic example” of power for decades. Power was counted in tens of millions of tons of steel just like the power of billions in bonuses for merchant bank executives and traders in recent decades. And then, in two decades for the steel industry, in two / three years for the banks (20), the environment has changed: increased competition, collapsing profits, massive layoffs, loss of political influence, the end of massive subsidies and ultimately nationalization and / or restructuring giving birth to a tiny sector compared to what it was at its heyday (21). In a sense, therefore, the analogy applies to what awaits the Western banking sector in 2012/2013.

Share price changes (and, therefore, losses) for the British taxpayer following the partial government takeover of RBS and Lloyds – Source: Guardian, 10/2011

Already on Wall Street in 2008, Goldman Sachs, Morgan Stanley and JP Morgan had to suddenly turn themselves into “bank holding companies” to be saved. In the City, the British government had to nationalize a whole swathe of the country’s banking system and to this day the British taxpayer continues to bear the cost because the banks’ share prices have collapsed again in 2011 (22). This is also one of the Western banking system’s characteristics as a whole: these private financial players (or market listed) are worth practically nothing. Their market capitalization has gone up in smoke. Of course this creates an opportunity for nationalization at low cost to the taxpayer from 2012 because it’s the choice that will be imposed on States, in the United States as in Europe or Japan. Whether it be, for example, Bank of America (23), CitiGroup or Morgan Stanley (24) in the United States, RBS (25) or Lloyds in the United Kingdom (26), Société Générale in France, Deutsche Bank (27) in Germany, or UBS (28) in Switzerland (29), some very large institutions “too big to fail” will fail. They will be accompanied by a whole swathe of medium or small banks such as Max Bank which has just filed for bankruptcy in Denmark (30).

Faced with this “decimation”, States’ resources will be quickly overrun, especially in these times of austerity, low tax revenues and the political unpopularity of the bank bailout (31). Political leaders will, therefore, have to focus on protecting the interests of savers (32) and employees (two areas full of electoral promise) instead of safeguarding the interests of bank executives and shareholders (two areas full of electoral pitfalls, whose precedent in 2008 demonstrated its economic futility (33)). This will result in a new collapse in financial stock prices (including insurance, considered very “close” the banking situation) and increase hedge funds, pension funds (34) and other players’ turmoil traditionally closely intertwined with the Western banking sector. No doubt this will only strengthen the general recessionary environment by limiting loans to the economy just as much (35).

Global public debt (1990-2010) (as a % of GDP, constant 2010 exchange rates) – Sources: BRI / McKinsey, 08/2011

To simplify the view of this development, one can say that the Western banking market, significantly reducing its scope and the number of players in this market, has to downsize proportionally. In some countries, especially those where the very large banks account for 70% or more of the banking market, it will inevitably lead to the disappearance of one or another of these very large players … whatever their leaders, stress tests or rating agencies say (36). If you are a shareholder (37) or customer of a bank that may collapse in the first half of 2012 there are, of course, precautions to take. We offer a number in the recommendations in this issue. If one is an officer or employee of such an institution, things are more complicated because we now think it’s too late to avoid serial bankruptcies; and the banking job market is saturated because of massive layoffs. However, here is a piece of advice from our team if you are an employee in any of these institutions, if you are made an interesting offer of voluntary redundancy, take it as the next few months, the redundancies won’t be voluntary and will be under much less favorable conditions.


(1) Decimation was a Roman military punishment by death of one legionnaire in ten when the army had shown cowardice in battle, disobedience or inappropriate behavior. The Roman system of decimation worked by drawing lots.

(2) Regulations that severely excise the banks’ most profitable activities. Source: The Independent, 12/10/2011

(3) Our team believes the percentage to be somewhere between 10% and 20%.

(4) Fog of war to which the mainstream media incidentally contribute to a great extent instead of trying to clarify the situation.

(5) Considering decimation in its widest sense, that’s to say a sharp decrease can be much more than the Roman era’s 10%.

(6) As far as LEAP/E2020 is concerned, this type of classification presages nothing since the current shock is much higher in intensity and duration than the assumptions of the stress tests. And this equally applies to the US banks of course.

(7) Taking everything into account regarding Barack Obama, in difficult position for the next presidential elections because of his disastrous economic record and the deep disappointment of most of those who voted for him in 2007 because of his many broken promises, he must at all costs try to blame anyone or anything for the disastrous state of the economy and American society. So why not Greece and the Euro? When that doesn’t work anymore (in a couple of months), it will be necessary to find something else, but short-sighted management is an Obama administration specialty; no doubt his Treasury Secretary Timothy Geithner, the faithful Wall Street link, will find another explanation. In any case, it’s not Wall Street’s fault, we can at least be certain of that. Otherwise, the Obama administration will always bring out the “specter of Iran” to try and divert attention from the United States internal problems. Incidentally, this seems to be the current situation with the cock-and-bull story of the attempted assassination of the Saudi ambassador to Washington by Mexican drug traffickers paid by Iranian intelligence. Even Hollywood would balk at the improbability of such a scenario, but to save the “Wall Street” soldier and try to be re-elected, isn’t it worth a try? Sources: Huffington Post, 26/07/2011; NBC, 13/10/2011

(8) This mainstream media (financial or general) have, in fact, a brilliant history in anticipating the crisis. You certainly remember their 2006 headlines warning you against the 2007subprime crisis, announcing the Wall Street “implosion” of 2008 and, of course, in early 2011 telling you of a major return of the crisis in summer 2011! No, you don’t remember? Don’t worry, your memory is good … because they never made the headlines, they never warned you of these major events and their causes. So, if you continue to think that, as they repeat every day, the current problems are caused by “Greece and the euro”, it’s that you think they have suddenly all become honest, intelligent and insightful … and you must therefore also believe in Father Christmas in the same sense. It’s beguiling, but not very effective for facing the real world.

(9) For a long time, our team has been underlining the European difficulties, anticipating rather correctly the evolution of the crisis on the « Old Continent ». But we try not to fall victim of the syndrom of the European tree that hides the forest of major US and UK problems.

(10) A bit of education: those who bet on a Euro collapse a month ago have lost money again. To the rhythm of “the end of the Euro crisis” roughly every 4 months, they won’t have much left by 2012. Whilst the United States for example have not been able to demonstrate their ability to overcome the opposition between Republicans and Democrats on the control of their deficits.

(11) Whilst the United States, for example, have not been able to demonstrate their ability to overcome Republican and Democrat opposition on the control of their deficits.

(12) It’s appalling to see the G20’s preoccupation with the Euro whilst the central issue of the future is the Dollar. Obviously, the huge media manipulation operation launched by Washington and London will have succeeded once again in deferring, for a time, the inevitable questioning of the US currency’s central status. As anticipated by our team, one can expect nothing from the G20 until the end of 2012. It will continue to talk, pretend to act and to actually ignore the key issues; those are the hardest to put on the table. The recent announcements of an increase in resources for the IMF are a part of these empty words that will not be acted upon because the BRICS (the only ones able to augment IMF funds) will not finance an institution in which they continue to only have marginal influence. Meanwhile, these announcements make believe that there is still a shared commitment to international action. The alarm will be all the more painful in the months to come.

(13) If you think of Greece it’s because you are Greek or that you are a manager of shareholder of a bank which has lent too much to the country over the last ten years

(14) And in a way also for the two States involved. But this is already a moot point, and widely discussed for that matter, to know if such financial markets are a blessing or a curse for the States and people that host them.

(15) “When a finger is pointing at the moon, the fool looks at the finger”

(16) Between Euroland’s increasing integration which deprives the City of lucrative markets and closer economic, financial and monetary ties with the BRICS, bypassing Wall Street and the City, they are growing shares of the global financial market escaping London and New York banks.

(17) See GEAB N°57

(18) Source: Telegraph, 19/08/2011

(19) In the United States the « pink slip » is a pink form indicating layoff. Source:Wikipedia

(20) It takes more time to relocate heavy industry than a trader’s desk.

(21) This is, more or less, the procedure followed in the United States and Europe.

(22) See chart above.

(23) Bank of America is definitely at the confluence of major and growing problems: a lawsuit against it claiming $50 billion for concealing losses on the acquisition of Merrill Lynch in late 2008, a massive grassroots rejection by customers following its decision to impose a $5 per month cost for cash cards, a long and unexplained crash of its website; series of trials over subprime involving individual owners and local authorities, and a threat to place Countrywide in bankruptcy, another of its acquisitions in 2008, to limit its losses. According to LEAP/E2020, it embodies the ideal US bank for a crash scenario between November 2011 and June 2012. Sources:New York Times, 27/09/2011; ABC, 30/09/2011; Figaro, 29/06/2011; CNBC, 30/09/2011; Bloomberg, 16/09/2011

(24) The US bank which, in 2008, received the largest slice of public financial support and which, once again, is panicking the markets. Sources: Bloomberg, 30/09/2011;Zerohedge, 04/10/2011

(25) One of the most vulnerable banks in Europe. Source: Telegraph, 14/10/2011

(26) Which itself is also seeing the hour of the cut in its credit rating approach. Source: Telegraph, 12/10/2011

(27) The leading German bank, which is already exposed to a cut in its credit rating. Source: Spiegel, 14/10/2011

(28) UBS is also on the road to a cut in its credit rating. Source: Tribune de Genève, 15/10/2011

(29) Société Générale, Deutsche Bank and UBS have a point in common of particular concern: all three rushed to the US “El Dorado” during the last decade, investing like drunken sailors in the US financial bubble (Deutsche Bank in subprimes, as Société Générale in CDS and UBS in tax evasion). Today, they don’t know how to exit this maelstrom that increasingly drives them to the bottom each day. In passing, we recall that in 2006, we recommended that European financial institutions free themselves from US markets as soon as possible, which appeared very dangerous to us.

(30) Source: Copenhagen Post, 10/10/2011

(31) Even the BBC, certainly marked by the UK riots in summer 2011, asks itself a question, “unthinkable” just a year ago for this type of media: can the United States expect social unrest? To ask the question is to answer it. And in Europe, a country like Hungary, with Social-Nationalist government, directly accused the banks, especially foreign ones, of being responsible for the crisis facing the country. Source:BBC, 20/09/2011; New York Times, 29/10/2011

(32) Of which an increasing number have begin to rebel against banking system practices, especially in the United States where Wall Street rejection is growing exponentially, weakening major US banks on a daily basis. Sources: CNNMoney, 11/10/2011; MSNBC, 10/11/2011

(33) And it’s even worse than economic futility since a recent study had shown that banks that received public financing were subsequently shown to be the most prone to make risky investments.Source: Huffington Post, 16/09/2011

(34) US public pension funds are now facing a financial chasm estimated at between one and three trillion USD. Will the US public authorities choose to save the banks or their retirees? Because they will soon have to choose. Source: MSNBC, 23/09/2011

(35) Source: Telegraph, 02/10/2011

(36) None of these banks are able to withstand the global recession and the implosive melding of financial assets that will prevail in the coming months.

(37) We could have also developed the point that we are witnessing a process of “bank shareholder decimation”.

RE: The Global Financial Meltdown - Admin - 12-31-2011

Helga Zepp-LaRouche

The only and absolute priority for any person capable of thinking clearly is the existential question: how to prevent the danger of global thermonuclear war, at this very advanced stage. The problem in Germany, and most other Western nations, is that the media are reporting next to nothing about the acute danger at hand, and that neither Chancellor Angela Merkel nor any of the speakers in the ensuing parliamentary debate Dec. 2 said even a single word about the danger. And therefore, the majority of the populace is totally in the dark. World War could break out at any time—that's how close we are to the edge!

Neither the actions taken by the Syrian government in certain cities against the foreign-encouraged and in part foreign-instigated rebellion, nor the supposed construction of nuclear rockets by the Iranian government are the spark plugs for the acute war danger, but rather, the fact that the trans-Atlantic financial system—including the Euro-experiment—is disintegrating. Of course, the forces flooding the markets with liquidity, in order to delay further Lehman-style bankruptcies of the big banks (see Economics lead), know very well that such hyperinflationary measures can have but a short-lived effect.

For this reason, on the level of the oligarchical elite, the decision has been made for some time, to solve the problem with the time-tested method of previous collapsing empires: a war into which a "coalition of the willing" at last draws in the unwilling as well. An old method. Only this time, the price would be World War III.

Russia and China Know

The myriad puppets in the media and in politics, now engaged in the propaganda campaign against Syria and Iran, have apparently neglected to adequately take into account the rather hard-to-miss fact, which Russia and China have long realized, that it is they themselves, not Syria or Iran, which are the actual targets in this confrontation.

Thus, both nations have drawn a clear red line around Syria and Iran, which dare not be crossed, if an escalation leading to World War III is to be prevented. Maj. Gen. Zhang Zhaozhong of the National Defense University in Beijing chose exactly this formulation, as reported by Chinese television broadcasts, in warning that China would not hesitate to defend Iran, even if this meant World War III.

Further warnings were published in China Daily, which wrote that a military intervention against Syria, whereby the United States and its NATO partners employ the model of the Libyan War, is becoming ever more possible, as seen against the backdrop of open threats of violence against Syria from Washington and Paris, as well as the positioning of a U.S. aircraft carrier off the Syrian coast (see Strategy). Were Syria to be attacked, the article reads, then retaliatory attacks by Syria's ally Iran could not be ruled out, and Syria, thus driven into a corner, would probably react with an attack on Israel, which would threaten to lead to a further escalation of conflict in the region.

It is because of these same threatened consequences, that the attempted heavy sanctioning, and the indictment of Syria at the International Criminal Court, which was debated in an emergency session of the UN Human Rights Council, was denounced as an unacceptable pretext for military intervention by both Russia and China.

Russia has sent warships to the Syrian port of Tartus; the aircraft carrier Admiral Kuznetsov is on its way to Syrian waters (and thus, in the direct vicinity of the U.S. deployments in the area), and has also helped Syria install supersonic Yachont rockets, which would be used in defense of the Syrian coastline. All of these elements together are a clear message from the Russians, that a military intervention against Syria will not go unanswered, in what is an unmistakeable attempt on their part to avoid war.

Russian Foreign Minister Sergei Lavrov laid out the Russian position at a meeting with ambassadors of Arab nations, and accused some of Syria's neighbors of providing weapons to the rebels, and aiming these at the Syrian armed forces. In addition, Russian media are reporting on scenarios, whereby an attack against Syria is being prepared from Saudi territory.

War Has Already Begun

In reality, the war on Iran has already begun. One example is the explosion in the city of Isfahan, where a factory producing uranium fluoride gas appears to have been blown up. This gas is used in centrifuges to enrich uranium. The Iranian government has denied that the explosion took place, but the Times of London reported that video recordings and witness accounts confirm that the second such explosion in the space of a month has taken place. This has fed speculation that Iranian military and nuclear facilities are already being attacked by foreign agents.

Just two weeks ago, a bomb explosion near Tehran killed 30 members of the Iranian Revolutionary Guard Command, including the head of Iran's missile research program, Gen. Hassan Moghadam. These events—ignored by the Western media—are the context for the storming of the British Embassy in Tehran, by Iranian students. In Germany, only the weekly news magazine Stern has warned that the West's playing with fire could lead to war.

Considering, in the context of the installation of the European Missile Defense System in Eastern Europe, that Russian President Dmitri Medvedev has activated missile warning systems in Kaliningrad; the stance China has taken in reaction to the "stark strategy of confrontation" displayed by President Obama during his recent trip to Asia; and the statement by Chinese military officers, that China would militarily repulse any attempt to impinge upon its vital interests—then it should be clear to everyone how explosive the situation is.

And, as U.S. Gen. Wesley Clark (ret.) explains in his book Winning Modern Wars, the strategy against Libya, Syria, and Iran is the product of plans the Pentagon has had in place since the 1990s, and therefore has nothing to do with today's "rebels."

The world today stands on the edge of World War III, which, very likely, no one would survive to investigate afterwards how it came about. One thing is definitely clear: Europe cannot afford to be drawn into another farce such as the "humanitarian" intervention in Libya. Were an attack on Syria or Iran to eventuate, the bells would definitely begin to toll for the death of civilization.

Addressing the Real Crisis

The acute danger of war can only be overcome, if the actual reason for it—the breakdown-crisis of the trans-Atlantic financial system—is dealt with. When the point has been reached at which the only way the central banks can prevent new Lehman-style bankruptcies, is by flooding the markets with massive amounts of liquidity—just to set off a day of euphoria, as happened last week—then clearly the end of the road has been reached.

The Eurozone is falling apart, and unfortunately, all the scenarios being officially circulated totally fail to get to the root of the problem. Chancellor Merkel has stated her intent to use the EU summit on Dec. 9 to establish a fiscal union, including "the right to impose drastic measures" against budgetary sinners. This would be an act of suicide, intended to sacrifice the real economy and living standards to the advantage of an overwhelmingly virtual banking system.

Whatever Merkel and French President Nicolas Sarkozy end up thrashing out between them at their meeting Dec. 5, the smaller Euro member-states already view the "Merkozy" duo with distrust. And the banks are threatening in advance, that either a comprehensive fiscal union is established, or else there will be a real bank run after Dec. 9.

Meanwhile, banks, regulators, and export firms, such as travel host TUI, the Swiss firm Roche, and the world's largest electronic derivatives trading platform ICAP, have announced that they have been running scenarios for months, for the seamless transition of trading in euros and dollars, to the Greek drachma and other national currencies.

Unfortunately, one cannot expect that those at the EU summit will have the intelligence to carry out the only possible solution. But here it is nonetheless:

It must be conceded: The euro was a faulty construct from the very beginning, because it was created to fulfill the ideological aim of forcing a reunited Germany into the straitjacket of EU integration, and thereby weaken it economically, which it has succeeded in doing. The German economy did not gain from the euro, but only the multinational export companies which profited, while the internal market—i.e., the buying power and the social safety net of the Mittelstand (small and medium-size) firms—suffered under it.

Economic booms in the weaker countries turned out to be monetarist bubbles, and their bursting has led to unemployment rates among youth of up to 50%. The attempt to force all of Europe into a "debt brake" (zero deficit) and "drastic measures" to impose austerity, would be to repeat the errors of the austerity undertaken by German Chancellor Brüning in the early 1930s, and the effects would be just as catastrophic. General poverty, frustration, and social upheaval would be the mildest consequences. And nothing would be offered to counter the danger of war.

So governments must revoke the euro, in favor of returning currency and budget policy to the sovereign control of the relevant governments. Further bailouts for "systemic" banks are a way to perpetuate high-risk speculation; therefore, a Glass-Steagall-style separation of banks must be introduced, under which only commercial banks enjoy guarantees by the government. Investment banks and the various assortment of other vehicles must do without any access to the deposit accounts of average citizens, and undergo bankruptcy proceedings if necessary.

A new credit system must issue comprehensive lines of credit for investment in projects that increase the productivity of the real economy, as set forth in the principles of physical economy, and thereby create productive full employment. This is the only way to create the kind of wealth in society, with which pensions, savings accounts, and other legitimate obligations in the financial system can be serviced. Were the currently threatened hyperinflation to take hold, all these categories of assets would be lost.

A new credit system has to be established, in order to realize multi-national projects amongst sovereign republics over timespans of 50-100 years, which include a Marshall Plan for the development of the southern European nations; industrialization of Africa; and the expansion of the Eurasian Land-Bridge.

The nations of Europe would present this concept to the United States, Russia, China, India, and other nations as a statement of intent to cooperate for real peace in the 21st Century.

Therefore, an alternative does exist! Do your part to make it reality!



Germany Needs a Two-Tier  Bank System and New D-Mark

Helga Zepp-LaRouche

The European Union summit on Dec. 8-9 has produced an even more abominable monstrosity than EU policy was already: It did nothing to diminish the risk of collapse of the euro and of bank failures. A debt brake,[1] budget control by the European Commission, tougher sanctions against deficit violators, "more Europe," loss of sovereignty and democracy, economic hardship, and a future without hope for millions of people: That is the ghastly result of the "Merkozy" strategy. The threat of collapse of the trans-Atlantic financial system remains acute.

The only chance for the nations and peoples of Europe is the immediate introduction of a two-tier banking system, in conjunction with the restoration of sovereignty over national currencies and economies. Following the example of Franklin D. Roosevelt's Glass-Steagall Act, commercial banks and investment banks must be separated. The commercial banks must be placed under state protection and provided with new lines of credit, while the portion of the debt that comes from bailout packages for the banks, derivatives trading, investment banks, hedge funds, special purpose entities, and shadow banks, is either canceled or suspended.

The argument that this measure would cause many investors to lose their claims to the entire palette of "creative financial products," must be rejected, because this money is already lost: The system is bankrupt. If the institutions in which these securities are deposited are insolvent, then those securities are already worthless, and the attempt to postpone the reckoning by more tricks, such as the "leveraging" of fund deposits or other methods of the miraculous multiplication of money, will only mean that hyperinflation will destroy the life savings of the population throughout Europe. A social catastrophe and chaos would be the inevitable consequences.

Brüning-Style Austerity

The intention behind the line that bankers and supporters of the European Union have been circulating for some time—that all this has nothing to do with a banking crisis, but with a sovereign debt crisis—is an attempt not only to divert attention from the fact that the bailouts, and the whole policy based on monetarist maximum profit, are to blame for the sovereign debts; the line is also used as a rationalization for why high-risk speculation has to be maintained. The prescribed medicine—reducing the budget deficit and enshrining a debt brake in the Constitution—is best suited to kill the patient as quickly as possible. Chancellor Brüning's austerity policies created the well-known social conditions under which the Nazis were able to seize power.

The unfortunate case of Greece shows the consequences of the brutal austerity policies of the Troika (the International Monetary Fund, the European Central Bank, and the EU Commission): Pharmaceutical companies have stopped providing medicines for the seriously ill, because hospitals cannot pay the bills, and parents are turning their children over to SOS Children's Villages, because they can no longer feed them. Millions of people, and especially many millions of young people in the southern countries of Europe, are unemployed and lack any hope of a future.

It is also incomprehensible where "Merkozy" finds the optimism to believe that the old Stability Pact could now be adhered to in a much worse economic situation, given that it hasalready bankrupted almost all Europe's governments. The handover of Parliament's right to legislate the budget to a soulless EU Commission, which is now supposed to have the right to review budget proposals and to correct them—i.e., to cut them—tends to make elections unnecessary, because economic policy is no longer to be decided by the distribution of seats in Parliament, but by non-transparent EU technocrats whom no one has elected, and who are accountable to none. Automatic sanctions for violators and punishments by the European Court of Justice will create a climate in Europe in which the now already considerable enmity and bitterness knows no bounds.

And how are citizens supposed to have any confidence in governments which incessantly flout the rules they themselves have made—governments which axiomatically believe that treaties can only be put through behind their own citizens' backs, and who invent the most exotic legal sophistries, all in order to shore up a system in which all is permitted, so long as the oh-so-sensitive markets don't "get nervous"?

Since the Lisbon Treaty can only be revised jointly by all members, but Great Britain has now taken its leave, it was hastily agreed to draw up a new inter-governmental treaty which operates "outside" the existing treaty, and which changes Article 126 of the Treaty on the Functioning of the European Union, without changing the Lisbon Treaty itself.

The Euro Was Rotten from the Start

Which brings us to the one positive outcome of the EU summit: British Prime Minister David Cameron's refusal to submit to the EU Commission's diktat, and his rejection of a transaction tax and the Basel III[2] requirements, has now seriously opened up the possibility that Great Britain will accede to the Euro-critics' pressure, and will quit the EU altogether. The real reason for Cameron's move, of course, was the City of London's desire to distance itself as far as possible from the Continent, in view of the euro's impending collapse. But despite that, the departure of "perfidious Albion" would be a correction of Pompidou's error[3]—an error for which continental Europe has paid dearly ever since. And once one country has turned its back on the EU monster, the dam will have been breached, and other nations will find courage to draw their own conclusions from the fact that their populations' vital interests can no longer be protected if they remain within the EU.

The first step must be to recognize that the euro was a faulty construct from the very outset, one which could not possibly function, and which has now collapsed irrevocably. A two-tier banking system must thus be instituted, in conjunction with a return to national currencies, because only each country's sovereignty over its own economic policy will permit measures to be taken that are right for that country. Fixed rates of exchange must be established among the various currencies, so that long-term cooperation on international projects can be protected, and speculation against currencies forbidden.

Germany's Foreign Policy

Instead of joining in a highly volatile game of encirclement against Russia and China, such as NATO and the EU have been playing since the collapse of the Soviet Union, and instead of remaining hysterically silent about the obvious war plans against Syria and Iran, whose apocalyptic consequences surely must be clear to everyone, Germany should decide upon a sovereign foreign policy which is in its own interests.

As long as Russia, China, India, and other Asian nations remain relatively stable economically, and are not swept up into the effects of the global collapse crisis, these countries represent huge markets for Germany and for other sovereign European nations, and a 50- to 100-year development perspective offers huge opportunities, especially for our Mittelstand, our private small and medium-sized industrial firms. Germany must simply return to the industrial policy it had during its post-1945 reconstruction era, a policy oriented toward scientific and technological progress, and high energy-flux densities.

Instead of passively tolerating the obvious attempts to destabilize Russian Prime Minister Putin's upcoming Presidency by means of an "orange revolution," à la George Soros and Mikhail Gorbachov, thereby helping to create an enemy image for World War III, Germany should look to its own raw materials and energy security, and should cooperate with the nations of Asia in jointly opening up the Far East and the Arctic region.

The German Mittelstand's technological capabilities are urgently needed for developing Russia's Far East and China's interior regions, as well as for conquering the scandalous poverty in which 70% of the Indian population lives.

These nations, for their part, have launched into manned spaceflight with the same pioneering spirit which we Germans once had, and into making scientific breakthroughs in order to better and more profoundly understand and master the laws of the universe.

It is high time that we jointly address ourselves to humanity's great unifying issues. An imperial structure such as the current EU has become—one which people increasingly perceive as a mechanism of oppression, which has contributed not to peace in Europe, but instead to enmity among peoples, and to hostility toward Germany—such a structure must be abolished.

The envisaged European fiscal union is already in violation of the principles set forth in the German Constitutional Court's so-called Lisbon Ruling. Therefore, we demand that a referendum be held on whether Germany should remain within, or leave the EU and the euro, and also on whether to introduce a new D-mark.

Time is very short. The danger of a banking collapse, and of war, requires that we act quickly. If Europe is to be spared an existential catastrophe, it is essential that a two-tier banking system be immediately set in place, and that sovereignty be attained over our currency and our economy. We must, right now, mobilize the spiritual and cultural powers that will enable us to become again a people of thinkers, poets, and inventors.

The author is the chairman of the Civil Rights Solidarity Movement (BüSo), a German political party.



Helga Zepp-LaRouche

Christine Lagarde, the head of the IMF, recently painted a grim picture of the world economy, comparing it to the Great Depression on the eve of the Second World War. All the economic data are worse than expected, she said; growth is lower, the deficits are bigger, the national debts are higher. And what is her proposed solution to this dire situation? More of the same incompetent policies that caused this crisis in the first place, as long as we "act together."

What is urgently needed instead is an uncompromising analysis of the flawed assumptions of the political and economic elites of the trans-Atlantic region, which have made them so blind to the consequences of their policies, that the world today has once again reached a point where a "crash of the world economy" threatens, as well as a new world war that would be a thermonuclear world war this time.

The fact is that every member of the governments in Europe and the United States knows full well that we are heading into such a war at breakneck speed, as the logical consequence of the policies of Obama, NATO, and the EU, continuing the policies of George W. Bush and Tony Blair, today against Russia and China. Both the missile-defense system that is currently being built by NATO in Eastern Europe, and oriented against Russia, and the current gigantic military buildup in the Indian Ocean, the Persian Gulf, and the Eastern Mediterranean, can be interpreted only as preparations for world war. With four aircraft carriers and a large number of destroyers and frigates deployed, ostensibly because of the situations in Syria and Iran, all the weapon systems have actually been put in place that are necessary for a large war.

Silence Reigns

And why is no one in these governments saying anything about the imminent danger, which is so much greater than that in 2003 before the Iraq War, when then-Chancellor Gerhard Schröder and former President Jacques Chirac refused to allow Germany and France to participate in that war? Why is it that so far only Danish Foreign Minister Villy Søvndal has publicly declared that Denmark will absolutely not participate in any way in a war against Syria or Iran?

Why does the German government not respond to the statement by the Russian Chief of the General Staff, Gen. Nikolai Makarov, that there could be a regional war in Central Europe in which nuclear weapons could be used[1]—and especially, what the German government intends to do to prevent such a war?

The head of Russia's National Security Council, Nikolai Patrushev, wrote on Dec. 14 in the newspaper Argumenti i Fakti, that the American and NATO missile-defense systems in Europe are directed, from Moscow's point of view, against Russia and China: "Very convincing calculations by our experts make it clear that the American arguments about a threat from Iran or North Korea are inventions. At the same time, it is obvious that the American ABM systems are directed against Russia and China. But more than that: With the planned development of the system, ship-based anti-missile systems will be in close proximity to the Russian coastline, in addition to the deployment of ABM radar systems near our borders."

Or, what does the German federal government say about the statement of a professor of the Chinese National Defense University, that China should not hesitate to protect Iran, even if it means launching World War III?

The Bankrupt Euro

Financial Times columnist Wolfgang Münchau has now come to the conclusion that the euro is a hopeless case, and he writes in Der Spiegel that it is impossible to rescue the euro, because the internal dynamic of the crisis is now so powerful that a little spark would suffice, "and the euro area would explode." But why were the governments of Europe so blind as not to have foreseen this when, for example, this author warned, long before the introduction of the euro, that this flawed design could not work? Since it was introduced, I have also written dozens of articles, almost non-stop, about how to get out of this dead end, so the information was definitely there, for anyone with economic competence to anticipate what would happen.

And why are the governments of the trans-Atlantic region so totally irresponsible as to have thrown one "bailout package" after another at this hopelessly bankrupt "common currency," destroying the European community and splitting it into hostile camps? They must certainly know that this will quickly lead to hyperinflation like that in Germany in 1923, only this time not in just one country, but proceeding from Europe and the United States to the entire world. The government of the Weimar Republic had the excuse for its money printing, that this policy was forced on it by the Versailles Treaty; but what excuse is there when the trans-Atlantic governments today repeat the same mistake of hyperinflation, the most brutal form of looting of the population?

What is the mentality of these governments and parliamentarians who support this policy and have learned nothing from the mistakes of the past, who have access to all the information about the bankruptcy of the financial system and the threat of war, and yet continue a policy that can lead to the extinction of humanity? And why do these governments not introduce a two-tier banking system, which, surprisingly, Social Democratic Party head Sigmar Gabriel and Finance Minister Wolfgang Schäuble recently suddenly endorsed? Whose dictates are they submitting themselves to this time?

The Euro Would Never Have Worked

The fact is, the design flaws of the euro could never be solved, for the simple reason that there cannot be a single European state. Europe is not a nation, not in any way, shape, or form. What do Germans know about France, not to mention Slovenia or Estonia? There is no common political venue for discourse, no common cultural identity. And the explanation that the EU Commission had not realized that what was then the Greek government had falsified its financial statements to allow entry into the Eurozone, has now been supplied with the argument that the EU bureaucrats did not speak Greek well enough to be able to read the Greek newspapers.

Instead of ensuring peace in Europe forever, the euro, since the signing of the EU's Maastricht Treaty in 1992, has taken nations that were living together relatively peacefully, and set them against each other, spurred by the interests of the British Empire and its "Fourth Reich" campaign against Germany, and irresponsible media that have spread caricatures about "lazy Greeks," "ugly Germans," "Italians who can't cope," or the "hedonistic French."

"If the euro fails, then Europe fails," Chancellor Merkel has repeated over and over again, as if such a mantra could finally drum the wisdom of such a statement into the heads of the annoying euro-critics. Exactly the opposite is true: Europe only has a chance if we stop the imperial design of the euro, restore sovereignty over our own currencies and economies, renounce the EU treaties from Maastricht to Lisbon, introduce a two-tier banking system, adopt fixed exchange rates among sovereign governments, and agree on a new credit system for long-term cooperative projects, like a Marshall Plan for Southern Europe and Africa through the expansion of the World Land-Bridge.

And instead of meekly watching as the eastward expansion of NATO and the EU, with their openly aggressive projects, provokes a war with Russia and China, Germany should launch long-term economic cooperation with the Asian countries.

Who asked or authorized EU Commissioner Neelie Kroes and Karl-Theodor zu Guttenberg[2] to initiate the "No Disconnect" strategy project, by which Internet users in states ruled by authoritarian regimes are supposed to be helped to have free access to the Internet—but on closer inspection, is intended to bring about an "Arab Spring," i.e., regime change, and indeed all over the world, as Kroes said—obviously also in Russia and China? The Internet-savvy zu Guttenberg wants to use his military contacts to promote this project, and it is also supposed to help the intelligence agencies to obtain information on-location, so that the "extent of suppression" can be ascertained. Asked what exactly this project means, Kroes did not answer, saying that would be far too dangerous, since they do not want to endanger the "activists."

With an EU whose Commissioner for Digital Agenda is so obviously involved in the destabilization of other sovereign states, and this in the context described above of financial collapse and world war danger, primarily against Russia and China, this is another, very urgent reason to leave this alliance—a possibility envisaged by the Lisbon Treaty and explicitly justified under international law anyway.

Germany must make a policy for its citizens, rather than in the interests of the banks and their imperial supranational apparatus. This EU not only has the oft-cited "democracy deficit," but democracy itself and Germany's Basic Law are at the greatest risk.

We therefore call for an immediate referendum on whether to stay with or leave the euro and the EU; on the recovery of sovereignty by means of a new D-mark; and on the question of whether Germany should participate in institutions whose policy amounts to a third world war.

Use the time between Christmas and New Year to think through what is wrong with the axiomatic assumptions of governments and parliamentarians, such that we could have reached this point. And join our mobilization for a real alternative!


John Hoefle
December 23, 2011 issue of Executive Intelligence Review.

In July 2009, the Special Inspector General of the Troubled Asset Relief Program (TARP) caused a furor by reporting that the bailout of financial institutions by the U.S. government and the Federal Reserve stood at $23.7 trillion. Since that time we have seen a flurry of duelling claims, ranging from the Ministry of Bailouts's absurd claims that the bailouts cost taxpayers virtually nothing, and may have even turned a profit, to the recently released study by the Levy Institute,[1] which puts the total at $29 trillion.

The Levy study, along with those by Bloomberg News and the Government Accountability Office, have shed considerable light on how much money the various bailout facilities have spent, lent, or promised, and who got the money. The sums involved are staggering, as is the extent to which U.S. taxpayer money was used to bail out foreign-based banks. The Treasury and the Fed have a lot of explaining to do, preferably in criminal court.

As measures of the true cost of the bailout, however, all of these studies fall short. The least of their problems is that they all rely on the official figures released by the Treasury and the Fed, two notorious liars. But since what they admit is damning enough, it will do. The more significant problems with these studies are: 1) They do not measure other ways in which regulatory policy, and the economy as a whole, are being manipulated to facilitate the looting of the public by the financial system; and 2) They do not measure the effects upon the present and future, of policies which destroy people in favor of saving financial claims.

What, after all, is the true cost of a financial policy which is being used to usher in genocide against the human race? How do you measure that in mere dollar terms?

Saving the Empire

Those with a penchant for remembering the propaganda which has spewed forth from Wall Street and Washington in recent years, will recall being told that the bailout was being done reluctantly, that saving Wall Street, as unpleasant as it may be, was necessary to save Main Street. We're doing this for you, said the thieves.

We said they were lying at the time, and these reports on the bailout bear that out in spades. They were not saving America, but sacrificing America to save the British Empire! That's not only criminal, but treasonous!

The Levy report, for example, breaks the bailout programs down into two categories, one consisting of funds provided by the Fed to other central banks through the Central Bank Liquidity Swap (CBLS) program, and the other consisting of the multitude of other facilities created to shovel money into the financial system, known by acronyms such as TAF, TALF, TSLF, PCDF, etc. Taken together, these programs lent a total of $29.6 trillion, according to Fed data.

Under the CBLS program, just over $10 trillion was provided by the Fed to foreign central banks between December 2007 and September 2011. The vast majority of that money, $8 trillion, went to the European Central Bank, while another $918 billion went to the Bank of England. The remaining $1 trillion or so was divvied up among the central banks of Switzerland, Japan, Denmark, Sweden, Australia, South Korea, Norway, and Mexico. These swaps were all in the form of loans, and all the loans made during the period covered by the study have supposedly been paid back. However, the program is still active, with $54 billion in loans outstanding as of Dec. 14.

In the second category, some $19.6 trillion in support was provided through an alphabet soup list of programs. The Primary Dealer Credit Facility (PDCF), created to lend money to investment banks, was the largest, at $9 trillion, followed by the Term Auction Facility (TAF), which lend money to commercial banks, at $3.8 trillion.

Where it really gets interesting is when you look at the recipients of these funds. Two of the top three borrowers under the TAF were British banks, Barclays and the Inter-Alpha Group's Royal Bank of Scotland (RBS). The top five borrowers in the Single Tranche Open Market Operations (ST OMO) program were all foreign-based: Switzerland-based Credit Suisse, Germany's Deutsche Bank, France's BNP Paribas, RBS, and Barclays.

RBS, Deutsche Bank, and Credit Suisse were also among the top five borrowers in the TSLF and TOP programs. UBS of Switzerland was the largest borrower in the Commercial Paper Funding Facility (CPFF), although Barclays got the single-largest loan under the program; Dexia, RBS, and Fortis also made the top ten under the program. Deutsche Bank and Credit Suisse were the top two sellers of mortgage-backed securities to the Fed.

Excluding the CBLS, where the recipients have not been identified, the Levy study found that 84% of the bailout funds went to just 14 institutions, including $4.6 trillion to six foreign banks. And presumably those same foreign banks got a good chunk of the $8 trillion handed out through the European Central Bank under the CBLS.

Why was so much money given to foreign banks? The answer is simple: The purpose of the bailout was not to save the U.S. economy, but to save the British Empire. The banks that got the majority of the funds are all top players in the derivatives markets: JP Morgan Chase, Bank of America/Merrill Lynch, Citigroup, Goldman Sachs, and Morgan Stanley, Barclays and RBS in the U.K., and BNP Paribas, UBS, and Credit Suisse in continental Europe. The overriding characteristic of the bailout was, and remains, the support of the London-centered global derivatives market, the biggest financial looting operation on the planet.

While these banks are usually described as creatures of the nations in which they are based, the truth is that they are all global banks—more precisely, imperial banks. They are creatures of the British Empire, which sit like parasites in the nations where they are based—not "American" or "German" or "French," but imperial, looting both the people and the governments of their "home" nations. This system is what the Federal Reserve and U.S. Treasury chose to bail out, while letting the American economy collapse.

The Lying Fed

The Fed fought hard to prevent these details from ever seeing the light of day, but was finally forced by Congress to allow a limited GAO audit, and was forced by the courts to release information to Bloomberg under the Freedom of Information Act. The Fed much prefers to hide behind the American flag, while it steals us blind.

In early December, after some of these details came to public attention, Fed Chairman Ben Bernanke went on an arrogance offensive, claiming that news reports of these revelations contained "a variety of egregious errors and mistakes," and shamelessly lied that all "the disclosure issues raised in these articles have already been discussed and settled, first by the Federal Reserve through a variety of reports and public postings, and then by Congress after a public debate."

Treasury Secretary Tim Geithner has exhibited similar arrogance with his suggestions that the government has actually turned a profit on the bailout. The sleight of hand here involves defining the bailout as the TARP—when in reality the TARP is just a small part of it—and then claiming that the banks have repaid their TARP funds. The $45 billion each in TARP funds provided to Citigroup and Bank of America, for example, pale in comparison to the $2.6 trillion in support the Fed provided to Citi, and the $3.5 trillion it provided to Bank of America and its Merrill Lynch subsidiary. While the big banks have been able to pay back the TARP in this manner, the Special Inspector General of the TARP noted in October that, of the 707 banks which received TARP money, some 400 banks were still in the program, and that nearly half of them were not making their TARP dividend payments.

More than Money

As we said in the beginning, reality is much worse than these bailout figures suggest. The British Empire-run international financial system is, by intent, a criminal operation designed to loot the rest of the world. The corruption of individual institutions within that system is a reflection of the corruption of the system itself, not the other way around. The Federal government's decision to protect, rather than halt, this criminal activity inside the United States was a grave mistake. Millions of people who should have been protected have lost their jobs, their homes, their access to health care, and even to food, because the Federal government chose to protect the criminals over the victims.

We cannot quantify these costs, nor can they be measured in dollars alone, but they are all costs of the bailout policy. We are also witnessing the steady looting of our remaining savings, through interest-rate policies, understating the rate of inflation, market manipulations, and related actions. The value of our dollar itself, is being destroyed by these policies.

What is being destroyed, are not just the lives of current generations, but the lives of future generations. We are losing America to fascism, led by a fascist President and Congress, funded by fascist bankers, working for a system dedicated to enslaving humanity and reducing our population to less than 1 billion people.

What is being done is monstrous, but so is what is not being done. The future of mankind is being sacrificed, for a system that is going to fail anyway.







RE: The Global Financial Meltdown - Admin - 01-28-2012


In Greece, fears that austerity is killing the economy ... Deeply indebted and nearly bankrupt, this Mediterranean nation was forced to adopt tough austerity measures to slash its deficit and secure an international bailout. But as Greece's economy slides into free fall, critics are scanning the devastated landscape here and asking a probing question: Does austerity really work? Unemployment has surged to 18.8 percent from 13.3 percent only a year ago. Overburdened public hospitals are facing acute shortages of everything from syringes to bandages because of budget cuts, with hiring freezes forcing the mothballing of operating rooms even as more unemployed are relying on the public health system. Rates of homelessness, suicide, crime and HIV cases from intravenous drug use are jumping. "Conditions have deteriorated so dramatically that doctors in this country now believe that the Greek crisis is no longer just a financial crisis but a humanitarian crisis," said Dimitris Varnavas, the president of the Federation of Greek Hospital Doctors' Unions. – Washington Post

Dominant Social Theme: Greece needs to "get its act together." But will the pain be too much to bear?

Free-Market Analysis: The almost genocidal nature of modern "austerity" as interpreted by the current crop of European one-world technocrats has come in for some mild criticism in the pages of the Washington Post.

Surprise! It must be really bad in Greece for this august, mainstream mouthpiece to publish such an article. Look on it as a limited hangout of sorts. With the Greek economy continuing to collapse as suicides pile up, a responsible mainstream paper must provide some sort of realistic reporting. And so it does.

Of course, the underlying assumptions remain resolutely unexamined. This is a kind of power elite dominant social theme of sorts – that the "cure," while necessary, is harsh. It is a pure Hegelian Dialectic when one considers this approach, as the argument is NOT framed by the question as to whether "austerity" is necessary at all.

In Singapore one can be flogged for certain offenses. Perhaps the Washington Post shall do an article wondering whether the number of lashes ought to be mitigated. That's how this article appears to us. We would ask why someone needs the lash at all. The Washington Post worries only that the cure is a bit extreme. Here's some more from the article:

Leaders aim to hammer out a plan to save the euro, while demonstrators take to the streets to show opposition to austerity measures in cash-strapped countries. Greece has been forced to cut spending and raise taxes in the middle of a severe downturn, slashing pensions as well as state salaries, jobs and services.

As public confidence has evaporated, consumer spending — the biggest driver of the economy — has plunged, generating cascading losses at private firms. The result is a dizzying economic plummet and social crisis that is bringing the cradle of Western civilization to its knees ...

On Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy turned up the heat on Greece, suggesting that its bailout deal is in danger of unraveling if Athens does not press ahead quicker with pledged budget reforms and seal a deal with bondholders to voluntarily restructure its massive debt.

For some reason, the powers-that-be are determined to grind Greece into the ground. When they are done nothing will be left but a spot. This is the way of the IMF, of course, as amply documented by such by books as Confessions of an Economic Hit Man.

First, the World Bank lends to a country's leaders – the more corrupt the better, which is why much of this takes place in the so-called developing world. Then the leaders abscond with the loot, leaving behind huge "public" debts.

Western banks, which have also lent to "build up the country's infrastructure," cry out that they have taken humanitarian risks and now will go bust if they are not paid back, jeopardizing the entire Western financial system. Sound familiar? The IMF is called in to make an emergency bailout.

The IMF is a stern taskmaster. It will demand that taxes go UP and that government spending go DOWN. Then it will demand that various government assets be sold off to raise funds. The assets, of course, are bought by select Western corporations at pennies on the dollar. People starve; the Anglosphere gains additional control.

For control is what is sought. That's the reason to grind people into the dust of mercantilist bankruptcy. The power elite that wants to run the world cares not at all for the welfare of the people whose country it is supposedly rescuing. And so it is with Greece.

As we have pointed out numerous times, the top men in Greece (and Ireland and Eastern Europe) were virtually bribed to bring their countries into the EU. This was done via a clever mechanism in which the Brussels bureaucrats determined the amount of funding that a given country needed to bring its economy in line with stronger economies such as Germany's.

The money was duly calculated and handed over to the various national elites who then fulfilled their part of the bargain by ensuring this country and that country was indeed delivered into the clutches of the EU. This mechanism occurred with considerable alacrity in the 2000s, for it was increasingly evident that the world's economy was collapsing and that there was a limited window available during which the lies would yet be tenable.

In any event, the money that went to these countries didn't do what it was supposed to do. The economies were not stabilized. Public spending was not rationalized. Instead, absurd public works projects were embarked upon. And if they money was not wasted in this way – lining the pockets of certain local corporations and their owners – it was merely absconded with.

Today, the elites that pocketed these funds have apparently left power. They will not be prosecuted, for they held up their end of the bargain. They delivered their countries into the clutches of the EU. And now these countries are the EU's – and the Eurocrats can do as they please. Which was the whole point.

Austerity is nothing but a ruse. The IMF's oft-stated intention to turn a country into a going concern is certainly misleading. The Anglosphere power elite seeks pliable nationalities that it can utilize for purposes of building an international community. This is why it crushes countries over and over. Culture is its enemy. Especially a stubborn, age-old culture such as exists in Greece.

Of course, the outrageousness of what is going on in Greece (and in other EU countries to a greater or lesser extent) must occasion articles like this one in the Washington Post. Justifications must be trotted out. The destruction, we are to believe, is unintentional. The aims of the power elite are pure.

They are not, of course. And Greece would have done better to emulate Argentina and Iceland and refuse to play the game the way the IMF and the big banking institutions demanded. What the cowardly Greek elites have agreed to will blight several generations of Greek families in the name of this "false" austerity, which is merely the crushing of a culture. In the meantime, the false memes will continue to be generated by power-elite mouthpieces.

"Greece, proponents of austerity say, has no one to blame but itself," the Washington Post informs us. "After a decade of excessive borrowing and spending, evidence emerged in late 2009 that Greek officials had lied about the extent of the country's whopping deficit. That lighted the first sparks of the European debt crisis, touching off a firestorm of investor panic that spread across Europe and is jeopardizing the global economy."

You see, they deserve their fate. Nobody knew what was occurring until 2009! It was a total surprise. (Never mind that this merciless system has been in place for at least 50 years, since the World Bank and IMF were set up, post-World War II.)

And just to make sure we understand that "merciless rigor" is truly justified, we read the following: "Slashing the deficit quickly is essential to ushering in a sustainable future ... and the resulting social pain is necessary to impress on Greek politicians and society that such excesses should never happen again."

As the economy further degrades in Greece and elsewhere, as the suicides rise and the cultural fabric itself is rent, we shall no doubt read more and more articles like this one. This is how the New World Order is to be built, on human suffering. The bodies and souls of the poor people trapped by this terrible paradigm are but rungs in a ladder that is ascending into the sky of a "brighter" tomorrow.

Conclusion: The storm troopers' measured tread as they climb this ladder is the sound track of what the future holds if these lies are not debunked and the terrible EU experiment is not exposed and ultimately dismantled.

The Global Financial Meltdown - Admin - 01-31-2012


“We are spiralling into a prolonged and ghastly depression”: The economy in 2012

Despite missing the 2007 global crisis completely and despite dismal policy failures, economists’ predictions for 2011 were uniformly optimistic.

“The recovery is expected to proceed at a reasonably modest pace”

was what the CBI predicted in December, 2010, while as always, warning firmly about the one threat they obsess over:

“We now forecast higher inflation in 2011.”

As 2011 fades away, recovery appears remote, and inflation is expected to fall like a stone in January when George Osborne’s misguided VAT rise drops out.

I am no professor of economics; nor do I have a post at the London School of Economics, but in 2009, at a time when everyone was talking up the recovery, I warned, in an interview with The Times, that ‘ the worst of the slump was still to come’.

I was confident of this prediction because New Labour, Liberal and Conservative politicians were building a consensus around austerity – and had not yet tackled the root causes of the crisis. So, smart Alec (I hear you say) what lies ahead in 2012?  My humble and not very cheering view is that because of the vast unpayable debts of the global private banking sector; because policy makers will not address the private banking crisis; and finally, because politicians wrongheadedly persist with austerity – we can expect things to get a lot worse.

In fact I believe we are spiralling into a prolonged and ghastly depression. This will lead, in time, to dramatically higher levels of unemployment, the loss of savings, home foreclosures, bankruptcies, emigration, suicides, divorce, social unrest and political upheaval – to name but a few of the consequences.

Why do I, and many others, expect a prolonged depression?

Because the world’s globalised private banks, unable to obtain funding, are now in the process of liquidating the vast expansions of debt generated during the boom, money frequently borrowed for purely speculative purposes. And let us remind ourselves: these debts were generated because politicians and regulators had removed all meaningful constraints on the creation and pricing of debt, and on the global mobility of capital.

Between 1945 and 1971, when politicians imposed restraints on bankers, on credit creation and on capital mobility, the world enjoyed high levels of employment and stability and virtually no financial crises at all. This is why the Bank of England’s recent paper on reform of the international financial system is welcome.

In Britain, private debts make up about 400 per cent of UK GDP – and public debt only about 65 per cent of GDP. (I am guessing that politicians’ blind spot for Britain’s huge private debts is not accidental, but then I may just be a touch cynical.)

It’s the disorderly de-leveraging (‘liquidation’) of those private debts that is the cause of Britain’s double dip, and of global financial instability. The failure of the global investment bank/brokerage MFGlobal and the downgrading of various banks, is the canary in the global financial gold mine.

The problem is not the UK’s or Eurozone’s public debts or budget deficits. They are both simply a consequence of private sector failure.  Because of this wrong-headed analysis, politicians in all three political parties have been driven down the dead-end of austerity.

Of course, some would prefer not to drive so fast, but they’re all heading in the same direction: towards unnecessary cuts in public spending at a time when private spending is collapsing.

This growing political consensus fills me with foreboding. Are our politicians planning a government of national unity? A government dominated by ‘technocrats’? Those very architects and defenders of the ‘light touch’ regulatory system that now threatens systemic economic failure?  Will these technocrats impose austerity on Britain’s restless and angry population – regardless?

As the year draws to an end, I simply speculate, and may be wrong. After all, George Osborne’s autumn statement represented a small, but significant u-turn: a belated recognition of the scale of the crisis and an attempt at fiscal stimulus to finance infrastructure investment.

But while his mini u-turn is welcome, we need to remind ourselves that fiscal policy can take malevolent as well as benevolent forms. Hitler embarked on an ambitious ‘corporate’ fiscal policy in the 1930s, aimed at enriching big business, especially the military industrial complex.

(For more, read Guerin’s classic “Fascism and Big Business” first published in 1936.) By contrast, Roosevelt’s fiscal policies were aimed at creating full employment; at funding the arts and literature; at protecting the environment.

So we should remain on our guard when it comes to assessing Treasury ‘u-turns’. Whatever the true nature of the coalition government’s fiscal stimulus, at least it recognises that something must be done. The Labour Party will look pretty foolish if it too does not change tack, and instead keeps on backing public spending cuts – but at a slower pace.

The situation is currently most acute in the Eurozone, where the consequences of private economic failure are reflected in rising sovereign debt. These debts cannot be managed in an orderly way, because of the monetary framework and statutes of the Eurozone.

This system prevents a publicly owned, taxpayer-backed institution, the European Central Bank (ECB) from supporting and lending to sovereign governments. Instead that bank is mandated to lend and support – at almost any cost – the private banking system. The obverse of that policy is that sovereign governments, like Italy and Greece, are obliged by statute to turn to private banks or the private capital markets for financing.

Unlike Britain, they cannot turn to the central bank for ‘quantitative easing’ and other helpful funding injections. (I leave readers to guess which lobbies may have been behind the drafting of these statutes, enshrined now in the Lisbon Treaty.)

However, while the Eurozone is a depressing mess, we must be careful not to wrongly analyse the crisis. European politicians, like those in the UK, are wrongheaded about causes, and therefore solutions. But they are not the root of the problem, of that we must be clear.

The crisis that will come to a head in 2012 is not a European crisis. It is a global financial crisis. In that sense the Eurozone is a side-show. We, and many others, expect the banks of all the major OECD economies to collapse over the next few months. This will drag the UK, Eurozone and US down.  In other words, and to be absolutely clear:the Eurozone and the world will be dragged down by the banks, not vice versa.

Politicians, advised by deranged and culpable economists, will hasten, and intensify this global private banking collapse by accelerating austerity. It is those policies that will prolong and deepen the global economic crisis. So prospects are bleak. Unless and until, that is, politicians in the UK and Eurozone get real, and face reality. It is time now to stop blaming the victims – public sector workers, pensioners, single mothers, the frail and vulnerable – for a global financial crisis designed by bankers, technocrats, economists and politicians.

It’s time now to address the solution: first, subordination of the private banking sector to the interests of society; and second, policies for employment. Only jobs can now generate the income needed to revive the economy, to pay down private debts, and to stabilise the global economy. “Look after employment” said Keynes, “and the budget will look after itself.”  So if our politicians want to sleep at night, and reduce the budget deficit, they should do so by investing in the jobs needed to restore prosperity and stability – because the private sector cannot.  Only then will we be able to look forward, hopefully.

RE: The Global Financial Meltdown - Admin - 01-31-2012


Prof. Michael Hudson

Global Research, January 28, 2012

Banks Weren’t Meant to Be Like This.  What will their future be – and what is the government’s proper financial role?

The inherently symbiotic relationship between banks and governments recently has been reversed. In medieval times, wealthy bankers lent to kings and princes as their major customers. But now it is the banks that are needy, relying on governments for funding – capped by the post-2008 bailouts to save them from going bankrupt from their bad private-sector loans and gambles.

Yet the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the Obama administration’s vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.”2 Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.”3 High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources.

If there is any silver lining to today’s debt crisis, it is that the present situation and trends cannot continue. So this is not only an opportunity to restructure banking; we have little choice. The urgent issue is who will control the economy: governments, or the financial sector and monopolies with which it has made an alliance.

Fortunately, it is not necessary to re-invent the wheel. Already a century ago the outlines of a productive industrial banking system were well understood. But recent bank lobbying has been remarkably successful in distracting attention away from classical analyses of how to shape the financial and tax system to best promote economic growth – by public checks on bank privileges.

How banks broke the social compact,  promoting their own special interests

People used to know what banks did. Bankers took deposits and lent them out, paying short-term depositors less than they charged for risky or less liquid loans. The risk was borne by bankers, not depositors or the government. But today, bank loans are made increasingly to speculators in recklessly large amounts for quick in-and-out trading. Financial crashes have become deeper and affect a wider swath of the population as debt pyramiding has soared and credit quality plunged into the toxic category of “liars’ loans.”

The first step toward today’s mutual interdependence between high finance and government was for central banks to act as lenders of last resort to mitigate the liquidity crises that periodically resulted from the banks’ privilege of credit creation. In due course governments also provided public deposit insurance, recognizing the need to mobilize and recycle savings into capital investment as the Industrial Revolution gained momentum. In exchange for this support, they regulated banks as public utilities.

Over time, banks have sought to disable this regulatory oversight, even to the point of decriminalizing fraud. Sponsoring an ideological attack on government, they accuse public bureaucracies of “distorting” free markets (by which they mean markets free for predatory behavior). The financial sector is now making its move to concentrate planning in its own hands.

The problem is that the financial time frame is notoriously short-term and often self-destructive. And inasmuch as the banking system’s product is debt, its business plan tends to be extractive and predatory, leaving economies high-cost. This is why checks and balances are needed, along with regulatory oversight to ensure fair dealing. Dismantling public attempts to steer banking to promote economic growth (rather than merely to make bankers rich) has permitted banks to turn into something nobody anticipated. Their major customers are other financial institutions, insurance and real estate – the FIRE sector, not industrial firms. Debt leveraging by real estate and monopolies, arbitrage speculators, hedge funds and corporate raiders inflates asset prices on credit. The effect of creating “balance sheet wealth” in this way is to load down the “real” production-and-consumption economy with debt and related rentier charges, adding more to the cost of living and doing business than rising productivity reduces production costs.

Since 2008, public bailouts have taken bad loans off the banks’ balance sheet at enormous taxpayer expense – some $13 trillion in the United States, and proportionally higher in Ireland and other economies now being subjected to austerity to pay for “free market” deregulation. Bankers are holding economies hostage, threatening a monetary crash if they do not get more bailouts and nearly free central bank credit, and more mortgage and other loan guarantees for their casino-like game. The resulting “too big to fail” policy means making governments too weak to fight back.

The process that began with central bank support thus has turned into broad government guarantees against bank insolvency. The largest banks have made so many reckless loans that they have become wards of the state. Yet they have become powerful enough to capture lawmakers to act as their facilitators. The popular media and even academic economic theorists have been mobilized to pose as experts in an attempt to convince the public that financial policy is best left to technocrats – of the banks’ own choosing, as if there is no alternative policy but for governments to subsidize a financial free lunch and crown bankers as society’s rulers.

The Bubble Economy and its austerity aftermath could not have occurred without the banking sector’s success in weakening public regulation, capturing national treasuries and even disabling law enforcement. Must governments surrender to this power grab? If not, who should bear the losses run up by a financial system that has become dysfunctional? If taxpayers have to pay, their economy will become high-cost and uncompetitive – and a financial oligarchy will rule.

The present debt quandary

The endgame in times past was to write down bad debts. That meant losses for banks and investors. But today’s debt overhead is being kept in place – shifting bad loans off bank balance sheets to become public debts owed by taxpayers to save banks and their creditors from loss. Governments have given banks newly minted bonds or central bank credit in exchange for junk mortgages and bad gambles – without re-structuring the financial system to create a more stable, less debt-ridden economy. The pretense is that these bailouts will enable banks to lend enough to revive the economy by enough to pay its debts.

Seeing the handwriting on the wall, bankers are taking as much bailout money as they can get, and running, using the money to buy as much tangible property and ownership rights as they can while their lobbyists keep the public subsidy faucet running.

The pretense is that debt-strapped economies can resume business-as-usual growth by borrowing their way out of debt. But a quarter of U.S. real estate already is in negative equity – worth less than the mortgages attached to it – and the property market is still shrinking, so banks are not lending except with public Federal Housing Administration guarantees to cover whatever losses they may suffer. In any event, it already is mathematically impossible to carry today’s debt overhead without imposing austerity, debt deflation and depression.

This is not how banking was supposed to evolve. If governments are to underwrite bank loans, they may as well be doing the lending in the first place – and receiving the gains. Indeed, since 2008 the over-indebted economy’s crash led governments to become the major shareholders of the largest and most troubled banks – Citibank in the United States, Anglo-Irish Bank in Ireland, and Britain’s Royal Bank of Scotland. Yet rather than taking this opportunity to run these banks as public utilities and lower their charges for credit-card services – or most important of all, to stop their lending to speculators and gamblers – governments left these banks operating as part of the “casino capitalism” that has become their business plan.

There is no natural reason for matters to be like this. Relations between banks and government used to be the reverse. In 1307, France’s Philip IV (“The Fair”) set the tone by seizing the Knights Templars’ wealth, arresting them and putting many to death – not on financial charges, but on the accusation of devil-worshipping and satanic sexual practices. In 1344 the Peruzzi bank went broke, followed by the Bardi by making unsecured loans to Edward III of England and other monarchs who died or defaulted. Many subsequent banks had to suffer losses on loans gone bad to real estate or financial speculators.

By contrast, now the U.S., British, Irish and Latvian governments have taken bad bank loans onto their national balance sheets, imposing a heavy burden on taxpayers – while letting bankers cash out with immense wealth. These “cash for trash” swaps have turned the mortgage crisis and general debt collapse into a fiscal problem. Shifting the new public bailout debts onto the non-financial economy threaten to increase the cost of living and doing business. This is the result of the economy’s failure to distinguish productive from unproductive loans and debts. It helps explain why nations now are facing financial austerity and debt peonage instead of the leisure economy promised so eagerly by technological optimists a century ago.

So we are brought back to the question of what the proper role of banks should be. This issue was discussed exhaustively prior to World War I. It is even more urgent today.

How classical economists hoped to modernize banks as agents of industrial capitalism

Britain was the home of the Industrial Revolution, but there was little long-term lending to finance investment in factories or other means of production. British and Dutch merchant banking was to extend short-term credit on the basis of collateral such as real property or sales contracts for merchandise shipped (“receivables”). Buoyed by this trade financing, merchant bankers were successful enough to maintain long-established short-term funding practices. This meant that James Watt and other innovators were obliged to raise investment money from their families and friends rather than from banks.

It was the French and Germans who moved banking into the industrial stage to help their nations catch up. In France, the Saint-Simonians described the need to create an industrial credit system aimed at funding means of production. In effect, the Saint-Simonians proposed to restructure banks along lines akin to a mutual fund. A start was made with the Crédit Mobilier, founded by the Péreire Brothers in 1852. Their aim was to shift the banking and financial system away from debt financing at interest toward equity lending, taking returns in the form of dividends that would rise or decline in keeping with the debtor’s business fortunes. By giving businesses leeway to cut back dividends when sales and profits decline, profit-sharing agreements avoid the problem that interest must be paid willy-nilly. If an interest payment is missed, the debtor may be forced into bankruptcy and creditors can foreclose. It was to avoid this favoritism for creditors regardless of the debtor’s ability to pay that prompted Mohammed to ban interest under Islamic law.

Attracting reformers ranging from socialists to investment bankers, the Saint-Simonians won government backing for their policies under France’s Second Empire. Their approach inspired Marx as well as industrialists in Germany and protectionists in the United States and England. The common denominator of this broad spectrum was recognition that an efficient banking system was needed to finance the industry on which a strong national state and military power depended.

Germany develops an industrial banking system

It was above all in Germany that long-term financing found its expression in the Reichsbank and other large industrial banks as part of the “holy trinity” of banking, industry and government planning under Bismarck’s “state socialism.” German banks made a virtue of necessity. British banks “derived the greater part of their funds from the depositors,” and steered these savings and business deposits into mercantile trade financing. This forced domestic firms to finance most new investment out of their own earnings. By contrast, Germany’s “lack of capital … forced industry to turn to the banks for assistance,” noted the financial historian George Edwards. “A considerable proportion of the funds of the German banks came not from the deposits of customers but from the capital subscribed by the proprietors themselves.[4] As a result, German banks “stressed investment operations and were formed not so much for receiving deposits and granting loans but rather for supplying the investment requirements of industry.”

When the Great War broke out in 1914, Germany’s rapid victories were widely viewed as reflecting the superior efficiency of its financial system. To some observers the war appeared as a struggle between rival forms of financial organization. At issue was not only who would rule Europe, but whether the continent would have laissez faire or a more state-socialist economy.

In 1915, shortly after fighting broke out, the Christian Socialist priest-politician Friedrich Naumann published Mitteleuropa, describing how Germany recognized more than any other nation that industrial technology needed long?term financing and government support. His book inspired Prof. H. S. Foxwell in England to draw on his arguments in two remarkable essays published in the Economic Journal in September and December 1917: “The Nature of the Industrial Struggle,” and “The Financing of Industry and Trade.” He endorsed Naumann’s contention that “the old individualistic capitalism, of what he calls the English type, is giving way to the new, more impersonal, group form; to the disciplined scientific capitalism he claims as German.”

This was necessarily a group undertaking, with the emerging tripartite integration of industry, banking and government, with finance being “undoubtedly the main cause of the success of modern German enterprise,” Foxwell concluded (p. 514). German bank staffs included industrial experts who were forging industrial policy into a science. And in America, Thorstein Veblen’s The Engineers and the Price System (1921) voiced the new industrial philosophy calling for bankers and government planners to become engineers in shaping credit markets.

Foxwell warned that British steel, automotive, capital equipment and other heavy industry was becoming obsolete largely because its bankers failed to perceive the need to promote equity investment and extend long?term credit. They based their loan decisions not on the new production and revenue their lending might create, but simply on what collateral they could liquidate in the event of default: inventories of unsold goods, real estate, and money due on bills for goods sold and awaiting payment from customers. And rather than investing in the shares of the companies that their loans supposedly were building up, they paid out most of their earnings as dividends – and urged companies to do the same. This short time horizon forced business to remain liquid rather than having leeway to pursue long?term strategy.

German banks, by contrast, paid out dividends (and expected such dividends from their clients) at only half the rate of British banks, choosing to retain earnings as capital reserves and invest them largely in the stocks of their industrial clients. Viewing these companies as allies rather than merely as customers from whom to make as large a profit as quickly as possible, German bank officials sat on their boards, and helped expand their business by extending loans to foreign governments on condition that their clients be named the chief suppliers in major public investments. Germany viewed the laws of history as favoring national planning to organize the financing of heavy industry, and gave its bankers a voice in formulating international diplomacy, making them “the principal instrument in the extension of her foreign trade and political power.”

A similar contrast existed in the stock market. British brokers were no more up to the task of financing manufacturing in its early stages than were its banks. The nation had taken an early lead by forming Crown corporations such as the East India Company, the Bank of England and even the South Sea Company. Despite the collapse of the South Sea Bubble in 1720, the run-up of share prices from 1715 to 1720 in these joint-stock monopolies established London’s stock market as a popular investment vehicle, for Dutch and other foreigners as well as for British investors. But the market was dominated by railroads, canals and large public utilities. Industrial firms were not major issuers of stock.

In any case, after earning their commissions on one issue, British stockbrokers were notorious for moving on to the next without much concern for what happened to the investors who had bought the earlier securities. “As soon as he has contrived to get his issue quoted at a premium and his underwriters have unloaded at a profit,” complained Foxwell, “his enterprise ceases. ‘To him,’ as the Times says, ‘a successful flotation is of more importance than a sound venture.’”

Much the same was true in the United States. Its merchant heroes were individualistic traders and political insiders often operating on the edge of the law to gain their fortunes by stock-market manipulation, railroad politicking for land giveaways, and insurance companies, mining and natural resource extraction. America’s wealth-seeking spirit found its epitome in Thomas Edison’s hit-or-miss method of invention, coupled with a high degree of litigiousness to obtain patent and monopoly rights.

In sum, neither British nor American banking or stock markets planned for the future. Their time frame was short, and they preferred rent-extracting projects to industrial innovation. Most banks favored large real estate borrowers, railroads and public utilities whose income streams easily could be forecast. Only after manufacturing companies grew fairly large did they obtain significant bank and stock market credit.

What is remarkable is that this is the tradition of banking and high finance that has emerged victorious throughout the world. The explanation is primarily the military victory of the United States, Britain and their Allies in the Great War and a generation later, in World War II.

The regression toward burdensome unproductive debts after World War I

The development of industrial credit led economists to distinguish between productive and unproductive lending. A productive loan provides borrowers with resources to trade or invest at a profit sufficient to pay back the loan and its interest charge. An unproductive loan must be paid out of income earned elsewhere. Governments must pay war loans out of tax revenues. Consumers must pay loans out of income they earn at a job – or by selling assets. These debt payments divert revenue away from being spent on consumption and investment, so the economy shrinks. This traditionally has led to crises that wipe out debts, above all those that are unproductive.

In the aftermath of World War I the economies of Europe’s victorious and defeated nations alike were dominated by postwar arms and reparations debts. These inter-governmental debts were to pay for weapons (by the Allies when the United States unexpectedly demanded that they pay for the arms they had bought before America’s entry into the war), and for the destruction of property (by the Central Powers), not new means of production. Yet to the extent that they were inter-governmental, these debts were more intractable than debts to private bankers and bondholders. Despite the fact that governments in principle are sovereign and hence can annul debts owed to private creditors, the defeated Central Power governments were in no position to do this.

And among the Allies, Britain led the capitulation to U.S. arms billing, captive to the creditor ideology that “a debt is a debt” and must be paid regardless of what this entails in practice or even whether the debt in fact can be paid. Confronted with America’s demand for payment, the Allies turned to Germany to make them whole. After taking its liquid assets and major natural resources, they insisted that it squeeze out payments by taxing its economy. No attempt was made to calculate just how Germany was to do this – or most important, how it was to convert this domestic revenue (the “budgetary problem”) into hard currency or gold. Despite the fact that banking had focused on international credit and currency transfers since the 12th century, there was a broad denial of what John Maynard Keynes identified as a foreign exchange transfer problem.

Never before had there been an obligation of such enormous magnitude. Nevertheless, all of Germany’s political parties and government agencies sought to devise ways to tax the economy to raise the sums being demanded. Taxes, however, are levied in a nation’s own currency. The only way to pay the Allies was for the Reichsbank to take this fiscal revenue and throw it onto the foreign exchange markets to obtain the sterling and other hard currency to pay. Britain, France and the other recipients then paid this money on their Inter-Ally debts to the United States.

Adam Smith pointed out that no government ever had paid down its public debt. But creditors always have been reluctant to acknowledge that debtors are unable to pay. Ever since David Ricardo’s lobbying for their perspective in Britain’s Bullion debates, creditors have found it their self-interest to promote a doctrinaire blind spot, insisting that debts of any magnitude could be paid. They resist acknowledging a distinction between raising funds domestically (by running a budget surplus) and obtaining the foreign exchange to pay foreign-currency debt. Furthermore, despite the evident fact that austerity cutbacks on consumption and investment can only be extractive, creditor-oriented economists refused to recognize that debts cannot be paid by shrinking the economy.5 Or that foreign debts and other international payments cannot be paid in domestic currency without lowering the exchange rate.

The more domestic currency Germany sought to convert, the further its exchange rate was driven down against the dollar and other gold-based currencies. This obliged Germans to pay much more for imports. The collapse of the exchange rate was the source of hyperinflation, not an increase in domestic money creation as today’s creditor-sponsored monetarist economists insist. In vain Keynes pointed to the specific structure of Germany’s balance of payments and asked creditors to specify just how many German exports they were willing to take, and to explain how domestic currency could be converted into foreign exchange without collapsing the exchange rate and causing price inflation.

Tragically, Ricardian tunnel vision won Allied government backing. Bertil Ohlin and Jacques Rueff claimed that economies receiving German payments would recycle their inflows to Germany and other debt-paying countries by buying their imports. If income adjustments did not keep exchange rates and prices stable, then Germany’s falling exchange rate would make its exports sufficiently more attractive to enable it to earn the revenue to pay.

This is the logic that the International Monetary Fund followed half a century later in insisting that Third World countries remit foreign earnings and even permit flight capital as well as pay their foreign debts. It is the neoliberal stance now demanding austerity for Greece, Ireland, Italy and other Eurozone economies.

Bank lobbyists claim that the European Central Bank will risk spurring domestic wage and price inflation of it does what central banks were founded to do: finance budget deficits. Europe’s financial institutions are given a monopoly right to perform this electronic task – and to receive interest for what a real central bank could create on its own computer keyboard.

But why it is less inflationary for commercial banks to finance budget deficits than for central banks to do this? The bank lending that has inflated a global financial bubble since the 1980s has left as its legacy a debt overhead that can no more be supported today than Germany was able to carry its reparations debt in the 1920s. Would government credit have so recklessly inflated asset prices?

How debt creation has fueled asset-price inflation since the 1980s

Banking in recent decades has not followed the productive lines that early economic futurists expected. As noted above, instead of financing tangible investment to expand production and innovation, most loans are made against collateral, with interest to be paid out of what borrowers can make elsewhere. Despite being unproductive in the classical sense, it was remunerative for debtors from 1980 until 2008 – not by investing the loan proceeds to expand economic activity, but by riding the wave of asset-price inflation. Mortgage credit enabled borrowers to bid up property prices, drawing speculators and new customers into the market in the expectation that prices would continue to rise. But hothouse credit infusions meant additional debt service, which ended up shrinking the market for goods and services.

Under normal conditions the effect would have been for rents to decline, with property prices following suit, leading to mortgage defaults. But banks postponed the collapse into negative equity by lowering their lending standards, providing enough new credit to keep on inflating prices. This averted a collapse of their speculative mortgage and stock market lending. It was inflationary – but it was inflating asset prices, not commodity prices or wages. Two decades of asset price inflation enabled speculators, homeowners and commercial investors to borrow the interest falling due and still make a capital gain.

This hope for a price gain made winning bidders willing to pay lenders all the current income – making banks the ultimate and major rentier income recipients. The process of inflating asset prices by easing credit terms and lowering the interest rate was self-feeding. But it also was self-terminating, because raising the multiple by which a given real estate rent or business income can be “capitalized” into bank loans increased the economy’s debt overhead.

Securities markets became part of this problem. Rising stock and bond prices made pension funds pay more to purchase a retirement income – so “pension fund capitalism” was coming undone. So was the industrial economy itself. Instead of raising new equity financing for companies, the stock market became a vehicle for corporate buyouts. Raiders borrowed to buy out stockholders, loading down companies with debt. The most successful looters left them bankrupt shells. And when creditors turned their economic gains from this process into political power to shift the tax burden onto wage earners and industry, this raised the cost of living and doing business – by more than technology was able to lower prices.

The EU rejects central bank money creation, leaving deficit financing to the banks

Article 123 of the Lisbon Treaty forbids the ECB or other central banks to lend to government. But central banks were created specifically – to finance government deficits. The EU has rolled back history to the way things were three hundred years ago, before the Bank of England was created. Reserving the task of credit creation for commercial banks, it leaves governments without a central bank to finance the public spending needed to avert depression and widespread financial collapse.

So the plan has backfired. When “hard money” policy makers limited central bank power, they assumed that public debts would be risk-free. Obliging budget deficits to be financed by private creditors seemed to offer a bonanza: being able to collect interest for creating electronic credit that governments can create themselves. But now, European governments need credit to balance their budget or face default. So banks now want a central bank to create the money to bail them out for the bad loans they have made.

For starters, the ECB’s €489 billion in three-year loans at 1% interest gives banks a free lunch arbitrage opportunity (the “carry trade”) to buy Greek and Spanish bonds yielding a higher rate. The policy of buying government bonds in the open market – after banks first have bought them at a lower issue price – gives the banks a quick and easy trading gain.

How are these giveaways less inflationary than for central banks to directly finance budget deficits and roll over government debts? Is the aim of giving banks easy gains simply to provide them with resources to resume the Bubble Economy lending that led to today’s debt overhead in the first place?


Governments can create new credit electronically on their own computer keyboards as easily as commercial banks can. And unlike banks, their spending is expected to serve a broad social purpose, to be determined democratically. When commercial banks gain policy control over governments and central banks, they tend to support their own remunerative policy of creating asset-inflationary credit – leaving the clean-up costs to be solved by a post-bubble austerity. This makes the debt overhead even harder to pay – indeed, impossible.

So we are brought back to the policy issue of how public money creation to finance budget deficits differs from issuing government bonds for banks to buy. Is not the latter option a convoluted way to finance such deficits – at a needless interest charge? When governments monetize their budget deficits, they do not have to pay bondholders.

I have heard bankers argue that governments need an honest broker to decide whether a loan or public spending policy is responsible. To date their advice has not promoted productive credit. Yet they now are attempting to compensate for the financial crisis by telling debtor governments to sell off property in their public domain. This “solution” relies on the myth that privatization is more efficient and will lower the cost of basic infrastructure services. Yet it involves paying interest to the buyers of rent-extraction rights, higher executive salaries, stock options and other financial fees.

Most cost savings are achieved by shifting to non-unionized labor, and typically end up being paid to the privatizers, their bankers and bondholders, not passed on to the public. And bankers back price deregulation, enabling privatizers to raise access charges. This makes the economy higher cost and hence less competitive – just the opposite of what is promised.

Banking has moved so far away from funding industrial growth and economic development that it now benefits primarily at the economy’s expense in a predator and extractive way, not by making productive loans. This is now the great problem confronting our time. Banks now lend mainly to other financial institutions, hedge funds, corporate raiders, insurance companies and real estate, and engage in their own speculation in foreign currency, interest-rate arbitrage, and computer-driven trading programs. Industrial firms bypass the banking system by financing new capital investment out of their own retained earnings, and meet their liquidity needs by issuing their own commercial paper directly. Yet to keep the bank casino winning, global bankers now want governments not only to bail them out but to enable them to renew their failed business plan – and to keep the present debts in place so that creditors will not have to take a loss.

This wish means that society should lose, and even suffer depression. We are dealing here not only with greed, but with outright antisocial behavior and hostility.

Europe thus has reached a critical point in having to decide whose interest to put first: that of banks, or the “real” economy. History provides a wealth of examples illustrating the dangers of capitulating to bankers, and also for how to restructure banking along more productive lines. The underlying questions are clear enough:

* Have banks outlived their historical role, or can they be restructured to finance productive capital investment rather than simply inflate asset prices?

* Would a public option provide less costly and better directed credit?

* Why not promote economic recovery by writing down debts to reflect the ability to pay, rather than relinquishing more wealth to an increasingly aggressive creditor class?

Solving the Eurozone’s financial problem can be made much easier by the tax reforms that classical economists advocated to complement their financial reforms. To free consumers and employers from taxation, they proposed to levy the burden on the “unearned increment” of land and natural resource rent, monopoly rent and financial privilege. The guiding principle was that property rights in the earth, monopolies and other ownership privileges have no direct cost of production, and hence can be taxed without reducing their supply or raising their price, which is set in the market. Removing the tax deductibility for interest is the other key reform that is needed.

A rent tax holds down housing prices and those of basic infrastructure services, whose untaxed revenue tends to be capitalized into bank loans and paid out in the form of interest charges. Additionally, land and natural resource rents – along with interest – are the easiest to tax, because they are highly visible and their value is easy to assess.

Pressure to narrow existing budget deficits offers a timely opportunity to rationalize the tax systems of Greece and other PIIGS countries in which the wealthy avoid paying their fair share of taxes. The political problem blocking this classical fiscal policy is that it “interferes” with the rent-extracting free lunches that banks seek to lend against. So they act as lobbyists for untaxing real estate and monopolies (and themselves as well). Despite the financial sector’s desire to see governments remain sufficiently solvent to pay bondholders, it has subsidized an enormous public relations apparatus and academic junk economics to oppose the tax policies that can close the fiscal gap in the fairest way.

It is too early to forecast whether banks or governments will emerge victorious from today’s crisis. As economies polarize between debtors and creditors, planning is shifting out of public hands into those of bankers. The easiest way for them to keep this power is to block a true central bank or strong public sector from interfering with their monopoly of credit creation.
The counter is for central banks and governments to act as they were intended to, by providing a public option for credit creation.

RE: The Global Financial Meltdown - Admin - 01-31-2012


Ellen Brown

The Wall Street Journal reported on January 19th that the Obama Administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the “robo-signing” scandal.  The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed.  Investigation reveals that it did not just happen occasionally but was an industry-wide practice, dating back to the late 1990s; and that it may have clouded the titles of millions of homes.  If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail – fraud, forgery, securities violations and tax evasion.

To the President’s credit, however, he seems to have shifted his position on the settlement in response to protests before his State of the Union address.  In his speech on January 24th, President Obama did not mention the settlement but announced instead that he would be creating a mortgage crisis unit to investigate wrongdoing related to real estate lending.  “This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” he said.

The Deeper Question Is Why

Whether massive robo-signing occurred is no longer in issue.  The question that needs to be investigated is why it was being done.  The alleged justification—that the bankers were so busy that they cut corners—hardly seems credible given the extent of the practice.

The robo-signing largely involved assignments of mortgage notes to mortgage servicers or trusts representing the investors who put up the loan money.  Assignment was necessary to give the trusts legal title to the loans.  But assignment was delayed until it was necessary to foreclose on the homes, when it had to be done through the forgery and fraud of robo-signing.  Why had it been delayed?  Why did the banks not assign the mortgages to the trusts when and as required by law?

Here is a working hypothesis, suggested by Martin Andelman: securitized mortgages are the “pawns” used in the pawn shop known as the “repo market.”  “Repos” are overnight sales and repurchases of collateral.  Yale economist Gary Gorton explains that repos are the “deposit insurance” for the shadow banking system, which is now larger than the conventional banking system and is necessary for the conventional system to operate.  The problem is that repos require “sales,” which means the mortgage notes have to remain free to be bought and sold.  The mortgages are left unendorsed so they can be used in this repo market.

The Evolution of the Shadow Banking System

Gorton observes that there is a massive and growing demand for banking by large institutional investors – pension funds, mutual funds, hedge funds, sovereign wealth funds – which have millions of dollars to park somewhere between investments.  But FDIC insurance covers only up to $250,000.  FDIC insurance was resisted in the 1930s by bankers and government officials and was pushed through as a populist movement: the people demanded it.  What they got was enough insurance to cover the deposits of individuals and no more.  Today, the large institutional investors want similar coverage.  They want an investment that is secure, that provides them with a little interest, and that is liquid like a traditional deposit account, allowing quick withdrawal.

The shadow banking system evolved in response to this need, operating largely through the repo market. “Repos” are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities—the securitized units into which American real estate has been ground up and packaged, sausage-fashion. The collateral is bought by a “special purpose vehicle” (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn. This money is used by the banks for other lending, investing or speculating. Gorton writes :

This banking system (the “shadow” or “parallel” banking system)—repo based on securitization—is a genuine banking system, as large as the traditional, regulated banking system.  It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.  

All Behind the Curtain of MERS

The housing shell game was made possible because it was all concealed behind an electronic smokescreen called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.).  MERS allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws.  Title would be recorded in the name of MERS as a place holder for the investors, and MERS would foreclose on behalf of the investors.  Payments would be received by the mortgage servicer, which was typically the bank that signed the mortgage with the homeowner.  The homeowner usually thinks the servicer is the lender, but in fact it is an amorphous group of investors.          

This all worked until courts started questioning whether MERS, which admitted that it was a mere conduit without title, had standing to foreclose.  Courts have increasingly held that it does not.

Making matters worse for the servicing banks, Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP—a government loan modification program designed to help at-risk homeowners meet their mortgage payments—the servicers would have to produce the paperwork showing the loan had been assigned to the trust.

The hasty solution was a rash of assignments signed by an army of “robosigners,” to be filed in the public records.  But the documents are patent forgeries, making a shambles of county title records.

Complicating all this are tax issues.  Since 1986, mortgage-backed securities have been issued to investors through SPVs called REMICs (Real Estate Mortgage Investment Conduits).  REMICs are designed as tax shelters; but to qualify for that status, they must be “static.”  Mortgages can’t be transferred in and out once the closing date has occurred.  The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid.  Yet the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust’s closing date.  The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

John O’Brien, Register of Deeds for the Southern Essex District of Massachusetts, calls it a “criminal enterprise.”  On January 18th, he called for a full scale criminal investigation , including a grand jury to look into the evidence.  He sent to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz over 30,000 documents recorded in the Salem Registry that he says are fraudulent.

From Lending Machines to Borrowing Machines

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent, but because they have been required to in order to come up with the collateral (in this case real estate) to back their loans.  It is the way our system is set up: the banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending.  Instead, they are vacuuming up our money and lending it back to us at higher rates.  

“Instead of lending into the economy,” says British money reformer Ann Pettifor, “bankers are borrowing from the real economy.”  She wrote in the Huffington Post in October 2010:

[T]he crazy facts are these: bankers now borrow from their customers and from taxpayers. They are effectively draining funds from household bank accounts, small businesses, corporations, government Treasuries and from e.g. the Federal Reserve. They do so by charging high rates of interest and fees; by demanding early repayment of loans; by illegally foreclosing on homeowners, and by appropriating, and then speculating with trillions of dollars of taxpayer-backed resources.

Not only has the system destroyed county title records, but it is highly vulnerable to bank runs and systemic collapse.  In the shadow banking system, as in the old fractional reserve banking system, the collateral is being double-counted: it is owed to the borrowers and the depositors at the same time.  This allows for expansion of the money supply, but bank runs can occur when the borrowers and the depositors demand their money at the same time.  And unlike the conventional banking system, the shadow banking system is largely unregulated.  It doesn’t have the backup of FDIC insurance to prevent bank runs.

That is what happened in September 2008 following the bankruptcy of Lehman Brothers, a major investment bank.  Gary Gorton explains that it was a run on the shadow banking system that caused the credit collapse that followed.  Investors rushed to pull their money out overnight.  LIBOR—the London interbank lending rate for short-term loans—shot up to around 5%.  Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt.

Fixing the System

The question is how to eliminate this systemic risk.  As noted by The Business Insider :

Regulate shadow banking more tightly, and you probably have to also provide government backstops. Shudder. Try to shut the thing down or restrict it and you suck credit out of the system, credit which much of the non-financial “'real” economy uses and needs.

Interestingly, countries with strong public sector banking systems largely escaped the 2008 credit crisis.  These include the BRIC countries —Brazil Russia, India, and China—which contain 40% of the global population and are today’s fastest growing economies.  They escaped because their public sector banks do not need to rely on repos and securitizations to back their loans.  The banks are owned and operated by the ultimate guarantor—the government itself.  The public sector banking model deserves further study.

Whatever the solution, a system that requires the slicing and dicing of mortgages behind an electronic smokescreen so they can be bought and sold as collateral for the pawn shop of the repo market is obviously fraught with perils and is unsustainable.  Please contact your state attorney general and urge him or her not to go through with the robo-signing settlement, which will be granting immunity for crimes that are not yet fully known.  Phone numbers are here.  The surface of this great shadowy second banking system has barely been scratched.  It needs a very thorough investigation.