Monthly Archives: September 2008

How the international banking fraternity created the present credit crisis

Here’s an article by Chris Quigley that describes how the international banking fraternity created the present credit crisis – t.h.g.

The “Originate to Distribute” Basle Banking Model Created the Banking Crisis

Christopher M. Quigley, B.Sc., M.M.I.I., M.A.

In an attempt to comprehend the current “credit crisis” I decided to try to investigate its underlying causes. To my dismay I discovered that the situation did not come about by accident but was actually conceived and planned by the International Banking Fraternity in Basel, Switzerland, in 1998.

The tsunami of credit that burst onto the scene after this “Basle Accord” helped save America from a recession, enabled it to fund a war, sleep walked Europeans, politically into the Euro Zone and attempted to copper fasten the artificial state called the European Union. This crisis is no accident it was premeditated and internationally agreed.

If you don’t believe the pre-meditation involved please read the quote below from the Wall Street Journal, Nov. 27th. 2007:

“In 1998 the Basle Accord created the opportunity for regulatory arbitrage whereby banks could shift loans off their balance sheets. A new capital discipline that was designed to “improve” risk management led to a PARALLEL BANKING SYSTEM whose lack of transparency explains how the market started to seize up.

The “originate-to-distribute” model REDUCED THE INCENTIVE for banks to monitor the CREDIT QUALITY of the loans they pumped into collateralized-

loan-obligations and other structured vehicles, the rules failed to highlight contingent credit risk……With Basle II, the question is just how the markets will evolve over the next 20 years…. as the new accord will require banks to hold LESS CAPITAL”.

American history has shown that many of its great leaders saw the danger in granting banking institutions too much power over the destiny of a nation. The Basle I Accord and now Basle II indicate just how fundamentally the International Banking Groups have lost their moral compass and altered old standard banking rules. Through sleight of hand i.e. “off balance sheet accounting” they allowed the financial structure of the world to become totally unstable and risk prone. If one was cynical one would actually come to believe that in 1998 future failure was built into the matrix; failure which only the strongest and the most astute could survive.

The end result will be systematic institutional deflation on a worldwide basis. Even though cash is being pumped into the major institutions the multiples of “off balance sheet” credit are now historic, thus the corporate inflation has already occurred. What we will now experience going forward is dept collapse and with it falling mortgage issuance and restrictive commercial funding. Here in Ireland business activity has almost come to a standstill and everybody is holding their breath wondering what the next crisis will be. The only saving grace is that things are not much better in Italy, Germany, France or Spain and is actually much worse in Scotland, (where the bank of Scotland failed) England and Greece. This crisis is truly global.

As institutional deflation (due to collapsing systematic credit) and social inflation (due to the panic demand and circulation of currency) spreads around the globe those who are left holding excess negotiable resources will be in a very powerful position to soak up value assets for pennies on the dollar. Regular folk will not be able to participate in this bonanza because for them the banking credit system will be closed with nothing to offer but foreclosure and frustration. The majority will in a defensive survival mode while the privileged few will be in full scale acquisitive attack. Such was the case in the last depression. How history is repeating itself. Those who instigated the “off balance sheet” travesty knew exactly what they were doing. My advice is if you cannot beat them join them. Friends go to cash and the physical money metals as soon as you can. Contract your business and life-style expenses. Network and co-operate within a real community for the exchange of goods and services that sustain life. Before things get really bad become educated and aware. Form city and town based money circles based on the teachings of E.C. Riegel and learn how to issue community based, bearer-negotiable, split-barter, exchange-instruments of agreed value; otherwise known as money. (Most people do not fully understand that money, in essence, is a social contract based on human trust and mutual benefit). This “crisis event” is going to get much worse before it gets better folks. There will be short periods of reprieve but the reality of the problem is so serious and fundamental that it will take years, maybe decades (as in Japan), to work through, even with a R.T.C. (B) type solution. But perhaps it is true that “every cloud has a silver lining” and that “every problem bears within it the seeds of a greater opportunity”. Maybe finally after ninety five years the good people of the United States will awake from their media induced trance and realise that too much power was usurped by an elite on the 22nd. December 1913. Peaceful, proactive and constructive community must reassert its primacy over immoral, selfish and destructive institutionalism.

The Inevitable End of the Central Banking and Political Money Regime

The present disorder in the financial markets and the cascading failures of financial institutions come as no surprise. Those who recognize the impossibility of perpetual exponential growth and who understand how compound interest is built into the global system of money and banking expect the continuation of periodic “bubbles” and “busts,” each of increasing amplitude until the systems shakes itself apart.

Engineers call this phenomenon, “positive feedback.” Such a system cannot find equilibrium. Imagine a heating system in which the thermostat, sensing a rise in temperature, calls for more heat instead of less. Such is the nature of the debt-money system. The imposition of interest on the debt by which money is created, demands that more debt be created. Such is the debt imperative which gives rise to a growth imperative. Among other things, it prevents the emergence of a steady state economy.

Is this the final round? Who can say? Can the system be saved yet one more time? Maybe.

Under the central banking regime which has become all but universal in countries around the world, money has been politicized. The collusion between politicians and international bankers enables governments to extract wealth from the economy by deficit spending and banks to extract wealth by charging interest on money as they create it by making loans. These two parasitic elements take wealth away from productive members of society and lavish it on military adventures, international intrigues, wasteful boondoggles, and financial finaglers.

When the system spins out of control what will come out of the chaos? It is impossible to predict but here are two strong possibilities. When the dollar collapses the financial and political elite class will certainly try to orchestrate a new global monetary regime based on the same old mechanisms for centralizing power and concentrating wealth in their own hands, seeking to complete the New (feudal) World Order which has been abuilding for the past three hundred years. Another possibility is the emergence of the kind of decentralized, democratic, and sustainable system we have been advocating for a long time.

We had better get ready to seize the opportunity that accompanies this impending crisis.

How? By organizing ourselves in our local communities and affinity groups to reclaim the credit commons, to create interest-free, non-dollar, non-bank exchange mechanisms and payment media. This is not as hard as it seems We already know how to do it. All it takes is organization and will.

Back to the current crisis, we should consider the possible actions of America’s creditors. According to Paul Joseph Watson & Yihan Dai, in and article in Prison Planet (http://prisonplanet.com/) dated Friday, September 19, 2008, “China Finance, China News and Chaobao Financial News, all state owned media outlets, slammed the Fed for taking action that will only make long term economic conditions worse and devalue the dollar by “creating money that does not exist which leads to the inflation of liquidity,” a policy contrary to China’s position as a holder of vast reserves of US dollars.”

Central banks have one true function, that is to manage the effects of the parasitic drain, to decide who will pay the price, who will feel the pain. They can either (1) restrict credit, thus causing recessions, bankruptcies and unemployment; or (2) they can expand credit and inflate the money supply by monetizing debts (either public or private) that are uncollectible.

Given China’s position as one of the United States’ biggest creditors, it is in a powerful position to determine the outcome of the current and future financial crises. If they don’t like the restructuring plan that the financial elite wants to put in place, they can kick over the table by dumping their dollar holdings and causing the value of the dollar to crash through the floor. Organized others acting in cooperation might do the same.

“The king is dead, long live the king.”

My upcoming book, “The End of Money,” due to be published early next year by Chelsea Green, will elaborate these points.

t.h.g.

The Worsening Debt Crisis – An Interview With Michael Hudson

Michael Hudson is a very astute observer of economics, finance, politics, and history.
When he speaks everyone should pay attention.

I strongly recommend that anyone who wishes to understand, not just economics and finance, but our general socio-political predicament should read his entire interview.

I agree with his statement that “The economy has reached its debt limit and is entering its insolvency phase. We are not in a cycle but the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored.

He says “the only basis for borrowing more is to inflate the price of real estate that is being pledged as collateral for mortgage refinancing.” That was the reason for the banks creating the real estate bubble in the first place, to provide a basis for lending ever more credit (debt-money) into circulation.

The political debt-money system contains a debt and growth imperative because of the compound interest that is attached to loans. To keep the game going there are two choices, expand debt by lending to the government sector (by running budget deficits), or expand debt by lending to the private sector (liberal lending to enable people to buy whatever (real estate, stocks and other securities, commodities, education (student loans), cars and other stuff, what else?)). When incomes are not sufficient for the debt burden to be carried, defaults occur. Defaults can be denied and deferred by various tricks — e.g., refinancing to reduce payments by extending length of repayment. When a financial institution has such extreme cash flow problems as to be unable to continue denial, the government will come in with a bailout plan that leaves the taxpayer to foot the bill. Now, it becomes the public sector’s turn to carry the expanding debt burden.

I am in full agreement with Hudson’s claim that, “It is pure hypocrisy for Wall Street’s Hank Paulson to claim that all this is being done to “help home owners.” They are vehicles off whom to make money, not the beneficiaries. They are at the bottom of an increasingly carnivorous and extractive financial food chain.”
The parasitic nature of the system becomes ever more evident. Either the host becomes increasingly sick and eventually dies, taking the parasites with it to the grave, or the host will act on the increasingly strong signals of malaise and find a way to expel the parasites or keep them in check. Nature shows us that co-existence is a possibility but only if the parasites are held within certain bounds. The New Deal of FDR was a temporary expedient to do just that. One could argue that FDR saved Capitalism.

Hudson clearly states what I have been trying to get across to people: “What people still view as an economic democracy is turning into a financial oligarchy. Politicians are looking for campaign support mainly from this oligarchy because that is where the money is. So they talk about a happy-face economy to appeal to American optimism, while being quite pragmatic in knowing who to serve if they want to get ahead and not be blackballed.”

So don’t expect Obama to do much different.

Hudson correctly observes that “financial interests have replaced the government as society’s new central planners.”
They control politics and everything else. – t.h.g.