Tag Archives: Banking

U.S. Likely to Move from Fractional Reserve Banking to No-reserve Banking

Fed Chairman, Ben Bernanke is calling for an end to bank reserves.

In the footnotes of a speech U.S. Federal Reserve Bank Chairman Ben Bernanke would have given to the House Financial Services Committee on Feb. 10, lies a unique and startling disclosure.

Hosted on the Federal Reserve’s own servers, the written testimony of the bank’s chairman explains in plain text what expanding the Fed’s powers will do.

“The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system,” footnote number nine, at the bottom of the page, explains without additional qualification.

This marks the end of even the pretense that reserves mean anything in today’s banking system, or that there are any effective controls on the abusive issuance of money as debt. Read the full article here.

The Bailout Scam in Simple Language

The following is an allegorical story that has been circulating recently. I don’t know who wrote it or where it originally came from, but it does a pretty good job of explaining the scam of the recent banking/finance bailout. –t.h.g.

Econ 101 Heidi’s Bar

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit

By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.

Now, do you understand?

I must correct that final statement. The funds required for the bailout are mostly obtained, not from taxes, but are CREATED by the government and the banking system as new massive government debts are monetized. This is the classic inflation of the money supply, i.e., debasement of the currency.–t.h.g.

Secret Banking Cabal Emerges From AIG Shadows: David Reilly

The most amazing thing about this story is that it appeared in Bloomberg, a mainstream financial news service. The second most amazing thing is that it acknowledges what critics  of central banks (including the Federal Reserve) have been complaining about for decades.

Here are a couple tidbits from the article, with my comments in italics. — t.h.g.

Jan. 29 (Bloomberg) — The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.
Well, duh…

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the US government. But in fact you work for the private banks that elected you.”
It is the bankers who have long dictated who would serve as Treasury Secretary, and most who have held that post had been top level bankers.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.
Indeed, but then what? The corrupt global system of money, banking and finance cannot be reformed. It needs to be transcended. My book, The End of Money and the Future of Civilization, describes effective action that can be taken by individuals, businesses, governments, and NGOs to achieve that outcome.

Read the full article here…

The Other Plot to Wreck America-An informative article from the New York Times

Even though it does not quite get to the root of the matter, this article is worth reading.

The Other Plot to Wreck America

By FRANK RICH

THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.

What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.

The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.

It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.

He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.

As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave

Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.

Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.

If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.

Frank Rich is an Op-Ed columnist for The New York Times.

Thomas Greco’s Video Interview with Daniel Pinchbeck

Here are some segments of an interview I had with Daniel Pinchbeck during the Economics of Peace Conference in Sonoma, California in October of 2009. This interview was recorded by Haig Varjabedian

You can watch the entire interview in four parts on Vimeo.

Daniel Pinchbeck is an author and the  founder of  RealitySandwich.com, a website forum regarding experiences and initiatives surrounding the evolution of consciousness.

I also did an interview with Regina Meredith of Conscious Media Network.

What’s Wrong About the Political Money and Banking System?

To cut through all of the peripheral points, the main problems with the political money and banking system are:
1. The issuance of money on improper bases, mainly government debt, real estate, and assets of questionable value.
Principle: Money should be issued on the basis of goods and services already in the market or shortly to arrive there. All other needs (capital formation and consumer spending) should be financed out of savings.
2. Legal tender laws that force acceptance at par of debased political currencies.
Principle: Legal tender laws should be abolished. Only the issuer of a currency should be required to accept it at par. In the absence of legal tender, debased currencies will either be refused or pass at a discount in the market.
3. The charging of interest on credit money that is created as “loans.”
Principle: Money should be created interest free as a generalization of trade credit that facilitates the exchange of goods and services.

— t.h.g.

How Mobile Phones are Changing Banking and Finance. Money Next?

This story suggests the enormous possibilities inherent in the new mobile phone technologies and networks. – t.h.g.

How mobile phone banking is empowering the poor

13 Feb 2009 15:11:00 GMT

Written by: Natasha Elkington

Six years ago on a whim, I was lucky enough to buy a farm with two friends in my native Kenya. The farm borders the Shimba Hills National Reserve, high above the coastal plain. It’s an enchanting other world, but also very remote. As I live in Britain at the moment we’ve hired a caretaker, Samuel, to protect the land from squatters and wild game that occasionally breaks through the fence looking for food.

The problem is how to pay Samuel when the nearest bank is 50 km (30 miles) away in Mombasa. The answer – as improbable as it sounds – is by mobile phone. Two years ago, a new phenomenon hit Kenya that allows money to be transferred between people using text messaging called M-PESA (pesa means money in Swahili).

This system, known as “branchless banking”, lets people set up remote bank accounts that are accessed through their mobile phone or other technology.

It’s a financial revolution that has taken Kenya by storm and will probably do the same across the rest of the continent by giving Africa’s poor access to financial services for the first time. Africa has seen phenomenal growth in mobile phone subscribers – with 278 million users by the end of 2007, according to Britain’s Department for International Development (DFID).

M-PESA, which was set up by Vodaphone and funded through DFID, now has 5 million users in Kenya, more than all the bank accounts. It is being expanded to support salary payments, bill payments and social benefit payments. Poverty experts say a lack of access to banking hampers people’s ability to improve their incomes and pay for healthcare and education, whilst holding back countries’ economic growth.

This is true especially in Kenya, where a large part of the population don’t have bank accounts because they live in remote areas, don’t have proper addresses, don’t have funds to maintain an account or don’t have the education to deal with a bank. But with the introduction of M-PESA, people are beginning to feel more financially empowered.

It works like this. A registered user can put money into their account at an M-PESA agent and send it to other mobile phone users by SMS instruction. The recipient can then retrieve the money from another agent. These outlets include local mobile dealers, petrol stations, supermarkets and kiosks.

This service has also literally been a life-saver! Two months ago, Samuel sent a text telling me his wife was having a difficult labour and he had to rush her to hospital. The next text I received was that his wife was in critical condition. Right away I called my friend in Kenya who was already on the case and in a matter of minutes we were able to send money to Samuel whose wife received immediate attention and is on the road to recovery. Unfortunately, the baby could not be saved.

But if we had not been able to send money to Samuel so fast, he would have almost certainly lost his wife too. This vital technology is changing how people in developing countries live their lives, has the potential of easing the burden of poverty and can be a way to advance microfinance projects.

Britain’s International Development Secretary Douglas Alexander announced this week that the government is embarking on a £1.4 million ($2 mln) three-year project that will lay the foundations for financial services to be made available through new and emerging technology across Africa and Asia – including Kenya, Tanzania, Pakistan, Nigeria, India, Bangladesh and Ghana.

“A lack of access to finance in some parts of the developing world stifles entrepreneurship, stunts development and leaves people trapped in a poor, cash-only society,” Alexander said. “It is the world’s poorest who could benefit from this most … A rapid increase in access to financial services could lift millions out of poverty and help change their lives forever.”

It is predicted that mobile-phone banking could add as many as a billion banking customers to the system in five years because it is relatively inexpensive to set up and there is no need to invest in new infrastructure because it uses the existing mobile phone network.

From Reuters AlertNet http://lite.alertnet.org/db/blogs/55868/2009/01/13-151104-1.htm