The Goldman Connection: Part 2

As promised, here is part two of Bruce Wiseman's latest article, detailing who's "pulling the strings" on the financial crisis.

If you still think that "these things just happen," then I suggest you get comfy on the couch again and wait patiently for the next episode of The Real Housewives of Atlanta. We'll check in with you later.

THE GOLDMAN CONNECTION: PART 2

NEIL LEVIN

THE DERIVATIVES BOOM
The acknowledged boogie-man of the world’s financial crisis were mortgages, many of which were sub-prime, packaged up into investment products called mortgage backed securities - also called derivatives because the package, the security, derived its value from the underlying mortgages. There is much more to this story (See: The Financial Crisis: A Look Behind the Wizard’s Curtain) but the point here is that these mortgages were a critical component to the crisis.

For reasons we detail in a follow up article, The Financial Crisis: The Hidden Beginning, the explosive growth of these products was due in large part to the fact that the securities carried a AAA investment grade rating. That rating was granted because Goldman Sachs and other banks were able to purchase what was essentially credit insurance for the investment. In other words, if the investment went bad, it was “insured” against loss.

This kind of protection was called a credit default swap. Though “swaps” looked like insurance and acted like insurance, they were remarkably adjudicated not to be so, thus eliminating the need for the “insurer” to hold reserves against possible losses. This opened the door to a torrent of speculation in the derivatives.

Let Matt Taibbi tell it.

“AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies.”

GARY GENSLER

THE COMMODITIES EXCHANGE
But not to worry. We’re protected now. The regulation of many derivatives and other exotic financial instruments - the $5 trillion dollar commodity futures industry (gold, silver, oil, treasury bills, corn, cotton, sugar, etc.) - has recently been delegated by President Obama to Gary Gensler.

Gensler was confirmed as the head of the Commodity Futures Trading Commission (CFTC) in May, but it took a little arm twisting. Some members of Congress had misgivings.
You see, back in 2000, when he was at Treasury, Gensler advocated legislation, which eventually passed exempting - credit default swaps and some other derivatives from regulation.

Still, it’s hard to argue with his understanding of derivatives. He spent 18 years at Goldman Sachs, the most aggressive derivative trader on Wall Street, where he became a Partner. He subsequently went to the Treasury Department where he pushed for the deregulation of the industry. Now President Obama has put him in charge of it.

Change we can believe in…

DUNCAN NIEDERAUER

THE NEW YORK STOCK EXCHANGE
Goldman alumni not only control the commodities markets, but the major stock markets of the world, as well. In May of 2007, the grand daddy of stock markets, the New York Stock Exchange (NYSE), bought Euronext (a pan-European stock exchange with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom) which, now branded as NYSE Euronext, operates the largest securities exchange on the planet.

To run the show, the newly combined entity brought in Duncan Niederauer and appointed him Chief Executive Officer. Niederauer had been a Partner and Managing Director at Goldman Sachs before joining NYSE Euronext.

STEPHEN FRIEDMAN

The NEW YORK FED
The Federal Reserve System controls the country’s money supply. Nice gig if you can get it. It is made up of a Board of Governors (7) appointed by the President for 14 year terms, and 12 Federal Reserve Banks around the country. The New York Fed is a first among equals. An institution of awesome power, it supervises and controls the major money center banks in New York, the capital of the US financial industry.

The New York Fed worked closely with Treasury Secretary Paulson on numerous aspects of the bailout during the chaos of the financial meltdown in the Fall and Winter of ’08.
Much of this work was carried out by Timothy Geithner, then President of the New York Fed until Rubin helped get him the job as the Secretary of the Treasury. The Chairman of the New York Fed at this time was Stephen Friedman. He picked up the reins when Geithner left while looking for a replacement.

Friedman was a former CEO of Goldman Sachs, and later Chairman at Goldman. He’d left Goldman in 2002 to oversee economic policy in the Bush White House as the Chairman of the National Economic Council. Later, Bush appointed him to the Chairmanship of the President’s Foreign Intelligence Advisory Board.

In 2004, he returned to New York and the Chairmanship of the Fed. He also returned to Goldman to become its Chairman while he was also the Chairman of the Federal Reserve Bank of New York.

WILLIAM DUDLEY

To replace Geithner as President of the NY Fed, Friedman selected William Dudley. Dudley had been a Partner and Managing Director at Goldman Sachs for ten years prior to the Fed appointment.

Incest doesn’t begin to say it.

From the White House to Treasury; from the New York Fed to AIG; from the Commodity Futures Trading Commission to the New York Stock Exchange, Goldman is there.

ROBERT ZOELLICK

The WORLD BANK AND THE INTERNATIONAL MONETARY FUND
But it doesn’t stop at our shores. It’s a global economy today, which requires global control.
The World Bank was founded in 1945 to help with the reconstruction of Europe after the Second World War. Over the years, their mission changed.

Today they claim that their purpose is to eliminate world poverty. Kind of a pin-striped Mother Theresa for the planet. Unfortunately, this is at odds with what they actually do. If they were achieving their aims, the countries that they worked with would be prospering. But the reverse is true. In fact, an objective view of the results of the bank’s activities leads one to the inescapable conclusion that what the World Bank produces is indebted nations.

In their beneficence, the World Bank makes loans to third world countries, countries that can’t borrow elsewhere. The loans carry conditions that dictate domestic policy “adjustments” in health, education, tax policy, judicial matters, agriculture, manufacturing….

You get the picture. The Bank and its sister organization, The International Monetary Fund, have about ¾ of the planet in debt like this.

Medieval doctors always prescribed the same “cure”; no matter what the ailment, they applied leeches to patients and bled them. For the past decade and a half, critics have likened the World Bank and the International Monetary Fund (IMF) to these doctors.

The two institutions have thrown millions of people deeper into poverty by promoting the same harsh economic reforms… regardless of local culture, resources or economic context. Strapped with heavy debts, most developing countries have reluctantly accepted these reforms, know as Structural Adjustment Programs (SAPS), as a condition for receiving IMF or World Bank loans.

In recent years, the doctors’ harsh medicine has been exposed in dozens of studies and in increasingly vocal street protests. In response, the World Bank and the IMF have been attempting to revamp their public image into that of anti-poverty crusaders.
http://www.thirdworldtraveler.com/IMF_WB/IMF_CosmeticMakeover.html

The President of the World Bank is Robert Zoellick. In this position, Zoellick walks in the shoes of great Humanitarians like uber-Neocon Paul Wolfowitz, “Architect of the Iraq War,” and Robert McNamara, the Johnny Appleseed of Agent Orange.

Zoellick is in charge of spreading loans around the world to eliminate poverty, not unlike McNamara’s blanketing of South East Asia with Agent Orange to stop Communism. Both agendas produce the same results – toxicity, and in some cases, death – of the corporal body or the body politic.

Prior to joining the World Bank, Zoellick served as Vice Chairman, International, of the Goldman Sachs Group.

You gotta love these guys.

The World Bank and the International Monetary Fund (whose most powerful Board member is our very own Timothy Geithner) are the key tacticians in ensuring that the planet’s smaller economies remain deeply in debt. But they are no longer at the apex of international finance today.

As I have made clear in our earlier articles, The purpose of this financial crisis was to take down the United States and the U.S. dollar as the stable datum of planetary finance and, in the midst of the resulting confusion, put in its place a Global Monetary Authority—a planetary financial control organization to “ensure this never happens again.”

This purpose has now been accomplished.

To explain how, I quote from an article I wrote on this subject a few weeks ago.

THE FINANCIAL STABILITY BOARD
On April 2, 2009, the members of the G-20 (a loose-knit organization of the central bankers and finance ministers of the 20 major industrialized nations) issued a communiqué that gave birth to what is no less than Big Brother in a three-piece suit.

The communiqué announced the creation of the all too Soviet sounding Financial Stability Board (FSB). The Financial Stability Board. Remember that name well, because they now have control of the planet’s finances . . . and, when one peels the onion of the communiqué, control of much, much more.

THE 12 INTERNATIONAL STANDARDS AND CODES
While several press releases from the G-20’s London conclave reference these codes as though they were handed down from a fiscal Mount Sinai, finding the specifics takes some digging.

But then the Bank for International Settlements (BIS), out of which the FSB operates, has never seen transparency as one of its core values. In fact, given its fascist pedigree, transparency hasn’t been a value at all. Known as Hitler’s bank, the Bank for International Settlements worked arm in arm with the Nazis, facilitating the transfer of gold from Nazi-occupied countries to the Reichsbank, and kept their lines open to the international financial community during the Second World War.

The BIS is completely above the law.

It is like a sovereign state. Its personnel have diplomatic immunity for their persons and papers. No taxes are levied on the bank or the personnel’s salaries. The grounds are sovereign, as are the buildings and offices. The Swiss government has no legal jurisdiction over the bank and no government agency or authority has oversight over its operations.

In a 2003 article titled “Controlling the World’s Monetary System the Bank for International Settlements,” Joan Veon wrote:

“The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them. . . .

“When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency.”

And if you don’t find that troubling, the “Key International Standards and Codes” just adopted by the Financial Stability Board cover such things as:


• specification of the structure and functions of government;(!)
• data gathering from ministries of education, health, finance and other agencies;
• matters dealing with personal savings accounts, retirement incomes.

Here’s an example of the FSB in action from an article written by former Clinton advisor and political strategist Dick Morris for The Bulletin on April 6, 2009.

“The FSB is also charged with ‘implementing . . . tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms.’

“That means that the FSB will regulate how much executives are to be paid and will enforce its idea of corporate social responsibility at ‘all firms.’”

Almost no one on the planet has grasped what has occurred here.

Most central banks are answerable to no one. The U.S. Federal Reserve, for instance, is a private bank. It is owned by shareholders. Yes, the President appoints the Chairman, and the Chairman must testify before Congress, but no one gives them orders or tells them what to do. Again, they are a private, not government, institution (a very good reason to support Ron Paul’s bill [H.R. 1207] calling for Congressional authority to audit the Fed – something they currently have no right to do.)

And it is the newly created Financial Stability Board, operating as an arm of the Bank for International Settlements, that now structures and dictates the rules and regulations to be carried out by the central banks of the world.

And given the fact that central banks essentially operate independently of their national congresses or parliaments, the FSB now controls the monetary policy of the planet.

It is now, for all practical purposes, the Politburo of international finance. And who is the Chairman of this little known entity based in Basel, Switzerland? Mario Draghi. Draghi was a Partner at Goldman Sachs, until, like Henry Paulson, he left Goldman in 2006. Paulson took over the U.S. Treasury and Draghi become the Governor of the Bank of Italy (Italy’s central bank) and in April of this year, Chairman of the Financial Stability Board.

Draghi is also a member of the Board of Directors of the Bank for International Settlements. In fact, the BIS board reads like a Goldman reunion committee. Mark Carney, had a thirteen year career with Goldman Sachs where he became the Managing Director of Investment Banking before becoming the Governor of the Bank of Canada and a member of the BIS Board.
William Dudley, President of the New York Fed and former Partner at Goldman Sachs is also a member of the Board, along with Draghi.

And there, you have it. Complete financial control of U.S. financial policy and markets, from the White House, Treasury, the New York Fed and the New York Stock Exchange and the Commodity Futures Trading Commission. Control of the World Bank, most powerful member of the International Monetary Fund and, at the top of the fiscal food chain, the Bank for International Settlements and its Financial Stability Board.

This is my fourth article in a series about the financial crisis. Despite our exposure of what some commentators have called Goldman’s economic terrorism, it is important to understand that they are but a part – soldiers in pin-stripes - of a more basic agenda, which is nearly complete at this point.

This agenda is set forth in my previous articles – A Look Behind The Wizard’s Curtain, Hitler’s Bank Goes Global and The Hidden Beginning – which can be found at http://www.brucewiseman.com/.

But “nearly complete” is not a fait accompli. And so I am providing you here with the link to “Hitler’s Bank goes Global,” the closing paragraphs of which set out specific actions to take to help bring this situation under control.

Goldman is like a Rottweiler on a leash. The key is bringing the handler, the Bank for International Settlements, under control.

Best,
Bruce

Bruce Wiseman is financial consultant and writer living in Los Angeles. He can be contacted at the address below.
Bruce@brucewiseman.net
www.brucewiseman.net
© 2009 Bruce Wiseman.
All rights reserved.




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The Goldman Connection - I'm Simply Speechless

I received Bruce Wiseman's next installment on the global financial meltdown today, and you have got to read it. It goes like this:

Dear Friends,

The following is the first of two installments of an article exposing the activities of Goldman Sachs, the most powerful investment bank in the world.

All of the names of Goldman employees are linked to a chart which gives the overall picture of where these people are operating or have operated.

The second installment of the article will be sent in two days.

THE GOLDMAN CONNECTION

There will be a war. I’m certain of it.

No, not with Iran, though I’d like to introduce Mahmoud – I refuse to wear a neck tie under any circumstances – Ahmadinejad to a woman I met several years ago. She and her twin sister had been experimental subjects of Nazi madman, Dr. Joseph Mengele. Mengele had tried to change the color of their eyes with dye. The woman was blind. Her sister died at Auschwitz.

Mahmoud, who thinks the Holocaust was a hoax, forgot to pay his brain bill.

And they are a few clowns short of a circus in Pyongyang. Still, I don’t think the Chinese will let Kim Jon Il and his newly appointed secret police chief son, Kim Jon Un, drag the West into a military confrontation on the Korean peninsula. It’s a little too close to home and a Korean War II is not part of Beijing’s master plan. At least not yet.

No, this is a war brewing between two iconic American institutions that couldn’t be more different: the voice of America’s rock culture, Rolling Stone Magazine, and the country’s premier, Armani clad investment bank, Goldman Sachs.

Rolling Stone recently published an article called The Great American Bubble Machine, a masterful expose by Matt Taibbi revealing Goldman’s greed and corruption in the creation of several investment “bubbles” that have made the firm and its partners – the term “filthy rich” comes to mind – but that have been devastating to Americans and to the US economy.

I rarely use those two words together. I have no problem with people making money – barrels of the stuff. Boat loads. But this needs to be done with some sense of ethics. Some sense of morals. Some sense of responsibility toward one’s fellow man.

I was informed that Goldman is preparing a response. One wonders if the Wall Street veneer will crack: if they’ll come out with their pinstripes pressed or PR guns blazing trying to marginalize Taibbi.

As those of you who have followed my recent articles on the financial crisis know, I have pointed out the all too coincidental participation of Goldman executives in the creation of the financial crisis. Machiavelli himself would be proud of what has been nothing less than a coup d’etat of the planet’s financial systems. The Guys from Goldman have played their part.

While I have previously drawn attention to a few of the key figures, Taibbi has peeled the onion on several of the investment bank’s schemes and has also laid bare the army of Goldman alumni that have turned up at critical decision points in the universe of credit, investment and finance.

His orientation was such that he omitted a few that I will cover below. But the article is exhaustively researched and ties Goldman to everything from the Great Depression to speculation in oil futures before last year’s election that sent gas prices to $5.00 a gallon here in the land of many freeways. My focus, on the other hand, has been exposing the actual cause of the worldwide financial crisis. And our paths have crossed at a few key junctures.

Junctures that bring to mind the great Gordon Gekko - Michael Douglas’ character in Oliver Stone’s Wall Street. Preening in front of the Board of Directors and up and down the aisle among the shareholders of Teldar Paper, Douglas shares the philosophy of the successful investment banker as if handing down commandments from Mount Wall Street: “Greed is good. Greed is right. Greed works. Greed clarifies and cuts through and captures the essence of the evolutionary spirit.”

Yeah, Baby.

But is it more than greed? Are Goldman Sachs alumni part of a broader agenda that has not only lined their pockets with the spoils of corruption that Taibbi has exposed, but has also helped facilitate an international financial coup – a coup that has put the control of the planet’s financial affairs into the hands of small group of central bankers that hold secret meetings at what is nothing less than the Vatican of international finance – The Bank for International Settlements located in Basel, Switzerland?

If you’ve had a suspicion that bankers are running Washington, then hang on to your Calvins because while it starts in DC, this story is global in reach and is rolling out before your eyes – if you are willing to look.

ROBERT RUBIN

I could start this part of the story with Henry Fowler, who, after serving as the 35th Secretary of the Treasury, in 1969 became a partner at Goldman after leaving office. But that’s not how things worked in the nineties and beyond. Oh no. The current sequence is very different.

Pictures of Robert Rubin always remind me of the cartoon character, Droopy. He seems to be in a perpetual state of sad worry. Hard to know what he’s worried about, having received $50 million in compensation from his last employer (CitiBank). Perhaps it’s because the financial website Marketwatch recently named him as one of the "10 most unethical people in business."

More to the point of our story, having served 26 years with Goldman Sachs, ascending to the position of Co-Chairman, Rubin came to Washington with the Clinton Administration, as the Assistant to the President for Economic Policy. Bill must have dug the Wall Street touch, because in January of 1995, he appointed Rubin the 70th Secretary of the Treasury of the United States.

This could be called the start of the modern era of what the New York Times has referred to as the modern era of Government Sachs.

The hallmark of Rubin’s years in Washington was deregulation - specifically, deregulation of the financial industry. Turn the financial industry loose. Let the big dogs eat. Let them earn. They have Porsche payments to make.

Working with Greenspan, he kept interest rates implausibly low and ensured that regulatory safeguards were gunned down like victims in an LA drive-by shooting. The Glass-Steagall Act is a prime example. A piece of depression era legislation that kept investment banks and commercial banks from committing fiscal incest, it was repealed - charged with being out of touch with the global financial structure.

What it was out of touch with was an agenda to open the floodgates to unbridled speculation by banks that set the industry up for a financial Hiroshima.

It takes a great deal of power and influence to get a federal law repealed in this country – especially one that has served the country well for 70 years. But Rubin, with a little help from his friends – Larry Summers and Alan Greenspan – got it done.

These and other similar actions helped pave the way for an economic crisis that would soon engulf the entire planet.

“The housing bubble has burst. The financial services industry is a ward of the state. Insurance companies and automakers are tottering on the brink of bankruptcy. Consumer credit is drying up along with consumer confidence. Banks have stopped lending money, and big corporations have started laying workers off. The stock market is at a five-year low. But amid the greatest financial panic since the Great Depression, the market for one asset stubbornly resists correction: the immaculate reputation of Robert Rubin, former treasury secretary and pre-eminent economic wise man of the Democratic Party.….
But the financial deregulation that allowed markets to boil over began well before President George W. Bush took office. Three decisions relevant to the market meltdown…can be attributed to Rubin.” By Timothy Noah, Robert Rubin’s Free Ride. http://www.slate.com/

MEXICO

Let’s set aside for the moment that when Rubin was Co-Chairman of Goldman, the firm underwrote billions of dollars in bonds for the Mexican government. When the Mexican Peso tanked a few years later, Rubin, as Secretary of the Treasury arranged a multi-billion dollar taxpayer bailout which, according to reports, saved Goldman a cool $4 billion. Kind of a dress rehearsal for Hank Paulson’s trillion dollar raid on the US Treasury which channeled tens of billions into the womb from which he came – Mother Goldman. But we’ll get to that.

Rubin did more than pave the road to a financial Armageddon with Maestro Greenspan. His spawn have helped ensure that the crisis came off as planned and that it was solved with the creation of a global financial dictator, who – prepare to be shocked - is also a Goldman alum. But, again, I’m getting ahead of myself.

THE ACOLYTES

Summers
At Treasury, Rubin groomed two protégés that helped craft the multi-trillion dollar financial bailout and that are today in charge of US financial policy: Larry Summers and Timothy Geithner.

Summers, though not a formal Goldman alum, is a fully certified Rubin-deregulation clone. He was the Chief Economist for the World Bank in the early 90s and later served as Rubin’s Deputy Secretary of the Treasury. When the Rubin left, Summers took full control of Treasury for the last year and a half of the Clinton administration. Today, Summers is the Director of the National Economic Council, which means he is in the commanding position of being the senior advisor to President Obama on domestic and international economic policy.

Geithner
Geithner, like Summers, worked for Rubin at Treasury during the Clinton administration and was a Rubin favorite. He stayed on during Summers’ tenure and then snagged the powerful presidency of the New York Federal Reserve Bank. It was Rubin who got Geithner the gig at the New York Fed and it was Rubin who hooked him up with Obama, who appointed him as his Secretary of the Treasury.

In case there is any doubt about Geithner’s loyalties, it is widely known on Wall Street and inside the Beltway, that Goldman filed adoption papers on him years ago.

In an interview on July 3rd, 2009 the Former US Assistant Secretary of The Treasury, Dr. Paul Craig, was asked, "Does the US Secretary of the Treasury work for the people or does he work for the banking system on Wall Street?" to which he replied, "Geithner works for Goldman Sachs."
http://en.wikipedia.org/wiki/Goldman_Sachs#Former_U.S._Assistant_Secretary_of_Treasury_claims_Treasury_works_for_Goldman_Sachs

So, for those who thought that Rubin had left the stage of US economic policy, think again. Because not only has Rubin himself been named as an advisor to President Obama, but another of his groupies, Christina Romer has been named as the Chairman of the White House Council of Economic Advisors.

Even today then, Goldman’s former Co-Chairman is advising Obama behind the scenes and his acolytes are in charge of the US Treasury (Geithner), the White House Council of Economic Advisors and the National Economic Council. (The White House Council of Economic Advisors is made up of academicians who provide the President with economic statistics and other information on domestic and international financial matters [Romer]. The National Economic Council brings together key administration players and agency heads to coordinate and see to the implementation of the administration’s economic policy. The Chairman [Summers] is the President’s senior economic advisor. )

You’d think with this crew in place, Goldman would have had the White House covered. But Obama apparently went for their two-for-one sale. In addition to Rubin, another former Goldman Chairman, the controversial Jon Corzine, has been a top Obama economic advisor. In fact he was on the short list to become Secretary of the Treasury. But Rubin ruled and Geithner got the gig.

Given that Goldman employees gave more money to Obama ($994,000) than any other commercial enterprise in the United States, and that the White House is awash in Goldmanites, it is no surprise that 1600 Pennsylvania Avenue is viewed as one of the bank’s more important operating divisions.

PATTERSON

Even with the White House under control, Geithner beefed up his G-man staff at Treasury. He named yet another Goldmanite as his Chief of Staff. Mark Patterson was selected to help him run the government’s financial circus. Patterson gave up his plum position as the Vice President for Government Relations at Goldman -meaning he was the investment bank’s chief Lobbyist - to become the number two man at Treasury.

I know, I know. Obama said no lobbyists in his administration, but well, Mark is family. Sort of a fiscal fraternity brother – Alpha Delta Goldman.

PAULSON

But before Obama was Bush. And with oh-so-propitious timing, before the news of the financial crisis began to go mainline in 2007, a new Goldman CEO descended from his throne on Wall Street to come to Washington and help his government manage the nation’s financial affairs.

We love you, Hank.

Viewed from the boardrooms of Wall Street, Henry Paulson’s blitzkrieg of the nation’s capital was nothing short of stunning: A George Patton in pinstripes – except Patton was fighting a real enemy, not one that he, himself, had created.

LIAR, LIAR PANTS ON FIRE
At first, he used PR spin to calm the multitudes. As the crisis began to unravel, in August, 2007 Paulson assured the American people that the subprime mortgage problems were nothing to be concerned about, that they would remain contained due to the strong global economy.

Reuters - U.S. Treasury Secretary Henry Paulson said on Wednesday that the market impact of the U.S. subprime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.

Not.

The stock market peaked two months later followed by a crash that wiped out trillions.

In July of 2008, after the fall of Indymac bank, Paulson told the public that the banking system was safe and sound and that the situation was very “manageable.” Twenty-five banks failed in 2008. Sixty-four have gone under in the first six and a half months of 2009. Another 309 are now listed as “problem banks.”

In fact, according to FDIC Chairman, Shelia Bair, in March, 2009, unless the FDIC gets more revenue, they themselves are going to be broke.

“Without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero."

In a television interview on Meet The Press on August 10, 2008, Paulson stated that he would not be putting any capital into Fannie Mae or Freddie Mac. Three weeks later, he took them over and committed $200 billion in bailout funds. $60 billion has already been spent.

When I was growing up, we’d call this kind of guy a “bullshit artist.” But that didn’t stop him from staging a raid on the US Treasury in broad daylight that would have made Dillinger weep with envy. This, while Congress – a Democratic Congress at that - stood around with their thumbs up their butts.

LIDDY

AIG

Perhaps nothing so demonstrated this scam as the government bailout of American International Group (AIG), the country’s largest insurance company. On September 16th, Paulson coughed up $85 billion of your tax dollars to take control of AIG. The $85 billion loan got the government 80% ownership of the insurance giant. Just what I always wanted from my government, a bankrupt insurance company.

It turns out the $85 billion wasn’t enough. AIG has continued to hemorrhage losses and Uncle has now poured a total of $182 billion into the insurance company.

Jefferson and Adams weep.

Sticky constitutional issues aside, many have found it more than curious that when the government granted the loan, AIG turned right around and paid it out to the investment banks to which it owed money. The bank that got the largest payout was… of course, Goldman Sachs – a cool $13 billion. The money simply passed from your paycheck to the US Treasury, from the Treasury to AIG and from AIG to Goldman (and other banks).

Of course, Paulson didn’t provide the loan without ensuring that Goldman and fellow banksters would be repaid in full. No, no. He made sure the transfers would occur without any objection from AIG or unseemly negotiations with the banks. To do this, he tapped Goldman Sachs board member, Ed Liddy to be the new CEO of AIG.

The goodhearted Mr. Liddy took the gig for a dollar a year in salary from AIG. But he held on to his $3 million in Goldman stock.

Cute, eh?

Goldman made billions from AIG earlier as well. AIG didn’t know this. Neither did Goldman’s clients. You see, despite the fact that they had collected enormous fees selling financial products which were “insured” by AIG, Goldman simultaneously sold AIG short. You get this? On the one hand, they sold financial instruments to their clients, which carried high investment ratings because AIG insured the buyer against loss. At the same time, they made investment “bets” for their own account against AIG. Estimates are that they made $4.7 billion betting against AIG while selling the AIG guaranteed products to their clients.

“Greed clarifies and cuts through and captures the essence of the evolutionary spirit.” --Gordon Gekko.

AIG behind him, Hammering Hank marched on.

LEHMAN BROTHERS
He had worked out strategies to have Bear Stearns purchased by JP Morgan in March of ’08 and had committed $200 billion to rescue Freddie and Fannie in early September, but when Goldman’s chief rival, Lehman Brothers, began to waver in mid Summer, he turned a blind eye. Lehman went bankrupt and sent the already declining stock market into a colossal rout. The next day, he helped arrange an $85 billion bailout for AIG.

Following Lehman’s collapse, Goldman and Morgan Stanley were the only remaining pure investment banks left on Wall Street.

THE BAILOUT
Congress was next.

The Four Horsemen of the Apocalypse have nothing on Paulson and his lap dog Bernanke’s assault on Congress. With threats of riots and martial law as they fear-mongered the Troubled Asset Relief Program (TARP) through the House and Senate - winding up with a cool trillion dollars to “save” the banks.

Congress’ actions remind me of a bad Godzilla movie with masses of panicked Japanese citizens fleeing the fire-breathing monster who is lumbering through the city toppling buildings and devouring cars.

The legislation drafted by our elected officials sounds like something issued to Stalin by the Politburo. They granted Paulson complete dictatorial powers over the bailout money. The TARP read in part:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Calling the multi-billion dollar bailout a “stimulus” program is but a cruel joke. This was nothing more complicated than a coup - a transfer of hundreds of billions of dollars from American taxpayers into the Armani clad arms of major Wall Street banks.

You won’t be surprised to learn, I’m sure, that Goldman Sachs got a cool $10 billion of TARP funds. And if you followed the billions pouring from your paychecks to Wall Street, you might remember that Bank of America at first received $25 billion. Then, in the midst of the chaos, they agreed to purchase Merrill Lynch. As it turned out, however, Merrill’s losses were $15 billion more than B of A had expected. This was due in part to $4 billion in bonuses paid out by Merrill’s CEO, John Thain, who pushed the bonuses through his books just before the Bank of America deal closed.

Bank of America was taken by surprise by the losses and the purchase of Merrill Lynch started to go shaky to which Comrade Paulson coughed up another $20 billion of your tax dollars.

You guys are so cool bailing out these banks. I mean it. It brings tears to my eyes.

Oh, I should mention that John Thain, the guy who pushed through the last minute billions in bonuses, had been the President and Co-chief Operating Officer at Goldman Sachs before becoming the President of Merrill Lynch.

ROBERT K STEEL

TREASURY TO WACHOVIA
Another Goldman alum to drive his bank headlong into the merger- mania chaos of the financial crisis was Robert Steel. Steel had worked with Paulson at Goldman for 30 years and eventually rose to the position of Vice Chairman of the firm.

He followed Paulson to the US Treasury in 2006 and became his top financial policy adviser. In July of 2008, he left the government and became the CEO of Wachovia bank, the sixth largest bank in the country.

How did he wind up at Wachovia? Three weeks earlier, Wachovia - who had paid Goldman Sachs $77 million in fees for financial advice - also sought their assistance in finding a new CEO.

Steel was the man. Three short months later, Steel struck a deal with Citibank to buy Wachovia – a deal that required hundreds of billions in loan guarantees from the government. Then he changed his mind and sold Wachovia to Wells Fargo without the government involved and became a member of the Wells Fargo Board of Directors.

According to Taibbi’s article:

“…Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing.”

Other articles claim that Steel himself did not take a bonus.

Regardless, you have Goldman getting millions in fees to advise Wachovia on, among other things, the selection of a new CEO, who, it turns out is a former Goldman Vice Chairman. Nothing illegal about it, but the financial incest begins to smell pornographic.

NEEL KASHKARI

TARP FRONT MAN
Paulson is nothing if not thorough. While he ultimately called the shots, he brought in someone else to oversee the allocation of the TARP funds and take the Congressional heat. This was thirty-five year old Goldman Vice President, Neel Kashkari who, as the head of the Office of Financial Stability at Treasury, was in control of the $700 billion in bailout funds. It was Kashkari who had to testify about the TARP to Congress - a hot seat whose temperature started to soar shortly after Paulson’s scam began to dawn on the legislators.

THE TAKEOVER
There were others. In fact, Paulson brought so many former Goldman executives to Treasury the New York Times noted the “…appearance that the Treasury Department has become a de facto Goldman division.”

These included:

Reuben Jeffrey, a former Managing Partner of Goldman’s European Financial Institutions Group in London;
Dan Jester, a former Goldman Vice President;
Steve Shafran, a long time Paulson associate at Goldman;
Kendrick Wilson III, a Managing Partner at Goldman in the Financial Institutions Group; and
Edward Forst, a former Executive Vice President and Chief Administrative Officer at Goldman

Current or veteran Goldman executives all, they worked on everything from the bailout of Fannie and Freddie to the capital restructuring of the nation’s banks.

All of which makes Andy Borowitz’s article in the Huffington Post this month all the more understandable. The lead reads:

In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury.

No surprise that the first two people I showed the article to thought it was real.

JOSHUA BOLTON

THE WHITE HOUSE
Paulson and his Goldman gladiators also had air cover from the White House. George Bush’s Chief of Staff during the bailout blizzard was none other than Josh Bolton. Bolton had become Chief of Staff in April of 2006 and is credited with persuading the President to recruit Paulson as the Treasury Secretary.

No surprise since Bolton had been the Executive Director, Legal & Government Affairs for Goldman Sachs International before joining the Bush 2000 presidential campaign.

Powerful friends. Powerful places.

But the Goldman virus has not been confined to the White House and the Treasury, not by a long shot.

The second and final installment of the article will be sent in two days.

Best,
Bruce

Bruce Wiseman is financial consultant and writer living in Los Angeles. He can be contacted at the address below.
Bruce@brucewiseman.net
http://www.brucewiseman.net/
© 2009 Bruce Wiseman.
All rights reserved.

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Tech Writer Musings: Show Me the Money

My line of work requires pragmatism. First and foremost, a good technical writer must know that she is imparting the correct information in the documents she writes. This involves varying degrees of research, particularly when a business process or a piece of software is still evolving and design documents have not kept pace with current development. So last fall, when the economic calamity in which we now find ourselves turned from media whisper to media roar, I had to do my research.

You see, I do not have a sub-prime mortgage. I am not invested in the stock market. These aspects of the financial world had never been on my radar. Credit default swaps – what-whats? Derivatives – huh? Caught unawares like many Americans, I scrambled to understand what exactly was happening. Just about at the point where I had read enough to (I thought) grasp the situation came the massive dollar-value bailout legislation, which, unlike a good technical writer, I did not read. Apparently neither did some or all of our legislators.

So now the economy has been transfused, and we have a new president who is supposed to give us hope. Triage of the highest order. It sounds good, even though we are warned to expect more aftershocks. (Excuse the earthquake metaphor, but this is Los Angeles.)

But wait. The jobless rate continues to rise (so screams the media), more banks go down (so screams the media), my best friend is attending IndyMac demonstrations to protest the creative (and secret and devastating) reinterpretation of FDIC rules for that bank’s depositors, my friend in the Westside real estate market says banks simply are not lending, and credit card companies are cutting back limits on long-time, good customers, which can effectively trash one’s credit rating and trigger rate increases despite one servicing his debt per the agreement.

I’m sure I’m not alone in asking, “Why does this plan seem not to be working?”

By my simplistic standards, if you infuse money into an economy, it will be spent. Spending solves things. Companies provide goods and services, employing people and ordering materials to do so. Demand trickles up, down and across the economy. Not the least of what spending does is to make people feel better. There has been a massive transfusion, so where is all the money? I am not tracking. I conclude that I must just not understand what is actually happening, and it’s time to go back to the books.

Again, from my horribly simplistic reasoning, I say, why not take however many billions of bailout dollars our legislators have granted and hand it right over to the American people. Why not “loan” it directly to ourselves and cut out the middleman (banks and big corporations)? They don’t seem to be doing anything with it besides sitting on it, or paying out contractual bonuses that everyone should have known about, but nobody did. (Let’s not get started on that one, but after you read the article below, then with your new set of eyes read this one.)

Honestly, if it’s $30,000 per person or $90,000 per person (depending on which do-the-math email you received last fall), however the math works out on those billions of dollars – just write checks and mail them out, no strings attached. What would happen? What would people do with it?

They would...pay down credit cards, pay off their car loans, buy big screen TVs, a pair of Ferragamos, a 45-pack of toilet paper from Costco, manure for the lawn, a sweet little bass boat, steaks (Yea! No chicken this week!) put it in a savings account, buy a set of new rims, put a roof on the house, fix the tractor, catch up the mortgage, start a college fund, buy six-dollar-burger combos five days in a row for lunch, put in an offer on a house with a nice down payment, get that smog check so the car registration tags are current, take a trip to visit Grandma, get a haircut. Would it matter what we did with it? No, because WE would spend it, just about as fast as we could. And what would happen?

Companies would have to bring back some of their laid off personnel to meet demand. Unemployment claims would fall off the books. The money would actually flow back into the economy, from the bottom up, from the middle out, from the top down. It would not matter. And most of all, spirits would rise. Mall parking lots would fill up. Restaurants would be busy. Deposits would increase. Homes would sell. Cars would drive off the lot. Even those still unemployed could breathe a temporary sigh of relief. In a word, confidence would be restored. And then what would happen?

Without the agonizing distractions of how are we going to pay the mortgage this month, no, we can’t pay the phone bill yet, no, I haven’t heard back on any of the employment applications I submitted, the American people would have enough freed-up attention to jump down the throats of their legislators and demand substantive change. For, my friends, no matter which way the fingers point, they also point at ourselves for not being forever watchful. We’ve been had, and had again.

Anyway, yesterday I read an article about Brooksley Born in the Stanford alumni magazine, who, years ago from her post at the Commodity Futures Trading Commission, warned of this debacle and was soundly shut down. We’ve already read that Warren Buffet warned about this some time ago, and many, many Americans of sound financial mind have known for some time that danger was afoot. Even I knew that letting someone buy a house when 40-60% of his monthly income would be used to service the mortgage was asking for trouble. Great article and great explanation, but still my question isn’t answered – where is the money and why haven’t we seen the least little positive effect for our trillion dollar (so far) expenditure?

Well, this morning, on email I received an excellent article entitled The Financial Crisis: A Look Behind the Wizard’s Curtain by Bruce Wiseman, printed here with his permission. Now I finally get it. It wasn’t just that you and I (and you and you) were stupid, were asleep at the switch. We were, yes. But that’s not the whole story. Call me a conspiracy buff if you like, but I hope you will take a look and think over why this whole situation isn't resolving. Maybe it will answer some of your questions. It has certainly answered mine.

THE FINANCIAL CRISIS: A LOOK BEHIND THE WIZARD’S CURTAIN

March, 2009

I’m tired of hearing about subprime mortgages.

It’s as if these things were living entities that had spawned an epidemic of economic pornography.

Subprime mortgages are as much a cause of the current financial chaos as bullets were for the death of JFK.

Someone planned the assassination and someone pulled the trigger.


The media, J. Edgar Hoover and the Warren Commission tried to push Lee Harvey Oswald off on the American public. They didn’t buy it.

They shouldn’t buy subprime mortgages either.

Someone planned the assassination and someone pulled the trigger.

Only this time the target is the international financial structure and the bullets are still being fired.

Oh yes, people took out adjustable-rate mortgages they could ill afford, that were then sold to Wall Street bankers. The bankers bundled them up like gift wrappers at Nordstrom’s during the Holidays and sold them to other banks after raking off billions in fees. The fees? They were for…well…they were for wrapping the mortgages in the haute couture of Wall Street.

But it didn’t start there. No, no, not by a long shot.

And as the late, great Paul Harvey would say, “And now you’re going to hear the Rest of the Story.”

Are subprime mortgages part of some larger agenda?

And if so, what is it?

Stay with me here, because Alice is about to slide down the rabbit hole into the looking-glass world of international finance.

EASY MONEY ALAN

There are various places we could start this story, but we will begin with the 1987 ascendancy of Rockefeller/Rothschild homeboy Alan Greenspan from the Board of Directors of J.P. Morgan to the throne of Chairman of the Federal Reserve Bank (a position he was to hold for twenty years).
From the beginning of his term, Greenspan was a strong advocate for deregulating the financial services industry: letting the cowboys of Wall Street sow their wild financial oats, so to speak.

He also kept interest rates artificially low as if he had sprayed the boardroom of the Federal Reserve Bank with some kind of fiscal aspartame.

While aspartame (an artificial sweetener branded as “Equal” and “NutraSweet”) keeps the calories down, it has this itty-bitty side effect of converting to formaldehyde in the human body and creating brain lesions.

As we are dealing here with a gruesomely tortured metaphor, let me explain: I am not suggesting that Chairman Greenspan put Equal in his morning coffee, but rather that by his direct influence, interest rates were forced artificially low resulting in an orgy of borrowing and toxic side effects for the entire economy.

THE COMMUNITY REINVESTMENT ACT

Greenspan had been the Fed Chairman for seven years when, in 1994, a bill called the Community Reinvestment Act (CRA) was rewritten by Congress. The new version had the purpose of providing loans to help deserving minorities afford homes. Nice thought, but the new legislation opened the door to loans that set aside certain lending criteria: little things like a down payment, enough income to service the mortgage and a good credit record.

With CRA’s facelift, we have in place two of the five elements of the perfect financial storm: Alan (Easy Money) Greenspan at the helm of the Fed and a piece of legislation that turned mortgage lenders into a division of the Salvation Army.

Perhaps you can see the pot beginning to boil here. But the real fuel to the fire was yet to come.

GLASS-STEAGALL

To understand the third element of the storm, we travel back in time to the Great Depression and the 1933 passage of a federal law called the Glass-Steagall Act. As excess speculation by banks was one of the key factors of the banking collapse of 1929, this law forbade commercial banks from underwriting (promoting and selling) stocks and bonds.

That activity was left to the purview of “Investment Banks” (names of major investment banks you might recognize include Goldman Sachs, Morgan Stanley and the recently deceased Lehman Brothers).

Commercial banks could take deposits and make loans to people.

Investment banks underwrote (facilitated the issuing of) stocks and bonds.

To repeat, this law was put in place to prevent the banking speculation that caused the Great Depression. Among other regulations, Glass-Steagall kept commercial banks out of the securities.

Greenspan’s role in our not-so-little drama is made clear in one of his first speeches before Congress in 1987 in which he calls for the repeal of the Glass-Steagall Act. In other words, he’s trying to get rid of the legislation that kept a lid on banks speculating in financial markets with securities.

He continued to push for the repeal until 1999 when New York banks successfully lobbied Congress to repeal the Glass-Steagall Act. Easy-Money Alan hailed the repeal as a revolution in finance.

Yeah, Baby!

A revolution was coming.

With Glass-Steagall gone, and the permissible mergers of commercial banks with investment banks, there was nothing to prevent these combined financial institutions from packaging up the subprime CRA mortgages with normal prime loans and selling them off as mortgage-backed securities through a different arm of the same financial institution. No external due diligence required.

You now have three of the five Horsemen of the Fiscal Apocalypse: Greenspan, CRA mortgages and repeal of Glass-Steagall.

WAIVER OF CAPITAL REQUIREMENTS

Enter Hammering Hank Paulson.

In April of 2004, a group of five investment banks met with the regulators at the Securities and Exchange Commission (SEC) and convinced them to waive a rule that required the banks to maintain a certain level of reserves.

This freed up an enormous reservoir of capital, which the investment banks were able to use to purchase oceans of Mortgage-Backed Securities (cleverly spiked with the subprime CRA loans like a martini in a Bond movie). The banks kept some of these packages for their own portfolios but also sold them by the bucketload to willing buyers from every corner of the globe.

The investment bank that took the lead in getting the SEC to waive the regulation was Goldman Sachs. The person responsible for securing the waiver was Goldman’s Chairman, a man named Henry Paulson.

With the reserve rule now removed, Paulson became Wall Street’s most aggressive player, leveraging the relaxed regulatory environment into a sales and marketing jihad of mortgage-backed securities and similar instruments.

Goldman made billions. And Hammering Hank? According to Forbes magazine, his partnership interest in Goldman in 2006 was worth $632 million. This on top of his $15 million per year in annual compensation. Despite his glistening dome, let’s say Hank was having a good hair day.

In case this isn’t clear, it was Paulson who, more than anyone else on Wall Street, was responsible for the boom in selling the toxic mortgage-backed securities to anyone who could write a check.

Many of you may recognize the name Hank Paulson. It was Paulson who left the Goldman Sachs’ chairmanship and came to Washington in mid-2006 as George Bush’s Secretary of the Treasury.
And it was Paulson who bludgeoned Congress out of $700 billion of so-called stimulus money with threats of public riots and financial Armageddon if they did not cough up the dough. He then used $300 billion to “bail out” his Wall Street homeboys to whom he had sold the toxic paper in the first place. All at taxpayer expense.

Makes you feel warm all over, doesn’t it?

Congress has its own responsibility for this fiscal madness, but that’s another story.

This one still has one more piece—the pièce de résistance.

BASEL II

Greenspan, the Community Reinvestment Act, the repeal of Glass- Steagall, and Paulson getting the SEC to waive the capital rule for investment banks have all set the stage: the economy is screaming along, real estate is in a decade-long boom and the stock market is reaching new highs. Paychecks are fat.

But by the first quarter of 2007, the first nigglings that all was not well in the land of the mortgage-backed securities began to filter into the press. And like a chilled whisper rustling through the forest, mentions of rising delinquencies and foreclosures began to be heard.

Still, the stock market continued to rise, with the Dow Jones reaching a high of 14,164 on October 9, 2007. It stayed in the 13,000 range through the month, but in November, a major stock market crash commenced from which we have yet to recover.

It’s not just the U.S. stock market that has crashed, however. Stock exchanges around the world have fallen like a rock off a tall building. Most have lost half their value, wiping out countless trillions.

If it were just stock markets, that would be bad enough; but, let’s be frank, the entire financial structure of the planet has gone into a tailspin and it has yet to hit ground zero.

While there surely would have been losses, truth be told, the U.S. banking system would likely have gotten through this, as would have the rest of the world, had it not been for an accounting rule called Basel II promulgated by the Bank for International Settlements.

Who? What?

That’s right, I said an accounting rule.

The final nail in the coffin—and this was really the wooden spike through the heart of the financial markets—was delivered in Basel, Switzerland, at the Bank for International Settlements (BIS).

Never heard of it? Neither have most people; so, let me pull back the wizard’s curtain.

Central banks are privately owned financial institutions that govern a country’s monetary policy and create the country’s money.

The Bank for International Settlements (BIS), located in Basel, Switzerland, is the central banker’s bank. There are 55 central banks around the planet that are members, but the bank is controlled by a board of directors, which is comprised of the elite central bankers of 11 different countries (U.S., UK, Belgium, Canada, France, Germany, Italy, Japan, Switzerland, the Netherlands and Sweden).

Created in 1930, the BIS is owned by its member central banks, which, again, are private entities. The buildings and surroundings that are used for the purpose of the bank are inviolable. No agent of the Swiss public authorities may enter the premises without the express consent of the bank. The bank exercises supervision and police power over its premises. The bank enjoys immunity from criminal and administrative jurisdiction.

In short, they are above the law.

This is the ultra-secret world of the planet’s central bankers and the top of the food chain in international finance. The board members fly into Switzerland for once-a-month meetings, which they hold in secret.

In 1988 the BIS issued a set of recommendations on how much capital commercial banks should have. This standard, referred to as Basel I, was adopted worldwide.

In January of 2004 our boys got together again and issued new rules about the capitalization of banks (for those that are not fluent in bank-speak, this is essentially what the bank has in reserves to protect itself and its depositors).

This was called Basel II.

Within Basel II was an accounting rule that required banks to adjust the value of their marketable securities (such as mortgage-backed securities) to the “market price” of the security. This is called mark to the market. There can be some rationality to this in certain circumstances, but here’s what happened.

THE MEDIA AND MARK TO THE MARKET

As news and rumors began to circulate about some of the subprime CRA loans in the packages of mortgage-backed securities, the press, always at the ready to forward the most salacious and destructive information available, started promoting these problems.

As a result, the value of these securities fell. And when one particular bank did seek to sell some of these securities, they got bargain basement prices.

Instantly, per Basel II, that meant that the hundreds of billions of dollars of these securities being held by banks around the world had to be marked down—marked to the market.

It didn’t matter that the vast majority of the loans (90% +) in these portfolios were paying on time. If, say, Lehman Brothers had gotten fire-sale prices for their mortgage-backed securities, the other banks, which held these assets on their books, now had to mark to the market, driving their financial statements into the toilet.

Again, it didn’t matter that the banks were receiving payments (cash flow) from their loan portfolios; the value of the package of loans had to be written down.

A rough example would be if the houses on your street were all worth about $400,000. You owe $300,000 on your place and so have $100,000 in equity. Your neighbor, Bill, in selling his house, uncovered a massive invasion of termites. He had to sell the house in a hurry and wound up with $200,000, half the real value.

Shortly thereafter, you get a demand letter from your bank for $100,000 because your house is only worth $200,000 according to “the market.” Your house doesn’t have termites, or perhaps just a few. Doesn’t matter.

Of course, if the value of your home goes below the loan value, banks can’t make you cough up the difference.

But if you are a bank, Basel II says you must adjust the value of your mortgage-backed securities if another bank sold for less—termites or no.

When the value of their assets were marked down, it dramatically reduced their capital (reserves), and this—their capital—determined the amount of loans they could make.

The result? Banks couldn’t lend. The credit markets froze.

Someone recently said that credit was the life blood of the economy.

This happens to be a lie. Hard work, production, and the creation of products that are needed and wanted by others—these are the true life blood of an economy.

But, let’s be honest, credit does drive much of the current U.S. economy: home mortgages, auto loans and Visas in more flavors than a Baskin-Robbins store.

That is, until the banks had to mark to the market and turn the IV off.

THE CRISIS

Mortgage lending slammed to a halt as if it had run headlong into a cement wall, credit lines were cancelled and credit card limits were reduced and in some cases eliminated altogether. In short, with their balance sheets butchered by Basel II, banks were themselves going under and those that weren’t simply stopped lending. The results were like something from a financial horror film—if there were such a thing.

Prof. Peter Spencer, one of Britain’s leading economists, makes it very clear that the Basel II regulations “…are at the root cause of the crunch…” and that “…if the authorities retain the strict Basel regulations, the full scale of the eventual credit crunch and economic slump could be disastrous.”

“The consequences for the macro-economy,” he says “of not relaxing [the Basel regulations] are unthinkable.”

Spencer isn’t the only one who sees this. There have been calls in both the U.S. and abroad to, at least, relax Basel II until the crisis is over. But the Boys from Basel haven’t budged an inch. The U.S did modify these rules somewhat a year after the devastation had taken place here, but the rules are still fully in place in the rest of the world and the results are appalling.

The credit crisis that started in the U.S. has spread around the globe with the speed that only the digital universe could make possible. You’d think Mr. Freeze from the 2004 Batman movie was at work.

We have already noted that stock markets around the world have lost half of their value, erasing trillions. Some selected planet-wide stats make it clear that it is not just stock values that have crashed.

China’s industrial production fell 12% last year, while Japan’s exports to China fell 45% and Taiwan’s were off 55%. South Korea’s overseas shipments decreased 17%, while their economy shrank 5.6%.

Singapore’s exports were off the most in 33 years and Hong Kong’s exports plunged the most in 50 years.

Germany had a 7.3% decline in exports in the fourth quarter of last year, while Great Britain’s real estate market declined 18% in the last quarter compared to a year earlier.

Australia’s manufacturing contracted at a record pace last month bringing the index to the lowest level on record.

There’s much more, but I think it is obvious that credit pipe can no longer be smoked.

Welcome to planetary cold turkey.

ODDITIES

It is fascinating to look at the date coincidence of the crash in the U.S. Earlier I noted that the stock market continued to rise throughout 2007, peaking in October of 2007. The dip in October turned to a rout in November.

The Basel II standards were implemented here by the U.S. Financial Accounting Standards on November 15, 2007.

There are more oddities.

Despite the fact that Hammering Hank dished out hundreds of billions to his banker buddies to “stimulate” the economy and defrost the credit markets, the recipients of these taxpayer bailout billions have made it clear that they will be reducing the amount of money they will be lending over the next 18 months by as much as $2 trillion to conform to Basel II.

What do you think—Hank, with his Harvard MBA, didn’t know? The former chairman of the most successful investment bank in the world didn’t know that the Basel II regulations would inhibit his homies from turning the lending back on?

Maybe it slipped his mind.

Like the provision he put into his magnum opus, the $700 billion bailout called TARP. It carried a provision for the Federal Reserve to start paying interest on money banks deposited with it.

Think this through for a minute. The apparent problem is that the credit markets are frozen. Banks aren’t lending. They can’t use the money from TARP to lend because Basel II says they can’t. On top of this, Paulson’s bailout lets the Fed pay interest on funds they deposit there.

If I am the president of a bank, and let’s say that I’m not Basel II impaired, why in the world am I going to lend to customers in the midst of the worst financial crisis in human history when I can click a mouse and deposit my funds with the Fed and sit back and earn interest from them until the chaos subsides?

But, hey, maybe Hank’s been putting aspartame in his coffee.

No, this stuff is as obvious as the neon signs on Broadway to the folks who play this game. This is banking 101.

So, given the provisions of Basel II and the refusal of the BIS to lift or suspend the regulations when they are clearly the driving force behind the planet-wide credit crisis, and considering the lack of provisions in Paulson’s bailout bill to mandate that taxpayer funds given to banks must actually be lent, and given the added incentive in the bill for banks to deposit their bread with the Fed, one gets the idea that maybe, just maybe, these programs weren’t designed to cure this crisis; maybe they were designed to create it.

Indeed, my friends, this is crisis by design.

Someone planned the assassination and someone pulled the trigger.

THE RUBBER MEETS THE ROAD

All of which begs the question, How come?

Why drive the planet into the throws of fiscal withdraw—of job losses, vaporized home equity, and pillaged 401ks and IRAs?

Because when the pain is bad enough, when the stock markets are in shambles, when the cities are teaming with the unemployed, when the streets are awash with riots, when governments are drenched in the sweat of eviction and overthrow, then the doctor will come with the needle of International Financial Control.

This string of ineffective solutions put forth by people who know better are convincing bankers, investors, corporations and governments of one thing: the system failed and even the U.S. government—the anchor of international finance (which is blamed for causing the disaster)—has lost its credibility.

The purpose of this financial crisis is to take down the United States and the U.S. dollar as the stable datum of planetary finance and, in the midst of the resulting confusion, put in its place a Global Monetary Authority—a planetary financial control organization to “ensure this never happens again.”

Sound Orwellian? Sound conspiratorial? Sound too evil or too vast to be real?

This entity is being moved forward by world leaders “as we speak.” It is coming and the pace is quickening.

A year ago, I saw an article in which the president of the New York Federal Reserve bank was calling for a “Global Monetary Authority” or GMA to deal with the world’s financial crisis. While I have been following international banking institutions for some time, this was the clue that they were making their move. I wrote an article on it at the time.

By the way, as some may recall, the president of the New York Fed last year was a man named Timothy Geithner. Geithner was very involved in structuring the booby-trapped TARP bailout with Paulson and Bernanke.

Of course, now, he is the Secretary of the Treasury of the United States.

Change we can believe in.

Once Geithner started to push a global financial authority as the solution to the world’s financial troubles, other world leaders and opinion-leading voices in international finance began to forward this message. It has been a PR campaign of growing intensity. Meanwhile, behind the scenes, the international bankers are keeping their hands on the throat of the credit markets choking off lending while the planet’s financial markets asphyxiate and become more and more desperate for a solution.

British Prime Minister Gordon Brown, who has taken the point on this, has said that the world needs a “new Bretton Woods.” This is the positioning. (Bretton Woods, New Hampshire, was the location where world leaders met after the Second World War and established the international financial organizations called the International Monetary Fund (IMF) and the World Bank to help provide lending to countries in need after the war.)

Sir Evelyn de Rothschild called for improved (international) regulations, while the Managing Director of the IMF suggested a “high level of ministers capable of reaching agreements and implementing them.”

The former director of the IMF, Michael Camdessus, called on “the global village” to “urgently and radically” implement international regulations.

As the crisis has intensified, so too have calls for a global financial policeman, and of late, the PR has been directed in favor of—surprise—the Bank of International Settlements.

The person at the BIS who was primarily responsible for the creation of Basle II is Jaime Caruana. The BIS Board has now appointed him as the General Manager, the bank’s chief executive position, where he will be in charge of dealing with the current financial crisis which he had no small part in creating.

A few well-chosen sound bites tell the story.

Following a recent IMF function, discussion centered on the fact that the BIS could provide effective market regulation, while the Global Investor magazine opined that “…perhaps the Bank of International Settlements in Basel...” could undertake the task of best dealing with the crisis in the financial markets.

The UK Telegraph is right out front with it.

“A new global solution is needed because the machinery of global economic governance barely exists…it’s time for a Bretton Woods for this century.

“The big question is whether it is time to establish a global economic ‘policeman’ to ensure the crash of 2008 can never be repeated.”
…

“The answer might be staring us in the face in the form of the Bank of International Settlements (BIS). The BIS has been spot on throughout this.”

And so you see, this was a drill. This was a strategy: bring in Easy Money Alan to loosen the credit screws; open the floodgates to mortgage loans to the seriously unqualified with the CRA, bundle these as securities, repeal Glass-Steagall and waive capital requirements for investment banks so the mortgage-backed securities could be sold far and wide, wait until the loans matured a bit and some became delinquent and ensure the media spread this news as if Heidi Fleiss had had a sex-change operation, then slam in an international accounting rule that was guaranteed to choke off all credit and crash the leading economies of the world.

Ensure the right people were in the key places at the right time—Greenspan, Paulson, Geithner and Caruana.

When the economic pain was bad enough, promote the theory that the existing financial structures did not work and that a Global Monetary Authority—a Bretton Woods for the 21st century—was needed to solve the crisis and ensure this does not happen again.

Which is exactly where we are right now.

WHAT DO YOU DO?

Let me preface this section by saying that this is advice designed to help you orient your assets, i.e., your reserves, your retirement plans, etc., to the Brave New World of international finance. It is not meant as advice about what you do with your business or your job, or your personal life.

Those things are all senior to this subject, which has a very narrow focus. There is an embarrassment of riches of materials that you can use to stay ahead of and on top of this crisis. Use them to flourish and prosper. This article is not a call to cut back or contract. It is to provide you information so you know what is going on and can plan.

Enough said.

First of all, while not likely, but just in case Timothy Geithner is shocked into some New Age epiphany and Ben Bernanke grows some real wisdom in his polished dome, this is what the government should do:

1) Cancel any aspects of Basel II that are causing banks to misevaluate their assets.

2) Remove the provision of TARP that permits the Fed to pay interest on deposits.

3) Mandate that any funds given under the TARP bailout or that are to be given to banks in the future must be used to lend to deserving borrowers.

4) Repeal the Community Reinvestment Act.

5) Reinstate Glass-Steagall.

6) Restore mandated capital requirements to investment banks.

7) And in case Congress decides to cease being a flock of frightened sheep and take responsibility for the country’s monetary policy, they should get rid of the privately owned Federal Reserve Bank and establish a monetary system based on production and property.

8) But if a global monetary authority is put in place, it should not be controlled by central bankers. It should be fully controlled directly by governments with real oversight over it and with a system of checks and balances. This you can communicate when this matter hits Congress or the White House or both (which it almost certainly will).

And what do you do with your reserves in this Brave New World of international finance?

Modesty aside, please do what I have been recommending for a few years now: get liquid (out of the stock and bond markets) and put some of your assets into precious metals, gold and silver, but more heavily into silver.

Keep the rest in cash (CDs and T-bills) and perhaps a small bit in some stronger foreign currencies like the Swiss franc or Chinese yuan (also referred to as the RMB, which is short for renminbi).

If you want more personal or specific advice on your investments—for example, what form of gold and silver and where to buy and what to pay, etc.—you can call or e-mail me for an appointment, which we can probably do by phone. I charge $200 for the first half hour, which is the minimum, and $325 for a full hour, which is usually sufficient for most folks.

And remember that my recommendations are based on my 30 years of experience in banking, finance and investments but I have no crystal ball and make no guarantees regarding my recommendations.

We are living in the most challenging economic times this planet has ever seen. I hope this article has helped shed some light on what is currently happening on the international financial scene. I didn’t cover everything, as I don’t have time to write another book right now. Nor did I cover everyone involved, but these are the broad strokes.

If you want to follow these shenanigans, log on to The Road to London Summit (http://www.londonsummit.gov.uk/en/). It will all look and sound very reasonable—all about saving jobs and homes—but you have seen behind the wizard’s curtain and the above is what is really going on.

Keep your powder dry.

Bruce

Bruce Wiseman
Wiseman Management Services
4312 Talofa Ave
Toluca Lake, CA 91602
bdwiseman@earthlink.net
818-406-9950

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