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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Tech Writer Conspiracies: Hitler's Bank Goes Global

No, this blog entry is not about tech writers huddled in a dim corner of an empty conference room, whispering about how to overthrow Western Civilization by writing bad instruction manuals. It is the latest article by Bruce Wiseman discussing the machine that is driving the global financial crisis.

Kind readers will recall Mr. Wiseman's first installment in March, The Financial Crisis: A Look Behind the Wizard's Curtain. His May article, Hitler's Bank Goes Global, brings us up to date. That article is below.

The dismissively delivered, mock cries of "Ooh, ooh, a conspiracy!" have become an ideological dividing line in this country. It may well be that blaming this or that cabal is a convenient way to relieve oneself of responsibility for his own, not to mention the broader, state of affairs. After all, how can you fight what you can't see? You are absolved, my child.

But those who do not believe that a small number of those among us can and do consolidate power solely for their own protection and/or profit, irrespective of the greater good, are at the least Pollyannaish; at worst, they are victims of their own crass superstition.

Perchance he for whom this bell tolls may be so ill as that he knows not it tolls for him. And perchance I may think myself so much better than I am, as that they who are about me, and see my state, may have caused it to toll for me, and I know not that. --John Donne; Devotions Upon Emergent Occasions, Meditation XVII.

Hitler's Bank Goes Global
By Bruce Wiseman
May 2009

THE PURPOSE OF THE FINANCIAL CRISIS

A towering citadel housing what is essentially a sovereign state known as the Bank for International Settlements is located in Basel, Switzerland. The bank now controls the financial affairs of planet Earth.

If you think this is an exaggeration or the conspiratorial ramblings of the author... or not, I invite you to read on.

I wrote the first installment of this article—“The Financial Crisis: A Look Behind the Wizard’s Curtain”—in mid-March of this year.

The article included the following statement:

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.”

This purpose has now been accomplished.

The dollar, the former king of currencies, now goes begging in the pant-suited persona of Hillary Clinton to our creditors at the Chinese Communist Party.

Almost unthinkable a few short years ago, the U.S. dollar is fast losing its status as the world reserve currency, and any thought of saving it is being nuked by the Larry, Moe and Curly of U.S. economic policy - Bernanke, Geithner and Summers - and their Alice in Wonderland trillion-dollar budget deficits.

I would not be surprised to see central banks start using the renminbi (the currency of the newly awakened People’s Republic of China—also called the yuan) for international trade and reserves in the not too distant future. This prediction will likely be scoffed at by global economists, but then they have about as much credibility as pharmaceutical salesmen these days.

A more generally discussed alternative is the International Monetary Fund’s SDR (which stands for Special Drawing Rights). There is no production or property behind the SDR. It is one of those clown currencies that are made up out of thin air—a magic trick central bankers like to do. Intoxicated by the power of the purse, they think of themselves as fiscal alchemists.

But the dollar has seen its glory. It can return one day, if Washington ever finds its financial backbone. But let’s be real, with the exception of a very few, like Ron Paul in the House and Tom Coburn in the Senate, these folks are addicted to spending like junkies on horse.

More importantly, the other shoe has dropped. Like some ghoulish predator from another Alien sequel, a Global Monetary Authority has been born. It lives.

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.

Which means?

The communiqué announced the creation of the all too Soviet sounding Financial Stability Board (FSB)—and no, I’m not going to make a crack about the fact that this acronym is the same as that of the Russian intelligence service that replaced the KGB.

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 FSB morphed into existence from an earlier incarnation called the Financial Stability Forum. The Financial Stability Forum (FSF) was established in 1999 to promote international financial stability through co-operation in financial supervision and surveillance. Since it had done such a wonderful job, the central bankers decided to expand its powers and give it a new name.

A board sounds like it has more authority than a forum. But the name change isn’t the problem.

The FSB’s broadened mandate includes under point 5, “As obligations of membership, member countries and territories commit to pursue the maintenance of financial stability, maintain the openness and transparency of the financial sector, implement international financial standards (including the 12 key International Standards and Codes), and agree to undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program reports.”

Rather a mouthful of elitist banker-speak. But, as a friend of mine is fond of saying, “The Devil is in the details.”

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.

As noted in the first article, 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, a close reading of the new powers of the FSB are chilling.

The 12 key International Standards and Codes, which are minimum requirements, contain such things as

• clear specification of the structure and functions of government;


• statistical and data gathering from ministries of education, health, finance and other agencies;


• corporate governance principles;


• shareholder rights;


• personal savings;


• secure retirement incomes;


• international accounting standards to be observed in the preparation of financial statements;


• international standards of auditing;


• securities settlement;


• foreign exchange settlement;


• minimal capital adequacy for banks;


• risk management;


• ratification and implementation of UN instruments; and


• criminalizing the financing of terrorism.

“Sounds oppressive,” you say; “but I don’t really care what a bunch of bankers do in Basel, Switzerland. It’s got nothing to do with me.” But I am writing this to tell you that it has everything to do with you, your family, your business, your country, and—if you’re up to it—your planet.

Because as currently structured, the dictates of the Financial Stability Board will impact your life without any say-so on your part whatsoever. Here’s one example from an article written by former Clinton advisor and political strategist Dick Morris in an article 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.’”

You begin to see what’s involved here.

You see, these standards and codes are commitments, obligations and requirements, not merely advice. The strategy, policies and regulations of the FSB are worked out at the senior levels of the bank. They are approved by the plenary and implemented through the national representatives.

THE STRUCTURE

The plenary, in this sense, is the complete membership body of the FSB. And the membership, my friends—the national representatives who implement these policies—just happen to be the heads of the planet’s more powerful central banks. And in case it slipped your mind, most central banks are private institutions and answerable to no one.

Take our central bank, the Federal Reserve Bank. Yes, the chairman is appointed by the President and often testifies before Congress, but there is virtually no public control over the institution. It can’t be audited nor can Congress tell it what to do. It is not really accountable to anyone. The idea that the Fed is a government agency subject to the control of Congress is a PR line. It is simply not true.

Among other things, central banks govern a country’s monetary policy and create (print) the country’s money.

They make income by charging interest on the money they loan to the government.

Watch this, because if you blink, you’ll miss it.

Governments are perpetually in debt. They are always borrowing money. They have a mental disorder that prevents them from spending less than they collect in taxes—BDD, Budget Deficit Disorder. And if it looks like they might balance the books some year, why, someone can always start a war.

Here’s an example.

Let’s say the annual budget calls for the U.S. government to spend $2.5 trillion. But the income will only be $2 trillion. They’re going to be a little short. But no worries, they have the ultimate credit card—a debt limit that they themselves control. If they borrow up to the established limit, they can just vote it higher—which they have done to the tune of a cool $11.2 trillion dollars.

The Fed loves this.

Listen as the Secretary of the Treasury calls the Chairman of the Fed.
“Ben. It’s Tim.”
“Dude. What’s happening?”
“I need a little bread. Friggin’ Taliban again.”
“No problem, Timbo. How much you looking for?”
“Five hundred big ones.”
Ben licks his lips. “Anything for you, big guy. Send me the notes and I’m down with the five hundred. Five percent work for you?”
“Whatever.”

So the Treasury prints up $500 billion dollars’ worth of IOUs—they are called Treasury bills (short term), notes (medium term) or bonds (long term)—and sends them over to the Fed with a fifth of Chivas.

In the old days, the Fed would print the cash. These days, they click a mouse.

Now here’s the part where you aren’t allowed to blink.

When the Fed prints the money or clicks the mouse, they have no money themselves. They are just creating it out of thin air. They just print it, or send it digitally.

And then they charge interest on the money they lent to the Treasury. A hundred-dollar bill costs $0.04 to print. But the interest is charged on the $100. Go ahead: read it again; the words won’t change.

The interest on the national debt last year was $451,154,049,950.63. That’s $1.23 billion a day. These are the same people that are now running our banks, insurance companies and automobile manufacturers.

Reason weeps.

Sure, I oversimplified it. The Fed doesn’t own all the debt and they do some other things. But these are the basics. That is how a central bank works.

It is the heads of the planet’s central banks and some finance ministers that make up the membership of the FSB.

In brief, here’s how it works: the Board’s leadership provides strategies, policies and regulations to the membership. The members vote on the matters and then see to their implementation in their respective countries.

FSB leadership is in the hands of the chairman, Mario Draghi. Mr. Draghi is also the governor of Italy’s central bank. He is a former executive director of the World Bank and like his comrade in international finance Henry Paulson—the former U.S. Secretary of the Treasury who bludgeoned Congress out of the first $700 billion bailout package—Draghi was a managing director of Goldman Sachs until 2006. Like Paulson, he left Goldman in 2006, a year before the financial crisis exploded: Paulson went to Washington to run the U.S. Treasury; Draghi went to Rome to run Italy’s financial system as well as the Financial Stability Forum (forerunner to the Financial Stability Board).

Let’s call it government by Goldman, shall we?

THE REAL SITUATION

More to the point, you may have noticed that you weren’t consulted on this setup. Neither was Congress. In other words, the command channel for implementing global financial strategies goes from the FSB leadership to its central banker members and from them to the world’s financial institutions. You don’t get a peek, neither does Congress, nor, for that matter, does the White House.

And while there may be some accountability in some of the member countries, by and large these central bankers have the authority to implement these regulations and strategies. And they are held responsible by the FSB to do so.

In short, on April 2, 2009, the President signed a communiqué that essentially turns over financial control of the country, and the planet, to a handful of central bankers, who, besides dictating policy covering everything from your retirement income to shareholder rights, will additionally have access to your health and education records.

There is also this troubling little line about “clear specification of the structure and functions of government.” What the hell is that suppose to mean?

There is no oversight here. Not by you, not by Congress, not by anybody. No oversight over a handful of central bankers who operate out of a clandestine organization that is above the law and is responsible for having implemented and enforced the “standards” that froze world credit markets and precipitated the worst financial crisis in the planet’s history (see “The Financial Crisis: A Look Behind the Wizard’s Curtain”).

I haven’t heard word one out of Congress about this, but I’m afraid they are a few clowns short of a circus up there.

Which begs the question, what do we do about this?

THE SOLUTION

There are two critical things that need to be done.

The first lies in the fact that the communiqué signed by the President is an agreement that is binding on the United States and, as such, requires approval by Congress. If classed as a Treaty, it requires approval by two-thirds of the Senate. At the very least, approval should be by Congressional Executive Agreement, which requires a majority of both houses of Congress.

The agreement signed in London on April 2 has been called a New Bretton Woods (Bretton Woods being the location of a meeting of world leaders toward the end of the Second World War, which gave birth to the international financial organizations the World Bank and the International Monetary Fund). The original Bretton Woods agreement was put in place as a Congressional Executive Agreement. So this “new Bretton Woods” should at least do the same.

But this step is just to get Congress to recognize their responsibility here. The Federal Reserve Act, the bill that established the Federal Reserve System, was passed in 1913 two nights before Christmas by a sparsely attended Congress.

People have been complaining about this ever since.

What do you say we don’t let this happen again? Not on our watch. Congress needs to understand that it has a responsibility to approve any agreement signed by the President that is binding on this nation.

But the point is not to get Congress to approve what has been done. It is to first get them to recognize that agreements have been made that affect our entire financial system and that it is their responsibility to shape these agreements in a way that is beneficial to our Republic AND to provide a mechanism for real oversight of this international body.

Central bankers should not be making decisions about international finance without oversight and a system of checks and balances that are reflective of those provided by a republican form of government.

I am, of course, not talking about a political party here. No, no. I’m talking about the American form of government where citizens elect others to represent them.

A republican form of government is one that is operated by representatives chosen by the people.

Congress must step up to the plate. They must insist that the Financial Stability Board be ratified either by Treaty or Congressional Executive Agreement. And that ratification must include the creation of a body with oversight and corrective powers that is comprised of representatives of all the nations involved who are chosen from each country’s elected officials.

There is nothing inherently evil about an international financial organization. As much as we might protest it, it is a global world today, and a body that oversees the smooth flow and interchange of currencies and other financial instruments is needed in today’s world.

But the organization cannot be controlled by international bankers who are not answerable to the citizens of the countries in which they operate. It should be overseen by a senior level group which itself is organized as a liberal republic, following the original model of the United States.

Why? Because the system of government originally created by the United States has been the most successful form of government in man’s history. Any problems with the system have come about as a result of deviations from the original structure—a representative form of government with adequate checks and balances.

Such a body could help create an international economic system in which those that want to be successful can be so. It would also allow them to take an active role in controlling their futures by effectively participating in the legislative process.

ACT!

Let your Representatives and Senators know: the Financial Stability Board must be approved by Congress and must be subject to oversight by elected officials of the countries involved.

Personal visits, followed by calls and faxes to both Washington and local offices, are the most effective. Don’t be surprised if they don’t know what you’re talking about. Politely insist they find out and take action. And understand this when dealing with legislators or their staffs: they are focused almost exclusively on legislation that has already been introduced—a bill with a number on it.

That is not the case here. You want them to take action on this matter by introducing legislation that brings the approval and structure of the Financial Stability Board under congressional control.

This can be accomplished.

“All tyranny needs to gain a foothold is for people of good conscience to remain silent.” —Thomas Jefferson

Find your elected officials here:
http://www.visi.com/juan/congress/

Best,
Bruce

bdwiseman@earthlink.net
http://www.brucewiseman.net/
Copyright © 2009 Bruce Wiseman


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Father's Day, TARP Style

In the news today, the Federal Reserve has "allowed" a handful of banks to repay their TARP (Troubled Asset Relief Program) funds.

That as a whole the TARP-recipient banks didn't lend was interesting, but predictable, given the TARP requirements. That they want to repay the funds as soon as possible to get out from under the attendant regulations is just slightly more prudent than applying for the funds in the first place. Nothing new there, then.

Although Congress somewhat trumped Mr. Geithner on the repayment rules when it passed the American Recovery and Reinvestment Act of 2009, that the Federal Reserve thought to keep the banks indebted for longer (e.g. not allowing them to repay the TARP funds) in order insure their "stability"...well, let's examine this logic.

I have always understood that the most stable, the most credit-worthy businesses and individuals were those that did not owe money, or at the least had revenue significantly greater than debt - the ability to easily service debt, or even better, to have none. The further from insolvency, the better the financial position. Am I not right? Apparently though, that is not the case if you ask Congress or the Federal Reserve.

Just exactly how is a corporation's financial stability strengthened if it:

1) accepts an enormous amount of money (repaid with interest, of course) to guard against future economic downturns, but

2) must liquidate its holdings and/or raise private capital (ahem, incur further debt) in order to bring its level of capitalization up, and cannot repay the borrowed funds until its creditor says it may?

Let's "stress-test" TARP using a different scenario.

You've taught your twenty-something son to balance his checkbook and to pay down his credit card each and every month. For a long time he does, and you're proud of him.

But as time goes by he spends a little beyond his income, carrying a balance on his credit cards that he cannot immediately service. He then invests in a sidewalk power-washing business that he outfits using credit cards. He now has a couple of employees and with business expanding needs to add more. But the credit card companies cut his limit in half, at which point he exceeds his credit line. His interest rates go into the usury stratosphere. He is upside down.

You sit him down and say, "Son, you need to change the way you are managing your fiscal affairs and I am going to help you."

Son says, "Wow, Dad, that's great! Tell me what I need to do."

"Okay. First off, a couple of my old friends are going to loan you some money. Actually, a lot of it. But I want you to hang onto it - don't pay off any of your bills."

"What?"

"That's right - just listen for a minute. You hang on to the money - don't use any of it. Then start selling your business stuff as well as your belongings, take a second job and save as much of that money as you can. My friends want to see whether you can amass sufficient capital to protect against something like this ever happening again. If you spent it, well, that would defeat the purpose, wouldn't it? So you have to hang on to what they give you, as well as whatever you get from your second job and the liquidation. But once you have enough of your own money, then you can pay them back. With interest."

"What?? I don't get it, Dad."

"Don't worry about it - they'll let you know how much you'll need to raise of your own funds. You just do what I've explained and everything will be fine. Oh, though there are a couple other conditions for this loan I should mention, though."

"What conditions?"

"Well, first of all, you can't take any bonuses from your business. And neither can your partners. Or your employees, really. So that means the bonus plan you were telling me about last week has got to go. And you can only take a maximum of $18,000 a year in compensation. And last year when you bought out your original partner? Well, you have to get that money back. And those new power washers you bought this spring so you could expand your business? You have to sell those.

"And you have to have an independent board review your employee compensation plan every six months or so. My buddies want to comprise that board, so they are going to want to take a look-see at your employee compensation to make sure everyone is focused on long-term rather than short-term results. So you'll have to get that written up. Oh, and that nice kid who's on a work visa that you were going to hire - I can't remember his name. You can't hire him - you'll have to find someone else.

"Also, you won't be able to do any traveling, like to that power washer convention in Vegas you told me about. No more fishing trips, and don't buy yourself anything nice. Same for your partners, until my buddies approve your request to pay back the money."

"Until they...what? I can't just pay the money back at any time?

"Oh, no, no. You have to wait until they say it's okay to pay it back. That will depend on general market conditions. But they will let you know."

"Uh, Dad, thanks, but I don't think I'm interested."

*******

Hopefully your dad would never do that to you. Which begs the question, why would our central bank?




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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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