Warning: Creating default object from empty value in /home3/tandem/public_html/golemXIV/wp-content/themes/canvas/functions/admin-hooks.php on line 160

The Enemy Within

Yesterday I wrote about how the banks are able to routinely make a comprehensive mockery of what are laughingly referred to as ‘regulations’.  We all know that at the first sign of trouble Regulators are barely able to ‘regulate’ their bowels let alone banks.  Think of the long roll call of incompetence, blind, deaf and dumbness, willful inactivity and incompetence which lies behind Savings and Loans collapses, World Com, BCCI, Madoff, Sub prime and the rest.

But that said, it’s not that the Regulators don’t do anything.  I think they work rather hard, just not at what we might have imagined. The evidence I have seen suggests the regulators are not at their most effective or zealous at uncovering wrong doing, but rather at making sure nothing too damaging gets uncovered, and that what does slip through the net and become known, is restricted to as few people as possible.

They are there, in my opinion, to carefully ‘regulate’ who is allowed access to any information that might cause harm or embarrassment to the banks and broader financial system.   Whether they tell themselves they do this job “to protect the nation” or are able to admit to themselves that actually they mostly protect the banks, I would love to ask.

In fairness there isn’t a regulator in the world that does not fear for his /her job because they know the government they work for will rarely be on the side of disclosure.  To wit, here is a an apposite quote from a senior Irish opposition politician (so not the regulator but someone who hopes to soon be their boss).  It concerns a vicious piece of bullying and careful regulatory inactivity that has been unfolding in Ireland.

The upstanding politician said, “We can’t afford the consequences of revealing this story, we already have enough to deal with if we come to power.”  Not even in power and already the politician’s thinking has skipped over honesty to concentrate on the acquisition of said power.  Moral degeneracy in its larval stage.

OK they can’t reveal.  Allow me.

Before anyone gets too excited I am not going to reveal all.  I am going to pull together what is already in the public domain.  There are enough dots to make the picture obvious. And for the technicolour version we will have to hope Senator Norris continues his crusade.

The story concerns a banker who has recently gone public under the name of Whistleblower.  Whistleblower said in the Wall Street Journal today that he/she had worked as a Risk Manager for,

one of the biggest banking groups in central Europe. Its main operations are in Italy, Austria and Germany, but operates in many other countries. It also owns one of the biggest fund management companies on the USA’s east-coast

The job of Risk Manager entailed forecasting what risks the bank was running and involved signing legal documents verifying that the bank had the necessary funds to cover its risks and liabilities at the end of every day.  The laws in question are very specific. The Irish Central Bank act which goes back to 1942 applies as do several European regulations.  The law specifies that the bank MUST have assets to cover its risks. ANY short fall of so much as 1% is considered sufficiently serious that a 1% shortfall MUST be documented and reported to the regulator with all necessary paper work. The Regulator in turn is also legally required to keep “in close communication with regulators of other member states”if the bank operates in different jurisdictions and poses a systemic risk.  This one does.

The same laws and regulations also state that should the signing Manager lie, he/she is liable to 5 years in prison.

In 2007 Whistleblower found that this extremely large European bank was falling short. Not by 1% but according to his/her own calculations by 20%. Alarmed he/she told her boss.  Who said, ‘don’t worry its an anomaly. It happens occasionally.’  But it wasn’t occasional. It happened night after night.  And the shortfalls were billions and billions of Euros.

A systemically important bank regularly came up billions and billions of Euros short night after night.  Whistleblower was so alarmed she engaged the services of a forensic accounting firm.. They looked at the figures and within days came back and told her she was wrong.  The shortfall was not 20% but 40%.

Whistleblower delivered a full report to the Irish regulator.  In it she made it clear that, “it is virtually impossible for it to have been a ‘once-off’ event…”  Which means this shortfall could not have arisen all of a sudden. The bank had therefore knowingly allowed this situation to develop to the size where it endangered not just the Irish banking system but the European one as well.

Despite the massive size of the problem, despite the systemic danger, despite independent corroboration of the scale of the problem, by an outside firm brought in by Whistelblower, which was well known to and often used buy the Irish authorities, despite documented evidence from the banks own accounts provided by its OWN risk manager, the  incorruptible Irish regulator did NOTHING AT ALL.

Not for six weeks until Whistleblower finally resigned and not in all the time since. NO investigation. Until recently when the regulator, as if by magic, said – oh we’ve had an ‘internal’ look and found …nothing.  Sound familiar? No details. No evidence. No documents. Nothing. . I refer you back to yesterday’s post.

Despite the whole affair having been brought to the attention of senior figures in ALL the Irish parties and the Central bank, and despite the barrage of questions which continue to be asked in the Irish Parliament by Senator Norris.  Despite all this there has not been one shred of honesty and enquiry.

There has not even been an official denial of the very serious and specific allegations made in public by Whistleblower and in parliament by Senator Norris. If there was no case to answer for either the bank or the Irish regulator and government they would all have been very quick to come out and say so. But they have been deafening in their snake-like silence.

So much for the regulators and their pimps in government who rent out their services.

What of the glorious Press?  Kathleen Barrington has been the honourable exception.  Otherwise you could have heard a cricket fart louder than the combined voice of the Irish Media.

Now, maybe they are stirring.  Individual journalists might  have wanted to cover the story. It is up to them to explain why they didn’t or couldn’t.  Whistleblower herself suggests that conflicts of interest might be why at least one Irish paper did not cover the story.

Otherwise the story has been covered in Ireland on political online boards most notably all over politicalworld.org for example here and on politics.ie. In the UK the story has been posted by Whistleblower at the Guardian.

Given everything that is going on in the world you might ask, why make such a fuss about one Whistleblower? at one bank? The answer is that this is about if Banks are not only too big to fail but also too big to regulate,  and too big to confront.  One person, an honest one, trying to do her job and uphold the law tried and lost her job and found herself directly threatened.

when a bank with a trillion Euro balance sheet threatens you in writing, on two different occasions, that the consequences of revealing any of your experiences at the bank to a third party would be dire, one pays heed to that.

Do we have the power to regulate our banks or have they now the power to regulate us? Do they now have the power, thanks to the corruption of our politicians, our system of law and even our press, to regulate what we can say, which laws get enforced, which do not and even who is subject to the law and who is not.

It is also whether we, the people, have any allies in this fight or not. If we do not, neither in government nor in the press, nor in law then we must assume a revolution has taken place, a putsch and we must look to ourselves and to our children.  We must defend ourselves and our nations as best we an with what means we have.

If the law will not protect us then we must consider the law to be a tool of our enemies.  That does not mean we should set the law aside. That would make us no better than those we fight. But we should not look to the law for help. We must speak truth to each other and be prepared to speak it to power.

We must be willing to stand up for Free speech, free assembly, the free flow of information, despite the proclamation of D notices tonight in the UK.

That such a notice has been issued even as I type this over the republication of the most recent wikileaks documents bodes ill for us all.  How much further is it till we are all deemed to be the enemy within?

33 Responses to The Enemy Within

  1. Fauvi November 29, 2010 at 2:01 am #

    I have such an angst!
    I think I live in a never ending nightmare… Who LONG?
    Could this be true, the crossborder transactions on such volumes???


    Why cant't we get out of the euro, all countries become free of this gigantic enslavery chain called euro?

  2. Jim November 29, 2010 at 3:32 am #


    I think the issuing of the D notice was inevitable given the sheer scale of the Wikileaks diclosure. It is, I believe, largely an attempt at damage limitation, a warning shot across the bow of any over-enthusiastic editors out there in MSM land.

    Whistleblower, however, is exactly the type of person we need to hear from. The courage and determination she has displayed does her enormous credit and I thank her for it.

    The vast discrepancies in the sums involved ( 1% to 20% to 40%) is perhaps indicative of a wider problem we have discussed before; namely, the unknown or unadmitted scale of the toxic debt. We don't know it, and those who do are rightly scared of us finding out. Nonetheless, find out we must! And if the results of our efforts point to a systemic failure, an ideological failure, corrupt financial
    institutions and a complicit political elite, then so be it. I would only caution that the "enemy" plays to win, and they have the advantage. They are incumbent, and we must present a credible alternative.
    To win such a fight, we must make doubly sure of our own position. We must present a case that is watertight, irrefutable, and academically rigorous. Anything less will make us easy meat for rebuttal, and we will be dismissed as cranks or fools.
    Like you, I owe my children better than that!
    Through your blog you have an opportunity to build and present such a case, using the combined talents of those who comment here to avoid the pitfalls that well-intentioned but angry men are prey to.
    I, for one, welcome the opportunity to contribute in any way that seems useful.

  3. HavocBunny November 29, 2010 at 3:51 am #

    "Could this be true, the crossborder transactions on such volumes???"

    Most certainly:

    Europe's web of debt:


    Who Has Europe’s Loans?


    "Why cant't we get out of the euro, all countries become free of this gigantic enslavery chain called euro?"

    People getting mugged in the streets over a few quid. What do you think people (although they do waer suits) are capable of when it comes to trillions?

  4. Dexter Midnight November 29, 2010 at 8:54 am #

    Things are happening very quickly at the moment – a vortex and confluence of events that would seem to have the potential to become very unstable: Ireland, The Euro, North Korea and now Wikileaks – what degree of coincidence is involved here I do not know – I shudder to think of their possible connections. And you're right – very little will be forthcoming from the media-financial-political complex, although those in the media who have taken the tentative step in publishing these latest wikileaks deserve some credit. So what to do?
    I can't help banging on about your embryonic idea of two years ago – is it time to withdraw our cash from the banks yet? wouldn't that have an impact on their ability to carry out their plan? And are there banks out there that can be switched to, that are free of and outside of the web of fraud that surrounds us?

  5. John November 29, 2010 at 9:00 am #

    Can the banks, financial authorities and politicians get heir heads around this? We are NOT in a financial crisis, we are in a crisis of TRUST. We will not emerge from this crisis until trust has been restored. Further lies, PR, spin and bail outs of the greedy won't cut it.

  6. Whistleblower IRL November 29, 2010 at 10:49 am #

    Dear Mr. Malone,

    I would like to thank you profusely for bringing the above story to the attention of your readers.

    For obvious legal reasons, I can neither deny, nor confirm what you have said. Naturally, the statements made by Senator Norris are on our Senate's public record and are available for all to see.

    Brian Lenihan, the Irish Minister of Finance, was asked in parliament last Thursday to address the issues raised by Senator Norris NINE months ago.

    I have published my comments to Minister Lenihan's response on the following blog:

    As I said in one of my comments on the Guardian website, the only people who are paying the price for the crimes committed by bankers and the Regulator in Ireland, with the blessing of our government, are my fellow Irish citizens – the young who are forced to leave the country by the thousands, the families who can not afford the next mortgage payment, and the elderly and infirm who await their misfortune with horror.

    Hopefully, illuminating these dark corners of our financial system will help us understand how we arrived at this very sad moment in our history.

    Kind regards from Dublin,

  7. dave from france November 29, 2010 at 1:32 pm #


  8. JamieGriffiths November 29, 2010 at 2:08 pm #

    WhistleblowerIRL, you are a repository of hope and an example to us all.

    Keep shining that light.

  9. dave from france November 29, 2010 at 3:20 pm #

    Many thanks to his Grace the 13th Duke of Wybourne ( Guardian CiF) for this, from that notoriously extreme rag Accountancy Age

    Lords accuse auditors of deceiving investors

    "AUDITORS "MISLED" investors in the lead up to the crisis by supplying UK banks with a clean bill of health after being told taxpayers' money would be used to bail them out, a House of Lords Committee has heard."

    "Going concern [means] that a business can pay its debts as they fall due. You meant something thing quite different, you meant that the government would dip into its pockets and give the company money and then it can pay its debts and you gave an unqualified report on that basis," Lord Lipsey said.

    Link to AA

    Shareholders who bought bank shares after these whitewashing audits, and then lost out, would surely have a case for a class action?

    Regards frog2

  10. liberaleye November 29, 2010 at 4:09 pm #

    This sounds remarkably like the case of the London-based risk manager (I forget his name) for HBOS pre-collapse who alerted the bank's directors to the unsafe risk the traders were taking.

    He was of course fired for being a trouble-maker before being completely vindicated by the collapse of HBOS.

  11. JamieGriffiths November 29, 2010 at 4:15 pm #


    That'll be Paul Moore.

  12. dave from france November 29, 2010 at 4:36 pm #

    Funny my post from Accountancy Age disappeared ?

    After Jamie 14.08

  13. dave from france November 29, 2010 at 4:54 pm #

    Lords accuse auditors of deceiving investors

    "AUDITORS "MISLED" investors in the lead up to the crisis by supplying UK banks with a clean bill of health after being told taxpayers' money would be used to bail them out, a House of Lords Committee has heard."

    "Going concern [means] that a business can pay its debts as they fall due. You meant something thing quite different, you meant that the government would dip into its pockets and give the company money and then it can pay it debts and you gave an unqualified report on that basis," Lipsey said.


    Shareholders who bought bank shares after these whitewashing audits, and then lost out, would surely have a case for a class action?

    (Google software occasionally drops out posts to some spam folder on my other major blogsite… so reposting w'out html)

  14. Golem XIV - Thoughts November 29, 2010 at 5:50 pm #


    That's exactly what had happened. Not just to your post but to several others. To all concerned my sincere apologies. I do check but sods law, I have been on the roof much of the day fixing leaks and had not checked.

    I will try to check moe often.

  15. dave from france November 29, 2010 at 6:18 pm #


    Hehe, I'll leave 'em both. A warning to others.

    Fixing leaks on the roof eh? And having a vegetable garden .

    You sound like some sort of Greenie DIY Survivalist. I spose you catch rainwater for your garden too,thus depriving the Qatar Investment Authority of essential funds for repairing the infrastructure, and lowering the Government's GDP and 'Growth' targets?

    Subversive likewise!

  16. wirplit November 29, 2010 at 6:49 pm #

    Fixing leaks in your own roof and blowing holes in the whole rotten edifice of the finance industry.. joy to your labours!
    as Bob Marley wrote

    If you are the big tree
    We are the small axe
    sharpened to cut you down
    Ready to cut you down, oh yeah!

    Feeling heartened somehow dont know why.. small axe… oh yeah±

  17. mikehall November 29, 2010 at 7:23 pm #

    David, fantastic blog, many thanks!

    I posted this up as an Irish Times comment earlier (not sure if it's still 'being moderated')

    Thought the paper at the link might be of interest here too…….best wishes, Mike

    For anyone inclined to do a little reading in 'Economics', take a look at the following link. It's an academic paper, fully referenced, but highly relevant & not too hard for 'laypersons' to draw some interesting conclusions.


    The author considers the few economists globally who correctly forecast, in many cases years ahead, the timing & depth of the global financial 'bust'. Filtering out those that simply 'got lucky' he examines their prior statements to see if they shared a common, prior stated, method of economics 'modelling', 12 (named) prominent economists are selected for study.. He goes on to compare their modelling methods, termed 'Accounting, flow of funds' with the 'establishment' economists 'equilibrium' models. (It should be noted that the 'establishment' economists were still universally informing us that all was well, mere weeks before the 'crash'.)

    A couple of things stood out for me.

    The major organisations that inform public policy making, globally, such as OECD, IMF, EU Commission, ECB etc. all used the 'establishmemt' 'equilibrium' model, roundly ignored any other models & continue to do so, even in the face of their monumental failure. Yes, those are the same failed economics that form the basis of the 'deal' & budget conditions now being foisted on us.

    Another is that these IMF, EU used economics models pay little meaningful attention to how large the 'financial' sector becomes in relation to the 'real' (productive) economy, nor that of the debt & interest burden saddled on the 'real' economy by that 'FIRE' (Finance, Insurance & Real Estate) sector.

    How convenient for the Banks, & indeed the rich, that the economics models followed by public officials largely ignore how much wealth & how quickly the 'real' economy of working people transfers wealth to them?

    And we're now being told again by these public officials, borrow these vast sums & all will be well. Don't believe it!

  18. 24K November 29, 2010 at 8:06 pm #

    Dexter Midnight, the time is now and has been for ages but how do you let everybody know?

    I asked G about a righteous bank and he said the Co Operative. They refuse dodgy money and boot out companies/groups that are found to be bogus dude. I've applied and await a form to sign, you can apply online. Once the account is open you can move all your stuff over by filling out a form. you can do that online too.

    Restructuring the banking system. One account at a time.

    For the Whistleblower.

  19. Pat November 29, 2010 at 9:35 pm #

    David, thanks for bringing WhisleblowerIRL to our attention. I hope he posts more as I am now following his blog.

    I read his entire blog including David Norris’s exchange with Ireland’s Finance Minister, Brian Lenihan. It proves that both Lenihan and Patrick Honohan, Governor of the Central Bank of Ireland are criminals. As Irish MEP Joe Higgins recently said in Brussels, they became agents of the international financiers.

    Fine Gael leader, Enda Kenny was right in accusing them of treason. In China they would be taken out and shot. Indeed in 1922 Michael Collins would have shot them himself.

    But even more worrying than the Irish Government’s treason is the state of the ECB itself. It seems that what forced these “Irish” banks (international banks located in Ireland masquerading as Irish banks” to breach ECB liquidity requirements was a lack of liquidity at the ECB itself. It was unable to float bonds in order to provide liquidity to these “Irish” banks and then allowed them to ignore liquidity requirements. That is what really happened.

    The question now is: if the ECB was unable to float bonds to provide liquidity to the various national central banks and to individual banks, how is it going to float bonds to bail out the Governments?

    The media naively imagine that there is a pot of money in Europe from which Governments can draw money at 5.8%. They have failed to see and report that the cost of the bailout money will be at whatever rate the ECB (as the bonds issuer) will have to pay.

    The ECB could not or would not pay the rate asked on bonds to provide liquidity to the individual banks, so it figured out a way of making the Irish Government and therefore the Irish people pay it.

    Obviously something has to give. It is only a matter of time before the Irish people come to understand the magnitude of the fraud that has been committed on them by their own government.

    If I were Brian Cowan or Brain Lenihan I would be checking Google Maps for some remote island in the Pacific. There will be no escaping the wrath of the Irish people when the truth sinks in. David Norris and the Whistleblower are just the warning signs.

    Whatever happened to Nicolae Ceauşescu? Ah yes, I remember now ….

  20. Golem XIV - Thoughts November 29, 2010 at 9:43 pm #


    How are you? Good to hear you're on fighting form.

    I have a busy couple of days but I was thinking I would drop you an email later this week. Would that be OK?

  21. Whistleblower IRL November 29, 2010 at 9:59 pm #

    Thank you all for your kind comments and whistle-blowing clip on youtube 🙂

    Pat, i'm afraid to tell you that a meeting had taken place with one of Enda Kenny's 'right-hand' men at the time. Once he realised that this was not a sordid 'kiss & tell' story about Messrs Lenihan and/or Cowan, he vanished pretty quickly. In truth, he probably had another reason for not wanting to follow up on our meeting, but we will leave that for another time…

    Night, night,

  22. Pat November 30, 2010 at 1:30 am #

    Hi Whistleblower,

    Would that "other reason" have anything to do with his own Party being equally involved in treason? Whose interests did Alan Dukes rush to protect when he grabbed the helm at Anglo-Irish? I suspect he did not do it for the good of the country. Also I note the conspicuous absence of Richard Bruton lately.

    It sounds like you gave Enda the same chance as you gave Joan Burton (to play patriot) except Joan took it while Enda ran away.

    It seems that the moneylenders (bond creators/holders) have the same death grip on Irish institutions as they have in America. The (corruption) contagion probably spread from here (USA).

    The moneylenders (bond creators/holders) succeeded in electing a puppet President of the United States, Barack Obama, with their arch puppet, Tim Geithner, in charge of the Treasury (the real President). The arms industry elected their puppet, George Bush, as President with their arch puppet Dick Cheney as Vice President (the real President).

    The trouble is that Obama can do much more damage working for his money-lending masters than Bush could ever have done working for his military-industrial complex masters. Financial weapons of mass destruction are much more deadly than nukes.

    If I may say so Whistleblower, you did a superb job in getting a written receipt from the Regulator's Office for your Report “in late July or early August 2007”. You denied them deniability! It shows that you know your stuff and are a force to be reckoned with.

    It may turn out that your work has given us the key to beating them. That receipt may be what can prevent this entire bailout fraud from ever being implemented. It may enable us to prove that the activity they were involved in was not fractional banking but bond trading, the latter not being licensed banking activity and therefore not guaranteed by the taxpayer.

    They merely dressed up bond trading as banking and the Irish Government guaranteed it. Their problem was that they could never have stayed within ECB liquidity guidelines as bond traders. So they got caught, thanks to your (destined to be historic) “Report”.

    I hope Joan Burton understands the historic opportunity you have handed her. I doubt that the Labour Party was allowed in on the financial chicanery and will have no reason to run as Enda did.

    If Labour plays the card you have given them reasonably well at the very least they should reap the extra Dail seats that will give them the power to prevent Fine Gael carrying on the Fianna Fail fraud.

    Maybe as an added bonus we will get David Norris as President. I understand he has “notions”, as my mother would say.

    Again, thanks for being smart enough to play your cards as well as you have done. I hope this is only the beginning of a popular fight-back. Ireland has a great opportunity to teach the world that national sovereignty can still exist in the modern world and can beat the international moneylenders (bond creators/holders).

    Ireland can not only defeat the moneylenders but in doing so can demonstrate the strength of the Euro Project rather than its weakness. It can prove that fractional banking is still a good idea whether done by one or by a number of cooperating central banks as in the EMS. The key is simply to keep to fractional banking.

    This will demonstrate that the weakness of the American Federal system is its ability to overreach and debase itself. America is currently printing money at an unsustainable rate. Americans are foolishly boasting of their ability to print enough money to satisfy the (inexhaustible) appetite of the Wall Street bond creators/holders (moneylenders).

    The inevitable massive inflation and massive devaluation of the dollar will decimate the U.S. economy. I believe the only thing that will save the dollar is if the Europeans are foolish enough to allow the phony world of American bond creation to destroy the Euro. If the Euro survives it will prove the better model because unlike the Fed it is constrained from printing money.

  23. dave from france November 30, 2010 at 1:36 am #


    Para4 – the "Irish" banks were over-trading, which in itself is no fault of the ECB ? That wasn't for old fashioned trade finance or ship-building loans, it was for the magic-money-bubble , so no reproach to the ECB for not helping there.

    IF, as we may suspect, the ECB knew and ignored, THAT is very bad .

    para5 — see para4.

    In theory the ECB could borrow at much less than 5%, but everything is up in the air now, as we know.

    My 2c late at night !

    NN all

  24. Whistleblower IRL November 30, 2010 at 9:44 am #

    Good morning,

    Another day, another Euro ?!?

    Pat, I notice with interest your comment re Fine Gael in general, and Mr. Bruton in particular. To be fair, let me state for the record that the Labour party has known about this for many weeks at this stage. As they told me only last Thursday, they were just busy with more pressing matters. I am not sure that had it not been for an angry Guardian reader that decided to address the issue head-on by writing to TDs (MPs), this would have been raised at all. At the risk of further depressing you, I should probably tell you that although I did not meet with any Sinn Fein politicians, the matter was brought to their attention. A friend of mine, who is a senior professor and head of department at one of Ireland's leading universities, wrote to a Sinn Fein senator and offered to introduce me to him. My friend never got a response.

    Once again, I would like to thank Golem and everyone who has commented, for your support. The last 3 years have been very tough. However, thanks to family, friends, and strangers, in Ireland and abroad, I am still around, holding my head up high 🙂


  25. Pat November 30, 2010 at 6:19 pm #

    Hi Whistleblower,

    I wondered how you were doing personally but did not want to ask. I hope you can make it through this reasonably intact. It must be hard.

    I am not surprised that the politicians of all parties have been reluctant to get involved in your struggle. For example, I have been watching Brian Hayes for some clue as to what FG is thinking. Brian seems to have excellent PR skills but totally lacking in substance. That is so typical of young up-and-coming politicians everywhere, they are all hat and no cattle.

    What about the legal profession? Surely now more than ever Ireland needs a strong legal corps? The young legal graduates should be scouring the Constitution for ways of curbing the power of day-to-day government. Surely this Government acted ultra vires in guaranteeing everything the “banks” touched.

    I have always been surprised at how little Irish people understand the power of their Constitution. The reverse is the great strength of American democracy. Any truck driver can quote it in full to you.

    The Irish do not seem to understand the difference between their republican concept of sovereignty and the British "Supremacy of Parliament" concept. They seem to think that like Britain they have a sovereign government rather than a sovereign people. I guess the Irish law profession thinks it is still English. They even wear the wigs.

    PS. Thanks David for giving us all this excellent platform for discussion.

  26. Pat November 30, 2010 at 6:49 pm #

    Dear Dave from France,

    The ECB is very different from the Fed, or at least from what the Fed has become. The ECB must still go out into the bond market and actually issue real bonds to real bond buyers. The Fed simply creates money by “buying” its own bonds. In other words the ECB is still a central bank while the Fed has become a government within a government.

    What is even scarier is that the U.S. bond market controls the Fed not the U.S. Government. Andrew Jackson was right. He believed that if inter-state banking was allowed it would destroy the Union. Unfortunately the growth of that Union means that the Bank of America may now destroy the world economy. Old Hickory is rolling in his grave.

  27. guidoromero December 2, 2010 at 11:57 am #

    is there a word limit to comments? I keep trying to post something and keep getting refused.

  28. guidoromero December 2, 2010 at 11:59 am #

    Part I


    Banks are perceived to be the pillars of the system. That is; the political, social and economic system. Hence the reason politicians are bending over backwards to protect and save the banks.

    Most politicians do not understand the Faustian pact they entered in with the banks via the imposition of a particualr variety of monetary system.

    Money comes upstream of any human dynamic. The system chosen to manage this dynamic is what ultimately drives all dynamics.

    Banks successfully sold a debt based fiat monetary system to the politicians whom in turn imposed the system unilaterally and arbitrarily upon society.

    The reason politicians were sold on the idea of fiat money is because it gives the appearance to enable government to spend liberally. But the reasons the banks imposed this particular system is two fold.

    On one hand, in a debt based fiat monetary system a restricted number of banks are first and third in line to benefit from every single unit of currency created. This is because when treasury requests the creation of 1 unit of money, the central bank creates the currency and hands it over to treasury at interest. But in order to inject this unit into the economic system, treasury hands this unit of currency to banks. So, in the case of the USA for example, the Fed creates a Dollar bill, gives it to Treasury at interest and then treasury gives it to the primary dealer banks. The interesting thing here is that the Primary Dealer banks are also members of the Fed.

    Thus, banks benefit first and third from the creation of each single unit of currency.

  29. guidoromero December 2, 2010 at 12:00 pm #

    Part II

    After that, it is clear that it is in the interst of the banks to create as many units of currency as possible. And, guess what! A fiat monetary system is predicated on inflation. And since inflation conforms to the law of diminshing marginal utility, you always need more inflation just to stand still. Thus you always need more units of currency for any given degree of GDP expansion.

    So, debt based fiat money is gradually devalued as it moves from the creator, to treasury, to commercial banks, to corporations till eventually it ends in your poket at which point it is at its lowest value because it has been devalued by the prvailing rate of interest of all previous passages. Not only that, but as more units of currency are created in excess of the underlying economy, each unit of currency is inexorably devalued over time.

    The corollary to the above is that as money gradually loses value over time, profits progressively concentrate in fewer and fewer sectors of the economy till they concentrate in the finance industy only till, finally, profits concentrate in the hands of the primary dealers (bank bonuses anyone?).

    The second corollary to the above is that for as long as banks can maintain a pre-eminent position in the system, then banks can make huge profits in an inflationary environment. BUT by the time inflation hits the point of least effect on the economy, banks can then make huge profits by appropriating the collateral that had been pledged against all previous loans incurred by corporations and individuals during the prior inflationary era.

    Now many of you may think that the above does not apply to the UK or France of Germany for example because there are no primary dealers there.

    First of all you should know that all countries have a central bank and the equivalent of the USA's primary dealers.

    But, even if that were not the case, you must realize that today all world currencies are tied by the magic of the US$ based floating exchange rate mechanism. Hence the Fed's swap lines to assist in bailing out European banks.

    So, yes, a restricted number of banks benefits first and third during a normal economic cycle and, when deflation inevitably follows the previous inflationary era, they stand to gain by appropriating real assets.

  30. Golem XIV - Thoughts December 2, 2010 at 12:22 pm #


    I am familiar with the mechanism of fiat currency creation and I think your observations as to the role of inflation are essentially correct.

    What I would add, however, is that the fiat currency you are talking about – that issued by nations is no longer the largest currency being issued.

    From the beginning of this debt debacle I have argued, and still do, that a good way of understanding what has happened and why, is that the banking system have essentially created their OWN uneregulated currency – a debt backed currency – which they stupidly devalued and whose value has evaporated. The crash of their debt-backed currency IS our crisis.

    The banks essentaily abrogatred the right to issue currency to themselves, via the shadow banking and securitzing system. They printed as much as they wanted. They debased it (basing it on worse and worse 'assets' and debts) and were left holding a debased paper currency when it crashed. Since them they have been trying to get nations to replace their worthless paper with our slightly less worthless paper.

    During the bubble years their currency, not ours, was the driver and determining force in global finance. The banks renewed interest in our currencies is because they need it to replace the value of theirs.

    I have posted many many times on this over the years and have found that more and more bankers and assorted insiders are coming to this view.

    Hope this is of interest to you.

    There is a limit on size of reply. I don't know why. Google sets these things.

  31. guidoromero December 2, 2010 at 12:31 pm #

    Absolutely, hence the term debt based fiat money.

    As Steve Keen eloquently demonstrates in Roving Cavaliers of Credit, credit creation precedes the creation of the currency.

    Credit and money are fungible. One changes hands the other is transmitted wirelessly. Same thing.

    In fact one of the problems today is that the "value" created by credit which is estimated by the BIS to be over $650Trillion can no longer be supported by the underlying economy. Ergo, the economy is no longer generating enough profit to satisfy the interest obligation needed to service this debt. Hence the various forms of QE which are nothing but more credit.

    The key is the marginal utility of the currency which, after 100 years has been exhausted.

  32. Pat December 2, 2010 at 11:12 pm #

    Golem & Guidromero: everybody is saying that the reason the yield on Irish Government debt is nearing 8% and rising is fear of an Irish default. But is that the real reason? I understand 80% of Irish debt is owned by non-Irish investors. If most of that is outside the Euro area, such as Britain and the U.S. which I understand to be the case, may it not be fear of Euro devaluation that is driving up Irish yields?

    Severe Euro devaluation is actually taking place right now. This must be reflected in the yield. Could it even be that British and U.S. speculators are shorting the Euro using Irish debt? Remember George Soros made his pile shorting the Pound.

  33. guidoromero December 3, 2010 at 9:45 am #

    In a floating exchange rate monetary system, "devaluation" is not an absolute term and must be measured against something else.

    In that regard, in the past 10 years, the only thing that has been rising in value against just about everything else is hard assetts led by gold.

    If I may, I could post a link to a set of charts I maintain on stockcharts so you could see what I mean in graphic form.

    The Euro in particular has been losing ground against not only gold but other currencies too for a good many years now.

    All that said, I cannot say whether or not Irish debt is a vehicle for shorting the Euro. It could be I suppose. Anything is possible today. But, in my opinion, there are easier ways to protect against currency depreciation.

Leave a Reply