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Madoff, UniCredit and Ireland’s regulatory silence

Last week I wrote suggesting Unicredit might be in trouble because of debts coming to it from its Austrian subsidiary Bank Austria and its American subsidiaries Pioneer Global Asset Management and Vanderbilt Capital Advisers

Friday, Unicredit, Pioneer, Bank Austria and through them, Medici Bank, are all named as accused in the largest case to come out of the Madoff swindle.

Now this brings up a point which has been bothering me for the last couple of weeks.  How is it, that I know that the Irish Financial regulator has on file certain information regarding the activities of UniCredit which would be of material interest to the Austrian financial regulator, and Austrian parliament, as well as to their Italian counterparts, and the New York lawyers led by Mr Picard, who filed the suit, and yet it seems none of them  know?

Why has the Irish regulator, or the Irish Minister of Finance, not seen fit to tell his European regulatory partners highly relevant information, despite the fact that European law makes it their duty to do so?  Why does the Austrian parliament not know what I do, regarding a matter which has now embroiled the owners of the largest bank in Austria?

You might argue that I can’t possibly know what the Austrian parliament does and does not know. And yet silly as it is, in this case I do know.  Just as I also happen to have talked to a retired executive of one of the largest, collapsed and now-nationalised, European banks; this person has detailed and disturbing knowledge pertaining to the how the bank was taken over, how it operated both in Ireland and in New York, and why it collapsed. Now, although it is a matter of public record that the Security and Exchange Commission visited Dublin while investigating the activities of the collapsed bank, this executive has never been contacted. Neither the Irish regulator, nor the SEC, bothered to contact him. Why not?

I wonder if it is time for ordinary people to start pressing via both their elected representatives and Freedom of information requests, for what is known to the Regulators to be brought in to the light of day instead of being hidden away behind the greasy shroud of Corporate confidentiality.

I am not so naive as to expect any of the information the regulators have, and have so far kept secret, will be made available, but I do think it begins to prepare the grounds for taking the regulators, in person, to court, for dereliction of duty at some time in the future.  I think it is important to make it clear to the Regulators that if they have failed to serve the interest of the public and have instead chosen to protect the banks, that they should start now to fear for their personal future.

To this end I wonder if one of the last honest politicians in Ireland, Senator Norris, might take it upon himself to ask the regulator what he knows and what he has conveyed to other European regulators.  For if the answer  comes back, ‘nothing’ because there is nothing to tell, then I suggest that that regulator might become the first to answer to the public in court, after an election which might just remove those who are protecting the banks in preference to their own people and nation.

What we have now is a conspiracy of silence where every nation’s regulator is keeping silent about facts known to them because they think it will protect ‘their banks’ from harm. Their logic is that the banks are too important to be allowed to come to any harm, even if that means putting them above the laws meant to regulate them.  In this case the Irish regulators know facts about UniCredit which would be helpful to Mr Picard in his case against Unicredit and the others and possibly important to the Austrians as well.

I would be willing to bet that the Austrian and Italian regulators might be aware of facts pertaining to both Bank Medici and Anglo Irish Bank’s Austrian subsidiary, which the Irish people, if not their banks, would very much like to know.  Each regulator is protecting its banks.  Each would very much like to know what the other knows.  We, the people, would like to know what they all know. And the banks and their political friends have so far made sure that none of us know anything.

But the situation may be changing of its own accord.  What happens when, as in Mr Picard’s Madoff case, one country might seek to deflect blame and even culpability from an important bank in its  country to the regulator and banks in another country?  In this case a political party in Austria might seek to find the evidence to put the blame upon UniCredit and the Italian regulator or even the Irish regulator for failure to do his duty.

I wonder if this is a new phase of the bank fraud crisis, where the rats start to turn on each other.  If so we should all do what we can to help them.  There is nothing to stop us coordinating Freedom of Information requests in our various countries to find out what is known about the same banks.  At the very, least it might raise the political and legal temperature surrounding the banks in question.

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41 Responses to Madoff, UniCredit and Ireland’s regulatory silence

  1. Whistleblower IRL December 12, 2010 at 5:25 pm #

    "I'm only too aware that we could easily cross the line and loose everything we have" said Mario Draghi, Governor of Banca d'Italia in Friday's Financial Times ( http://www.ft.com/draghi/ ). Would that be because Governor Draghi knows that he has a time-bomb ticking away in his own back-yard, a bomb called UniCredit?

    The Financial Times stated that Draghi is "aiming for a eurozone 'unpolluted' by banks hooked on emergency liquidity". Would the governor care to tell us then why Banca d'Italia has been pumping billions of emergency funding into UniCredit since the beginning of the credit-crisis? Perhaps the answer is to be found in Golem's article
    http://golemxiv-credo.blogspot.com/2010/12/dominoes-falling-from-east.html

    "In this global debt crisis we have heard several new notions: Too Big to Fail (AIG) and Too Big to Bail (Spain) and now I would like to add one more – Too Big to Mention. And to that category I would like to assign Unicredit as its founder member. Unicredit is an institution that never gets mentioned because it is SO big relative to its parent nation that their fates are one. Whatever happens to Unicredit happens to Italy. "

    If Governor Draghi is still short on evidence of what UniCredit gets up to, courtesy of an oblivious Irish regulator in this case, he is welcome to check-out my blog. The link to the official protocol of Senator Norris' statement mentioned above, is in the blog as well.
    http://whistleblowerirl.blogspot.com/

    Regards from Dublin,
    WhistleblowerIRL

  2. pilibi December 12, 2010 at 11:46 pm #

    I surprised and disappointed that your site links to David McWilliams who was first out of the 'traps' in his weekly column for the Sunday Business Post when the financial crisis broke in Sept '08, in his support for the bank bailouts in Ireland, including the infamous Anglo Irish Bank. David identified the problem as one of liquidity and through his column, I seem to remember,had a 3 stage strategy for extensive guarantees etc, all at tax payers expense to save the banks.David likes to portray himself as an 'outsider' when in fact he is a consummate 'insider' and self-publicist, darling of the state broadcaster RTE which is little more than the propaganda wing of Fianna Fail – the most irredeemably corrupt political party in these islands.David has always been way behind the curve during this crisis and is now scrambling desparately to get himself onside.David and the minister for finance, Mr Lenihan attended similar priviledged private schools.David and the minister are friends – the man who delivered Ireland for the banks.

  3. Dope Addict December 13, 2010 at 2:24 am #

    pibili — I can't speak for Golem, but I can say that it's not necessarily a good idea to read only blogs & news sources with which you already agree.

    So far as rats turning on each other goes, this is probably our best hope for more transparency, as one side tries to expose another. "If I go down, you're going down with me."

    This dovetails nicely with how capital usually responds to a crisis, when profits are low or hard to come by. It starts eating itself, as everyone fights over pieces of an ever-diminishing pie.

    Banks are only making profits right now because the govt is giving them money at near 0% interest. Unfortunately, as Japan has shown, it's possible to maintain this dog & pony show for a very long time indeed.

  4. Dope Addict December 13, 2010 at 2:26 am #

    …then again, Japan's monetary system works differently than the Eurozone countries, as it's technically impossible for Japan to go bankrupt.

  5. Fungus FitzJuggler III December 13, 2010 at 8:41 am #

    FOI will possibly be delayed, but it is a very good idea.

    Just a friendly warning: Jimmy Livingstone was in charge of SEB when his wife was killed. I suspect she sacrificed herself to save him? He was breaking the AIB branch by branch, through his informants. His activity was stimulating Tony MacCarthaigh into his investigation. While Tony was eventually ordered to shut it down in 1992, and allow the DIRT evasion to continue, Jimmy was removed from SEB.
    Brian McCabe was the inspector of taxes in charge of banking institutions. He was killed while cycling to work, in the 1990s. No one was every found who witnessed it.
    There is a lot of money at stake.

  6. Golem XIV - Thoughts December 13, 2010 at 9:44 am #

    Pilibi,

    This whole thing of linking sites is a problem for me. For a long time you might remember I had no links. I felt what I read was of no consequences except to me. If people asked directly I told them, but I didn't think I needed to advertise.

    Since the blog has grown and particularly since the book, other sites have linked to this site and some have read and mentioned the book.

    I was told that it is common practice, when sites link to you to link back. It seems it is considered polite. SO some of the sites I have linked to are for that reason.

    Others are, as Dope said, because it seems silly to only read like minds. Linking to them is not my way of saying I agree with them. It is my way of trying to spread word of this site and my book. Perhaps that seems shallow.

    I could I suppose have two lists. One of those who have linked to me and those I acctively read. But in some ways that seems a little pointed. Some of the sites I read are not even on the links and most of what I read is not on any particular site. It is scattered here and there and finding it is what takes much of my time.

    Anyway Pilibi, the short version of this answer, is please don't judge me by the links. They were never intended as any soprt of proxy measure of my thoughts and likes.

    I read very right wing people and very left wing. I read nationalists and internationalists. I read mostly financial people because I want to know what they know not because I agree with them. And what they think has little or no effect on what I think.

    You know what I think about liquidity versus solvency. I make clear what I think every day. I feel I have nothing to hide and no agenda other than that which I argue for here.

    I hope very much you will continue to be a valuable participant in this community.

    I did not know any of what you told us about Mr McWIlliams. It is good to be informed. Thank you.

  7. Golem XIV - Thoughts December 13, 2010 at 9:45 am #

    Fungus,

    Thank you for the warning. Thankfully I don't think I am in that league yet. But I don't take what you say lightly, by any means.

  8. Uncle December 13, 2010 at 11:16 am #

    A bit Off Topic, and don't want to distract from the great (as usual) discussion but this might be of interest to some readers

    http://www.positivemoney.org.uk/

    It probably has about the same chance of success as Gordon Brown would in strictly come dancing, but you never know…

  9. airstrikes December 13, 2010 at 3:57 pm #

    "To this end I wonder if one of the last honest politicians in Ireland, Senator Norris, might take it upon himself to ask the regulator what he knows and what he has conveyed to other European regulators."

    Have you contacted the Socialist Party's MEP for Dublin Joe Higgins? He might be able to raise it in the European Parliament?

  10. Golem XIV - Thoughts December 13, 2010 at 4:13 pm #

    airstrikes,

    I haven't, but it's a good idea. I will send him an email. Thankyou for suggesting him. I will also pass the suggestion on to Whistleblower.

    Thanks again.

  11. Ben Gabel December 13, 2010 at 7:21 pm #

    A note to people in other countries reading this:

    It is YOUR TURN now to do some work. Bring this to the attention of your regulators, news, and representatives.

    You are far better able to do this than Golem. You will know who to write to, and how your system works.

    Language need not be a problem. Use Google Translate! It works well enough to get their attention.

    http://translate.google.co.uk

    EG:

    "Why has the Irish regulator, or the Irish Minister of Finance, not seen fit to tell his European regulatory partners highly relevant information, despite the fact that European law makes it their duty to do so? "

    ¿Por qué el regulador irlandés, o el ministro irlandés de Finanzas, que no se ve en condiciones de decir a sus socios europeos de reglamentación información muy relevante, a pesar del hecho de que la legislación europea hace que sea su deber hacerlo?

    Warum hat die irische Regulierungsbehörde oder den irischen Finanzminister, nicht gesehen passen zu seinen europäischen Regulierungspolitik Partner erzählen hoch relevante Informationen, trotz der Tatsache, dass das europäische Recht macht es für ihre Pflicht zu tun?

    Pourquoi le régulateur irlandais, ou le ministre irlandais des Finances, pas jugé bon de dire à ses partenaires européens de réglementation des renseignements très pertinents, malgré le fait que le droit européen, il est de leur devoir de le faire?

    YOUR CHANCE to make a difference. This is happening NOW. Real people's real lives being ruined as we speak due to the capture of our political system all across Europe.

    Remember, we the people own the financial system. I will emphasise that again. It is OUR financial system. Made by us, and for us. Backed by our promises to pay debts and taxes.

    And OUR SYSTEM – which should be for the common good -is being taken away from us, and used to rob us , to rob our children and even our childrens' children.

    Together, the people can stop it. But someone must take some action.

  12. Pat December 13, 2010 at 8:04 pm #

    Golem,

    If, as it seems, the EU Commission has no effective oversight over the various national bank regulators, would it be possible for an incoming Irish government to pre-condition its acceptance of the bailout money on a full EU examination of the Irish regulator? Such an official EU investigation of the Irish regulator would necessarily involve the other national regulators.

    If all this bailing out is to save the Euro, surely some prophylactic measures should be included. If, as you suggest, there is an ongoing conspiracy of silence among the various national banking regulators, such a basic systemic flaw in the Euro project should be examined and corrected.

    The perfect place to start is with the Irish Regulator. If it turns out that he was a mere tool of the Irish Department of Finance, then there is a serious systemic problem in the Euro project.

  13. Golem XIV - Thoughts December 13, 2010 at 8:32 pm #

    Ben,

    Thank you!

    Pat,

    I think you are right on both counts. Ireland could be the tip of the spear. But it will have to remove the impediment to its own change – its captured regulator.

  14. Pat December 13, 2010 at 9:06 pm #

    Golem,

    If the EU is afraid to demand an investigation into the Irish Regulator's failure, could the UK attach such a demand to its Irish bailout contribution? Or is everybody just pretending to have a bank regulator?

    It seems to me that the taxpayers of every nation should, as a pre-condition of bailing out the banks, demand a full investiagtion and explanation as to why the various governments failed to regulate the banks otherwise nothing will have changed.

    I think we all know why the governments are not doing it – they were all complicit in running "pretend" bank regulation – which is why we must demand they do it.

  15. Golem XIV - Thoughts December 13, 2010 at 9:11 pm #

    I'm with you Pat. But they won't not yet. Not until we play a bit more divide and conquer.

    So long as they see the value of sticking together they will. But if we can help them feel they need to try to pin blame on some other country's regulator in order to 'save' their own bank, THEN they will turn on each other.

    That is why we need to get people to put some pressure on their national regulators NOT to investigate their own banks or in any way 'endanger' them, but to find out how far other national regulators have failed and how this might allow 'our' banks to blame 'them'.

    If one starts, then it could unravell for them all.

  16. Pat December 13, 2010 at 10:13 pm #

    Golem,

    Our best opportunity is in Ireland now that it is entering the political rooting season with all the politicians in heat. We could start a general clamor in the media for an investigation into the Bank Regulator. The politicians will be looking for a scapegoat. David Norris and Whistleblower could lead the pack, your blog as the hunting horn. Let’s get them on the run.

  17. wirplit December 14, 2010 at 12:50 am #

    On the subject of how banks will never change on their own here is a pretty unbelievable example of how an elite group of banks took advantage of the crisis in 2008 to run the derivative market

  18. Dope Addict December 14, 2010 at 5:07 am #

    would it be possible for an incoming Irish government to pre-condition its acceptance of the bailout money on a full EU examination of the Irish regulator?

    I'm pretty sure the bailout will be signed, sealed & delivered before the next Irish govt takes power. That's kind of the point of the bailout — to bind the Irish state to its terms so that no succeeding govt has any leeway so far as changing the terms of the bailout goes.

    And it gives the incoming govt the excuse they need to not do anything — "our hands are tied, the previous govt signed the agreement & the Irish people cannot back out now," or some such BS.

    That's not to say that the Irish people, organized, cannot force their govt to break the bailout agreement, but don't expect newly-elected politicians to lead the way.

    I may be wrong (I hope I am) but I think the 3 big Irish parties are all singing from the same hymn sheet, so far as the bailout goes.

  19. Fungus FitzJuggler III December 14, 2010 at 7:19 am #

    Somers has recently had a gentle go at the regulator.
    He was very relaxed….. he said.
    Also ticked off that he was not taking decisions quickly enough, unlike Anglo, to grow at 30% pa.
    Some regulator!

  20. Whistleblower IRL December 14, 2010 at 11:36 am #

    Airstrikes,

    Thank you for your suggestion. I took your advice and wrote to Joe Higgins, MEP, yesterday evening. I will keep you informed of any response I receive.

    Pat,

    I welcome your suggestion. It would be nice to think that our Pravda-like media would start exercising some real investigative journalism for a change. They could follow Kathleen Barrington's formidable lead.

    The silence from ALL our politicians about this affair (David Norris being the shining exception) is getting more deafening by the minute.

    Today we read in the Guardian about a Wikileaks cable regarding the disastrous Irish bank guarantee of September 2008; a guarantee which most of our TDs (MPs) were in favour of. I wonder if this will be on their minds tomorrow, while they do their usual petty scoring-games at the debate & vote about the punitive IMF bailout. It is patently obvious at this stage that we, the Irish people, are not at the forefront of their concerns. Their comfortable seat in the Dail (parliament) is.

    The links to the Wikileaks story and some other pertinent headlines are on my blog.

  21. wirplit December 14, 2010 at 1:16 pm #

    Pat
    Bit of investigative journalism from Fintan O'Toole on those high profile AIB bonuses…and how they were rushed in at meeting AFTER the bank knew that the Irish government was stepping in with the bailout. As they were insolvent and knew it, this was effectively looting…

  22. pilibi December 14, 2010 at 2:34 pm #

    Golem,

    Despite all their rhetoric, you should be aware that there is only support from the main opposition parties to the 'deal' between the government(Fianna Fail and the Green Party)and the IMF/ECB, even the Unions are silent having completely capitulated over these last two years.
    Fine Gael forms the largest 'opposition' party (Conservative,rural and reactionary – the quintessential 'law and order' party) and their finance spokesman Mr Noonan exhorted the government to "to get on with it".The 'it' in question being the 6 Billion in cuts proposed in the budget.
    In fact Fine Gael wanted the cuts to be even more savage than they already are.Labour (whatever happened the Labour party) the 2nd largest opposition party agrees in principle with government strategy, but might only quibble with the detail.

    This is the sorry state of things in Ireland where a cosy concensus exists within the political, business and financial establishments to look after each others' interests, where ordinary people are set adrift and engulfed by a vortex of unimaginable ferocity, where tens of thousands of young people are forced to emigrate and all hope is abandoned.

    One beacon of light that has shone brighter than most throughout all this period is Joe Higgins, socialist who has provided the only opposition
    to the government.

  23. Golem XIV - Thoughts December 14, 2010 at 2:41 pm #

    pilibi,

    The concensus of cruelty you describe is very simiar to that which spawns here.

    It's a global concensus which would love us little people to turn on each other. Rather than collectively turn on them. But people from all sorts of backgrounds and political viewpoints are turning.

  24. Rod December 14, 2010 at 3:02 pm #

    Sorry but is not the problem the fact that the regulators themselves won't act as in the British FSA and RBS.

    So where should we address our attention?

  25. airstrikes December 14, 2010 at 3:45 pm #

    Golem XIV & Whistleblower

    Good stuff. Joe helped expose the scandal of abuse of migrant labour at GAMA a few years back using his seat in the Dáil as a public platform. I'm sure if he can he will help do the same with this scandal.

  26. John December 14, 2010 at 4:48 pm #

    Golem, thanks for your blog; the high quality comments it receives are praise enough.

    In case you may be accused of a cosy consensus setting in here too, let me briefly review what happened in Ireland. Certainly the banks are massively (and criminally, I believe) culpable for the odious debts run up.

    However, it would be remiss not to point out that hundreds of thousands of Irish people got themselves into debt in the hope of becoming rich, and, more forgiveably, by not wanting to be left unable to afford a house down the line.

    I feel very sorry for young families who were urged, often by their own parents, to jump onto the last rung of the property ladder, only to have it turn into a greasy pole.

    Many of your commentators, myself included, would point here to a lack of government action. They let the bubble inflate. It suited their political ends.

    But thousands of people were also swept up by this latest get-rich-quick scheme. Some less culpable than others. However, they were adults and are responsible for their actions.

    Sure, the banks bear a huge responsibility. And here, I totally welcome your investigation of the invisible Irish regulator. But the hundreds of thousands of people who "bought" property to get rich weren't being mugged by banks on the street and having overpriced mortgages shoved down their throats.

    There are now 2,800 ghost estates in Ireland.

    The banks, which are largely owned by the taxpayer, have extended the grace period on repossessions, but when repossessions inevitably start, which they probably will next year, given the contractionary policies the country has been forced to take to win the confidence of the bond market (which it has not done, because why would investors invest in a shrinking economy?) then the social fabric might really start to tear. And the social fabric is something that Ireland has in abundance – that's why people love visiting.

    That would be disastrous – if it is allowed to happen.

    btw, your Japan analysis is truly frightening.

  27. Pat December 14, 2010 at 5:27 pm #

    John,

    But don’t forget none of these young Irish people would have used the drug of easy mortgage money if the pushers, the banks, were not hosing them down with false purchasing power.

    Wall Street, the geyser source of all this phony purchasing power, was spreading its money-creation madness around the world faster than any disease in history. It was called “securitization”.

    Its creators/beneficiaries are now known as “bondholders”. These bandit "bondholders" stealthily put the world’s politicians and media in “bond”age. Now it is up to "We the People" to rescue ourselves from our poisoned politicians and media.

    Thank goodness for the Internet.

  28. 46Martman December 14, 2010 at 5:32 pm #

    The recent bailouts don't appear to be easing Ireland's problems with Some economists are now predicting it is only a matter of time before Ireland defaults.
    http://www.spiegel.de/international/europe/0,1518,733522,00.html
    With David McWilliams in the Belfast Telegraph saying "If the Irish economy does not grow by 8-10 percent, then the country will end in a debt-deflationary spiral. And even the most optimistic government projections are just below 4 percent".
    If Ireland does default. Will this be the be the domino that starts the fall of all the other others stacked behind it?

  29. Dope Addict December 14, 2010 at 6:34 pm #

    With David McWilliams in the Belfast Telegraph saying "If the Irish economy does not grow by 8-10 percent, then the country will end in a debt-deflationary spiral.

    8-10%?? Dark humor at best. They'll be lucky if the Irish economy doesn't contract, and I'm not counting on them being lucky.

  30. 24K December 14, 2010 at 6:59 pm #

    G, do ya think sites like 38degrees would be any good for action to do with the regulators?

  31. Golem XIV - Thoughts December 14, 2010 at 8:30 pm #

    Hello John,

    Of course you are right about ordinary people bearing some reponsibility. But I do side with Pat that the bankers said 'trust me I'm an expert' and people did.

    46Martman,

    Welcome. Ireland cannot and will not grow out of this. Ireland cannot neither can Greece nor Portugal. I doubt Spain will either. Spain will take a huge new leg down some time in the coming year.

    All of them, as well as the rest of us, have massively over-estimated how much their economies wil grow. The problem is simple in a way. And stupid. The growth models they use are ante deluvian. They consistantly over estimate growth and worse, doubly over-estimate tax take and consumer spending from that growth.

    On top opf which the models specifically ignore unfunded liabilities, which means they never account for ther real growth in the costs of pensions and health care. And those costs are set to start to accelerate in a way never seen before, just about the time we are hoping growth will be pulling us out of the bankers pit of debt.

    I think they konw this and it helps explain why there is the concern among the right wing to push through the cuts at break neck speed.

    They want to pay the bankers before we realise that we shouldn't have done. By the time people realise the super crisis of unfunded liabilities for which we should have been saving our money, the money will already be in the bnkaer pockets and they will have airlifted out of here.

    We must stop them before that.

  32. Golem XIV - Thoughts December 14, 2010 at 8:41 pm #

    Did you see John Bruton, former Irish Prime Minister has been on an official mission to SELL Ireland's bans to the OIL STATES.

    Already large delegations have been in Dublin and now Brutoin has been over there to flog them the banks WITH all the Irish tax payers bail out money as part of the deal.

    In other words the Irish tax payers, all those orphans and Grannies he and his twisted ilk were so very concerned to protect – all those people will have paid their taxes to the richest nations and richest individuals on the planet.

    Oh yeah, Sure the financial class and our leaders are on our side. Sure they are. All for our own good.

    See here for the story.

  33. Uncle December 14, 2010 at 9:50 pm #

    When you get problems like this, most politicians will try to kick the can down the road. This will be especially true when dealing with problems on a european scale, where no one is really 'in charge'. The 'bailout' of Ireland is meant to buy time, whether it does is another matter. When you really analyse things, then it is obvious that Ireland has to default in some sense. But the teetering domino has to be kept wobbling as long as possible because when it goes then the whole of Europe goes (and possibly the US too). The mathematics of compound interest on debts, mean that eventually the debts will grow faster than the economy can grow – I think that we have passed that point. The only way out is default and write down of debts. Unfortunately the tax payer is now on the hook for a large proportion of the debts incurred by gamblers who got rich then did a runner. But you all know this. How do we get out of it without a large amount of pain and/or violence – no idea.

  34. Golem XIV - Thoughts December 14, 2010 at 10:02 pm #

    Uncle,

    exactly as you say – the mathematics of interest made the end game a foregone conclusion back in 08. We said the bail out were a madness and a crime then and they are doubly so now. We said they would fail and now they are.

    It has been about buying time. They are buying their time with our futures. We can get out and can take them down but they are raising the stakes delisberately to make it seem ever more unthinkable. Sadly for them we are thinking. And we can't be stopped from thinking.

    There is no free pain way out now. There never was. But their 'solution' is unravelling faster than they would like.

  35. Golem XIV - Thoughts December 14, 2010 at 10:10 pm #

    24K,

    From what I know they would be very good. I think the tax dodgers protests are nothing short of inspired.

  36. Dope Addict December 15, 2010 at 2:28 am #

    The problem is simple in a way. And stupid. The growth models they use are ante deluvian. They consistantly over estimate growth and worse, doubly over-estimate tax take and consumer spending from that growth.

    How they can even pretend that there will be any growth & get away with it boggles the mind.

    When demand shrinks, tax revenue shrinks. When demand shrinks, jobs disappear. When demand shrinks, deficits rise to pay unemployment compensation & other types of welfare.

    The problem is simple. You have two sources of spending in a nation's economy — public & private. When the private sector stops spending the public sector has to make up that spending gap by deficit-spending. If it does not then demand collapses.

    Yet all governments everywhere are reducing spending, ensuring further unemployment, lower tax revenues and increased social spending, all of which = budget deficits. It's a vicious spiral — the further they cut the budget, the further in deficit the government gets. Which is why governments must deficit-spend to increase demand.

    With the money multiplier, every dollar/pound the govt spends to employ people will create 2, 3, 4 dollars/pounds in turn. That means increased tax revenues & falling deficits. In other words, you have to spend money to make money, like most areas in life. But instead they cut, digging an ever-deepening hole, and giving them an excuse to cut further & further ("we still have deficits, we must cut more!")

    It's an all-out attack on the working & middle classes, perfectly set up to justify itself until we're all neo-feudal serfs.

  37. RichGB December 15, 2010 at 8:36 am #

    Hi John

    I'm one of those people to make use of so much easy credit, to finance my business. At my current rate of pay-back the debt will not be cleared in my lifetime; however, it is debt that I take full responsibility for. I knew what I was doing when I signed the forms.

    What I do object to is how banks turn that debt in to more debt via the securitisation process. Banks with a leverage multiple exceeding 20 have nobody to blame but themselves.

  38. RichGB December 15, 2010 at 8:40 am #

    Hi DopeAddict

    That's an excellent explanation. Keynesian economics probably only works if you're not bailing out the banks at the same time.

  39. Uncle December 15, 2010 at 10:27 am #

    Hi DopeAddict

    I remember Karl Denninger mentioning in several posts that the money multiplier is no where near 2 or 3 times and may in fact be below 1 (admittedly this post is 2 years old now).

    I remember recently reading an article or interview with Gordon Brown where he is pretty sure that there will be major growth in the next 10-20 years. I guess most of this growth will take place in the developing world (BRIC countries) and the hope is that the developed world can take advantage of it.

    All of this quantitive easing is a very useful way for the west to get lots of new money to invest in the developing worlds infrastructure, with the hope of buying into their future growth. See Michael Hudson for more on this theory

    So the all of the QE will not help our economies, but will save the banks and allow us to buy up a lot of productive assets in developing economies so that some of us can profit from their future growth. This is what globalisation is about.

  40. wirplit December 15, 2010 at 11:23 am #

    Talking of Regulators and who they serve take a look at what the incoming chairman of the House of Representatives Banking Committee Spencer Bachus has said? here This is the next Chairman of the Financial Services Committee who is supposed to oversee the banks in the US…!

  41. John December 15, 2010 at 5:20 pm #

    Pat,
    I agree. The free money tap was turned on and the lights were turned off, to quote a Vanity Fair article on Greece http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010

    and those with the expertise and supposed regulations said "suck it up!"

    People did.

    RichGB, always enjoy your erudite comments – particularly as they come from a business viewpoint. And yes, banks have and do play this vital role in providing capital for business. We should not lose sight of this. Of course, that just makes the recent record of corruption and greed even more important to highlight. As Pat said, thank goodness for the internet.

    To this I will copy a piece by Chomsky, it summarises a lot of what I would like to be able to communicate more succinctly,

    http://www.chomsky.info/articles/20080919.htm

    Markets have inherent and well-known inefficiencies. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. That is particularly true for financial institutions.

    Their task is to take risks, calculating potential costs for themselves. But they do not take into account the consequences of their losses for the economy as a whole.

    Hence the financial market "underprices risk" and is "systematically inefficient," as John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalization and reviewing the substantial costs already incurred – and also proposing solutions, which have been ignored.

    The threat became more severe when the Clinton administration repealed the Glass-Steagall act of 1933, thus freeing financial institutions "to innovate in the new economy," in Clinton's words — and also "to self-destruct, taking down with them the general economy and international confidence in the US banking system," financial analyst Nomi Prins adds.

    Is there an endgame? or a way to engage in change? Beyond this obviously far-reaching blog?

    It seems almost apocalyptic to keep blogging and waiting for the fall…

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