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Plan B – How to loot nations and their banks legally

Is there a plan B? That question is usually asked of governments regarding their attempts to ‘save’ the banks domiciled in their country. But has anyone asked if the banks have a plan B?

Does anyone think that if our governments fail to keep to their austerity targets and fail to keep bailing out the banking sector, that the banks will just shrug and say, “Well, thanks for trying” and accept their fate? Or do you think the banks might have a Plan B of their own?

First let’s be clear about Plan A. That plan is to enforce an era of long-term austerity cuts to public services, in part to cut public expenditure so as to free up money for spending on the banks, but perhaps more importantly to further atrophy public services so that private providers can take over. A privatization of services which will bring great profits and cash flow to the private sector and to the banks who finance them, and a further general victory for those who feel that private debts rather than public taxes should be what underpins our national life and social contract.

Plan A therefore requires that governments convince their populace that private debts should be taken on to the public purse and that once taken on, the contracts signed by governments on behalf of the tax payers/citizens, are then sacrosanct and above any democratic change of mind. If governments can hold their peoples to this,then the banks are ‘saved’ with the added bonus that democracy and the ‘Rights’ it once guaranteed will all have been redefined as subordinate to finance and its contracts, and our citizenship will have become second to one’s contractual place in a web of private debts. Debts to the private lenders will become more important than taxes to the public exchequer. And as they do the State will wither away, leaving free-market believers and extreme libertarians exactly where they have always wanted to be – in charge – by dint of being rich. It is, in my view, a bleak future which I once described as A Toxic Debt Wasteland.

BUT it does all depend on governments being able to suppress discontent and to outlaw opposition in the sense of saying to people you  may disagree but we have now declared these debts and their repayment to be outside democratic control and immune to any attempt to rescind or repudiate the agreed debt contracts. As the severity of the austerity cuts to social services (health, education, pensions etc)  becomes painfully clearer  to people and the ‘necessity’ for them is ‘regretfully’ extended year after year, it will become harder and harder to justify, let alone impose, such suffering. We will enter an era of vicious sectarian blame. We are already in it, but it will get much darker.

The banks and those whose wealth and power is tied to them, would obviously prefer Plan A to succeed. It makes governments do all the dirty work and it would profit the banks far more in the long run. If you want to bleed a man – kill him and you get about 5 litres/quarts. But strap him to a gurney with a catheter in his arm and a drip feed in his nose, and he will bleed for you for as long as his system can stand it. That is Plan A. But what if it fails?

I cannot believe the banks, with everything at stake, have not thought it prudent to have a plan B. So here are my thoughts on what that plan could be.  Let me say now, I do not think this plan was a long term conspiracy. I do not think the end game was in mind when the first elements were put in place. It has, I think, been constructed opportunistically.  But the end result is no less dark and threatening.

What I offer from here on is thinking out loud. I obvioulsy have no proof at all that there is a plan B. All I can hope to do is show you the elements which I think could make a Plan B for the banks. Then my argument is that if the mechanism I describe could work, if I have not simply misunderstood something, then I think the banks will surely have thought of it before me. And so it either already exists or it will. I think there are scraps of information that suggest it does exist and the collapse of MF Global might even be the first example of Plan B in action. The MF Global case certainly contains all the clues.

MF Global imploded when it could not get the short term funding it needed. There were two kinds of funding MF Global relied upon for its liquidity/cash flow: repo and hypothecation. For those not familiar, Repo is when a bank or brokerage ‘sells’ an asset for cash but with the agreement that it will re-purchase – hence ‘repo’ – the asset at an agreed date for an agreed price. It is not really a sale but a loan. Repo is the oxygen the financial world breathes. Repo is a $10 Trillion market.

The other main source of the essential short term funding was Hypothecation. This is when a bank or brokerage pledges an asset to a ‘lender’ in return for cash but the asset remains in the possession of the borrower. What the ‘lender’ gets is hypothetical control of the asset. Although the asset never actually changes hands, the new ‘owner’s’ hypothetical control of the asset allows her  to do what she wishes with the asset. Including re-hypothecating the asset to another bank or brokerage. If she does so then the hypothetical control passes to yet another ‘owner’. Even though physically it remain where it started.

Like repo – hypothecation and re-hypothecation are truely massive parts of modern debt-based banking. So the first thing the MF Global case tells us is that what happened is not due to some peripheral, parochial rogue trader-esque, isolated problem. What happened was as a result of a mechanism right at the very heart of the financial system.

In the MF Global collapse what ZeroHedge, and following them, I and others wrote about, was the way in which not only did MF Global go bankrupt, but so also did some of their clients when they found the money they thought MF Global was holding for them, went unaccountably missing. Client’s money went missing because it was ‘mingled’ with the brokerage’s money when it should not have been. Brokers should keep them separate. But it seems in the ‘re-hypothecation’ of assets it was mingled. Former CEO of MF Global, Mr Corzine has sworn under oath he knew nothing about his co-mingling nor the irregularities with his company’s re-hypothecation.  It has been rumoured the client’s money may now be, possibly, in the hands of JP Morgan.

This hint of illegality has grabbed everyone’s attention. But I think it is actually the legal part of the story not the possibly illegal part which is by far the more important.

In my opinion the key to the bank’s Plan B is in understanding why any money/assets were taken from MF Global after it had gone bankrupt and how exactly it went under in the first place. We all know MF Global had huge holdings of dicey European sovereign debt. But those debts have not become worthless so what caused MF to collapse? .

The answer to all these questions  lie in a change to Bankruptcy laws that happened around the world between 2002 and 05. This might seem like a detour into nerd city but it is not. It is the key.

When a company declares bankruptcy there is what the Americans call an ‘automatic stay’, which means all the assets left in a company at the moment it goes bankrupt are protected from the rush of creditor’s demands until appointed auditors can sort out who should get what. The automatic stay prevents a first come first served disorderly looting where those with the most muscle getting everything and everyone else getting nothing. As we are all painfully aware now, there is a legal pecking order to who gets paid before who, with Senior bond holders at the top. But, in America culminating in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) the order was changed. And that change is the crucial event.

At the time the law was being passed few were aware of this change and even fewer were aware of how important it would become. At the  time the furore was all about changes to personal bankruptcy. The Credit Card industry (AKA Banks) had spent more than a decade and its rumoured as much as $100 million lobbying to make bankruptcy much harder and more punitive for ordinary debtors.

An article from 2005 in the Boston Globe quoting a very senior Republican Senator, gives a flavour of what was then being said about ordinary people who fell into debt.

Senator Orrin Hatch (R-UT) has said that millions of Americans are bankrupt or near-bankrupt because “they run up huge bills and then expect society to pay for them.”

After 4 years of bailing out banks who did exactly that the irony is enough to gag on.

But what was not talked about was an amendment which was put into the bill and, as far as I know little debated. Don’t let the word ‘amendment’ mislead you. Amendments are generally not there as refinements and improvements on the original idea. Whenever a bill goes through Congress every lobby group and industry with something it wants done, gets their tamed/owned/ political friends to tack on the change in the law that suits them in return for supporting the original bill. The bill emerges from this process festooned with ‘amendments’ to other vaguely related laws. Amendments are the price of getting the original bill passed.  They are often little understood, written by and for the benefit of the sponsoring lobby group and can be far more influential than the bill they are smuggled in on. This is certainly the case here.

According to a scholarly article in the American Bankruptcy Law Review,

“the provisions [in the amendment] were derived from recommendations from the President’s Working Group and revisions espoused by the financial industry”

The President at the time was Bush and one of the most vociferous sponsors of the amendment was none other than Senator Leach whose other claim to fame was the Gram-Leech-Bliley Act which repealed most of the Glass Steagal Act of 1933 whose repeal virtually assured that the present debt crisis would happen. When bankers play pocket billiards, Senator Leach is what they prod their balls with. Ribaldry aside Senator Leach can certainly be described as one of the principle architects of our present global misery. But I digress.

What was this ammendment? The ammendment exempted repos (and hypothecated and re-hypothecated assets) and a whole range of derivatives from the automatic stay. It also allowed lower quality assets to qualify for the exemptions.

Which means,

The special bankruptcy treatment given repos and derivatives means that repo lenders and parties to derivative contracts can keep the collateral if their trading partner becomes insolvent. This exempts them from the “automatic stay”  rule in bankruptcy, which prohibits most creditors from trying to collect ahead of others.

Or as the official report from the US Financial Crisis Inquirey Commission said,

under a 2005 amendment to the bankruptcy laws, derivatives counterparties were given the advantage over other creditors of being able to immediately terminate their contracts and seize collateral at the time of bankruptcy. (p. 48)

So when a bank goes bankrupt, BEFORE even the most senior bond holders, the repo lenders and derivatives traders can remove, or keep all the assets pledged to them.

This amendment which was touted as necessary to reduce systemic risk in financial bankruptcies also allowed a whole range of far riskier assets to be used, making them too immune from the automatic stay in the event of bankruptcy. Which meant traders flocked to a market where risky assets would be traded and used as collateral without apparent risk to the lender. The size of the repo market hugely increased and riskier assets were gladly accepted as collateral because traders saw that if the person they had lent to went down they could get your money back before anyone else and no one could stop them.

It also did one other thing. Because the repo and derivatives traders ran no risk – they could get their money out of a failing bank before anyone else, it meant they had no reason at all to try to stop a bank from going under. Quite the opposite.

All other creditors – bond holders – risk losing some of their money in a bankruptcy. So they have a reason to want to avoid bankruptcy of a trading partner. Not so the repo and derivatives partners. They would now be best served by looting the company – perfectly legally – as soon as trouble seemed likely. In fact the repo and derivatives traders could push a bank that owed them money over into bankruptcy when it most suited them as creditors. When, for example, they might be in need of a bit of cash themselves to meet a few pressing creditors of their own.

The collapse of both Bear Stearns, Lehman Brothers and AIG were all directly because repo and derivatives partners of those instituions suddenly stoppped trading and ‘looted’ them instead.

According to Enrico Perotti, professor of international finance at Amsterdam Business School  speaking at the London Conference on The Future of Bank Funding, held in June of this year, 2011,

The financial crisis happened when repo lenders and derivative parties lost confidence in the mortgage-backed securities they’d accepted as collateral for repo loans and credit default swaps. They demanded to be paid, forcing their troubled trading partners into fire sales of their holdings to raise cash. They were  unconcerned that they might drive their trading partners into bankruptcy, because they were exempt from the automatic stay.

Professor Perotti went on to say,

As often in financial regulation, this leads to unintended consequences. As a default leads to repossession of collateral for all safe harbor claims, repossession accelerates fire sales, resulting in a disorderly resolution, with a rush to sell collateral ahead of others, creating a downward spiral in valuations. The timing of the jumps in risk spreads on Lehman, two days after the default, demonstrates this effect, as does AIG.

Should the bankers and their political fluffers like Mr Leach have known? Well they were warned at the time. In 2005 a paper entitled “Derivatives and the Bankruptcy Code: Why the Special Treatment?” by Franklin R. Edwards and Edward R. Morrison, in the Yale Journal of Regulation

VI. Conclusion
… the Code’s special treatment of derivatives contracts cannot be justified by a fear of systemic risk…. Indeed, exempting derivatives counterparties from the automatic stay may make matters worse by increasing systemic risk….Our analysis, however, should worry members of Congress and legislators in other countries. They have been lobbied heavily by special interest groups (such as ISDA) to expand the special treatment of derivatives on grounds that such legislation is necessary to prevent a systemic meltdown in OTC derivatives markets should a derivatives counterparty suffer financial distress.

Our analysis casts serious doubt on this proposition. Systemic risk may be a real threat, but bankruptcy law has no role to play in addressing it.”

The same changes to the bankruptcy laws were also adopted in the UK and throughout Europe. In fact they may well have preceded them. I simply have not done that research yet. And the changes in the UK and Europe were also lobbied for and sponsored  by the banks via among others the ISDA (International Swaps and Derivatives Association). Most of the Big banks are ISDA members.

OK all of that was the back-ground to show you how we got here and that it is all ‘legal’. On the basis of laws sponsored by the banks  of course. Now lets come to the present.

MF Global is where I started. There was something about its collapse which did not seem right to me. Mr Corzine’s claim that he ‘didn’t know’ where his clients’ money had gone might be true, but I was and am still, left with the feeling that there is a deeper story here. When I wrote about MF Global and the renewed crisis of bank lending, I came across the fact that in the six months to June 2011 the global trade in Derivatives increased by 18% to an astonishing $707 trillion in nominal value (the face value of all the contracts). And remember the Repo market is $10 trillion.

Somehow MF Global’s collapse and the huge increase in derivatives trading felt related. For me it was not the huge exposure to risky European bonds which MF Global had deliberately amassed, it was the nature of its demise, the trigger, and what happened to its assets afterwards, which were key. MF Global collapsed because it could not get short term funding. It could not get other financial institutions to accept its assets as collateral for Repo agreements nor hypothecate tham any longer.

When MF Global went down it did so because its repo, derivaitve and hypothecation partners essentially foreclosed on it. And when they did so they then ‘looted’ the company. And because of the co-mingling of clients money in the hypothecation deals the ‘looters’ also seized clients money as well. The co-mingling story is what brought the whole thing into the light but also provided a wonderful distraction.

The important point is that the change in the Bankruptcy laws. The change, as illustrated by Bear Stearns, Lehman Brothers and AIG has made the markets more not less systemically unstable. Yet the banks have defeated all attempts to reform these unwise laws. The Dodd Frank financial reform act in eth US did nothing to address them AT ALL.  Mr Dodd was lobbied very hard to make sure of this.


Here, finally, is my answer.

Let us say you are a bank or broker that has bought up a lot of European bank and sovereign bonds from Italy, Spain and Greece for example. You would be very exposed to great losses should those countries or their banks default. You are relying on the politicians forcing their tax payers to bail out you and the other banks you trade with. What if they don’t?

One solution would be to sell as many of those bonds as you could accepting the inevitable losses as being better than a much larger loss if the banks or nations or both, defaulted.  The other solution, counter-intuitively, would be to do more business with them. But make sure it is repo lending and derivative trading. Specifically offer the banks in troubled nations CDS insurance on their own bad debts and currency swaps. How would this help?

First, lets keep in mind that the trade in both these types of derivatives did increase by 18% in the first 6 months of 2011 precisely as the Euro crisis has worsened.

If a bank or nation was to default on you as a mere bond holder, you would have to wait in a the queue of creditors to see what you were going to be given back. And some ‘hair cut’ would be likely. But if you had done rather a lot of derivatives trading (CDS insurance and currency swaps are both derivative trades) then you would not have to wait. You would seize all the collateral the bank had pledged to you for repo lending or derivative trading and walk away. Now you will say that if  you had done CDS insurance then you might well have to pay back out the money you had seized. Except that possession is nine tenths of the law. While lawyers set about arguing about what you owe, the critical fact is that in the mean time, in the height of the crisis you HAVE the money. JP Morgan allegedly has MF Global money while other people’s lawyers can only argue about it.

This will also be true if you have also rather wisely been on the right side of lots of re-hypothecation deals and repo deals with the collapsed bank. In both cases if the collapsed bank had pledged to you assets for Repo or hypothecation then you get to keep all those assets in the case of the bank going bankrupt.  We have the clear proof of this already. As Zerohedge reported some days ago, “HSBC Sues MF Global Over Disputed Ownership Of Physical Gold”. It seems HSBC’s gold may have been hypothecated or re-hypothecated. Someone else, some other bank, has their gold and all they have are lots of lawyers charging them fat fees.

So what we have, courtesy of the change in the bankruptcy laws is the means for banks to loot each other. Simply become a major short term funder via repo or hypothecation or a major counterpary in derivatives deals with the ailing bank and in both cases should the bank you are lending to go bankrupt, you will keep all  the assets it pledged to you before any other creditor get a chance.

If I am right then MF Global was the first hint of Plan B in action. The bankruptcy laws allow a mechanism for banks to disembowel each other. The strongest lend to the weaker and loot them when the moment of crisis approaches. The plan allows the biggest banks, those who happen to be burdened with massive holdings of dodgy euro area bonds, to leap out of the bond crisis and instead profit from a bankruptcy which might otherwise have killed them. All that is required is to know the import of the bankruptcy law and do as much repo, hypothecation and derivative trading with the weaker banks as you can. To me, this gives a possible answer to why there has been such a surge in derivatives trading.

If I am right about all this, I think this means that some of the biggest banks, themselves, have already constructed and greatly enlarged a now truly massive trip wired auto-destruct on the banking system. If they have and they have explained any of this to our politicians then it would explain why our governments have been so abjectly willing to bail out any and all of the biggest banks and sacrifice anything else in the process. Any hint of relucatnace and the banks can make veiled reference to the extreme ‘risk’ of systemic ‘panic’ and forced liquidations. None of which is really a panic, since they have engineered it.

Are the banks threatening us? No, no, good lord no! Just pointing out the reality of the state of the system. There just happens to be a gun pointed at our head and the banks just happen to find their finger on the trigger. All they ask is that we do nothing to make them feel that their best interests are served by pulling it. And all we have to do to avoid that is stick to plan A. Simple.

But now I come to the really ugly part.

For the last four years who has been putting money in to the banks? And who has become a massive bond holder in all the banks? We have. First via our national banks and now via the Fed, ECB and various tax payer funded bail out funds. We are the bond holders who would be shafted by the Plan B looting. We would be the people waiting in line for the money the banks would have already made off with.

It is the money we have been putting in to bail out the biggest banks which they have then been using as collateral for offering weaker banks in weaker nations, repo loans or hypothecation. And the money or government bonds the weaker banks are using to pledge as assets and collateral for those loans or in  derivative deals with the bigger banks is also from us. We have and are funding both sides of the deal.

The result is that the assets which the big banks would be legally allowed to seize and keep in the event of the failing bank actually going under would be ours.

To give a concrete example. Spain or Greece puts its tax payer money in to one of its insolvent banks.That bank then uses that money to get a short term repo or hypothecated it for loan. Or it uses it to hedge its currency problems via a currency swap or buys CDS insurance on assets it is deeply worried about. If the weak bank then goes down all those assets are seized by the big bank who was lending or was the counter-party to the derivative deals. The tax payer gets zero. And there is no redress. It was legally done. And the money the Big bank would have used to get themselves into this position would be the bail out money we had earlier given to the mega banks. They would have used that money against us – again.

The largest banks, those with the greatest exposure to bank and sovereign bonds from the most indebted euro nations, have the most to gain from doing derivative. repo and hypothecation deals with the troubled euro area banks and nations. The more assets the weak banks and nations have pledged in deals with teh Big banks, the more theBig banks will walk away with in the event of a crash.  I suggest this is why, even as this crisis has worsened, the Big banks have been increasing by 18% their trade in derivatives and why Repo and hypothecation is as large or larger than even before the crash.

I am sorry this has been such a long piece but I wanted you to see exactly how I came to this because I hope you can show me how I am wrong. Please do so politely and I will go downstairs and celebrate my stupidity with a cup of tea, before apologizing to you all.  I would very much like to be wrong.

But if I am not wrong, then the banks have created a financial Armageddon looting machine. Their Plan B is a mechanism to loot not just the more vulnerable banks in weaker nations, but those nations themselves. And the looting will not take months not even days. It could happen in hours if not minutes. Our leaders would have only a few hours to decide who they would side with: the banks or us. The past four years give me no faith they would chose us.


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329 Responses to Plan B – How to loot nations and their banks legally

  1. richard in norway December 15, 2011 at 4:15 pm #

    Suicide bomber bankers!!! I had a feeling that they were doing something like this so this makes sense to me. There are certainly lots of calls on the ECB to print or it will be the end of the world and it explains DC’s behaviour in Europe. It also ties in with what a banker friend( internet friend) told me, he said that the UK was too big to be allowed to fail.

    • Dirk Gently December 18, 2011 at 1:11 am #

      “…As often in financial regulation, this leads to unintended consequences…”

      With due respect, all consequences in this regard are completely intended, forseen, calculated and desired by the framers of these laws/regs. and their minions.

  2. Kevin Lyda December 15, 2011 at 5:14 pm #

    So am I right to believe that right now the best thing to do is direct any extra income at the following targets:

    1) First pay off all debts.

    Once that’s done:

    2) Invest in a diverse set of markets – not just in different fields but in different countries/currencies.

    I’ll have finished paying off small debt next month and will next work on mortgage debt. I’ve reduced my pension payments to a minimum and generally doing everything I can to double my monthly mortgage payments. Is there any benefit in saving/investing at this point?

    • faithless December 16, 2011 at 10:49 am #

      No, I don’t think so.
      I think the rules of the game were changed; normal common sense doesn’t work in this world any more, or interest rates would be 5% and the savers would be rewarded.
      I think rampant inflation or debt write-off is heading our way (or comprehensive defeat and destitution for the taxpayers). Assume hyperinflation meantime, so the value of your property and savings will be washed away, and your cost of living will climb way beyond reason.
      Accordingly, pay off none of your debts, merely pay the interest. In a few years time, that £500/£1000 a month mortgage will be painless.

      Convert as much of your savings into tangible inflation-resistant assets as you can. I would buy as big a pile of gold bullion coins (or silver) as you dare, bury it in your cellar, and then don’t look at the gold spot price for the next three years. or buy a farm / smallholding. Or buy Canadian dollars.

      • Saj December 16, 2011 at 4:54 pm #


        In short, the system will crash and all paper will burn…you don’t want to be holding the vast majority of your wealth in paper especially as the base currency gets diluted. I’m with Faithless – gold, silver, but mostly gold in your possession to be used as wealth once this monetary system faces its inevitable demise. Keep in mind the physical gold has already been cornered and it lies very still – slowly but surely physical gold gets dried up…you don’t want to wait to purchase coins when there’s a mad dash by the public when they figure out their paper wealth is actually no wealth at all.

    • BobRocket December 18, 2011 at 1:10 am #


      I’ve no idea but if you are willing to take advice from a website without thinking it out for yourself then I have just the opportunity you are looking for :0

      Every dollar/pound/euro that you pay off your debt shrinks the money supply, not just the dollar you pay back but also all the leverage created from that debt.

      You Kevin, are responsible for this crisis, your fixation for saving for the future is killing the merry-go-round. Get Spending.

      Of course you may not agree with the current merry-go-round where the undeserving rich fleece the unsuspecting poor ad infinitum and you just say ‘Enough’.

      I don’t agree
      I won’t participate
      You lot can do what you like, I’ve #JustStop ped

      There is a different world, a world you can take a part in, truly democratic world, it’s called peer to peer because you can interact as equals as opposed to client/server (which is master/slave). (this is the revolution)


      Cracking piece as usual, I don’t know where you find the time.

      1. As I’m getting my eldest an eBook for xmas, could you make your book http://www.debtgeneration.org/index.php available in a downloadable format

      2. I can live with adverts, a single line between the post and the comments and some down the whitespace on the RHS might offset some of your costs, we appreciate that blogging is not your dayjob.

      3. Dyslexia, Dysmexia, Doesitreallymatter – No, content is king and you deliver in spades.

    • stan December 18, 2011 at 5:54 pm #

      quite the opposite should be yer plan, unrestrained credit creation is and will increase inflation rates. service yer debt, but don’t pay it down and assuming you have flat rate mortgage, watch inflation steadily erode value of your debt

      • Helix December 20, 2011 at 4:47 pm #

        I cannot agree with this advice. Your course of action depends on your economic position. The traditional plan looks something like this:

        1) Rainy day fund: At least 6 months expendiures. More if there is ANY CHANCE that you could lose income through unemployment or disability.

        2) Savings/Investment: 10% of what you earn. If you’re kicking in, say, 5% into your retirement plan, which is probably paper, you might consider putting the other 5% into precious metals, cash, commodities, or some combination thereof.

        3) Kill as much mortgage as possible with the rest. You’ll effectively be getting whatever your mortgage rate is (minus tax deduction) on that money, risk-free — not bad in today’s economy.

        These are only the traditional guidelines. You might feel that the personal freedom that comes with being debt-free is worth more to you than whatever slight financial edge you could get by investing the additional mortgage payment elsewhere. If that’s you, maybe divert some of the 5% in point 2 above to your mortgage.

        Alternatively, you may have a “swing for the fences” outlook. In that case, you will want to pay whatever your employer will match into your retirement plan and pay the minimum on your mortgage. Take the rest and put it on red. Or buy rental property in a good employment area with the minimum down payment that will yield a positive cash flow. There are lots of opportunities out there, all of which entail risk.

        In all cases, though, I think some precious metals are important as a hedge against a currency “event”. Do exercise caution and due diligence, though. Precious metals should be seen as a hedge rather than as an investment. Gold in particular has only minor demand as an industrial product, so its value can swing dramatically depending on how comfortable people are with other assets.

  3. Hawkeye December 15, 2011 at 5:17 pm #

    We are in the midst of a depression / debt deflation, but one unlike anything beforehand. This is truly global. Truly interconnected, and truly uber-leveraged.

    No bank is safe, no asset is safe. No currency is safe and no country is safe.

    The pyramid scheme is collapsing under its own weight. Yet the twin vortices of inflation and deflation are disorientating us all. Disguising the underlying tensions and masking the future collapse.

    The real economy is unable to supply productive capacity growth. We are hitting the buffers in terms of efficiency gain and real economic growth.

    With the extortionate rise in money, debt, assets and derivatives we have deluded ourselves into thinking this reflects the true potential of future productive capacity. But that cannot be realised in the real world. The monetary assets actually represent negative inventory (belief that one holds a permanent claim on something tangible in the future – a long term call option as it were).

    As energy declines, then real productive capacity is likely to fall too, which means that there will be less REAL assets for consumption to go around. The longer we continue to try and prop up the fictitious leverage, the longer the divergence between ever rising expectations and yet declining real capacity.

    Deposits have been rehypothecated, mortagages have been rehypothecated. The nation’s Gold has been too, and in a very real sense our whole economy has.

    The amount of claims far exceed the real assets to back them. It is nothing but naked leverage; the only thing holding up our fabricated sense of wealth and international power. Leverage that lurks in the shadow (banking system) until the claims start coming in. So how does this get settled? Are all claims on assets devalued equally, or do only a select few get to keep their claims whilst the rest of us get our fingers burned?

    This excellent post from Golem so graphically highlights both that the claims are coming in (and so the leverage is collapsing behind the scenes), but also that the pyramid builders are making their exit and blocking the rest of us from escaping, as they don’t want to be trampled as everyone dashes for the exits.

    • Toby December 16, 2011 at 8:30 am #

      Well said, Hawkeye.

      For me the tragedy is that this opportunity to redefine for ourselves what wealth and health are, is being missed (not here, but generally), because The Collapse Show is so distracting. A contraction of economic activity is an opportunity to expand non-economic activity, by definition. Who loves the rat race? Why is slowing that rabid beast a bad thing? Why is speeding it up good? Don’t we all kinda sorta agree that less is more?

      • backwardsevolution December 17, 2011 at 3:10 am #

        Toby – I couldn’t agree more. What the heck do we think we’re accomplishing?

    • Mike December 16, 2011 at 4:09 pm #


      I couldn’t agree more! I interviewed an economist for a documentary I’m making and when he explained all this to me I said “Will you say that on camera?” and he said “No.” I asked him why he wouldn’t – surely if there really is a fire in a crowded theatre, shouting fire isn’t the wrong thing to do. He said “because right now there’s only one exit; if I shout fire, maybe 50% of people will be trapped and burnt and another 40% will get crushed in the rush to the exit”. I asked what the option was, and he said “I’m working on building more exits so that when the building collapses, maybe only 10-20% of the people die instead of 90%”.

      As far as I’m aware, since our interview in summer 2010, no additional “exits” have been built. The theatre is burning and everybody still thinks it’s just a smoke machine we can switch off. Tick tock.

    • Saj December 16, 2011 at 4:58 pm #

      Hawkeye, agreed, I just frame the near future as a hyperinflationary depression as all debt will be saved at any cost…the monetary system is built on ever expanding fiat dollars…short, temporary deflations yes but print the central bankers will.

      Unless one believes these paper games can go on forever…

    • Helix December 20, 2011 at 4:59 pm #

      Re: Are all claims on assets devalued equally, or do only a select few get to keep their claims whilst the rest of us get our fingers burned?

      You already know the answer to that one.

  4. Roger Glyndwr Lewis December 15, 2011 at 5:21 pm #

    Senator Leach is so very aptly named.

    On Plundering.


    • Bob January 15, 2012 at 4:01 am #

      As for the ones like Leach in government positions and all the criminal bankers let us remember them and their roles in the crisis. Let us make them aware that we are keeping notes and we will seek justice in whatever form it may take. Let there be no place on this Earth where they can flee without concern for their past catching up with them. Keep enough money (gold/silver) to pay off their security forces so that they can be dragged into the town square for answers and retribution.
      We will begin again…

  5. Charles Wheeler December 15, 2011 at 6:06 pm #

    I think you’re spot on Golem – I’ve read that CDS holders take precedence in the food chain, assuming the counter-party is still solvent. But, at some point, the system has to implode taking us all down with it – CDS-holders included. The 50% rise in earnings for top 100 CEOs suggests it’s just a case of grabbing as much as you can before heading for the exits (but exit to … where?). A new term has just been added to my lexicon – ‘SHTF (S*** Hits The Fan) survival, which will probably be trending on Twitter.

    As an aside, on the issue of privatisation: one can see why the carving up of the NHS is looking such an attractive option: http://goo.gl/HYyYu

    It’s a looting of the public sphere pure and simple – and the inevitable end result of allowing the bankers to take control of the legislature (see Simon Johnson’s ‘The Quiet Coup’ for a good summary – better still, watch: Frontline’s ‘The Warning’).

    • Piano Racer December 16, 2011 at 4:09 am #

      “The 50% rise in earnings for top 100 CEOs suggests it’s just a case of grabbing as much as you can before heading for the exits (but exit to … where?)”

      To take this conspiracy one step further:

      The exit is hard, tangible assets that have no counter-party risk.

      One of these assets is silver.

      Silver is down 17% since the MFG bankruptcy. Maybe JP Morgan needed the MFG money to create more silver short positions, or to pay for the previous shorts that smashed the price in May and September? There is a long history of accusations against JPM manipulating the silver market. Maybe they are knocking the price down one more time so that the smart money can exit the system into hard assets?

      It all makes a sick sort of sense… my advice is to buy silver!

    • Helix December 20, 2011 at 5:10 pm #

      Re: …at some point, the system has to implode taking us all down with it

      Not so. The system may explode, but nevertheless, there is real wealth out there. Owning your own home on a patch of ground that allows for a garden, for example, goes a long way toward keeping you from going down with the ship. Precious metals are a hedge and have the advantage of increasing in nominal value as faith in money and other investments is shaken. Tools of production for commodities that people need (say, a bank of solar panels or a sewing machine), as well as skills that are useful to your community… all these are forms of wealth that have a degree of separation from “the system”. While it’s true that bankers have probably exacted their pound of flesh for each of them, you end up with some tangible wealth that will be yours regardless of what happens to “the system.”

  6. Neil (the original one) December 15, 2011 at 6:08 pm #

    Off topic, but interesting: Adam Curtis’s latest post, on the rise of geezer capitalism.

    “It is very difficult to properly see the times you are living through, but it is made more difficult today by the insistence of politicians and commentators that there is no alternative to the present economic system. This almost hysterical mantra closes down other, different perspectives and makes it impossible to draw back and see what the present world is really like.”

    More at http://www.bbc.co.uk/blogs/adamcurtis/2011/12/the_bitch_the_stud_and_the_pra.html .

    Features a giant prawn.

  7. Pat Flannery December 15, 2011 at 6:42 pm #


    If I understand you correctly, JB Morgan, representing the financial Tyrannosaurus in your plot, would loot every Western bank in the next few years. I doubt they could collapse the entire system simultaneously and profit from it.

    But what are the underlying assets they would loot? What are they left with when the music stops?

    It can only be taxpayer IOUs in the form of government bonds. What else, other than gold, has any real value? Natural resources? Maybe, but extracting natural resources, against the will of a population, can be costly.

    But you are right: we need to know what their end game is if we are to stand a chance against them. Right now they are playing Strip Poker while we think we are all playing Solitaire.

    In a way I hope you ARE right, and thanks btw for all the hard work in trying to figure it out for the rest of us thicks, because at least we will all know what card game we are in. We know the cards are stacked against us, we just don’t know how.

    In the end of the day the Euro countries may be holding trumps. What does Wall Street and their sidekicks in the City of London have except our promises to pay? What if collectively we say no? Will they shoot us all? Collective action is beginning to show its power around the world starting in of all places the Middle East.

    I am beginning to see the merits of the single European currency – united we stand divided we fall and all that. It is clear that Wall Street and London abhor the Euro because it deprives them of “divide and rule”. Monetary union may be our best weapon.

    If you are right, and I think you are on to something, they, Wall Street and London, will panic and pull the ripcord too early, maybe very soon, before we all figure it out, as you may have done. One thing I am certain of, they are not as smart as we give them credit. In fact people like Corzine are dumb asses. So is Geithner. Even Obama.

    As Shakespeare wrote “The fault dear Brutus is not in our stars but in ourselves that we are underlings”. Wall Street and London should “Beware the Ides of March”.

    Anyway, great piece David. Go back upstairs and continue to figure it out for us. You are our Brutus.

    • Neil (the original one) December 15, 2011 at 6:53 pm #


      “Sir Fred Goodwin could finally face criminal charges after the regulator’s report into the collapse of the Royal Bank of Scotland (RBS) has suggested that the bank’s directors broke Britain’s accountancy laws.

      […] The Companies Act – different from the FSA’s rule book and policed by the Department of Business (BIS) – says directors must be able to “disclose [their company’s] financial position with reasonable accuracy at any time”. They must ensure an “adequate record is made and retained … of any expected loss, liability or contingency material to the assessment of the current position.”

      The FSA’s report, which has been handed to Mr Cable, suggests RBS directors breached these rules. Investigators found “RBS appeared uncertain of its capital position at critical times. This included after March 2008”. They said standard information was hard to find.

      “The Review Team remained unclear about when a final capital position for end-Q1 2008 was settled by the firm,” the report says. “The then RBS group finance director told the Review Team that balance sheet data were not available until three weeks after the month-end.”

      It concludes: “So, at best, compliance was only established on a retrospective basis. This undermined the ability of the firm to demonstrate compliance with regulatory … requirements. This was an especially serious failing for a firm which had chosen to operate with limited capital headroom, giving it a very low margin for error.”

      […] The Institute of Chartered Accountants says “non-compliance with section 386 is a criminal offence” liable to up to two years in prison and an unlimited fine. The BIS says offences it prosecutes most often include “malpractice by company directors in relation to the keeping and preservation of company accounting records”.


      So how about demanding that EVERY British bank disclose its financial position?

    • richard in norway December 15, 2011 at 9:06 pm #

      You notice that big Dave tried to get the euro club to sign away control of the euro currency to the city on a permanent basis. That what it would have meant if they had agreed to his demands but I’m not sure if he or them realized that.

    • Saj December 16, 2011 at 5:01 pm #

      “I am beginning to see the merits of the single European currency – united we stand divided we fall and all that. It is clear that Wall Street and London abhor the Euro because it deprives them of “divide and rule”. Monetary union may be our best weapon.”

      Pat, have you studied FOFOA’s writings? 🙂

    • david thompson December 20, 2011 at 10:23 pm #

      Can someone explain to me exactly why gold has ‘real’ value? I mean I know it always has, but its useless right? Isnt it just worth what someone else will pay for it, like anything else?

      • jesuslizard December 21, 2011 at 7:45 am #

        It’s a good conductor, so after the apocalypse gold hoarders will have audiophile quality phono jacks.

  8. Phil December 15, 2011 at 6:48 pm #

    Any perspectives on the Co-op buying Lloyds’ branches? Is it just the branches and not the toxic assets?

    • Hawkeye December 15, 2011 at 11:03 pm #


      I certainly hope not, as I’ve just moved my account from Lloyds to the Co-Op precisely to avoid this sort of thing!

      Looks like they are taking over not just physical branch ownership but also 5.5 million accounts too:

      “All Scottish-based Lloyds TSB customers will be switched over to a new bank, along with a spattering of those in England and Wales. The entire Cheltenham & Gloucester customer base is also included.”


      Quite how leveraged it will be is anyone’s guess,but in theory it will continue as a retail bank (so no Investment banking shenanigans) and will remain as a Mutual.

      Let’s just hope it hasn’t / isn’t going to dabble in Re-Hypothecation!

    • Charles Wheeler December 15, 2011 at 11:13 pm #

      The toxic assets will no doubt find their way onto the public accounts as part of the deal (a la Northern Rock)?

    • bill40 December 16, 2011 at 11:07 am #

      Errrr… Phil, I thought the Co-op was buying lloyds chemist chain not the bank.

  9. Dave Holden December 15, 2011 at 7:03 pm #

    Very interesting analysis.

    A small quibble –

    “And as they do the State will wither away, leaving free-market believers and extreme libertarians exactly where they have always wanted to be – in charge – by dint of being rich.”

    IMHO this adds an unnecessary political dimension to you analysis. Free marketers and libertarians are just as angry about all this as those on the left (which to be honest is where I’d put myself – well centre left). What your really talking about is crony capitalism, regulatory capture and the revolving door between banks and the state/government. I point this out because this kind of thing gives the crony capitalists a pigeon hole which can be used to distract from your argument.

    • Golem XIV December 15, 2011 at 7:40 pm #

      Quite right Dave Holden.

      I do usually avoid any narrow party political jibes. But I do think we are witnessing the push by some who would like, and always have wanted, the state to be replaced by the private sector.

      That said you are of course right that many libertarians are angry at croney capitalism. I perhaps should not have muddied the larger issue..

  10. Ransome December 15, 2011 at 8:53 pm #

    Interesting analysis. I remember reading somewhere a while back that “someone” (GS?) between 2003 and 2005 had requested changes in the standard CDS contract which did not at the time require interim collateral posting. Later that was big issue between GS and AIG when AIG resisted fronting collateral, presumably because the ratings on the securities it was insuring had not changed. Also, GS did not want any third party input verifying that the securities were in fact getting soft and brown and squishy. During testimony GS said they had a plan B and that they did not need to collect from AIG via the Treasury. No one asked about Plan B. There were other large losses at AIG with the trading group. You wonder what was offered as collateral when stocks were borrowed. Probably the same securities they were insuring?

    • Golem XIV December 15, 2011 at 9:08 pm #


      I think the kind of ridiculous circularity you allude to, “…the same securities they were insuring.” is alarmingly prevalent.

    • 3dZiggy December 17, 2011 at 2:19 pm #

      First of all, Great Article!
      Happy to see that more people start to realise the fact we are all slowly being driven into voluntary (democratic??) slavery.
      @ Ransome, I find a Rolling Stone article by Matt Taibbi, titled “The Great American Bubble Machine” about GS (Goldman Sachs) very enlightening. To me it shows in facts and names, something we all know and feel, we are being controlled by the big banks, we just can’t figure out exactly how. http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405
      Articles like this one of Golem and the one I am linking to in Rolling Stone are really the stuff people should know when they want to understand all the political game-play.
      I am greatfull for people spending their time to find out what is really going on.

  11. John Souter December 15, 2011 at 9:38 pm #

    One question David – It is my understanding that, in the UK at least, and asset used as security for a loan comes under the heading of a legal charge and has to be registered as such. It is a contract between the lender and the borrower.

    While it isn’t unusual for the lender to insert a clause giving them the right to transfer their interest as an instrument of guarantee it doesn’t give the lender of first resort the right to treat or claim it as an asset -certainly not a marketable one – nor for the transferee to unilaterally change the terms and conditions on the original borrower.

    Without the registry of both the loan and the identity and qualification of the asset there would be nothing to stop the borrower using the asset multiple times or for the lender to ‘create’ the asset and transfer it as security multiple times – then the individuals of the multiples, each believing they have a legitimate asset use it as collateral to suit their own purpose?

    Extend that further, where both the original borrower and lender are in cahoots and you have a fantasy market based on fantasy assets.

    Stretch the limits even further, to where the multiples are aware of the practice and utilise it and you stretch the asset into infinity.

    That cannot happen with tangible assets only concepts, which is where, by definition, the money game has ended up. So for equity under the law the initial borrower and each of the lenders. no matter how far down the chain they are, should be liable for all the value they applied to the asset resulting in the original investors getting their investment back and probably a far greater sum going back into the public purse.

    I realise this was probably bankrupt the whole monolithic financial mess, but the money would still be there, and the retail/commercial parts would still function while the terms and conditions applicable to trading and employment conditions and responsibilities are sorted out.

    When the meltdown debacle first became apparent in 2007/8 and Brown pawned the nations future to bail them out, I commented we should only invest enough to cover the retail banking requirements, and their investment trades should be placed in moratorium until they could be audited and their true worth evaluated.

    Every development since seems to underline the need for a total overhaul of the financial system in order to benefit all levels of society, its governance and the generations that will form the future.

    Could this be the straw that breaks the Camel of idiocy?

  12. Golem XIV December 15, 2011 at 10:04 pm #

    Hello John Souter,

    I think you know more about the laws in these cases than I do. But if I have followed you. it seems to me what you are describing is essentially the legally limitless rehypothecation trade for which is London is the gloabl HQ.

    It is indeed all fantasy. Limitless re-hypothecation is, as far as I can see, limitless leverage. Which is also what the Euro bond market trades on and in and is also centred in the City of London.

    Which might make it seem, as some have been saying on Americn sites- that it’s all London’s fault. And it is, in so far as our regulators and politicians have encouraged or at least condoned the limitless leverage trades. But, that said, just as with the situation in Ireland – everyone knew what was going on and every bank came here to do their deals. So no one can claim to be clean.

    Could this stuff be the link that breaks? Yes. After all it was the link that broke before and absolutely nothing has been changed or curtailed. The opposite in fact. It is all bigger, faster and more leveraged than it was in 08.

    Add to that that the sign as growing every week that China is heading for a crash landing as its property bubble bursts – 30-70% drops in property values in major cities – I think it is no wonder we have Lagarde saying teh crisis is worse and the outlook bleak.

    The instabilities are such that it seems a long bet to say all of them will hold and no one will trip anything and no bank will get in trouble, that what happened to MF Global could not and will not happen again, and China will bury the debts of its banks again and increase cheap money and keep inflation undercontrol and keep the lid on unrest in places where prices are crashing and and and.

    The odds for everything to remain under control and everyone to remain calm seem to be getting stupidly long.

    Christmas might be a respite. But the new year is going to look like a trail by fire for those trying to keep the lid on everything and everybody.

    So far the crisis has gone – bank crisis, Sovereign crisis and next will be people’s crisis.

    2012 is going to be the year of unrest and repression.

  13. Charles Wheeler December 15, 2011 at 10:09 pm #

    Meanwhile the consolidation continues: “The major players – Goldman Sachs, Morgan Stanley, Merrill Lynch, Deutsche Bank – are still hiring to replace people who leave to funds and trading houses. But small and medium-sized banks are just shutting everything down.” http://goo.gl/b47op

    “What are they left with when the music stops?”

    Is it possible that the big players, the T.Rex’s of the jungle, are as trapped by the imperatives of the system as we are? Perhaps they haven’t thought it through – but where do you go when wealth becomes so concentrated society starts to break down? As we’ve seen with Lehman and MFGlobal (a list that should have included AIG – and possibly Goldman had Paulson not stepped in?) even relatively large and sophisticated corporations are subject to the Darwinian process.

    Chuck Prince famously stated that ‘While the music is playing you have to keep dancing, the music’s still playing.’ at the time this was taken as another sign of CEO hubris, but it could as easily have been a veiled allusion to a ‘They Shoot Horses, Don’t They’ mentality that was driving Citi’s trading policies. As McLean and Nocera report in ‘All the Devils Are Here’ Mr Prince ended up pleading with Paulson to save the banking system from itself.

    I think it was Hobhouse who argued that what is permitted becomes necessary, so, for example, without a minimum wage even the best employers are forced to drive down wages to compete with the worst. As regulations are removed, all players are committed to playing by the new rules. If one corporation increases leverage to 30x, then others must follow or are left behind and swallowed up. Thus, the fallacy of composition comes into play: a deregulated market looks good from the perspective of the single player (particularly the big players), but when everyone is playing by the new rules any advantages are negated – meanwhile, the risks increase and consolidation continues as those unable to withstand a shock are left behind. In short, it may be that even the more ‘libertarian’ deregulators haven’t thought it through – or, at least, are content to take the short-term gains in the hope of getting out before the crash?

    It’s easy to get confused by terminology, but the reforms have been driven by those of a right-libertarian bent – acolytes of Ayn Rand like Alan Greenspan and his supporters who seem unable to comprehend the contradiction between their professed belief in ‘free markets’ and the ever-greater concentrations of wealth and power that their policies inevitably fashion, making that fantastical notion of the ‘free-market’ more elusive than ever. Hence the proliferation of John Galt-like CEOs who really do think the rest of us should just be grateful and stop whining.

    • Rcoutme December 16, 2011 at 12:11 am #

      When Alan Greenspan testified before congress stating that he got things wrong, he stated that he believed that good corporations would not put their firms in jeopardy. He was, supposedly, flabbergasted that they had all done so. As you said above, the mistake he made was that, if one guy does it and (at least for the short term) it works, then everyone else must do it or everyone jumps to the guy who is getting better returns. Thus leveraging out to 30x (or whatever) provided a short term gain. Anyone who had to compete had to also leverage out (probably to 30x, maybe some more or some slightly less). Since an extraordinarily small amount of ‘extra’ return can easily be seen, and almost immediately, the various funds (and firms who ran them) had to do whatever possible to make their numbers rise with the inveterate gamblers.

      Thus: I give you money to invest for me. You wisely put the money into a fund that gets a 5.01% return (with little to no risk). My neighbor gives his money to someone going to Atlantic City. Person B (the Atlantic City guy) bets the money on poker. His fund is up (because he gained on that given day). I see that his fund is doing much better than Person A’s fund (the 5.01% guy). Many investors, apparently, jump to B’s plan and start gambling at the casino to increase their returns. The problem now is that the casino takes a cut of all poker proceeds, thus SOMEBODY is going to lose. Once all the players are sophisticated at playing the game, generally speaking, only those who can afford to keep throwing more cash into the game will walk away with positive assets (along with the casino, of course).

      Mr. Greenspan did not see that all the funds would have to play poker, because he, like the rest of us, believed that the rating agencies would be accurate in their assessments. Meanwhile, the rating agencies (best case scenario, there is a more insidious one, but let’s give them the benefit of the doubt) rate how good of a poker player each fund manager is. The give most or all of them AAA. Unfortunately, once only AAA players are playing, nobody’s rating keeps him safe from a bad day. I realize that my analogy is not perfect, but–


      • Aleph0 December 18, 2011 at 11:13 am #

        @Charles Wheeler … “Atlas Shrugged” … yes, a must read IMO.

        @Rcoutme … “Alan Greenspan”

        In this excellent 4 part presentation from Mike Hudson , Mike Hudson states that in 1965 he actually “fired” Greenspan ( beginning of Part 4 ) .

        Part 4 : http://www.youtube.com/watch?v=bNozOhZRkqo

        “Mr. Obama wants a Great Depression .. to him that’s the solution to instability. Instability [ to Obama ] means making the upper 1% of the population – his contributors – take a loss.”

        Make sure you listen to parts 1-3 of course.

    • Roger Lewis December 16, 2011 at 9:02 am #

      Hi Charles,

      I agree with you that the music is playing therefore we dance or die is a big factor in this and the Spivs are forcing everyone to adopt the low standards..
      I remember John Moulton warning against the leveraged buy out madness in one of the huge corporate raids of 2007 I forget which one but he was very bitter in warning against the snapping of the link with any reality that these leveraged raids had brought about. I’m not sure it wasn’t the sale of Jaguar or may have been EMI but it was one that Alchemy partners stood aside from. I remember he did a lot of press at the time explaining his worries it might even have been Northern Rock with Virgin against Alchemy I reallly can’t remember but will post later when it bubbles up from my subconcious..
      He was in that BBC eurogeddon skit the other day, seemed like a different fellow these days or maybe its me thats changed.
      The biggest finger down the throat moment for me that stands out recently is the 50 best business thinkers web site I lump it in with Ted and the Gates Foundation and any number of supposedly altruistic apologist BS machines that seek to infer some sort of respectability Solidity and Establishment Patena. They are really trying to invent a new kind of priesthood in which Aphorisms drip like puss from the scabs of a broken old whore.

      The flabby wine-skin of his brain Yields to some pathologic strain, And voids from its unstored abysm The driblet of an aphorism. –“The Mad Philosopher,” 1697”


      • Roger Lewis December 16, 2011 at 10:18 am #

        John Moulton from the Independennt 2006

        “While the technical content of this fund is complicated because the bankruptcy systems vary across Europe, the idea is simple,” he explains. “We’ll take on an organisation’s debt so that in the event of liquidation, we’re able to recoup our investment, and in cases of recovery make a healthy return in exchange for equity.”

        It could be a shrewd diversification for Alchemy if Moulton’s second prediction plays out. “It’s perfectly reasonable,” he maintains, “to expect there to be €30bn [£20bn] of defaulted leveraged loans in a couple of years, every year. That creates a huge market, comparable in size to the total funds raised by the UK industry last year.”

        That last figure stands at €47bn, according to the European Venture Capital Association.

        Pioneering new products and dealing with complexity are Moulton’s specialities. He admits that “it’s what keeps me going in this industry and led to me founding Alchemy”.


        I think I was probably thinking about the Rover Thing back in 2000 that was the year I tried to Buy the Millenium Dome, I really don’t miss that old Life.

  14. Pat Flannery December 15, 2011 at 10:50 pm #

    A market so distorted by speculation is no longer a free market. Clarly we are there now. How we wring over-speculation out of the markets will determine whether we lose a generation or not. Cameron and Obama are wed to the so-called “financial services” industry, which is really the “financial speculation” industry. Reigning in this industry is the key to our capitalist future (if we have any). Neither Cameron nor Obama look like they are up to the job. Is Merkel? If not, then where do we look?

  15. cynicalHighlander December 15, 2011 at 11:45 pm #

    Fitch Goes On Major Bank Downgrade Rampage

    Fitch just cut the viability ratings of 8 major banks.

    It downgraded Bank of America, Barclays, BNP Paribas, Goldman Sachs, Credit Suisse, Deutsche Bank, Societe Generale. It affirmed the viability rating of UBS.

  16. allcoppedout December 16, 2011 at 12:48 am #

    This is my broad suspicion fleshed out. ‘Shock doctrine’ plus likely mechanism. I’m trying to work something similar in novel form.The basic idea is to have a ‘bag of cash’ when no one else does in order to buy in the fire-sale and gain rents. Zerohedge has something on the overall malaise at – http://www.zerohedge.com/news/guest-post-truth-hurts-and-heals – and I have little doubt democracy is the ‘asset’ we are losing.

    Most of ‘us’ no doubt see all this as criminal and the ex-cop in me wonders on basic criminal intent and practice in it all. In most banking and insurance scams we are allowed to view as criminal there is a network of actors who ;trade’ in this manner in simpler ways – the idea always being to have some legal base that ends up with loot in it – classics involve ‘company doctor’ and ‘management development’ scams in which large fees can be deposited for sod all work allegedly done to help an ailing company (from Red Star Parcels to HBOS). With argument left out for brevity, and not something I could put to a court of law, the networking is extensive. In a book called ‘The Making of a European Business Elite’, Marceau found not a single person at INSEAD (a major French business school) not networked through a variety of nepotism and specialised education through prep-schools, public or otherwise preferred schools, the Grand Ecoles and so on. At my more simple Plod levels the networks were often family or the result of weekend bank piss ups and shag fests in hotel-based work events through which I could link players in basic insurance rip-offs and so on..Effort to prosecution ratio was low because what were essentially thefts were called feesand work done intangible.

    My suspicion is that finance is not really complicated and is merely a set of restrictive practices of the form so hated amongst organised labour by the elite.

  17. Caesar Salad December 16, 2011 at 2:12 am #

    Golem, I have been reading what you write for about 6 months, and mostly I have gained something from it, but lately your musings have been veering into too much sensationalism.

    As Pat Flannery pointed out above, how could the banks collapse the entire system simultaneously and profit from it? What would be left to loot? Suicide is not much of a plan.

    Had you suggested that the banks may be using it as leverage to persuade governments to cover bank debts, I would have been far more taken with the idea. After all, something beyond bravado must have caused the Irish government to guarantee the debts of Ireland’s banks. But a plan suggests a beneficial outcome. How total financial implosion could be considered beneficial to anyone, especially those holding the debts, beggars belief. Maybe bankers are secretly religious fanatics?

    I can overlook the constant spelling errors and incorrect punctuation. It is maybe a little sloppy but I figure you are hurried. However when I read “I simply have not done that research yet …”, I wonder why you haven’t, before publishing. It suggests a lack of standards.

    I am sorry if I am sounding too critical. I come here to find informed discussion in a sea of sensationalist opinion. Please restore balanced perspective.

    • Nicholas Dyson December 16, 2011 at 8:26 am #

      Mutually assured destruction.

      • Nicholas Dyson December 16, 2011 at 9:11 am #

        Or the paradox of profit.

        • Hobnob with Bob December 18, 2011 at 5:40 pm #

          Not destruction, self-preservation. When the system resets and they hold title to all the assets, they are more powerful than ever. And by resetting the system, they will fool the masses into focusing on building a surplus again. I go into more detail below if you care to read more.

    • Roger Lewis December 16, 2011 at 9:22 am #

      I don’t want to Jump in and ruffle any feathers here but pedancy is not the road to enlightenment.
      If David has a few spelling mistakes or even other mistakes I do not see that they detract at all from the central ideas being offered up for discussion. Ceasar Salad you have ventured this opinion before and I didn’t say anything then but this time I feel it is in order to Call you out on this one as the Americans say.
      Davids piece here is intellectually honest and is asking for anyone with an alternative explanation to put it forward. Venturing that you wish to see balanced perspective restored based upon a condescension regarding spelling is not even worth addressing.
      Your point that who would benefit from collapsing the system is I think missing the point that the process described by David would see further concentration of power into a smaller group becoming ever more powerful. I do not see that as sensationalist it is a realistic outcome based upon the empirical evidence of how monopolistic practices dominate markets at the expense of the smaller players in the market they seem to subjugate
      Whether Bankers are secret religious fanatics or not, whats the big secret clearly fanaticism is at work in that Industry ( irony intended) I think Mike Halls Theo- Conomics is a good term.

      • peterms December 16, 2011 at 10:22 am #

        “I don’t want to Jump in and ruffle any feathers here but pedancy is not the road to enlightenment.”

        Could I just point out that it’s “pedantry”. 🙂

        • Roger Lewis December 16, 2011 at 10:55 am #

          Thanks. I’m chuckling away, I was even much more careful than usual.

      • Caesar Salad December 16, 2011 at 11:32 am #

        Roger, the spelling errors etc. I normally overlook for the reasons you give. I have never mentioned it before. Another commenter did a little while back and I read it too. I felt like coming in and agreeing with him, but resisted since Golem graciously addressed it immediately after. It was not intended to be condescending. It was in combination with the admission that relevant research had not been completed before publishing that caused me to mention it. I intended it to be constructive, so that Golem might return to writing his best.

        While there is danger of further power being concentrated into a smaller group, the central premise of bankers having a plan to deliberately kill their own goose seems unlikely to me. If it happens and I agree it could, I think it will resemble mad panic more than a plan.

        • Roger Lewis December 16, 2011 at 3:38 pm #

          Hi Ceasar Salad, As I say no ruffling of feathers meant i note no offence was taken, which is cool. On the additional research I kind of view this as a nice interim report. Maybe its sweden they have this thing of Pre Christmas parties or Pre whatever celebrations, it always amuses me but its almost like every celebration or event has a dress rehearsal.
          With the Global nature of hot money it is preferable to get out what is available and chase down the details for other jurisdictions when practicable, its an impossible task to provide the panacea of all outcomes and goings on.
          The sociopathic tendencies of these self styled Masters of the universe are neatly summarised in that other old fable of the Scorpion and the Frog
          Aesop’s Goose and Golden egg is also very instructive.



          • Caesar Salad December 17, 2011 at 12:06 am #

            Hi Roger, I haven’t heard those fables in a good few years, thanks :-).

            I am not sure killing their own goose is any banker’s plan. It could happen that the goose gets killed anyway, but if it does I think it will happen outside of their control, and they will simply react to it. Trying desperately to take advantage of what happens, absolutely, but deliberately planning its demise, I don’t think so.

            I worked on Wall Street on the European Equites desk and the Emerging Markets desk for a big investment house. I am under no illusions about Wall Street.

            I was in the States at the time of the crash and travelled across the country. I remember speaking with an oilman, an engineer on an offshore rig, and he believed that an overlooked factor in the meltdown was the price of oil. At that time it was the highest it has ever been – $147 a barrel. He said it put pressure on regular people and triggered the subprime collapse. But there was no discussion of it in the media.

            I don’t know if he was right. What I do know is that it is rising again – currently about $105 a barrel. If what seems to be happening in slow motion in the Middle East actually does happen, i.e. an attack on Iran, we could expect the price of oil to skyrocket.

    • Hawkeye December 16, 2011 at 10:38 am #

      Caesar Salad

      You ask a valid question “how could the banks collapse the entire system simultaneously and profit from it?”

      I’ve not read the book, but perhaps Noami Klein’s “Disaster Capitalism” might shed some light here.

      Personally, I feel that under conditions of certain incentives, then it is possible for individuals to profit, but at the expense of others. Garret Hardin’s “Tragedy of the Commons” is a good analogy here. Every individual has an incentive to exploit, yet the collective outcome is destructive.

      I’m concerned that economic growth is hitting limits, owing to resource & energy constraints. Therefore the pie isn’t getting much bigger, so the scramble is for getting a bigger slice for oneself. We are in Zero-Sum territory now.

      If you want to read more detail on how certain wealthy people could profit, even under extreme catastrophic conditions such as systemic banking collapse and currency collapse then this post from earlier this year will help:


      We all agree that excessive debts have been piled up. The question is who takes the loss:

      “Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.. Inflationists and deflationists implicitly agree on this point… we differ only on the question of who, borrower or lender, will take the hit.. someone will pay. But there is a third option that is missing…the hit can be socialized.”

      • Neil (the original one) December 16, 2011 at 11:22 am #

        @ Hawkeye “Ultimately, every penny of every debt must be paid”

        This contradicts the view, as often quoted, on this site that “Debt that cannot be repaid, will not be repaid”

        See: http://real-economics.blogspot.com/2010/07/debt-that-cannot-be-repaid-will-not-be.html .

        I think the second view is correct, but that the big bondholders (including banks) are trying to coerce everyone into accepting that there is no alternative to the first view – ie that everyone else’s debts to them must be paid.

        Do correct me if I’m wrong.

        • Hawkeye December 16, 2011 at 12:03 pm #


          I’d say the two are not contradictory. The Hudson-esque that “debt that cannot be repaid will not be repaid”, is essentially calling for repudiation of the debt (through default or jubilee).

          Default of debt is making the lender “pay” the consequences as it were.

          Enforcing the debt is making the borrower “pay”.

          Hudson is (quite rightly) insisting that the Lender suffers the consequences of his bad lending, whereas (as you correctly point out) bondholders are doing everything possible to get borrowers (and by proxy tax payers & innocent citizens) to “pay back” excessive lending (socialising the losses and enforcing repayment).

          The tension is currently straining the system. The article that I referenced actually postulates an even more sinister form of socialising the losses, through currency debasement.

          It’s the classic R&R model of financial crises:


      • Caesar Salad December 16, 2011 at 11:42 am #

        Hello Hawkeye, yes, privatize the profits and socialize the losses. Thank you for the tip on Naomi Klein’s book. I haven’t read it but will have a look. I read your post earlier and thought it made sense but wondered if gold could be a reliable investment in this situation. I wondered if it isn’t better to own land.

        • Hawkeye December 16, 2011 at 12:15 pm #

          Caesar Salad

          In theory nothing is safe, as any “asset” is prone to confiscation, either by Gvt decree (FDR confiscated private US gold holdings in 1932/3) or just sheer force (theft).

          Much advice that I have read varies from staying highly liquid (cash, silver, gold) to becoming more self-sustainable (i.e. land). On one hand you have the highly individualistic Guns, Gold and canned Grub brigade on Zerohedge (wannabe Rambos?), the other is the Transition movement which promotes lower consumption, better community linkages & self-sufficiency in food & energy production. I know which side I would prefer.

          To me hoarding is physically & psychologically harmful. Better to have useful skills and knowledge to help yourself and others you trust and love. If you have a lot of physical possesions, then this just incentivises others to steal it from you, by fair means or foul.

          • Caesar Salad December 16, 2011 at 3:35 pm #

            Hawkeye, this may seem silly but years ago I saw a British tv production called Good Neighbors (think it’s called The Good Life in the UK) starring Richard Briers and Felicity Kendall and ever since I’ve been hooked on the idea of self sufficiency. Who says you can’t get good ideas from tv? 🙂

        • Roger Lewis December 16, 2011 at 3:47 pm #

          Hard assets with no debt attached. Land is a good one, Woodland Excellent. Part of the problem with Land is that the planning policies and EU policies regarding regulations have industrialised/corporatised so much of agriculture as well. The corporatisation and driving into debt of as many folk as possible is a process of primitive accumulation that goes on. One Blog i read has coined the Term coercive Accumulation a modern update on the Marxist theory.
          Cash generation is key or food production and the money supply is restricted by those who issue debt ultimately if you don’t raise money or FIAT currency you can’t pay your taxes and your land is confiscated.


    • backwardsevolution December 16, 2011 at 11:13 am #

      Caesar Salad: Bring into your mind clearly the events that have occurred during the past three years. Then ask yourself this: if David had written about these things three years ago, would I have believed him, or would I have asked him to “restore balanced perspective”?

      Do you realize who you are up against here? These bankers set up the game and they don’t plan on losing. They are sociopaths and, yes, sociopaths ALWAYS have a plan – always. They are already way out in front of us.

      And you wonder why David has not done all of the research before publishing? Well, it’s not as if the bankers are tacking the information to his fridge. And where are the investigative journalists? Nowhere to be found. There is enough truth in here to hypothesize on what is going on.

      This is a work in progress, and it has to be, because it keeps changing every few minutes. Roll up your sleeves, Caesar Salad, and help with the research.

      • Caesar Salad December 16, 2011 at 11:51 am #

        Hello backwardsevolution, I would have loved to have read more about the exposure of the banks to repo and hypothecation 3 years ago. I knew it occurred, but was oblivious to the extent. I am afraid I am not in a position anymore to contribute much to the research, that is why I come here, to read informed opinion. But I am not going to apologize for expecting high standards.

    • Charles Wheeler December 16, 2011 at 1:10 pm #

      “How total financial implosion could be considered beneficial to anyone, especially those holding the debts, beggars belief. Maybe bankers are secretly religious fanatics?”

      If Paulson hadn’t stepped in with billions of dollars of taxpayers’ future earnings there would have been a ‘total financial implosion’.

      The banks have been fixated on the short-term and it has led to a financial implosion. Now governments that were co-opted by the banking industry are running from fire to fire to try to stop a complete conflagration, but the banks have successfully blown themselves up already.

      As for ‘religious fanatics’ – have you read Ayn Rand? Non-religious fanaticism can be just as alarming – particularly when it’s informing the decision-making of the chairman of the Fed!

      I think one reason why people have been so slow to react to the situation is that they are not aware of just how extreme some of the views of those driving policy are.

      (p.s. I think you’ll find there’s plenty of unresearched speculation in the mainstream media, David is just a bit more upfront about it.)

      • Caesar Salad December 16, 2011 at 7:57 pm #

        Charles, I couldn’t agree more about the mainstream media. The problem with many mainstream reporters, not all, is that they are conditioned to always seek the sensational angle because it sells. The opinion writers don’t know what they really want, so there is no real conviction behind what they write. All they seem to know for sure is that they like their soapbox and much prefer it to having to listen to someone else’s.

        I have read Ayn Rand. Overall, her objectivism does not seem realistic to me.

        Have you read The True Believer by Eric Hoffer? That to me captures what a fanatic is. I guess bankers could fit the bill. Fanaticism is a human nature thing. It seems no one has a monopoly on insanity. But the bankers I knew and worked with valued self-preservation above everything else. Killing themselves was not part of the plan.

        I know it could happen. It even seems likely, though data from the States suggests things are improving. Europe may still drag everything down. The bigger worry to me is what is going on in the Middle East. That has the potential to return us to the dark ages. In comparison, what the bankers are planning or not planning looks like a sad sideshow.

    • Bugger (the Panda) December 16, 2011 at 2:03 pm #

      The most successful bio parasites are the ones who do not kill their host, make their presence debilitating but not life threatening and bury themselves deep in the body for safety.

    • steviefinn December 16, 2011 at 5:12 pm #

      I thing Golem’s article makes it clear that the banks are now at each others throats. The bigger predators ready to tear apart the weaker members. They are stuck in a downward spiral within a system of their own making, & methods to stop things getting worse would only work if ALL the banks, bondholders etc worked together in setting up a debt forgiveness program or something similar.

      I don’t think they could change even if they wanted to & I am betting that in whatever given catastrophic event people like Jamie Dimon are betting that they come out of it smelling of roses. As Golem described they seem to have already covered all the angles, or maybe it’s just that old joker hubris & they will get screwed the same as the rest of us. Watching the RBS docu the other night, this is possible judging by Fred Goodwins obvious megalomania & very well paid stupidity.

      To be honest if Golem & others like him wrote phonetically in blood or with a stick on a beach backwards, I wouldn’t care as long as it was available for me to read. I used to get my information from BBC news, a bunch of attractive well presented puppets talking utter crap, but with perfect BBC English. There is also a vast amount of lies bullshit & crap written with perfect grammar, spelling & punctuation out there. I am just grateful that the information is here, if it wasn’t, I would be living in an alternative universe & at least here it is admitted that extra research is needed in order to fill in the blanks, I prefer that to stuff that is basically out there as propaganda, it shows honesty.

      Niceties, I hope that they long continue.


      • Caesar Salad December 16, 2011 at 8:12 pm #

        Hello Steviefinn, I Iike your outlook and agree with it, all we have is each other in this crazy world and we decide how to treat each other, we can be nice or we can be mean, it is our choice, but I still can’t help feeling that if you are going to do something, you may as well do it to the best of your ability.

        • steviefinn December 17, 2011 at 1:39 pm #

          Ceasar Salad

          You are welcome to your opinion, good luck with the pigs & the chickens.

          • Caesar Salad December 17, 2011 at 2:24 pm #

            😀 Thank you.

      • Peter Talbot January 17, 2012 at 3:50 pm #


        Concur completely. Best treatment of the lineaments of conspiracy yet blogged, Golum’s is. The deeper issue, and fundamental policy issues are still not surfacing: (1) hypothecation (not repo) should not be allowed for debits (or swaps using credits) with any money held in trust by a fiduciary agent (e.g.: a bank or custodial holder of account. This should be classified as theft simple, with penalties for individuals and dissolution mandated for corporate offenders with all assets reverting to automatic stay/court redress/reapportionment; (2) hypothecation of debt offered for sale based on the promise of government backing (e.g.: AIG and Fannie/Freddie as controlled by the Treasury and therefore entitled to the guarantees of American currency for settlement of debts public and private) should be construed by law under a revised Volcker rule as tantamount to counterfeit, and as such subject to laws against counterfeiting and, if sold to sovereign funds and overseas buyers, treason.

    • Curious December 18, 2011 at 2:21 am #

      Hello Golem,
      This is the first time I have read your site. I have to say that nobody really understands exactly what is going on or what the final outcome is likely to be.
      However it seems to me that far from being a plan B for the banks it is a mad dash to try and retain profitibilty and thus the big bonus’s. It smacks of the sub-prime debacle where banks wrote truckloads of dodgy mortgages in the certantainty that they could offload the risk onto some other poor sucker. Thus it appeared to the banksters that they could originate high risk loans at no risk to themselves (or their bonus).
      Of course as we all know the music stopped and they got caught with too many of these toxic mortgages on their own balance sheets.
      How does a self important bankster make money then today? Well there was the borrow from the Fed at .5% and lend to Treasury at 2-3% – problem though if bond prices suddenly fall, or how about lending to Sovereigns- whoops that is coming unravelled. Fine then lets lend in the repo markets, we know the risk is somewhere akin to sub-prime but never mind with the change in the bankruptcy laws we initiated we will be first in the queue! no risk there then, when the music stops it will be the taxpayer on the hook again and in the meantime we can retain profitability and of course our all important bonus.

    • Aleph0 December 18, 2011 at 11:38 am #

      @Caesar Salad …. “But a plan suggests a beneficial outcome”

      Well, that’s a good one … “beneficial for whom” is the question !

      Has it gone unnoticed how the Big Banks have been lobbying to change laws to their own advantage, and getting tax-payers to bail them out … etc. etc. etc.

      No , I think this article is not “far fetched” at all.

      I used to be a key software developer at 2 of the worlds biggest banks many years ago …. derivatives and bond markets. My opinion of top management – at the time was simply “dangerous incompetence” wrt derivatives. After studying financial fraud for over 10 years now, I have come to the conclusion that there is a “design” behind what looks to us to be “chaos” , and from a higher level than Bank CEOs – who, as I have just implied , have no conception of the bigger game , let alone the possible dangers their own financial products. This “bigger game” is at a Governmental and Geopolitical level IMO.

      ( BTW… read Richard Bookstaber’s “The Devils of our own design” )

      Check out the ESF ( Exchange Stabilization Fund ) …


      Or : http://www.youtube.com/watch?v=2ssrcD5GdPQ

      … and tell me what you think.

      • Caesar Salad December 20, 2011 at 3:45 am #

        Hello Aleph0, thanks for the links on the ESF and for inviting me back in. I knew the ESF as a backdoor for the NY Fed and wasn’t surprised it was used to finance all sorts of dodgy deals by all governments. I remember Clinton in the nineties couldn’t get a deal through congress on a loan to Mexico and hearing he had circumvented congress by doing the deal through the ESF.

        I don’t trust governments, thanks to my Sicilian mother-in-law. Never trust the government, she told me. Can’t say we agreed on many other things, but on that she was right.

        It was Reagan who set up the Plunge Protection Team (PPT), an offshoot of the ESF, which in some ways is even more worrying than the ESF. The aim of the PPT was to make sure we never got another Black Monday (1987). Since 2008, it has been used to funnel hundreds of billions of dollars into the market. It’s mainly derivatives they’ve been buying and it looks like it’s a derivatives bubble they’ve created.

        Last I heard, Geithner froze the PPT fund this past summer to cut spending while congress negotiated a debt ceiling. Soon after, we got the US downgrade.

        It seems they can’t unwind the derivatives, those trades go too far into the future and are too entrenched. So they’ve turned them into a bubble. What Golem is seeing is speculation in dangerous weapons in my opinion, not evidence of a concerted plan to blow up their own house.

    • Zardoz December 18, 2011 at 5:34 pm #

      No, I think you slightly misunderstand what he is saying.
      The point is not to collapse the system in order to profit from it – which as you say would be counterproductive.
      The point is that the system is about to collapse, and therfore, given that state of
      affairs, what is the way to best profit from it?

      In the short-term, the financial system can make profits by skimming bits off all transactions.

      Then it can set companies and nay even countries up to fail, taking their cash assets in the process, which is what David is calling looting.

      But the longest-term game is to get control of the tax-base. Once everything that currently exists has been skimmed, scammed or stolen, the only thing left to take is _future_receipts_.

      By ending up owning priority claims on government debt, the financial system has suddenly got its hand on what everyone has yet to earn in the future.

      THAT is the point, and not enough people will ever understand what has happened to them , even as life for the 99% gets shittier and shitter, while the financacrats laugh literally all the way to the bank.

      • Caesar Salad December 20, 2011 at 4:12 am #

        Hello Zardoz, I suspect the priority claims on government debt won’t be worth the paper they’re printed on if everything goes belly up. The sovereigns will just cancel it out.

        Seems to me that the main reason Ireland’s government for example is complying with the bankers is because they believe their future is tethered to attracting capital investment in return for a 12% tax rate. In a total meltdown, all capital investment would disappear. The banks could kiss that debt goodbye. I can’t see why it would be different anywhere else.

        At the moment, the banks have got their hands on everyone’s future and are tightening their grip. That seems to be their plan to me. There wouldn’t be too many ways for the bankers to profit in a total meltdown, unless they start growing vegetables.

        I’d like to know more:

        An 18% rise in repo lending and derivative trades in the first 6 months of this year is significant. It would be nice to know who’s buying.

        Are the bankruptcy laws the same in the US, Europe and Asia?

        Possession being nine tenths of the law is not so reliable. Try it out if you like. Steal your neighbor’s car and when the cops come calling, see how long you hold onto the car by claiming it’s yours because you’ve got it.

        What Golem alerted us to comes across as more fuel for the derivatives bubble than indications of a concerted plan to push the red button and hope to profit from it.

  18. The Dork of Cork December 16, 2011 at 3:24 am #

    WePollock who lost money in Motherfuckers Bank has come out with a strange one.


  19. Patricia December 16, 2011 at 10:33 am #

    So where do covered bonds come into play in all this? New Zealand now lets the banks issue covered bonds to a level of 10% and to me these represent your argument David about, indirectly, the change to the Bankrupty laws. I do not know but I imagine that just because the bonds are limited to 10% of the assets does not mean the covered bond holder is limited to taking 10% of our hard earned deposits. Here there is no government guarantee for any amount of those deposits. I have asked my bank whether it has issued any covered bonds and to date they have said no. But if and when they do where on earth do I put my money. The mattress?

    • Golem XIV December 16, 2011 at 10:52 am #


      I am not familiar with the Covered BOnd law in NZ. Each country has its own particular laws. Most often written for them by the banks.

      In good times Covered Bonds are seen as teh apogee of sober banking. But when brought in in the circumstances in which we now find ourselves, they look more like a desperate measure. When you are having troulbe selling vanilla bonds you say to investors – OK we’ll give you a covered bond so you know you are safe.

      It means other bonds are necessarily a little less safe.

      There is no safe palce I’m afraid. Certainly put your money in a bank which is not playing the derivatives market. If you can find one which is not funded on the wholesale market but funds itself as largely as possible from deposits then that might be safer. I bank with the Coopersative Bank here in the UK.

      Other than that physical assets that hold their value. The problem with buying gold or silver now is that the price is already so high. It might still be worth while. I cannot really adivse I am not any kind of investment expert at all.

      The main thing is to try not to take on any more debts than you already have and pay down those you do have if you can.

      Other than that wear wool socks in the winter and stay in the shade when its too sunny!

      • Patricia December 16, 2011 at 11:11 pm #

        Thanks Golem. As always your thoughts and comments are appreciated. Sunny! I wish. 26 the other day and 14 yesterday. Now they are forecasting snow to low levels!! But summer doesn’t really start here until end of January so here’s hoping…

  20. Golem XIV December 16, 2011 at 10:38 am #

    Hello Ceasar Salad,

    I’m sorry the last post left you so disappointed. I’ll respond to each point.

    First I did – though obviously not clearly enough – suggest that the banks have indeed used PlanB to threaten our governments. In the para that begins, “Are they threatening us?”.

    Second, and most importantly, I did not mean to suggest that the banks planned to destroy and loot everyone. I think not all banks are even aware of what I suggest. I talked to one senior banker who said he was not aware but thought it plausible enough that he would have someone look into it.

    The first victims of the Plan will be banks and brokerages as the biggest cannibalize the smaller.

    What I am suggesting is that certain of the biggest banks have thought of it and have entered into the necessary trades. Each of them would do it because individually it would work for them. The fact that if too many of them do it, that it then becomes systemically suicidal, is not really an objection I don’t think. This is banking red in tooth and claw where every individual struggles blindly and selfishly to survive. Cooperatoin is all to often cheated upon for it to have much hope in banking. At most there might be a small cabal who know they are the ‘in’ crowd. But they would turn on each other in the blink of an eye. Look at how the banks treated Bear Stearns, Lehmans and AIG.

    Each bank will do what might give them an edge even if the action, when taken up by all makes them all less safe. Classic Prisoner’s Dilemma. So if one bank offers 30X leverage, others feel compelled to do likewise. If this plan would save a bank then all banks for whom it is possible, will feel remiss if they don’t institute the policy.

    In the case of Plan B it offers potentially valuable trades and even maybe a way of coming through the collapse with money in the bank.

    When any of us say it would systemically crash, it is worth remembering that even that doesn’t mean the end of the world or the end of banks. Morgan came through the Great Depression. The biggest banks must each hope to be among those few who are ruthless enough to make it through to the golden moment of fire-sale looting on the other side.

    So it isn’t really a suicide pact. It is a hugel;y destructive end game when the banks would be facing certain death from the collapse of the Plan A bail-outs anyway.

    So I think the idea is viable from the banks point of view. BUT I stress I don’t think it was a conspiracy carefully put in place over years and years. I think the changes in the laws were for other reasons which now happen to open this opportunity.

    As for the sensatinal aspect. I agree what I have written has become less sober. And it worries me too. But it is because I think our situation is becoming more dire and dangerous. I do feel democracy is being rolled back and nothing is more sensational that that, surely.

    I came up with this last idea a week ago – last Friday. I decided not to write it that evening because I felt I must have made a mistake. I thought about it and re-read what I had found. Then I wrote. I was aware it sounded rather sensational and it worried me. But I stand by it.

    As for the spelling and punctuation all I can do is apologize. I do use spell check but it seems not to pick everything up. I find it hard to see the errors as I am slightly dyslexic. Only slightly but enough that I cannot see spelling errors. And punctuation has always been a mystery to me.

    On top of which I am in a hurry. Which brings me to your slightly unfair jibe about the lack of research. I was aware there were omissions. That is why I made sure I pointed them out. I never try to pretend I know when I don’t. The reason they were omitted is I just don’t have the time.

    Please remember this is something I do in my spare time as a citizen. I am not an expert and never, ever claim to be. I read, I try to think clearly about what I have read and then explain my thinking as clearly as I can. Nothing more.

    But I try to fit this around earning my living and looking after my family. And without going into any detail there is a lot of looking after to do.

    So while I think I understand some of your frustration – wanting to get clear, trustworthy and researched analysis, I can only offer what I can offer. There are others who write very well. I would recommend Naked Capitalism, The Automatic Earth is often very good. The Slog is good. Washington Blog is good. Further to the political right is The Ticker and for raw info there is Zerohedge.

    • backwardsevolution December 16, 2011 at 11:45 am #

      Golem – you do an excellent job! Thank you for giving your time for the betterment of society. It is much appreciated.

      Dyslexics are the creative people of this world, IMO. Faraday refused to use capitals at the beginning of his sentences or periods at the end of them (actually I believe it was no punctuation at all), but look what he did for electromagnetism. I could go on and on, but this is not the place.

      Look past spelling and focus on the content.

    • Caesar Salad December 16, 2011 at 11:56 am #

      Hello Golem, thank you for responding so graciously and for the links. I feel bad for having mentioned the standards thing. It is just that you are in a good position to inform many people who are keen to understand. I hope you will keep up the good work.

      • Golem XIV December 16, 2011 at 12:18 pm #

        Ceasar Salad,

        No offence taken at all. No need to feel bad. Please don’t.

        We are all in a position to inform. Each of us simply has to do what we can.

        Glad you are around.

    • AppreciativeReader December 19, 2011 at 1:49 am #

      Re Plan A and Plan B, as to who geo-politically might have planned this;
      have you read this website at all? You probably have but if not:


      And regarding silver bullion pricing, this one seems trustworthy:

      very best regards,
      from a smallholding in NZ. I recommend this option to you.

  21. backwardsevolution December 16, 2011 at 11:20 am #

    Another take on what could have happened at MF Global:

    “Here is the BIG point that needs to be immediately passed on to the public. In a situation like this, the “loss” to MFG is just one side of the coin. The other side of the coin is who made the profit that counter balances with the loss.

    If Corzine had this set up as an intentional sting operation, in advance a shell trading company is established, and for example purposes we will call it Hong Kong Trading Partners Ltd. (HKTP) held in Singapore. The sting goes like this….. […]

    In most cases when a sting like this plays out, it is not just one shell company used to play the other side of the coin, usually it is spread out between ten or more shell trading companies.

    A government and media cover-up would just focus on MFG’s loss. A true and open investigation would be focused on “who” took the other side of the coin, the profit.”


    • Neil (the original one) December 16, 2011 at 11:28 am #

      Or as the old saying has it, follow the money.

      PS “People who put their trust in money and capital are fools. It’s going to disappear like fairy gold” – Christopher Hitchens, RIP.

    • Golem XIV December 16, 2011 at 12:20 pm #

      Precisely!! For every loss there is someone trying to profit. Who, why, how and where?

  22. backwardsevolution December 16, 2011 at 11:22 am #

    Amy Goodman at Democracy Now interviews Naomi Prins (“It Takes a Pillage” author and former Goldman Sachs employee) re MF Global and Corzine. It starts out with a clip from Corzine, then Naomi Prins comes on.

    She says that in September of 2011 Corzine was transferring stocks into annuity trusts with his family as beneficiaries, right when he would have known things were looking bad for MF Global.

    Good interview!


  23. backwardsevolution December 16, 2011 at 12:04 pm #

    Great Global Research interview entitled, “Engineering the Eurozone Collapse” – F. William Engdahl, journalist, historian and economic researcher.

    He says George Soros and the hedge funds (Wall Street banks) had a meeting (can’t remember the date) and, in order to deflect the heat away from themselves, decided to go after Greece. They’ve been tightening the screws ever since, and now the whole of Europe is poised to go down. He says it was “engineered”.

    He also said that London is just an offshoot of the Federal Reserve.


    • Hawkeye December 16, 2011 at 12:22 pm #

      “He also said that London is just an offshoot of the Federal Reserve.”

      Aww, shucks. Now I’m confused. All the ZH commenters claim that the Fed is just an offshoot of the Corporation of London.

      Well, whether there is one nexus of ultimate power, or a cabal or a conspiracy, the Modus Operandi is clear; debt is being demanded to be repaid to socialise the losses.

      • backwardsevolution December 16, 2011 at 12:36 pm #

        Wall Street and Corporation of London – I think they’re both taking orders from higher up. They do the leg work.

        • Hawkeye December 16, 2011 at 12:59 pm #

          OK. So they are No.s 2 and 3.

          Who is number 1??

          • Mike December 16, 2011 at 4:20 pm #

            You are, Number 6.

      • Charles Wheeler December 16, 2011 at 1:29 pm #

        As Stacy Herbert says, there are no nations – to ‘the markets’* it’s just a case of playing one bond issuer off against another in a merry-go-round of shorting. Traders thrive on volatility – the more disruption the better.

        *For ‘markets’ read ‘small group of mega-corporations’ rather than ‘invisible hand’.

        (p.s. Golem: keep up the great work you do in highlighting the issues – there will always be detractors out to undermine.)

    • Neil (the original one) December 16, 2011 at 1:01 pm #

      On the one hand, the economic and financial imbalances between Northern and Southern Europe meant that the euro as a one-size-fits-all currency was fatally flawed from the start. On the other hand, it’s certainly in the US’s financial and economic interests to shaft the euro as a rival super-currency to the dollar.

  24. backwardsevolution December 16, 2011 at 12:32 pm #

    “A former MF Global employee accused former president Bill Clinton of collecting $50,000 per month through his Teneo advisory firm in the months before the brokerage careened towards its Halloween filing for Chapter 11 bankruptcy, reports Human Events.”

    $50,000.00/month for improving Corzine’s image? Looks like it didn’t work.


  25. Rcoutme December 16, 2011 at 1:43 pm #

    I spent much of last night trying to put what I THINK I read here into some sort of sense. My best explanation to family members resembles the following (please let me know if I am off base on this, as I hope I am):

    We have a shadow banking system similar to a pawn & consignment shop. These P&S shops have their own stuff and have bins out back that store other peoples’ stuff. The shop buys and sells ‘stuff’ all the time. However, in addition, they have a clause in their contracts with those who store stuff there. The clause basically allows the P&S to use the stuff in the bins as collateral for a debt (except it is called hypothecation). Generally speaking anyone who has a lot of ‘stuff’ needs to store it at a P&S because they either don’t have room at their own establishments or, more likely, it is too inconvenient to be holding the stuff (since they plan to sell it anyways).

    So now try to follow, because here is where it gets fuzzy. In normal circumstances, if the P&S went bankrupt then each bin holder (i.e. the people keeping their stuff there) would simply have to come by and pick up his stuff. He then takes it to another P&S where he will store the stuff and/or sell it just like before. However, since he signed a contract that allowed the P&S to use his stuff as collateral, the new bankruptcy laws now say that when Company A goes bankrupt, Company B gets to come by and empty all the bins because all the stuff was used as collateral for loans. Normally, Company B should have to wait his turn for his money, but in this case the laws were changed so that he could just waltz in and drive out with everything. Meanwhile, the guys who owned the bins come looking for their stuff so they can put it into a P&S that does not have an “Out of Business” sign on the door. When they do, they find out that their bins have been emptied out, but nobody knows where the stuff is (mostly because they did not realize that Company B could take all the stuff legally).

    Am I finally understanding this?

    • Golem XIV December 16, 2011 at 2:43 pm #


      Basically you’ve got it. You just need to be careful not to entangle re-hypothecation with teh other stuff – repo and derivatives.

      With Repo and derivatives it was the change it was the in the bankruptcy laws which allowed the people who made those deals to keep all the collateral that was pledged in those deals. And to do so ahead of any bankruptcy settlement.

      The bit about keeping the stuff belonging not to the business but to other people who had merely lodged it there – that is the co-mingling story to do with re-hypothecation.

      So the collateral siezed in repo and derivatives trading is probably not other people’s stuff. It is the stuff belonging to the business. But that stuff is probably our bail out money.

      Two different stories. But the are happening at the same time often inside the same banks and both involve looting.

      I hope this helps. If not get back with more good questions.

    • Anonymous Comment December 18, 2011 at 10:25 pm #

      Exactly right.

      Only someone with their ‘stuff’ in the bins does not have to have waited to see the ‘going out of business’ sign to find that his stuff is gone [or effectively gone]. Anytime one of the bin-holders decided to move his bin over the last, say, 10 years… he would be presented with his contract that showed where he signed the stuff in the bins to be used at the banks discretion while on the premises. Possession is 9/10 of the law, y’all.

      They will tell you that their discretion now tilts towards keeping your stuff right where it is even after the expiry of the contract. It’s now being used as collateral for some guy in the office and his buddies to make beaucoup cashola, and they are not in the mood to discontinue that practice. ‘You signed to trust our discretion, buddy. This is what we’re gonna do.’

      In case you decide you are not gonna stand for that, they will show you the clause where you signed away your right to a court trial to get them to redefine ‘descretion’ and give your money back. Don’t try it, it’s dangerous. And so the secret continued for a decade at least.

      So of course a time is gonna come that these bin holders find they have no access to anything more than scraping by at life, rather than something more productive with their bins… like, say, buying and making stuff and creating jobs. What’s good for rehypothecaters is not good for ‘bin-owners’.

      The one clarification I would make is that one might think in a P&S context that the bin-owners are bringing their stuff to have loans made to themselves, whereas in the real world they are securing investments with those bins. They intend to get more back at the end, rather than have to give more at the end to retrieve the collateral. So if only one person brings the collateral, but say it is used to secure 10 other non-bin-owner accounts, when the investments go bust… did those without any collateral [non-bin-owners] actually ever earn anything? In other words, why should non-bin owners be allowed to use other people’s collateral to make preferential investments they could not make on their own? Because the bin-owners didn’t understand the meaning of their contracts, that’s how. Just as simple as that.

      Sorry so lengthy. Good analogy. You got it.

      • Anonymous Comment December 19, 2011 at 10:26 pm #

        A further thought to add. Some have have incredulity in regards to this bit from above: “…their discretion now tilts towards keeping your stuff right where it is even after the expiry of the contract.”

        How is that even possible?, you might say. Here is how… the guys on the inside, writing these rehypothecation contracts does not spend his time making sure the contracts that follow complete themselves within the time of the original bin-owner’s account. In fact they seem to intentionally arrrange it so that when the bin-owner’s contract expires, the collateral is still spoken for, so to speak.

        The bin holder is told he can have his account set aside for the duration of the other accounts to settle, and the then their collateral may be returned to them. Signing that contract would require the fiduiary to agree to sit his meal ticket out of the game while others prosper with it. That is against fiduciary standards and will not be agreed to. Therefore, under a form of fiduciary duress, the roll-over contracts are signed in perpetuity. Captive to rehypothication schemes.

        Just one example.

      • Richard T. January 17, 2012 at 5:57 pm #

        Actually, It does get worse. With the “claw back” provisions in the bankruptcy laws, it is possible that even if you “took your stuff” back before the bankruptcy, you could be liable to have the bankruptcy judge take back your own money. There are many in the MF Global situation that are worried about just this eventuality.

  26. Neil (the original one) December 16, 2011 at 1:56 pm #


    “More flouncing off in the EU. International Monetary Fund officials have walked away early from talks with Hungary, aimed at striking a future deal on financial assistance.

    According to multiple unnamed sources, the IMF/EU team left Budapest despite a round of talks being scheduled for Friday afternoon.

    Stumbling blocks were purported to be the government’s new central bank bill and its decision to strip private pension fund members of their monthly pension payments for at least another year.”

    Coming to private pension funds near you?

  27. allcoppedout December 16, 2011 at 2:05 pm #

    Post catastrophe a bottle of water is going to be worth more than any number of delta-hedged high yield Zambian investment bonds unless cold is the problem and we want to burn them. Missing in Golem’s speculation is the relation of the shadow-blackpool and financial zillions and the real economy.
    The banksters have more reason to know this than the rest of us and will have a plan B, perhaps as Golem suggests. The bankster pays for her real stuff – beer, buttered parsnips – with the same money as we do, So what is this other stuff? Why would anyone buy ‘high yield delta-hedged Zambian dognut bonds’ rather than invest in a factory making solar panels?
    Post catastrophe, anyone coming to buy a cabbage from my little plot with a ton of bonds would be met with a shotgun – unless I had a shortage of kindling. This is really all they have ever been worth – they are fictional instruments of Sooty’s magic wand.

    The only use of the zillions of fictional financial services instruments is in the way they can and are used to get hold of our toil jewels – the product of real work and inherited fortune. What’s gone wrong is the relation between these instruments and an hour’s sod breaking.

    What the banksters need to know in their war on the rest of us, is how to end up owning real stuff. They are in the position of crooks with a pie of swag that need laundering. Unlike the average crook they have control of the legal system. Golem is suggesting how they may already be plotting this and taking positions. There is no need to collapse everything; rather they just need to be in position to steal real assets.

  28. allcoppedout December 16, 2011 at 2:56 pm #

    Imagine yourself with a bag of cash from a cash-in-transit robbery (and old specialism of mine – catching the crooks not perpetrating them). Or a bag of counterfeit stuff. If you’ve any brains, you know this ain’t spending money. My contention is much of the stuff banks and hedge funds are trading is much the same. You need to break in down into spending money. This means having to find some stiffs who get stuck with the bent material or some players who can palm it off. Surely this is the current state of finance?

  29. B Homes December 16, 2011 at 4:46 pm #

    Thanks once again Golem, informative and thought provoking

    Bloomberg column proposes that it was four years losses and the final writing down of “deferred tax assets” that caused panic at MF Global:


    “deferred tax assets” form part of banks tier1 capital but in a recent post ft alphaville highlighted concerns that it should not be included for bank stress tests, which means that even more money is required to get up to a real 9% capital tier. As there is shortfall of real assets then makes even more sense that the largest banks will try and get the assets of the smallest banks, brokers etc


  30. Saj December 16, 2011 at 5:22 pm #

    Golem, well done, another self-destruct mechanism leading to the inevitable collapse of the monetary system.

    About the HSBC lawsuit with the Defendant JPM Trustee and Defendant Customer Fane, the owner of the physical gold/silver, here’s Casey Research:


    We won’t know for sure until the hearing is heard in early 2012, but looks like the allocated gold/silver (Fane already paid and had receipts likely identifying bar #’s in the HSBC warehouse) will be transferred to Fane. HSBC has the metal – they want the court to make the final order so HSBC doesn’t have any liability. Makes sense since the metal should be treated as segregated customer property and distinct from the customers segregated account.

    I know, how much do we trust the banks not to hypothecate said metal receipts – no guarantee they aren’t and that’s why anyone holding allocated/unallocated metal should take possession, but may be likely that while they are hypothecating other assets, they are not hypothecating allocated metal.

  31. Charles Wheeler December 16, 2011 at 5:22 pm #

    The unknown unknowns …

    “Sen. Jeff Merkley, D-Ore., asked credit-rating agencies, which failed to foresee the subprime crisis, how they would evaluate risk from European credit default swaps. They didn’t know. “The first expert said, ‘Well, there might be somebody who knows the answer, but I don’t.’ And the next two experts said almost exactly the same thing.” Merkley told NJ. “To really diminish the systemic risk, in America and in Europe, we’ve got to understand those pieces much better than we do now.”


  32. Hugh December 16, 2011 at 5:41 pm #

    “If I am right about this, I think this means that some of the biggest banks, themselves, have already constructed and greatly enlarged a now truly massive trip wired auto-destruct on the banking system.”

    Very worrying, to put it mildly. But what I find even more worrying is this: can this auto-destruct ever plausibly be DECONSTRUCTED?

    When we reach the end-game, with just a few mega-banks left standing, J P Morgan will still be wanting to out-perform Goldman Sachs, and HSBC will still be trying to out-score Deutschebank. Will they ever be willing to quit the game?

  33. Nangpa December 16, 2011 at 6:04 pm #

    Just sharing a UK thought experiment / questions:

    Suppose there were a UK services company which operated an NHS hospital under a PFI contract.

    Suppose that company had obtained capital using (directly or indirectly) a derivative sold by a bank and had used the hospital as collateral.

    Suppose the operating company were to go bust.

    Golem’s scenario suggests that the bank could seize control of the hospital.

    Two questions:

    1) Is this scenario plausible?

    2) What happens to the contractual commitment to continue to maintain and operate the hospital for the next N years?

    In other words, do irrevocable contractual service commitments come along with ownership of seized assets?

    • Charles Wheeler December 16, 2011 at 8:40 pm #

      This BBC news story: http://goo.gl/VOCN6 reminded me of Matt Taibbi’s take on PFI US-style:
      “The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs.”

    • Roger Lewis December 17, 2011 at 7:07 am #

      Google conflict of Laws.

      I looked into and I am still slowly working on some of the anomalies in the Mortgage securities side of debt as it applies to Family homes and mis selling. I have a complaint with the Ombudsman which has to run its course before I decide how best to proceed in the Courts ( if at all ) Life is too much fun to spend any of it suing banks ( Ultimately we have to change the Government and change the whole system) my main strategy is to withdraw from the system a operate with as little debt as possible chalking previous wins and losses down to experience and seeking to share the pitfalls I encountered with as many people as possible so the banks don’t pull the same shit with them.
      The property side of conflicts of laws is the ownership right to receive the mortgage payments that are made on PFI its the same thing the bit of paper entitling one to receive the REnts or the interest.

      There is a concept of Usufruct which is worth reading into.


  34. Golem XIV December 16, 2011 at 6:31 pm #


    What a question! First we have to separate out the function of the hospital (what happens in the building) from the building itself. They could certainly have pledged the building as collateral. That much I am confident about.

    Your question about the contractual obligation to run a hospital, I don’t know.

    Nasty question though.

  35. Hawkeye December 16, 2011 at 6:34 pm #

    No surprise here then:


    However, the ICB proposals are ALREADY watery thin, tardy and likely to be ineffective!

    To feign aghast at this lobbying is to completely fail to understand that even if the full proposals are implemented (in 8 years time!) we are in this up to our necks, already.

    Mainstream media is just way behind the curve.

    • Charles Wheeler December 16, 2011 at 7:42 pm #

      Ben Chu quotes an FPC regulator: “A profession which should stand for integrity and prudence now supports a lobbying strategy that exploits misunderstanding and fear … in pursuing its short-sighted approach, the banking lobby is unwittingly making the case for more intervention in an industry which refuses to reform. Bank lobbies are winning the battles and losing the war.”

  36. Geriatrikiter December 16, 2011 at 7:01 pm #

    Seems to me we’ve been here before. Timely comment in Carlyle’s French Revolution:

    How singular this perpetual distress of the royal treasury! And yet it is a thing not more incredible than undeniable. A thing mournfully true: the stumbling block on which all Ministers successively stumble, and fall. Be it ‘want of fiscal genius’, or some far other want, there is the palpablest discrepancy between Revenue and Expenditure; a Deficit of the Revenue: you must ‘choke (combler) the Deficit,’ or else it will swallow you! This is the stern problem; hopeless seemingly as squaring of the circle… And so, towards the end of 1783, matters threaten to come to a stand-still. Vain seems human ingenuity. In vain has our newly-devised ‘Council of Finances’ struggled, our Intendants of Finance, Controller-General of Finances: there are unhappily no Finances to control. Fatal paralysis invades the social movement; clouds, of blindness or of blackness, envelope us: are we breaking down, then, into the black horrors of NATIONAL BANKRUPTCY?

    Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink, disappearing; whither, from the first origin of them, they were all doomed. For Nature is true and not a lie. No lie you can speak or act but it will come, after longer or shorter circulation, like a Bill drawn on Nature’s Reality, and be presented there for payment, – with the answer, No effects. Pity only that it often had so long a circulation: that the original forger were so seldom he who bore the final smart of it! Lies, and the burden of evil they bring, are passed on; shifted from back to back, and from rank to rank; and so land ultimately on the dumb lowest rank, who with spade and mattock, with sore heart and empty wallet, daily come in contact with reality, and can pass the cheat no further…

    Honour to Bankruptcy; ever righteous on the great scale, though in detail it is so cruel! Under all Falsehoods it works, unweariedly mining. No Falsehood, did it rise heaven high and cover the world, but Bankruptcy, one day, will sweep it down, and make us free of it.

    • Charles Wheeler December 16, 2011 at 7:53 pm #

      Or: going back a Louis or two: http://youtu.be/ADv5-Pen1L4 !

    • steviefinn December 16, 2011 at 7:56 pm #

      On that note, does anybody know of a good book on the French revolution ?

      • Neil (the original one) December 16, 2011 at 9:36 pm #

        Look for books by William Doyle, Francois Furet and Eric Hobsbawm (The Age of Revolutions, which takes the story up to 1848).

        • old dog December 16, 2011 at 9:47 pm #

          a lighter take, just bought my mum a copy of Mark Steele’s – Vive la Revolution, looks a good read

        • steviefinn December 17, 2011 at 12:50 pm #


  37. backwardsevolution December 16, 2011 at 7:32 pm #

    “I am Fishead” – great one hour and 15 minute documentary about corporate and political sociopaths, why we blindly follow them, and how we (ignoring the people controlling us from above) can change the situation by simply being moral towards one another.

    **All it takes is 5 to 6% of the population to change, to refuse to go along anymore, and the rest of the herd follows. 5 to 6%!

    No wonder they want to crush the Occupy movement and control what media says. The documentary explained: when people saw others following orders and doing something that they would not normally do (a bad thing), 91% of people blindly did the same thing when told to do so. But when they saw others defy those same orders, 90% of people defied the orders as well.

    From the documentary:

    “Most parents, most teachers are good; following their lead is good. But nobody teaches us to make the distinction between “just authority” that deserves our respect and “unjust authority” that deserves defiance. And that’s a big problem because as you grow older, then here are these psychopaths – political, religious, organizational, industrial – who put on the same mask and say, ‘Follow me,’ and you say ‘okay’ without thinking why, when, where and how. […]

    Now I realize and am aware that most ordinary people are really basically good, but they’re good and passive. They’re really not going to get seduced to evil, but they’re not going to be willing to put in the energy to be a hero. And what we’re trying to do is create a social movement in which we want to give voice to the silent heroes out there, because there are many people who have the potential to be really important heroes, not only for their family, for their neighbourhood, for their community, but for their nation.

    And so in the audience – out there – there are many Vaclav Havels who are living in environments where there is injustice, where there are drug cartels…..and it’s our job to help amplify your silent voice. And it’s your job to be willing to step across the line to take action, to say ‘this is wrong’. […]

    The advantage of being in a herd is that when as few as 5 to 6% of the total population becomes aware of something, like danger, for instance, nearly everyone becomes aware. And our success is going to depend on the answer to two questions: How many are we; how close are we to the 5 to 6%? And what will you do?”


    • Charles Wheeler December 16, 2011 at 8:15 pm #

      To date the collateral damage (excuse the pun) of the credit crunch has been largely confined to the underclass, the sick and disabled, and the low-paid, but as the flames start to lick around the ankles of the middle and professional classes, that critical mass might start a chain reaction. Then it seems there are two ways it could go: a) we all start fighting among ourselves for the scraps, blaming immigrants, pensioners, benefit claimants, etc. – those effectively scrabbling at the bottom of the inequality pile (an argument promoted by the Daily Mail or, faux-liberal commentators like Christina Patterson or Martin Kettle), or b) we identify the prime cause of the crisis – of which the debt bubble is but an effect – which is: growing and unsustainable levels of inequality – i.e. we stop attacking the victims of the policies and start to question the motives of the policy-makers.

    • steviefinn December 17, 2011 at 6:26 pm #


      Thanks for that, I didn’t know about those later results from Millgram’s experiment & the Vaclav Havel contribution was & is inspirational.

  38. backwardsevolution December 16, 2011 at 8:30 pm #

    Video clip entitled, “An Open Message to Police and Military” – asking them to think about what side they’re on.


  39. Charles Wheeler December 16, 2011 at 9:25 pm #

    Nice work if you can get it (part 235): “An answer to a parliamentary questions revealed that in 2010 the NTMA paid put €6.2 million to bond traders and wealth managers Rothschild for advice to the Minister for Finance on how to deal with the banking crisis. Deputy Boyd Barrett pointed out that this means that on the absolutely most important issue facing Ireland in terms of an unprecedented economic crisis and whether or not to pay off senior bondholders, the Irish government actually paid bondholders to advise them on what to do.”

  40. Yossarian December 16, 2011 at 9:38 pm #

    Bank A loans bank B $1M in cash, takes possession of $1M in less-liquid collateral from Bank B.

    Bank B goes bust with the creditors fighting over how to distribute the $1M cash, or whatever assets it was used to buy. Bank A keeps the $1M in less-liquid collateral, keeping them in virtually the same net positions as before they transacted with Bank B, although with less liquidity.

    What’s the problem? On the surface this seems like a fair and equitable transaction. But thinking further (like Golem I too am thinking out loud), I guess a large bank like JPM, with a Fed backstop and perceived strong capital position, can loot a weaker competitor in times of duress by creating cash out of thin air via repo and exchanging it for real assets (at a distressed value). Contrary to popular opinion, a bank like JPM does not first need to accumulate cash in order to lend. Instead it is the very act of bank lending that creates cash in the system. The Fed merely provides the backstop that enables this levering up of the financial system. In this case, the Fed backstop enables the looting of smaller, weaker competitors, essentially jumping to the top of the capital stack. Although it is hard to prove fraudulent conveyance in this circumstance, it certainly gives off the appearance of impropriety.

  41. Charles Wheeler December 16, 2011 at 10:53 pm #

    “the eurozone is beyond saving; the euro will survive, but the zone will shrink. The only question is the scale, timing, and manner of its breakup”
    Robert Skidelsky: http://goo.gl/bbPLg

  42. bill40 December 16, 2011 at 11:59 pm #

    As much as I’d like to declare this article wrong I cn’t. Golem has form fro off the wall predictions that come at least partially true. I often read the Telegraph and think, “hang on I’ve read about that”. Usually it is here.

    Poker is a good anology. Sooner or later you have to go all in to ruin the other.

    • Caesar Salad December 17, 2011 at 1:12 am #

      Bill40, I enjoy poker occasionally, but when I go all in, I am hoping to win the pot. If going all in means not only that I win nothing but that I lose everything, why do it? 100% of nothing is still nothing. And that is pretty much what would be left if the entire financial system collapses.

      I haven’t lived through a Great Depression, not yet anyway, though I’ve seen a couple of busts. What I read about the Great Depression and what I experienced in the busts was that money just evaporates. It is there one moment and isn’t there the next. The pieces of paper you are holding are suddenly worthless. All the paper would be suddenly worthless if the entire system implodes and they would be worthless for a long, long time. This is not the banker’s plan.

      • Roger Lewis December 17, 2011 at 7:15 am #

        Ceasar Salad.

        The pieces of Paper are worthless. Debt is money and the people who issue it ( The Banks) decide who gets to borrow money and what is to be ascribed value 90% of what the ascribe value to is their own worthless paper ( derivatives) its like meeting about meetings. IOU’s about IOU’S.

        In a reboot of the System those with the issuing power will be those backed by the biggest gun it is not only History that is written by the Victors it is the Invoice the Victor writes as well in the from of the issuing power of the FIAT money which is based on debt.

        The film the secrets of OZ is worth watching or the Money Masters there are quite a lot of them. In the great depression as with the 1890’s crash and post battle of waterloo the crashing of markets and picking back up of the distressed assets at pennies on the pound is as old as the hills.

        his is a game of Poker but the table is a Trough and PIGS as we know are cannibalistic and they will each other to get a better place at the Global Trough of FIAT currency special reserve Currency Petro dollar Poker.

        Think Russian Roulette.

        • Caesar Salad December 17, 2011 at 2:34 pm #

          Debt is what money is. With no debt, there is no money. Wipe out all the debt and you wipe all the money out too. We’re all back to raising chickens 🙂

      • bill40 December 17, 2011 at 2:43 pm #


        I don’t believe this is a plan at all. The idea to keep clearly in mind is “what is permitted becomes necessary”. If your opponent goes all in you have two responses. Wipe him out by calling or fold to preserve what you have. The pot winner becomes more powerful.

        The winners will be those the government chooses to back. Money should be a public monopoly and treated as such such. The prize I believe the banks are battling for is the privatisation of the money supply.

        Who wouldn’t go all in for such a prize?

        • Caesar Salad December 17, 2011 at 3:49 pm #

          Sorry Bill, I can’t see it. There will be no money supply if it all goes up in smoke, there will be no pot to win, it’ll be a chain reaction from top to bottom, everything together wiped out. 1929 is not 2012. It goes global in seconds. There would be nothing to salvage in a total meltdown, except dust. We’ve done the government bail-out bit, maybe there is some more to come, but not enough to put out a concerted kamikaze from all the banks in unison.

          If it happens, that is not the way it will happen. It’ll be something else that the bankers are forced to react to. Something outside their control that triggers panic.

          • bill40 December 17, 2011 at 8:39 pm #


            I can’t picture a scenario without government of some sort. They will still issue money and the best placed banks will get it before people do.

            I think you are over complicating things.

          • Hobnob with Bob December 18, 2011 at 6:03 pm #


            I respect your position, but your premise is a fallacy. Money is not an asset to those who will it into existence. They see beyond this illusion.

            When title on all real and tangible assets is transferred, who do you think wins? In a monetary collapse, implosion or ex, default transfers title to the top. When the dust clears, there is no middle class as their wealth and much of the top is consolidated to a select few. That is where we are headed. And then the promise for which we will toil, the restoration of our prosperity, will be the la saveur de jour as the system restarts once again.

  43. Hawkeye December 17, 2011 at 12:03 am #

    Bankruptcy for profit is not a new concept.

    The recent unearthing of re-hypothecation is though symptomatic of the poison being even further endemic then perhaps many of us first thought.

    About a year ago I submitted a robust critique of Securitisation to the ICB. In it was a section called “Risk transfer as fraud” (section 7):


    “The assumption is that owners / managers employ a deliberate strategy of going broke (intentional looting) rather than subsidised risk taking / speculation. The reason for this occurring is that various conditions conspire to make this strategy yield a positive pay-off to the potential looter.”

    Far from being some quack conspiracy theory it was actually based on the work of Nobel economist George Akerlof (he of the “Market for lemons” fame) “Looting: The economic underworld of bankruptcy for profit.”

    Only now the stakes are getting higher and higher, and the dice is totally loaded against the little guy.

    • richard in norway December 18, 2011 at 12:05 am #

      Everyone should read, Amaranth Kill Shot: Collateral Damage in a 78 Trillion Dollar Derivatives Book Compliments of J.P. Morgan Chase, after reading looting it connects dots that weren’t visible before

  44. mudhutrentarrears December 17, 2011 at 1:09 am #

    Golem, thanks for the great article. As I’m sure you know, Celente was personally stung by MF global and in this video, posted yesterday (friday 16th) he talks about how they’re able to do this due to legal loopholes and he confrims it is surely not going to be a one off event. Meanwhile the hunt for the missing money goes on… like they don’t know?!?!


  45. hedgey December 17, 2011 at 5:27 am #

    “And as they do the State will wither away, leaving free-market believers and extreme libertarians exactly where they have always wanted to be – in charge – by dint of being rich.”

    I’ve scanned the comments for anybody taking exception to this quoted, but with the exception of D Holden’s ‘quibble’, have not found them. Apologies if I missed them then, but the confusion this line engenders is definitely in need of being cleared up.

    The momentum in the current moment of crisis is far from leading to a decreasing role for the state. In fact, the role of the state in all the EuroAmerikan zone, no matter the supposed idelogy of the party in power, has been increasing by leaps and bounds. Indeed, without the political hacks serving as handmaidens to their depredations, the scams and frauds of the parasitical financial class would have never gone this far.

    So, in a nutshell, the economic mess we find ourselves in has little to do with “free markets” and even less with “libertarian” ideology. Free markets are anathema to the corporatist looters whose entire business model is predicated upon monopolies. The monopolistic conception of capitalism goes right back to the days of the Venetian bankers. The permutations of their oligarchic method of securing control of state finances is the central thread of the western worlds’ history.

    Unfettered entrepeneurship is as radical and untried an economic experiment as any that can be imagined. So greatly feared is the ability of markets to self correct and stabilize people’s lives that the entire weight of corrupted social institutions has been mobilised for centuries now to create a false narrative. From governments to central banks to light headed academics, the corporatist oligarchy has enlisted all of it’s lackeys to the project of rewriting history to give monopolist capitalism all the seeming attributes of it’s greatest enemy, while exposing to plain view none of it’s obvious defects, except in a Leninist style controlled opposition disinfo manner.

    Far from being wrong, your analysis suffers only from timidity in supposing that there is any chance that the socalled ‘leaders’ have any will or ability to interpose for their constituents against the interests of their corporatist masters. In that, and the supposition that free(er) markets and diminished state powers are somehow part of the corporatist agenda, you are painfully naive, but that is secondary to the fact that you are spot on with the overall picture!

    • Roger Lewis December 17, 2011 at 7:20 am #

      Naive? thats positively hilarious.

    • Golem XIV December 17, 2011 at 11:33 am #

      Hello Hedgey and welcome.

      You raise a neglected issue. You are right that I very rarely mention the fact, though I should, that what is being enacted is not a ‘free-market’ in any sense in which supporters of the theory of free markets would recognize.

      It is oligarchic, corporate and croney.

      I suspect where we could have some very interesting and fruitful discussions is over how realizable a really free market actually is. I am of the opinion that the free market of ideal theory is much akin to the perfect communist state of collective and equally shared ownership.

      But you are right I used the terms in a very loose way which didn’t advance what I was trying to argue and probably just distracted.

      Though it did prompt you to comment and perhaps start a good conversation. So it was not all bad was it?

      Thank you for your comment and I hope you’ll do so again.

    • Charles Wheeler December 17, 2011 at 1:44 pm #

      “the economic mess we find ourselves in has little to do with “free markets” and even less with “libertarian” ideology. Free markets are anathema to the corporatist looters whose entire business model is predicated upon monopolies.”

      Of course ‘free markets’ are anathema to corporatists – no doubt Adam Smith would be astonished by the abuse of the term. But the concept forms part of an ideology that serves their interests, and has been invoked time and again to break down the regulatory framework that inhibits their looting – thus the decision not to regulate OTC derivatives, which has added rocket fuel to their powers of leverage was predicated on the notion that the ‘free market’ (i.e. the major financial institutions that rig the system) would regulate; counter-party risk was all that is required.

      Greenspan, the great de-regulator, constantly stressed the objective of letting the ‘free market’ loose, rolling back government in the full knowledge that this would increase the profitability and power of the corporations who were his paymasters because, of course, the paradox of the ‘free market’ is that it leads inexorably to ever greater concentrations of wealth and power (see Ha-Joon Chang’s Bad Samaritans for a good summary of the myths of neoliberalism – this pdf gives a brief outline of the mythologising http://goo.gl/EjXHf).

      And, of course, one of Greenspan’s great influences was the arch libertarian Ayn Rand. So, it’s not so fanciful to link the interests of corporations to the self-professed ‘free market’ and ‘libertarian’ credentials of policy-makers – the fact that it is a distortion of reality just exposes its ideological nature.

      The whole neoliberal discourse, complete with its false representations of the historical record is designed to serve the interests of a small elite while encouraging the notion that it benefits the majority. Yet, each of its building blocks – from the Efficient Market Hypothesis, which suggests we live in the best of all possible worlds as long as we allow the market free reign; the idea of Ricardian Equivalence, which tells us that any government intervention is counter-productive; or the notion of the rational homo economicus, which insists that, ultimately, the public gets what the public wants, all serve those with the most power in the marketplace.

      That is the feature that is elided from the equation – the fact that a ‘free market’ entrenches economic and political power, which results in a feedback-loop as those with economic power tighten their grip on the legislature. The ‘democracy’ of the market is the ideal for those with more votes in that market.

      So, while a ‘free marketeer’ or a ‘libertarian’ might bemoan the corporatisation of the economy and the regulatory capture of government – it is the inevitable result of the assumption that ‘free market’ = deregulation.

      • Roger Lewis December 19, 2011 at 11:49 am #

        Taleb on Fragility and anti-fragility is worth reading juxtaposed with this concept of Markets and free markets.

  46. scrofulous December 17, 2011 at 7:32 am #

    I see where this could work if all countries were held to US financial regulations, are they?

    • Golem XIV December 17, 2011 at 11:25 am #

      Morning Scrofulous (what a name!),

      I’m sorry I didn’t make myself very clear on this point.

      Other nations are of course not held to US law. BUT the same changes to bankruptcy laws were enacted in the UK and Europe wide between ’02 and ’05. You can read that in various of the linked sources. I just didn’t find the names or the exact dates of the chages. So I was not able to quote names nor say which countries led the way. I suspect the UK was porbably first. Though that’s just a guess based on knowing how rotten the City is.

    • VP December 17, 2011 at 11:56 am #

      Surely this only applies to bankruptcies in the US?

  47. Patrick Donnelly December 17, 2011 at 10:26 am #

    Brilliant article! Well done!

    Clearly it was always planned that the refloat money from the Fed and other countries could be taken!

  48. Mukoshi December 17, 2011 at 10:43 am #

    Mr.Malone, it seems to me that you are a great deal too accommodating in your responses to nit-pickers and carpers.

    When somebody takes the trouble to post here to complain of typos or punctuation, and says not a single word about the quality and depth, and incomparable value, of what you write (and have been writing now for several years) they are self-evidently not worth a response.

    Appeasement will do you no good; ignore them.

    Please do not respond to this. I have no wish to waste your time nor, especially, to distract you from the valuable work you are doing..

    • Caesar Salad December 17, 2011 at 3:20 pm #

      I’ll take that and I’ll answer it since it is me who is being called a “nit-picker” and “carper”.

      What I said was not all about grammar. It was that the central premise of Golem’s piece – that the bankers are planning to kill their own goose – is sensationalist nonsense. Hate the bankers if you like, lord knows they deserve it, but please try to keep things in perspective. They are not planning to demolish their own system. If you think they are, I think you haven’t thought it all the way through. Bankers have been stupid, but they are not insane.

      The grammar etc is secondary but it matters. Presentation matters. If what you write is full of errors, if you can’t be bothered to spell properly, it is assumed you are not educated and people discount what you say. I enjoy reading Golem. I would like him to give us his best. I don’t want him to be considered uneducated. I’ve seen him in person. He is smart and sophisticated, but many times, you would not think this when you read what he writes.

      It was meant to be constructive.

      • Golem XIV December 17, 2011 at 4:28 pm #

        Ceasar Salad,

        It was constructive.

        But please let me re-iterate that I don’t think the bankers have a plan to destroy everything. I think each bank may have a plan to capture what assets they can in any bankruptcy they get caught in.

        All I am saying is that if enough of them do it it could get out of their control. They should know tyhis and maybe they do. But Prisoner’s Dilemma says they will still each follow the selfish startegy which appears to maximise their individual profits. After all it this was precisely what they did to create the crisis in the first place.

        I think if there is any larger broader thinking it will be that the larger see it as a way of eating the smaller.And when I say smaller I mean smaller nations as well as their banks. A strategy whic combines survival with consolidation. Except it will be anything but solid.

        • Caesar Salad December 17, 2011 at 4:50 pm #

          Golem, fair enough. I may have misunderstood. If it is only a plan to use the change in bankruptcy laws to advantage, then yes, of course the banks will do this. And I see that it could get out of control. Thank you for putting it so succinctly.

          Also, thank you very much for allowing me to comment so freely and so often. You have been a very considerate host. Now I think I should get back to my chickens.

          All the best.

  49. Charles Wheeler December 17, 2011 at 3:05 pm #

    The current assumption seems to be that a collapse of the banking system = armageddon, which must suit bankers because it rationalises the funnelling of taxpayer dollars into a bottomless pit.

    But when the Swedish banking system imploded, the govt. let it fail, put it into ‘conservatorship’/’nationalisation’ (whichever you find ideologically more palatable), kept the payments system underpinning the ‘real economy’ going and did the financial equivalent of cleaning out the Aegean stables.

    Bankers insist that, without a constant transfusion of funds we will all be fighting over each other’s chickens, but is that true?

    • Caesar Salad December 17, 2011 at 4:37 pm #

      I think we need growth more than transfusions and there isn’t any growth, nor any plan to get some. They’re buying time while at the same time grabbing as much as they can. The social cost is only beginning to hit. Walking around I see that there are still lots of people doing ok. How long does it take for no one to be able to afford a new pair of pants? For nearly everyone to look like they are living in a depression, not just austerity or recession, but full blown depression?

      However long that is is how long the bankers have got.

      When it becomes too much to bear, people will revolt. But popular revolts are still a better option to bankers than blowing everything up in one go since there would be still something more than chickens to lay a claim on, buy or sell.

      Sweden handled their crisis well, but this mess is global. If all the banks together find themselves in a race to the bottom, there won’t be enough transfusions to stem it, even if all the governments agreed to coordinate transfusions simultaneously.

      Maybe there is a stack more money that can be printed or squeezed out of populations. I doubt it. Well, we can always print, but without growth we’re ruined.

      • nigel December 17, 2011 at 6:16 pm #

        Growth, therein lies the problem. In truth the sheer amount of humans on the planet and the vast amount resources we have already consumed allied to our exponential model of consumption is clearly unsustainable. It has already reversed because of the financial situation but what has not reversed are societies expectations. Growth in the sense that we have “enjoyed” to date needs to be turned on its head. We need now growth in personal awareness personal responsibility of our realistic place on the planet.

      • Charles Wheeler December 17, 2011 at 7:00 pm #

        With compound growth we seem to be ruined as well! See the parable of the emperor and the chessboard.

        In any case, the whole concept of ‘growth’ needs unpacking a bit. Virtually all of the proceeds of growth in the last few years has gone to the top 10%, most to the top 1%, the lion’s share to the top 0.1% – so some thought has to go to how income and wealth is distributed.

        It seems clear that the current set-up is unsustainable – with the top 100 CEOs increasing their earnings by 49% last year http://goo.gl/95KtS – it looks like they know the game is up in the long-term and are busy carving open the goose for the remaining golden eggs!

        At some point the banks and the debts will have to be restructured – it’s just a question of how long the bankers currently running the show can keep the plates in the air. http://youtu.be/FK4nh5I0jpE?t=1m38s

  50. Pat Flannery December 17, 2011 at 6:03 pm #


    Getting over 100 responses to your typical post is no mean achievement in itself. I know some are argumentative and trite but you are bringing some serious thinkers together here. Now if we could only make this brain trust more effective. I would love to hear ideas. Apparently it only takes a few nervous cows to stampede the herd. I feel nervous. How do we stampede the Internet?


    Nervous in San Diego.

  51. scrofulous December 17, 2011 at 6:33 pm #

    Thanks Golum XIV

    My apologies for missing the link, reading back it is quite clear in the article that this is not merely a US centric issue.

    Also on a quick look at that link The Canadian Deposit Insurance Corporation ( our version of the FDIC) is mentioned. I will be writing to my Member of Parliament to find out what gives there. If you have time, any information or off the cuff thoughts here would be appreciated.

    • Charles Wheeler December 17, 2011 at 9:00 pm #

      Incidentally, the Bank of Canada is in safe hands – both the governor and the special adviser to the BoC are Goldman Sachs alumni – so should get on well with their counterparts in the US and EU http://goo.gl/7LUEB http://goo.gl/qzUMO

  52. James December 17, 2011 at 10:33 pm #

    Brilliant article Mr Malone,
    I guessed some time ago that you were dyslexic. I think it fair to point out whilst it causes difficulty with spelling, its often associated with very high levels of intelligence. This is clearly demonstrated in your articles. I know some posters here believe the nightmare scenario you have outlined is “too far fetched”. I truly hope they are correct, but suspect it is not.

    The scenario is only a nightmare for some, for others its a dream come true. These people are not like most, they are beyond ruthless, they are
    sociopathic and have no moral bar to inhibit their behaviour. The system is a perfect environment for them to thrive and prosper. They will go as far as they can possibly go in pursuit of profit, and will only stop when literally compelled to do so.

    They do not think about money in the way that we do. For them it is a mechanism to control and manipulate others. They are able to think in highly complex and counter-intuitive ways, they are risk takers who are prepared to gamble everything, absolutely everything in order to win.

    We are in the same position we have always been in, all it takes for evil to prosper is for good people to stay silent. To comfort ourselves by saying your view is to sensational is to ignore what has been going on over the last few years, which ten years ago might also have looked far fetched. The only thing I disagree with is your view that this was not planned, sadly I’m convinced that most if not all of it has been. Good luck with the blog Mr Malone, thank you.

    • Charles Wheeler December 17, 2011 at 11:43 pm #

      Watching Hitchcock’s Saboteur (1942) this afternoon:

      Charles Tobin: “You’re one of the ardent believers – a good American. Oh, there are millions like you. People who play along, without asking questions. I hate to use the word stupid, but it seems to be the only one that applies. The great masses, the moron millions. Well, there are a few of us unwilling to troop along… a few of us who are clever enough to see that there’s much more to be done than just live small complacent lives, a few of us in America who desire a more profitable type of government. When you think about it, Mr. Kane, the competence of totalitarian nations is much higher than ours. They get things done.


    • cynicalHighlander December 17, 2011 at 11:59 pm #

      Its more common than one realises and has various degrees of severity making some scripts unreadable or difficult to understand.

      Dyslexia test

      Painless honest.

    • BobRocket December 18, 2011 at 1:52 am #


      The difference starts with you.

      If you don’t like what they are spending your taxes on #JustStop

      If you think paying interest to the banks is wrong, #JustStop

      #JustStop the money-go-round and money itself will reveal its true value

    • Syzygy December 19, 2011 at 3:07 am #

      James I agree with all you say but in particular your conviction that most, if not all, of this was planned.

      Sociopath is a widely understood term but I would prefer to be more specific and consider Narcissism. In my experience, narcissistic personality disorders are terrified that they may be thwarted or denied, and some will go to extraordinary lengths to ensure that they get the desired object.

      Every possible outcome is explored and plans put in place to prevent or enhance a result. From my first understanding of how the ‘Masters of the Universe’ made their huge profits, I was aware of constantly recognising patterns of ruthless narcissistic thinking .. and it has continued to make sense to me.

      The DSM IV Diagnostic criteria for narcissistic personality disorder comprise:

      A pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy, beginning by early adulthood and present in a variety of
      contexts, as indicated by five (or more) of the following:

      Has a grandiose sense of self-importance (e.g., exaggerates achievements and talents, expects to be recognized as superior without commensurate

      Is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love

      Believes that he or she is “special” and unique and can only be understood by, or should associate with, other special or high-status people (or institutions)

      Requires excessive admiration

      Has a sense of entitlement, i.e., unreasonable expectations of especially favorable treatment or automatic compliance with his or her expectations

      Is interpersonally exploitative, i.e., takes advantage of others to achieve his or her own ends

      Lacks empathy: is unwilling to recognize or identify with the feelings and needs of others

      Is often envious of others or believes others are envious of him or her

      Shows arrogant, haughty behaviors or attitudes

      I think that just about sums up the behaviour of the financial ‘elite’, and hopefully provides insight. Clearly, a privileged private education, and separation from family at an early age, would help to foster such a pattern of beliefs.

  53. Pat Flannery December 17, 2011 at 11:30 pm #


    If David is even partially right and it was planned, probably by Goldman Sachs, what are we going to do about it? Are we good people to stand idly by while the sociopaths prosper?

    A good place to start would be with suporting Merkel in continuing to demand that the so-called private bond holders (is there any other kind?) take a 50% hit in return for the bailout.

    I am glad that the Euro countries are sticking together but not to pay off GS 100% on what they purchased at cents on the dollar. That is the mammoth international swindle that GS is engaged in.

    I think we should do an Internet “mic check” and and start repeating the same message: “we want mark to market”. The rest of the population would pretty soon hear and understand what we are saying.

    We have to start speking in unison. Only combined effort will stop the swindle.

    Mic Check!

    BTW, I am not dyslexic and I can’t spell 🙂

    • Dave December 18, 2011 at 1:35 am #

      I’m afraid Merkel isn’t demanding that 50% haircut …

      • Pat Flannery December 18, 2011 at 5:25 am #

        Yeah, I know Dave. But I think she still wants to. And the governments still have to ratify the summit. I can’t see how the governments will be able to get it past their parliaments without the bond holders sharing the pain. Even half is too much for the collective taxpayers. Surely burden sharing will be demanded by the people if not by their governments. I can’t imagine the banks getting away with this. It makes the Middle East dictators look benign.

    • steviefinn December 18, 2011 at 1:42 am #


      I am just re-posting Backwardsrevolution’s link to ” I am a fishead” it’s well worth watching as it is, despite everything, optimistic. It seems we need to become 5% in order to achieve a tipping point.


      I don’t think it matters if the fall was premeditated or not, but as I subscribe to the cock up version of history, which is now being so ably demonstrated by the hubris club in Europe & elsewhere, I think we will end up there anyway. The reason I don’t think it is planned is that those involved in precipitating the present crisis are not the type of entities who could get together to formulate such a plan. They are just individual sharks who collectively gorge until there is nothing left, except each other & of course us.

      Do you know San Diego serenade ? it’s one of my all time favourites.


      Off topic I know, but it is Saturday night.

  54. Pat Flannery December 18, 2011 at 5:16 am #

    OMG that’s the San Diego I remember in the ‘70s. Waits and the Eagles. He’s from here, or at least he grew up here. In National City I think. We call it Nasty City. It is just south of downtown San Diego, very industrial, shipbuilding, Navy yards etc., between San Diego and the Mexican border.

    When I came here in the ‘70s downtown SD was very “honky tonk”. It was a Navy town, all night drinking and lots of “West Pac Widows”, girls whose husbands were on ship duty in the Western Pacific. Mostly Asian, brought home as wives by fresh-faced country lads from the Mid-West who were shipped out again leaving their honeys to do what they had done in Vietnam and the Philippines, pick up guys. It was a wild town. I assume Waits knew it well. I never met him but knew of him. There were a lot of guys like him here. San Diego was host to half of Hollywood every weekend. Still is. In those days they moved on to Tijuana after 2:00 AM. Not so much now. They have cleaned up downtown a lot since then. Waits wouldn’t like it any more.

    Thanks for reminding me of my wild years. I think Waits married an Irish girl. I know a few Irish guys who said they hung out with him in LA where he spent most of his time. He seemed to like the Irish. I was a drinker but not in his class. I used to go up to LA a lot in those days. I wrote a column for an Irish-American newspaper, the Irish News and Entertainment and got a lot of comp tickets to opening nights and premiers. The parties afterwards were the best.

    Yeah, listening to Waits brings it all back. Well, both he and I survived, not sure how. Thanks again. Nice break from international finance. Enjoy your weekend.

  55. backwardsevolution December 18, 2011 at 6:30 am #

    “The widely held intuition that a minority of corporations exert disproportionate economic power has now been proved. A relatively small group of multinational companies, mainly banks, control almost 80% of the global economy, according to research by Stefania Vitali et al. […]

    When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.”


    Have we ever been in control, or has it all been an illusion?

  56. backwardsevolution December 18, 2011 at 6:55 am #

    This is a very interesting nine minute video that shows the pyramid-like structure of the U.S. economic system.

    You will notice that at the top are the “owners”, then the Federal Reserve (which is owned by banks), then the too-big-to-fail banks, then the large corporations. The people are at the bottom.

    Income tax and interest from the people (the producers) is then redirected up to the top.

    This is the first video in a series and it’s entitled, “The Rise of Financial Empire”. Very interesting!


  57. backwardsevolution December 18, 2011 at 7:07 am #

    The second video in the series:


  58. Richard December 18, 2011 at 7:16 am #

    “For we wrestle not against flesh and blood, but against principalities and powers and spiritual wickedness in high places.”

    Thank you, Golem. Thank you. Thank you. I had suspected something along these lines, but had not been able to piece it all together as you have done. Your post is a great service to Truth and to Humanity. Makes me ashamed to be an American but proud and vindicated to have detested the whole Bush Crime Family all along. Your connecting the current crisis to the bankruptcy “law” of ’05 shines a light on the rottenness that infects their souls and those of their partners in crime everywhere. Many writers are drawing parallels between the present and the 1930s, some of which are very unsettling. To me, the world looks like France in 1789.

    This criminality in high places cannot continue. We have arrived at a crossroads–the whole world. This looting, as you so rightly call it, will end in violence. Can anyone see another ending?

    Reminds me of W.B. Yeats’s poem “The Second Coming.”


  59. Guido December 18, 2011 at 8:36 am #

    Golem, as always, I do like your thought process and your writing. I however must take exception to a number of your assertions.

    First and foremost. My strongest objection to your conclusions is that you make it sound like this crisis has been in the making since the abrogation of Glass Steagall.

    Second, you say this crisis has been engineered to bring about a free market.

    That said, I concur wholeheartedly that : “The more assets the weak banks and nations have pledged in deals with teh (sic) Big banks, the more theBig banks will walk away with in the event of a crash. I suggest this is why, even as this crisis has worsened, the Big banks have been increasing by 18% their trade in derivatives and why Repo and hypothecation is as large or larger than even before the crash.”

    Your closing paragraph is the essence of what our monetary system is designed to do. Society has been on a gurney with a drip up its nose and a catheter in the arm since 1913. Empirically and mathematically, this crisis has already happened at various junctures in the past century. The repeal of Glass Steagal like the imposition of the Euro or the abrogation of Bretton Woods in 1971 or the Lend Lease Act of 1939 (or thereabouts) or the confiscation of gold in 1931 are the stratagems to extend the looting. The repeal of Glass Steagal was but a nasal feed. One of many.

    Debt Based Fiat Money enables select entities to get something for nothing. If you can come around to the mathematical reality of DBFM, then you must also see that the compound nature of this monetary system, though very beneficial to the sponsors, is also limited. The only way DBFM can obviate its mathematical temporal logic is by progressively assimilating other currencies and other markets.

    The rationale of DBFM is in all respects equal to trading colored beads for natural resources and productive capital. Hypothecation and re-hypothecation are but variations on the theme; more sophisticated but only variations. These variations only allow to postpone the inevitable by spreading the problem towards the periphery till most productive assets are affected and can therefore be appropriated.

    With all due respect to Mr. Enrico Perotti, though professor he may be, saying that the financial crisis was precipitated by a loss of confidence thoroughly omits to take into account the arithmetic underpinning DBFM. The inhabitants of those Pacific islands that willingly traded beads for their work and resources, soon found out that the trade was asymmetric. The cost of production of the beads was insignificant compared to the value and utility of the resources and work they were being traded for so that the colonists ended up owning everything.

    The loss of confidence Perotti speaks of is but the arithmetical limit of how much credit markets can be expanded if the economy cannot produce sufficient profits to service said debt. In other words, confidence is lost when too many colored beads are circulating and there is not enough productive capital left in the hands of economic actors.

    In closing, the reality DBFM drives to is absolutely not one of free markets and liberalism. That is a contradiction in terms. A market cannot be free when the creation of money is the exclusive preserve of select entities. Markets will not be free when the cost of money is manipulated by decree. Markets are not free when some entities are protected and everyone else is not. DBFM drives towards a reality that is totalitarian in nature and fascist in inspiration. Socialism for the elite if you will.

    Free markets? DBFM could not possibly exist in a free market. Not in any number of possible free market universes you could imagine.

    • Golem XIV December 18, 2011 at 11:02 am #

      Hello Guiido,

      How splendid to hear from you again. I think we have missed – I certainly have – your reminders about the importance of Debt based fiat money.

      You are right that the basic mechanism of assymetric accumulation is built in. I suppose all I am doing is tracing the lines of the latest build-to-boiling-point of that mechanism. As you say the mathematics of debt based fiat money is pretty clear.

      It is good to konw you are still around Guido.

  60. backwardsevolution December 18, 2011 at 8:58 am #

    Renaissance 2.0: Lesson 6 (Part 2 of 3) shows us how we are led to believe that we are running the system, all the while TPTB do not care which side you vote for because both sides fuel their system and keeps the money funnelling back up to the top.


  61. Por Wurding December 18, 2011 at 9:12 am #

    “The draft of the Volcker Rule, which grew from a three-page proposal to a 300+ page behemoth, was released by the regulatory agencies this October.
    The draft rule grants a number of exemptions from the proprietary trading restrictions.
    One of our major concerns is the blanket exemption for repurchase agreements (“repos”).
    The exemption isn’t mentioned in the statute, and for reasons discussed below it seems to defy the intent of the rule.
    In our eyes, the presence of such an overbroad exemption is profoundly disappointing. Whose interests are the regulators serving?”

    http://www.nakedcapitalism.com/2011/12/occupy-the-sec-nixes-repo-exclusions-in-the-volcker-rule.html cross post

  62. Fritz Juel December 18, 2011 at 1:40 pm #

    Golem,I commend you for the insightful analysis you present here. But as far as I can understand after reading books authorized by some of the “big boys” and then written by carefully chosen authors,and looking into research done by many different scholars from around the world. It was never ment that the monetary system would last forever, nor to avoid this type of looting! It’s set up to do just that,on average the banksters have done it once, at least, for every generation! They made the whole world accept the creation of money out of nothing,actually an incredible success on their behalf. It gives them what they’ve always wanted, total control over us,even nations and actually the whole world. They declared war upon us centuries ago,we’ve just not been aware of it,that’s why they have done so well ! Warfare is much more than weapons enz, it would be wise to try to stop them now! They’re about to bring us all on our knees and under austerity.

  63. Charles Wheeler December 18, 2011 at 1:58 pm #

    There can be no such thing as a ‘free market’ – a market without regulation leads to oligopoly. So who provides the regulation? If not a democratic government, then a technocracy – aka a form of dictatorship? The problems arise when a democratic political system is effectively hi-jacked by the finance sector (see: The Quiet Coup).

    The idea that there was some kind of golden age before 1913 is complete myth – the monetary system has always been prone to fail and always will be due to the ‘animal spirits’ of those using it. The Federal Reserve was a response to such a crisis – and like all such (botched) fixes was influenced by those with the most power (see Jekyll Island); ditto Bretton Woods which, again, was a watered-down compromise. There is no panacea. Periods of relative stability under the ‘gold standard’ were an effect rather than cause – as soon as there was a shock to the system the ‘standard’ was devalued or abandoned – attempts to cling to an inappropriate standard exacerbated any imbalances (as in the UK post-1918).

    So it would be interesting to know what could replace a debt-based fiat money and accommodate a dynamic economy.

    • Guido December 18, 2011 at 4:09 pm #

      Indeed there is no perfect system. But when compared to a value based or a pure fiat system, DBFM is rigged from the get go.

      The reason so many politicians are easily sold on this monetary system is because few understand the ramifications of the choice of one system over another. Of those that do understand, they also understand DBFM can make their career significantly more comfortable… and profitable…

  64. Charles Wheeler December 18, 2011 at 2:36 pm #

    Gerald Celente on being fleeced by MFGlobal and giant vampire squids …


    • backwardsevolution December 18, 2011 at 8:04 pm #

      Max Keiser said to Gerald Celente:

      “What’s interesting is that in the City of London there are no limits, there are no ceilings. MF Global, of course, ran all this scandal through the City of London – so did AIG, so did Lehman Bros., so did Bernie Madoff – because the City of London is a regulatory cesspool where all of the major global scandals operate.

      Now, recently in Europe, David Cameron said ‘no’ to the European Union because he was hoping to safeguard the City of London, the very crooks, the very financial terrorists that have caused all this pain. He’s now safeguarding those crooks in the City of London.”

      Cameron will pretend he’s trying to help the people of England, but he’s really trying to protect the crooks.

  65. Paul December 18, 2011 at 3:18 pm #

    I have a question: If someone has a mortgage, and then the bank that funded that mortgage goes under, and they previously put my mortgage through that hypothetication, re-hypothetication process; if the big bank comes to collect, will they have a right to my assets as well, even though Iam not the person declaring bankrupcy?

    • backwardsevolution December 18, 2011 at 8:17 pm #

      Paul – certainly they had a huge problem in the U.S. with the MERS situation. Land titles used to be registered through county registrars, but all of a sudden the banks started using this MERS system. They pooled the mortgages together as securities, of course rated AAA (what a joke), and then sold them off to unsuspecting investors. But between the owner who bought the property and the final investor, somehow these deeds were held in limbo, not in a “trust” account. Gee, I wonder why.

      I think, when the onion is finally peeled back, we will find that this is exactly what they were doing – using the mortgages as collateral (at least in the States).

      I’m speculating what could have happened, of course, but the banks did this for a reason, and it could very well be that these were used as collateral.

    • Patricia December 19, 2011 at 11:33 am #

      Paul, I cannot see how they can. Even with all this re-hypothecation. Your mortgage is an asset of your lender, the Bank. It secures the amount you owe your Bank plus your payments and probably your credit card – if you have one with that Bank. If that bank goes bust then your mortgage is sold. Your payments are then made to the new owner of your mortgage. Often there is a clause in a mortgage that gives the lender the right to call up the mortgage anytime they like even when you are not in default. You would have to go to another Bank, or whatever and refinance the amount you owe to pay off your mortgage if your mortgage were called up. Of course the problem then is what if no body will lend to you. All mortgage documents are different and particularly so in different countries.

  66. steviefinn December 18, 2011 at 3:42 pm #

    A bit of a coincidence me watching ” I am a fishead” yesterday as Vaclav Haval lay dying. We could do with a few like him, but I suppose in his day, at least the enemy was pretty obvious to everybody, unlike now.


  67. Colin Finch December 18, 2011 at 3:59 pm #

    As a non professional with little grasp on the comings and goings of the global financial system, my input is going to be minimal but, even I can grasp the enormity of the situation and can clearly see the depth or the bankers criminality and the culpability of our ‘elected’ leaders, seemingly bought and paid for by those very same bankers. As a penniless, non home owning49yr old without credit cards, store cards or even an overdraft facility I can only say…..thank heavens for that.

    If our governments are so totally in thrall to the swine that own them, what on earth can we now do to correct the situation? My gut feeling is..absolutely nothing. The banks own the governments, the governments are aided and abetted by the dreadful tabloid/right wing press/media and Joe public is blissfully unaware of what’s going on under their noses.

    If the bankers (Masters of the Universe) are aware of the trajectory of their plans then are they not committing a kind of slow suicide? what happens when all the small banks have been gutted? Will it then be the big banks and then will the mega banks start eating themselves?

    A truly frightening scenario for all those with homes/pensions/credit cards and loans etc.

    Again, as a humble member of the ‘great unwashed’ and without any great knowledge of your industry I can only say, thanks for a great post/blog.

  68. Hobnob with Bob December 18, 2011 at 5:35 pm #

    Our environments have conditioned us to think of money in ways that elite bankers do not. Your whole life as been influenced by the money you earn, but money is a fallacy. Those who create it know this. You must consider what bankers want, other than money. It is their tool of deception and because they will it into existence, they are not fooled by it’s illusion.

    The play is for hard assets. If the monetary system ceases to be, yet the rule of law persists, bankers WILL own everything because you will default. They then create a new monetary system, or revise the old, and start the game again. With your productivity, you will again be able to earn what they stole from you. The rinse and repeat is typical of the past, on just a long enough time-scale that those who could warn of it die off or become a minority first.

    By design or by manipulation, I think we will see the jubilee the bible foretells, but it will not help you. When the assets are in majority claimed by the top, and the unpayable debt is all that remains, the debt will have to be expunged to restore productivity. And to placate the masses it will be. You see, once the assets are all owned by the ruling class, they will want you to build another surplus. Restarting the game is precisely what will make them wealthier. It increases the size of the pie.

    Another fiat will be created, digital if you believe the word of God, and you will have your chance to get your assets back. Toil and toll so that you might soak up the digits while the elite soaks up the fruits of your productivity. It makes them wealthier yet again, and if there is ever a threat that they will lose power or title of ‘their’ assets, the money supply is crashed and the board game resets again.

    So you see, this isn’t bankers or elite inadvertently sacrificing themselves through greed. In fact, it is the opposite. Provided title to the assets is transferred before or during the reset, the elite will restore to themselves, the wealth others have toiled decades or more to earn. Thank you Golem, for showing us their means. It affords us a shot at protection for ourselves, families, and loved ones.

  69. wasinga December 18, 2011 at 6:13 pm #

    I find this difficult to follow. If the repo and hypothecated borrowers and lenders have first call on a physical asset, and such assets can be rehypothecated an infinite number of times, then all have a priorclaim to the asset, making it worthless….Maybe I’m too dim for this.

    • Golem XIV December 18, 2011 at 6:25 pm #


      No you’re not. The point you raise is a good one.

      It is why I said that re-hypothecation is perhaps more of a destraction than the main point.

      In repo there is no question who has claim to the assets, The same goes for derivatives. The problem you have seen clearly applies only to re-hypothecation. Those assets would indeed be lost in a maze of claims.

      So while re-hypothecation is used by the big banks the repo and derivatives trades are more central to looting others. The re-hypothecated assets seem to me to be a funny money they use knowing full well it will all become virtually worhtless because it will be mired in claim and counter-claim. JPM uses re-hypothecation but on nothing like the scale of their derivatives trading.

      Also please remember I offered this as thinking out loud. I very much doubt that what I sketched out will be the final story. At best it is likely to be an approximation to part of the story only.

      Thanks for commenting and raising the point.

      • quantiger December 18, 2011 at 8:34 pm #

        I think that the answer to that is probably in interruption of the chain. Golem’s point about the relative timing and position is key. Smaller, poorer, companies can be trampled upon and ignored if the player is big enough. Sure, lawsuits can be filed. But look at the recent suit against Microsoft by Novell.


        All that work and in the end, the jury couldn’t understand the case. I suspect this precedent will be the model for defense attorneys for large banks too.

        In short, he who violates the law first, wins. By the time the matter comes to trial (if it ever does) the jury will neither understand, nor care about the plaintiff.

        And it should be pointed out, I think, that when the plaintiff is a smaller corporation, a controlling interest can be bought out in bankruptcy and the case shut down that way also.

        Multiple ways to skin that cat.

    • Dirk Gently December 18, 2011 at 6:27 pm #

      Your point is well taken Wasinga. I think that Golem did a first rate job of explaining his Plan B theory – whilst first very generously bringing the rest of us up to speed – enough to understand his theory. I imagine that there was not enough time to inform on all components.

      That said, I wonder what the the underlying (physical?) assets are that have been pledged as collateral in this sphere of shadow finance and just what their value is to begin with. I speculate that a very high % are debauched assets that are recycled in this insane process that Golem articulately describes.

  70. quantiger December 18, 2011 at 8:25 pm #

    Let’s be clear. This is the road to war and revolution that will engulf the globe. If things like the Occupy movement fail to achieve prosecution of the banksters (see Bill Black – http://law2.umkc.edu/faculty/black.htm ) and realignment of banking from economically pathological behavior – war is what we will see.

    An emergent property of shortsighted greed.

    History says this does not end well for those in power.

  71. Nell December 19, 2011 at 2:08 pm #

    Has anyone seen the figures on UK overall debt? A research analysis paper from Morgan Stanley Research, put the UK total debt close to 1000% ( this must include the shadow banking sector, as other figures I have seen put it at 535% based on Seasonally adjusted Net Lending/Borrowing from the Office of National Statistics – from Neil Wilson’s website).
    If Morgan Stanley are correct the debt situation in the UK is insane. How can this level of debt be sustained?
    Source http://www.zerohedge.com/news/psssst-france-here-why-you-may-want-cool-it-britain-bashing-uks-950-debt-gdp (with link to paper from Morgan Stanley).

    I do find it amusing that the paper states
    ” The cause of their problems is 1) excessive government spending leading to 2) excessive government debt coupled with 3) slow GDP” growth.

    • John Souter December 19, 2011 at 7:16 pm #

      Nell – incredulous figure (1,000 %)

      But if the overall debt has gone up to + 535% of GDP for 2010/11; that about a 1,000 base points (0.01%) from the 2009/10 figures with the UK then only second to Japan?

      Has it kicked Japan off the top spot?

      Not that it matters; all we need to do is re-hypothecate?

      In a circus of clowns, the biggest clown is king.

      As to the cause (1) should read – excessive government spending on banks!

  72. deedee December 19, 2011 at 3:38 pm #

    My apologies if someone has already submitted this link, as I haven’t had time to read all the comments. EconoMonitor had a good post on the safe harbor for repos, hypothecations, and derivatives in 2009: http://www.economonitor.com/blog/2009/10/why-sheila-bairs-remarks-about-repos-are-really-really-important/

    That this was behind the raw terror on Wall Street in 2008 has apparently been an open secret, but since no one had any intention of changing it, it escaped the sort of discussion given to subjects like the lack of transparency of the derivative market. Thanks, David, for calling our attention to it as a factor in the on-going financial collapse of the modern world.

    For those interested in the relationship between favorite presidential candidates and this ghastly legislation, note that Obama voted against it as a senator, and Ron Paul voted for it as a congressman.


  73. johnm33 December 19, 2011 at 6:06 pm #

    We need new banks under local control and this may be part of the answer http://lawfulbank.com/ . Post and comments valued part of my education as always

  74. John December 20, 2011 at 1:39 am #

    Thanks for the insightful and articulate article. I believe you may well be right, unfortunately. At least I can’t tell you that you’re wrong, as you asked, but I’ll offer the following along those lines. The Professor you quote said the following, and you seem to predicate much of your observation on it as well:

    The financial crisis happened when repo lenders and derivative parties lost confidence in the mortgage-backed securities they’d accepted as collateral for repo loans and credit default swaps. They demanded to be paid, forcing their troubled trading partners into fire sales of their holdings to raise cash. They were unconcerned that they might drive their trading partners into bankruptcy, because they were exempt from the automatic stay.

    Here’s one thing I don’t understand about this theory. It is largely premised on the notion that when a lender loses confidence in its collateral, it feels confident forcing its debtor into bankruptcy because it knows it has priority as to the collateral. Is there a material contradiction here, or am I putting too fine a point on this?

    • Genie8 December 20, 2011 at 9:30 am #

      Superb article Golem xiv.

      It is astonishing to me that the whole world seems to be mesmerised by the bankers debt bonds, even though they are created from nothing, as if we are mice before a cobra. It must even astonish the bankers themselves that they can pull the same Rothschild machine trick century after century and still the punters fall for it every time. It is as if the banking machine stands before the Light in Plato’s Cave and a flock of financial bats, experts in their fields, come from everywhere to proclaim that this is the only way for the world to travel.

      Yet surely in finance there are only two basic modes of money creation, one on the asset side of the ledger and one on the debit side. If you create using debt money then when the debts are repaid you have no money, there is no permanent money supply. If you use debt money you walk into the wild woods from the Wind in the Willows which are full of weasels and dark forces that we can barely comprehend, an upside down world of fractional banking and securitisation and hypothecation.

      However if we create money as an asset then it exists like the waters behind a hydro dam which can be used to power the commuity, with money owing to no-one and backed by the full faith of the universe. We release only enough water to nourish the land, not enough to cause floods, nor so little that there are droughts. Further, in this day of computer power where every checkout transaction is recorded, the data flow of production, consumption, warehousing, etc, can be seen in real time and the flows of money adjusted easily in a transparent linux like system which allows the truth of a thousand eyes. The flow of finance then should simply be like oil within the machinery of human needs, perhaps comprising only 3% of the total GDP, not the deluge that it is now in the global casino of debt. The human mind is then free to pursue its natural quest for relationship and diamond-mind, the state of Eternal Awareness.

      Now someone said on this blog that if 6% awaken then the herd will follow, a beautiful concept.

      Here then is my take on it.

      We will not have the power to take on the Rothschild machine and the military complex until we can present the nature of the universe beautifully and simply to the populace. Alright, you might say, but this has never been done.

      Okay then, please take the $AUD10,000 Universe Challenge.


      My suggestion is that 5000 years of human history have created only two fundamental creation models for our universe.

      If we run with the consciousness model then we are empowered to ignore the psychopathic beating of the Rothschild drums for war and avarice. Simple truth is in fact the greatest terror for the Rothschild machine and the powers of darkness.

      In running with the consciousness model we also solve the riddles of dark matter, the ascents of evolution and the input formula for the cosmic fractal.

      Also, if Golem xiv’s background was making science programs then there is the possibility that he could create a show exploring these concepts, which are the natural follow on from his father’s work.

      Anyway, this site looks great and these are just a few rambling thoughts from a holiday beach in Thailand.


      • richard in norway December 20, 2011 at 1:33 pm #

        The idea of money being created from nothing is difficult to hold on to, I try to remind myself everyday, but even as I write this I can feel the concept slipping out of my mind!! I tell everyone I know about money being created from nothing, but you can see that the idea is so outrageous that the mind just won’t accept it. I don’t know how to get past this one.

        • Charles Wheeler December 20, 2011 at 3:09 pm #

          You’re in good company:

          “The process by which money is created is so simple that the mind is repelled.”
          ― John Kenneth Galbraith

      • Patrick Donnelly December 21, 2011 at 9:23 am #

        Lots of truth there, brother!

        Rothschild will probably rejoice as much as the rest of us once human lust, greed sloth etc have been banished!

        Let us know when that happens? The fishers of men are still in power. Trust them, for they know what they do? Just be aware that they are active and think carefully before inserting one, into the action, in any way?

        Hope there are no repeat tsunamis on them thar beaches …… there are far worse weapons than mere bank bubbles….

    • Golem XIV December 20, 2011 at 10:35 am #

      Morning John,

      Not too fine a point at all. In fact an essential point I should have made more clearly.

      If I understood you correctly your question is: If you’ve lost confidence in the assets what do you gain by getting your hands on them?

      The basic answer is to remember that this Plan B isn’t as good as Plan A. With Plan A you get money for ever. Plan B you don’t even get back all the money you invested BUT you do have the chance to get back more than your competitors. And in a blow out that is good enough. As long as you come out the other side richer than those competing with you, you have won.

      As you say, you have lost confidence in the banks’ assets. But it is still far better to get you hands on as many of them as possible than to not get any at all. And remember there will be two separate things wrong with the failing insititution’s assets. Some assets will not be worth what is claimed. Others may still be valuable BUT there won’t be enough of them to go round (leverage). Either way you want to be at the front of the queue.

      If you’re at the front you walk away with some good assets and some not so good. But they are yours. Those behind you get little or nothing at all. When the dust settles, even if you still lost a packet – you’ll be better off than a great many others and in the fire sale, you will pick up bargains that may erase most of your losses.

      That would be both your hope and your plan in the event that Plan A fails and there is a melt down.

      And since you can trigger the blow out in insitituions to which you are exposed/tied to – you have the advantage of surprise and can get your ducks all in a row.

      So Plan B is not a way of getting more out than you put in or even getting out at par. But it is a way of doing better than your competitors. Which in business can be more than enough to rise stronger than before in relative terms.

      Or to put it another way. To be the last man standing is all that counts.

      • John December 20, 2011 at 11:48 pm #

        Thanks for the reply. I’m not sure we’re on the same page regarding how priority of claims against collateral works. Maybe it’s me, but I still don’t see how having an exemption from the stay would motivate anyone to push a debtor into bankruptcy. The stay is temporary. Any lender who has a prior perfected interest in collateral worth enough to cover the debt will get paid in full in the bankruptcy process. Exemption from the stay expedites that status, but it does not otherwise improve on it. So why would being able to get your hands on collateral of dubious value sooner rather than later inspire you to push your debtor into bankruptcy?
        As a general rule, lenders are better off with somewhat solvent debtors than insolvent, which is why workouts are generally preferred over forced bankruptcies. If nothing else, I think a lender would have to at least consider whether forcing bankruptcy of a debtor holding these types of assets would
        actually hurt the market for those assets.
        As you note, a lenders’ Plan A is “get paid.” Plan B is “get the collateral.” But any lender with a properly perfected security interest is going to get the collateral. So where is the incentive to expedite plan B?

        • Golem XIV December 21, 2011 at 12:32 am #


          It could be you it could be me. These things are not straightforward. At least not to me. I am always careful to emphasize taht i am not an expert and am thinking aloud. So I could be wrong.

          But as for the pushing to insolvency several of the articles I linked to state as ‘fact’ (in so far as anything in this fiasco is ever a fact) that Bear Stearns and AIG were pushed.

          Surely the nub of it is, as you say yourself – IF someone has a claim that is good for all the debt owed them to pay them in full. But I don;t think – regardless of what is supposed to be the case – that many if any will get paid in full. There are never enough assets to cover all tHE debts.

          If there is something you think I should read please point me to it. I am always keen to learn a bit more.

          • John December 21, 2011 at 5:55 pm #

            I don’t believe that’s the nub of it, actually.
            There are any number of bankruptcy summaries you could read. Maybe something as simple as Wikipedia would work. Here’s a nutshell for the present discussion.
            When a lender has a collateralized debt, it must perfect (give notice of its interest in the debtor’s property). Perfecting gives the creditor priority over later claims in the property (and in some cases –purchase money security interests — even over prior claims). If the debtor goes bankrupt, a perfected secured party generally can get the collateral, while unsecured creditors get bupckus. If the collateral is of sufficient value to repay the debt, the lender is whole. If not, the lender gets in line with the rest of the general creditors for pennies on the dollar as to the deficiency.
            The automatic stay is just a freeze of all activity regarding the debtor’s assets to allow the court to sort things out, but it doesn’t prevent perfected secured creditors from getting their collateral. So being able to avoid the stay doesn’t get you more than you would otherwise get. You just get what you would otherwise get a bit sooner.
            Moreover, if you are a perfected secured creditor, you will get paid in full whether the debtor goes into bankruptcy or not. That’s the point of being fully collateralized and perfected. So forcing the debtor into bankruptcy doesn’t necessarily help you.
            If, on the other hand, you are not fully collateralized and perfected, the last thing yo want is to have the debtor go bankrupt, because then you’re sure to lose money (to the extent you are
            undercollateralized or not perfected).
            These are general rules,however, and I’m not very familiar with any special rules regarding some of these highly specialized forms of collateral. But as you can see, based on this understanding, it is unclear how pushing a debtor into bankruptcy just because you can avoid the stay makes any sense.

  75. Charles Wheeler December 20, 2011 at 3:40 pm #

    “In the last 25 years we have allowed banks to balloon in size. Until the 1970s, banks’ assets as a percentage of UK GDP remained steady at approximately 50%. By 2006, after decades of deregulation, banks’ assets as a percentage of UK GDP were more than 500%. These large interconnected institutions dwarf the rest of the UK’s economic activity, and when they are threatened we have no option but to bail them out.

    • Hawkeye December 20, 2011 at 4:55 pm #


      “Until the 1970s, banks’ assets as a percentage of UK GDP remained steady at approximately 50%. By 2006, after decades of deregulation, banks’ assets as a percentage of UK GDP were more than 500%.”

      This is THE message that the public needs to understand.

      These figures were clearly spelled out in Andrew Haldane of the BoE’s excellent paper “Banking on the State”, but disappears from his policy recommendations. It was also clearly outlined by the ICB in their “Issues Paper”, but conveniently ignored in their final conclusions. It is also clearly explained by Lord Turner of the FSA, who correctly diagnoses the rise in banking assets, but again vanishes from view in his policy suggestions.

      The policy making horse has indeed been led to the water, but for some reason refuses to drink from it!!

      • Pat Flannery December 20, 2011 at 6:17 pm #

        “Until the 1970s, banks’ assets as a percentage of UK GDP remained steady at approximately 50%. By 2006, after decades of deregulation, banks’ assets as a percentage of UK GDP were more than 500%.”

        “Bank assets”. What are they? Who puts a value on these “assets”? Why, the banks themselves of course. They create their “assets” by “lending” backwards and forwards to each other. They don’t even have to start a war any more like the Rothchilds had to. Maybe that’s progress.

        This crisis is a financial assets bubble. The challenge of our time is to burst it without collapsing the real economy. But first we have to recognise what it is.

  76. George Goodwine December 20, 2011 at 4:00 pm #

    A friend referred me to this article and these are the comments I have. I think some of your conceptions are erroneous, but there is something to nbe very concerned about. I put the comments along side the points in the article but I could not attach the file.

    Collateral is what it is. The internal obligations of the parties within the contract remain. Collateralized debts are exempt from bankruptcy discharge because the collateral is the insurance for the debt. The collateral is never in jeopardy. It only became part of the automatic stay to prevent it from being taken possession by the wrong party during a bankruptcy. What is confusing is how ones could pledge the same collateral to two different parties w/o agreement between all. Then – which one can move in without the automatic stay? Apparently there could be enough in the collateral to cover 2 lenders. Bondholders would not have any standing with respect to the collateral beyond what their bond states. They simply come first with respect to the uncollatreralized remainder of the bankrupt estate . The writer is not a lawyer – he’s a filmmaker with a very good imagination.

    Remember what I told you about the farmer in Kansas City who couldn’t get his soybeans out of the grain elevator and had not been paid for them? He was a victim of the automatic stay. Now if he has a contract giving him repossession rights they could not do this to him. He would be entitled to his collateral immediately.

    The problem is the lack of due diligence by whoever the lender is, of the quality of the collateral. We are living in a generation of no consequences no matter how foolish they are and I agree with the author aside from his flawed conception of collateral and bankruptcy- the taxpayer has implied he will cover what collateral does not if the entity is big enough. That is why we need to break up the big financial institutions. It is also why I would avoid investing in financial institutions. Technically- the FED will not bail out bondholders- it will just provide free money to let them grow out of it. Same thing. That is why inflation is a certainty, but will be disguised as long as possible.

    The bondholder are not entitled to the collateralized debt unless they are a party to the collateral. I.e. the lender or purchaser of the debt (in which case they become the lender.) It has always been that way. Basically, it is a crime to “sell” the same collateral 2x to two different persons without notice to the 3rd party beforehand. The 1st party is obligated to file his lien or interest in and on the collateral. If he doesn’t and a 3rd party buys it w/o knowledge,, the 3rd party can keep it. Basically
    With all the sloppiness of Wall St. etc. these sort of fiascoes are the consequence

    If you are talking about taxpayer funds used as collateral to leverage purchases of other securities, this is true. It is all being done indirectly by the FED thru “quantitative easing.” We are definitely being ruled by an oligarchy of financial institutions. However it will really reveal itself thru inflation later on which is a huge hidden tax which can only be avoided by owning commodities reflecting inflation. This is basically the “drip blood letting mechanism” used to avoid a violent revolution in the government. It would probably emerge at first as a nationwide strike. Karl Marx predicted the Bolshevik Revolution based on abuses by the Industrial Revolutio. It took 75 years of cruel misery never experienced by this country before it passed away. This paper security industry using “innovations” to create risky investments protected by taxpayer bailout is the handwriting on the wall for something truly terrifying occurring in this country thru our economy.

    • Roger Lewis December 20, 2011 at 6:27 pm #

      I’m not sure if I will be the only one to find Goodwines analysis rather woolly. Apart from feeling somehow grateful that this superior mind has been directed by a concerned reader to direct his intellect to Davids piece I am still non the wiser as to the basis of Goodwines concerns as to the ´Éroneous Conceptions´´by the non Lawyer Golem.
      Even without the comments helpfully detailed alongside the relevant points I fail to follow Goodwines points, which is probably why? I think thats the import of what Goodwine infers anyhow. Perhaps he would be good enough to give a clear account of himself as to double counting of collateral I give you Mers and the 560 trillion shadow banking against the world gross assets of is it 160 trillion /( Dollars I think haven’t checked numbers but they appear in the comments above) as your starter for 10.
      Some one is being economical with the Actualite it seems, hopefully Goodwine can come back with a clearer account of himself I am sure his intellect is sorely needed elsewhere but we have the Starter for 10 (so can I press you for an answer goodwine and no conferring) Think Paxman and University challenge and that long condescending gaze down that aristocratic nose?
      I am highly sceptical of anonymous missives that fly around the internet so please forgive me if I am badly misinterpreting you Gooodwine a bit of good natured joshing around this serious subject should lighten things up a bit though, hope you don’t mind.

    • Golem XIV December 20, 2011 at 6:49 pm #

      Hello George Goodwine,

      Thanks for commenting. I am not sure I follow your point about Bonds. Unless I am mistaken, (which I could well be as I am neither lawyer nor banker) But unless a bond is a covered bond then there is no particular set of assets attached to any given bond. And there are rarely, if ever, enough assets to repay all bonds. They, like everything else, depend on cash flow and roll over.

      So it is quite possible for a leveraged bank to not be able to make payments on its bonds let alone pay all the principle back on demand.

      And as you say many assets are pledge to more than one creditor and that’s before we even dirty our hands with re-hypothecation.

      So if repo, hypothecation and derivative contract holders can hold assets before the automatice stay then there will be even less left.

      So Iam not sure I am comforted by your belief in the safety and sacrosanct status of bonds.

      Let’s face it. If Bonds were safe and the assets to pay them off were always there – we would NEVER be talking about bond holders having to take ‘hair cuts’ would we? But we are and so the assets are NOT there to pay the senior bond holders let alone the junior.

      Correct me if I’m wrong.

    • Charles Wheeler December 20, 2011 at 7:20 pm #

      “Collateral is what it is. The internal obligations of the parties within the contract remain. Collateralized debts are exempt from bankruptcy discharge because the collateral is the insurance for the debt. The collateral is never in jeopardy.”
      George Goodwine

      But what if that ‘collateral’ is not worth a hill of beans?

      • Pat Flannery December 20, 2011 at 8:07 pm #

        Exactly. This crisis is a financial assets bubble.

        • Patrick Donnelly December 21, 2011 at 9:17 am #

          With a marvellous name like yours, you are naturally correct about the crisis. But TPTB have recognized and exacerbated the nature of this calamity and ensured that many coffers will be bare that might not have been, had ordinary regulation been applied.

          So, what else is going to happen, while the mob rails against banks et al? The numbers of unemployed will balloon. Taxes will increase and benefits will decline. The danger to order was obvious from the start, but perhaps that is also to be aggravated by events?

          This is far more than a mere financial faux pas. History tells us that when last coinciding with a solar minimum, the then and last French King lost his head. The Pope had better look to his now? October the Thirteenth demands it! The point about knowledge is that those who have it are better prepared for the future….

          The disease is over, but the disasters are still to come! Financially, the debts will be washed out of the system, with those holding paper, left, holding paper….. Those with collateral, may be better off? The scale of disaster is open ended. Large amounts of gold were safe in the WTC…… weren’t they? They were held as COLLATERAL. Look to the tangible assets, following paper money will avail ye not!

        • steviefinn December 22, 2011 at 5:20 pm #

          Hi Pat

          A letter to Jamie dimon, it makes a lot of sense to me. This crowd has a facebook page called Stocktwits which is based in San Diego.


  77. Charles Wheeler December 20, 2011 at 4:20 pm #

    “An overdeterminist critique of efficiency focuses on deconstructing the claim that any one efficiency calculus – one subset of the countless effects attributed to any act, event, or institution – has some absolute or socially neutral validity. There is no single standard of efficiency. Society always displays different, alternative understandings of and solutions for society’s problems. Different social groups struggle for their alternative social programs utilizing an arsenal of weapons that includes, for many, their respective efficiency calculi. When and where an absolute efficiency calculus is believed to exist, there one particular efficiency calculus and one particular group (or set of groups) has established its hegemony over others. Success in the struggle by those others to undo that hegemony requires undermining its absolutism as a key component of that struggle. An absolutized efficiency calculus will be used by the social groups that support it as a weapon to suppress contending social groups, their social analyses, and their programs for social change.”
    Richard Wolff: http://goo.gl/YVaKH

  78. gastro george December 20, 2011 at 5:04 pm #

    As a relative ingénue, can I ask a question?

    On the RepoWatch, it states:

    “In the past decade, securitization and repos – which together are called securitized banking – came to provide half the credit in this country. This securitized lending eventually equaled traditional lending, which is done by banks using their depositors’ money.”

    But, as far as I understand (which may be little), in reality banks don’t actually lend depositors money – they can “create money” and are only constrained by capital requirements. If that’s the case, then how does repo fit into that scenario?

    • Golem XIV December 20, 2011 at 7:02 pm #

      Hello gastro George,

      Hmmpf. You would ask. I am not surprised you feel a little confused. The language used is almost designed to confuse. I

      First, when people say ‘half comes from depositors’ this is refering to how banks fund themselves. Half from depositors means the bank then raises the other half in the wholesale market. Which is where banks lend to each other.

      When banks lend they want collateral in return for the loan. Repo is just a kind of loan. So repo requires collateral.

      Next question is, how is the bank better off having pledged collateral for a cash loan? Money in but money out as collateral. Fair qiestion. The alswer is it depends what teh bank needs teh money for. In Repo what banks are after is cash – ready cash – in order to settle a short term cash flow. Often an overnight settlement. So it would be happy to pledge a non-cash asset in return for cash.

      The quote from Repo Watch confuses or mixes together this kind of over-night funding (repo) with the broader kind of ‘funding’ which the rest of securitization provides. But there too the way it works is to allow banks to pledge one kind of asset for another – Mortgages for cash for example.

      As for creating money out of nothing. This is true but a broader topic. Not difficult actually but broader than repo.

      Just for now think of money creation through lending this way … actually you know what it would be too long for here so I’ll try to write a post on it soon.

      Hope what I’ve written above is some help.

      Don’t give up it’s not hard it is just a matter of getting behind the jargon.

      • gastro george December 20, 2011 at 9:21 pm #

        Thanks David,

        OK, so I get the point RepoWatch are talking about Apples and Oranges. So repos are about short-term cash rather than traditional lending.

        That was going to lead me to a supplementary – I thought that banks could always short-term fund from the central bank (at a price but currently at a low price). So again – why repos?

        But I guess the answer is maybe in the essence of your first response – it’s apples and oranges – it’s a different kind of funding.

        • Charles Wheeler December 20, 2011 at 10:12 pm #

          Whatever the legitimate uses of repos, I think Lehman for e.g. were allegedly using it as a device to hide junk off-balance-sheet?

          • gastro george December 20, 2011 at 10:30 pm #

            Yes Charles, I distinctly recall hearing about that.

        • Hawkeye December 21, 2011 at 11:05 am #


          The massive change in bank balance-sheet size and funding mix is contained in this excellent presentation by Lord Turner of the FSA:


          Slide 11 shows the current (2007) mix for UK banks. Just look at the enromous change since 1964. Technically, deposits sit on the funding side (liabilities) and are about 20% of all liabilities (but equal to 107% of UK GDP, owing the massive size of their balance sheets). They have grown about 3 times since 1964. In 2007, we have vastly different array of new funding streams. The other big funding chunks are now non-UK resident depsosits and Repos (plus a mysterious “Other”).

          On the Asset side is lending (to the tune of about 475% of GDP), a paltry amount of Capital and reserves (22 out of 497, which is less than 5%, making them leveraged 20 times capital), and an almost insignificant amount of Sovereign backing (Cash & Central bank etc.) – half of one percent of their balance-sheets!!

          Mervyn and his merry men are just chicken feed when stacked up against the mighty balance-sheets of the private banking institutions.

          • gastro george December 21, 2011 at 12:19 pm #

            Thanks Hawkeye, that’s a really interesting (and somewhat frightening) pdf.

            What’s always amazed me is that we have this massive increase in “financial activity” to little social or economic purpose (except for enriching the financial sector). Why does nobody (politicians, journalists, …) ask more questions?

            But regarding my original question. A new loan, of course, creates both assets and liabilities. So there is no funding constraint as implied by RepoWatch – it’s just a poorly phrased paragraph.

          • Hawkeye December 21, 2011 at 2:23 pm #


            Correct. The Asset & Liability are created at the same time. There is little formal or regulatory control on the amount of credit creation (i.e. balance sheet expansion). Peter Warburton wrote about the sheer lunacy of minimal credit control back in 1999. it was the basis of my ICB submission last year:


            The only limit is one of Liquidity and (of course) ultimate solvency. But given that solvency can be masked to some extent (through falsely over-marking assets) then who is to rat on the banks?

            Politicians etc. don’t ask questions because they are either too dim or in on it.

    • Speedfriend December 22, 2011 at 12:13 pm #

      Banks do lend depostors money, the money creation effect is thorugh the borrowed money being redeposited into the system. If I go to a bank and borrow £10000 and put in under my mattress, then no money creation occurs. If I however pay it to you and you deposit it, money has been created. An individual bank cannot unilaterally create money and lend it out, it always has to have funding backing the loan.

      • Hawkeye December 22, 2011 at 12:55 pm #


        If you study the process carefully, the money expansion can only have originated from within the bank. Otherwise, where did the actual expansion occur?

        This view is supported by Lord Turner of the FSA:

        “in fact they don’t just allocate pre-existing savings, collectively they create both credit and the deposit money which appears to finance that credit”


        When the bank issues a loan, it creates BOTH the loan and the deposit at the same time. It expands its balance-sheet first (the deposit on the Liability side and the loan on the Asset side), then looks for the reserves (e.g. Equity, Capital or Treasuries) later. The expansion occured at the point the loan was issued (you choosing to take the money out and put it under the mattress just stops it from circulating but the expansion still occurred when the loan was made).

        NEF’s book explains this in more detail:


        Australian economist Steve Keen has also clearly demonstrated the direction of the causal relationship (therefore debunking the Money Multiplier model):


        For a historical perspective this article by Dirk Bezemer is very good too:

        “in short, bank loans create the deposits that are money, and so bank credit creation is money creation”


  79. Charles Wheeler December 20, 2011 at 6:50 pm #

    “Modern libertarianism is the disguise adopted by those who wish to exploit without restraint. It pretends that only the state intrudes on our liberties. It ignores the role of banks, corporations and the rich in making us less free. It denies the need for the state to curb them in order to protect the freedoms of weaker people. This bastardised, one-eyed philosophy is a con trick, whose promoters attempt to wrongfoot justice by pitching it against liberty. By this means they have turned “freedom” into an instrument of oppression.”
    Monbiot on Libertarianism and ‘freedom’: http://goo.gl/bmDxw

    • Hawkeye December 21, 2011 at 10:40 am #

      I wonder if Monbiot is a lurker on these pages?

      Back in Feb, I referred to the strategy of “Sell freedom, buy control”:


      As with Monbiot there is clear evidence of the cunning “bait and switch” trick in action:

      “the modern manifestation of freedom is actually closer to a “freedom to shop”, a “freedom to get in to debt up to our eyeballs”, a “freedom to be manipulated by those dangling carrots before our eyes”. Quite ironic given that the original meaning of liberty was to be free from the bondage of debt and external control”

      • Toby December 21, 2011 at 1:55 pm #

        That’s interesting, because my ex-colleagues here in Berlin were all from the old East Germany, grew up therefore under that state communism. When I asked them what the major difference between ‘free’ market capitalism and communism was, they said, “Shopping.”

        That’s it folks, shopping. That’s our future; more and more shopping. Perpetual Growth of Shopping, and everything we do becoming ‘economic’ activity, or shopping.

      • Phil December 22, 2011 at 2:48 am #

        Is Monbiot a lurker on these pages? I hope so, I’ve sent him stuff!

        He’s a good guy, always replies to emails.

    • Toby December 21, 2011 at 12:59 pm #

      The question I would ask Monbiot is what, exactly, he means by “state”. The state can be democratic, but need not be. It can be a monarchy, a dictatorship, fascistic, socialist, communist, capitalist, etc. But the state is always a Hobbesian monopoly of force protecting private property and ‘preventing’ Hobbesian Warre, always fixedly hierarchical, and always extractive in favour of its ‘elite.’ The state includes (or incorporates) the money system and therefore markets. ‘Free’ market neoliberalism has corrupted the word “freedom” (which has its etymological roots in bonds of friendship and therefore moral obligations), linked it with ‘markets’ and ‘democracy’ and cast government (or State) as that part of the state which limits freedom. What is actually happening underneath all this smoke and mirrors is that the state is growing in power and reach, regardless of its cosmetic appearance. The state is not the enemy of the markets; that is pure Punch and Judy, divide and conquer theatre for the plebs. We must stop buying into it.

      If we want effective and open government, that is, non-tyrannical democracy, we need a far more open system, what some are calling direct democracy. The state calls this anarchy, but all anarchy really is, is fluid and transparent hierarchical arrangements which are not extractive of the ruled by the rulers. This is where, I believe, we need to focus our discussions; cut through the myths the StateMarket behemoth weaves and dominates, and expose the dark heart of the matter; growth as fed by exploitation and rapacious consumption to keep this extractive system alive (more or less) as is. Whether representative democracy, or fascism, or ‘free’ market neoliberalism, while we have the very fixed and institutionalized hierarchies of the state, we will have conflict between rulers and ruled, with the rulers propagating whatever ideology fits the circumstances, then very unevenly distributing the fruits of human ingenuity and work as they see fit. At the moment the bizarre mix of ‘austerity’ and Perpetual Growth is the order of the day, yet the core dynamic is not allowed to change. It is not allowed even to be mentioned.

      A coupe of quotes from “The Early State” to back up what I’m getting at here:

      “The process of class formation seems to near completion only where the possibilities of the early state are exhausted and the mature state takes place. In the mature state class division is extremely clearly expressed in the forms of antagonism, and private ownership plays a key role in the development of patterns of inequality.” p605

      “The relation of reciprocity was not a balanced one, however, and moreover our data show that reciprocal tendencies gradually waned in the further course of the development of the early state. A situation of non-reciprocity, however, was only achieved in the phase of the mature state (cf. Krader, this volume).” p609

      “One of the distinguishing features of the early state as represented by our sample is that it monopolized the legal use of physical force. This use of force, which was military in character, was exercised by groups that were rather weak as specialized agencies of the early states in question. Nevertheless, the early states did manage to ensure that no persons, or body of persons, other than those authorized by the sovereign or his subordinates, resorted to physical force for the pursuit of their individual goals.” p608

      It may be argued that “The Early State” findings on what a state is, are too Weberian (I believe Max Weber was first to define the state as a monopoly on force), but I feel that would be unfair. The book is a collection of large essays each looking at different early states (about 22 I think, from across the planet) and how they progress to become mature states, such as the nation state. One characteristic of them all is a monopoly on force, which prevents break up. Other properties include class divisions, wealth gaps, production of surplus, and tribute (taxation). As we, the people, begin to see clearly that the state is working against our best interests, and rise up to demand fairness and justice, the state, via its police, its media, its financial oligarchs, cracks down hard. As David Graeber puts it:

      “In fact, it could well be said that the last thirty years have seen the construction of a vast bureaucratic apparatus for the creation and maintenance of hopelessness, a giant machine designed, first and foremost, to destroy any sense of possible alternative futures. At its root is a veritable obsession on the part of the rulers of the world—in response to the upheavals of the 1960s and 1970s—with ensuring that social movements cannot be seen to grow, flourish, or propose alternatives; that those who challenge existing power arrangements can never, under any circumstances, be perceived to win.”

      It was a head of the state, Margaret Thatcher, who told us there is no alternative. Well, of course there isn’t! For if there were, that would mean the end of the state in its current form, by definition. Those who benefit from it don’t want that. So what else would they say, how else are they supposed to behave?

      There is always another way.

  80. cynicalHighlander December 20, 2011 at 10:06 pm #

    Keiser Report: Victims of Banking Terrorists

    This week we discuss the Maxinator, downgrade rampages and food fights between Sarkozy and Cameron. In the second half of the show, Max and Stacy look at the victims of banking fraud, from the Alabama poor cut off from water supplies to the small ranchers who lost it all when MF Global was run into the ground by former Goldman Sachs banker and ex-New Jersey governor, Jon Corzine.

    • Charles Wheeler December 20, 2011 at 10:09 pm #

      Introducing: the ‘Porta-loo Economy’

  81. Charles Wheeler December 20, 2011 at 10:35 pm #

    Philip Mirowski on the Dismal Science:

    Part I: http://goo.gl/8imKa
    Part II: http://goo.gl/cvWZ2

  82. princesschipchops December 21, 2011 at 3:41 am #

    This is a brilliant article David. Very complex and I’m going to re-read it tomorrow and try to take it all in a bit more. However with regards to some feeling it is sensationalist. I don’t agree. Nothing would surprise me. Nothing the banks do would shock me right now. For those who think that you or others like you who are trying to get the truth out are sensationalist – I think they confuse the fact that often you’re trying to work out what’s going on and what you think. In a sense this article is your thought process written out for us to see and debate.

    You’ve clearly stated this is a hypothesis (and one you hope is wrong) I don’t see anything sensationalist in that.

    What amazes me is how few people are getting really angry! Or really scared! I mean we have had two governments replaced in developed nations and hardly a ripple. The more I read about what’s happening the more scared I become.

    Its interesting to note even quite seasoned ‘mainstream’ reporters are more and more pessimistic. Yes they often deliver their usual BBC friendly soundbites but if you listen to them you can hear the real fear. Stephanie Flanders said a couple of months ago now that she felt we were either in for outcome A or outcome B. When asked what A was she said a long, hard ten to fifteen years of stagnation (in other words a depression) when asked what B was she didn’t say ‘growth’. No – she said outcome B was outright collapse.

    Think on that. A beeb reporter on one of the most establishment supportive mouthpieces states that she really believes we could face outright collapse. Paul Mason has been making pretty dark utterings for some while now. Robert Peston has his moments and even Gillian Tett is beginning to sound apocalyptic.

    And all these people are constrained in what they can say, I expect they are much more concerned amongst friends. Even Portillo said the other week he’s taken all his money out of the banks.

    If the system crashes I believe certain organisations will do all they can to loot everything they can. I read this not as saying they’ll try to bring about a crash because they could profit from it but that they know collapse is coming so have plans to loot all they can during that?

    Anyway on a lighter note: Cable ‘attacks banks’ in The Guardian (http://www.guardian.co.uk/commentisfree/2011/dec/20/phoney-emotions-generated-eu-transaction-tax)

    Seems more like a defense of finance sector to me! He talks about a few rogue institutions and makes out like The City is a million miles away from insurance which poses no systemic risk (tell AIG quick) and at the end lets us know that the coalition doesn’t work for the bankers! Phew! That’s good to know.

    • Roger Glyndwr Lewis December 21, 2011 at 11:05 am #

      Vince Cable seems to have been side lined he spoke a good match on the Hustings but in Government he seems to be cosied up to the trough like the rest. I read a foreword to an economics book he had written the other day and few of the other essays in there by well known Economics figures they are all in the same hymn sheet and it isn’t honest.
      I’m with you Pricesschipchope we are fortunate to have Davids willingness to think out loud and critically against the establishment narrative. Russel over at Forensic Statistician has put up a good blog today echoing Davids concerns and linking back here whcih is how I find myself back here again. I keep linking back to here and Guidois blog and ‘Tobys blog and Mike Halls pieces as well. Backwards evolution has also posted some excellent links ( do watch the fish head thing and the economics 101 pt 2) which I have been linking like crazy too hoping to help my nearest and dearesst understand the challenges we are facing. A school friend of mine is now an eminent Economic Geographer he sketched this little lot out for me back in around 2006/7 I was of course not all that convinced His Name is Professor Adam Tickell and he is a friend of David Harvey’s who is also a wonderful commentator on what is happening as Is Steve Keen and others. Of course Noam Chomsky never ceases to amaze and of course David Greiber is well known and exalted by most who happen by Golems cheerful salon.

      Lets all just keep getting the word out and remain positive we all need to shine our own small flames of truth and sooner or later we’ll have a Beacon of hope for all to navigate towards.


      another wonderful writer I have found recently in browasing through htese issues is this gentleman.

      James Robertson, linked to by another Blog I read so the dots are joining up which is great to see.


      • Hawkeye December 21, 2011 at 7:20 pm #

        Thanks for the kind words Roger, and for tip about James Robertson (have now signed up for his newsletter).

        The Co-Op conference looks interesting, too:


        • Phil December 22, 2011 at 3:31 am #

          how are the Co-op bank looking in all this?

          • Hawkeye December 22, 2011 at 10:50 am #


            “How are the Co-op bank looking in all this?”

            Very good question. The best way to answer it would be to obtain a full breakdown of their balance sheet. I don’t have that information at hand, nor am I an expert in these matters, but here are my first thoughts.

            Presuming that they primarily act as a Retail bank and a mutual one at that, then there should be some sizeable differences between it and a regular (say Big 4) bank. It should look closer to the UK 1964 breakdown of Assets & Liabilities (see slide no.9) rather than the 2007 version (slide 10):


            So I would assume the following:

            – The majority of liabilities to comprise Retail desposits from UK residents (as opposed to the Big Bank model of wholesale funding, e.g. Other banks, Repos etc.)
            – The majority of Assets to be loans – also to UK residents

            As they are a Mutual, the depositors are both unsecured creditors (as in a normal bank) but they are also shareholders. Not sure what the full implications of this are, but it might suggest that they all have an equity stake. In which case the bank may never be able to go insolvent as the high proportion of retail deposits is perhaps notional Equity. In the event of excessive default by lenders (who also happen to be shareholders too, mind!), despositors could end up forfeiting a proportion of their deposits as equity loss.

            In theory a Mutual should be far more resilient both in terms of less likelihood of having Liquidity problems in the first place (less leverage), and in the way it could handle any funding difficulties that do arise. The allocation of any “haircuts” to the main creditors (which for the moment I presume are retail depositors) would in theory need approval through some form of democratic voting system.

          • Speedfriend December 22, 2011 at 12:19 pm #

            Hawkeye is corrct that Co-op is more a traditional bank with a loan to deposit ratio under 100% (i.e. all loans are funded by deposits). However it alos issues wholesale securities, uses the interbank market and trades in derivatives. As for capital, it did need a capital injection during the crisis. It also pays bonuses, in fact it pay level are exceptionally high given it is a pretty small bank. I remember being shocked that the ex-CEO took home over £2m in 2009 if my memory serves me correctly. And that was the year Bob Diamond only took home £250k!!

  83. Roger Glyndwr Lewis December 21, 2011 at 11:25 am #

    Link From Mish Shedlock today.


    Bank Run?

  84. richard in norway December 21, 2011 at 12:30 pm #

    249 comments!!!! Wow

  85. John Souter December 21, 2011 at 12:43 pm #

    Only fools try to paint a sinking ship.

    Apart from that I’ll take this opportunity to, who and wherever you are to wish you all the best and a FEW DAYS OF TRANQUILLITY before the apocalyptic facts become apparent in a tsunami of truth,

    Remember an honest hug has far more meaningful integrity than a diamond followed by debt.

  86. Charles Wheeler December 21, 2011 at 1:25 pm #

    Some interesting graphs on debt – and whence it came:


    • StevieFinn December 21, 2011 at 3:14 pm #

      It’s all there in black & white but it doesn’t mention Brown’s light touch regulation, his insistence on bailing out the banks & labours funding ties with the financial sector. The article kind of implies that the left are not to blame for any of this, & yet the lefts recent track record in the UK, US & Europe has shown to have been almost the same as the rights, in it’s handling of the crisis & the total selling out of it’s constituencies.

      The resistance to the repression by the financial elite through their agents, the so called democratic governments should be kept as apolitical as possible, else the issue will be dragged down into the old left/right divide, with those on the left seeking to make political capital from mistakes they were just as much to blame for.

      I as an old leftie have had to throw away a lot of my attitudes & beliefs to how the world works, these tenets were harmless in a world that was far less threatening, but now they only serve to divide. The resistance as far as I can make out, is not just made up of people who lean to the left, but people from all sorts of backgrounds & opinion. I think our only chance of sorting this mess out is to build up a large group of people who avoid political stereotyping. Then this apolitical group can hopefully agree on fundamentals that will be used to change the way the elites, both political & financial go about their business, to the benefit of the majority, rather than the minority.

      I think the system we have is basically fine, I believe in a free market, not a rigged one as we have now. But that market has to be designed to be sustainable & flexible to cater for all needs, for the long term, not just for the few in the short term. I just think if we cannot build a big enough consensus on these issues, we leave the door open to extremists of either left or right. We need to set aside our differences.

      I am not having a go at you Charles, the article is well put together, full of good stuff it’s just who it appears to me, is trying to take credit for it.

      • Charles Wheeler December 21, 2011 at 5:18 pm #

        “the lefts recent track record in the UK, US & Europe has shown to have been almost the same as the rights”

        Yes. It’s the old Animal Farm scenario: ‘The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.’

        I posted the link for the graphs rather than the source. Of course, Gordon Brown was – at least ostensibly – an enthusiastic supporter of light-touch regulation. Nevertheless, the figures do seem to nail the ‘meme’ that it was Gordon’s spending wot done it, rather than a global banking binge inspired by a bonfire of the regulatory framework.

        We seem to be left with a choice between the red-in-tooth-and-claw neoliberalism of the Tories, or a slightly watered-down version from Labour – whose lieutenants now argue that they’ll only stand a chance of election if they parrot the Tories on spending and austerity to stand any chance of favourable representation in the media (either way it leaves millions out in the cold, effectively without representation).

        As a result, we’ve entered a Humpty Dumpty world where ‘right’ and ‘left’ mean just what the observer wants them to mean. I suppose I would draw a divide between those who argue that the market is sacrosanct and those who see democratic government as a necessary intermediary. But that’s a pretty broad generalisation.

        A ‘free market’ will never provide universal healthcare or education on an equitable basis; disabled people are being crushed by the neoliberal juggernaut as we speak; without some redistribution or enforcement of wage norms, most would not earn enough for a pension, let alone social care. All things which take a bit more than the minor tweaking of a ‘free market’ (which is equated with a market free from government interference, rather than one free of rigging from within). Taking the trend line from the late 70s into the next generation will leave many more facing lives of complete impoverishment, with no prospect of the kind of social mobility enjoyed by the baby-boomers; no chance of higher education; downward pressure on incomes; barely affordable accommodation; and an old age of penury – all to serve the rentier class, as incomes are re-distributed through rents and interest payments in a form of debt-slavery Michael Hudson characterizes as neo-feudalism.

        I’m not sure that it’s possible to be apolitical – certainly the ‘right’ understand the highly political nature of the battle – maybe that’s why they’re winning?

        • princesschipchops December 21, 2011 at 7:32 pm #

          Excellent comment Charles. You’re correct in that right now no one is speaking for the weakest, the most vulnerable or the poorest. The disabled and sick are being treated as if they are disposable (and certainly to some extreme neo-liberals who see humans as nothing more than economic units of production, they probably are).

          There isn’t a ‘left’ anymore I don’t think. Not one that actually cares about workers rights and welfare and the rest. They’ve all sold out. When a socialist government in Greece pushes through the most severe austerity seen since pre-war Germany then you know something’s gone horrifically wrong with ‘socialism’.

          I think neo-liberalism is a horrifically brilliant ideology. It is so insidious in how it works it’s way into everything and how it almost becomes to seem natural. So many people now don’t even question the system – because they don’t see it as one. They have bought into the idea of humans as consumers and ‘customers’ and nothing more and if the choice they get is really a false one, they don’t care.

          I had to laugh the other day, my cousin rang the DWP about her medical. This is the organisation that is actively throwing hundreds of thousands off sickness benefits. At the end of the call the woman parroted at her ‘thank you for calling the Department for Work and Pensions today. Have a nice day.’ You couldn’t make it up.

          It’s corporatism dressed up as cosumerism, and choice and freedom. Too many people are buying it. I think though as things get worse more and more will see the emperor has no clothes.

          • Charles Wheeler December 21, 2011 at 7:47 pm #

            “I think neo-liberalism is a horrifically brilliant ideology. It is so insidious in how it works it’s way into everything and how it almost becomes to seem natural.”

            Exactly. And, as safety nets are removed, so people are forced to think of No. 1 – reinforcing the ideology. Which is why nobody seems too bothered about the attack on the severely disabled – as long as they’re not directly in the firing line (and assume ‘disability’ is something that happens to other people), they’re too busy trying to defend their own living standards – so we’re all picked off one by one. The social contract breaks down.

            Any questioning of the system is met with the rejoinder: ‘move to Cuba’ – take it or leave it!

        • StevieFinn December 21, 2011 at 7:39 pm #

          The free market does need regulating for all the reasons you have stated, to say it should be totally self regulating is like saying that just because a car can reach a speed of 140mph, it should be allowed to do so on a housing estate. We need protection from the greedy loonies & also sustainability for our childrens future.

          I am not sure the right are winning, they have a habit of over stretching due to age old hubris, unfortunately like Hitler, they tend to take as many down with them as they can. I think a lot of people who are supporters of the right will eventually realise that they are not included in the small percentage who constitute the winners club, 1000’s of businesses are going bust every week for instance & as things get worse it will inevitably hit more of the middle classes & unless they are totally blinkered & stupid, the realisation that it is not the public realm that is the problem will sink in. Especially if there are more bailouts for RBS etc, workers keep losing their jobs & their pensions are gobbled up.

          I believe that the 5-6% figure needed to achieve tipping point is achievable, in order to change the present rotten system, I just believe that if this resistance can be as apolitical as possible it has more chance of reaching the above figure by attracting support from people who tend to lean to the right. If it instead turns into a leftist movement it will be easily marginalised by TPTB, which would probably lead to polerisation & violence.

          The last wolf was eventually recognised in 1939, Churchill & Orwell , two opposing sides of the political coin, saw it first, we also need people from all backgrounds & beliefs to defeat this enemy which like a cancer is the real ” Enemy within “, which of course makes it even harder to recognise & easier to disguise.

      • Syzygy December 21, 2011 at 7:50 pm #


        I agree with the vast majority of what you have written about the thrust of my article … and felt discomfort myself about not laying into New Labour’s record.

        However, I did not want to distract from the important message that the Tory-LDs, the media et al, are perpetrating an unsustainable lie every time they say that Labour left the UK in a ‘mess’ because of ‘overspending on public services’.

        The actual New Labour ‘mess’ was in being in charge for 13 years of the unbroken continuum from Margaret Thatcher to Osborne (the prime mover).

        My over-riding concern is the imperative to remove the Coalition asap. Currently, the only realistic scenario is for the LP to win a GE, so my focus is on supporting those who are trying to move the Ed M & the LP to be as red-green as possible. A slim hope but the only one that I believe to be workable within the next few years… although events may easily change my assessment… and at least more of New Labour was avoided by the defeat of David M.

        There is hope in that the grassroots LP has been swelled by the return of a lot of left-wingers, but unfortunately the Blair policy of excluding even vaguely left wing candidates means that a good 50% of the PLP is far to the right of the membership. There is also the party within a party, Progress, who are very well funded by the likes of Tim Bell of Bell-Pottinger, Lord Sainsbury and the ubiquitous Pfizers.

        Ed M is rather ham-strung and needs to find some courage… whether he will or not, your guess is as good as mine. The left’s mass exodus from the LP after Iraq, was both completely understandable but also firmed up Blair/Mandelson’s confidence to move forward more rapidly in implementing the stealth privatisation of the NHS, the Welfare Reform bills and so on. There needs to be pressure on the LP leadership from within and without the party to move the LP to being the people’s party…

        • Syzygy December 21, 2011 at 7:59 pm #

          My article link is to the one kindly recommended by Charles Wheeler:


        • StevieFinn December 21, 2011 at 8:18 pm #

          I agree that the oft used statement ” the mess we inherited from the previous government” is pure bullshit, I just think that in order to beat this present evil we need to sidestep the political parties or to at least try to inform & mobilise as big a proportion of that small percentage of voters that all the 3 parties rely on to get elected, this would be much easier if it was from a politically neutral standpoint & also much more effective.

          I would love it for the LP to sort themselves out & have some courage of conviction instead of being a slighter different flavour to the other two parties, but I can’t see it happening. I just think that they are stuck in a rut which isn’t Millibands fault & like him I have no idea how they will get out of it, unless they go for broke, grow some balls ( not the Ed variety) & try & stand up for the majority of the people of the UK. this might appear at first to be political suicide, but in view of what’s coming, in the long term pay dividends.

          • Syzygy December 21, 2011 at 9:47 pm #

            Again, I agree with much of your analysis… and to be fair, I think that that was also part of my reason to be neutral about New Labour’s record but I can see how it came across to lefty like yourself as supportive of Brown rather than neutral.

            My reasoning is that Ed M will definitely not ‘go for broke’ unless he gets some pressure/encouragement to risk it. And that is my aim in being involved with Think Left.

          • StevieFinn December 21, 2011 at 10:51 pm #


            Good luck with that, whatever works.

  87. Charles Wheeler December 21, 2011 at 5:26 pm #

    “That is why the little spat between the UK and France—with France insisting that credit agencies ought to down-grade the UK before they downgrade France—is so silly. France can have a debt ratio under 15% of GDP and still be forced to default. The UK can have a debt ratio above Japan’s 200% and still face no chance of involuntary default. That is the beauty and utility of issuing your own currency. France is a currency user and its fate depends on Germany—which is busy sucking up every spare Euro it can lay its greedy hands on. France is no better off than the panhandler on the street corner begging for pocket change—a user of currency, not an issuer.”
    Randall Wray: http://goo.gl/WRXZW

  88. Charles Wheeler December 21, 2011 at 5:44 pm #

    “most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic”

    Matt Taibbi on the ‘Enronisation’ of finance: http://goo.gl/hYhZP

  89. Charles Wheeler December 21, 2011 at 7:01 pm #

    Nice work if you can get it (part 296): from Lauren Lyster: “ECB now decided to lend money to EU banks @1% then banks buy Spanish debt at 2.43%. Brilliant!”

    Xmas bonus time!

  90. Charles Wheeler December 21, 2011 at 7:38 pm #

    Atlas Shrugged?: http://goo.gl/s84tQ

    Life imitating art:
    “We are on strike against self-immolation. We are on strike against the creed of unearned rewards and unrewarded duties. We are on strike against the dogma that the pursuit of one’s happiness is evil. We are on strike against the doctrine that life is guilt. There is a difference between our strike and all those you’ve practiced for centuries: our strike consists, not of making demands, but of granting them. We are evil, according to your morality. We have chosen not to harm you any longer. We are useless, according to your economics. We have chosen not to exploit you any longer. We are dangerous and to be shackled, according to your politics. We have chosen not to endanger you, nor to wear the shackles any longer. We are only an illusion, according to your philosophy. We have chosen not to blind you any longer and have left you free to face reality — the reality you wanted, the world as you see it now, a world without mind.”
    John Galt

    And a repost from The Reformed Banker: http://goo.gl/cUZB6

  91. Charles Wheeler December 21, 2011 at 11:01 pm #

    The Modern Prometheus

    ” … While this is efficient in terms of bank profitability, it is inherently inefficient toward the real economy since it is essentially a siphoning of vital resources. The ages old fear of machines breaking away from their human masters to create their own civilization has been somewhat realized by a banking system that no longer exists to service the real economy. The technological innovations of finance have allowed that sector to almost completely disengage from the traditional notion of intermediation. Central banks (especially the Federal Reserve) have created trillions of dollars to plug a disastrous hole in the Shadow Banking system. In the process it appears as if they are simply blowing another asset bubble, this time in the Synthetic Banking system, much to their own consternation since this latest bubble has no real connection with the real world.

    The pyramid of money into shadow money into synthetic money has grown immense. Central banks have created an inefficient Frankenstein of a financial system that no longer can operate within the bounds of the traditional notions of intermediation and banking. There is simply not enough real credit in existence to generate the cash flows and profits banks need to maintain the capital ratios that keep the system from imploding.

    In many ways the system is at a terminal crossroads, as it cannot function without the synthesization of so much credit, but the real economy may not be able to survive the resource drain and monetary inefficiency that this much synthesization requires. Intermediation was supposed to be a tool for the real economy. Now the real economy is nothing more than a support system for the global investment banking regime.

    In bailing out the banking system, central banks have put their money on the wrong horse since banks are almost completely disconnected from their true role as a tool of the real economy. The labyrinth of complexity and intentional opacity is designed to hide this fact. Real credit is shrinking throughout the system, but synthetic credit is alive, well and flourishing. The financial system now exists to its own exclusive benefit.
    Jeffrey Snider: http://goo.gl/pqUBi

    • Wirplit December 22, 2011 at 11:55 pm #

      A thought provoking piece David as always and the comments which I was reading over 3 hours on the train just longing to get back on internet so I could follow the links. Really this is a University! Thanks to everyone who posts

      To Caesar Salads doubts about self destructive behaviour I would just say,

      History gives us many examples of just this kind of lunacy. On a psychological level Jung believed Mankind was actively preparing for his own suicide. Climate change might be a current example but forget that for a moment, rather step back into relatively recent history. What really was the First World War for? What did it give the old monarchical imperial systems that still ruled in 1914?
      The original architects of that war, driven by a combination of fear and competitive hubris not unlike that of current bankers, were utterly swept away by its end and were in fact once it started, relatively helpless in the grip of their own machine. As someone said once the troops were mobilized on complex plans the process could not be stopped… the train timetables predominated.
      A hundred years ago this form of rigid planning to bring huge numbers of troops to bear was a kind of new science the beginning of modern logistics.

      To me it seems instructive to compare the kind of people involved in such military planning, who had no interest at all in a term like collateral damage ( not yet invented), with present day bankers. They too are swept up in their own internal apparently widely accepted delusions, given the fawning respect of society and thus prone to think they are both essential and useful to society at large ….and are just as likely to be blindly operating the levers of powerful and destructive systems which are capable of sweeping their own power structures away. Along with a entire generation of young Europeans.

  92. Charles Wheeler December 22, 2011 at 1:26 pm #

    “every time you hear a commentator talk about what the markets “want” or what the markets “reject,” remember the financial elites who are pulling the strings”

  93. steviefinn December 22, 2011 at 3:00 pm #

    Looks as though none of the banks will be required to take even a trim, while the Greek people will continue to be scalped.


  94. Charles Wheeler December 22, 2011 at 4:28 pm #

    A classic of the ‘move to Cuba’ genre: http://goo.gl/QrJT2

  95. Hawkeye December 22, 2011 at 5:42 pm #

    Thursday night viewing:


    Steve Keen on the Keiser Report!

    • Charles Wheeler December 22, 2011 at 6:06 pm #

      Essential viewing!

      • cynicalHighlander December 22, 2011 at 10:14 pm #

        Max Keiser & me & the UK’s 950% Debt to GDP Level

        From comments.

        December 23, 2011 at 2:19 am | #

        Updated the sheet finally.

        For Q3 2011 the ratios are 242.86% for the Financial sector, 97.57% for the Household sector and 101.77% for the Non-financial sector. Making a total of 442.21% of GDP.

  96. Hawkeye December 22, 2011 at 7:12 pm #

    The BBC still peddling the myth that the only excessive debt run-up that matters was Gvt borrowing!


    Hardly the output one would expect from a supposed Lefty institution. Tax-payer funded Corporate mouthpiece more like.

    • Zardoz3006 December 22, 2011 at 9:53 pm #


      I couldn’t agree more. 4 or 5 years ago I would have argued the opposite, but this crisis has really opened my eyes to the kind of propaganda we are all subjected to every day of our lives.

      I am particularly disappointed with Stephanie Flanders and Robert Peston who I see as people who have decided to have the inside track with government ministers and who seem to ignore the real story because they prefer being insiders.

      I still have time for Paul Mason…there is still some hope for them 🙂

      • Hawkeye December 23, 2011 at 10:03 am #


        Yes, Peston & Flanders have been a real disappointment. The only saving grace is the commenters on their blog sites, without whom I wouldn’t have commenced my journey into the alternative media / journalism space.

        Paul Mason has a much better grasp of what is going on. He often references and Re-Tweets Zerohedge articles plus he recently recommended books by David Graeber (Debt the first 5000 years) and David Harvey (the Enigma of Capital):


        He is also doing a lecture at the LSE in London next year:


        I went to his lecture there last year and it was very good. He clearly understands the fraud, manipulations and potential social unrest that could unfold from this crisis. The BBC seem to keep him on a tight leash though…..

    • ahimsa December 23, 2011 at 1:15 pm #

      Hawkeye, what am I missing?

      You commented, “The BBC still peddling the myth that the only excessive debt run-up that matters was Gvt borrowing!”

      Have just followed that link to the BBC graphic and can’t disagree with what I read:

      “So what really caused the crisis?
      There was a big build up of debts in Spain and Italy before 2008, but it had nothing to do with governments. Instead it was the private sector – companies and mortgage borrowers – who were taking out loans. Interest rates had fallen to unprecedented lows in southern Europe countries when they joined the euro. And that encouraged a debt fueled boom.”

      And the accompanying chart clearly shows that government debt has not increased all that much while private debt has ballooned far in excess of government debt.

      (The omission that I find glaring is that they have neglected to show side by side that in fact financial sector debt has outstipped both of the above!)

      They even manage to link this private debt to trade deficits and labour costs/competitiveness, which I feel does not get enough reportage.

      (There was an interesting video on Naked Capitalism of a former Germany finance minister? covering this topic of wages/trade deficits calling the current crisis for what it really is: capital vs labour)

      Note, I am no apologist for the BBC, just trying to better understand your comment.

      • Hawkeye December 23, 2011 at 2:05 pm #


        You are right. Seems I jumped the gun a bit after seeing the initial couple of layers of the graphic. However they do still keep coming back to policy solutions focussed purely on Gvt intervention (i.e. Fiscal Tax & Spend decisions).

        They have completely failed to properly affirm two key points:

        1) That Gvt debt increased as an explicit transfer of private sector liabilities onto Gvt balance sheets (Privatised profits and socialised losses). In other words Gvts are underwriting privately generated banking losses. (They should also have pointed out that even in the UK Gvt Debt to GDP doubled from 2007 to 2011.)

        2) That there is third alternative to the policy response. And that is to make creditors suffer the consequence of poor lending decisions. All these economies need to de-leverage, but this ought to be an equitable and managed affair. That means some form of debt jubilee.

  97. Wirplit December 23, 2011 at 12:12 am #

    Come in and the Keiser report is right on this subject doubting that the Comex has the actual physical metal that has been allocated due to all the re hypo etc. Cites the games the Trustee is playing on the depositors of MFGlobal …. they thought they had solid warehouse receipts for gold etc and then get told they will only be getting 72% of it. As Keiser says Security crime is the system

  98. Hawkeye December 23, 2011 at 3:37 pm #

    A bit of Christmas cheer for everyone, as I’ll probably be going a bit quiet over the holiday period:


    Here’s to an Equitable and Just 2012, everyone!

    • steviefinn December 23, 2011 at 4:09 pm #


      I wonder whether she will last long enough to see the endgame played out for that financial monster she helped to create, THE CITY. I would suggest she be buried under a dance floor with a very long, long queuing area.

      Here’s hoping that you & all the Golem blogging family have a great holiday, so as to prepare for what is likely to be an interesting 2012.

      A Christmas card courtesy of Terry Gilliam:-


  99. Charles Wheeler December 23, 2011 at 4:35 pm #

    Merry Christmas everyone: http://goo.gl/C6iw3

  100. Charles Wheeler December 23, 2011 at 5:40 pm #

    “… capitalism without the prospect of failure is not any kind of market economy. We are running a large-scale, nontransparent, and dangerous government subsidy scheme for the benefit primarily of a very few, extremely wealthy people.”
    Simon Johnson: http://goo.gl/xaH6T

  101. GuyFawkes wannabe December 23, 2011 at 7:09 pm #

    Thank you for all you do, you are giving me quite an education. I started with your book debt nation which i have also bought for relatives and was delighted to discover your blog! If the mainstream media did what you did, they’d be a revolt in this country. Oh and they’d be doing their job.

    And please go back on Max Keiser, it’s been too long.

  102. Charles Wheeler December 23, 2011 at 10:01 pm #

    Blanchard’s blog post on what went wrong in 2011 is, in fact, totally sensible and on point. Furthermore, if I am reading it right, it contains something of a bombshell:

    “Third, financial investors are schizophrenic about fiscal consolidation and growth.

    They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.”
    (Krugman’s emphasis)

    If I have this right, Olivier is suggesting that harsh austerity programs may be literally self-defeating, hurting the economy so much that they worsen fiscal prospects.

    This in turn means that the analogy to medieval doctors who bled their patients, then bled them even more when the bleeding made them sicker, is exactly right: austerity reduces growth prospects, leading to calls for even more austerity.
    Paul Krugman: http://goo.gl/NdvOO

  103. Pat Flannery December 23, 2011 at 11:53 pm #

    Merry Christmas from the left coast. My new year message to the bankers: get a haircut.

  104. Mike Hall December 24, 2011 at 1:37 pm #

    Likewise from the Emerald Isle, have a good holiday all 🙂

  105. bill40 December 24, 2011 at 5:53 pm #

    Wow over 300 comments. Happy Christmas everybody. Mt Christmas pressie from CIF was to be banned again.

    I love free speech don’t you?

  106. Charles Wheeler December 24, 2011 at 9:58 pm #

    Christmas viewing (after Morecambe and Wise)!

    Satyajit Das: http://goo.gl/7kxvA

  107. Charles Wheeler December 24, 2011 at 11:50 pm #

    Carry On Lending:
    The ECB’s Christmas present to the banks means that it is going to lend to the banks at 1 per cent so that they can in turn lend to distressed governments at 6 per cent. It is an amazing deal for the banks. In finance, this is called a “carry trade” or a free 5 per cent.
    In this way, the ECB can lend to governments without actually lending directly to governments, and also subsidises the banks one more time. This is moral hazard on a monumental scale because the more trouble the bank is in – due to its own greed – the more it gets rewarded.

    David McWilliams: http://goo.gl/ImDPh

    Merry Christmas to all you Golemites

  108. Phil December 25, 2011 at 5:21 am #

    Happy Christmas David. Brilliant to have met you this year and to have found this blog and all its excellent contributors.

    Increase the peace in 2012.

  109. backwardsevolution December 25, 2011 at 11:43 am #

    From Canada’s west coast, a Merry Christmas to you and your family, Golem, and to all of the wonderfully intelligent people who comment here.

  110. Dave December 25, 2011 at 1:57 pm #

    From La Manche in Lower Normandy, all the very best to David Malone and his family, and to the extended family of great posters here.

    I wondered exactly when I’d first ‘met’ Golem at Guardian CiF, but they appear to have recently wiped out hundreds of pages of posting history for many people …? Perhaps that is temporary.

    Whatever, the important thing is that each of the regulars here distills out what he or she is learning and shares that in everyday life. And it grows.

    frog2 (at CiF)

  111. backwardsevolution December 25, 2011 at 8:25 pm #

    An incredible video set atop one of the most beautiful pieces of music ever composed – just to remind us of the majesty of the Earth. Awe-inspiring!


  112. susiQ December 29, 2011 at 5:00 am #

    While I truly feel the game is rigged, rigging requires places to tie off the sheets when wind pressure is exerted. Something tells me the occupiers have a Plan X to fail the records of banks and title companies and other public records by hacking their databases or otherwise looting from within. The recent hacking of credit card accounts to gift donations to American Red Cross was probably a warning. Follow the money if you can!

  113. TheresStillHope January 14, 2012 at 11:22 pm #

    Very good article, but for me this just tells me the how as I already have a pretty scary view of the what. Although we are talking economics here, the big picture goes much further. Taking a revisionist view of history allows us to see the extent of the powers that are at work here.

    This will take a few paragraphs but stick with it.

    WW1 was supposedly started as a result of a political assassination. But the economic results tell the real story. The aim was to destroy the Russian, Austro-Hungarian, Ottoman and German Empires. The British Empire was to survive but as a bankrupt servant to the bankers. The wealth of Europe was to end up in the USA, through the purchase of war munitions, which had just before the outbreak of the war been economically subjugated via the Federal reserve act of 1913.

    All this was all planned out carefully before the world began.

    The revolutionary machinery at been in place since the Russian revolution of 1905. Lenin was transported from Switzerland to Russia via Germany, and Sweden in the midst of war. The secret services of these countries (and Russia) aided in his relocation. The banks had long since infiltrated the secret services of all countries in which they operated.

    Ottoman Empire
    Beside the destruction of this empire the main aim was to gain control of Palestine. The mysterious Balfour Declaration that followed the war underlined the bankers influence in the UK

    German Empire
    At the opening of hostilities, Germany only had enough supplies to last just over a year of war. Germany was an export led economy, and depended on imports for many of her industries. The great secret is that Germany was supplied with abundant war materials from Britain!

    The supplies were sold by Banker owned British corporations to Neutral states like Denmark, Norway and Sweden. The whole scheme is detailed in the book “Triumph of Unarmed Forces(1914-1918)” by M.P. Consett.

    Anecdotes from this book include.
    1. Norway exported Iron Ore to Germany which was used to build submarines. Norway relied on British Coal to fuel its ships. British firms (Banker firms) knowingly supplied this coal.

    2. Shipments of British Fish arrived in Copenhagen, and were loaded onto trains for Germany, despite the fact that fishmongers in Denmark were empty.

    3. Germany required huge quantities of Glycerin to make explosives. Britain had ample supplies from the empire. Once war broke out, orders for this feedstock from neutral countries increased. British (banker) firms filled these orders, and banker firms in Neutral countries sold them on for huge profits.

    The full text of the book can be downloaded for free by googling the title.

    A similar web existed for WW2 but no need to labour the point. To the bankers/elite nations are transparent. Borders are meaningless. Through orchestrated wars, and fractional reserve banking, they already control most of the worlds wealth.

    So to the present.

    The aim is clearly to impoverish and enslave the masses. They are hardly making a secret of that. But is has to go further than that.

    1. So many crimes have been committed in looting the world’s wealth that a repressive regime must be put in place after the inevitable crash. Otherwise there would be some form of reprisal.

    2. The abolition of personal property must be on the cards. Most people won’t see the crash coming, even those who have been warned. So when it comes, most will still expect the government to help them. One way to so this will be to point out those who have conspicuously survived, and suggest leveling the playing field.

    3. I would be remiss if I did not mention the fact that another war is almost certainly on the cards. Some think is is just a way to distract the masses. I think it was planned long ago. The presence of the State of Israel in the midst of so many Arab nations was not coincidence.

    The governments will side with the banks when the time comes.

    The UK has been owned by the Crown Temple Corporation since Cromwell put the crown up as collateral during the civil war.

    The US was bankrupted by design by the Federal Reserve in 1933. The president is just the president of the corporation of the US. US Citizens are human collateral against the national debt.

    The EU is bankrupt and the nations are already being swallowed up. Greece and Italy are in “Administration” by bankers and Hungary looks like being next.

    • P.M.Lawrence January 24, 2012 at 12:39 pm #

      Some of that First World War information is at best misleading, thus:-

      – Norway only exported iron ore as a transit trade; it was actually Swedish, but going through ice free Norwegian ports during winter (this was the strategic significance of the 1940 Narvik campaign). The ore could still get through without that, but German stockpiles – or more expensive overland transport to southern Sweden – would have been needed to buffer the winter interruption.

      – Norway did not depend on Britain for coal, precisely. It was just that that was its cheapest and most convenient supplier. But precisely because that would have created a strategic dependency, Norway second sourced by operating its own coal mines in Spitzbergen (there is no coal in Norway proper). That led to the peculiar condominium arrangements there between Norway and the U.S.S.R., that were formalised in the 1920s or thereabouts.

      – It was indeed the case that Germany had insufficient glycerine production for a sustained war – in 1914. But on the one hand, it had sufficient stockpiled for the short term needs it anticipated, and on the other hand before that stockpile ran out it found a way to produce enough by fermentation (spiking yeast nutrient with sodium bisulphite to tilt production away from ethanol, which was later improved further by developing more suitable yeast strains). This is a striking analogue with Britain’s finding a method of fermenting enough acetone for sustained war needs, which first gave Chaim Weizmann his Zionist political leverage as its developer.

      The constraints, though real, were not as rigid as your information makes it appear.

  114. Troy Prideaux January 30, 2012 at 1:43 pm #

    I heard the Wall St Journal ran a story today on MF and the disappearing money:

    “Nearly three months after MF Global Holdings Ltd collapsed, officials hunting for an estimated $1.2 billion in missing customer money increasingly believe that much of it might never be recovered, according to people familiar with the investigation.”

  115. Phil T. March 19, 2013 at 5:14 am #

    Bravo Golem !

    I have just re-read this incredibly prophetic article that was revealing and informative when it was written. Now, in light of the recent situation in Cyprus, it takes on additional new meaning …

    Cheers mate …

  116. Just me April 18, 2013 at 5:43 pm #

    “US Mint Sells Record 63,500 Ounces Of Gold In One Day”


  117. kiers September 19, 2013 at 7:52 pm #

    IN ALL THINGS in our times, humanity is being subordinated to a venal Golem!!

    In Finance, it is as you mention “will all have been redefined as subordinate to finance and its contracts, and our citizenship will have become second to one’s contractual place in a web of private debts” (aside: even “equity” the concept,….has verrrrry tenuous “value”…actually none at all….all that money wasted in capital markets: http://antisophism.blogspot.com/2012/07/the-failure-of-conventional-equity.html )

    In Technology, entire legions of undergrads are literally “creaming their pants” for an opportunity to slave away (for pay) on algorithms that will subject human beings to algorithmic measurement/judgement/and eventually algorithmic justice. People are “busy” staring into their personal cpu screens constantly. at the expense of human interaction. These are the “cool ideals” of Gen Y.

    In media….well less said about the propoganda fields the better.

    In Government…unprecedented spying using the above mentioned technology fields means an end to individuality and presumptions of privacy and freedom of expression. Less said the better here too.

    Everywhere it’s about Golem and not Humans.

  118. Regan February 20, 2014 at 6:10 pm #

    Hello there! Would you mind if I share your blog with my zynga group?
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    your content. Please let me know. Thanks

  119. lintas.me September 18, 2014 at 6:08 pm #

    It would probably have taken more than the two identified
    Iranians to control the 239 passengers and crew on MH 370.
    details, press, cerita, berita, info, fakta,
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  120. ask February 22, 2015 at 11:36 am #

    Thanks for finally writing about >Plan B – How to loot nations
    and their banks legally


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    […] 17, 20011 “Golem XIV” — Is there a plan B? That question is usually asked of governments regarding their […]

  6. Plan B – How To Loot Nations And Their Banks Legally « InvestmentWatch - December 20, 2011

    […] Plan B – How To Loot Nations And Their Banks Legally (December 15, 2011) “So when a bank goes bankrupt, BEFORE even the most senior bond holders, the repo lenders and derivatives traders can remove, or keep all the assets pledged to them. This amendment which was touted as necessary to reduce systemic risk in financial bankruptcies also allowed a whole range of far riskier assets to be used, making them too immune from the automatic stay in the event of bankruptcy. Which meant traders flocked to a market where risky assets would be traded and used as collateral without apparent risk to the lender. The size of the repo market hugely increased and riskier assets were gladly accepted as collateral because traders saw that if the person they had lent to went down they could get your money back before anyone else and no one could stop them.” http://www.golemxiv.co.uk/2011/12/plan-b… […]

  7. Plan B – How to Loot Nations and Their Banks Legally | σκαθάρι - December 20, 2011

    […] David Malone December 17, 20011 “Golem XIV” — Is there a plan B? That question is usually asked of governments regarding their […]

  8. Plan B – How to Loot Nations and Their Banks Legally « www.olympia.gr - December 20, 2011

    […] 17, 20011 “Golem XIV” — Is there a plan B? That question is usually asked of governments regarding their […]

  9. The discreet dash for the exits « forensicstatistician - December 21, 2011

    […] excellent post on Golem-XIV so graphically highlights both that the claims are coming in (and so the leverage is collapsing […]

  10. Why it is the way it is... | Nominedeus - December 26, 2011

    […] http://www.golemxiv.co.uk/2011/12/plan-b-how-to-loot-nations-and-their-banks-legally/ […]

  11. More Info on the MF Global Crime Scene « muses of the moment - January 12, 2012

    […] most importantly: click here for a great post that explains how the blueprint of crime that is the MF Global bankruptcy will be […]

  12. 11612 Gleaning | The Truth is Not a Choice - January 17, 2012

    […] Plan B http://www.golemxiv.co.uk/2011/12/plan-b-how-to-loot-nations-and-their-banks-legally/ […]

  13. Poster's Paradise » ferret, yer 00:47, found this in the comment section at ZH, good article - January 17, 2012

    […] http://www.golemxiv.co.uk/2011/12/plan-b-how-to-loot-nations-and-their-banks-legally/ Posted by macroman2 @ 9:22 am :: Uncategorized Comment RSS […]

  14. Poster's Paradise » macroman2 @ 9:22 am: great link, explains a lot - January 17, 2012

    […] http://www.golemxiv.co.uk/2011/12/plan-b-how-to-loot-nations-and-their-banks-legally/ Posted by goldcountry @ 11:05 am :: Uncategorized Comment RSS […]

  15. Ilargi: Promises, Promises … Detroit, Pensions, Bondholders And Super-Priority Derivatives « naked capitalism - September 3, 2013

    […] 2005 legal amendment to bankruptcy, which has has broader reach than just the United States, greatly reduced the risk for financial institutions to deal with weak parties. In fact it gave them an incentive to do so, in the knowledge that their claims would be protected, […]

  16. The Hidden Government Guarantee that Props Up the Shadow Banking System by Ellen Brown | Dandelion Salad - September 18, 2013

    […] pushed through by the banking lobby with few questions asked. In a December 2011 article titled “Plan B – How to Loot Nations and Their Banks Legally,” documentary film-maker David Malone wrote: This amendment which was touted as necessary to […]

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