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What bankers don’t know

A great deal has been written about what corrupt bankers knew and when they knew it. I want to look at what they didn’t know. Not from a desire to be perverse but because what bankers knew and when, the stuff of good investigative journalism and legal cases, is what you need in order to prove an individual’s guilt.

What I am concerned with, is what hard working bankers really didn’t know, when with hindsight, we can see it was astounding that they didn’t know. Because that points the finger at the whole system. To gaol a few of the more flagrantly repulsive bankers, while invigorating, leaves the system untouched. It allows the guilty-but-uncaught to heave a sigh of relief and be able to talk of ‘a few bad apples’ and ‘lessons learned’ and ‘by the way, where’s my bonus?’

I want to look at the  truely breath-taking extent of what bankers really didn’t know and show that the banking system itself ,was and still is so genetically malformed that not only is it a breeding ground for the cancerously corrupt, the vicious, the venal and  the morally stunted, but that the system itself, in its entirity, would have collapsed even without them. The problem is not the corruption of a good system but the flourishing of a thoroughly bad one.

The Stupidity that was.

Let’s start with some of the most astonishingly stupid things that were done in the early days of the bank crisis:

2007 (October) Royal Bank of Scotland (RBS) bought a very large part of Dutch banking giant, ABN Ambro for an eye-watering £49 billion.

2007 (October) German bank HypoReal Estate bought another German Bank Depfa for €2 billion ABOVE what even Depfa itself thought  it was worth (personal communication from a former Depfa director).

2008 (July) Bank of America (BoA) bought CountryWide Financial.

2008 (Sept) Bank of America (BoA) bought Merrill Lynch

2009 (May) Commerzbank bought Dresdner Bank.

There are many others of course, but these are the recent ones, which were clearly commercial decisions and not, like the 2009 Lloyds Bank purchse of  HBOS (Halifax/Bank of Scotland) or the ‘rescue’ of Bear Sterns, a government backed TBTF operation.

Each and everyone of these deals ended in bankruptcy and a vast public bail-out. How could they have been so stupid? Let’s ask them.

Here is an email (taken from p. 197 of the Consolidated Class Action filed in NY District Court against Citi) sent on 3rd March 2007 from a senior Bear Stearns Fund Manager Ralph Cioffi to his fellow Fund Manager Matt Tannin.

“…the worry for me is that subprime losses will be far worse than anything people have modeled”

Yet four days later on the 7th March Mr Cioffi wrote to another colleague,

Matt [Tannin – Cioffi’s fellow Fund Manager at Bear Stearns] said it’s either a meltdown or the greatest buying opportunity ever.

And there you have it. In 2007 Matt Tannin, senior Hedge Fund Manager at one of Wall Street’s oldest banks, Bear Stearns, didn’t know if it was going to be a meltdown or the greatest buying opportunity ever. And this is despite the fact that Tannin and Cioffi and everyone on Wall Street, had already had a couple of years worth of clear evidence that asset values were collapsing and the securities based on those valuations were becoming unsellable. Don’t take my word for it, you can read page after page of first hand testimony from the dealers and senior executives themselves, in every section of the financial industry, in the Class Action linked above.

Thus this isn’t the corruption of a good system by a few crooks. This is clever, though probably morally stunted people, hard at work in an utterly dysfunctional and destructive system. The same system we still have. No matter what evidence was piling up the priests of global finance just could not believe it was all a disaster or that there was anything fundamentally wrong with what they were doing or the system in which they were doing it. They just could not see that it could be anything more serious than a massive market ‘correction’ in which case there would be equally massive rewards for those greedy enough to take the gamble. As late as 2009 RBS, BoA, Commerzbank and Hypo Real Estate all still thought it was the perfect moment to borrow tens of billions in order to buy hundreds of billions worth of another banks’ loans, assets and libilities.

But back to Mr Cioffi who has more to teach us. By 23rd March 2007 Mr Cioffi had come to a personal conclusion and started to move his own money ($2 million) OUT of the funds he was managing. By 19th April, Bear Stearns had commissioned and received a report on its CDO Sub-Prime holdings.  Matt Tannin emailed Ralph Cioffi and said,

…the subprime market looks pretty damn ugly… If we believe the [CDOs report is] ANYWHERE CLOSE to accurate I think we should close the funds now.  (My emphasis)

But he and Mr Tannin did not close those funds nor advise investors to get their money out. To the contrary, in a conference  call to the fund’s clients Mr Cioffi said,

 “there’s no basis for thinking this is one big disaster,”

Sadly it was for the investors who listened to him. Those people stayed in until the funds imploded as did the entire bank shortly after. Matt and Ralph were charged with fraud by the SEC and taken to Federal Court. Where they were aquitted.

Why were they aquitted? Were the jurers knobbled? I don’t think so. One of the jurors Serphaine Stimpson, said afterwards,

“They were scapegoats for Wall Street.”

I think Ms Stimpson was correct. Cioffi and Tannin were revolting creatures who protected themselves from a looming disaster but ‘honestly’ (On Wall Street it’s a relative term)  couldn’t bring themselves to believe that the entire Wall Street, global financial edifice was a suppurating pustule. They also knew full well that if they advised clients to get out and closed their funds it would reveal the truth and that in turn would unleash panic. So they didn’t.

They no doubt felt that while there would be a disaster for some, there would still be money to be made for a few of the, luckier or ‘smarter’, ones. I suspect they would still count themselves as among the ‘smarter’ and acted accordingly.

What’s more, no matter how massive the losses that would be inflicted, I suspect our loathsome twosome also thought there had to be someone who had to take the risks and suffer the losses, in order that the system itself be preserved to profit another day. Only they wanted to make sure that that ‘someone’ was not them personally. On this, the rest of the Global Financial class agreed with them. Today, five years in to the cataclysm, it is clear that that ‘someone’ was only ever going to be you and me. Someone had to be frogmarched up to ‘save’ the system but it was never going to be the wealthy. Those senior bond holders are oh so sacrosanct. Whereas depositors, well they can be bailed in can’t they.

I have dredged Mr Cioffi and Mr Tannin back into the light not simply to pour more scorn on them but to make it clear they were not unusual. They were not guilty of anything that the whole of the global financial system was not guilty of. The larger point about them is not their personal repulsiveness but their averageness. They were two Mr Normals in the workings of the financial and banking system. They did nothing ‘wrong’, nor even unusual. They were not rogue traders. What was wrong is the normal working of the system.

The wider picture.

Let’s go back to that roll call of takeovers. What we need to keep firmly in mind is that these takeovers were done by people who were earning millions and who insisted they were so clever, so ‘smart’ they were worth every penny and cent. They did what they did at their own pace with no constraints or outside pressures.

What this means in practice is that all the buyers, RBS, Hypo. BoA and Commerzbank had full and unfettered access to all the information they needed to understand fully what they were going to buy. For example when Hypo bought Depfa I know from a someone who was at board level at the time, that a special room was created which contained all the information DEPFA had. The books were open for scrutiny. Hypo executives had full and unfettered access. There were experts on hand to answer any question. I wrote about it in the second part of ‘Ireland was Germany’s Off-shore Tart.’

And yet, they paid €2 billion over the odds and it led very quickly to the absolutely titanic collapse of both and a bail out of Hypo to the tune of something in the region of €180B.

I have talked of Depfa because I have been told what happened by someone who was involved. But the same, or something very similar,  would have happened in all the takeovers. It is required by law. It is Due Diligence. You cannot spend share holders money without being able to tell them you know what it is you are buying. Thus we know that Commerzbank executives looked at the opened books of Dresdner. That RBS experts looked closely at ABM Ambro’s assets and loans and came to the highly paid view that this was worth spending £49 billion on, and that BoA top brass pored over the inner most secrets of Merrrill Lynch and CountryWide. To suggest anything less would be to accuse them of dereliction of their duty, of something very near to fraud, and that would be libelous would it not?  And yet each and every one of these deals ended in disaster on a global scale.

So where does this leave us? To my mind there are only two possible scenarios. Either DEPFA, ABN Ambro, Merrill, Dresdner and Countrwide executives all lied and concealed and thus all the information Hypo and the other buyers were seeing was a pack of lies, in which case the Hypo et al bankers did their jobs but were misled by crooks. Or, Depfa and the other sellers did faithfully lay bare the truth but the buyer bankers were either too stupid to see or did not care. You tell me is there a third, happier scenario I am missing? I know many banks log on and read this blog so one of you write in and tell us what the third, missing scenario is. Write to me confidentially. I really would like to know if I am missing the obvious.

But before anyone suggests that everything was honestly revealed by the sellers and all competently understood by the buyers, but that both were foxed by unforseen events which so changed cirumstances that a few deals did go bad – before you try to tell us anything like that – please refer back to the Tannin and Cioffi emails above and in fact to the rest of the evidence in the Citi indictment. Events were certainly NOT unforeseen. And please also remember that it wasn’t just a few deals that went bad, it was in many cases 100% of whole groups of securities and thousands of deals which went bad and turned out not to be anything at all like they were supposed to be -as the paperwork claimed they were. Citi lied. It’s there in the indictment. So did Merrill. So did all of them.

So am I saying it was all the sellers fault? No I am not. We cannot know that for sure in every case. We only know it for sure in some cases. In the rest we don’t know who was more to blame buyers or sellers. But it doesn’t matter does it? That is the point. Stand back and what do we have? Either we have banks full of bankers who are corrupt liars or we have banks full of the slow witted and guillible who do not understand the financial deals it is their job to understand…or both. Either way we are left with an industry that  did not and – unless everything has magically improved – cannot and will not do its job. We have a financial system which in very important ways, critical ways, is staffed and run by people who, whether by criminal and moral  degeneracy or simple stupidity, are not fit for their jobs.

It seems a terribly sweeping statement I know. But run back over how we got here and tell me where we, I, went wrong.  Unless you can find the place we lost the thread, then what else can we conclude other than that we have a banking system which is not fit for purpose? Or perhaps I should say, is not fit for the purpose we were expecting. It does leave the possible conclusion that our bankers and regulators are all very fit for purpose it ‘s just a rather different purpose from the one we expected.

What one banker didn’t know.

Before I conclude, I want to return from the general to the specific. Let us hear from another insider, this time the Chief Risk Officer of Bank of America during the time it was buying Merrill and CountryWide. Please welcome Amy Woods Brinkley. She was once considered one of the 25 most powerful women in banking (according to US Banker magazine).

BoA bought CountryWide in July 2008 and Merrill Lynch in Spetember 2008. In Late September 2008 just as the ink of both deals was about dry, Amy Woods Brinkly gave an extensive interview to Forbes Magazine. In it she was asked why BoA bought Countrywide.  She replied,

Our company did very extensive due diligence. I’ve been involved in a lot of our acquisitions and I don’t recall one that was more thorough. During that process I became increasingly comfortable; the problems at Countrywide were real, but they were also manageable.

Forbes pressed the point asking surely she was worried about the estimates of the write downs on Countrywide assets which were already being talked about as being between $8 -$30 billion. I should also mention that in March 2008, five months before BoA bought it, The FBI announced it was investigating CountryWide for fraud on mortgages and home loans. It didn’t stop BoA going ahead and buying, but presumably it did make them even more diligent.  Ms Brinkley’s reply –

As we said a number of times, we did very extensive due diligence on the transaction, not only before signing but going back in before closing the transaction, and we believe the economics made sense and the market-share opportunity is worth the risk…So again, just before closing the transaction we revisited the economics and we are comfortable with what they tell us.

Brinkley was rated by her peers as one of the best. Was she lied to? Were the lies so clever, so convoluted that she just missed them – all the many thousands of them? Or was she actually quite a stupid person seen as a genius by other fairly thick people? Or were they all, collectively, so cock-sure of themselves and the system which had made them rich and powerful, that none of them could see clearly any more? I think it is this last explanation which rings true. I am sure lies were told. We know from court documents and extensive anaysis of thousands of deals which were done and sold in the bubble years, that there was systemic fraud. What we don’t know is if everyone could see it was fraud or if they all had become captured by an ideology which said fraud is just ‘good’ business.

It’s worth bearing in mind that however senior and clever Ms Brinkley was, she was not the only one who was responsible for vetting the deal and doing the due diligence. Every deal has ranks of lawyers and experts who are handsomely paid to pour over the details and make sure the deal is sound. In the case of BoA and CountryWide the Washington DC law firm K&L Gates advised. Just as in the Depfa/Hypo case Goldmand advised.

However, it was Ms Brinkley who was thrown under the bus. She lost her job. She was replaced by Mr Greg Curl who had been the senior deal maker for the  Merrill deal. The Merrill deal has cost BoA $30B and counting. He too has now left the bank though he’s still in finance.

Today.

Is this all history? No it’s not. Most of the people who lied and/or “didn’t know” back then are still in the financial system, still lying to us, the regulators or themselves. Just this week one of the only really ethical banks in the UK the Co-operative Bank has had to come clean about the scale of losses it inherited when it bought the Britiannia Building society (at the time the second largest in the UK) …in April 2009.

I may be biased, I bank with the Co-operative, but I don’t think they are a fraudulent organization. I think they really do operate more ethically than most. Possibly running second, among UK banks, only to Triodos bank. But the fact is the Cooperative bought Britannia at the height of the crisis after doing its due diligence. And yet the losses the Cooperative bankers didn’t see are so large the Coop bank has found its debt downgraded to junk.

I suggest, if you are willing to consider that the Co-operative bank and its bankers are a little more honest than most, that this indicates that it is the system itself, the origination of loans, how they are structured, how securitization works, how bankers are trained, how complex the financial products and deals are, that is the problem. Beyond even corruption, of which there is no shortage, the system itself is crap. It is not fit for any positive social purpose. It enriches the few while systematically endangering and then impoverishing the many. It concentrates power in a few hands who then insist that democratic power should be taken out of the hands of the many and given instead to technocrats drawn from the ranks of the few.

In conclusion.

Our financial system would have collapsed simply because IT DOESN’T WORK, not as an open and equitable system. Sure it makes profits… for some.  But so does riding around in a Mongol Hoard sacking cities. The present financial system is NOT a fair and open system where by dint of hard work, insight, research and expertese anyone can have a reasonable chance of prospering. It has not and will not NOT work as a repository for hard earned savings and pensions. Both are being systemaitcally pillaged for the ‘good’ of the major banks.

Whether one believes the capitalist system is a good thing or not, or even a potentially good thing, what we can perhaps all agree on is that it – our financial system – is NOT at the moment good for the many, and will not be in the future, if left in the hands of the repulsive elite who presently run it, defend it, facilitate it and profit by it.

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67 Responses to What bankers don’t know

  1. Roger May 14, 2013 at 6:36 pm #

    Welcome Back David.
    Just watched this Movie, Recommended Viewing.
    http://en.wikipedia.org/wiki/The_International_(2009_film)
    All the best, Two Blogs in one day an unexpected treat.

    All the best

    Roger

  2. Roger May 14, 2013 at 6:50 pm #

    Here, Here!

  3. Alan D May 14, 2013 at 9:12 pm #

    Another great post.
    I have always referred to the 1st July 1916 the first day of the Somme when I am being sold a pup. Those brave men rose from their trenches assured by their leaders that the Germans had been destroyed by the 7 day artillery barrage, however by the end of the day 19,240 men were dead. Did the generals shoot themselves to a man the next day, no they carried on till November until they had run the number up to 500k or so.
    Most well balanced sane people would never want that kind of responsibility so they stand aside and the sociopaths and the psychopaths rush in, they have no trouble believing anything which suits their superiority for command. Its been going on for ever Kings, Queens Emperors, bankers, capitalist’s there is only the drive for power and or money by this small group of people. That’s how they off shore 32trillion, more money than they can ever use and still they want more, they even severely damage the world economy, they just want more, normal people are an irrelevance to them, useful idiots so the saying goes. I do not think they even know they are lying they will quickly pass any blame, they cannot be at fault.

    • steviefinn May 15, 2013 at 1:20 am #

      Agreed

      I think the great shame of it is that these equivalents of spoilt brat 3 year olds have managed by their behaviour to terribly damage everybody else. If they hadn’t I would care little how many jets they had or what size house or yacht they need to match the actual size of their ego or wished for size of something else. Personally I think it’s a pretty miserable philosophy for life, one that a crocodile blessed with human intelligence might choose to follow.

      We surely are more than just human cash registers or power junkies who appear to have no real concept of unconditional love or empathy – Destined to be slaves to those who temporarily thrive on the cancers of power & greed..

  4. Tomas Devine May 14, 2013 at 10:14 pm #

    “collectively, so cock-sure of themselves and the system which had made them rich and powerful, that none of them could see clearly any more?” Democracy was formed for the reason of “power” for too long corrupted the mind ! (not saying democracy is the “answer”) But 1 thing I would add success in the capitalist world ALWAYS is at the cost of either 1 or many other human beings. David never stop and all the best to you and yours !

  5. desmond May 14, 2013 at 10:50 pm #

    What a clear and concise post this is. The financial system we have is not a capitalist system. If it was, bust would mean bust and the result would be that ‘due diligence’ would become exactly that instead of inept rubbish. Weakness breeds more of the same if allowed to and evidently it is endemic now. The only solution has to be back to square one. Real banking and NO fractional reserve so called banking. The whole system is so bankrupt that fiat currency will become completely worthless.
    These banksta goons have led us all over the cliff just because of their rampant greed. It started with the threat of systemic breakdown if they were not bailed out. Well THAT was the systemic breakdown. Our capitalist system demands that bust and bankrupt business is liquidated. The fact that it isn’t is systemic cancer. And it continues to impoverish us all..

  6. ch-ch-changes May 15, 2013 at 12:04 am #

    In practice, in my much lower level experience, due diligence is an exercise in summary data analysis. The risk weighted spreadsheets crunch numbers, a few bits of data are seen, understanding is by nature distant.

    In the end, the devil is in the detail. And you’re not designed to get in there during due diligence. But that’s where the bodies are – no matter how fast they try to shuffle things around to blur the picture, the bodies remain. Back to the collateral you spoke of last – that and the increasing economic power of the non west.

    Like so much of their terminology, due diligence is double speak, once more disguising the truth

    Yves Smith has gathered some interesting whistleblower testimonies in the US too
    http://econ4.org/tag/yves-smith

  7. phillwv May 15, 2013 at 1:47 am #

    Scientists regularly delight us with oddities of nature. Bush cricket testes 14% body weight, female spider devours spouse; Gobi’s inflatable hedgehog. Similar anomalies of human character seem to inhabit the banking ecosystem – self and career ahead of corporate or national well-being, even human survival.

    Yes, the banking system is essentially crap – and one of civilization’s cleverest and most perverse inventions. Studying modern banking and its grip on the world is increasingly like peering into the minds (err, mind virus?) of those non-humans who run the planet.

    • mohenko May 16, 2013 at 10:44 pm #

      …. or modern banking reveals that those who run the planet regard us as non human…

  8. Bud May 15, 2013 at 5:38 am #

    Stupidity tends to come before criminality as the more frequent explanation of calamities.

    And greed, of course, which tends to foster stupidity.

  9. Phil T. May 15, 2013 at 6:37 am #

    …We have a financial system which in very important ways, critical ways, is staffed and run by people who, whether by criminal and moral degeneracy or simple stupidity, are not fit for their jobs…

    I believe the phrase Culture of Corruption is applicable and appropriate to encapsulate the above excerpt and in general towards this post.

    In his blog, Charles Hugh Smith writes extensively concerning the societal, cultural & institutional underpinnings that promote cultures of corruption. I have linked 3-such articles here:

    What Have We Learned in the Past 13 Years? (January 24, 2012)

    “We can find an analogy to these “lessons learned” in a spoiled teenager who refuses to study and is failing but discovers that cheating can “save the day” with much less effort than actually learning. We as a nation have learned how to cheat, and now we think that learning how to cheat and create the perception that we’ve actually learned something can be substituted for making the necessary sacrifices to actually learn something.”
    ==> http://www.oftwominds.com/blogjan12/what-have-we-learned01-12.html

    There Is No Shortcut, But All We Have Are Shortcuts (April 2, 2012)
    “We all like shortcuts because they minimize the pain and sacrifice required to reach a destination. But there is no shortcut to mastery of a difficult skill or subject; cheating on the final exam to get an A doesn’t mean you mastered the subject. Yet cheating is all we have in America because sacrifice and adult trade-offs are too painful.”
    ==> http://www.oftwominds.com/blogapril12/no-shortcuts4-12.html

    Ethics: a Non-Issue in America (February 15, 2008)
    “I find it curious that lying, fraud, sins of omission and misrepresentation play absolutely no part in the national debate on how best to “save” at-risk homeowners and lenders.”
    ==> http://www.oftwominds.com/blogfeb08/ethics.html

    Cheers !

  10. Hubert May 15, 2013 at 8:42 am #

    Agree generally.
    You might still entertain the thought that there were other reasons for some of those banking acquisitions. BofA could have sold CDS on Countrywide (there was some rumour then) and Merrill maybe, there could have been political pressure in all stages (there was certainly in the end with BofA and Merrill).
    Also if a bankrupt organization (Depfa) takes over another bankrupt organization (HRE) – what is the commercial risk for the bankers ? It might be even beneficial, creating a new TBTF out of two SETF (small enough to fail)….
    Truth is, we might never get to entertain more than an informed opinion.
    Another reason to call for a sort of Pecora Commission.

  11. Golem XIV May 15, 2013 at 9:00 am #

    Morning Hubert.

    Agree about a sort of Pecora Commission. We’ll never see one though.

    CDS on CountryWIde? It would have taken a boat load to help them. And they didn’t. Anyway who would have bought those? Don’t answer that.

    On Depfa/HRE you’re close. It was HRE that was bust and thought it could live if it bought DEPFA which had much higher quality assets. Didn’t work though. The details – from a first hand player are in the ‘Off-shore Tart” articles if you’re interested.

    As for the truth – I fear you are quite right. More chance of finding our who shot JFK.

    • Hubert May 15, 2013 at 5:41 pm #

      I should have formulated more clearly reg. CDS: My theory is that BofA wanted to take over Countrywide even earlier and had sold CDS on them in advance (as there were lots of bidders, and CDS prices would have gone down drastically with BofA as new owner). When they found out how big the shit was piled up in COuntrywide books they might not have had any other chance than to proceed or losing big in CDS. Just a private theory which would make sense …..

  12. bill40 May 15, 2013 at 10:43 am #

    Golem,

    The problem is always the culture and the culture is be big. This direction is set at the top usually by a bloke who is in a state of constant anxiety about the size of his scrotum as seen by his rivals. You have to get with the programme and deliver size. Anyone not with me is against me. In deals there is the quick and the dead so get the deal or die.

    Now what chance does a voice of caution have here? The Ambro deal was pushed through to satisfy one mans ego. That is what the system has been turned into.

    • steviefinn May 15, 2013 at 2:11 pm #

      A system that ensures it brings out the worst in everybody caught up in it, for example: Fascism, communism or Stalinism & feudalism. All examples of systems based on the predation of the few over the many, where the same types ( despite the labels they wear ) end up sitting at the high table.

      My experience of people over the last 55 years has shown me that for the most part, (if given the chance) most of them would behave just as badly as the bankers. There is a widespread belief that wealth & fame brings happiness, status is earned & backed by wisdom, although the evidence seems to prove the opposite. I have often seen power, gladly taken at the smallest scale, & for the most part change people & circumstances for the worst. It would I suspect take an unusual person to risk his mortgage, his kids education, his possible wife’s wrath to make what would likely be a pointless moral gesture, especially judging by Jonathon’s experience & whistleblowers under Obama & his like.

      I often wonder if things did degenerate to certain terrible levels as previously experienced during famine & warfare, What depths could or would I sink to in order to protect my family or even just my own skin ? Would I end up falling back on the
      ‘ Just following orders ‘ excuse ?, whether I was blowing someone’s brains out at the side of a pit or informing on a neighbour in order to curry favour with the very minor local jumped up official, simply because I was starving.

      We should know what the majority of us are capable of & guard against it. These systems are like cancers, the financial, corporate & military versions of this disease have succeeded in totally infecting the body politic. There are fools out there who think they can control these gigantic beasts that were spawned from greed & the lust for power, but Nemesis will as ever feed on such hubris.

      Is entropy a factor too ? I read somewhere recently that the universe is now producing less & less stars, will we have the equivalent of a last ditch wipe the slate clean supa-nova, or a slow slide into a feudal dark ages ? A ‘ Game of thrones ‘ minus the magic bits. It’s not easy being positive.

      • pilibi May 20, 2013 at 10:42 pm #

        No one has tried Communism yet. Communism is not based on the predation of the few over the many.

        “My experience of people over the last 55 years has shown me that for the most part, (if given the chance) most of them would behave just as badly as the bankers.’

        Is your experience based on living under Capitalism only ?

        • steviefinn May 21, 2013 at 12:41 am #

          pilibi

          Perhaps i am missing something but wasn’t communism kind of fashionable in the USSR not so long ago ? with various other flavours of it in China & elsewhere ? Maybe I am wrong but these systems were run by small elites who I assume did very well as opposed to the vast majority of their populations who were stuck in a competition between Joe & Mao as to who could become the biggest mass murderer in history.

          The Eastern bloc countries were also run by corrupt elites, who enriched themselves behind a wall of state inflicted terror. One of the soul destroying facts in regards to those in Hungary who are fighting the neoliberal forces there, is that the old communist elite is still in place & still looting the people with their new friends the bankers.

          I think the worst in people might be brought out in a different way in a communist state rather than a crony capitalist one. I think that both have proven to be destructive to community & to the growth of the individual & invariably end up with the same type of rats in charge at all levels. I think we are heading into a state of Corporate Fascism which I hope will implode. I do not want it replaced by another potential global behemoth that represents raw power & cares little about the mass of it’s people, I hope for something on a much smaller local scale based on a socialist democracy.

          Probably an unattainable pipe dream, but given a chance I would give it a shot. You assert that communism has never been tried, so you presumably also have no experience of how people would behave under that system & I imagine you reject the criticisms levelled at the above examples, states that you must consider as faux versions to your Utopian vision anyway.

          • pilibi May 21, 2013 at 10:18 pm #

            “Perhaps i am missing something but wasn’t communism kind of fashionable in the USSR not so long ago ? with various other flavours of it in China & elsewhere ? Maybe I am wrong but these systems were run by small elites who I assume did very well as opposed to the vast majority of their populations who were stuck in a competition between Joe & Mao as to who could become the biggest mass murderer in history”

            Stalinism was not Communism, Stalinism was state-capitalism that could never compete with Western style Capitalism. The Eastern bloc economies were all run under centralized Soviet control.

            China too has had to bend in face of aggressive Western Capitalism.
            It too is a has centralized control just like the Western ‘democracies’.

            Capitalism doesn’t allow any other alternative to exist. What is needed is global economic revolution where Capitalism is completely destroyed. Communists always recognized this as a prerequisite to achieve freedom from the tyranny that is Capitalism. Democracy and Capitalism can never occupy the same space. How can they?

            Socialist democracy cannot exist within a Capitalist framework. How could it and yes it is a pipe dream.

            “You assert that communism has never been tried, so you presumably also have no experience of how people would behave under that system”

            I have no experience of how people would behave under Communism. This is true. I only know how people behave under Capitalism. How else could they behave under a system that is brutal and destructive in every conceivable way.

            We need revolutionary thinking and that does not include the rehabilitation of Capitalism in any of it’s manifestations.

          • steviefinn May 22, 2013 at 12:40 am #

            Stalin was Lenin’s inevitable Frankenstein’s monster, a creation that evolved from the violent measures employed in order to maintain the revolution. I would suggest that the same thing would happen again as it is unlikely that the majority would rally behind a hammer & sickle, red star etc. In fact it looks very much like the forces of the right would be the preference judging by what is happening in Europe. So the first job would be to defeat the right, this victory in order to be sustainable would need to be worldwide & I imagine would need repressive controls over populations who might not be too keen on being part of a totalitarian state.

            You mention Democracy, something that as far as I can tell the various forms of Communism has had not much use for. Will you allow the proletariat to vote ? Will you allow candidates to stand from social Democrats etc ? or will you decide that you know best what is good for the people ? Will dissension be allowed within books, the theatre, in pamphlets, films, newspapers etc ? How will you deal with strikes that threaten the Motherland ? & how do you propose to control billions of people, if there is any left that is, after the nuclear shoot out with the US.

            You propose a version of the all controlling state, one that I would consider to be fundamentally no different to the Fascist version, in as much as for the construct to survive it has to crush all resistance.

            I must admit to being vague about what I would like to see developing, but the essence is something that is based on localism,using money that is not issued by banks, central or otherwise, a system of voting that is as close to pure Democracy as possible, backed by a forum open to all citizens where issues are discussed & debated, no lobbying or political donations allowed & as much as possible to try & make everyone feel as though they have a place within this community.

            I don’t believe in Utopia & I know that with the best intentions there will be problems, as there were in the hippy communes which I think started with similar ideals. It turned out that the Alpha’s in the group became dissatisfied with the equality & gradually tried to enforce their dominance leading to the eventual destruction of the group, sound familiar ?

            If this pipe dream is just that & I had to make a choice from what we have now & the 2 extremes of right & left, I would choose the former, because it’s deprivations & tatty Democracy are still better than what the other 2 have conjured up & unlike them there is some possibility in changing it for the better for the least cost to the innocent.

            I cannot imagine how you can show why or how your new Communism would be a much improved system, especially on a gigantic, & I suspect uncontrollable scale, to me it reeks of power & massive collateral damage & I hope for yours & our sakes you never make commissar. That is all I have to say on this subject.

  13. John Souter May 15, 2013 at 10:56 am #

    Crux of the problem -as always is greed – the combination of avarice and vanity.

    Ms Brinkley’s quote – market share sums it up.

    In the RBS Avro acquisition it was RBS v Barclays. Both wanted market position advantage over the other, probity went out the window along with due diligence – the kinetic energy created by their size would set them free from any restriction.

    Barclay’s turned lucky when it lost, otherwise it would be it that would have been the one
    nationalised.

    The bigger dick vanity is part of human nature as is the ability to conveniently forget close shaves.

    While you can, perhaps with a great deal of soul searching, get a glimmer of understanding why people in institutions commercial or public might accept the edicts of gain overrides the pain and costs on those deemed as expendable, that glimmer of reason gutters out when it applies to the planet.

    Truth is, as a species we’re not evolved enough to survive being globalised by the domination of any one system. Nor is there any system at present profound enough in its wit, wisdom or paradigm capable of creating it. In effect our diversity is presently our only mechanism that ensures our survival.

    • Yakima Canutt May 16, 2013 at 9:23 pm #

      Fred the Shred’s underlings admitted they had done no due diligence on ABN Amro, they just wanted to be the biggest of the big. And if BoS was still in the bidding, then the Dutch bank must surely be worth it.

  14. Pat Flannery May 15, 2013 at 12:37 pm #

    To me there can only be one explanation (and I first realized this the moment I heard that BofA would purchase Countrywide back in 2008): the American financial system is an integral part of American power.

    Ken Lewis was a swashbuckling “adventurous” Southern boy. He thought he was taking on the New York financial elite from his glass high-rise in Charlotte. He discovered (too late) that he had taken on Washington.

    He quickly realized he had walked into a trap. He knew they would crush him, even assassinate him, if he didn’t do exactly what he was told. Ken was no fool. The BofA takeovers of Merrill and Countrywide were 100% Washington ops. Those who did the “due diligence” were well-trained insiders, including Sheila Bair, who was personally trained by Bob Dole and appointed to the FDIC by George W.

    The American (and its British and German colonies) financial system is fit for purpose all right, it is just not the purpose we think. Eisenhower should have warned us about the Military-Financial Complex, not the Military-Industrial Complex. It is the Washington Military-Financial Complex that today runs the entire world, just as surely and as efficiently as Rome ran the western world of 2,000 years ago.

    • Paso Robles May 16, 2013 at 4:06 am #

      An early draft of the speech including a very similar phrase. I think it was banking-industrial-military complex. That it was struck, or retooled anyway, tells you something about the limits of Ike’s courage and the clout and ruthlessness of the money powers.
      JFK didn’t last long once he started yammering about it in public.

      On your earlier points, you would be correct.

      Peace out.

    • backwardsevolution May 16, 2013 at 9:17 am #

      Golem – another great piece! Thank you!

      Pat Flannery – “… the American financial system is an integral part of American power.” Yes, yes, and yes. It IS their power.

      Paso Robles – “… banking-industrial-military complex.” Ike tried to warn us about them. Kennedy was their warning to us.

      Great comments.

  15. George Hartzman May 15, 2013 at 1:20 pm #

    Conclusion; Wells Fargo Advisors LLC / Hartzman / 4-3750-13-010

    http://hartzman.blogspot.com/2013/05/conclusion.html

    • Golem XIV May 15, 2013 at 4:36 pm #

      Very interesting. Just starting to read a little of your story. Thank you.

  16. Karalan May 15, 2013 at 2:44 pm #

    “Either way we are left with an industry that did not and – unless everything has magically improved – cannot and will not do its job. We have a financial system which in very important ways, critical ways, is staffed and run by people who, whether by criminal and moral degeneracy or simple stupidity, are not fit for their jobs.”

    This statement can be applied to every large societal institution, including the biggest of them all – government and bureaucracy.

  17. Michael O'Neill May 15, 2013 at 5:55 pm #

    Thank you for an interesting article, partly blunted by all your circumlocutions to avoid a libel suit, but all the more humorous for that.

    Would it be too far fetched to suggest that the only person suitable to be in authority is someone who is competent, who takes on weighty responsibility out of a sense of duty or societal or moral pressure, and pursues aims while in office that clearly reflect the public good.

    How do you know such a person? The simple truth is that they will do the job for next to nothing. They will be happy with an income that will support a reasonable lifestyle. A modest home, transport that is suitable (VW Beetle is fine, thank you), one two week holiday – once a year mind! – and a week at Christmas and Easter or whatever other cultural festivities are required depending on society and religious observances.

    These people will be honest and understand the nature of duty to others, of acting in the common good, and their past history should show this characteristic.

    They will serve a term – whatever that is – and then leave. They will not cling to power. They will make a point of planning for their successor(s) from day one and hopefully have a choice of candidates to work with because you have to prepare for every eventuality.

    When they leave they will be given a letter of appreciation and a small award – a token gesture from the people they served with and for. During their time they will receive no bonuses and get no golden handshake when they leave.

    After their term is up, they will turn to other pursuits or offer speaking engagements at a price that covers their travel and accommodation and a nominal stipend that would approximate the average industrial wage for the time involved.

    Now just pause a minute before savaging this idea.

    If senior positions were advertised like this, and the vast salaries, bonuses and handshakes both re-invested in the company, spread around the workers and offered as dividends to shareholders, what kind of people would be in power in companies and governments? Certainly not the greedy fools we have today.

    To the rebutters who will trot out the old canard that if you pay peanuts you get monkeys I will point out that

    (i) you are not paying peanuts – you are paying “enough” a term gambling psychopaths don’t have in their vocabulary – and

    (ii) in the periods described in the article above there were no severe limits on the “compensation” (I ask you! Who thinks up these terms) paid to company heads – chairpersons, CEO’s, Directors, Senior Officers, yet disastrous decisions were still made.

    It is quite clear that high salaries do not attract or guarantee competence any more than qualifications guarantee integrity.

    To that – and I accept this without qualification – you can add – working for less doesn’t guarantee good performance.

    That is not the issue. The persons – and I also accept a very clever psychopath could lay traps spanning decades – will have a track record of behaviour to judge them by.

    Their proven ability will mark them out as ones to be called to serve the economy, not supposed brilliance based on exam results or assumed competence based on what they will be paid.

    We’ll take a leaf from footballing, shall we? We’ll let scouts go into the financial maelstrom and hunt for people with this kind of personality profile and ability. There won’t be many. We might apply psychological profiling to all the ranks above the HR consultant in companies too, as opposed to all the lower ranks. We should probably make that a condition of Good Governance in Business.

    I predict mass resignations from Wall Street and the imminent closure of Goldman Sachs, based on anecdotal reports in papers and not challenged that suggest there is a higher than usual incidence of what are euphemistically termed “sociopaths” in the larger and more “successful” financial companies.

    (What IS that BTW, a sociopath? Is that a psychopath that tries to destroy the lives of whole groups of people at one time, instead of the psychopath’s meager attempts to take out members of humanity one at a time?)

    We have had the highest paid try their hand and they have proven disastrous. Its hard to imagine how it could be made worse by anyone else.

    Even someone flipping a coin would have made better Buy and Sell decisions because things would have followed the law of averages and not becoming this lemming behaviour, where everyone is in a rush and its great gas and afterwards they all say that no-one was expecting the fiscal cliff.

    Just my two cents.

    • Golem XIV May 15, 2013 at 7:46 pm #

      I agree with your suggestion wholeheartedly.

      Get people who want to do the job because they love doing it. Not because they want to be rich. There are plenty of people doing jobs for love not money. So such people do exist and are actually not that rare.

      • Michael O'Neill May 15, 2013 at 9:36 pm #

        Thanks for understanding where I am coming from on this. People DO exist who will do things for the love of doing them, or for taking pride in the work or a job well done – that’s about the size of it. You will find them in many walks of life – in the professions and working in communities

        Some will argue that such people have no role to play in the dog-eat-dog world of high-finance.
        I say that an essential economic service like finance should not be allowed run as a dog-eat-dog free for all.

        Some will say they have no head for business.
        I say that on past results neither do most bankers.

        Some will question their bona fides and say that there is always a payback for such “do-gooders”, even if its only storing up credit for the next life with your invisible friend in the sky – that in effect its all sociobiology or religious fear.
        I say that this is a red herring. So long as the person brings competence and integrity to the mix and performs adequately for the public good, arguing about inner motivation is not something I would waste time on.

        I say “adequately” because I see the several roles involved in managing a financial services sector as requiring a steady hand – not star performance – in order to avoid future excesses and severe structural damage.

        Or course this is anathema to those who create imbalances for profit – tough!

        Their excesses must be curbed one way or another, or our economy will destroy itself.

        ————————-

        An understanding of higher level mathematics – i.e. actuarial level understanding – is not needed to Regulate a Market.

        Your comments above suggested that intelligence and competence to understand figures were there in abundance. But were they employed?

        You need X, Y and Z to RACE a car, that’s for sure, but for safe driving over a lifetime, you need long term steady growth. For that we need to edge the racers = psychopathic gamblers – out of the driving seats of TBTF companies and we definitely do NOT need them heading any regulatory systems.

        To be sure, no one fully understands the derivatives market with its $1.2 Quadrillion overhang, but this is an exceptional circumstance and one that urgently needs de-leveraging to defuse the bubble in it and after that market standardization to prevent a re-occurrence. Unregulated, un-monitored, non-standardized trading like this simply has to stop.

        If Fascist Capitalists dig their heels in and DEMAND some over the counter Derivatives, the only way forward is for that market to be carried on between separate financial entities under controlled conditions. That market needs to be isolated and regulated like a casino, separated from the wider capital market so that damage will be limited to the players and not the local or world economy or the wider society as a whole.

        ————————-

        The myth of the Self-Regulating Free Market is the great lie perpetrated by the Fascist Capitalists (as I have christened them). They engender and perpetuate this lie to control the narrative and deflect serious investigation. Its worked for years to distract the electorate and has allowed Capitalists to rig the system and cater for criminals.

        The core of this is that they suggest that this mythical “free market” will act to balance itself. As you so excellently make clear in your article, this only happens in some ideal steady state. In the real world the markets veer wildly in the defined orbit of the Strange Attractor in the absence of balanced supply and demand.

        I believe that Too Big To Fail players create these wild swings for their own profitability, using cartels like the LIBOR and Derivative Rate Cartels and insider knowledge. The proof of this is the behaviour of the markets.

        Far from supporting a Self-Regulating Free Market, Fascist Capitalists are the ones who rig the market for their own private benefit and not for the good of society.

        ————————-

        In their defense I have never heard any Free Marketeer suggest that the Free Market would “act in a way that benefits the wider society”. I added that. I believe that is what is needed. Free Marketeers only talk about the market self-regulating in the context of it being a market where prices can be reached that reflect a fair market value for whatever is being traded.

        But even that is smoke and mirrors to deflect and distract people who see them as rabid dogs that need leashing for the good of society. A cursory review of the markets will suggest that fair values cannot be arrived at because the market is rigged.

        Bail outs and bail ins – privatizing profits and socializing losses – flouted rules and regulations, prosecutions being abandoned or settled, revolving doors between regulated and regulating entities, insider trading, price fixing, cartels and criminal money laundering are all evidence of what a total absence of taxation, monitoring, control and meaningful penalties have led to.

        ————————-

        An unregulated market consisting only of private companies serving their own best interests cannot achieve the balance necessary to temper wild swings and excesses and thus foster extended periods of steady growth. Companies seek the opposite, an advantage which gives an overwhelming victory to their firms, but of course, the law of averages may play a part in imposing some sanity on the game.

        Its clear that the people who play the market don’t want sanity or steady growth at all. Not much profit in that. And therein lies the nub of the matter. To counter any ability the market may actually have to self-regulate itself, you have to un-level the playing field. To do that you have to cheat.

        In the absence of a controlling hand the markets cannot reflect fair value or offer any real service or support (like tax revenue) that commensurately benefits the wider society whose real assets support it. Some analogies; –

        Its like assuming someone who has never driven a car and is out of his head on crack cocaine (and I use this analogy advisedly!) will drive safely.

        Its like suggesting that society will order itself and crime will be left at an acceptable level without any police

        Its like suggesting high street traders will put money buy for essential services without a system of taxation, enforcement and disbursement.

        These three analogies make it clear that for the market to do what its claimed it will do is difficult in “free” conditions, but its impossible in rigged conditions. This is why the market as it stands does not offer the services and benefits that society needs. Instead of providing the necessary services, the market has become a parasite on society for the benefit or the few.

        Money talks. Money corrupts. Thats why we need to tax, monitor and regulate the market.

        • steviefinn May 15, 2013 at 9:54 pm #

          If it was down to me you could start tomorrow 🙂

          • Michael O'Neill May 16, 2013 at 12:35 am #

            (bows) Thank you ind sir, but I think most people commenting here would do a good job too, particularly the page owner. In fact when you look at the quality of people involved in running banks they seem to be paralleling many of the politicians qualities – duplicitous, perfidious and hazardous to the health of the state.

  18. John G May 15, 2013 at 10:08 pm #

    Gresham’s Dynamic. The frauds not only prosper, they drive out the honest because the honest can’t compete. So you end up with a completely criminogenic environment where fraud is the business model.

  19. Mantilla de los Rios May 15, 2013 at 10:26 pm #

    Greetings and with Respect,
    Yours, I am assuming that you are not one of the very few, but if you are, then the following will apply to everybody else: Your debt is eight or nine times your income. So called free English man.
    And it is only going to get worse ,much much worse . “Oh mankind, what horrors approach ” So…who stood up against Usury ? There be dragons.
    “.Its hard to tell where Hollywood ends and the DT’s begin”. [WC Fields] .
    Our true inflation,they say, is 17%. It is not. [RPI-CPI] .
    The true one is 33%. In essentials that is. Hello!? But since one is drowning in a sea of lies. I think it was
    Cleanthes (300-232BC) leader of the Stoics who held that all survived to the great conflagration.

    In other words, each and every one of us , in this profoundly sick society, is a grand experiment:
    Our bankers are farming us and they have been doing so for years.
    What do you expect? Integrity? or worse , Truth? You believe in good shepherds do you?
    No doubt it is so in my Father”s house. Not in this one.
    Here : ‘Debt is the slavery of the free” [ ]Publius Syrus. Rome. IBC.]
    Oh yes.. .. Our problem is as old as the wake up call.
    Only this time because it is global this den of vipers is tightening a steel noose. Lockdown is what they are after and they
    are not allowed exceptions..Whether you know it or not ,everyone serves ; .and whom they serve will not allow exceptions.
    .The Stasi broke souls. The Nazis broke bones. Amerikananglozionist does both.

    ” The issue that has swept down through the centuries….and which will have to be fought sooner or later……
    is the people versus the banks”. [Lord Acton, historian. 1834-1902.]

    He understood this profoundly. He sweated when he wrote it. He knew what it meant. What it would entail,. Do read him with care
    If you dare. His warnings are not for the apathetic or the dull.
    .And the warnings given by Solzhenitsyn are likelier by the hour.
    Well, guess what ladies and gentlemen, it is here. It is now.
    For everything there must be a payment.
    If Libor taught us anything it is that the social contract has been broken. Irredeemably. Plus all the other things.
    Look around you. Overwhelming hubris. Our corruptions bubble higher and our greed will not turn down the flames.
    Soft spoken psychopaths at the wheel. We live in a Pathocracy.
    As for the one that Span the Green of greed ,That successful financial terrorist most certainly knew that what he did would accomplish what it did.
    Judge a tree by its fruits.
    Vile they are and ubiquitous they are like the neutrino.
    .”Scire volunt omnes, mercedem solvere nemo” (Juvenal)
    Everyone wants to know. No one to pay the price.
    When shamans speak of facing down the jaguar it is because they really do.
    Bait and Switch. In ancient times it was introduced in Council by Asmodeus amidst glee and laughter and guffaws.
    This country is no exception.We are Also on artificial respiration. In fact
    We live,and some it appears very contented, in an open air prison.with cameras pointing everywhere.
    Who pays for Our chains.?
    Thank you for your writings.

  20. Kate Hudson May 16, 2013 at 12:51 am #

    Red squirrel – grey squirrel. The greys are more aggressive, bigger and harder to fight. The physcopaths are definitely in control. The good guys don’t have a chance.

    When we started in business 30 years ago the system worked, there wasn’t this insane drive for bigger bigger. I can’t help feeling that the last straw was when individuals within finance, accounting, law etc were made responsible for their own decisions as opposed to company responsibility. This seemed to bring about this dreadful cover your arse mentality that drives everything now. No one dares -including the good guys in banking – have an opinion it all has to toe the company line . End of story. No good guys anymore.

    Strange how that individual responsibility which killed commerce doesn’t apply to bankers.

    Great to see you back David, I was getting worried as I am sure most of your followers were. It is wonderful to see you put in clear language that which we have known for a long time but were unable to describe. You have a total grip on the big picture which allows us all to see it better. Thank you.

  21. Daedalus Mugged May 16, 2013 at 3:48 am #

    “so cock-sure of themselves and the system which had made them rich and powerful, that none of them could see clearly any more?”

    Is close. In my experience, the standard deal is that the bankers lie to each other, are smart enough to figure out about half of the other guys lies, they think that they are getting away with all their lies, and can take the hit of the half of the lies they figured out, both sides think they are getting one over on the other guy, and in fact are just destroying value and getting paid phat money.

  22. Elixer May 16, 2013 at 3:59 am #

    They took a medieval crime scene, that of the goldsmiths creating receipts for ten times the gold they possessed and then loaning them out with interest, and then made a fractional reserve financial system out of it. It began as a crime and it is sustained as a crime, the individual acts are simply detail and the system itself turns bankers into criminals..

  23. Chris May 16, 2013 at 2:12 pm #

    Hi Golem nice to have you back writing!

    Golem wrote: “It does leave the possible conclusion that our bankers and regulators are all very fit for purpose it’s just a rather different purpose from the one we expected.”

    More and more evident every day. Add our politicians to that list too, their job is to sell rubbish justifications to the masses whose votes are still required in our sham democracy.

    Interestingly, you will have seen this http://tinyurl.com/cgc3akm

    After the US Justice Dept declared that big banks are too big to be subject to justice in the same manner as us plebs, the UK’s tax collecting department HMRC declares that big businesses are too big to be subject to tax in the same manner as us plebs.

    HMRC said in a press statement: “Large business tax settlements are a vital part of how HMRC secures tax revenues for the country and without them Britain’s public finances would be seriously damaged.”

    The elite are so confident they barely need to maintain the façade. Lord Young last week praising low wages and worker desperation was similarly astonishing – not astonishing for the sentiment (we know they’re out to screw us) but astonishing for its brazenness.

  24. Diogenis May 16, 2013 at 9:52 pm #

    Nice to see this blog active again.A whole month without all the nice articles from David and all the high quality discussion of all you guys was hard to suffer..

    As for the bankers I dont know..I have the strong feeling that they know what they are doing.I will compare it with Bush JR,Cheney and the other freaks 10 years ago.Did they know what will happen in the middle east if they really would attack iraq?Did they not know that the only thing they would achieve (besides their personal financial gain and the profits of their friends from the oil and arms industry) would be a huge and not manageable CHAOS?

    Who wins when CHAOS rages on and on for a long time with all the forces(law system,non-corrupt politicians etc) which normaly regulate CHAOS are not available anymore?

    Asking the same question in our case:Who wins if the whole system breaks down and the financial CHAOS brings the real chaos to all of us?After several weeks and months of financial and most of all social turmoil all over the USA,europe,japan,russia,china etc. the whole world will demand law and order.Most of all law and order.Most people will take everything from above just to be able to send again their children to school and to organize a some how normal live.The giant crash we are heading to is the only way for our elites to achieve their survival without to loose their power and their wealth.They control the politicians,the parties,the banks,the “markets”,the police,the army and all the other security forces.

    Many have already said the same thing:We are heading straight and fast for a global bankster-junta after a world wide financial crash which is the ONLY solution for the 1% out there.And these guys are willing to achieve this CHAOS under any circumstance.No matter of the costs.So I guess that these banksters know very well what they are doing.

  25. Yakima Canutt May 16, 2013 at 10:05 pm #

    Worth the wait G.
    I don’t think the banking system ever makes profits.
    I don’t think it is possible in a fractional-reserve economy. All it can do is take money from people that do have it, photocopy it 10, nay 35 times, and swap it for something devalued and useless, charging you rental all the while. Why on earth should we have inflation, absolutely no reason except to hide theft and currency printing.

    Banks don’t create wealth, only the illusion as they re-direct cash and collateral in their direction.

    • Golem XIV May 16, 2013 at 11:30 pm #

      I’m just sorry that I inflict these silences. I don’t mean to. I just sometimes run out of energy.

  26. steviefinn May 17, 2013 at 12:31 am #

    A reply to a comment that seems to have disappeared :

    You have a big point there, after all those who make up the elite are similar to top celebrities, in as much as they live in a separate world to the majority of the population. I am sure for instance that I will never bump into Fred the Shred pushing a trolley around Sainsburys.

    I read an article some time ago which gave an account of the experiences with the children of various top bankers as stated by doormen who worked at a very select condominium. It seems as though they were normal friendly kids until around age eleven & then they became as snooty as their parents this probably coincided with a change of heart in rejecting Robin Hood in favour of the Sherrif of Nottingham.

    I have in my head an imagined picture of what their lives must be like, built up from literature & films etc – Bertie Wooster – Merchant Ivory – Jennings stories etc which involve brandy, palatial estates, dogs, prep, horses & shooting defenceless animals, mixed with more modern American output like Gordon Gecko, Margin call etc, but this view is probably little more than a cliche, but perhaps one that is aspired to.

    As for their view of us, besides servants & the occasional doorman, charwoman or tradesperson, their view of us must be very limited if they have to use the methods above to gain knowledge of our world. Judging by the media’s representation of especially, working class people, they are probably not very impressed with what they see. Add to this their embedded sense of superiority they might also think that we are more liability than asset. We were in a similar predicament in the 14th century before bubonic plague wiped over half of us out, giving us value which enabled the start of the very slow progressive climb upwards.

    Perhaps we are increasingly becoming the superfluous other, to the self supposed ubermensch.

    • Michael O'Neill May 18, 2013 at 11:17 am #

      I think your anecdote bears repeating to a wider audience.

      There is a basic myth perpetrated on us from early on, that animals operate on instinct and humans don’t.

      I have seen many people grow up and observed unlearned and quite defined character traits both skip a generation and follow through directly, from one or both parents or grandparents. Information seems to be passed on in the blood.

      Whether from inherited instinct or genetic predisposition already in the bloodlines, I have observed this happens. Yes, genetic variation will play a part and so one in four children of 1%-ers may actually do good works and start charities, but most won’t – those I have seen appear to “breed true”.

      That is the nature argument. I am taking an extreme position here for the sake of making a point.

      Now turn to the nurture argument.

      They go to private schools, mix with other 1% children, are raised by parents with dominant, greedy, bullying personalities, In fact all of this is a form of brainwashing and abuse.

      So even those one in four kids who escape a genetic predisposition towards greed and abusing others in their nature, most may well be indoctrinated into this culture, this jaundiced way of looking at the world – by their families and social groups as they grow up.

      And don’t expect the main motivator of people into this role to be the father. In the case of the Bush boys, it was allegedly the mother.

      (when I started this reply I didn’t know where it was going but glimpsing the end I am slightly astonished)

      So 1% children, through BOTH NATURE AND NURTURE are more or less “fated” to turn out the way they do.

      But this process does not select or enhance for better physical abilities, mental acumen or emotional balance. It selects for the will to dominate others. Now that we have finally recognized this, we can plan a course of action to educate them.

      Because, (boggle) they need our help!!!

      Repeatedly showing them their failures will be a good start. Some graphic shock treatment perhaps. Some useful articles like these spread far and wide. Some personal phone calls (I phoned the White House the other evening to ask the President to veto the Monsanto Protection Act as its called)

      Pebbles in a pond.

      • steviefinn May 18, 2013 at 1:17 pm #

        Michael

        I hope the Prez took note & I agree with your sentiments.

        The problem is I think exacerbated by human beings in general having a tendancy to view those who are not of their immediate group as being either inferior or in some cases superior, the former to be shunned & looked down on, the latter to be admired & looked up to. Those who consider themselves to be of the elite presumably only look down. In stable times not much of a problem except for the lunatics on the fringe, but very dangerous in times of crisis as was illustrated in Nazi Germany & Stalin’s USSR.

        Genetically we are basically the same & now it seems Europeans who have traditionally seen themselves as the World’s masters share the highest percentage of Neanderthal genes, which helped to boost our immune systems to better cope with a Northern climate after leaving Africa. I would be very surprised if those who benefitted from the in-breeding did not look down on these lumpier versions of ourselves who then probably suffered badly because of this prejudice. We after all have treated our own as sub-human, never mind the members of another species.

        Much easier to inflict blame, genocide & a savage lifestyle on those we consider as being alien, sub-human or just other, & sometimes it seems that groups bolster their sense of superiority by having another group to look down on – Maya Angelou’s ‘ Po white trash ‘ for instance.

        I suggest that your idea for an education should include a reappraisal of our values when it comes to human beings, so that power, wealth & high status are not the only factors in deciding value in a person, but rather those things that even in our darkness make it possible to still believe that we are capable of possessing souls.

  27. Roger Lewis May 17, 2013 at 7:15 am #

    Hi Stevie,

    as a ,Metaphor for the view from the other side of the tracks this Film ´´In Time” is well worth a watch.

    http://www.youtube.com/watch?v=efNzhEKm3w4

    • steviefinn May 17, 2013 at 6:50 pm #

      Hi Roger

      Thanks – I think I will stick to ‘ Trading Places ‘ as my favourite film metaphor covering this subject 🙂

      Did you get the Moneyweek mag. ad before the trailer ? I clicked on a version of this that comes up on this blog which is titled ‘ The end of Britain ‘. According to them the welfare state is to blame for this. Here is a thorough de-bunking of their claims :

      http://coppolacomment.blogspot.co.uk/2013/01/the-end-of-britain-not-yet.html

      Part of Agora inc. A pretty dodgy crowd :

      http://www.sec.gov/litigation/complaints/comp18090.htm

      • Roger May 18, 2013 at 2:56 pm #

        I will re watch trading places this evening, In Sweden Eurovision or Melodifestivalen is a huge thing personally I can’t bear to sit through that many hours of ´Entertainment´´. So Trading places it is for me and some guitar acrobatics for fun too .Johanna and our two Children are around to Grandmas to watch the big show.any excuse to explore 11,( Home Alone)No I won’t suggest that one..

        • steviefinn May 18, 2013 at 4:48 pm #

          Whenever things really get me down I try to remember this scene, it usually restores some perspective & a grudging smile – Enjoy your evening, I will be watching assorted power junkies & psychopaths fighting it out in 2 episodes of ‘ Game of Thrones ‘.

          http://www.youtube.com/watch?feature=player_detailpage&v=Od4nSd9AVH8

  28. Robin Smith May 17, 2013 at 8:39 am #

    Mr Malone is doing it again. Calling out others for punishment, when he too is committing acts of the same kind.

    How is this behaviour normally defined?

    See here for an idea you will not believe. The question is, as seems to be getting asked here but actually being avoided, is “do you really want to know?”

    http://gco2e.blogspot.co.uk/2013/05/melt-ponzi-schemes-are-all-perfectly.html

    Mr Malone, how much property in land do you own? Banks are merely the biggest speculators in the big scam through their main business – mortgages. Even homeowners are doing the same thing. And then even tenants aspire to it one day.

    Its a giant pyramid sale that will always collapse as expected… about every 18 years when nature can no longer support it. And its all based on an imaginary ponzi vehicle.

    • Michael O'Neill May 18, 2013 at 10:59 am #

      Far be it from me to leap to the defense of this blog’s owner, but just to point out that link you included doesn’t seem to include anything that points to said blog owner committing any questionable acts.

      Post proof or STFU (that’s an old Usenet acronym – look it up)

    • Golem XIV May 18, 2013 at 11:33 am #

      Hello Robin Smith,

      We own a mortgage on our house. We try to pay it off as fast as we can. We own a 15 year old car and we own the things in our house.

      We have no other debts.

      As crimes go its not terribly exciting.

    • JayD May 18, 2013 at 10:13 pm #

      R Smith, there you go again in your deluded God-like manner telling ‘us’ what we are/think/do/aspire to. This time it’s property/land and how if we don’t own it then we must be a tenant that aspires to ownership…therefore I clearly must not exist. Just because you think something is so does not make it so.
      Get a grip………and it’s no ‘game’ by the by!

  29. Just me May 17, 2013 at 11:11 am #

    GEAB N°75

    http://www.leap2020.eu/GEAB-N-75-is-available-Systemic-crisis-2013-with-record-stock-exchange-highs-the-planet-s-imminent-plunge-into_a14093.html

    “Sharp increase in US jobless benefit claims”

    {http://www.wsws.org/en/articles/2013/05/17/econ-m17.html}

    “The AP spying scandal and the crisis of American democracy”

    {http://www.wsws.org/en/articles/2013/05/17/pers-m17.html}

  30. Frances Coppola May 19, 2013 at 2:42 am #

    Can I just point out that under UK law, at any rate, due diligence is not required in a hostile takeover – obviously, because as the bid is hostile, why on earth would the target provide the required information anyway? Nor is it required where there are competing bids. In the case of ABN AMRO, RBS was in a race with Barclays, and neither bank would have done any due diligence. Similarly, RBS did no due diligence on the Nat West takeover either, because it was in a race with Bank of Scotland. It got lucky with Nat West and unlucky with ABN AMRO

    Personally I think these rules need to be changed. Clearly there is a problem with hostile takeovers, but I see no reason why voluntary targets shouldn’t make themselves available for due diligence by bidders prior to accepting a bid.

    • Golem XIV May 19, 2013 at 10:16 am #

      Frances Coppola,

      Thank you. A valuable correction. I should have thought about hostile take overs and races. They are so often the case. And as you say the law does not require and the target may not oblige.

      Your point alters my argument. I should have thought of it. Thinkking about it now, however, it still seems to me the buyer has a moral duty not to buy something, even if in a race or hostile take-over, without being able to say to those whose money is being spent – ‘this is a good investment’.

      As you say it argues for the law to be changed.

  31. Just me May 19, 2013 at 4:41 pm #

    “All in it Together: How Government Is Handing Ownership of our Schools and Hospitals to Banks”

    http://scriptonitedaily.wordpress.com/2013/05/14/all-in-it-together-how-government-is-handing-ownership-of-our-schools-and-hospitals-to-banks/

  32. steviefinn May 20, 2013 at 9:55 pm #

    A much needed critical voice that stood out in contrast to the slime that slips through lapdog’s lips, is sadly gone :

    http://trueeconomics.blogspot.co.uk/2013/05/1952013-namawinelake-closure.html

    • Golem XIV May 20, 2013 at 10:52 pm #

      The closure of Namawinelake is a real loss. I can only hope those involved are moving on to even better things.

  33. pilibi May 20, 2013 at 10:53 pm #

    These are symptoms, not the problem. Banking is Capitalism bludgeon.

    Capitalism and therefore banking is inherently immoral and people’s depraved behaviour is it’s logical outcome.

  34. Jack May 21, 2013 at 8:09 am #

    Thanks for another thought provoking article. It would seem that the best political system appears to be democracy, but having an economic system that is anti-thetical to democracy, should we not be trying to have a system of economics that is reflective or at least actively supportive of democracy? Therefore, the nub of my question is, what would that democratic economic system look like?

  35. Eric May 21, 2013 at 6:12 pm #

    Dear David,

    i can tell you a story i have experienced. As a Swiss i did an apprenticeship at one of the bigger banks in Switzerland . As an apprentice you work 3 days and go 2 days to college. I always questioned everything i was told. After years working in the bank i finally quit (i had a job offer with Rothschild which i didn’t take, instead i went on a surftrip and became a photographer). When i left the bank i had a last talk with the person in charge for all the apprentices. I told him that in all these years we haven’t learnt much and have no clue how the real economy works. We are told to sell all this crap we don’t understand to our clients who even understand it less. So, there was always the lies from the banks side. What happened is, that this guy told me to shut up and he is happy that i leave (i was the one to confront him infront of everyone). Few years later he became head of the investment banking and he got into buying another bank in Austria. The bank they bought was full with laundered money, black money and all the shit you can possibly think of. I don’t know who was responsible for due dilligence, but the bank lost hundreds of millions of swiss francs and the guy is still in charge! I wonder if it is pure ignorance, stupidity or outright fraud, but one thing is for sure, the people in charge will never held responsible for the damage they have done. I have been someone who has warned all my friends allready during the internet bubble, then warned them of the collapse in 2008, no one believed me. About one year ago, i met one of my friends who told me that everybody was laughing behind my back about what i am saying, but he also said that i was the only one who knew what is about to happen. So, people want to be fucked, cheated and lose a lot of money. It seems to be a symbiosis between the bankers and the clients. One last thing, i got all my infos mainly through the daily reckoning website and started to read alternative infos. Over the years i started to read also blogs like yours and again i thank you and all the people like you who put up so much good work and brains to it to make us understand better!

  36. allcoppedout May 27, 2013 at 10:53 pm #

    Frances was right to point out the flaw on due diligence – but I’m not sure this diverts the basic thrust of ‘what didn’t they know’. I worked for a major asset stripper and we paid little attention to declared books and information. We tapped up insiders. This was mid 80’s and the culture then was official books said little to be trusted, the top people were mostly LOMBARDS (lots of money but actually right dicks) and all we needed to know was how much it would cost to get rid of them. We visited assets physically before entering any valuations of them. Due diligence was a separate affair to cover ass. There were always two sets of books kept on how the takeover decision was made.

    Your question is rightly about how pigs in pokes were bought 30 years after the days when such little belief in official accounts was held and in a time after the discovery that official valuations were almost entirely unreliable. I think you are on the right track. Due diligence doesn’t really matter – what the buyers thought they were doing is key. They must have had a value for what they bought in mind. Then we come to the issue of ‘who salted the gold mine’. Unless the buyers actually knew they were buying dreck and didn’t care because of bonus incentives or positions taken. If Frances is right that Nat West ws lucky, Amro unlucky, we are left with the question as to why we pay people so much for guessing games.

  37. Robin Smith June 2, 2013 at 12:08 pm #

    Banks “Don’t know” because its a psychological problem. Of the psyche. Psychic.

    Trying to explain it rationally is a mistake and nothing will happen. Denial cannot be seen. What happens in the mind is on a different level to what happens materially.

    When will banks start lending again for mortgages?

    http://www.meltfund.com/2013/06/when-will-banks-start-ending-for.html

    I hear you. Talking about the non material, whatever that might be, is a commitment few are willing to make. That is why nothing ever happens.

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