The Hazardous Morals of Bankers

Warning: You must forgive the writer for the exceptional length of this piece as a combination of rust that accumulated over months away from writing, a little too much time on his hands and what is feared to be the initial stages of ambiguphobia all contributed to the problem. 
- ed.

US federal debt will be more than $16 trillion by the time you read this. Student loan debt in the land of the free surpassed both credit card debt and the $trillion mark earlier this year. Greece teeters on the brink of bankruptcy while the other PIIGS wait their turn in the slaughterhouse. Three cities in California declared bankruptcy within a month this summer while nations have given up their sovereignty in order to avoid the same fate. Tens of millions have been thrown out of their homes in the past four years while even the Catholic Church battles to remain solvent. All of this was kicked off with the collapse of Lehmann Brothers four years ago triggering a crisis which forced governments and central banks around the world to pour trillions of dollars of bailouts into the financial system in order to stave off financial collapse and the threatened panic, chaos and disaster sure to follow. So, why are we here four years later staring over the US fiscal cliff, waiting for the eurozone to collapse and watching local sheriffs play the muscle for the mafioso banks repossessing all our neighbours possessions? The same reason the crisis seems perpetual. Debt and it's collector, moral hazard.

“You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
 - George Bernard Shaw

Like all good yarns, that of debt goes way back in time, before money, before barter, beginning with the Sumerians in Mesopotamia over 5000 years ago in fact, but we don't need to go back that far. No, forty-one years is enough for our purposes, when Richard Nixon ended the post war Bretton Woods International Monetary system by suspending the convertibility of the dollar into gold (then $35 to the ounce, today around $1600) on August 15th, 1971, effectively creating the current floating currency regimes: fiat money. No longer would the US dollar be convertible to gold; no longer would money creation and thus finance be constrained. Not only was the US fighting a war in Vietnam that had to be paid for but they were battling "international money speculators" as Tricky Dick dubbed them. Heck watch for yourself:



So it was that the casino known as the financialization of capital was built, in order to protect the average worker "because they [financial speculators] thrive on crisis, they help to create them". By no means was this the first time the world had used virtual money with nothing guaranteeing its value but our faith. According to David Graeber, there have been two such previous periods in the history of money and debt: The Age of the First Agrarian Empires (3500–800 BCE) and The Middle Ages (600 CE — 1500 CE). The key difference with today was that both those eras saw strong institutions and traditions which placed controls on the potentially catastrophic social consequences of debt from Mosaic jubilees (debt forgiveness every 50 years) to Christian and Muslim prohibitions on usury. Fast forward in time to go backward as the current era has seen protection turned on its head creating the first effective planetary debt enforcement system, operating through the IMF, World Bank, governments, corporations and other financial institutions. In the past we protected debtors; today we protect the interest(s) of creditors. Spot the doublethink involved here as the danger posed by financial speculators led to a policy which in turn empowered the threat leading to it's perpetuation becoming a necessity to maintain the status quo. The battle against the money speculators has been fought just like the war on terror.

Nixon's move had predictable results, a series of crises as wave after wave of speculation, manipulation and deregulation smashed against the economy. Predictably, with no physical limit to fiscal and monetary expansion, government debts ballooned leading to inflation which needed 22% interest rates to tame causing economic malaise that necessitated tax cuts (mostly for corporations and the rich) and deregulation to get the economy going again. The balance of power between rentiers and workers was shifted by slashing capital gains and opening investment loopholes so that in less than a generation the very group we had been warned about had been handed the keys to the Porsche and proceeded to drive us all over the edge. The process seemed almost planned, conspiratorial, but it was our own hubris that allowed it.

"There are compelling reasons for paying attention to this potential for catastrophe as, every debt crisis in history since Solon of Athens has ended in inflation, bankruptcy or war, and there is no cause to believe we’ve solved this one, even if it has been postponed." - Susan George; Fate Worse Than Debt, p. 196

The Cliff's Notes to the crisis reads like a tragedy. Steady erosion of the competitive advantage enjoyed by the US after WWII and the west as a whole to the east leads to policies which ensured wage stagnation for those working in industries losing employment and skyrocketing renumeration for the CEO's outsourcing those jobs and the financial industry which facilitates it. This creates a feedback loop in which those at the top enjoy more influence on legislation thanks to their enhanced financial position. Those at the bottom, seeing themselves falling further behind turn to debt in order to maintain the illusion of keeping up with the Joneses. Check out this interactive chart to see the machine in action. Meanwhile, the flood of money to the top leads to fewer and fewer available investment alternatives necessitating looser regulation on credit to lend to less and less credit worthy clients through the creation of creative, near magical, financial instruments. All the while, the growing inequality brought about by transferring wealth to the top slowly strangles the consumer driven economy (about 70%) as those who would spend have less while those who invest, at home or abroad, have more. A little more doublethink courtesy of trickle-down economics.

On the government side, though Reagan talked a fiscally conservative game, he walked a public spending splurge as debt tripled under his watch. Bush the elder didn't do much better and though Clinton managed to run a couple of surpluses late in his second term, Dubya and Congress managed to pass two successive $trillion plus tax cuts while fighting two separate $trillion plus wars along with passing a $trillion plus prescription drug plan. The Anglo-Saxon affinity saw the UK walking in near lockstep; just replace Reagan with Thatcher and Clinton with Blair at the head of the parade through the Corporation of the City of London instead of Wall Street. The financial sectors share of domestic US profits skyrocketed from below 16% to 41% making bankers more important than ever. The partial repeal of Glass Steagall, allowing banks to gamble grandma's pension with the Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act) and the Commodity Futures Modernization Act which ensured that the credit default swaps and collateralised debt obligations at the heart of the 2007/8 crisis wouldn't be regulated were the finishing touches as the banksters had merged with government and rigged the economy for explosion.

The story that unfolded in continental Europe was somewhat different but had the same result. Overnight, countries such as Ireland, Greece, Spain, Portugal and Italy were expected to transform into Germany. Shockingly, it didn't happen and without their own currencies to debase in order to regain competitiveness, the peripheral, low-capital investment economies were crippled while German producers were given a boost. Not only did prices go up - in Spain a loaf of bread doubled in four years - but salaries stayed about the same, rising 14% in the ten years from the introduction of the euro January 1st, 2002 to the end of 2011. Throw in the additional enticement of suddenly being deemed nearly as credit worthy as their northern partners and you've got yourself the perfect debt bomb recipe. The explosion of Benzes, Beemers and Audis on the streets of Madrid and Dublin created a surplus that found its way back to German banks who had to lend this money to someone and were happy to find eurozone approved customers from Porto to Thessaloniki to buy more German cars or real estate developers to build beach resorts to take vacations in. Each country took their own path to purgatory, in Spain and Ireland it was more private bank debt while in Greece and Portugal it was more public (and Italy, well, they've always had too much debt).

As we know, our story doesn't end well, in fact, there doesn't seem to be an end as it's starting to feel like the neverending story. The total cost is incalculable  in dollars, euros or pounds, but it's the human cost that should remind us that economies are meant to serve people and not the other way around. When the crisis hit, we were told we had to bailout the banks or the world would end, so we did. Ever since it became clear that Greece wasn't going to be able to maintain its debt, the troika always manages to get the money to Athens on time. When the Irish banks couldn't keep afloat, their government threw them a lifeline and guaranteed their debt. Spanish banks were going under so once again the troika (IMF/ECB/European Commission) saved the day. Trillions of paper dollars, pounds and euros all to ensure the debt obligations continue to be paid, trillions the people will have to pay back. For what? The sums will never be paid off, everything has been done to keep interest payments flowing to the banks and to give them enough time to get their capital out. The price of paying off failed bankster bets is not only the sweat of our brows but becomes ever more demanding, framed in the Orwellian language of fiscal austerity/consolidation, structural adjustment/reform, labour flexibility, competitiveness, and growth.

In the 70's and 80's the IMF/World Bank became despised figures in the developing world. As global capital sought higher returns than could be found in the developed west, their sites settled on the poorer resource-rich nations of the south and east where they found dictators, anti-commie generals and corrupt legislators willing to sign over their people's futures in exchange for ready cash to build vanity projects, fund coups, suppress insurrections or simply pad their Swiss bank accounts. When the people of their nations found they couldn't pay, the men in black would arrive, preaching the 'free market' mantra of globalization, structural adjustment programs, which always had the effect of worsening life for the people while benefiting the foreign corporations. Eventually, the anti-globalization movement and debt cancellation voices became loud enough and democracy returned to many places and debt was in some cases even forgiven. The first part of the story is now playing itself out in the 'developed' world except this time the countries aren't even getting a hydroelectric dam, bombs or a statue in return. Debt is granted only to maintain existing debt in exchange for lowering spending on those things that help the people, shredding the social safety net, firing workers, lowering tariffs and taxes and eliminating workers rights in a duplicitous attempt to make the economy more competitive in order to grow and pay off the increased debt load. Unfortunately it has never worked, isn't working and never will. The only winner, for awhile at least, are the banks to whom the interest keeps flowing.

Ironically, many accept this punishment as atonement, self-flagellation to purify the soul. Debts are contracts that must be paid off, more than an obligation, as the threat of moral hazard would not only destroy our financial system but lead to anarchy (gasp!). Yet bank bailouts are a perfect example of moral hazard as the banksters have now learned that they will not pay the costs of their losses; their gains remain privatized while their losses are socialized. Morality should be the last thing they want to talk about as their lascivious behaviour has been highlighted this summer with a series of scandals that illustrate they have no intention of ever doing the right thing whenever there's a whiff of profit to be had. If they don't get caught, great, if they do, well, there will be newspaper headlines, an investigation and finally, at worst, a fine to pay, usually a fraction of what the illegal behaviour gained. Somehow, even though both Mitt Romney and the US Supreme Court have defined corporations as people, not only are the big banks Too Big To Fail, they've become Too Big To Jail (TBTF/J).

"Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from these rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it." Adam Smith; The Wealth of Nations, Book V, Chapter I, Part III, p.820

This summer has put the lie to Adam's words once and for all. Most recently it was Britain's Standard Chartered, who NY state regulators accused of hiding $250 billion of transactions with Iran despite sanctions. A person would be charged with terrorism and sent to Guantanamo, a bank simply pays a $340 million fine; it's up to the families of those killed in terrorist attacks facilitated by StanChar to sue the bank. The reaction of the British government was particularly instructive; when a British bank is threatened with the loss of its New York banking license, officials, from the mayor of London to the Bank of England governor to the Chancellor of the Exchequer rush to its defense. This, from the same country that would and has done everything in its power to get Julian Assange extradited to the US for torture and possible execution and done nothing to prevent its own citizen, Gary MacKinnon, who suffers from Asperger's syndrome, from being extradited to the US for exposing weaknesses in the defense department's computer security systems.

Just a few week before that came the revelations of the LIBOR rigging scandal. A story that is 'too complicated' to understand by the public was therefore ignored by the media. Besides, there was that whole Batman shooting and then the Olympics to worry about. Denver theater body counts and jingoistic medal counts are far more interesting than a bunch of bankers sending each other emails, right? Well, no, not really when mass shootings seem to have become monthly occurrences in the US (surprise! another one today), the Olympic medal count can be predicted based on population, per capita GDP, past performance, and host status while the bankster collusion earned them hundreds of billions (trillions?) in profits while costing the public an impossible to figure, er, figure. Wait, sounds a bit like the Olympics. Anyway, as usual it's not all that complicated.

LIBOR stands for the London Inter Bank Offered Rates and it's used in the setting of most other kinds of interest in the world, from credit cards, student loans and mortgages to the cost of government bonds. Seeing as we live in a 'free market', up until the scandal we all assumed this rate was set by the 'laws' of supply and demand but, as usual, our naivety cost us and profited them. Instead, the most important rate in the world is determined every morning by representatives of the 18 largest western banks who report on what they expect to pay to borrow funds from each other (Inter Bank) in the future. Under LIBOR rules, the four highest and four lowest estimates are eliminated, and the average of the rest becomes the official rate. Well, shockingly, banksters used this opportunity to artificially set rates everyday a bit higher or lower in order to profit from the positions they held in their portfolios. Barclays had their boss Bob Diamond resign and was fined ￡290 million by British authorities, who were involved in the racket, while seven banks including Barclays have been subpoenaed in the States. A few Italian families get together and we call them the mafia and charge them with racketeering but when banks do it we call it cooperation. It will take years of litigation to sort it all out but you can be assured, a few banks will have to pay a fraction of the profits earned in the scam.

Speaking of the mafia, seeing as interest rates aren't spicy enough to make headlines, the other summer scandal involved just that, Mexican drug lords who line headless bodies on highways. Once again the contrast between the justice meted out to the flesh and blood people and the corporate people is illuminating. A real person gets caught selling dime bags on the street corner trying to raise money to go to college, we go to jail for life; they get caught laundering the money from the profits earned on those bags, they say they're sorry and get a slap on the wrist. Europe's largest bank, HSBC, not only transported billions of dollars of cash in armoured vehicles, cleared suspicious travellers' cheques worth billions, and allowed Mexican drug lords to buy planes with money laundered through Cayman Islands accounts, they also moved money from Iran, Syria and other countries on US sanctions lists, helped a Saudi bank linked to al-Qaida shift money to the US and even cleared $290 million in "obviously suspicious travelers cheques" that benefitted Russians "who claimed to be in the used car business." Lucky we only have to worry about Iranian-American used car salesmen hiring Mexican drug lords to assassinate the Saudi ambassador or this might sound like a conspiracy theory. Yep, all this was part of a report by a US senate committee which revealed HSBC failed to monitor $60 trillion in wire transfer and account activity, had a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity, and failed to conduct anti-money laundering due diligence before opening accounts for HSBC affiliates.

Each time new revelations come to light, bank executives line up to testify in front of an important sounding committee and explain how they are "horrified" by what has happened, that they couldn't have foreseen events, that measures have been put in place, that it was bad luck or a black swan or a rogue trader. Then it happens again. Just this spring, the last remaining 'good banker', Jamie Dimon had his bank JP Morgan victimized by one of those rogues as "the London whale" lost a bet on a position that could cost his bank $9 billion. Just the kind of gamble we were promised these banks would no longer make in exchange for bailing them out just four years ago. Just the kind that lost UBS $2 billion last September, Societe Generale $6 billion in January 2008, or Barings Bank $1.3 billion in 1995. Our always vigilant press is always sure to name them rogues, despite being the norm, performing unauthorized trades and justice is swiftly served on these lone scoundrels while pensioners and savers pay the price and the banks continue to promote the culture of short term profits in which psychopaths thrive, to inflate their quarterly earnings. Had enough yet? There's always the fattening of the PIIGS, the Magnetar trade, the Sentinel fraud, any of these, or ...

If these were people, as corporations such as banks have supposedly become, we'd execute, jail or banish them from our communities so how do you explain the social pressure to repay criminal enterprises that are slowly sucking the life from our economic system? In order to succeed in society, few would disagree that a university or college education is a prerequisite. Such a degree costs tens of thousands of dollars or pounds obliging many to take out student loans which become payable upon completion of their studies. In America, if you decide to head to Vegas and max out your credit card on hookers, blow and roulette only to find yourself unable to pay, one option is to declare bankruptcy, ruining your chances to obtain credit but clearing the debt off the books just as the hangover clears after a good, greasy breakfast. If you find yourself without a job (or only part-time or unpaid internship) once you finish school and unable to pay back a student loan, you don't have the bankruptcy option, it can't be cleared and will be with you until death or its paid. Heaven forbid if you're among the 25% of Americans without health coverage and you or a family member fall ill, the cost of which forces many into a debt spiral. This is nothing if not slavery. Even if you're a good client and you pay your debts, or the debts of your nation through your taxes, you are forced to work in order to earn the income. What else is forced labour but slavery?

Funny that we (or at least the Sumerians) had this all figured out 5000 years ago. Even then they recognized the need to protect those forced into debt from unforeseeable circumstances or the avaricious. Interest rates also seem to have first appeared in Sumer where most transactions were conducted on credit. Years with bad harvests resulted in peasants hopelessly indebted to the rich, forced to surrender their farms and, ultimately, family members, in debt bondage. Inevitably this would lead to a social crisis in which the masses were enslaved to the few. It soon became traditional for each new ruler to wipe the slate clean, cancel all debts, and declare a general amnesty or 'freedom', so that all bonded labourers could return to their families. Significantly, the first word for 'freedom' known in any human language, the Sumerian amarga, literally means 'return to mother' while in Sanskrit, Hebrew and Aramaic, debt, guilt, and sin are actually the same word. Julius Caesar became the hero of the Plebs, and was ultimately killed by the nobles, for introducing debt forgiveness schemes after he took power from the corrupt patrician oligarchy. Solon laid the foundation for Athenian democracy by "shaking off the burdens" of enslaving debt. Biblical prophets instituted a similar custom, the Jubilee, whereby after seven years all debts were similarly cancelled, the direct ancestor of the New Testament notion of ‘redemption’. Through some historical error, we inherited the institutions of lending at interest without the original checks and balances.

Instead, we live in a world where banks are bailed out while people are sold out. In which lenders making up details on credit applications became such a common practice it became known as liar loans but debtors get sent to jail for 30 years for lying on the same forms. It was after all many of those liar loans that were slapped together, sliced, diced and bundled into the CDO's that helped cause the crisis, but no one needs to be jailed for that. It's only those uncivilized countries that obviously need a good bombing where bankers are actually punished for fraud. Tax evasion is only for the rich and corporation kind of people not the 99%. It's jail for you or me if you screw the IRS but if you're HSBC or Credit Suisse, you just cut a deal in which you hand over email and telephone records of your staff to the US Department of Justice. Stealing from your clients is frowned upon unless your MF Global, an investment company run by the former governor of New Jersey Jon Corzine, then of course it's okay. It's usually fraud if I sell you something that I know is going to blow up, but if you're Goldman Sachs, where your clients are referred to as muppets, well, it's fine to sell your clients investment products that your bank is offloading as fast as possible on the open market because you know they're about to explode, even when there's emails to prove it.

It doesn't seem like banks have morals and they definitely don't learn their lesson from the punishments they receive. Bank of America’s securities unit has agreed four times since 2005 not to violate a major antifraud statute, and another four times not to violate a separate law. Merrill Lynch, which Bank of America acquired in 2008, has separately agreed not to violate the same two statutes seven times since 1999. They're just doing cost-benefit analysis, where their benefits are our costs as when Morgan Stanley entered into a complex swap agreement with the New York electricity provider KeySpan in 2006 that gave it a stake in the profits of a competitor enabling the two companies to push up the price of electricity. Price fixing is illegal, so Morgan Stanley had to pay a fine of $4.8 million for enabling it, but they got to keep the $21.6 million they made for handling the swap and didn't have to admit any wrongdoing. The cost to New Yorkers in higher utility bills? $300 million. Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase came out smelling like roses converting human shit into billions of dollars in profits by financing a new sewer treatment plant for the people of Jefferson County. The people didn't come out smelling so pretty though as the financing cost forced them into the biggest municipality bankruptcy in US history. The same thinking probably went into Wells Fargo's alleged decision to fire an employee three days before his daughter was scheduled for surgery in order to avoid paying the bill. No cash, no cure for cancer as the hospital cancelled the surgery and the child was left to die.

What of finances role of market maker and facilitating transactions for investors and consumers, surely we owe them something for that? Well, thanks to the deregulation of the agricultural commodity market in 2000 Goldman Sachs earned £600m from food speculation in 2009 alone. While the bank's profits were boosted, the numbers dependent on food banks and aid were exacerbated thanks in part to the banksters. No one disagrees that their gambling pushes up prices, the only question is how much relative to other factors such as biofuels, changing consumption patterns and drought. The poor are disproportionately affected by a rise in food prices as they spend a higher percentage of their income for the basics, just as they do for debt. If you use anything made of plastic, drive a car or heat your home, you should know oil speculation adds $23.39 to the price of a barrel (around a quarter) which translates to about an 83-cent-per-gallon of gas premium and costing an average American family $82/month. And people we're angry when Bank of America introduced a $5/month debit card fee!?! Seems these financial behemoths need the cash though as they need to keep up with their competitors in the new world of flash trading. By spending billions on faster cables they can shave microseconds off the latency, or trading execution time, thus allowing themselves to peek at the orders of other traders before they're made. Not only does this destroy the idea of investing, especially by us flesh and blooders, but it opens up the markets to one of the newest perils, the flash crash. Hooray, more risk!

Perusing the comments under any number of stories of payday loan companies charging four to 5000% interest, distraught families being tossed on the street or students in the streets protesting their debt enslavement, one can always be sure to find defenders of the faith of finance. These moralizers are quick to point out that no one forces people to sign on the dotted line but never take into account the asymmetry of information and power between the parties or the corrupting influence of living in a society built on sating our short term desires no matter the cost. The tired refrain of taxation and representation is trotted out to rationalize paying the debts of our governments but loses all meaning when put in the context of the options faced by voters today: Bad or Worse, Red or Blue, vote wrong and it's a redo, either/or results in another IOU as the need for money to get elected forces politicians to prostate themselves before the FIRE (finance, insurance and real estate, one for all and all for one thanks to deregulation). Insisting people today make rational economic decisions seems ludicrous while our educational system is being sold off to the lowest bidder and converted into a propaganda factory where standardized test scores are more important than critical thinking. Arguing we have a choice when the information we receive is nothing but a toxic mix of cognition clogging updates in our Twitooglebook universe alongside stories from a media controlled by six corporations (down from 50 in 1983) offering 2,000 channels with the same message while selling an illusion of choice barraging us with a constant stream of crisis reports, crisis summits and near-crisis averted but never connecting the dots.

"When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretend payment." - Adam Smith; The Wealth of Nations, Book V, Chapter III, Part V, p. 481

To review. Forty years ago we entered a new era of fiat currency which untethered money and thus debt from any constraints in order to protect ourselves from "money speculators". The US in particular experienced a long economic boom for the wealthy with stagnation and even decline for the rest as taxes for the rich and corporations were cut, unions were gutted and jobs were outsourced. In the past 30 years, 96% of the growth of average incomes have gone to the richest 10% and in the past 10 years, the incomes of the other 90% have declined. In Europe, a new currency was introduced with supposed magical powers to turn the likes of Greece into Germany but only had the effect of causing them to diverge. On both sides of the Atlantic, the shortfall of the poor, the middle class and their governments was made up by increased borrowing. The "money speculators", whose ingenuity was unleashed by the deregulation that regulatory capture bought them, were more than happy to find more and more creative ways to eliminate risk and earn huge rewards. When the ponzi scheme faltered, we were told there was no alternative to saving the banks, transferring trillions from public hands to private with no consequences and next to no oversight. With nothing fixed and no lesson having been learned, the banks emerged bigger and more powerful than ever with the knowledge they can act with impunity while the public from Madrid to Manchester to Miami are forced to accept ever more stringent austerity measures in exchange for ever larger bailouts which continue right under our noses.

Oh, it continues. TARP was just the beginning of bank bailouts as the program has continued in stealth and shows no sign of being abandoned therefore changing the game is the new moral imperative and sustaining it a sin. Language is their most effective ruse, twisting meanings and changing expressions. Quantitative easing in the US and UK is nothing more than printing money electronically and using it to overpay banks for their financial assets or by lending to them on the cheap, minimizing their borrowing costs and lowering their reserve requirements in the hopes they will lend that money on to the real economy. Of course they don't, they just buy more bonds (gilts in the UK) to earn a risk free return (as long as the merry-go-round continues) and wait for the next round of easing (QE3 is rumored for a fall sailing). All this goes to pad the bottom line which they need to perpetually improve to keep increasing CEO salaries, keep the stock market happy and of course, give idiots like this something to babble about incoherently.



European sensibilities were a bit too sensitive for such blatant Zimbabwe/Weimar Republic-like behavior (at least until recently when they just up and gave Spanish banks €100 billion that the people will have to pay back), so the ECB basically did the same thing but called it LTRO, Long Term Refinancing Operation. Prohibited from giving money directly to countries, the ECB printing press is used to give money to banks ostensibly to buy bonds from countries having problems selling them (ie. Greece et al). More free money for the banks if the game continues as they can either put the cash into the riskier bonds at higher rates or play it safe and deposit it back at the ECB. Other Newspeak candidates include 'Growth friendly' policies, those which hand more power to foreign corporation and banks to continue their plunder while David Cameron's 'expansionary austerity' is more Orwellian than his Big Society and has driven the UK into a 'surprise' double-dip recession. Confused? Yep, you're meant to be, otherwise you'd wonder why they don't just give the money directly to the people instead of banks while artificially maintaining low interest rates in order to force the elderly to eat cat food or starve.

"And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves" - Matthew 21:12

Just this past week US VP Joe Biden got in a little hot water for telling a half-truth:

People (well, right-wingnuts) went, well, nuts, as they tried to turn his words into an insensitive race play. The mistake he made though is that we're already in chains, slaves to greedy, immoral (amoral?), psychopathic bankers. It wouldn't be so bad if we at least we're being driven for a monumental purpose, I dunno, like building pyramids, the US capitol or White House instead of facilitating the worship of the Golden Calf. Up til now we've been complicit in their shakedown where debt is a sacred obligation only if it is owed by the poor and vulnerable to the rich and powerful who have used their gains to purchase political power or hidden them away in the Caymans. Yet debt is always negotiable or can even be written off when it's the other way around ensuring the wealth keeps flowing upwards. The growth in inequality seen before the crisis has been put on steroids since the bailout with more than 90% of the gains going exclusively to the richest 1% causing the middle class to slowly disappear and poverty to explode while Paul Ryan argues to cut their support. Regardless, much of the rabble will rally to the Romney/Ryan call to extend the Bush tax cuts and further cut taxes on the rich while making the rest pay for it. We used to ask "What's the Matter With Kansas?" but we need to ask "what's the matter with us?" today for doing nothing as the air raid sirens are sounding the next attack.



Alone, none of us can destroy the false idol of greed, there's no Moses amongst us, the only way is if enough people act together. Think and buy locally, plant a garden, ride your bike, vote for alternative parties and take your money out of the TBTF/J  banks (US, UK, Facebook) and put it in a credit union that puts profits back into communities are all simple ways to start. The more ambitious can talk to and teach others, join a protest, or even try to get out of the fiat economy altogether by investing in physical gold, silver or other metals. Of course if you're worried about all that extra weight in your pockets try using the alternative, electronic, secure Bitcoin currency. Finally, we have to shed the holier-than-thou shackles placed on us by those that would call people who walk away from underwater homes deadbeats, graduates unable to make their student loan payments slackers and governments tricked into a debt trap unable to meet their debt obligations lazy while bailed out banks behave beligerently, 'good' governments gut the promised social welfare state and corporations renege on obligations and commitments made to provide health care, pensions and other benefits to workers. The parasites may seem to have the power, they may have won the previous battles, but we, as flesh and blood people, have the real power, it's time to Strike Debt, stop paying what is no longer morally owed, a debt strike to stop the bankster shock doctrine takeover.

Coming to a Consensus

Way back in time, before there was Twitter, before the perpetual recession had come, in 2007 the International Monetary Fund (IMF) had a mere $2 billion in lending commitments on its books. Two billion. Avatar made that in seven weeks. That's the monthly increase in the cost of the Afghanistan war this year. From its inception at Bretton Woods in 1945, the fund had been transformed from an instrument to promote and facilitate trade between its member nations into an object of hate, letters spoken together with derision from Bangkok to Buenos Aires. Well, here we are in a world of two billion tweets a month with much of it stuck in near economic depression where the IMF has $195 billion in loans on its books. This week central bankers and finance ministers from around the world are gathering at IMF headquarters in Washington DC for the IMF and World Bank annual meeting and they'll be on their best behaviour. You see, with about $900 billion at its disposal, the IMF has been charged with saving liberal capitalism.

It's a mixed up muddled up shook up world as we stumble headlong into the second decade of the 21st century but what I'm finding hardest to swallow is the rejuvenation of the IMF's image. There was a reason it only had a couple of billion in loans a few years back; it had lost its legitimacy in the international community. It had morphed from a cold war tool to support dictatorships in South America into a neo-colonial boot across the throat of Africa before becoming a purveyor and destroyer of capitalist dreams beyond the Berlin Wall and finally the instigator of global economic turmoil even further east. By first denying credit to elected governments led by 'left leaning' types such as Allende, Goulart or Ortega who may not have followed Washington's orders then supplying it to dictators that overthrew them, the likes of Pinochet, Branco and Samosa, the IMF was a good soldier in the fight against the Red Menace. Countries such as Senegal have found they are better off following the Beijing Consensus to Washington's nasty version. Privatization and market liberalization that was gonna make everyone rich following the collapse of the commie regime was unleashed without the proper legal framework (read: government institutions, is that irony?) bringing the world Russian billionaire oligarchs, some of whom managed to move to London to buy football teams before the Putin authoritarian backlash. Others languish in prison. The last bit of credibility seemed to evaporate with the steam from hot money that poured into the opening of financial and capital markets ordered by the IMF as a remedy to East Asia's downturn in 1997 transforming a hiccup into worldwide crisis.

It's no coincidence that the three biggest debts on the IMF's books as of August 2010 belong to Romania, the Ukraine and Hungary each owing over $11.7 billion, almost six times the total of outstanding loans three years ago. October 3rd saw the 20th anniversary of the reunification of East and West Germany which heralded the triumph of capitalism over communism, good over evil, opportunity over captivity. Some 8% of the world's population that had lived under the Soviet Communist system traded in one form of enslavement for another as IMF experts marched in to preach the gospel of a new religion, market fundamentalism, as a substitute for the old, Marxism (Well, a twisted Leninism/Stalinism/Gorbachevism?). For the western powers (ie. the banksters) the sudden opening of an untapped, unregulated market was a once in a lifetime opportunity as it lacked the most fundamental building blocks of efficient markets such as anti-trust laws or property rights. This lack of government regulation allowed those who knew which vodka to buy Yeltsin (answer: any) to prosper as most of the population suffered. Americans saw shock therapy through the lens of Reagan's victory putting a McDonald's on Red Square while the reality was the percentage of Russians living in poverty using the $2 standard skyrocketed from 2% in 1989 to 23.8% less than a decade later. The IMF brought Mercedes traffic jams to Moscow but 40% of the country now had to live on less than $4 a day.

The IMF was created to smooth financial crisis when they occur yet seems to have been the cause of political and economic disease as often as the cure. Yes, Virgina, there have been other crises before this latest one and they are coming ever more frequently, powerfully and lingery. That's not a word, but they tend to drag on, with recoveries marked with ever less, and painfully slow, job creation. Our hopes for recovery are resting on the drug dealer of debt that turned many of us into junkies in the first place as much of the world is relying on the IMF pit bosses to keep the casino open. The next crisis is already written into the loopholes lobbied into the financial regulation bill in the US. The last not yet complete judging by ever widening bond spreads in Europe which highlight the uselessness of trying to save the euro by propping up PIGS with more debt and occasionally issuing reports on their progress to soothe jittery markets. An optimist will say the protests in Seattle in 1999 or the street battle in 2001 in Genoa may have lit the fire under the IMF to change its ways. But it seems just the names have changed in this truly grim fairy tale where only the banks get paid as we double down on SDRs instead of structural adjustment loans and implement austerity programs in place of job cuts.

Not being able to know who the bad guy really is helps keep us interested in the story and allows the cycle of crisis to continue. The Greeks, banks, Irish, Al-Qaeda and the government all played a role in putting us in a situation where cuts are going to be necessary along with tax hikes but the biggest baddie in the financial press these days seems to be China. Sure, China's on board, what with the G20 and now a Special Advisor to the Managing Director at the IMF, their cash is needed, but the boss is still European and Canada has a bigger vote than Russia, or Brazil and Mexico combined. The US still has a veto power with over 16% of the vote, as major policy decisions require a supermajority of 85%. For these past 20 years much of the world has gone along with what the IMF prescribed, often having no choice, accept or perish, but there has been growing evidence that there might be another path to choose and many are taking it.

About ten before the fall of the Berlin Wall, in 1978 the Chinese government began making economic reforms that have brought in a hitherto unknown combination of mixed ownership, basic property rights, and heavy government intervention. On the surface, what distinguished this new capitalism seemed to be the level of government intervention. While this is true, what surprisingly sets Washington and Beijing apart is flexibility. While America opts for nostalgia and ideology instead of pragmatism and progress, the winning model of capitalism is being made in China, like so much else in the world these days. A two-party political system is no better, in fact worse, than a one-party state when both parties are under the control of lobbyists and one of them is bought and paid for by a major media outlet. Whereas the neoliberals and neocons invade nations financially and militarily through loans and bombs in order to exploit their resources, the Beijing Consensus simply builds them infrastructure in exchange for their riches. Roads and hospitals for copper and rare earth metals. Risk capital instead of lives. Seeing the game slipping away, the west, America in particular, is trying to find a scapegoat, blaming the winner for playing the game better.

So we'll continue hearing a lot about the yuan (renminbi? still don't understand the difference) being undervalued while not criticizing too directly as we're still offering the open hand of the G20. After all, it'll be good to spread the blame when things fall apart. The Chinese understand that it wasn't American style management skills that made the US the global economic leader for the past century but a combination of luck and directing the resources of the country in a productive manner. Think of the big money makers of the past century and their connection with government. From the direct to the indirect in the big picture and in the details. Militarily not only conquering markets that needed to be rebuilt after winning world wars or friendly invasions but also directly employing and educating soldiers along with buying and selling all those weapons of war. Boeing, General Electric and Haliburton anyone? All this spending and the hydrogen bomb gave a head start to the computing industry and even gave us the internet. Detroit wouldn't have had the run it did if an interstate system hadn't been built to handle all those cars criss-crossing the continent. There's no secret to China's success, it's much the same recipe America used when it understood that since market forces cannot even do something as simple as finance home mortgages it shouldn't be trusted to restore and maintain full employment, reduce global imbalances or prevent the destruction of the environment while preparing for a future without fossil fuels. China's doing it while somehow being both more overt and less conspicuous. Not wasting energy pretending to be what it's not at home and forcing their ideas on others abroad.

The success of the Chinese approach to modernization has struck the developing world as attractive and the developed as amazing. As the calls to control deficits grow louder and governments are told to cut more jobs, raise retirement ages and lower subsidies while bailing out banks, the Chinese will keep building the things we need and using the proceeds to fund the debt the IMF has ensured we're addicted to. While Chinese Premier Wen Jiabao's in person offer of support to Greece (obviously in exchange for market access) was being gratefully accepted, the head of the IMF issued ominous warnings of a currency war being waged by those Chinese. In Europe the cracks are growing as "You can't have a monetary union without a reasonably coordinated fiscal policy" - Orwellian for a true supergovernment from that same IMF director, Dominique Strauss-Kahn. It gets worse in America where most of the public has been convinced that all things government or intellectual are bad - insert your own Palin 2012 vice presidential nominee here and imagine the outcome. Richard Nixon is attributed Milton Friedman's misquote that "We are all Keynesians now" after breaking the gold standard and reluctantly accepting John Maynard's economic ideas. The IMF was built upon that economist's ideas but I get the feeling that the next great shift in economics will have most of us saying "We are all Chinese now".

When First We Practice To Deceive - Lies Part 2

Everything has to be paid for though in the end. Or does it? If there were only something that could keep investors interested in buying dollars... Of course it's oil, having replaced gold and completed the transition of the dollar, a fiat currency, into a quasi-backed currency. Of course you need people to trust that this will continue and that dollars will always be needed. Thus the boom and bust cycle of the past century, with the battle for oil at it's centre and war as it's engine.

Who controls the food supply controls the people; who controls the energy can control continents; who controls money can control the world - Henry Kissinger

Gallipoli was an early British loss in WWI trying to secure access to the oil fields of Baku (1/5 of the world supply at the time). I know that most textbooks claim that war was ignited by the assassination of Archduke Ferdinand, but in reality it was due to British fear of a German Berlin to Baghdad railway giving them land access to the oil of the region. Things haven't changed much for the past 100 years of the reign of oil as the lies leading up to the Iraq invasion have been exposed, the objective clear. Things aren't looking so good for the plan as the price per barrel of crude rockets to weekly new highs with talk of 'peak oil' which could cause a greater disaster than war; people getting out of their car...

The British may have deviously beat the rest to most of the Arabian peninsula after WWI, but it was America that grabbed the then unknown gem of the region, Saudi Arabia. The Brits, and by default much of the world they controlled, also put themselves immensely into debt with Wall Street to pay for the war. JP Morgan and the rest got rich on the spoils, with onerous demands on not only the vanquished Germans, helping ensure WWII, but the Brits too. While the British managed to maintain control over much of the Middle East until the next war could be fought, such conglomerates as Royal Dutch Shell and the Anglo-Persian Oil Company that became the Anglo-Iranian Oil Company and is now British Petroleum(BP) rose to power. Of course WWII had many causes, but not the least of which was the oil embargo imposed by the US on Japan, at the time it was reliant on the Americans for 80% of their oil. The end of the war brought us the Bretton Woods accords which sealed American hegemony for the next 30 years by linking the U$ to gold, and creating the IMF, World Bank and "managed" free trade through GATT. At the time the US held most of the world's gold reserves, so all was good with big business on Wall Street. The Marshall Plan to rebuild western Europe also gave a huge boost to the oil companies as it ensured growing demand for crude.

The American relationship with Saudi Arabia has proven crucial ever since the government of Ibn Saud was recognized by the US in 1931. Standard Oil began searching for oil in the 30's and by 1938, the Arabian American Oil Company, later to become Aramco, first struck the black gold in commercial quantities. The relationship has had a long and winding path, but both countries have played each other for their own interests; the Saudi's needing protection, and the American's needing cheap oil. Thanks to Bretton Woods, the dollar was as good as gold, and people bought it for almost 30 years. Predictably however, America printed more dollars than there was gold to back it, which worked until the French and a few others began demanding the US pay back gold for dollars it brought to the US Treasury. Of course they couldn't pay and on August 15th, 1971 Nixon ended the repayment of gold, in essence declaring insolvency. Needing to do something, the US along with money managers struck a deal with OPEC, of which Saudi Arabia was a founding member, to exclusively price oil in US dollars in return for American guarantees to protect the kingdoms of the Persian Gulf against the threat of invasion or domestic coup. At the same time, the price of oil was allowed to increase from about $3.50 to $39.50 so the oil producing nations could buy American debt. source - The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Cornell Studies in Political Economy)

Like kids in a candy store the US government had been on a spending spree, particularly under LBJ. Claiming that America could afford both guns and butter, he escalated the war in South-East Asia and launched the Great Society movement. By 1979, gold had skyrocketed to over $800/ounce and interest rates reached 21% to fight inflation. The only way to safeguard dollar hegemony is military threat, and the 80's brought us rapid growth in military spending under Reagan. The petrodollar-recycling system allows the Federal Reserve to effortlessly expand global credit to enforce US financial control and continue massive debt-financing to pay for US military control. If petrodollar-recycling begins to break down, then financial and military control will also begin to decline. When Saddam Hussein began demanding payment for oil in euros in 2000, the US had him removed. To pay for it, the US simply has to print more money, which can continue as long as people are willing to buy dollars, which is why the fashionable lie of the past few weeks is that the US is committed to a strong dollar and will fight inflation. As long as people buy it, the cycle will be allowed to continue, and, if McBush is elected in the fall, US troops can take out the next threat, Tehran. But will it stop there, the axis of oil includes Iran, Venezuela and Russia. Could Caracas be next, or how about Moscow? When great powers begin to decline, they almost invevitably resort to war and beligerency, thereby accelerating their demise. Source - The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000

Of course oil politics has had it's obvious fallout. The radical Islamic movement was born out of resentment of American influence in the Middle and Near East, while at the same time returning immense financial benefits to big business. However, these benefits have also given rise to a thirst for ever greater returns, greed. We are witnessing what can only be called a commodity shock as oil and other resources, most importantly the food we eat, are seeing prices rise out of control and the main culprit is price speculation. As the G8 meeting wrapped up in Osaka yesterday, news of an Italian plan for regulation of this market leaked out. Of course the US and British opposed it as this would be seen as putting constraints on the free market system, the main pillar that globalization is built on. Sounds like part III of lies will have to wait until the next post.