London Banking Center at Core of Financial Crisis
New York’s normally far left Village Voice has published a revealing article, which for the first time here placed the central blame for the current major economic problems in the U.S. on the behavior of several London banks.
The article, “What cooked the world’s economy? It wasn’t your overdue mortgage” focuses on the legendary banking community of the City of London and the very questionable rise of its derivative market along with the classic cooperation by the British government as being the central avenue through which the U.S. and world’s economic system has been seriously damaged.
The City of London is not that ancient city on the Thames River. It is not only separate, it once controlled the whole British Empire. It is generally considered to be a Rothschild entity.
' Worst economic collapse ever'
Article continues below this Village Voice article:
What Cooked the World's Economy?
It's 2009. You're laid off, furloughed, foreclosed on, or you know someone who is.
You wonder where you'll fit into the grim new semi-socialistic post-post-industrial economy colloquially known as "this mess."
You're astonished and possibly ashamed that mutant financial instruments dreamed up in your great country have spawned worldwide misery. You can't comprehend, much less trim, the amount of bailout money parachuting into the laps of incompetents, hoarders, and miscreants. It's been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He'll give you a job painting a bridge. You may need it to keep body and soul together.
The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.
Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take time—maybe a year or so—but if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.
Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.
Credit derivatives—those securities that few have ever seen—are one reason why this crisis is so different from 1929.
Derivatives weren't initially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, but shaky, venture, like what Ford or GM have become, could hedge its bet by buying a credit derivative to cover losses if the debtor defaulted. Derivatives weren't cheap, but in the era of globalization and declining American competitiveness, they were prudent. Interestingly, the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg. It was quite expensive for a financial institution—say, a bank—to get a Bloomberg machine and receive the specialized training required to certify analysts who would figure out the terms of the insurance. These Bloomberg terminals, originally called Market Masters, were first installed at Merrill Lynch in the late 1980s.
Subsequently, thousands of units have been placed in trading and financial institutions; they became the cornerstone of Michael Bloomberg's wealth, marrying his skills as a securities trader and an electrical engineer.
It's an open question when or if he or his company knew how they would be misused over time to devastate the world's economy.
Fast-forward to the early years of the Clinton administration. After an initial surge of regulatory behavior in favor of fair markets, especially in antitrust, that sort of behavior was abandoned, and free markets triumphed. The result was a morass of white-collar sociopathy at Archer Daniels Midland, Enron, and WorldCom, and in a host of markets ranging from oil to vitamins.
This was the beginning of the heyday of hedge funds. Unregulated investment houses were originally based on the questionable but legal practice of short-selling—selling a financial instrument you don't own in hopes of buying it back later at a lower price. That way, you hedge your bets: You cover your investment in a company in case a company's stock price falls.
But hedge funds later diversified their practices beyond that easy definition. These funds acquired a good deal of popular mystique. They made scads of money. Their notoriously high entry fees—up to 5 percent of the investment, plus as much as 36 percent of profits—served as barriers to all but the richest investors, who gave fortunes to the funds to play with. The funds boasted of having genius analysts and fabulous proprietary algorithms. Few could discern what they really did, but the returns, for those who could buy in, often seemed magical.
But it wasn't magic. It amounted to the return of the age-old scam called "bucket shops." Also sometimes known as "boiler rooms," bucket shops emerged after the Civil War. Usually, they were storefronts where people came to bet on stocks without owning them. Unlike their customers, the shops actually owned blocks of stock. If customers were betting that a stock would go up, the shops would sell it and the price would plunge; if bettors were bearish, the shops would buy. In this way, they cleaned out their customers. Frenetic bucket-shop activity caused the Panic of 1907. By 1909, New York had banned bucket shops, and every other state soon followed.
In the mid-'90s, though, the credit-derivatives industry was hitting its stride and argued vehemently for exclusion from all state and federal anti-bucket-shop regulations. On the side of the industry were Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and his deputy, Lawrence Summers. Holding the fort for the regulators was Brooksley Born, who headed the Commodity Futures Trading Commission (CFTC). The three financial titans ridiculed the virtually unknown and cloutless, but brilliant and prophetic Born, who warned that unrestricted derivatives trading would "threaten our regulated markets, or indeed, our economy, without any federal agency knowing about it." Warren Buffett also weighed in against deregulation.
Derivatives, briefly a financial note that hedges a loan’s risk against default, became increasingly popular in recent years driven ,many say, by the sweeping changes brought on by the one world economic globalization movements starting in the mid-1980s to today.
In the mid-1990s, several published accounts show that Congress under the Clinton administration removed almost all effective legal overview on derivative markets, which quickly began providing unprecedented, ultra-huge profits for key figures in the market, many of whom were politically well connected.
While many seasoned financial experts published a mounting list of warnings that the derivatives were as ultra dangerous as they were ultra profitable, few in any position of power showed any inclination to even examine what was occurring.
But besides official noninvolvement being a factor, the article clearly, for the first time, points out that the derivative industry is based in the City of London—long the world’s most important, secretive and officially protected banking compound in the world, located outside of the reach of U.S. regulators.
The British government adopted its classic noninvolvement behavior. The result was that the London derivative market skyrocketed to $100 trillion, many say more, by 2003.
The article quotes sources as placing the current value of the London derivative market at over $600 trillion, which far overshadows the value of all other financial markets. In providing an overview of what has gone wrong the article notes that disgraced mega financier Bernie Madoff, despite the media attention, represents “peanuts” in the current economic disaster. The authors contrasted the losses under Madoff to the huge damage caused by the London banking compound and their U.S. bank partners, always the junior partner, many patriotic figures note, when the City of London is involved.
The Voice followed the derivative money trail till it reached AIG financial products and its chief officer, Joseph Cassano, who openly described the institutions that became involved in the London-controlled derivative world as a “global swath” of hedge funds, investment banks, money managers, high net worth individuals, municipal governments, sovereigns and supra- national business corporations and pension funds.
Many other written accounts have detailed what resulted. With the legendary secrecy the London banks and the British government practice, exact figures are impossible to secure. But knowledgeable observers say that at least half of the major derivative operations, which critics call “bucket shops,” after the crooked storefront stock trading operations of the mid-to-late 1800s, have ceased operations, leaving their major investors, including major pension funds, high and dry.
The Voice article and many other published reports have focused on the financial community and the handling of the taxpayer-funded $700 billion bailout for the U.S., and by proxy, British financial institutions destabilized by chronic mismanagement.
Both the Voice article and many other published accounts to this point have focused on the extensive secrecy which shrouds just what is being done with taxpayer funds in the financial markets.
Also due to public uproar over the secrecy, it became known that the Federal Reserve, which is not a government entity but is privately-owned and controlled, late in 2008 made loans to key banks on a level significantly larger than the congressional bailout. With no public knowledge, the “Fed” lent key banks what is reported to be $1.2 to 1.5 trillion. The Federal Reserve refuses to disclose major details of the emergency aid to major banks, stating that standard Freedom of Information Act disclosure laws do not apply to it.
But while the Village Voice article is the first major establishment publication to openly connect the present crisis to the British banks, a general recognition of the London banking compound as being the world economic power center has been growing through unusual avenues of late.
Jeff Smith is a writer based in New York.
Rothschild Agents Take 10 Key Posts In Administration of Rookie President
OUR GREATEST FOUNDING FATHER and first president, George Washington, probably wouldn’t be ready to celebrate his birthday on Feb. 22 if he were alive today. Having led the 13 colonies to independence from the British Empire in 1783, following the course of a difficult eight-year struggle by those freedom-loving American colonists who followed him, Washington (who lived from 1732 to 1799) would most assuredly be appalled to see that the liberties achieved from the American Revolution are now being flagrantly defied by a number of figures who populate the upper ranks of the administration of Barack Obama.
By Michael Collins Piper
A journalist specializing in media critique, Michael Collins Piper is the author of The High Priests of War, The New Jerusalem, Dirty Secrets, The Judas Goats, The Golem, Target Traficant and My First Days in the White House All are available from AFP.
American Free Press