SUPER COMMITTEE BIG BANK ROBBERY and “this sucker” going down
What is a Super Committee (shackled by lobbyists) to do but perpetuate and throw another TARP over the biggest global bank robbery that no one wants to admit, since it could bring “this sucker” down, as blurted into existence in that quant little Baby Bush syllogism of masterful eloquence when it all hit the fan in 2008. Gotta hand it to ‘em not to beat around the BUSH. As if this quick witted son of a “born with a golden foot in his mouth” elitist had his instincts lead him to verbalize with that little Freudian slip, that: “THIS” is, truly, a “SUCKER.” At least he didn’t use the rhyme.
Of course there are suckers and there are suckers, translated as suckling suckers and sucked suckers, all playing their part of “this sucker” in the BIG Suck.
Too big to fail and jail but not to bail banksters (suckling suckers) have been sucking trillions of dollars by fraud and trickery for years in the “financial economy” (speculations, bonds, derivatives, swaps etc) from the “real economy” of “suckers” (American, Euro and global) directly into their personal accounts, in preparation for what is to come, of the even bigger crash (after boom bubble) and war – their perpetual tools for massive wealth accumulation (suck).
These bankers (the super elite) who have helped cause today’s global financial and economic troubles, are the only class that is not suffering but is actually benefiting, and they are increasing their feeding (suckling) frenzy. The banksters take risks, get paid for the upside, and then transfer the downside to shareholders and taxpayers, the suckers who seem content to just lap up the leftovers keeping them just strong enough to work as debt slaves.
The Supper committee is in cahoots with the lobbyists who are scrambling to protect their clients pork bellies, and the hedge hogs of Wall Street, the financial and currency manipulators, know the game well, and that “regulations” don’t really matter anyhow since they will always be one step ahead in the game.
Today, with the WAR machine and BANK machine engines in position and running at full throttle, we have a repeat of what E.C. Knuth said in “The Empire of the City” [p.71]: “The fact that the House of Rothschild made its money in the great crashes of history and the great wars of history, the very periods when others lost their money, is beyond question.” The City, of course, was London the seat of the British Empire, then Wall Street and other centers of financial power came into play, increasingly after the new world (Brent Woods) order in the aftermath of WWII.
Who is benefiting from “this sucker” today and from the endless warmongering and currency speculations and derivative economy (estimated at $955 trillion [see Destructive Power of the Financial Markets in Der Spiegel]), excpet the very same Corporate banksters and allied Contractors and lobbyists who control the federal (private) reserve printing presses, and receive the interest payments, and who caused the crisis by their promotion of runaway greed (called neoliberal capitalism) in the first place?
CNNMoney.com [Jeanne Sahadi, December 20, 2009] reports: “More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest…. in fact $4.8 trillion.” Guess who pays, and guess who it is paid to?
Need a nudge: yep, us taxpaying suckers proportionally pay more, and yep, the bankster super (“tax cut”) rich receive the interest (usury). They thrive on war and crashes, make money going up in boom and going down in crash, make money preparing for war, make money during war, and make money rebuilding after war.
Who benefits? Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University) published their book “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” and proved that illusionary expansions thru external debt (usury) inevitably lead to crashes, currency debasement (inflation), bankruptcy, etc. Translate: Big Bankers always win by the “loans” on interest (usury) which must be paid or else, or by burying up assets cheap after bankrupts. They make money in the “boom” times and make money on the “bust” times when sovereign nations and companies go stark bankrupt (gaining control and assets after wars, crashes, etc). Then another cycle begins because the fools think ‘this time is different’ and that the “boom” wealth creation “this time” will continue to feed them.
Of course bankers know well the “this time is different” mantra is not true because, as one insider of “this sucker,” George Soros, [one of the founders of the “hedge” (hog) fund industry (who made $1 billion (€700 million) betting against British Pound and winning] famously said: “Financial markets have a very safe way of predicting the future. They cause it.”
These “financial market” Bankster insiders “hedge” their bets and make money both ways: with the “long” sell betting that profits will go up, and with the “short” sell (betting that things will go down and lose).
One prominent example of a suck by a suckling sucker of “this sucker:” Former Goldman Sachs CEO Henry Paulson, (Biggest Hedge Hog) became the treasury secretary under then President George W. Bush, and played a crucial role in following series of financial crises and Wall Street bailouts. Remember that John Paulson, the world’s most successful speculator, and hedge (hog) fund manager (who had over $30 billion in assets) and other insiders, had bet on the collapse of the American mortgage market (i.e. they created subprime and toxic products in market knowing that they must ultimately fail). As the Arabs say: “Haamiha Haraamiha,” (the one guarding is actually the crook), or as the English say, putting the fox to guard the chicken. The suckers got a real kick out of pulling that sucking TARP over on the suckers.
Big game players, makers, and shakers, make (suck) BIG MONEY no matter what: winning (with their money plus some) and losing (other people’s money, never theirs). Bankruptcy of entire nations becomes part of wealth accumulation game, but that is nothing new, and actually IS the “this sucker” game, as Rothschild and Inc. and related company and allies know well.
Massive manipulation of entire essential commodity markets, is also part of the game. For instance see one link in the chain fence holding the suckers back, in the UK Daily Mail “Trading in death: Rapacious bankers are making fortunes by forcing up the price of food and leaving millions to starve.”
Nowadays, with the perfect storm brewing like a massive hurricane, (fathom the coalescence of Environmental crisis, Peak Oil [and everything else], USA financial crisis, Euro financial crisis, Japan financial crisis, China and Russia (and others) clamoring for and seeking a new global reserve currency, Middle East in flux, GWOT, Empire “blowback,” globalism backlash, ground swell revolt of little guts all over the place, etc), they sense that they have gutted “this sucker” including the suckers of the “real economy” so much that everything may globally crash. They are in their final feeding (sucking) frenzy mode, to get all they can before the great finale when “this sucker” (as Baby Bush said in the middle of the 2008 crisis) really goes down for good. Of course they think it will only be temporary until they get another round going, but faithful and unfaithful speak of the Armageddon Moments, called by Muslims “Malahim:” roughly translated as battles with the meeting of a lot of meat.
They know well about the historical decline of the working classes and poor, because they caused it, but like the feudal lords who become too greedy, they eventually tax and axe too many people weakening the slaves to the point they cannot sustain the workload, and precipitate revolt of the “let them eat cake” masses. The Center on Budget and Policy Priorities proves without doubt that the system is skewered to benefit the Corporate Oligarchy, just read “Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show.”
The real joke is that the American Shepple (Animal Farm) are “astro turfed” (another word for suckers as in ‘sucked suckers’) by the very Corporate Oligarchy crooks (like Koch brothers, and so many others) , and thus we have Tea Partiers and others hip hipity going down the rabbit hole of fantasy, thinking that we must “balance the budget” and “slash taxes” and “cut big government everything” (but empire army and DoD contractors) to fix things, which ultimately means paying back to the banksters their interest (usury-suck), and to Hell (they might say it more colloquially) with the consequences, we gotta be “free” and “great.”
They are clueless that the Banksters and Washington insiders are the very Corporate Oligarchy maker and shaker (suckers) that saw this “crisis” coming and had benefiting immensely and are still positioning themselves every since, to reap the benefits in the coming BIG CRASH and the coming BIG WAR, regardless of the sucked suckers.
Evidence, you may ask? There is so much, but an interesting piece of the puzzle. In 2007 various cables of the US embassy reveal (thada way, Wikileaks) that the US and French government were fully aware of a coming crash precipitated by massive fraud and deceit by Wall Street banks and financial institutions. Translate: they and Corporate Banksters knew, and of course they did since many even warned them, what was coming and gained in the “bailout” and “stimulus” and “quantative easing” to position themselves for BIG sucking events in the coming 2011- 2012 crash of “this sucker.” We won’t go into the signs of that right now, but let your imagination run with some of the data and reports.
The suckling suckers forever will sing the song of the Head Pig of Animal Farm about free liberal enterprise knowing well that some are more equal than others, translated as the suckling suckers more than those sucked suckers in “this sucker” during the past thirty year middle class SUCK, the “trouble assets” (yeh, right, there’s only), and too big to fail bailout SUCK, and the coming SUCKS.
As if they have forgotten what Lord Keynes said, in the final analysis, we are all dead, and as if they have forgotten what all the faithful who detest this massive evil of interest –usury say: Prepare to meet your Lord Maker, for everyone returns to Him for Final Judgment in Perfect Truth and Justice, translated to language you might understand, as every single sucker.
www Abu Salman com
See this on Jan 2012:
Chris Hedges has a long history in investigative reporting in war zones etc
a thinking … feeling … person … well informed journalist who reads history and the huge great treads of societies
see (in chunks if necessary) very long C span interview … but informative … since he says lots of what we have been saying for a long time in critique of USA and agenda of corruption in government and media, role of big banks, corporate power (like Goldman Sacks etc) destroying the country leading to a totalitarian state (fascism), Oligarchy Elite, Obama betrayal to the constitution and middle class, betrayals of Liberal and Conservatives, and the collusion of all Christian denominations with this “WAR AS A RACKET” etc ,,, etc …. towards the end
talks about Industrial Prison Complex in America … and also about… War on Terrorism …
Not that I agree with everything (and too bad he is duped by one of the greatest lies of history – that Jesus is the son of God and died on the cross by lynching, a great falsehood perpetuated by many interested elites to this day)
and HERE below
Chris Hedges “Brace Yourself! The American Empire Is Over
& The Descent Is Going To Be Horrifying!”
“We have undergone, I think, in the last few decades a kind of slow motion coup d’état.”
Posted January 02, 2012
here is the “National Debt” in perspective
What the US debt stacked in 100 USD dollar bills really looks like
The US National debt is out of control. In the following images of US 100 dollar bills stacked in different amounts, you’ll see exactly what the US debt actually looks like if you were to stack the 100 dollar bills upon one another. The images are frightening, you’ve been warned.
100 US Dollars
The most counterfeited bank note in the world!
Ten Thousand Dollars
Enough money for a really good vacation to Thailand! If you budget correctly it’s enough money to live in Thailand for an entire year!
1 Million US dollars
Everyone dreams of getting a million dollars. One million USD can change someones life. Still it is not within reach for most, most people have to work 92 years to even earn that much money.
100 Million Dollars
Plenty of money for everyone! Still there are over a million people in the world with this much money.
1 Billion US Dollars
Now we’re getting serious! You’ll need some serious help if you think you can rob a bank for this much.
One Trillion Dollars
Not a single person in the world that has this much money for themselves, and if they cashed out there probably isn’t even a bank that could. Besides, where would you keep it, it’s the size of a grid iron field!
15 Trillion Dollars
Unless the US government can do something about it’s budget, this is the amount the US will be in debt by Christmas 2011. Statue of Liberty seems rather worried as United States national debt passes 20% of the entire world’s combined GDP (Gross Domestic Product).
In 2011 the National Debt will exceed 100% of GDP, and venture into the 100%+ debt-to-GDP ratio that the European PIIGS have (bankrupting nations).
115 Trillion Dollars
$114,500,000,000,000. – US unfunded liabilities
To the right you can see the pillar of cold hard $100 bills that dwarfs the
WTC & Empire State Building – both at one point world’s tallest buildings.
If you look carefully you can see the Statue of Liberty.
The 114.5 Trillion dollar super-skyscraper is the amount of money the U.S. Government
knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program,
Social Security, Military and civil servant pensions. It is the money USA knows it will not
have to pay all its bills.
If you live in USA this is also your personal credit card bill; you are responsible along with
everyone else to pay this back. The citizens of USA created the U.S. Government to serve
them, this is what the U.S. Government has done while serving The People.
The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population.
Note: On the above 115T image the size of the base of the money pile is half a trillion, not 1T as on 15T image.
The height is double. This was done to reflect the base of Empire State and WTC more closely.
Source: Federal Reserve & www.USdebtclock.org –
visit it to see the debt in real time and get a better grasp of this amazing number
and now this for some more perspective
The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue (Image: PLoS One)
The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue (Image: PLoS One)
Revealed – the capitalist network
that runs the world
- 19 October 2011 by Andy Coghlan and Debora MacKenzie
- Magazine issue 2835. Subscribe and save
- For similar stories, visit the Finance and Economics Topic Guide
AS PROTESTS against financial power sweep the world this week, science may have confirmed the protesters’ worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.
The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making global capitalism more stable.
The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere (see photo). But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).
“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”
Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.
The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.
The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.
When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.
John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.
Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”
“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.
Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.
Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Bar-Yam says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.
One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.
Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”
So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.
The top 50 of the 147 superconnected companies
1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company
* Lehman still existed in the 2007 dataset used
(Data: PLoS One)
to get an idea of size of issue >
Graphic: Size of the financial industry
Graphic: The US financial industry
08/22/2011 05:27 PM
Out of Control
The Destructive Power of the Financial Markets
The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.
Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.
People like Taylor are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”
The German tabloid newspaper Bild sharply criticized Taylor on its website, writing: “This man is betting against the euro.” If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world’s 25 highest-paid hedge fund managers.
A well-read man, Taylor likes to philosophize about the Congress of Vienna and the Treaties of Rome. But is this man really out to speculate the euro to death? And does he have Greece on his conscience?
Taylor grimaces and sighs. He was expecting these questions. “The big problem is that in some cases these politicians are looking for the easy way out and want to blame somebody else and say speculators are taking Europe apart, taking the euro down and ruining the prosperity of our country,” he says, characterizing such charges against hedge fund managers as “nonsense.” “My capital isn’t the capital of the Rothschilds,” he says, insisting that he is working with the “capital of the people,” and that his goal is to protect and increase this capital. Taylor points out that no one from any of the German pension funds that invest their money with him has ever called him on the phone to tell him not to bet against the euro.
Markets Control Politicians
Taylor’s arguments echo those of everyone in the financial industry — the executives, the bankers and the big fund managers. They all insist that they are not responsible for the crisis in the euro zone and the turbulence in the financial markets, and that their actions are purely rational and in the interest of their investors.
The truth is that the financial markets are controlling the politicians. If Sarkozy interrupts his vacation, the markets interpret his sudden return as a sign that the situation there is worse than they thought — and promptly set their sights on the country. And if there is an argument between Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti, then the markets target Italy, because they doubt that the Italian government is serious about introducing austerity measures. The markets take advantage of every weakness and every rumor to speculate against one country after the next.
In doing so, they aggravate the crisis. Once a country has become the subject of rumors and speculation, other investors become nervous. Fearing further price declines, pension funds and insurance companies also start selling stocks and bonds. In the end, fear nurtures fear and a panic ensues.
Stock markets are currently in turmoil. Even the most experienced equity traders cannot remember a time when prices fluctuated as widely from day to day — and often even within a single day — as they have in recent weeks. The German stock index, the DAX, fell by 5.8 percent last Thursday and lost another 2.2 percent the next day.
There is no calm in sight for the global economy. Sharp declines on the stock market and crises have become an everyday reality. This raises the question of why the financial markets are so erratic. They have developed into a permanent threat to the global economy. But what can be done to avert this risk?
It cannot be a coincidence that the number and scope of disruptions have increased with the expansion of the financial industry. The Asian financial crisis in the 1990s was followed by the bursting of the Internet bubble at the turn of the millennium. When Lehman Brothers went bankrupt in 2008, the financial world suddenly found itself on the brink of collapse. Now that the euro is at risk, and millions of people are afraid of their currency collapsing. A number of countries, including the United States, are groaning under debt burdens that run into the trillions.
Naturally the financial industry — all those who trade in securities, currencies, money and the products derived from them, known as derivatives — is not responsible for all the crises in the global economy. Politicians also share some of the blame, for having accumulated too much debt and given the banks too much leeway. But without the destructive power of the banks, hedge funds and other investment companies, the world would not be where it is today — at the edge of an abyss.
The financial industry grew rapidly, as did the sums of money with which its players speculated on the prices of stocks, commodities and government bonds. The products they developed to turn money into even more money became more and more complex. At the same time, the risks they were willing to accept became incalculable.
The sector’s high salaries tend to attract the best and brightest university graduates. The members of this youthful elite don’t devise new products that make people’s lives better, nor do they found new companies that further progress. Instead, these young financial wizards invest a great deal of money and effort to develop sophisticated financial products, the sole purpose of which is to generate more profit for both their employers and, ultimately, for themselves — sometimes at the expense of other market players or even their customers.
Many things that happen on Wall Street and in London’s financial district are “socially useless,” says Lord Adair Turner, chairman of Britain’s Financial Services Authority (FSA). The values that are created there are often not real or of any use to society, Turner adds. Paul Volcker, the former chairman of the US Federal Reserve, once remarked that the only truly useful financial innovation in the past 20 years is the cash machine.
Once upon a time, the sole purpose of banks was to supply the economy with money. They were service providers, sources of energy for the economy, so to speak, but nothing more. But now the financial industry has largely disconnected itself from the manufacturing economy, transforming its role from subservient to dominant in the process.
The potential upshot of this shift became evident less than three years ago. The banks had excessively foisted mortgages on Americans without paying much attention to their customers’ ability to repay these loans. They packaged the risks into new financial products and sold them on. But apparently very few people understood how these products actually worked. When the subprime bubble finally burst, it dragged down the entire financial industry with it. The major financial firms found themselves on the brink of bankruptcy and were forced to appeal to the government for help.
The assistance was provided, but a historic opportunity was squandered in the process. None of the powerful banks was broken up, and only a few of the dangerous financial products were banned. With the central banks lending money at low rates, speculation could continue.
The financial industry recovered quickly as a result, and now it is just as powerful as it was before the crisis — and just as dangerous, for both the economy and society as a whole.
Even passionate advocates of the market economy are now questioning how an economic system that functioned so well for so long could spin dangerously out of control. In a hard-hitting opinion piece in the Daily Telegraph on July 30, British journalist Charles Moore sharply criticized the banks for keeping profits while passing on losses to taxpayers. “The banks only ‘come home’ when they have run out of our money,” he wrote. “Then our governments give them more.”
Moore asks himself whether the left, with its criticism of the capitalist system, might actually be right. The prominent German journalist Frank Schirrmacher, expounding on Moore’s commentary in the Sunday edition of the conservative Frankfurter Allgemeine Zeitung, wrote that a decade of economic policies based on loosely regulated financial markets is proving to be the “most successful” way to make the left-wing critique of free-market capitalism, which had fallen out of favor, popular again.
Western societies have seldom been more divided, and never have income disparities been as great as they are today. In no other industry can someone get rich as quickly as in the financial industry, where investment bankers divide up a large share of the profits among themselves and hedge-fund managers earn annual incomes in the millions — and sometimes even in the billions.
At the same time, the markets are constantly demanding higher returns. Those who do not meet their expectations are punished with declines in the price of their stock and higher borrowing costs. Companies, forced to adjust to these requirements, keep wages down and their workforces at a minimum.
These differences are especially glaring in London, Europe’s most important financial center. Bankers live in the lap of luxury in the city’s exclusive neighborhoods, while poor neighborhoods are home to people who have abandoned all hope. Many observers see this disparity and loss of hope as one of the causes of the recent unrest.
‘The Inability of Economists to Correctly Interpret the World’
And still, says Heiner Flassbeck, chief economist at the United Nations Conference on Trade and Development, “the time doesn’t seem ripe, and the crisis wasn’t severe enough, to grant — in defiance of the neoliberal zeitgeist — economic policy clear primacy over speculation-prone markets and to systematically restrict the financial industry to its function as a service provider to the real economy.”
Flassbeck believes that the crises in the globalized economy have “a common root, namely the inability of economists to correctly interpret the world.” Because financial markets function in a completely different way from markets for goods, Flassbeck argues, they should never be left to their own devices.
Of all people, it was an academic specializing in literary studies who managed to most accurately analyze the insanity of the financial markets and the impotence of economists. With his short 2010 book “Das Gespenst des Kapitals” (“The Specter of Capital”), Joseph Vogl wrote a closet bestseller that, despite being a tough read, attracted attention far beyond the arts section of newspapers — including among economists.
His theory is that crises are not some kind of occupational hazard in the financial system. Instead, Vogl argues, it is the system itself that inevitably leads to new crises.
Vogl is sitting in his office at Berlin’s Humboldt University, where he has a view of the Berlin Cathedral. He is dressed completely in black and is chain-smoking. Black-and-white photos on the wall depict his role models from Paris in the late 1960s: the philosophers Jean-Paul Sartre, Simone de Beauvoir and, holding a megaphone, Michel Foucault.
Vogl was teaching at Princeton University when Lehman Brothers collapsed. He knew nothing about financial markets, and yet he was fascinated by the “confusing empiricism,” which had so little to do with theory.
According to economic theory, the invisible hand of the market always leads to equilibrium, as Adam Smith wrote in his classic 1776 work “The Wealth of Nations,” which Vogl refers to as the “Bible of economists.” The same theory is still taught in universities today.
Tendency Toward Excess
But the theory also tells us that today’s excesses in the financial markets should never have occurred. This leads Vogl to conjecture that “by no means does the capitalist economy behave the way it’s supposed to.”
While the theory tends to be based on the economics of a village market, completely different circumstances apply in the financial markets, where both goods and expectations are being traded, and where speculative transactions are used to hedge against other speculative transactions. Vogl describes the principle as follows: “Someone who doesn’t have a product, and neither expects to have it nor will have it, sells this product to someone who also neither expects nor wants to have it, and in reality does not receive it.”
This type of market will always have a tendency toward excess — in either direction.
Paul Woolley holds the same view, but from a different perspective. He is intimately familiar with the financial markets, after having made millions working in the London financial district. He spent four years with the deeply traditional Barings Bank, which was eventually destroyed by a minor English trader in Singapore. He later worked for the American fund manager GSO, which specializes in making very rich people even richer.
In Woolley’s experience, the idea that financial markets are efficient is erroneous. “All players in the financial markets behave rationally from their own perspective, but the outcome of this process can be disastrous for mankind,” he says.
Woolley, 71, still wears a pinstriped suit, tie and white shirt, but now he works in a small office stuffed to the gills with academic studies at the renowned London School of Economics. Woolley donated 4 million pounds (€3.5 million) to the elite university and funded its Paul Woolley Centre for the Study of Capital Market Dysfunctionality.
His goal is to prove how dangerous the financial markets are. “It’s like a tumor that keeps growing,” he says. According to Woolley, there is no justification for the fact that this industry brings in more than 40 percent of all US corporate profits and pays the highest salaries in good years, while in bad years it is bailed out by taxpayers.
In recent months, Woolley has spoken before the investment committee of the International Monetary Fund (IMF) and to major US fund managers at Harvard Law School. He is able to present his academic theories in the language of the market. And the turmoil on the markets is now so great that people are listening to this revolutionary in a pinstriped suit.
The former fund manager had his light-bulb moment when, in 2000, the dot-com bubble burst. Woolley had repeatedly told his clients, which included many of the world’s major asset managers, that small, money-losing tech stocks would not always be valued in the billions on the market.
But his warnings fell on deaf ears, and GMO’s clients withdrew 40 percent of their money when the company stopped investing in technology securities.
Woolley has observed the same phenomenon again and again. “The herd runs behind a trend until a crash occurs.” Society, he says, also pays a high price for this behavior. “The financial industry is doing a pretty good job of destroying society,” says Woolley. Many of his former colleagues, he adds, have a guilty conscience because “they can’t believe that the financial industry is still getting away with it.”
He feels that bankers have a strong incentive to design products to be as complex and non-transparent as possible. These products enable them to earn returns upwards of 25 percent, because customers simply do not understand the extent to which they are being had. Structured mortgage-backed securities, the risks of which even their creators no longer understood in the end, as well as credit default swaps, which allow investors to bet on the bankruptcies of entire countries, are only the best-known examples.
The more activity there is in the markets, the higher the fluctuations and the greater the potential profits. There is little that the traders at investment banks and hedge funds fear more than a boring market, one in which the economy is humming along nicely and the prices show little movement. The conditions that are reassuring to managers and employees in the real economy often lead to depression in the financial sector.
Two weeks ago, the share price of Société Générale, a major French bank, fell by 14 percent, after the British newspaper Daily Mail had reported the previous day on alleged problems at the bank. Even though the bank promptly denied the veracity of the report, the rumor had been set in motion. Apparently no one cared whether or not it was true. It was later rumored that journalists at the British paper had taken a piece of summer fiction printed in the French newspaper Le Monde, about a breakup of the euro zone and troubles at Société Générale in 2012, to be the truth — which the Daily Mail promptly denied.
Too Complex For Humans
This story seems almost antiquated, because share prices are usually set by computers nowadays. When Deutsche Börse decided to move from Frankfurt to the nearby town of Eschborn, the town saw a rapid increase in the demand for air-conditioned basement space, where so-called high-frequency traders, as well as banks, set up their state-of-the-art supercomputers. These computers are programmed to independently buy or sell stocks at intervals down to the millisecond, which enables them to react to the latest trends in the market.
Whoever has the fastest connection to the market stands the best chance of taking advantage of a critical millisecond and thus reacting to a price signal ahead of the competition. The computers are far more efficient than any human trader, because they can process hundreds of pieces of information per second. At the same time, such programs can also amplify — or even trigger — a crash.
On May 6, 2010, prices on Wall Street plunged by almost 10 percent within a few minutes. To this day, no one knows exactly what caused the so-called Flash Crash. Because this sort of thing happens with growing frequency, the US Securities and Exchange Commission (SEC) has imposed a waiting period on computers in emergency situations. If the price of a stock has dropped by 10 percent within five minutes, trading is temporarily halted, allowing the human players to consider whether there is in fact a real reason for the sharp decline.
Woolley believes that this regulation is insufficient. He is calling for a strict ban on high-frequency trading, which, in his view, has no social value whatsoever.
Computers have long set the tone in foreign currency trading. The currency markets are now too complex for humans to manage alone. “We realized that you couldn’t really manage this with the human thought process, it was too difficult, there were too many variables,” says New York hedge fund manager Taylor. Many of his roughly 60 employees are IT experts, mathematicians and engineers. They feed massive volumes of data into the computers, including figures on the gross domestic product of countries, interest rates, commodities prices and inflation rates. “The only thing the computers can’t handle are political developments, that is why we have me as Chief Investment Officer,” says Taylor, although he points out that the money ultimately follows the instructions that are spat out by the computers.
But even Taylor isn’t entirely convinced of the myth of purely rational markets that obey nothing but the logic of numbers.
For example, says Taylor, he is “sure” that legendary speculator George Soros is “plotting against the euro.” Although Soros denied such accusations in an interview with SPIEGEL last week, he also said: “Financial markets have a very safe way of predicting the future. They cause it.”
The 81-year-old is one of the founders of the hedge fund industry. In the early 1990s, he suddenly became the quintessential unscrupulous speculator, one who takes advantage of even the tiniest weakness in the system without regard to the consequences. He borrowed 10 billion British pounds, then sold them on, triggering a wave of speculation that meant the Bank of England could no longer maintain the pound’s fixed exchange rates against the other currencies in the European Exchange Rate Mechanism (ERM). The pound had to be devalued and withdraw from the ERM. Soros was able to buy back the sum of money he had borrowed from the bank at a lower exchange rate. It was a bet that earned him more than $1 billion (€700 million).
Rushing Like Lemmings Toward the Abyss
Normally individual speculators like Soros and Taylor cannot move the market to such a significant degree on their own. But they can establish a trend that others then follow. Investors adhere to a herd mentality and, like lemmings, they are prepared to rush headlong toward an abyss, provided a few individuals are heading in that direction with sufficient determination.
As a result of the crisis, some of these speculation funds have become even larger and more powerful, with a number of smaller competitors being forced out of the business. Customers tend to prefer investing their money with bigger players, believing this to be the safer choice.
For example, the hedge fund headed by John Paulson, currently the world’s most successful speculator, has grown to roughly $30 billion in assets in the last two years. This enables Paulson to place bets of ever-increasing size.
Paulson was largely unknown only a few years ago, until he bet a large sum of money on the collapse of the American mortgage market. Investment banks like Goldman Sachs created customized securities specially for Paulson that were based on subprime mortgages. They then sold the securities to investors who believed that their value was stable — and lost billions as a result. Paulson, on the other hand, profited. He earned close to $4 billion in 2007.
Hedge funds often work hand-in-hand with investment banks, and banks often behave like hedge funds. The boundaries between the two kinds of institutions are fluid. Some critics already see Deutsche Bank, for example, as an enormous hedge fund rather than a normal bank.
Deutsche Bank is the top global player in foreign currency trading, with a market share of 16 percent of the global trade in dollars, francs, yen and euros. This is a high-volume business that generates little in the way of profits. But the bank uses its knowledge of demand for the currencies to design complex and therefore lucrative hedging strategies for its customers, which also usually puts Deutsche Bank on the winning side of the equation.
Italy Investigates Deutsche Bank
Between April and June, Deutsche Bank’s investment banking profits declined by half, probably because it was simply too quiet in the market. During this time, Deutsche Bank reduced its holdings of government bonds from the ailing euro-zone countries of Portugal, Italy, Ireland, Greece and Spain by 70 percent.
Because the bank is also the global leader in bond trading, its risk managers apparently heard the right signals. At the beginning of the year, Deutsche Bank still had €8 billion invested in Italian government bonds. Six months later — shortly before the crisis intensified dramatically — it only had €1 billion worth of Italian bonds.
Italian politicians apparently did not see this as a coincidence, and the country’s financial regulator CONSOB is now investigating the matter. Deutsche Bank also managed to get out of Greek government bonds before the crash in that country.
Now the bank is helping the Greeks restructure their government debt, in what is the ultimate capitulation of the state in the face of powerful investment banks. The traders at Deutsche Bank are apparently more clued into who holds Greece’s government bonds than the Greeks themselves.
Investment banker Anshu Jain, the designated co-CEO of Deutsche Bank, is proud of the fact that he and his traders were responsible for 70 percent of the bank’s total profits in good years, and he remains optimistic for the future. As a consequence of the crisis, the bank is now required to maintain a larger capital reserve for its investment banking division. Nevertheless, Jain said at an analysts’ conference that he expects regulation will lead to a substantial concentration in the business.
In the US at least, regulators have more or less prohibited banks from speculating on a large scale for their own accounts since the financial crisis. This so-called proprietary trading was potentially the biggest profit maker for banks, but it also came with the greatest amount of risk.
Nevertheless, the business continues to thrive. The proprietary traders became free agents, sometimes with the banks’ investment capital. Now they work as hedge fund managers and, as a result, can now evade all supervision.
Investment banks discovered the commodities markets some time ago, hiring traders to specifically focus on the once mundane business of trading in copper, wheat or pork bellies. Deutsche Bank expects a return on equity of 40 percent, which is higher than in any of its other divisions, for its growing trade in such products.
Woolley, the former asset manager, is calling for a ban on such transactions. He argues that the financial markets are destroying the relationship between supply and demand, giving producers the wrong price signals and potentially triggering famines.
‘Market of All Markets’
Speculation has always existed in economic history, but never to such an extent as today.
The deregulation of the markets and the rise of the financial industry began with the end of Bretton Woods. In 1944, a new system of fixed exchange rates was established at an international conference in the New Hampshire resort town, with the US government agreeing to exchange dollars for gold at any time.
Some 40 years ago, on Aug. 15, 1971, then US President Richard Nixon ended the Bretton Woods monetary system. He needed more money that he could cover with gold to finance the Vietnam War. The global economy lost its anchor as a result.
In 1972, foreign currency futures were established on the Chicago Board Options Exchange, making it possible for the first time to hedge against the risks associated with foreign currency transactions. This innovation paved the way for all manner of speculation. The financial market, as Berlin-based author Joseph Vogl writes, became “the market of all markets.”
There were still many hurdles to be overcome, including legal regulations that prevented the market from unleashing its unrestrained forces. With generous donations to politicians and parties, as well as active lobbying by Wall Street executives, the financial industry was able to make its voice heard in Washington.
Over time, the industry was able to rid itself of overly obstructive regulations. In fact, financial supervision was virtually eliminated. Politicians failed to control precisely that sector that is capable of unleashing more destructive force than almost any other industry.
The kiss of death came in 1999, under then President Bill Clinton, when the Glass-Steagall Act was repealed. The law dictated a strict separation between commercial and investment banks. Eliminating this separation removed a major barrier and enabled institutions like Citigroup and Bank of America to grow into financial giants. Indeed, many banks became so large and powerful that they are now — to use the famous phrase — too big to fail, meaning that in a crisis they have to be bailed out to prevent their collapse. Many small banks and brokerage firms were swallowed up in the process. From then on, the biggest players set the tone.
Wall Street to Washington
The investment banks made a brilliant move in 2004. The European Union had threatened to limit the foreign transactions of major US investment banks if the United States did not tighten its own regulations. This prompted five investment bankers to travel to Washington to exert their influence on the SEC. They proposed that the SEC be given the power to take a closer look at their high-risk positions in the future, but only if, in return, the banks would be required to keep less of their own capital in reserve to offset the risks of their transactions. From then on, the banks were able to expand their business unchecked. The second part of the deal — the SEC’s supervision — was pursued far less energetically.
The financial industry had managed to create a belief system which held that what’s good for Wall Street is good for society as a whole. As a result, the sector’s influence on the US economy continued to grow. Between 1973 and 1985, before deregulation began, profits in the US financial sector made up no more than 16 percent of the total profits of all US companies. This industry’s share of total profits increased to 30 percent in the 1990s, and in the last decade it even reached 41 percent.
It was no surprise that the myth of efficient financial markets was accepted so uncritically in Washington, given the large number of political players who went there directly from Wall Street. One was the former Goldman Sachs CEO Henry Paulson, who became treasury secretary under then President George W. Bush in 2006. In 2008, he was called upon to manage the financial crisis, which he had played a hand in triggering in the first place. Simon Johnson, the former chief economist at the IMF, characterizes the direct involvement of financial players in the inner workings of the government as a “quiet coup.” The Nobel Prize-winning economist Joseph Stiglitz is also critical of the revolving door between Washington and Wall Street, saying that it leads to a shared worldview that, even despite the crisis, hinders effective reform of the financial system.
Such an amalgamation of players is unthinkable in Germany, and yet even there was growing confidence in the power of free financial markets to increase prosperity. In 2004, the Social Democratic Party (SPD) and Green Party coalition government under then Chancellor Gerhard Schröder opened the German market to hedge funds and the expanded trade in speculative derivatives. Jörg Asmussen, who would later become a state secretary in the Finance Ministry, personally lobbied to permit trading in credit derivatives in Germany — the very securities that ultimately triggered the crisis.
Then came the crash. Since then, the government has tried to rein in the forces it was partially responsible for unleashing. Asmussen was a member of a group of experts tasked to draft proposals for new regulations.
German Chancellor Angela Merkel knows that there is more at stake than the stability of the economy and overcoming a temporary weakness. “This type of crisis cannot be allowed to repeat itself in the foreseeable future,” Merkel said, “otherwise it will be extremely difficult to guarantee political stability, and not only in Germany.” This, she added, is the real challenge, “that anyone who wants to do business in a stable country must be aware of.”
Following the near-collapse of the markets, then-German President Horst Köhler characterized the financial markets as a “monster.” And there were plenty of good intentions when it came to taming this monster. “History cannot be allowed to repeat itself,” US President Barack Obama promised after the Lehman bankruptcy, while French President Sarkozy spoke of a historic opportunity to create a new world.
Nothing More than Piecemeal Regulations
In fact, the United States and Europe did attempt to constrain the monster that was the financial market. Governments can hardly be accused of not having made a serious effort in this direction, but the project they face is exceedingly difficult.
Solo efforts by individual countries are pointless, because the industry is globally interconnected. On the other hand, internationally coordinated solutions are difficult. As a result, the regulations remain nothing more than piecemeal.
For the financial industry, new regulations are often little more than a sportsmanlike challenge to search for new tricks with which to circumvent the rules. In their conflict with politicians and regulatory agencies, banks and hedge funds have a clear competitive advantage: They hire the brightest minds in the financial world and pay them millions. The public-sector regulators can hardly compete.
Not surprisingly, politicians haven’t done much more than push around a lot of paper until now. The law with which President Obama intends to regulate the financial markets encompasses more than 800 pages. But the US government is only at the beginning of a long process, in which concrete regulations will be derived from the provisions of the new law. Both the Republicans and the banks’ lobbyists can exert their influence on this process to make sure that many of the new regulations are watered down.
For instance, the law was intended to completely prohibit banks from engaging in proprietary trading, with which they speculate in the foreign currency, stock and commodities markets. But the legislation contains so many exceptions that business will continue to flourish, in some cases by simply outsourcing trading activities.
The United States also wants to force hedge funds to disclose more information about their business. But even though the law doesn’t go into effect until next March, speculator Soros is already demonstrating how it can be circumvented. After buying out the outside investors in his hedge fund, he now intends to conduct business in the future as a so-called family-owned company. Funds that manage the assets of a family are not subject to the new disclosure rules.
In Europe, the European Commission has developed a draft of new capital market rules, which includes 165 pages of guidelines and another 500 pages of regulations. Under the proposed rules, banks would be required to keep more capital resources in reserve to protect against risk, and they would only be allowed to borrow up to a certain ratio.
These proposals make sense, but the financial industry is already two steps ahead. It has created a world in which the usual rules for exchanges and banks do not apply: the realm of the “shadow banks.”
For bankers, this is by no means a world of illegal or semi-legal institutions, despite what the term implies. Hedge funds and private equity firms are known as shadow banks. In the United States, shadow banks have already incurred debts of more than $16 trillion, as compared with $13 trillion among commercial banks.
Regulating ‘Shadow Banks’ Unlikely
This poses a huge risk for the financial market. Jochen Sanio, head of Germany’s banking regulatory agency, believes it is highly likely that the next crisis will emanate from this largely unregulated realm of hedge funds and other financial players. Jens Weidmann, the president of the German central bank, the Bundesbank, also cautions against the dangers of shadow banks. But why are they not subject to the same rules as commercial banks?
In this case, national egos are what stand in the way of comprehensive financial market reform. Britain, in particular, isn’t keen on keeping too close an eye on hedge funds, because the financial industry is one of the few remaining sectors in which the British are still competitive worldwide.
An effective financial market reform would have to treat shadow banks the same way all other banks are treated. This would mean completely banning so-called short selling, which is essentially betting on falling prices. It would also have to improve licensing requirements on new financial instruments and ban some that already exist, because they are designed solely for speculative purposes. It would also involve establishing a number of other rules that would make doing business significantly more difficult for banks, hedge funds and private equity firms.
All of these measures would rein in the financial market and put its importance for the economy into perspective. Banks would have to concentrate once again on the role they played prior to the great deregulation of the financial market, namely to organize payment transactions, manage the investments of private customers and companies and finance their business deals with loans.
But that seems unlikely. There are too many contradictions and conflicts of interest between the countries involved and governments to allow such a massive change to occur. But the monster cannot be tamed with half-hearted reforms, which is why people who have been involved in the financial world for decades assume that it will strike again soon.
When asked whether it is possible to make future crises unlikely, Hilmar Kopper, the former CEO of Deutsche Bank and current chairman of the supervisory board of HSH Nordbank, replies with a simple “no.” According to Kopper, more huge financial bubbles could happen in the future.
“I’m frustrated,” says Kopper. “I don’t know how a government is supposed to regulate this.”
DIETMAR HAWRANEK, ARMIN MAHLER, CHRISTOPH PAULY, MICHAELA SCHIESSL AND THOMAS SCHULZ
Translated from the German by Christopher Sultan
RELATED SPIEGEL ONLINE LINKS:
- Government Analysis: Euro Bonds Would Cost Germany Billions (08/22/2011)
- Another ‘Nein’: Merkel Renews Euro Bond Rejection (08/22/2011)
- Damning Poll on Leadership: Germans Don’t Trust Merkel to Handle Euro Crisis (08/19/2011)
- Playing with Dynamite: Will Merkel’s Coalition Hinder Euro Rescue? (08/18/2011)
- ‘Pure Symbolism’: The Great Debt-Brake Swindle (08/18/2011)
- Euro-Zone Crisis: Merkel and Sarkozy Plan ‘True Economic Government’ (08/16/2011)
- SPIEGEL Interview with George Soros: ‘You Need This Dirty Word, Euro Bonds’ (08/15/2011)
© SPIEGEL ONLINE 2011
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH
see this interview ….
… a thinking , feeling, person …. interesting perspectives ….
Chris Hedges has a long history in investigative reporting in war zones etc
very long C span interview … but informative … since he says lots of what we have been saying for a long time in critique of USA and agenda of corruption in government and media, role of big banks, corporate power (like Goodman Sacks etc) destroying the country leading to a totalitarian state (fascism), Oligarchy Elite, and collusion of all Christian denominations with this “WAR AS A RACKET” etc ,,, etc ….
talks about Industrial Prison Complex in America towards the end
Not that I agree with everything
Chris Hedges “Brace Yourself! The American Empire Is Over
& The Descent Is Going To Be Horrifying!”
“We have undergone, I think, in the last few decades a kind of slow motion coup d’état.”
Posted January 02, 2012