If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Tuesday, 4 August 2009

Is another loot going on now?

As indicated in "Held by the throat" article, the banks are posting very good results. Is it not amazing that in the midst of the recession, crisis, the banks are making so much money? The question that must be addressed is how, possibly, these profits are made.

As described in the first seminal article of this blog, "The largest heist in history”, it appears that the current banks profits are simply the government injected cash converted into practically worthless toxic waste that sits on the banks books. A lot of it sits offshore. If this is the case this would confirm that the banks have created an arrangement with the taxpayers working in the same way as loan sharks control their victims (as described in articles on this blog).

It appears that the following scenario is unfolding now:

1. The government injected cash, directly, through guarantees or quantitative easing, has been and is being converted into toxic waste held by their legally off-balance sheets entities offshore. No wonder this cash is not finding its way to Main Street and ordinary businesses. It is clear that it has never been the banks intention.

2. The “market price” (through “mark-to-market” and other fraudulent techniques) of this waste is held quite high. This appears as a stock market rally and lets the banks to convert cash for as much as possible toxic waste, looking like legitimate commercial transactions. This shows up on banks’ results as profits made.

3. This toxic waste, temporarily appearing valuable and liquid, is also booked by the banks as capital replacing the cash reserves injected by the government. As long as its price holds up it gives an impression as though the banks’ books look healthy.

4. However the entities that are selling this toxic waste are simply holding to cash, most likely offshore, thereby reducing the cash liquidity on the market. Or, quite likely, deploy one of their "sophisticated" strategies like the one outlined in an article "How to make money?"

(Mr John McDonnell MP summarised an offshore set-up in the context of Northern Rock and its offshore company Granite : "it's officially 'on' its balance sheet in its accounts. But it is legally 'off' its balance sheet when it comes to getting hold of its assets as the basis for the security of the sums owed the Treasury. (…) The participants in this tax dodge will be allowed to walk away with millions, when workers may lose their jobs and the taxpayer risk billions." Well, by now, with respect of the entire banking system, we have to think in terms of billions and trillions.)

5. Once the banks run out of cash, we will have another liquidity crisis. The value of the toxic waste will again go to the floor and, again, the banks will be undercapitalised. Is the government going to put even more taxpayers’ money again to prop up the system? As explained in "The largest heist in history" since the notional value of toxic waste goes into quadrillions of dollars, there could be no end to this cycle. If the government puts even more cash, the story will repeat again.

6. The banks' public relations machine seems to have started preparing the government and the public for a such scenario by talking about possible ”double-dip recession” (the second dip, i.e. another liquidity crunch, is coming…), possibly developing to ”multiple-dip recession” scenario.

7. The offshore institutions that got the cash will hold to it. In a squeezed market, short of cash, they will be able to start cherry-picking the assets at a knockdown price.

(You are invited to study "Exercise/example – how does it work?" to understand the basic mechanics of this process.)

The author of this blog does not have sufficient first-hand information to prove that such a scenario is unfolding now. But the circumstantial evidence is overwhelming that it actually does. However the government does have tools at its disposal to examine the current situation regarding the banks’ profits and their source. They must assure the public that such a scenario is not happening and provide evidence that it is impossible. The government cannot risk, again, an injection of billions, if not trillions of pounds, or, in the alternative, a collapse of the financial system.

Even if a drastic version of this scenario does not happen (like another deep credit crunch), the government must assure the public that even a milder, still parasitical, version of the practice outlined above is not in operation by the financial institutions, i.e. a "slow" and seemingly "painless" draining of the economy, drip by drip, technically sustainable but still a continuation of the largest heist in history.

(Incidentally, the comments above also apply to some governments other than the UK’s.)

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