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, 1 September 2009

Interesting autumn (and years) ahead…

Holidays ended. A rather sunny summer is coming to close. Large credit card bills will start dropping on our doorsteps throughout September. It is appropriate to ask what economic conditions we find in the forthcoming autumn. Is unemployment going to increase? How well will we be geared to pay these bills and indeed ongoing living costs?

Rather than writing poetry about "green shoots" of recovery, or painting apocalyptic picture about imminent doomsday coming, let us list objective facts and reflect what they mean.

Almost a year ago, and last January, the government saved the financial system that was turned into a giant pyramid scheme. Hundreds of billions of pounds, and even more in future commitments and guarantees, was spent to prevent a classic case of pyramid collapse. It was quite a spectacle: the government was committing week after week billions and billions of cash and guarantees to help private financial industry wobbling pyramid, whilst for years the government had been convincing the public that it could not have found even a fraction of that to improve public services (health service, education, state pensions).

At first it was hailed as a permanent cure. The British Prime Minister, Gordon Brown, even famously remarked that he "saved the world". Subsequently to the action of saving the pyramid from collapse, the government, under a name "Quantitative Easing" , printed nearly a couple of hundreds of billions of pounds, to provide additional liquidity on the market in order to support (from collapse) banks' balance sheets ballooned to pyramidal proportions.

All these, so called stimulus package, cost taxpayers massive amount of monies: hundreds of billions of pounds. We are in trillions realm. It will take generations to repay. But the government has reached (or is very closely to reach) a point that it cannot borrow or print more cash anymore (unless it is prepared to turn the UK into Zimbabwe).

Despite all that, it clearly does not look that the economy was jumpstarted. It appears that the pyramid which the government has been preventing from collapse for over two years (if we take Northern Rock case into account) will lose that support. So we may expect another liquidity crunch, but its scale is uncertain. Indeed other governments, e.g. German, are already bracing seriously for another such event. However, if it happens, will the government be able to commit another serious tranche of cash to keep on supporting the wobbling financial pyramid? We talk about tens or hundreds of billion of pounds?

The loss of further, unsustainable, stimulus combined with the necessity to service debt (resulting from stimulus thus far) or even its growth (due to not servicing it sufficiently) is also very likely to hamper the recovery process. On top of that, banks, with pyramidal balance sheets, will be a massive drain to the economy, sucking out money from the market in order to reduce their loan to deposit ratios. (In this context it is not surprising at all that the banks are still not lending. In fact the government's expectation last autumn that the banks, after the government's cash injection, would start lending is possibly the best testimony of the government's dreadful economic incompetence.) There is no benefit of hindsight in this statement: it is just trivial.

Generally as, with the support of the government, the banks created a relationship with taxpayers akin to loan-sharks’ with their customers, if this criminal and parasitical arrangement continues, we should expect the same fate as loan-sharks’ customers suffer: we will be squeezed by the government and by the banks (directly and indirectly), and be left only with as much as is needed just about to survive. It can look like a very slow downward spiral. In this context does it matter what happens to the economy? Survive will we. But regardless of the situation this is as much as we can expect. Some of us will lose jobs, some homes. It will not be a massive tragedy as homes will not just stay unoccupied with people living in the streets; people will still keep on doing useful things. Without sounding disparaging to council estates, the UK will slowly, and selectively: middle-class, not the rich, start resembling a huge under funded council estate with run down services. This seems to be the likely costs, for generations, of the financial industry engineered "greatest heist in history" using a crude and classic pyramid scheme, like Albanian gangsters in 1996 – 1997.

(This article should be read as a risk assessment. Hopefully it will not materialise, but the signs are that it is likely it will.)


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