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, 6 October 2009

FSA: coming back to their senses

(...or facing the abyss?)

It has taken months, if not years, for the Financial Services Authority, FSA, to understand the glaring obvious: that banks have liabilities in cash therefore they must have also good reserves in cash for that purpose. As explained in the article "Economic world remains confused", refineries need crude oil to maintain operations, hence they keep reserves in crude oil. Not, for example, in hard coal with a hope that they will be able to sell it and buy oil in case of its shortage.

It is astounding that it has taken the FSA such a long time to understand the obvious. One would ponder whether this is a testimony to substandard level of professionalism or, possibly, a rather too close (read: corrupt) relationship with the financial industry.

The financial industry is not too happy. They criticised the FSA that their action was "posing a risk to economic recovery and hindering London’s position as an international financial centre".

It is possible that the financial industry is run by such incompetent individuals that they cannot understand the glaring obvious. But it is also possible that the existing liquidity hole is so great, and the bankers are aware of that, that trying to plug it with additional liquidity will bring the system to a halt. Even the government does not have an idea about its size. Therefore the bankers' criticism may be correct not for the reasons that they appear to suggest or are publicly disclosed. The effect of the giant global pyramid scheme created by the financial industry may still prove lethal.

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