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, 8 June 2010

Comment to: To the Chancellor: UK ain't Canada


For all those who know my blog the comments below should not come as novelty, but it is worth repeating:

1. The banks should be broken up into business units of a size that NONE of them is too big to fail. Any business entity that is or is allowed to become too big to fail enjoys a free survival insurance at the costs to the taxpayers. Not only is this unfair on taxpayers (it is in fact extortion of money through the back door) but it is discriminatory to entities which are not too big to fail. I.e. under the EU rules it a monopolistic and uncompetitive practice which is banned. Hence it begs a question why the authorities allow such illegal practices to exist in the financial sector? Stupidity? Corruption?

For clarity, the current crisis is not a failure of free market rules. It is a result of breaking them and substituting them with communist-like ideology (communism for the rich that is). It is an absolute scandal that the financial sector is run by people who implemented the worst of the communist practices straight from ailing Brezhnev era. The banking communists are the new working class of the 21st century: they successfully executed a revolution of robbing mid-income people and redistributed the spoils to the fabulously rich, making them even richer. Even Soviet communism in its heyday was not that economically perverse.

2. We do not know (and indeed HM Treasury does not know) whether the bailout support the banks got, £850 billion, plugged the liquidity whole. At present it is clear that not more than £70 billion is possible to be recovered by the Treasury and the costs of bailout money is accumulating. Strong signs are that the liquidity hole still exists and may be absolutely massive (possibly even going into quadrillions of dollars globally, and the UK share of it may be huge). Therefore it is likely, above moderate, that the financial institutions in the UK will come to the government for hundreds of billions pounds of more money. (Please note that Greece bailout is in fact a bailout of private banks that lent Greece money.)

3. The basic, intuitive, risk analysis points that the chances of banks asking for hundreds of billions of pounds in form of a new bailout (again) is currently moderate but likely, 3+ (on a classic 1 (min) - 5 (max) scale) but the severity of it is massive, 5 (on the same scale). Hence the overall risk profile - on 1 to 5 scale - is 4+: this is a lot! This means high alert. Just below: imminent. This analysis is intuitive and not mathematically strict. But it is not an argument to ignore it but to prompt the Chancellor to instigate a detailed risk examination.

For the reasons above, whilst the government savings which look reasonable now may turn out to be foolish and for the benefit of the financial sector shafting the taxpayers big time again. How about that?

3 comments:

  1. My view was that the banks that failed should have been bought by the taxpayer for £1 each, immediate pay freeze and cuts, anyone who did not like it can go and get another job in an economy that their bosses helped destroy. Obviously, maintain a payment system so the economy can still function, but no protection of private business. If i am a small business and i go bankrupt, who bails me out?

    More to the point, why didn't the 'bailout' money go straight to the taxpayer in the form of tax credit to enable consumption and increased savings? by giving it to the top of the pyramid, it has propped up a failed system and impoverished the average working man.

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  2. Goodbye capitalism and hello to corporatism, at least that is how I see it. I am an engineer and not a financial expert but from my perspective it seems that the financial and economic system has now morphed into a system that expressly caters for the large multinational corporates. This has now gone so far that it privatises profits but socialises losses.

    As was mentioned, we are about to squeeze the middle class, the only people who have anything that can be taken, until they squeak. Your average Tesco or Wallmarkt worker will have to be supported because they already have no financial room to maneuver (although in America even this is being removed as we speak) and the rich, of whom I know a few, already have their wealth squirreled away out of reach.

    To be somewhat gloomy, in history when the middle classes get destroyed wars and revolution follow. It is not clear to me where that particular scenario will start. Will it happen in the Mediterranean or indeed in the USA, where the middle class have been suffering for quite some time.

    The people running the economics of the world and those who comment upon them don't seem to have any fear of the consequences of how capitalism has evolved. As the Chinese say, “I curse you to live in interesting times”.

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