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?".

Friday 23 December 2011

The ECB decided to subsidise private banks


Italy has to roll over 306.9 billion in Eurobonds in 2012. The interest rate it has to pay is around 7% and is highly unlikely to be any lower. There were concerns that Italy would not be able to refinance its debt on the markets. The European Central Bank (ECB) was not willing to step in directly but it had a trick up its sleeve and decided instead to lend nearly 500 billion Euros on 1% annual interest to the private banks on 3-year loans. The banks will buy Italian bonds and will cash a massive interest rate differential (4%, 5%, 6%). This differential would have only made sense if lending to private banks were significantly less risky than lending directly to Italy by buying its bonds. But this is not the case: if Italy defaults on over 300 billion Eurobonds, the private banks will also default on their debt to the ECB and quite likely will collapse altogether. It is that simple. And who is backstopping the ECB if this catastrophe happens? The European taxpayers of course.

This is ridiculous. This is the way the financial industry gets subsidies from the taxpayers. This is yet another example of the mechanisms of "the largest heist in history", and it is one of the most primitive kind. There is no sophistication whatsoever here: this is daylight robbery carried out with brute force. By comparison Albanian pyramids of 1996 - 1997 look incredibly sophisticated and innovative financial operations. Capitalism is dead: long live communism for the rich.

The really alarming news is that it is not sustainable. A process of pure money printing cannot sustain the financial industry and the economy: Britain tried it in the 1970's, but to a much smaller extent, with heavy industries and failed miserably. In the same way as the subprime crisis brought the financial system down (only to be rescued by the taxpayers' subsidies), this kind of massive cash printing will bring European economies down. This is how this financial gangrene spreads. The later it happens, the more spectacular it will be.

6 comments:

  1. Europe has become a gigantic Hedge Fund and the ECB has become its prime broker...

    Best,

    Martin

    macronomy.blogspot.com

    ReplyDelete
  2. Hi Martin, thanks for your comment. But I must say that in this case your "hedge fund" comparison is not even a euphemism for "Albanian-style pyramid" as what's happening in Europe now is far more primitive and, frankly, it is idiotic.

    Best, Greg

    ReplyDelete
  3. Indeed it is Greg,

    Reminiscent of the 1931 collapse of the Gold Standard. There was a great book written by French economist and engineer Jacques Rueff called "The monetary sin of the West", a must read.
    Best,

    Martin

    ReplyDelete
  4. Nearly 500 Euros? I think even I could afford to lend them that ;-)

    ReplyDelete
  5. and the can is kicked a little further down the street.....

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  6. I love reading this blog. I can't believe how much the entire population has been hood-winked into doing exactly what the financiers want. We're on the road to collapse and the only thing that is sure is that the ones who are portrayed as the champions trying to help us are the very people who have caused the problems: the financiers. My latest personal blog covers a sub-set of this in regards the housing market :-) http://mad-ctw.blogspot.com/

    ReplyDelete