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, 24 January 2012

IMF chief going bonkers

Yesterday in her speech in Berlin at the German Council on Foreign Relations, Ms Christine Lagarde, the head of the International Monetary Fund, said:

"We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral."

Well, yes Ma'am, but has it not been glaringly obvious for the last three years? It is not particularly optimistic if it takes over three years for the top world officials to grasp something which is that obvious.

Having recognised the scale of the crisis Ms Lagarde said that Europe should boost bailout fund and consider euro bonds. The net effect of such actions would be to spread the crisis onto thus far healthy economies. She added:

"I am convinced that we must step up the Fund's lending capacity."

In a nutshell Ms Lagarde recommended solving the current crisis with even more debt and more countries dragged into it. It is not a particularly bright idea. As explained three years ago in "The largest heist in history" the only effect would be prolonging the crisis and making it bigger.

If her recommendations are implemented, some time later we will be back into square one but with a much bigger problem. This is the approach to solving the current financial crisis for nearly 5 years (since Northern Rock collapse). And it led from bad to worse to even worse. Some with experience in the financial sector regard people dealing with the current crisis as "outrightly stupid" but one really has to pose a question about their sanity (in the most basic meaning of this word). Albert Einstein's famous remark: "Insanity: doing the same thing over and over again and expecting different results" describes their behaviour very accurately.

Saturday, 21 January 2012

BBC defends financiers

Last Thursday BBC Newsnight broadcasted an analytical piece about the nature of capitalism.

The issues raised were profound: capitalism as a free market system with seemingly no alternative, "responsible" v "irresponsible capitalism" and so on. It was very insightful.

However all these issues were discussed in the context of the ongoing financial and economic crisis. It was presented as if the current financial mess was a result of a failed system, the current version of capitalism. The truth is much simpler. Indeed it is very basic.

In the same way as the economic system in Albania had nothing to do with the criminally-engineered pyramid schemes which collapsed and caused a huge financial mess in Albania in 1996 - 1997 but much more to do with pure fraud, the current financial mess and resulting the economic crisis have nothing to do with capitalism, socialism, "too greedy capitalism", "irresponsible capitalism" or any economic system or indeed any legal human behaviour. The current financial ills highlighted by the BBC are the result of a huge fraud engineered by the financial industry which is exactly the same mechanism as the one employed in Albania in 1996 - 1997, i.e. it is a pyramid scheme from both a technical and a legal standpoint.

To put this into a small business perspective: it would be the same as discovering a shop where all the money is being stolen from the till by thieving employees and discussing the management practises of a shop owner (the taxpayers for the banking system) or the greedy irresponsibility and the unethical behaviour of the thieving staff (the bankers). Such discussion is obviously important but in the case of our hypothetical situation the shop workers would have been prosecuted for theft. In the real, much more grave situation currently facing us, no-one has seen fit to prosecute the thieving shop workers. The dishonest behaviour continues, under the watching gaze of the powers that be and the public at large, with no-one seemingly aware that any kind of crime is being committed. If the justice system is to mean anything it cannot be more lenient to financiers than it is to ordinary shop assistants.

A discussion about capitalism v socialism, or "responsible capitalism" v "irresponsible capitalism" is generally important. Society will always be looking for an equilibrium that will give it prosperity. However with the BBC Newsnight broadcast, it was the context and timing that mattered. And in this context the discussion was not only vacuous but it was actually a smokescreen. It created an impression that the fraudulent criminal activities (in the technical and legal sense of these words) of the financial industry were not what they were but somehow a result of some systemic failure. The behaviour was maybe irresponsible, maybe immoral, maybe a result of greed, but not a crime. And here is the key to BBC propaganda: you can despise people for being greedy, unethical or irresponsible. They may even be considered as repulsive. But you cannot bring them to justice.

Therefore one cannot consider the programme as simple hogwash. It was in fact, very soft propaganda (therefore quite likely to be effective) which will help, the financial criminals who caused such damage to the economy and brought massive misery to millions, to escape justice. And the BBC seems to be doing a good job of doing this, evading a discussion of the most important historical event that is happening in front of our eyes, i.e. the liberal western democracy, as we know it, is on the ropes.

Sunday, 8 January 2012

The Economist's "Save the City" campaign

"Save the City" pleads The Economist in the recent issue's leader. "Finance—the funnelling of savings to their best use—is a vital industry. Britain is very good at it, leading the world in various financial markets, including foreign exchange and over-the-counter derivatives."

The British financial industry would have collapsed back in 2008, had it not been rescued by the taxpayers. Had it happened it would have brought down the entire British economy. It may still do so and The Economist seems to be determined to facilitate this process.

The Economist's circulation is some 1.5 million globally and around 200,000 in the UK alone. How are such articles read in countries like China, India or Brazil? The Germans, Brazilians, Argentinians, Italians, the Dutch must have the same smirk of disbelief when they hear comments that England has the best football team in the world. But to be fair to the English football fans, for some years this has been said with a pinch of cynical self-indulgence and more like a distant dream. Britain is very good in finance? Is The Economist really serious? It sounds like a serious death-wish: British economy was nearly killed altogether by the financial industry.

Interestingly, but unsurprisingly, whilst presenting the value of the City to the British economy, The Economist leader does not even account for trillions of pounds (in hundreds or more) the City has received and is still receiving in explicit and implicit subsidies from the taxpayer. For example an implicit insurance against collapse resulting from "too big to fail" phenomenon. One may wonder whether anybody in The Economist can actually understand this, let alone have an expertise to calculate its value competently in the actuarial terms. It is not that difficult after all.

It may all sound a bit unsporting but after all, hey, we have democracy and free press, don't we?