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.


  1. > One really has to pose a question whether people dealing with the current crisis are sane

    She's French, 'nuff said.

    What was it that Mirabeau said on the even of the French revolution

    "La banqueroute, la hideuse banqueroute, est là, et vous délibérez !"

  2. Hi Davidof

    ... and she is a woman!:-)

    I am not completely convinced of the merits of such arguments.

    Best, Greg

  3. I think she's quite sane. The IMF, FED, ECB, BOE, etc.... are all influenced (if not controlled) by the same kleptocrats whose fraud caused the current crisis. Rest assured if she came out and took a line which looked sane to us but went against the interests of the powerful people she represents she wouldn't be head of the IMF for long. So, given the situation she's in - she's acting in a pretty sane manner - that is, she rational when observed from a self-preservation perspective.

    1. Hi skopq

      I happen to disagree. She could have been doing things to the same effect but in far more intelligent way. What she is saying is so blatantly stupid that it is self-discrediting.

      However there is also a Machiavellian explanation: you can deliberately say stupid things precisely to draw attention to the madness of what is happening. If this is the case (which I somewhat doubt) then her role is different.

      Best, Greg

  4. No wonder they framed the ex imf boss with that fake rape. That women is saying what she has been told to say by the you know who!

  5. I am not sure where I am with this. The great and the good and the progressives such as Stigliz, Roubini, Skidelsky, and our local favourites like William Keegan or Will Hutton or Richard Murphy etc., berate the Austerity measures in Europe (including UK) as a "collective suicide pack" because it will not stimulate our economies. In a nut shell Greg what are you saying is the way forward so we can begin to help what will be the millions ( especially, young, working class and poor) who will suffer while this debt overhang unwinds over the coming years.

    1. Hi Peter

      Thanks for your comment. I agree with your points. The question is how to get there. The problem is that in the current economic conditions neither austerity works nor Keynesian approach works either (the problem is that any extra money that the government would spent would sink immediately in the banking system and will not circulate in the economy stimulating it).

      Please read this article (together with the one that I refer to inside it):


      And if you like my blog please pass the link to it around.

      Best, Greg

  6. This entire situation brings to mind the American economist Hyman Minsky. Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers. We were all clearly in the Ponzi phase. As for now, all investors can do is hedge themselves with alternative investments for protection.

  7. Hi Greg, I always enjoy your blog and have read it since the "the Largest Heist" days - I rarely contribute because I am not knowledgeable enough about finance and economics - BUT I have lived a long time in the real world, and it seems even longer!!!

    I wouldn't dispute the reasons behind the "crisis" and I certainly learned a lot from your early posts on the matter like "the Heist" as I say.

    It seems to me that the main cause (if not the full story) for the problem lies in the imbalance between the money paid by the west (while running trade deficits) into China, Saudi etc. for goods/oil , then deposited in western banks. Anyone who deposits money seeks a return and the only way you can pay a return is to lend that money to someone else. The oversupply of such is surely the root cause of our difficulty.

    NB - of course I get no return worth speaking of out of the money it took my family a lifetime to save, so that the profligate idiots in my country can avoid insolvency.

    What seems obvious to me is that a major part of our problem stems from the stupidity of a government that increased its spending by 50% above inflation in a decade, by increasing taxation by 10% of income (that's a 20% plus increase), borrowing money in the good years, and shoving even more on the PFI credit card. This has IMHO done more to ruin us than the rogues you continually finger. Gordon Brown loved the finance sector when it was paying in a quarter of all the receipts he took in - there are probably some links to his devotional speeches still to be found as late as 2006/7. He was warned but arrogantly dismissed the advice. AND now people continually marvel at the lack of growth in our economy.

    We now have huge personal debts in the UK (slowly reducing). Half of all the credit-card debt for the whole EU is in the UK. Why should the citizen be more responsible with money if his government is so profligate?

    Your government and its people have borrowed and spent the next decades money already.

    On top of all that, governments of both colours have run a Ponzi scheme for public service pensions as well as State pensions for most of my life-time. All such schemes grow less sustainable with time as we know.

    I don't have much time for banks, which is why I bank at the Co-op, but if you don't borrow more than you can pay back, you don't end up in the mess we are in.

    Just another example of people expecting rights without responsibility. It is always someone else's fault.

    1. Hi RetiredDave

      Many thanks for your great comment! Food for thought. May I suggest you have a look at:






  8. Hi Greg - thanks for those links, two good informative reads. It is good to get a wide perspective on the situation.

    There is no doubt that the failure to regulate was a problem, but some in the banking world in the early 2000's (now retired on a good pension of course) have admitted that the FSA had no idea whether some of the dodgy practices were dodgy or not. It must be a case of if you don't understand it, assume its dodgy (and as you say perhaps illegal) - but apparently the FSA didn't want to admit it didn't know how some of these instruments worked!!!! A perfect storm really.

    I note your point about the governments' spending being seen as sustainable in the first half of the last decade. I don't know enough to speculate on other countries, but in the UK, borrowing whether it is government or personal is always seen as sustainable while the economy is in the up-cycle. A big part of the boom (sic) was fed by borrowing - we all know about the government's borrowing, but it was the 20% pa inflation of house prices that convinced citizens that all was well. They borrowed too much to buy property and many borrowed off their increased equity to fund cars, holidays, etc etc. That increased the Chancellors take as well, convincing him that all was well. A pack of cards - well another ponzi really.

    I think it was in 2006/7, before the Northern Crock problem anyway, that two articles in the finance section of the DT sparked my concern and I can't remember who the writer(s) were.

    One said that after research he had discovered that half the people paying for a restaurant meal with a credit-card didn't pay for that meal that month - so even eating was going on to credit.

    The second one pointed out that when a huge number of citizens owe huge amounts of money, you have a problem coming. When high street retailer have borrowed too much in buying each other out you have more of a problem coming. BUT when banks start borrowing money to buy each out you really DO have a problem coming. Obviously in the commercial world the lenders are to blame if debts end up bad.

    While I agree that lenders should be rightly condemned for their stupid lending (badly regulated) your comment at the end of the Economist article is sadly accurate but doesn't really tell the truth. It is a sad reflection on the poor educational standard of the UK. And your comment is frankly an insult to those people who didn't borrow more than they could pay back, but are now having to pay for those who did. It is, as I said in my last comment, just an excuse for those who showed no responsibility and now want to blame someone else.

    My Father left school at 13 but didn't need telling how much he could sensibly borrow. He would see those who showed no common-sense as degenerate. It is 18 years since his passing, but he told me 20 years ago how this country would end up. He was right and I didn't believe him at the time.

    Best wishes