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, 5 March 2013

Greg Pytel: Be careful what you wish for...


In today's Channel 4 News Mr Brooks Newmark MP discussed the EU proposal to cap the bankers bonuses to twice their salaries with a Swedish MEP Mr Olle Schmidt. Mr Schmidt argument for such a move was predominantly based on the public outrage about the bankers who engineered the current financial mess and are still handsomely rewarded for causing such disaster. Mr Newmark argued against limiting the bankers' bonuses as it would make the industry leave Europe (and the UK in particular). Instead he suggested that there should be an analysis of banks' balance sheets in the context of the credit risk.

Clearly, as Mr Schmidt admitted, his argument was political. Mr Newmark argument was professional, getting into the crux of the current financial situation. It appears that he was also right but most likely - as the context and the tone suggested - not in a way he actually intended.

If the analysis that Mr Newmark suggested had been done, it would have showed without any doubt whatsoever that the financial industry engineered and ran a giant global pyramid scheme that led to the systemic collapse in 2008. Basically the industry had been degenerated by those who had run it into a criminal enterprise operating according to exactly the same mechanisms as pyramid schemes in Albania in 1996 - 1997. In this case the bankers - most likely with very few exceptions and mainly on a junior level - should not only lose their jobs (hence any prospective salaries and bonuses), but also their liberties and any wealth (in order to compensate for the massive losses that they caused). If Mr Newmark's recommendation was followed scrupulously, the City would be turned into a giant prison (as this, quite likely, would have been cheaper than building new ones).

Mr Newmark, you may just have to be a little bit careful what you wish for.
Posted by Greg Pytel at 20:13
Labels: , , ,

7 comments:

  1. Pie MManuelos Gr Uffollogus5 March 2013 at 22:49

    Hi Greg,

    I see aswell, on Newsnight yesterday, the funding for lending scheme isn't working. Apparently the British banks were given over 14 billion and have lent out less than that, much less. Previouly you predicted this: "[...]they will use the money to repair their balace sheets" I think you said. Presumbably, there is no way of preventing the pyramid's collapse since the banks are leveraged over and above in excess of all the money there actually is. I would however be interested to hear your thoughts on the timescales of collapse since the bailouts of 2008 seem to have created some space to manouver, delayed the inevitable.

    Hope you are well and best,

    manny.

    ReplyDelete
    Replies
    1. Greg Pytel5 March 2013 at 22:58

      Banks are not lending? My Lord. is it not something I was writing about back in August 2009 (where I described systemic mechanisms)?

      "Why banks are still not lending?"

      http://gregpytel.blogspot.co.uk/2009/08/why-banks-are-still-not-lending.html

      It is frightening what sort of people are running the economy if they cannot see, never mind comprehend, the most glaringly obvious things.

      All the best

      Delete
  2. stalinvlad5 March 2013 at 22:55

    This comment has been removed by the author.

    ReplyDelete
    Replies
    1. stalinvlad5 March 2013 at 22:58

      Immanuel says what I wanted to say but with better grace and clarity

      Delete
  3. Pie MManuelos Gr Uffollogus6 March 2013 at 20:37

    Greg,

    Thank you very much for reposting that link which has really clarified things further for me. You avoided my question on timescales for the collapse of the pyramid rather neatly! Is it very hard to say?

    Thanks again and best, as always,

    Manny.

    ReplyDelete
    Replies
    1. Greg Pytel6 March 2013 at 20:48

      Hi Manny

      I do not have an idea about the detailed timescale of the collapse. There is a very unpredictable element of human behaviour. I think this example may illustrate it well: if someone has a court order for debt, a huge debt that s/he cannot pay, s/he cannot really tell when a bailiff is going to knock at the door, or will be made bankrupt. But surely s/he is on borrowed time and the demise will come. By the same token we cannot say when and what sort of events will lead to eventual collapse: the system operates like an insolvent company.

      And I think some other events may cover that anyway according to Monty Python logic if something really idiotic is done, something even more idiotic will be done to cover it. The financial crisis that started in October 1929 ended (or rather was covered) by the World War 2. This shows how it works and these processes can take time,

      Best, Greg

      Delete
  4. Anonymous28 March 2013 at 12:47

    So true Greg,

    http://mises.org/daily/6314/Banking-and-the-State

    This is an excellent article that complements your insight and analysis.

    Best,

    Martin

    ReplyDelete

Subscribe to: Post Comments (Atom)