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?".

Saturday, 10 December 2011

Has Cameron killed the City?

The Germany's strategy of solving the euro crisis is still not completely clear: but it starts looking rational. Unlike other world leaders Angela Merkel understands what behind the financial crisis is. Rather than throwing good money after bad and adding and allowing more bailouts (for example by allowing European Central Bank to print more money), as she was pressured by Obama, Sarkozy and Cameron, in true German style, she called the financial markets bluff and started methodically reforming the financial system first. She also ensures that the execution and control of the reform will be under German control so it is not hijacked again by scammers and many politician who are happy-clappy about the the financial markets. But the jury is still out how it goes as no doubt it will be a bumpy process.

David Cameron decided to opt out from Merkel's reform. He justified it by defending the British national interest or, more precisely, by the City's. Leaving aside a rather dubious point that City interest is congruent with the British national interest, which in the midst of the financial crisis sounds - to put it mildly - irrational, was Cameron's action helping the City in the long term?

The financial industry is heavily subsidised in the UK by the taxpayers (i.e. the costs to the UK economy of having this industry exceed the tax receipts by far). The City does not exist as the UK financial centre but as the main European one competing with likes of New York, Tokyo, Shanghai and Hong Kong. Without ability to do business in Europe freely the City will be a "surplus to requirements" on the world's markets. There is no doubt that very rational financiers in Frankfurt and politicians in Berlin would like to take over the City's position. And the fuming Sarkozy and the French will be happy to help, just finishing off the City. Now Cameron created the best opportunity: the openly expressed desire of vengeance by Sarkozy and much less, but in practice far more lethal, by Merkel will ensure that France and Germany will do all their best to cut the City out of European deals and financial markets. And, with the support of practically the rest of Europe, it will be easy: unlike the war with Iraq a real "cakewalk". This is very likely to result, in a decade or so, in Frankfurt getting the pole position in finance in Europe with some spillover and subordinate business conducted in Paris. When Thatcher went to Brussels to negotiate she brought back the rebate. When Cameron went there he put the financial industry on the gallows.

It was not just Cameron's idea to "defend" the City's interest. He was under pressure from the British financiers. (Having said that Cameron and his team are unlikely to understand such considerations. The mainstream media do not seem to fare any better. There seems to be a complete strategic void in the establishment.) It is clear that they lack a basic survival instinct. The City financiers et consortes give preference to a short term personal gains, like this or next year bonus, over the long term interest of the industry and the country. "Greed is good", who said that?

However, sadly, it seems so British and so unsurprising. In the 1970's the British heavy industries refused to adopt to a changing world: first signs of globalisation. They put a pressure on the British government to subsidise them with taxpayers money and keep them going. As a result within a couple of decades the industry that had led the world into the 20th century was confined into history. The very same process is happening now. The City financiers demand state subsidies (i.e. bailout, quantitive easing, tax exemptions, etc) and want to carry on as before. They disregard the fact that the world is changing. They look after their short term interest and it looks like that the financial industry that led the world to the 21st century will be history in the UK not before long. It is the same approach as militant trade unionists of the 1970's although they most likely were acting unwittingly and were not wise enough to understand that. However considering the current degenerated and pathological state of the financial industry in the UK, which appears to be beyond help, finishing it off, unlike the collapse of the manufacturing, may actually be the best option for the British future. Countries can be successful without overblown financial services: Sweden, Denmark, the Netherlands or Germany. Now it is clear they cannot be successful without healthy manufacturing. These are not emotional arguments but purely pragmatic economic and social considerations.

Last but not least: unlike the UK, Germany went through the 1970's and 1980's managing their manufacturing base excellently. They strengthened it and now are the world manufacturing powerhouse. It looks very likely that in a decade or more - possibly after some unpleasant events like wars - the Germany will have a blooming financial sector, whilst in the UK the City will be seen as British Leyland or British Coal is seen now. And no doubt some will argue that the City collapsed because... it did not get enough support from the taxpayers.


  1. This will not happen as the City, together with Wall St, is hedged. The USA and UK can simply escalate the present Middle Eastern wars and destroy Europe as has happened twice before in the last 90 years. Merkel has miscalculated or underestimated British and American bloodlust. As I write the BBC is dissing Russia over their elections. Finding new Hitlers to attack is a British parlour game.

  2. Hi Sadie Vacantist, the Wall St will screw the City if Germans have a go in the same way as the UK was screwed by the US by Lehman's collapse. Of course the war will change these calculations and it seems increasingly likely. But it is unlikely that the City will survive it as the world financial centre either. Best, Greg

  3. Greg, I would be happy to edit your posts for grammar before you put them out. I am a teacher and it wouldn't take me more than five minutes. I have given some of my students the link to your blog and I just think it would boost your arguments if they were worded slightly better. I don't mean this to sound patronising (if it does). Love your work btw.

  4. Sadie Vac, I am with you.
    The Euro was and is a fucking sick joke
    If this is a lie why do we still have the GBP?
    Yes, everyone is sick of war, ww1 ww2 cold war maybe ww3
    We invented the pill FFS!
    And what will you learn from these sous vide frogs?
    That despite the plastic despite the water despite the heat amphibians do not cooks make

  5. Greg you say "They look after their short term interest and it looks like that the financial industry that led the world to the 21st century will be history in the UK not before long." Forgive me I do not grasp why London's city dominance will decline ( I am not talking about Cameron's antics) as we have I guess a key concentration of leading banks, insurances, exchanges,skills,expertise etc., We are a big player as all three political parties recognise. . How is that now seen as threatened?

  6. Hi Peter

    Three steps scenario, which is possible (in my assessment it looks very likely at present):

    1. If Germany (with France and the support of the rest of Europe) decide to cut off the City from the business in Europe this will happen. The City European business will move to Frankfurt (and maybe to Paris). You may remember that in the past, on a number of occasions, the City had felt threatened not by New York or Tokyo, but European exchanges, mainly Frankfurt (remember times of the UK debates about adopting the euro: or these concerns were simply wrong and the City institutions were basically telling porkies about such threats).

    2. If this happens, the City banks will lose a lot of business in Europe and they will be of very little use to the global financial markets (they will be a "surplus to requirements").

    3. If this happens the City operations will be largely defunct.

    (There is too much about skills and expertise of the City: this is nonsense. This is skills and expertise degenerated to be capable only of engineering a massive global pyramid scheme. Do you want to keep these skills and expertise to keep wrecking the British economy? Have you counted the costs of this crisis but there will be no end to it.

    Have a look: http://gregpytel.blogspot.com/2009/08/curbing-city-pay-will-improve-its.html

    Best, Greg

  7. Hi schweik, I am happy to accept your offer with thanks. (I write my posts in haste, typically when I am on the move.) Please send me your e-mail. Best, Greg

    PS. No worries, I am easy going and do not take any comments as patronising or personal.

  8. But won't Cameron do whatever he's told by "the City" - abolishing regulations and taxes and introducing taxpayer funded incentives to make a bankers' paradise - thus trumping Merkel's ace?

  9. Hi Mervyn, that would be too easy. Even without any taxes and regulations, a pure bankers' paradise the City must have a market to which it is relevant outside the UK. It will be none unless you believe that the City will try to compete with likes of BVI. But these markets have been carved for very many years. Chinese will not help either as I do not think their gratitude for Opium Wars is that deep. Best, Greg

  10. The City functions as an independent City State with various off-shore proxies around the World. The present and previous governments take their orders from them and merely act as agents. If the bankers' positons are threatened they will in turn threaten war against any country who has a budget surplus and refuses to accept more IOUs from New York and London as in $s and £s. See Joe Pesci in "Goodfellas" for details when a restaurant owner ask him to pay his bills. The restaurant owner then asks Paul Sorvino for help (IMF?) and his joint is then asset stripped. That is what the banks want to do to Greece.

  11. Hi Sadie Vacantist, the bankers are in the City if they find it useful. If they do not they will leave and I am sure Germany and France (with the help of the rest of Europe) will be determined to do that. And I would not underestimate the Germans: they are famous for actually doing things rather than talking about them.

    Of course the war, which I believe is increasingly more likely, will change a lot. But I still believe the City will survive it (in the same way as the British Empire did not survive the two world wars).

    Best, Greg

  12. Hitler underestimated the appetite the British have for violence and mayhem. Merkel is making the same miscaclulation. With the American media, MIC and financial services in the grip of Jews and or neo-con agents, the City has now found willing accomplices. The problem is that some Jewish Americans are starting to get scared. Jewish comedy writers (and the tradional Jewish left in general) are finding it difficult to blame all the World's problems on white Christians. They are smart enough to know that if they get "too ethnic" in apportioning blame, this will surely come back to haunt them for the obvious reasons that Jews are disproportionately represented amongst the corrupt elite. If things go wrong for the City, it will be due to these left wing American Jews pulling out of the project and not the Europeans. The alternative scenario is that the USA, UK and Israel simply drag NATO into WW3 and thus wreck the European economy.

  13. I agree with you Greg.Cant see a way through this for the financial sector in UK.At the moment its a parasite feeding off taxpayers.
    I just hope the parasitic banks dont kill the host country as they die.

    In the end, when all the debts are inflated away across the western world, what do you have left?
    A huge balance of payments deficit in the US and UK. And a level BOP in the eurozone.So going forward the Eurozone as a whole survives and pays its way in the world.
    The UK has a large BOP deficit ,and thats with a banking sector which is 10% of GDP, which will be decimated.So how the hell will we pay our way?
    The US will loose its reserve currency status and has a HUGE BOP deficit already so there in the shit as well.
    Interesting times indeed.
    Guess its time to buy gold.

    A Legg

  14. @A Legg

    "I just hope the parasitic banks dont kill the host country" - that's exactly what will happen. The miscalculation by the EU is to think there will be manageable collateral damage. No, the USA and UK will drag Europe into war via NATO. Israel is always the trump card if they can't provoke Russia or China into a fight.

  15. I think that US will try to provoke war between rusia and china in the same way they provoke the second world war. china need gas and oil and russia have both. also war between russia and china will ruin china economy then us will implement plan marshal 2 just like they did after the WWII

  16. @mishoni

    Agreed. There are uncanny parallels between their approach to China today and Japan in the 1930's. The are looking to chase China out of the Middle-East and Africa.

  17. Hi
    Please post to
    and I will happily sort out for you.

  18. Hi Greg,

    In your post you said.. "The financial industry is heavily subsidised in the UK by the taxpayers (i.e. the costs to the UK economy of having this industry exceed the tax receipts by far)."

    The value of the City to the UK economy over the coming decade is central to the discussion. By 'costs' are you referring to the 2008 bailouts or something more systematic? If it is the latter, can you point towards some sources so that I can research this.

  19. Hi BozBoz

    Actually both:

    1. If you look at bailouts £65 billion the first recap tranche but then it was many billions more, to get the real economic value you have to multiply these amounts by a money multiplier (i.e. a currency to broad money expansion factor in a healthy financial system). So we are really talking about trillions of pounds that the City cost the taxpayers (which is a subsidy). Have a look here: http://gregpytel.blogspot.com/2011/11/budget-what-budget.html

    2. The systemic subsidy is the fact that the banks do not lend. They hold on to cash in order to sustain a pyramid scheme they run (doing their financial market business). This means that unlike a healthy financial system, the current financial system does not perform currency to broad money expansion function which is critical for growth. (Basically, with an element of simplification in this description, but without losing the true sense, whatever cash the banks put their hands on they keep it as reserve or use it to cash some worthless toxic waste for it, i.e. pure fraud. rather than lend it to business.)

    Hope it is helpful.

    Best, Greg

  20. BozBoz - Northern Rock has been sold to Virgin at a knockdown price due to a subsidy from the tax payer. This isn't capitalism but a criminal racket. I would rather open up the mines and subsidize them than give more money to Richard Branson.

  21. Hi Sadie, the other example is the current value of RBS and when it was capitalised. These were serious billions sunk in. But in my view far bigger subsidy result from the fact that any money that it paid into banks sinks there and does not enter circulation. So effectively banks are draining taxpayers their cash: business get not enough liquidity, people lose jobs, and so on. Banks are really subsidised with average people misery. Best, Greg

  22. Greg - of course they won't lend and the tax payer will not see that money again. Britain complains about the money which goes to Brussels but gives far more away to the banking classes much of which ends up in off-shore accounts that are even further away than Brussels.

  23. Dear Greg,
    Some of the comments above are extremely Anti-Semite and dangerous as they are in their argument identical to the Nazi propaganda in the 30s. I would strongly recommend to you to remove them from your blog as they discredit it.

    I usually recommend your blog to many people as its in general based on analysis and facts and not on conspiracy theories or rants. I hope this does not change.

  24. "Finding new Hitlers to attack is a British parlour game." From the first post on this blog.

    TL's latest post is a classic example. If in doubt mention the "30's" and accuse your opponent of "anti-semiticism". No matter that Merkel has been compared to Hitler by British members of parliament.

  25. As a newcomer to this blog I am confused by the several references to a war. This [coming] war is supposed to do what, other than kill a lot of people and ruin economies? Who profits from it and how?

  26. The answer is simple. We are back in the 1930’s with neither the USA or UK capable of climbing out of recession. They will look for another AH in any country (and I mean ANY country) which enjoys a budget surplus with the USA. Wall Street and the City have declared war on the rest of the World. Only an Englishman, an American or a moron can possibly fail to see this. Cameron has delivered an ultimatum to the EU and like Chamberlain’s in 1939 it has been rejected.