Max Keiser On LIBOR

Made In Chicago

The Barclays Scandal

Barclays and Libor

So let me get this straight. Banks self-report how trustworthy other banks find them. This information goes into a statistic that is used across the world to set interest rates and make other policy decisions. 

Now it turns out for the three years up to the financial crash of 2008 they were basically "making shit up" to scam more money. Then, when the crash hit, they continued lying to make themselves look more reliable than they were. (Barclays, remember, were the bank that famously didn't need a UK government bail-out because they found private sector loans to support them. Perhaps based on their faked credit-rating?) 

More : http://www.quora.com/London-Inter-Bank-Offered-Rate/Whats-so-significant-about-Barclays-Bank-lying-about-the-interest-rate-they-paid-on-loans , also my Quora Question )

European Stability Mechanism

Not sure how much of a conspiracy theory this is but if it's even half true - and right now it seems horribly plausible - it's another extraordinary coup for disaster capitalism. 

Banks And Social Networks

Major Netocracy coming down!

And in the last year or so, financial institutions have started exploring ways to use data from Facebook, Twitter and other networks to round out an individual borrower’s risk profile—although most entrepreneurs working on the problem say the technology is three to five years away from mainstream adoption.

Update : While we're on the subject of Netocracy, here's Dillow on the irrelevance of politicians. Another symptom of the shift to Netocracy is the decline of the democratic nation state (a classic institution of "Project Man") attacked on all sides by networks. In this case, finance networks. (Look at Dillow even parroting the classic media-vs-state line : that voters have recognised the irrelevance and are bored with politicians.)

Banksters' Lies

Surprised?

Goldman Sachs Conquers Europe

I just don't know what to say any more.

Post Democracy

Aditya Chakrabortty :

Until this weekend, Monti served as an adviser to the world's number one investment bank, Goldman Sachs. As for Papademos, his biggest political intervention before becoming prime minister was to argue against the recent eurozone deal to write off half of Greece's debts – it should, he claimed, be a far smaller discount, so as not to hurt banks. One man was a banker, the other defended their interests, and yet the claim is that they have shed those prejudices in the past few hours.

1% As Wealth Destroyers

Monbiot good today.

How Goldman Sachs Created The Food Crisis

More reasons to hate bankers :-)

Seriously, the inventions of the financial sector have consequences in the real world. The problem is that no-one in the financial sector is responsible for assessing or avoiding negative consequences before launching new products. No one in government has effective oversight or enough power to prevent launches. And once the products are launched and people are making money from them, everyone is very reluctant to give them up. I'm sure there will be plenty of flakes ready to swear that these products are absolutely essential to motivate the production of food, despite the fact that agriculture is around 9000 years old these products have existed for barely a decade.

Here's my suggestion : whenever the financial sector wants to launch a new type of product, it needs to go through a public approval process before it's allowed. (Just like a new medicine.) The approval process should include both academics hired by the government, but also a completely public process where the descriptions, financial models, an dpredictions are published online and any interested party (blogger, economist, freelance mathematical modeller) can comment and raise concerns.

Seumas Milne :

No wonder nationalist anger is growing. And all this to deliver a death spiral of spending cuts and tax increases that are sending Greece ever deeper into slump and debt. It makes no sense. Unless it's understood that it's not the Greek economy that's being rescued, but European and US banks exposed to Greek debt. To protect the rentiers and prevent their own failures from seizing up the European credit system, Greece has undergone the deepest ever fiscal squeeze in a developed state without the possibility of any compensating monetary stimulus or devaluation – because of its euro membership.

Where Does Money Come From? (Revisited)

I just came back from the excellent Positive Money conference today and can highly recommend that everyone take a serious look at their site, their analysis and their suggestions.

Here's the basic outline of the Positive Money analysis (which they've undertaken with the help of some economics professors and one guy from the Bank of England).

Q: Where does money come from?

Largely money is created by banks making loans. That is, you ask the bank if you can borrow some money; the bank says yes, and credits your account with the money and their balance-sheet with the asset of your debt to them.

That's it. That's how money is made in the economy. The money the bank lends to you DID NOT have to come from a deposit that someone else made with the bank.

Most people (including economists, bankers and politicians) find this incredibly hard to believe and assume it must be wrong. But no-one can give any other explanation for where money actually comes from. (Well, some is made by, say Quantitative Easing, but that's just small proportion of the total money in the economy.)

Q2 : What restrictions are there on banks creating money this way?

There *used to be* restrictions that said banks could only create some multiplier of the deposits they held.

And you can still read this story on some websites and even economics textbooks. Positive Money's assertion is that various deregulations since the 1970s have effectively removed these constraints. (There are still some, but they're mainly around the "clearing" of different banks' debts to each other. And, as long as all banks are not getting into serious debt with each other, it seems there's no real constraint on how much new money they can create.)

Furthermore, nowadays banks have adopted a sales culture where everyone is incentivated to sell as many loans as possible and, until the crash, this is what banks tried to do.

That's why your bank was always trying to get you to take out a second mortgage to go on holiday or buy a new sofa.

Q3 : So what's the problem?

Well, the first problem is that every pound created this way is "debt money" ie. when the pound is created, the person who receives it receives a debt. Mostly the debt is a pound + interest.

In other words, when money is created by loans, it means debts are also created. And because the debt includes extra interest, the size of debt created is *bigger* than the quantity of money.

So there is always MORE debt in the economy than there is money to repay it.

And that's why most people in the country have such a debt problem. It's not even economically *possible* to pay off all the debt. The money for it doesn't exist. And you can't create more money without creating more debt.

Q4 : Is that the only problem?

No.

The banks like to make loans because they make their income from the interest on loan repayments. But they prefer some kinds of loans to others.

In particular, they prefer *secured* loans. That is, loans which, if you don't repay, they have something to repossess.

So, they don't like lending to businesses with limited liability because if the business goes bust most of money was probably spent on wages and materials anyway, and the capital equipment is probably not worth that much when sold second-hand.

On the other hand, they LOVE lending to individuals to buy houses ie. giving mortgages, because if the individual can't repay, the bank repossesses the house which, normally, has held / increased its value.)

Positive Money estimate that of all the billions of pounds that banks create, only about 8% is lent to businesses that create jobs and produce goods and services in the economy, and the other 92% goes into the mortgage market or other financial products with "known" risk profiles.

And that's why :

a) house prices have increased much faster than wages in recent years (ie. lots of newly created money went into bigger mortgages for more expensive houses) and you can't get on the housing ladder.

b) it's been so hard to finance your usefully productive company (unless you have something to repossess like land or intellectual property)

c) banks bought so many packages of collateralized debt.

In conclusion :

Banks have been given the monopoly on creating money.

There is no oversight.

They have incentives to create as much money (sell as much debt) as they can.

There is always more debt in society than money to repay it.

Because money is created by and in private banks, they choose how it is allocated in the economy.

Because the banks prefer secured loans, the new money goes mainly to places we don't want it to go (ie. to  inflating house prices and speculating on financial products) and doesn't go where we do want it to go (ie. to financing expansion by businesses that create jobs, goods and services.)

Economists, politicians, most bankers themselves, and certainly the general public have no fucking idea that this is how the system works, and most of them can't believe it when you tell them.

Q5 : So what can we do?

Positive Money's recommendation is as follows :

1) Take the power to create money (ie. to loan money that you don't have) away from private banks, and give it to the Bank of England.

2) Because you don't want the Bank of England to print money whenever it suits politicians, give the power to decide **when** to create the money to an independent committee. Probably with some fairly stringent criteria for when they should. Positive Money's own suggestion is that every month when inflation is around 2%, they should authorize the creation of new money. If inflation creeps above 2%, they shouldn't create more that month.

3) Rather than the new money being given to government or banks to allocate it should be given directly to the public in a slightly *progressive* form :

a) as VAT cuts. (Everyone benefits and you stimulate more economic activity)

b) by raising the threshold at which people start to pay income tax. (So the lowest wage earners benefit.)

I have to say, I think this is an absolutely brilliant blend of radicalism and realism. They've spent a lot of time thinking about this. (The analysis / book has taken their team about 18 months to put together, based on about 500 different documents. Apparently they asked the Bank of England for its own training manuals / documentation on how money is created and were told that there is none.)

The Only Useful Innovation

David Leonhardt :

In finance, trading volumes have boomed in recent decades, yet it is unclear how much all the activity has lifted living standards. Paul A. Volcker, the former Fed chairman, has mischievously said that the only useful recent financial innovation was the automated teller machine. Critics like Mr. Volcker argue that much of modern finance amounts to arbitrage, in which technology and globalization have allowed traders to profit from being the first to notice small price differences.


IN the process, Wall Street has captured a growing share of the world’s economic pie — thereby increasing inequality — without doing much to expand the pie. It may even have shrunk the pie, given that a new International Monetary Fund analysis found that higher inequality leads to slower economic growth.

There Aren’t Any More Rich Countries

Naomi Klein :

Ten years later, it seems as if there aren’t any more rich countries. Just a whole lot of rich people. People who got rich looting the public wealth and exhausting natural resources around the world.

Shooting Banksters In A Barrel

Daniel Davies (d-squared) tries to defend bankers against the accusation that they're responsible for the 2008 crash and continuing world economic crisis.

He doesn't do a particularly good job, but he elicits this great response from "Bloix" :

I’m sure I’m being naive in assuming that Daniel doesn’t already know this and is intentionally ignoring it, but here goes:

1) There was a bubble in housing prices. This means that people bought houses, not to live in, but because they believed that the house they bought would appreciate faster than any other asset they could invest in. The appeal of such appreciation was multiplied many-fold because houses are the easiest and most common investment for ordinary people that supplies large amounts of leverage. The ordinary buyer had no appreciation of the risks of leverage but well-understood its benefits. There was a lot of activity in buying up, flipping, and trading houses that had nothing to do with the need for shelter. This activity made a lot of money for a lot of people – real estate agents, mortgage brokers, inspectors, title insurers, and lenders.

2) Housing prices could not indefinitely go up faster than the rate of inflation because eventually there would not be enough buyers who had the income to qualify for the mortgages needed to on the higher home prices. Therefore, in the absence of “creative” financing, the run-up in housing prices would soon have stabilized and perhaps dropped a bit.

3) Mortgage brokers and lenders therefore created mortgage products that were designed to allow people to buy houses that they could not possibly pay for based on their income – balloon mortgages, teaser rates, interest only loans, even negative amortization.

4) If the mortgage lenders had had to hold the risk of these loans, they would never have made them. But they didn’t, because they could sell the loans to the banksters, who then packaged them in their creative products and sold them off as AAA-rated securities to insurers, pension funds, and the like. After the banksters took their large cut off the top, the money from these investors funded the loans to the ignorant buyers who were put into the creative mortgage products by the petty crooks who worked for the mortgage originators.

5) Without the market in mortgage-backed securities made by the banksters, there would have been no money to fund the creative mortgage products, and thus no possibility of a bubble anywhere near the size of the one that eventually burst. The whole point of the mortage-backed securities market was to keep the bubble inflated. Obviously it couldn’t go on for ever, but it was very, very profitable while it lasted.

6) The banksters either were world-class idiots or they were well-aware that the mortgage-backed securities they were selling to clueless institutional buyers were trash. As we know that they are not idiots, the only possible conclusion is that they were intentionally passing off trash.

People who peddle fake goods are usually considered to be crooks. But banksters who knowingly peddled enormously high-risk securities, while claiming that they were as safe as US treasuries, are walking around with billions of taxpayer dollars in their pockets. They own Congress and the administration. They write the tax code and dominate the Federal Reserve.

After smashing up our retirement accounts, destroying our pension funds, wiping out the savings of millions of people who bought into the rising market, and putting any number of us out of work, they sneer and pontificate and preen and strut their way across the major cities and TV screens and high-end resorts of all the world.

The only justification for the investment banking industry’s existence is that it does a better job of allocating investment capital for productive purposes than any other method of doing so. What we’ve just seen is that, far from allocating capital efficiently, the banksters allocated capital in a grotesquely wasteful manner for year and year, a manner that just happened to put huge amounts of that capital into their own individual pockets while leaving the institutions they worked for at risk of insolvency. And when that risk came to pass, the obscenely rich individuals suffered not at all, while the government bailed out the institutions.

So. Please. I don’t know anything about you personally, and I’m sure that you’re a wonderful fellow who loves dogs and is charming at parties. But the industry you are part of is a force for evil in the world. Everyone who is not dependent on that industry for a living knows it.

The Virtues of Government Spending Without Government

John Lanchaster :

Quarterly GDP data don’t, on the whole, tend to make the person studying them laugh out loud. The most recent set, however, are an exception, despite the fact that the general picture is of unrelieved and spreading economic gloom. Instead of the surge of rebounding growth which historically accompanies successful exit from a recession, we have the UK’s disappointing 0.2 per cent growth, the US’s anaemic 0.3 per cent and the glum eurozone average figure of 0.2 per cent. That number includes the surprising and alarming German 0.1 per cent, the desperately poor French 0 per cent and then, wait for it, the agreeably frisky Belgian 0.7 per cent. Why is that, if you’ve been following the story, laugh-aloud funny? Because Belgium doesn’t have a government. Thanks to political stalemate in Brussels, it hasn’t had one for 15 months. No government means none of the stuff all the other governments are doing: no cuts and no ‘austerity’ packages. In the absence of anyone with a mandate to slash and burn, Belgian public sector spending is puttering along much as it always was; hence the continuing growth of their economy. It turns out that from the economic point of view, in the current crisis, no government is better than any government – any existing government.

Killian Fox :

"Africa is the Silicon Valley of banking. The future of banking is being defined here… It's going to change the world."

Hard to know what to say about the massive fucked-up-ness of this :

The leadership of the Big 4 audit firms in the UK has admitted that they did not issue “going concern” opinions because they were told by government officials, confidentially, that the banks would be bailed out.

Ie. the auditors who's job was to assess whether the banks were going bust, didn't warn that they were going bust, because they knew that the banks would be rescued!!!!

WTF??? My head is hurting. This is like someone left Karl Pilkington in charge!

Update : BTW, I just noticed that word "confidentially" in the above quote. Why confidentially? If the government wanted to signal that it was willing to support the banks, why not do it in public? Instead we have them secretly saying that they'll support them to the auditors so the auditors can then cover up the fact that the banks are in trouble in the first place!

"silence like a cancer grows".

This is why we need wikileaks.

How the UK government let the banks off their social obligations in return for cheap sponsorship of their ideological project.

Worth reading Sovereign Subjects.

Here's how I interpret it : the financial sector is trying to push governments towards the same short-term thinking and reduced horizons of action that drives / contains companies and other market-players.