Why have the banks acted so irresponsibly?

Since 2008 we have seeing report after report of the way in which our banking institutions, and particularly their investment banking arms have acted in the most reprehensible and at times illegal way. According to the official story this is predominantly the result of simple greed. Bankers are paid extra-ordinary amount of money, predominantly in the form of annual bonuses that regularly exceed seven figures and often eight figures for senior bankers. However there is a problem with this story. Greed is certainly a driving factor in human evolution, but it is invariably tempered by a mid to long term view. In order for greed to be the primary driving force it would require highly intelligent and well educated people to all be acting as sociopaths with no concept of anything beyond the short term. This seems unlikely but not impossible. However there is a further wrinkle to this story. Banks don't operate in a vacuum. Being the driving force behind much of the Worlds economic growth and development, the banks themselves are intrinsically linked to the economic policy units of the Worlds developed economies. They are also linked to the international financial community through the International Monetary Fund, the World Bank, the European Central Bank and the various national Central Banks such as the Federal Reserve, The Bank of England and so on. In turns these are linked back to national Governments and International political associations.

Given these links it seems impossible that banks would operate in a way that risked their profits and success without some kind of guarantee that their rash decisions and risky trading positions will be protected, but why would this be the case? In any other commercial arena that features global business, even where this is closely allied to Government such as is the case with IBM, Microsoft, General Motors, Hyundai, Toyota and the like the company, whilst being supported by Government, if it reaches a point of financial crisis is largely on its own. Indeed, international law often requires that Governmental support for such companies is limited specifically to prevent anti-competition agreements and monopoly positions. This strongly suggests that the banks are operating under a separate and secret system. The level of protection and the scale of the bailout of failing banks has created a system under which every single tax payer in the major global economies is now in debt paying off the bank bailout, not just for the next few years but for the next four generations. Herein lies the likely reason for this rather strange situation.

For the last three hundred years there have moves by key figures within Royal houses, banking families and industrial leaders to create a society in which they and their associates are perfectly protected and where the working masses supporting the elite are completely subservient and unable to stand against the elite. Various methods have been attempted, from global conflict through empire to destroying trade unions and political movements that stood in their way, but they have been only partially successful. This new move has created a society where the primary concern of the majority of people is fear over the loss of employment, income, home and family and there is little time for concerns over politics or the machinations of the global elite as espoused by conspiracy theorists. Fear is the driving force in modern society, and as any social scientist or anthropologist will tell you, creating a society in fear is the first step in creating society that is totally controlled. Sure, bankers are greedy, but it makes more sense when you realise that their greed is being backed, approved and driven by a secretive powerful group aiming to control the World.

The real reason the LIBOR banking scandal won't go anywhere

The banks are not most peoples favourite organisation at the moment, and banker bashing is pretty much becoming a national institution across much of the Western World, and yet there is one example of their abhorrent approach to business that is only really getting fairly minor play in the mainstream press, yet it is the one that strikes deepest into the soft underbelly of the global financial giants. There is a reason for this, but before we get to that, lets have a little background on this problem. The London Interbank Offer Rate (LIBOR) is the rate at which banks lend to each other and is a crucial measure of how much money costs. It is the basis for how easy or difficult it is for banks to raise finance and therefore to lend. The LIBOR is managed by the British Bankers Association (BBA) in the UK and by similar organisations around the World. So far so good, but there is a less well known aspect to this that may come as a bit of a surprise.

The British Bankers Association is, as you might expect, made up of senior bankers from the key UK banks, and it operates to regulate bank activity, but what is less well known is that it is itself unregulated. This is not a Government quango or body, but simply a semi-formal club. As such it has no responsibility to anyone but the banks and therein lies the problem. The way LIBOR works is that the banks voluntarily report the rates that they lend to and borrow from each other, and these rates are averaged over a period of time to establish internationally the interbank lending rates. In theory at least the BBA is responsible for ensuring the accuracy of this information and indeed employs auditors for that purpose. It now appears that at least some of the major banks in the UK have been less than accurate in their reporting of these rates, using that inaccuracy to take advantage of the money markets to make even more profit than they already do.

This in itself is bad enough and would certainly be a major news story globally and would almost certainly lead to criminal investigations and proceeding against some pretty senior banking establishment figures, but that isn't happening and here comes the real kicker. It would appear that not only were some banks being less than honest, but that this was happening with the tacit approval of the Bank of England, the UK central bank. This causes major issues for the whole system not just of banking but of politics as well. The Bank of England does not operate in isolation but is a key player in the International Monetary Fund (IMF) and the World Bank. It would not have allowed this without approval throughout the chain of command so if the Bank of England is tainted in this then so is the Federal Reserve and the European Central Bank, and so are the senior politicians whose job it is to monitor bank activity and national and international money supply. In the UK this is the treasury, almost certainly the most high profile of all of the ministries of Government.

Calling into question a few rogue bankers lending to the wrong people, or a few politicians with their snouts in the trough is one thing but potentially bringing down the entire global banking system is quite another, and that is why this story will just quietly die and nothing will be done. No matter how much we might wish it were different.

Yet more banking conspiracy

Today the Bank of England Financial Policy Committee is preparing to encourage banks to lend more money in an effort to boost the economy by reducing the requirement for the banks to hold large reserves of cash. Now the first thing to bear in mind is that this comes on top of earlier quantitative easing by the Bank of England. Now, I'm no expert on the banking system and its processes. My formal schooling in economics only went as far as a bachelors degree, and I've never worked in a bank, but I'm pretty certain that there are some rather more familiar terms for what is being proposed that are conspicuous by their absence. I'm pretty certain that quantitative easing used to be called “Printing more money” and was pretty much universally frowned upon by economists because it essentially devalued the currency and caused price driven inflation. Guess what? Yup, the UK is experiencing price inflation. Funnily enough, on this same thing, isn't reducing the need for banks to hold large buffers of cash also called fractional reserve banking? And hang on a second. Didn't we decide that was a pretty bad idea because if there is a run on a bank and it doesn't have reserves the bank collapses? Um, and doesn't a drive to fuel the economy on credit actually make the debt crisis worse?

You may remember my recent article on why I think a second banking crisis is inevitable. Well folks, this has just made it an awful lot worse. Moodys have just downgraded UK banks, reducing public confidence in them, and now the public is being made aware that the banks aren't going to have to keep their money in the safe. That sounds like an exercise in seeing just how far you can push the public before they snap. Aside from the whole issue of dishonesty from the Bank of England in suggesting that the reason banks aren't lending is because they have no liquidity, an obvious nonsense, you really have to question the motives here. Banks have plenty of liquidity to lend far more than they currently are, but are choosing not to simply because they don't see an adequate return on their investment/ Don't believe me? Try and get a loan at less than 10% interest. I used to be offered loans every time I went into my local branch at 6% but not any more. What this tells me is that banks are able to make more money on higher return investments than loans, and are quite happy to do that rather than lend to drive the economy.

What this also tells me is that as far as the banks are concerned the economy is tanking and only getting worse. Why do I say this? If the banks were confident of the economy picking up they would be far more ready to invest in businesses because the investment would be relatively safe. If banks believe that businesses will continue to fail and unemployment will rise then lending has a poor risk to return ratio. So, based on what the Bank of England are saying, and what the banks are doing, I'm sticking my neck out and making a prediction. Things may be bad now, but they are going to get a lot worse yet, and don't expect to hear about it anywhere else. The language of economics has been changed. Think Orwells 1984 doublespeak, and remember, nothing it what it seems, but if you want to know the truth, follow the money. Look at where the banks are investing, and more importantly where they are not, and tell me where you think the risks of calamity are too high.

Why a second banking crisis is inevitable

Looking back at the banking crisis of 2008 there are some interesting conclusions that can begin to be drawn. The official reasons for the crisis are reasonably well established, coming down to essentially bad bets by investment banks, seeking ever higher profits, and a reliance of a global property bubble that was unlikely to be sustainable. So far so good, investment banking has always been based on risk and gambling, and as any good gambler knows, you don't win all the time, if you didn't it wouldn't be a gamble. Now the argument goes that as long as property prices continued to rise, there really was no gamble, because there was always money in the pot to cover any losses so everything would always be ok. This made quite a big assumption, and one which has no basis in historical fact. There has never been an example of a price bubble being sustained indefinitely, and this is particularly the case with property. Property prices have previously occurred in the 1950's in the UK and in the 1920's and '30's in the US and across much of the Western World. There were also small collapses in Australia in the 1990's and in South East Asia in the 1970's, but for some reason there is very little mention of these events. The lack of information itself is interesting but it is far from the whole story.

It is also interesting to note that one of the key reasons for the ability of investment banks to act in these high risk ways was that there had been a shift in strategy on the part of governments to control banking operations. This was a deliberate policy of “light touch” regulation both in Europe and the US that allowed very limited monitoring of banks actions and policies with regard to risk. Officially this was to allow banks the necessary freedom to react quickly to rapidly changing financial environments, but this lie was exposed when the banks singularly failed to respond to just such a rapid change. So, what is the real reason that banks were not only allowed to act so irresponsibly, but to be supported such that they avoided the obvious consequences of their actions? The reason is surprisingly straightforward and goes back to the period in the late 1970's and early 1980's when a shift from post war austerity to consumer credit boom was used as a tool to spark economic growth in a stagnant market. As long as property prices kept going up, people felt confident and were encouraged to take on ever increasing debt in order to keep economic growth going. This was a conspiracy that encompassed governments, the media and the money lenders themselves, with the ultimate aim of creating such a level of personal debt that when the inevitable bursting of the property bubble occurred people would be helpless to support themselves forcing them into slavery to the corporations behind the markets.

So, what does this have to do with a second banking crisis. Simply that the ineptitude of the banking elite and governments and their misunderstanding of the inherent strength of the population meant that the original plan failed, creating only a partial enslavement most heavily felt amongst those with the most tenuous grip on solvency anyway, in other words the soft targets. Many of those who had a firmer grasp, those who had been more successful in the good times, those who were the real targets of the plot were not hid hard enough to control them completely. That will happen with the next collapse. This time there will be no bailout. There will be no protection for private investors, there will be no safety. Only the elite will survive intact, the remainder being consigned to servitude with the complete loss of their assets and therefore their power and even their sense of identity. This will occur in late 2013. You have been warned.

The great property ownership conspiracy

For generations now we have lived with a lie. We have been told it so many times that we believed it, we built our lives around it. What lie is this? It's a big one, it is the one that tells us that we should own our own homes. That we should each own our own small piece of this Earth, that it can be ours and no-one elses, and that it has a value that can only ever go up over time. It makes an odd sort of sense perhaps. There is a finite amount of Earth, and an ever increasing population so there should be increasing demand against limited supply. Of course this assumes that economics makes any sense at all, which is not exactly a safe assumption, give that social sciences in general are not known for their accuracy, or indeed their scientific nature. There is another issue at the heart of this though. Recent events in the global economy have highlighted what many people already knew, or at least suspected. We have been living in an economic fantasy for an awfully long time. Our money is a sham, value based solely on a perception of value rather than on anything tangible or real.

The idea that has kept this fallacy going for so long is that our property is the rock that allows us to borrow against future value. As long as property prices are rising we can keep borrowing against that future value and keep consuming, generating revenue for industry, which can pay more workers more money who can spend that money on more property and more credit and so on ad infinitum. Until the system breaks down. Which it now has. The idea of owning, controlling, deriving personal wealth from a portion of our planet should be anathema. We should tread this planet lightly, not shackle it and deplete it and pollute it to satisfy our own lusts. But that is really just an aside. Given that property ownership and the consumer economy have been shown for the worthless sham that they are, the question remains, to what end was this lie propagated? Who benefits? For the answer we must turn to that favourite of conspiracies everywhere, the banking elite, and no, they haven't had enough of a kicking yet!

Follow the money. The global private banking institutions make money by lending to commercial banks, creating the illusion of money. This is passed on to consumers who spend it, creating debt, which is further funded by the private banks. When the debtors default the commercial banks take the hit and the private banks make yet more money collecting on the insurance policies that they took out in the first place. There are very few winners in this game, and they are always the same. The solution? Understand that property ownership is an illusion, open a basic checking account and close all of your other banking and savings accounts. Withdraw your money as soon as it is paid into your account. Refuse to enter into direct debit agreements, cut up your credit cards, pay off your loans and reduce your outgoings until you can live within your means. The good times are over, they never truly existed, and the austerity that our politicians talk about is not even close to the austerity that we are all about to experience. Welcome to the brave new World (order).