Debt Parasitism And The Collapse Of Antiquity

michael-hudson  |  The Collapse of Antiquity, the sequel to Michael Hudson’s “…and forgive them their debts,” is the latest in his trilogy on the history of debt. It describes how the dynamics of interest-bearing debt led to the rise of rentier oligarchies in classical Greece and Rome. This caused economic polarization, widespread austerity, revolts, wars and ultimately the collapse of Rome into serfdom and feudalism. That collapse bequeathed to the subsequent Western civilization a pro-creditor legal philosophy that has led to today’s creditor oligarchies.

In telling this story, The Collapse of Antiquity reveals the eerie parallels between the collapsing Roman world and today’s debt-burdened Western economies. 

Endorsements

“In this monumental work, Michael Hudson overturns what most of us were taught about Athens and Sparta, Greece and Rome, Caesar and Cicero, indeed about kings and republics. He exposes the roots of modern debt peonage and crises in the greed and violence of antiquity’s oligarch-creditors, embedded in their laws, which in the end destroyed the civilizations of classical antiquity.”
James K. Galbraith, author of Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe.

“In this fascinating book, Hudson explores the rise of the predatory rentier oligarchies of classical Greece and Rome. He makes a fascinating and persuasive case that the trap of debt led to the destruction of the peasantry, the states and ultimately even these civilizations.”
Martin Wolf, Chief Economics Commentator, Financial Times.

“Michael Hudson is an old school, 19th-century classical economist who puts fact before theory. To read his new book, The Collapse of Antiquity, is to learn why and how it has come to pass that we live in a world in which the money owns the people, not the people who own the money. The clarity of Hudson’s thought is like water in a desert, his history lesson therefore a sad story that is a joy to read.”
Lewis Lapham, editor of Lapham’s Quarterly.

Scope

The Collapse of Antiquity is vast in its sweep, covering:
• the transmission of interest-bearing debt from the Ancient Near East to the Mediterranean world, but without the “safety valve” of periodic royal Clean Slate debt cancellations to restore economic balance and prevent the emergence of creditor oligarchies;
• the rise of creditor and landholding oligarchies in classical Greece and Rome;
• classical antiquity’s debt crises and revolts, and the suppression, assassination and ultimate failure of reformers;
• the role played by greed, money-lust (wealth-addiction) and hubris, as analysed by Socrates, Plato, Aristotle and other ancient writers;
• Rome’s “End Time” collapse into serfdom and pro-creditor oligarchic legacy that continues to shape the West;
• the transformation of Christianity as it became Rome’s state religion, supporting the oligarchy, dropping the revolutionary early Christian calls for debt cancellation and changing the meaning of the Lord’s Prayer and “sin,” from a focus on the economic sphere to the personal sphere of individual egotism;
• how pro-creditor ideology distorts recent economic interpretations of antiquity, showing increasing sympathy with Rome’s oligarchic policies.

Backcover

Rome’s collapse was the forerunner of the debt crises, economic polarization and austerity caused by subsequent Western oligarchies. The West’s pro-creditor laws and ideology inherited from Rome make inevitable repeated debt crises, transferring control of property and government to financial oligarchies.

Classical antiquity’s great transition to the modern world lay in replacing kingship not with democracies but with oligarchies having a pro-creditor legal philosophy. That philosophy permits creditors to draw wealth, and thereby political power, into their own hands, without regard for restoring economic balance and long-term viability as occurred in the Ancient Near East through Clean Slates.

Rome’s legacy to subsequent Western civilization is thus the structure of creditor oligarchies, not democracy in the sense of social structures and policies promoting widespread prosperity.

 

CBDC Will Enable Bankster Transformation To Permanent Endoparasitism

ineteconomics  |  Fast forward to the period of low inflation and low growth after 2001. The real estate boom set in, and that’s when you really had the financialization of everything. Up to then, the practice had normally been that banks would make mortgage loans and either keep them on their own books or, even if they sold them, they would sell the whole mortgage to Freddie Mac, Fannie Mae, or to the private sector. Then someone came up with the idea that if you carve the loans into tranches and sell the tranches separately, you might receive more money than if you sold the whole thing.

It worked out for a while that way and that’s why everyone did it. That opened the door to the financialization of everything.

LP: What does this concept, the “financialization of everything,” entail?

WT: That’s when you start treating everything like it could be a bank liability — auto loans, credit card loans, and the like. You treat them the same way as the new mortgage credit – carving them up into tranches with different levels of credit risk and interest rates attached and selling them off as chunks instead of altogether as one block.

A New York securities lawyer friend and I used to speculate that we could even securitize and sell air rights in New York. That way you would be selling the blue sky itself! Obviously an absurd concept, but I assure you that people likely gave serious thought to it.

LP: How is the current banking crisis an outcome of the process of financialization?

WT: In several ways. Going back to the ‘70s and ‘80s, Walter Wriston at Citibank introduced the concept of “brokered deposits,” certificates of deposit that could be negotiated in the secondary market and resold. Nobody ever thought of doing that before. Traditionally, you took out a deposit in the bank, a CD account, and you kept it. That was that. You could borrow against it at the bank, but you didn’t go try to sell that to somebody else.

Thanks to that process of creating brokered deposits, the liability side of the bank’s balance sheet became financialized. The FDIC eventually put limits on the percentage of deposits that one bank could have that were brokered deposits because they were viewed as non-core deposits, quick-to-flee money, money that won’t be there in time of need, etc. That’s very much like what we’re seeing today.

On the asset side, banks like Silicon Valley and Signature were loaded up with things like mortgage-backed securities and also long-term Treasuries. They were doing that just to have the appearance of liquidity, the appearance of risk-free assets while ignoring so-called duration risks, that is, exposure to interest rate problems the longer the term of the bond or other obligation that you’re holding. By ignoring these issues, banks like Silicon Valley, First Republic, and Signature painted themselves into a corner. They have brokered deposits chasing the highest yield funding assets that have embedded risk that is not recognized in the kind of accounting they wanted to see.

Are These Banksters Ecto Or Endo Parasites To You Peasant Hosts?

newindianexpress  | The UBS acquisition of Credit Suisse requires the Swiss National Bank to assume certain risks. It will provide a Swiss Franc 100 billion ($108 billion) liquidity line backed by an enigmatically titled government default guarantee, presumably in addition to the earlier credit support. The Swiss government is also providing a loss guarantee on certain assets of up to Swiss Franc 9 billion ($9.7 billion), which operates after UBS bears the first Swiss Franc 5 billion ($5.4 billion) of losses.

The state can underwrite bank liabilities including all deposits as some countries did after 2008. As US Treasury Secretary Yellen reluctantly admitted to Congress, the extension of FDIC coverage was contingent on US officials and regulators determining systemic risk as happened with SVB and Signature. Another alternative is to recapitalise banks with public money as was done after 2008 or finance the removal of distressed or toxic assets from bank books.

Socialisation of losses is politically and financially expensive.

Despite protestations to the contrary, the dismal truth is that in a major financial crisis, lenders to and owners of systemic large banks will be bailed out to some extent.

European supervisors have been critical of the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a systemic risk exception while excluding SVB as too small to be required to comply with the higher standards applicable to larger banks. There now exist voluminous manuals on handling bank collapses such as imposing losses on owners, bondholders and other unsecured creditors, including depositors with funds exceeding guarantee limit, as well as resolution plans designed to minimise the fallout from failures. Prepared by expensive consultants, they serve the essential function of satisfying regulatory checklists. Theoretically sound reforms are not consistently followed in practice. Under fire in trenches, regulators concentrate on more practical priorities.

The debate about bank regulation misses a central point. Since the 1980s, the economic system has become addicted to borrowing-funded consumption and investment. Bank credit is central to this process. Some recommendations propose a drastic reduction in bank leverage from the current 10-to-1 to a mere 3-to1. The resulting contraction would have serious implications for economic activity and asset values.

In Annie Hall, Woody Allen cannot have his brother, who thinks he is a chicken, treated by a psychiatrist because the family needs the eggs. Banking regulation flounders on the same logic.

As in all crises, commentators have reached for the 150-year-old dictum of Walter Bagehot in Lombard Street that a central bank's job is "to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent."

Central bankers are certainly lending, although advancing funds based on the face value of securities with much lower market values would not seem to be what the former editor of The Economist had in mind. It also ignores the final part of the statement that such actions "may not save the bank; but if it do not, nothing will save it."

Banks everywhere remain exposed. US regional banks, especially those with a high proportion of uninsured deposits, remain under pressure.

European banks, in Germany, Italy and smaller Euro-zone economies, may be susceptible because of poor profitability, lack of essential scale, questionable loan quality and the residual scar tissue from the 2011 debt crisis.

Emerging market banks' loan books face the test of an economic slowdown. There are specific sectoral concerns such as the exposure of Chinese banks to the property sector which has necessitated significant ($460 billion) state support.

Contagion may spread across a hyper-connected financial system from country to country and from smaller to larger more systematically important banks. Declining share prices and credit ratings downgrades combined with a slowdown in inter-bank transactions, as credit risk managers become increasingly cautious, will transmit stress across global markets.

For the moment, whether the third banking crisis in two decades remains contained is a matter of faith and belief. Financial markets will test policymakers' resolve in the coming days and weeks.

Mobile Money And Social Media Made The Bank Runs Unmanageable

bloomberg  |  Citigroup Inc. Chief Executive Officer Jane Fraser said mobile apps and consumers’ ability to move millions of dollars with a few clicks of a button mark a sea change for how bankers manage and regulators respond to the risk of bank runs. 

Fraser said the fast demise of Silicon Valley Bank also made it difficult for banks to assess and prepare bids for its assets. Speaking just two weeks after the California-based lender collapsed under the weight of tens of billions of withdrawals by its venture capital clients, Fraser said her firm hopes a buyer will emerge in the coming days.

“It’s a complete game changer from what we’ve seen before,” Fraser said Wednesday in an interview with Carlyle Group Inc. co-founder David Rubenstein at an Economic Club of Washington event. “There were a couple of Tweets and then this thing went down much faster than has happened in history. And frankly I think the regulators did a good job in responding very quickly because normally you have longer to respond to this.”

In the space of just 11 days this month, four banks collapsed, including three regional US lenders and the Swiss financial giant Credit Suisse Group AG. A fifth firm — First Republic Bank — is teetering. Amid the turmoil in global financial markets, stocks have careened wildly and investors have lost billions of dollars.

Citigroup was among 11 banks that joined to provide $30 billion in deposits last week to First Republic, in an effort to shore up the San Francisco-based lender beset by client withdrawals and credit-rating downgrades. Wall Street leaders and US officials are searching for a rescue plan, and are exploring the possibility of government backing to make the firm more attractive to investors or a buyer.

Citigroup isn’t interested in making a bid for First Republic, Fraser said. She declined to comment on the lender’s current state, though she said the company is “actively working through the challenges that they’re facing right now.”

Fraser stressed that the string of bank failures was isolated, noting the biggest US banks remain well capitalized. 

The Banking Crisis Of The Rich

bizjournals  |  UMB Financial Corp. CEO Mariner Kemper said the reason the Mid-Size Bank Coalition of America asked the FDIC to insure all bank deposits for the next two years was to immediately restore confidence in the entire banking system, not just “too big to fail” banks. 

“That’s the request from midsized banks, so that there is no reason for people to see a perceived risk and move their money to somewhere where there is less perceived risk right now,” he said. “I think that ultimately has been the goal of the government, if you go back to the 2008 crisis, to not have a too-big-to-fail outcome.”

Kemper said a temporary unconditional guarantee from the FDIC would create calm and buy time for everyone to talk about what longer-term changes might be necessary.

“Facts and cooler heads need to prevail here,” he said. “We don’t have a fundamental crisis in the banking industry right now. There is no monster under the bed. You can be afraid of your shadow, but it’s still a shadow.”

UMB has a 65% loan-to-deposit ratio, which means the bank has plenty of money for customers if a crisis emerges, Kemper said. UMB knows its clients, and those clients know the bank. Kemper said he has made innumerable calls to clients to answer any questions they may have.

“Half of them are saying thanks for calling, but you didn’t need to,” Kemper said. “The other half are saying thanks for calling, I feel better. Some are telling me they bought stock or put more money into the bank as a show of support. That’s what our community is doing. So I guess what I’d say is it’s not a crisis, so don’t make it one. As the British say, stay calm, and carry on. If everyone just takes a beat and focuses on running their business and paying their bills, getting in their car and going where they need to go just for a few days and takes a deep breath, this thing will all be in the rearview mirror.”

 

The American Political World Revolves Around Banksters And Their Money

realclearwire  |  One thing is clear. At $319 billion and counting, the failures of Silicon Valley Bank and Signature Bank alone in the last two weeks are already on par with the entire 2008 financial crisis, which saw 25 banks failing, with $373 billion in combined assets. And with $620 billion of unrealized losses that triggered this crisis still pending, we may be just getting started.

What path policymakers will choose this time around is unclear. The country has never been more evenly split politically. Meanwhile, the regulatory system has attempted to stem the tide without the involvement of Congress or the White House. A political reconciliation, in other words, has been deferred.

Political issues come and go, but financial panics create political movements because they hit Americans directly, in their bank accounts. Voters pay attention.

The movement that results from this panic will depend ultimately on whom voters blame for it. That scapegoat, whether real or imagined, will determine where on the political spectrum the movement leans.

Many Americans continue to identify government itself as the top non-economic issue they face. Inflation, a problem created by government, is their top economic problem. Most Americans believe the federal government is too big and doing too much. In places like real-life Indiana, Pennsylvania or fictional Beaver Falls, it is abundantly clear that Americans have lost faith in their leading institutions.

“You sit around here and you spin your little webs and you think the whole world revolves around you and your money,” George Bailey tells his antagonist in “It’s a Wonderful Life.”

Bailey was referring to the machinations of a powerful banker, but his words are fitting in an unintended sense, too: in American politics, realignments begin because the world revolves around voters and their money.

What Do Silvergate, SVP, And Signature Bank Have In Common With The Nordstream Pipelines?

Counterpunch  |  The crashes of Silvergate, Silicon Valley Bank, Signature Bank and the related bank insolvencies are much more serious than the 2008-09 crash. The problem at that time was crooked banks making bad mortgage loans. Debtors were unable to pay and were defaulting, and it turned out that the real estate that they had pledged as collateral was fraudulently overvalued, “mark-to-fantasy” junk mortgages made by false valuations of the property’s actual market price and the borrower’s income. Banks sold these loans to institutional buyers such as pension funds, German savings banks and other gullible buyers who had drunk Alan Greenspan’s neoliberal Kool Aid, believing that banks would not cheat them.

Silicon Valley Bank (SVB) investments had no such default risk. The Treasury always can pay, simply by printing money, and the prime long-term mortgages whose packages SVP bought also were solvent. The problem is the financial system itself, or rather, the corner into which the post-Obama Fed has painted the banking system. It cannot escape from its 13 years of Quantitative Easing without reversing the asset-price inflation and causing bonds, stocks and real estate to lower their market value.

In a nutshell, solving the illiquidity crisis of 2009 that saved the banks from losing money (at the cost of burdening the economy with enormous debts), paved away for the deeply systemic illiquidity crisis that is just now becoming clear. I cannot resist that I pointed out its basic dynamics in 2007 (Harpers) and in my 2015 book Killing the Host.

Accounting fictions vs. market reality

No risks of loan default existed for the investments in government securities or packaged long-term mortgages that SVB and other banks have bought. The problem is that the market valuation of these mortgages has fallen as a result of interest rates being jacked up. The interest yield on bonds and mortgages bought a few years ago is much lower than is available on new mortgages and new Treasury notes and bonds. When interest rates rise, these “old securities” fall in price so as to bring their yield to new buyers in line with the Fed’s rising interest rates.

A market valuation problem is not a fraud problem this time around.

The public has just discovered that the statistical picture that banks report about their assets and liabilities does not reflect market reality. Bank accountants are allowed to price their assets at “book value” based on the price that was paid to acquire them – without regard for what these investments are worth today. During the 14-year boom in prices for bonds, stocks and real estate this undervalued the actual gain that banks had made as the Fed lowered interest rates to inflate asset prices. But this Quantitative Easing (QE) ended in 2022 when the Fed began to tighten interest rates in order to slow down wage gains.

When interest rates rise and bond prices fall, stock prices tend to follow. But banks don’t have to mark down the market price of their assets to reflect this decline if they simply hold on to their bonds or packaged mortgages. They only have to reveal the loss in market value if depositors on balance withdraw their money and the bank actually has to sell these assets to raise the cash to pay their depositors.

That is what happened at Silicon Valley Bank. In fact, it has been a problem for the entire U.S. banking system.

SVB Israel Sizzle: OY VEY!!!

Tablet  | So what sort of investments did SVB make that went bad? One type of startup appears to have occupied a large amount of space on the bank’s balance sheet: eco-tech innovators, which traditionally require large upfront investments to get off the ground. According to the bank’s website, more than $3.2 billion of its funds were invested to finance companies in “clean tech, climate tech, and sustainability industry, including solar, wind, battery storage, fuel cell, utility storage and more.” The bank’s investment in such virtuous technologies is so massive that 60% of community solar financing nationwide involves SVB. Just last week, the bank hosted Winterfest, a shindig for the climate-tech sector, at the Lake Tahoe Ritz-Carlton.

In other words, the darling financial institution of the tech industry, which donates heavily and almost exclusively to the Democratic Party, is now bankrupt in part because it spent heavily on the Democratic Party’s pet causes. SVB’s demise was followed at the end of last week by the collapse of New York’s Signature Bank, which had former Democratic regulatory guru Barney Frank on its board, and which famously stepped into the political fray in January 2021 when it cut its long-standing ties with Donald Trump and urged the president to resign.

This may help explain why Democrat-supporting big-time investors are now pressing President Joe Biden to bail out SVB. But as the president announced, he doesn’t need to do almost anything to help the banks that fund his supporters and his party’s ideological agenda: For that, there are bank fees. According to a 2020 survey, bank fees are hitting record highs, with monthly service fees now at $15.50 on average for accounts that don’t meet an ever-increasing minimum monthly balance, now at an all-time high of $7,550.

Let’s put it simply: If you have a million dollars in the bank, you suffer no consequences. If you have $10 in the bank, you have to pay the bank $15 for the privilege of keeping it there, which means you owe the bank $5. Bank fees are among our most shockingly regressive forms of taxation. When the Biden administration promises that there’ll be no bailouts and that no one will lose any money from SVB’s collapse, what they mean is that the bailouts will be paid for by the poor, not by the banks.

What to make of all this? Two immediate lessons come to mind.

First, the collapse of FTX (which gave tens of millions to Democratic Party candidates and causes), SVB, Signature Bank, and the financial institutions that will surely follow isn’t part of some complex financial machination inscrutable to all but the savviest among us. It’s part of the very same rot that has already claimed our universities, our media, and other institutions crucial to the functioning of a civil society.

SVB was the financier of choice of one political party’s donor base. It overwhelmingly paid for projects that fit that party’s agenda. And it employed people who expended a lot of time and energy preaching its gospel: The bank’s head of financial risk management in the U.K., for example, Jay Ersapah, took to the internet enthusiastically to both identify herself as “a queer person of color” and announce that she had helped launch no less than six employee resource groups at SVB, designed to “raise the visibility of multiple dimensions of diversity.” As the saying goes, you get what you paid for.

These ideological convictions aren’t coincidences. They’re requirements. Just as you have to pledge your allegiance to the most woke of persuasions to get tenure, and just as you may no longer be a part of a major American newsroom unless you see yourself as fully committed to seeing virtually any Republican as an enemy of life, liberty, and the pursuit of happiness, you may no longer be a part of the financial system unless you’re ready to support leftist candidates and causes.

The consequences of party control spreading from universities and media to professional organizations and financial institutions are now plain. It’s one thing when the ideological rot on campus leads to a gaggle of law students honking at a circuit judge; it’s another when the same convictions lead investors and regulators to slow-clap as billions vanish from their accounts, knowing that doing so is now a requirement of their jobs, and the costs will be passed on to taxpayers.

The second lesson that may be learned from SVB’s collapse applies only to Israelis, but it’s no less urgent: Sure, the Jewish state’s local customs and arrangements are flawed in many ways, but importing American-style politics and culture, at this particular moment in time, is a very bad idea. America is no longer a liberal bulwark against the storm. It is the storm. Emulating America means more contempt for voters, more erosion of norms in the name of abstract virtue, more mistrust, and, eventually, bankruptcy.

The solutions are simple: Keep politics in the parking lot. Keep banks focused on banking. Bring back trustworthy, nonpartisan regulation—the loss of which, in all fairness, was brought about as much, if not more, by Republicans as it was by Democrats. Resist the whole-of-society blob model you get when a political party merges with the tech industry and federal bureaucracies and leading newspapers and professional organizations and financial institutions and everyone become too big to fail. And realize that what’s true for the richest and most powerful country in history is even more true for Israel, a country where failure would be truly catastrophic—and is always just around the corner.

Uninsured Bank Depositor Bailouts Make A Mockery Of "Too Big To Fail"

 nationalreview |  The 2008 financial collapse and resulting Wall Street bailout popularized the concept of “too big to fail” — the idea that certain institutions were so massive, and so intertwined with the rest of the financial system, that their failure could trigger a complete meltdown of the economy. 

Kinda insane that this entire debacle was potentially caused by @ByrneHobart's newsletter. Here's how the butterfly effect happened.

1) Byrne posts this article/Tweet calling out SVB's risk.
2) Pretty much every VC I know reads this newsletter
3) They all start to pay very,… https://t.co/zUSKF1ZW4J

— Evan Armstrong 📧 (@itsurboyevan) March 11, 2023

While I opposed that bailout on ideological grounds, I at least recognized the tremendous risk that the implosion of the nation’s major investment banks would pose for the broader financial system. But Sunday’s decision by regulators to bail out uninsured depositors of the failed Silicon Valley Bank would dramatically lower the threshold for federal intervention in financial markets. 

To be sure, there are reasons to believe the collapse of SVB carries broader consequences. While the FDIC guarantees deposits up to $250,000, the overwhelming majority of SVB deposits exceeded that amount. It was the bank of choice for many tech start-ups. Without access to their cash, those companies would have difficulty meeting payroll. Additionally, the sudden collapse of SVB could lead companies and individuals who have deposits in other similar financial institutions to withdraw their money starting on Monday, triggering more bank runs, and more bank collapses. 

While regulators are not stepping in to rescue SVB as an institution, the Treasury Department, Federal Reserve, and FDIC have announced that they will make sure that all depositors at SVB as well as another failed institution, Signature Bank, will have access to their money on Monday even if those deposits exceed the $250,000 threshold. In a statement, regulators promise, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”  

Defenders of this decision will try to make it seem as if it’s an extraordinary, one-off decision by regulators, but in practice, it has created a huge moral hazard by signaling that the $250,000 FDIC limit on deposit insurance does not exist in practice. The clear signal it sends is that when financial institutions make poor decisions, the government will swoop in to clean up the mess. There are plenty of ways in which poor decisions made by financial institutions could have larger implications. But in 2008, the justification for intervention was systemic risk. 

This was not a case in which the whole economy would be threatened if an intervention were not taken. There would be disruption to a number of companies in the tech sector and their employees, as well as potential problems for similarly situated financial institutions. But the vast majority of banks are well capitalized right now, and there is no credible risk of this causing a complete financial meltdown. 

In fact, it isn’t even clear that depositors were going to be wiped out, absent federal intervention. When SVB was shut down, it still had real assets that were worth money, which can be sold to pay back investors. Due to poor risk management, what they were not able to do is avoid a panic in which a large number of depositors tried to withdraw their money at the same time, which is what happened last week. Under one estimate from a Jefferies analyst, when liquidated, SVB has the assets to pay off 95 percent of deposits. This is no doubt one reason why regulators are stating so confidently that they don’t expect this to cost taxpayers money. Another reason is that they claim any losses incurred would be repaid by “a special assessment on banks” which will inevitably end up being passed on to their customers. 

Anybody who considers themselves a free-market conservative should be especially concerned about this action. Regardless of the particulars, it will just add to the talking point that when Wall Street or well-connected tech companies are in trouble, the government swoops in to the rescue. And yet lawmakers won’t eliminate student debt, give away free health care, pay for child care, guarantee affordable housing . . . and insert whatever cause you like. If you support socialism for tech companies, don’t be surprised when you get it for everything else.

Bankman Fried (Priceless...,) Tried To Politically Gin Up Central Bank Support For Crypto-Shystery...,

NYTimes | FTX’s founder was called a modern-day J.P. Morgan. The analogy still works. Though one of them failed and the other died rich, both of their careers make the case for central banks.

Mr. Bankman-Fried tried to bail out a couple of smaller failed crypto firms, Voyager Digital and BlockFi Inc., drawing laudatory press that compared him to J.P. Morgan Sr.

The Morgan analogy was repeated this week even after FTX customers withdrew $6 billion in funds in the equivalent of a bank run, forcing FTX to freeze operations and stranding billions in remaining customers’ potentially lost assets.

For all of the obvious ways in which Mr. Bankman-Fried is no Pierpont Morgan, a model of discretion whose namesake firm continues to be solvent to this day, on one point they have something in common: Their careers demonstrate a need for central banks.

Morgan earned his reputation as a private rescuer in 1907, when a bank run struck the trusts (banklike associations) in New York City and then spread to traditional banks. Morgan assembled the city’s leading financiers to lend emergency funds and ease the panic.

His heroism slowed the bleeding — but some banks failed, many suspended withdrawals and scores resorted to dispensing homemade certificates in lieu of money. As each bank hoarded reserves to save itself, the stock market plunged 40 percent and the country suffered a severe recession.

Morgan’s inadequacy made plain that the United States, already an industrial powerhouse, could not depend on the benevolence of a single financier. Precisely for this reason, Nelson Aldrich, a powerful senator with close ties to Morgan, led a mission to Europe in 1908 to study the workings of the central banks in England, France and Germany.

Two years later, a group of bankers, including a senior partner of Morgan’s, the president of its rival National City Bank, and the central banking crusader Paul Warburg, gathered at Morgan’s exclusive club on Jekyll Island, off the coast of Georgia. Meeting in secret, they plotted the outline of what Americans had resisted since Andrew Jackson’s day — a central bank. The Federal Reserve was born three years later, in 1913.

This week, The Wall Street Journal’s James Mackintosh opined, “The fundamental flaw of centralized finance is that it needs central banks to end chaotic bank runs …” This is like saying that the flaw with owning a home is that one may need the fire department.

Any monetary instrument is a form of credit, and credit will always involve risk. Mr. Bankman-Fried discovered that. His putative savior, a crypto exchange known as Binance, backed out 24 hours after it had tentatively agreed to a rescue. On Friday, FTX filed for bankruptcy. Yet had the rescue deal gone through, Binance would have been on the hook for, reportedly, up to $8 billion in claims against FTX. Who would have come to the rescue of Binance?

The point of a central reserve, which is what Paul Warburg and Nelson Aldrich had in mind in 1913, is that the pooled resources of the nation are immeasurably greater than those of any single mogul. They offer, in times of need, an ocean of liquidity to iron out the inevitable fluctuations in individual, regional, and industry-specific credit. Would anyone in their right mind wish to entrust the nation to crypto — and trade the imperfect Fed for the likes of FTX and Binance?

 

 

 

Finance Won The Darwinian Struggle On The Corporatist Evolutionary Threshing Floor

theatlantic |  Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

The Untouchable Bill Browder REDUX (Originally Posted 7/23/18)

unz  |  What makes Browder so powerful? He invests in politicians. This is probably a uniquely Jewish quality: Jews outspend everybody in contributions to political figures. The Arabs will spend more on horses and jets, the Russians prefer real estate, the Jews like politicians. The Russian NTV channel reported that Browder lavishly financed the US lawmakers. Here they present alleged evidence of money transfers: some hundred thousand dollars was given by Browder’s structures officially to the senators and congressmen in order to promote the Magnitsky Act.

Much bigger sums were transferred via good services of Brothers Ziff, mega-rich Jewish American businessmen, said the researchers in two articles published on the Veteran News Network and in The Huffington Post.

These two articles were taken off the sites very fast under pressure of Browder’s lawyers, but they are available in the cache. They disclose the chief beneficiary of Browder’s generosity. This is Senator Ben Cardin, a Democrat from Maryland. He was the engine behind Magnitsky Act legislation to such an extent that the Act has been often called the Cardin List. Cardin is a fervent supporter of Hillary Clinton, also a cold warrior of good standing. More to a point, Cardin is a prominent member of Israel Lobby.

LinkBookmarkBrowder affair is a heady upper-class Jewish cocktail of money, spies, politicians and international crime. Almost all involved figures appear to be Jewish, not only Browder, Brothers Ziff and Ben Cardin. Even his enemy, the beneficiary of the scam that (according to Browder) took over his Russian assets is another Jewish businessman Dennis Katsiv (he had been partly exonerated by a New York court as is well described in this thoughtful piece).

Browder began his way to riches under the patronage of a very rich and very crooked Robert Maxwell, a Czech-born Jewish businessman who assumed a Scots name. Maxwell stole a few million dollars from his company pension fund before dying in mysterious circumstances on board of his yacht in the Atlantic. It was claimed by a member of Israeli Military Intelligence, Ari Ben Menashe, that Maxwell had been a Mossad agent for years, and he also said Maxwell tipped the Israelis about Israeli whistle-blower Mordecai Vanunu. Vanunu was kidnapped and spent many years in Israeli jails.

Geoffrey Goodman wrote Maxwell “was almost certainly being used as – and using himself as – a two-way intelligence conduit [between East and West]. This arrangement included passing intelligence to the Israeli secret forces with whom he became increasingly involved towards the end of his life.”

After Maxwell, Browder switched allegiance to Edmond Safra, a very rich Jewish banker of Lebanese origin, who also played East vs West. Safra provided him with working capital for his investment fund. Safra’s bank has been the unlikely place where the IMF loan of four billion dollars to Russia had been transferred—and disappeared. The Russian authorities say that Browder has been involved in this “crime of the century,” next to Safra. The banker’s name has been connected to Mossad: increasingly fearful for his life, Safra surrounded himself by Mossad-trained gunmen. This did not help him: he died a horrible death in his bathroom when his villa was torched by one of the guards.

The third Jewish oligarch on Browder’s way was Boris Berezovsky, the king-maker of Yeltsin’s Russia. He also died in his bathroom (which seems to be a constant feature); apparently he committed suicide. Berezovsky had been a politically active man; he supported every anti-Putin force in Russia. However, a few months before his death, he asked for permission to return to Russia, and some negotiations went on between him and Russian authorities.

His chief of security Sergey Sokolov came to Russia and purportedly brought with him some documents his late master prepared for his return. These documents allege that Browder had been an agent of Western intelligence services, of the CIA to begin with, and of MI6 in following years. He was given a code name Solomon, as he worked for Salomon Brothers. His financial activity was just a cover for his true intentions, that is to collect political and economic data on Russia, and to carry out economic war on Russia. This revelation has been made in the Russia-1 TV channel documentary Browder Effect, (broadcasted 13.04.2016), asserting that Browder was not after money at all, and his activities in Russia, beside being very profitable, had a political angle.

The documents had been doubted for some linguistic reasons discussed by Gilbert Doctorow who comes to a reasonable conclusion: “Bill Browder[‘s]… intensity and the time he was devoting to anti-Russian sanctions in Europe was in no way comparable to the behaviour of a top level international businessman. It was clear to me that some other game was in play. But at the time, no one could stand up and suggest the man was a fraud, an operative of the intelligence agencies. Whatever the final verdict may be on the documents presented by the film “The Browder Effect,” it raises questions about Browder that should have been asked years ago in mainstream Western media if journalists were paying attention. Yevgeny Popov deserves credit for highlighting those questions, even if his documents demand further investigation before we come to definitive answers”.

We do not know whether Browder is, or had been, a spy. This should not surprise us, as he was closely connected to Maxwell, Safra and Berezovsky, the financiers with strong ties in the intelligence community.

Perhaps he outlived his usefulness, Mr Browder did. He started the Cold war, now is the time to keep it in its healthy limits and to avoid a nuclear disaster or rapid armaments race. This is the task we may hope will be entertained by the next US President, Mr Donald Trump.

 

Are Russian Sanctions An Apocalyptic Self-Own? (The Black Horse...,)

strategic-culture |  In its triple strike of sanctions on Russia, the EU initially was not looking to collapse the Russian financial system. Far from it: Its first instinct was to find the means to continue purchasing its energy needs (made all there more vital by the state of the European gas reserves hovering close to zero). Purchases of energy, special metals, rare earths (all needed for high tech manufacture) and agricultural products were to be exempted. In short, at first brush, the sinews of the global financial system were intended to remain intact.

The main target rather, was to block the core to the Russian financial system’s ability to raise capital – supplemented by specific sanctions on Alrosa, a major player in the diamond market, and Sovcomflot, a tanker fleet operator.

Then, last Saturday morning (26 February) everything changed. It became a blitzkrieg: “We’re waging an all-out economic and financial war on Russia. We will cause the collapse of the Russian economy”, said the French Finance Minister, Le Maire (words, he later said, he regretted).

That Saturday, the EU, the U.S. and some allies acted to freeze the Russian Central Bank’s foreign exchange reserves held overseas. And certain Russian banks (in the end seven) were to be expelled from SWIFT financial messaging service. The intent was openly admitted in an U.S. unattributable briefing: It was to trigger a ‘bear raid’ (ie. an orchestrated mass selling) of the Rouble on the following Monday that would collapse the value of the currency.

The purpose to freezing the Central Bank’s reserves was two-fold: First, to prevent the Bank from supporting the Rouble. And secondly, to create a commercial bank liquidity scarcity inside Russia to feed into a concerted campaign over that weekend to scare Russians into believing that some domestic banks might fail – thus prompting a rush at the ATMs, and start a bank-run, in other words.

More than two decades ago, in August 1998, Russia defaulted on its debt and devalued the Rouble, sparking a political crisis that culminated with Vladimir Putin replacing Boris Yeltsin. In 2014, there was a similar U.S. attempt to crash the Rouble through sanctions and by engineering (with Saudi Arabian help) a 41% drop in oil prices by January 2015.

Plainly, last Saturday morning when Ursula von der Leyen announced that ‘selected’ Russian banks would be expelled from SWIFT and the international financial messaging system; and spelled out the near unprecedented Russian Central Bank reserve freeze, we were witnessing the repeat of 1998. The collapse of the economy (as Le Maire said), a run on the domestic banks and the prospect of soaring inflation. This combination was expected to conflate into a political crisis – albeit one intended, this time, to see Putin replaced, vice Yeltsin – aka regime change in Russia, as a senior U.S. think-tanker proposed this week.

In the end, the Rouble fell, but it did not collapse. The Russian currency rather, after an initial drop, recovered about half its early fall. Russians did queue at their ATMs on Monday, but a full run on the retail banks did not materialise. It was ‘managed’ by Moscow.

What occurred on that Saturday which prompted the EU switch from moderate sanctions to become a full participant in a financial war à outrance on Russia is not clear: It may have resulted from intense U.S. pressure, or it came from within, as Germany seized an opportune alibi to put itself back on the path of militarisation for the third time in the past several decades: To re-configure Germany as a major military power, a forceful participant in global politics.

And that – very simply – could not have been possible without tacit U.S. encouragement.

Ambassador Bhadrakumar notes that the underlying shifts made manifest by von der Leyen on Saturday “herald a profound shift in European politics. It is tempting, but ultimately futile, to contextually place this shift as a reaction to the Russian decision to launch military operations in Ukraine. The pretext only provides the alibi, whilst the shift is anchored on power play and has a dynamic of its own”. He continues,

“Without doubt, the three developments — Germany’s decision to step up its militarisation [spending an additional euro100 billion]; the EU decision to finance arms supplies to Ukraine, and Germany’s historic decision to reverse its policy not to supply weapons to conflict zones — mark a radical departure in European politics since World War II. The thinking toward a military build-up, the need for Germany to be a “forceful” participant in global politics and the jettisoning of its guilt complex and get “combat ready” — all these by far predate the current situation around Ukraine”.

The von der Leyen intervention may have been opportunism, driven by a resurgence of SPD German ambition (and perhaps by her own animus towards Russia, stemming from her family connection to the SS German capture of Kiev), yet its consequences are likely profound.

Just to be clear, on one Saturday, von der Leyen pulled the switch to turn off principal parts to Global financial functioning: blocking interbank messaging, confiscating foreign exchange reserves and the cutting the sinews of trade. Ostensibly this ‘burning’ of global structures is being done (like the burning of villages in Vietnam) to ‘save’ the liberal Order.

However, this must be taken in tandem with Germany’s and the EU decision to supply weapons (to not just any old ‘conflict zone’) but specifically to forces fighting Russian troops in Ukraine. The ‘Kick Ass’ parts to those Ukrainian forces ‘resisting’ Russia are neo-Nazi forces with a long history of committing atrocities against the Russian-speaking Ukrainian peoples. Germany will be joining with the U.S. in training these Nazi elements in Poland. The CIA has been doing such since 2015. (So, as Russia tries to de-Nazify Ukraine, Germany and the EU are encouraging European volunteers to join in a U.S.-led effort to use Nazi elements to resist Russia, just as in the way Jihadists were trained to resist Russia in Syria).

What a paradox! Effectively von der Leyen is overseeing the building of an EU ‘Berlin Wall’ – albeit with its purpose inverted now – to separate the EU from Russia. And to complete the parallel, she even announced that Russia Today and Sputnik broadcasts would be banned across the EU. Europeans can be allowed only to hear authorised EU messaging – (however, a week into the Russian invasion, cracks are appearing in this tightly-controlled western narrative – “Putin is NOT crazy and the Russian invasion is NOT failing”, warns a leading U.S. military analyst in the Daily Mail. Simply “[b]elieving Russia’s assault is going poorly may make us feel better but is at odds with the facts”, Roggio writes. “We cannot help Ukraine if we cannot be honest about its predicament”).

So Biden, finally, has his foreign policy ‘success’: Europe is walling itself off from Russia, China, and the emerging integrated Asian market. It has sanctioned itself from ‘dependency’ on Russian natural gas (without prospect of any immediate alternatives) and it has thrown itself in with the Biden project. Next up, the EU pivot to sanctioning China?