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TRILATERAL COMMISSION INFLUENCE IN THE EUROZONE
Patrick Wood
http://www.augustforecast.com/2011/11/11...-eurozone/

Speaking of his Tri­lat­eral Commission’s influ­ence in the orig­inal cre­ation of the Euro­pean Union, David Rock­e­feller wrote in 1998,

“Back in the early Sev­en­ties, the hope for a more united EUROPE was already full-blown – thanks in many ways to the indi­vidual ener­gies pre­vi­ously spent by so many of the Tri­lat­eral Commission’s ear­liest mem­bers.” [Cap­i­tals in orig­inal] (Rock­e­feller, David; In the Begin­ning; The Tri­lat­eral Com­mis­sion at 25, 1998, p.11)

Some argued that “that was then and this is now,” and that the Commission’s influ­ence had waned with the passing of the older generation.

Non­sense. It was Tri­lat­eral Com­mis­sioner Vallery d’Estaing who authored the EU’s Con­sti­tu­tion in 2002 – 2003 when he was Pres­i­dent of the Con­ven­tion on the Future of Europe.

On November 10, 2011, Robert Wenzel, Editor & Pub­lisher of the Eco­nomic Policy Journal, wrote the fol­lowing short report:

And the Big Time Banksters Come Marching In
“Here’s what you need to know about the cur­rent crisis in the Euro­zone. The big time banksters are get­ting direct hands on control:

“Mario Drgahi has become pres­i­dent of the Euro­pean Cen­tral Bank as of November 1. He was vice chairman and man­aging director of Goldman Sachs Inter­na­tional and a member of the firm-wide man­age­ment com­mittee. He was the Italian Exec­u­tive Director at the World Bank. He has been a Fellow of the Insti­tute of Pol­i­tics at the John F. Kennedy School of Gov­ern­ment, Har­vard University.

“Lucas Papademos takes over today as Prime Min­ister of Greece. He was an econ­o­mist at the Fed­eral Reserve Bank of Boston. He was a vis­iting pro­fessor of public policy at the Kennedy School of Gov­ern­ment at Har­vard Uni­ver­sity. And, he was pre­vi­ously a vice pres­i­dent of the Euro­pean Cen­tral Bank. He has been a member of the Tri­lat­eral Com­mis­sion since 1998.

“Indi­ca­tions are that Mario Monti will suc­ceed Silvio Berlus­coni as prime min­ister of Italy, within in days. Monti com­pleted grad­uate studies at Yale Uni­ver­sity, where he studied under James Tobin (see the Tobin Tax). He is a member of the Euro­pean Com­mis­sion. He is Euro­pean Chairman of the Tri­lat­eral Com­mis­sion and and member of the Bilder­berg Group.

“If you get the sense that the elitist banksters are going to take this finan­cial crisis and push it in what­ever direc­tion they want, you are prob­ably very right.”

As you can see, little has changed since 1973, and the same Tri­lat­eral Com­mis­sion mem­ber­ship keeps pop­ping up in the most hal­lowed posi­tions of power and influ­ence. The Commission’s defense is that it was simply coin­ci­dental for their mem­bers to be picked for var­ious high-level posi­tions because of their supe­rior tal­ents and abil­i­ties. This is not hearsay: I have had this spoken directly to me by mem­bers of the Commission.

Con­sid­ering that the mem­ber­ship hovers around 300 – 350 at any given time, it is sta­tis­ti­cally impos­sible that they could have been ran­domly picked at such a high fre­quency over such a long period of time. In the U.S. alone since 1973, Com­mis­sion mem­bers held

8 out of 10 U.S. Trade Rep­re­sen­ta­tive appointments
6 our of 8 World Bank presidencies
6 out of 7 President/Vice Pres­i­dent elections

Could any sane person think that they Tri­lat­erals just stum­bled into all of these posi­tions? Of course not.

The his­tor­ical evi­dence declares that the Tri­lat­eral Com­mis­sion hijacked the global polit­ical system for the exact pur­poses it stated in 1973. That is, to “foster a New Inter­na­tional Eco­nomic Order.”

Just who rules the world economy?
When Antony Sutton and myself studied the Tri­lat­eral Com­mis­sion in 1978, one ana­lyt­ical tech­nique we used was a deriv­a­tive of soci­ology called “net­work topology.” We assem­bled names of direc­tors, exec­u­tives and major share­holders of com­pa­nies asso­ci­ated with the Tri­lat­erals and then dia­grammed them to show over­laps and other non-obvious asso­ci­a­tions. Our results were stun­ning. We found a tight inter­locking net­work that was far stronger than a bunch of inde­pen­dent com­pa­nies. In graph­ical form, the net­work was clearly vis­ible. (See Tri­lat­erals Over Wash­ington, Volume I)

Recently, three researchers in Switzer­land (S. Vitali, J.B. Glat­tfelder, and S. Bat­tiston) have released a sim­ilar and modern study called “The net­work of global cor­po­rate con­trol.” In the abstract they state,

“We find that transna­tional cor­po­ra­tions form a giant bow-tie struc­ture and that a large por­tion of con­trol flows to a small tightly-knit core of finan­cial insti­tu­tions. This core can be seen as an eco­nomic “super-entity” that raises new impor­tant issues both for researchers and policy makers.”

This is an under­state­ment. In Table S1 buried in the appendix, they list the “top 50 control-holders,” where share­holders are ranked according to their level of net­work con­trol. These are the com­pa­nies who com­prise the inner-core of global control.

Of the 50 com­pa­nies, 45 are banks, insur­ance or other finan­cial insti­tu­tions. From the U.S. we see the usual: State Street, JP Morgan Chase, B of A, Goldman Sachs, Morgan Stanley and others.

In short, this core of banks/financials are the real rulers of the world economy. There is no spec­u­la­tion here: This is hard and com­pelling evidence.

This is also the exact same con­clu­sion that Sutton and I reached in 1978 with more rudi­men­tary, non-computerized analysis.

The report concludes,

“This is the first time a ranking of eco­nomic actors by global con­trol is pre­sented. Notice that many actors belong to the finan­cial sector (NACE codes starting with 65,66,67) and many of the names are well-known global players. The interest of this ranking is not that it exposes unsus­pected pow­erful players. Instead, it shows that many of the top actors belong to the core. This means that they do not carry out their busi­ness in iso­la­tion but, on the con­trary, they are tied together in an extremely entan­gled web of con­trol. This finding is extremely impor­tant since there was no prior eco­nomic theory or empir­ical evi­dence regarding whether and how top players are con­nected. Finally, it should be noted that gov­ern­ments and nat­ural per­sons are only fea­tured fur­ther down in the list.” [emphasis added]


Zbig­niew Brzezinski, co-founder of the Tri­lat­eral Com­mis­sion with David Rock­e­feller in 1973, summed up the “net­work” in his 1970 Between Two Ages: America’s Role in the Tech­netronic Era:

“The nation-­state as a fun­da­mental unit of man’s orga­nized life has ceased to be the prin­cipal cre­ative force: Inter­na­tional banks and multi­na­tional cor­po­ra­tions are acting and plan­ning in terms that are far in advance of the polit­ical con­cepts of the nation-state.” [emphasis added]


Unfor­tu­nately, this is the reality of the matter. With inter­na­tional banks at the center and var­ious multi­na­tional com­pa­nies in the periphery, the net­work con­tinues to dom­i­nate and con­trol the course of world events. The cit­i­zens of the respec­tive coun­tries are little more than objects to be taxed and manipulated.

In Europe, the finan­cial demise of Italy and Greece threatens to melt down the Euro­pean region, if not the entire global economy. That Tri­lat­eral bankers Papademos and Monti, respec­tively, would take the helm as Prime Min­ister of their own nation-state should be likened to be a receiver­ship move designed to pro­tect the assets of the banks (the “Net­work”) they rep­re­sent. If nothing else, it cer­tainly shows that the Tri­lat­eral hege­mony over Europe is alive and well.

Until this hege­mony is somehow dis­solved, the game of national polit­ical elec­tions (In the U.S. or Europe) is largely an exer­cise in futility. Elec­tors are simply deceived when they fail to rec­og­nize and address the real power behind the political/economic system.

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HOW GOLDMAN SACHS PUMPED AND DUMPED THE US ECONOMY

http://nikkialexander.wordpress.com/goldman-sachs
Matt Taibbi Rolling Stone magazine    

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent, financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who’s Who of Goldman Sachs graduates. By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup – which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York – which, incidentally, is now in charge of overseeing Goldman – not to mention … But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything.

What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain – an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy. The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere – high gas prices, rising consumer-credit rates, half eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth – pure profit for rich individuals. They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s – and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet. If you want to understand how we got into this financial crisis, you have to first understand where all the money went – and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long – including last year’s strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn’t one of them.

Bubble #1: The Great Depression GOLDMAN WASN’T ALWAYS A TOO-BIG-TO-FAIL Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids – just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan. You can probably guess the basic plotline of Goldman’s first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there’s really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s. This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an “investment trust.” Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game. Beginning a pattern that would repeat itself over and over again, Goldman got into the investment trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund – which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah – which, of course, was in large part owned by Goldman Trading. The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn’t hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred. In a chapter from The Great Crash, 1929 titled “In Goldman Sachs We Trust,” the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market’s historic crash; in today’s dollars, the losses the bank suffered totaled $475 billion. “It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity,” Galbraith observed, sounding like Keith Olbermann in an ascot. “If there must be madness, something may be said for having it on a heroic scale.”


Bubble #2: Tech Stocks Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country’s wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor’s assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street. It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm’s mantra, “long-term greedy.” One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. “We gave back money to ‘grownup’ corporate clients who had made bad deals with us,” he says. “Everything we did was legal and fair – but ‘long-term greedy’ said we didn’t want to make such a profit at the clients’ collective expense that we spoiled the marketplace.” But then, something happened. It’s hard to say what it was exactly; it might have been the fact that Goldman’s co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind. Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliché that whatever Rubin thought was best for the economy – a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And “what Rubin thought,” mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy – beginning with Rubin’s complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits. The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than pot-fueled ideas scrawled on napkins by up-too-late bong smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement. It sounds obvious now, but what the average investor didn’t know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system – one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman’s later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry’s standards of quality control. “Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public,” says one prominent hedge-fund manager. “The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash.” Goldman completed the snow job by pumping up the sham stocks: “Their analysts were out there saying Bullshit.com is worth $100 a share.” The problem was, nobody told investors that the rules had changed. “Everyone on the inside knew,” the manager says. “Bob Rubin sure as hell knew what the underwriting standards were. They’d been intact since the 1930s.” Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. “In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future.” Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent. How did Goldman achieve such extraordinary results? One answer is that they used a practice called “laddering,” which is just a fancy way of saying they manipulated the share price of new offerings. Here’s how it works: Say you’re Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You’ll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a “road show” to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price – let’s say Bullshit.com’s starting share price is $15 – in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO’s future, knowledge that wasn’t disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company’s price, which of course was to the bank’s benefit – a six percent fee of a $500 million IPO is serious money. Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager overcame & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman. “Goldman, from what I witnessed, they were the worst perpetrator,” Maier said. “They totally fueled the bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation – manipulated up and ultimately, it really was the small person who ended up buying in.” In 2005, Goldman agreed to pay $40 million for its laddering violations – a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.) Another practice Goldman engaged in during the Internet boom was “spinning,” better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price – ensuring that those “hot” opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business effectively robbing all of Bullshit’s new shareholders by diverting cash that should have gone to the company’s bottom line into the private bank account of the company’s CEO. In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman’s board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age – ‘!Yeo’s Dennis Kozlowski and Enron’s Ken Lay. Goldman angrily denounced the report as “an egregious distortion of the facts” – shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. “The spinning of hot IPO shares was not a harmless corporate perk,” then-attorney general Eliot Spitzer said at the time. “Instead, it was an integral part of a fraudulent scheme to win new investment-banking business.” Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn’t the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater. Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits – an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman’s mantra of “long-term greedy” vanished into thin air as the game became about getting your check before the melon hit the pavement. The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else’s Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state offenders. (One of the truly comic moments in the history of America’s recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that “I’ve never even heard the term ‘laddering’ before.”) For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent – they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

Bubble #3: The Housing Craze Goldman’s role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of’10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar. None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con’s mortgage on its books, knowing how likely it was to fail. You can’t write these mortgages, in other words, unless you can sell them to someone who doesn’t know what they are. Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance – known as credit-default swaps – on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won’t. There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated – and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses. More regulation wasn’t exactly what Goldman had in mind. “The banks go crazy – they want it stopped,” says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. “Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped.” Clinton’s reigning economic foursome – “especially Rubin,” according to Greenberger – called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity. But the story didn’t end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities – a third of which were subprime – much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap. Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation – no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody’s and Standard & Poor’s, rated 93 percent of the issue as investment grade. Moody’s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months. Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners – old people, for God’s sake – pretending the whole time that it wasn’t grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. “The mortgage sector continues to be challenged,” David Viniar, the bank’s chief financial officer, boasted in 2007. ”As a result, we took significant markdowns on our long inventory positions…. However, our risk bias in that market was to be short, and that net short position was profitable.” In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages. “That’s how audacious these assholes are,” says one hedge-fund manager. ”At least with other banks, you could say that they were just dumb – they believed what they were selling, and it blew them up. Goldman knew what it was doing.” I ask the manager how it could be that selling something to customers that you’re actually betting against – particularly when you know more about the weaknesses of those products than the customer – doesn’t amount to securities fraud. “It’s exactly securities fraud,” he says. “It’s the heart of securities fraud.” Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million – about what the bank’s CDO division made in a day and a half during the real estate boom. The effects of the housing bubble are well known – it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him payoff those same bets. And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm’s payroll jumped to $16.5 billion – an average of $622,000 per employee. As a Goldman spokesman explained, “We work very hard here.” But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down – and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

Bubble #4: $4 a Gallon By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn’t leave much to sell that wasn’t tainted. The terms junk bond, IPG, subprime mortgage and other once-hot financial fare were now firmly associated in the public’s mind with scams; the terms credit swaps and CDGs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years – the notion that housing prices never go down – was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling. Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market – stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a “flight to commodities.” Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of2007 to a high of $147 in the summer of 2008. That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be “very helpful in the short term,” while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out. But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling – which, in classic economic terms, should have brought prices at the pump down. So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help – there were other players in the physical-commodities market – but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures – agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed. As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a “traditional speculator,” who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops. In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission – the very same body that would later try and fail to regulate credit swaps – to place limits on speculative trades in commodities. As a result of the CFTC’s oversight, peace and harmony reigned in the commodities markets for more than 50 years. All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren’t the only ones who needed to hedge their risk against future price drops – Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too. This was complete and utter crap – the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman’s argument. It issued the bank a free pass, called the “Bona Fide Hedging” exemption, allowing Goldman’s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies. Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market – driven there by fear of the falling dollar and the housing crash – finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers – and that’s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump. What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. “I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC,” says Greenberger, “and neither of us knew this letter was out there.” In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions. “I had been invited to a briefing the commission was holding on energy,” the staffer recounts. And suddenly in the middle of it, they start saying, ‘Yeah, we’ve been issuing these letters for years now.’ I raised my hand and said, ‘Really? You issued a letter? Can I see it?’ And they were like, ‘Duh, duh.’ So we went back and forth, and finally they said, ‘We have to clear it with Goldman Sachs.’ I’m like, ‘What do you mean, you have to clear it with Goldman Sachs?’” The CFTC cited a rule that prohibited it from releasing any information about a company’s current position in the market. But the staffer’s request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman’s current position. What’s more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman’s capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over. Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index –which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil – became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly “long only” bettors, who seldom if ever take short positions – meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it’s terrible for commodities, because it continually forces prices upward. “If index speculators took short positions as well as long ones, you’d see them pushing prices both up and down,” says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. “But they only push prices in one direction: up.” Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an “oracle of oil” by The New York Times, predicted a “super spike” in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities- trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn’t know when oil prices would fall until we knew “when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives.” But it wasn’t the consumption of real oil that was driving up prices – it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices. In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees’ Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn’t just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World. Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. “The highest supply of oil in the last 20 years is now,” says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. “Demand is at a 10-year low. And yet prices are up.” Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. “I think they just don’t understand the problem very well,” he says. ”You can’t explain it in 30 seconds, so politicians ignore it.”

Bubble #5: Rigging the Bailout After the oil bubble collapsed last fall, there was no new bubble to keep things humming – this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle. It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bailout quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers – one of Goldman’s last real competitors – collapse without intervention. (“Goldman’s superhero status was left intact,” says market analyst Eric Salzman, “and an investment-banking competitor, Lehman, goes away.”) The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed. Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding – most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs – and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret. Converting to a bank-holding company has other benefits as well: Goldman’s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman – New York Fed president William Dudley- is yet another former Goldmanite. The collective message of all this – the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds – is that when it comes to Goldman Sachs, there isn’t a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege.
“In the past it was an implicit advantage,” says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. “Now it’s more of an explicit advantage.” Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 – with its $1.3 billion in pretax losses – off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 – which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. “They cooked those first-quarter results six ways from Sunday,” says one hedge-fund manager. “They hid the losses in the orphan month and called the bailout money profit.” Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout. Even more amazing, Goldman did it all right before the government announced the results of its new “stress test” for banks seeking to repay TARP money – suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn’t pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. “They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after,” says Michael Hecht, a managing director of JMP Securities. “The government came out and said, ‘To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC – which Goldman Sachs had already done, a week or two before.” And here’s the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ” after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman-Sachs give back to the people of the United States in 2008? Fourteen million dollars. That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion – yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year. How is this possible? According to Goldman’s annual report, the low taxes are due in large part to changes in the bank’s “geographic earnings mix.” In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all. This should be a pitchfork-level outrage – but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. “With the right hand out begging for bailout money,” he said, “the left is hiding it offshore.”


Bubble #6: Global Warming Fast-forward to today. It’s early June in Washington DC. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs – its employees paid some $981,000 to his campaign – sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs. Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm’s co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits – a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance. Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon offsets will be auctioned in the first seventy years – one of his top economic aides speculates that the real number might be twice or even three times that amount. The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price overtime. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion. Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm shifting legislation, (2) make sure that they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson’s report argued that “voluntary action alone cannot solve the climate-change problem”. A few years later, the bank’s carbon chief, Ken Newcombe, insisted that cap-and-trade alone won’t be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, “We’re not making those investments to lose money.” The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market? “Oh, it’ll dwarf it,” says a former staffer on the House energy committee. Well, you might say, who cares? If cap-and-trade succeeds, won’t we all be saved from the catastrophe of global warming? Maybe but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it’s even collected. “If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.” Cap-and-trade is going to happen. Or, if it doesn’t, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees – while the actual victims in this mess, ordinary taxpayers, are the ones paying for it. It’s not always easy to accept the reality of what we now routinely allow these people to get away with; there’s a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can’t really register the fact that you’re no longer a citizen of a thriving first-world democracy, that you’re no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there. But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.

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A SECRETIVE BANKING ELITE RULES TRADING IN DERIVATIVES
http://www.WantToKnow.info/banking_finan..._financial


According to many top financial analysts and the revealing news articles below, the $700 trillion financial derivatives market may be a time bomb waiting to explode with catastrophic consequences. $700 trillion is more than 10 times the GDP of the entire world and equivalent to $100,000 for each of the 7 billion inhabitants of our planet. These financial instruments have a legitimate place in hedging risk, yet the recent explosion of growth in the global derivatives market has created a huge potential for massive instability.

According to the most recent report from the U.S. government's Office of the Comptroller of the Currency (OCC), the total value of derivatives has increased approximately 1000% since 1996, and 250% since 2006 (see graph on page 12 of the OCC report). Derivatives continued their rapid climb even in the midst of the global recession that started in 2008. Most disturbing is the fact that 95% of all U.S. derivatives are monopolized by just five megabanks and their holding companies.

The below verbatim excerpts from major media and government reports speak for themselves. What they don't mention is one simple measure which could greatly decrease the risk of the derivatives bubble bursting.

A simple tax of 0.25% (1/4 of 1%) on each speculative financial transaction would change the whole risky game. European citizens pay a value added tax (VAT) of 15% or more and most U.S. citizens pay a state sales tax of up to 13% on purchased goods. So why not add just a small tax on all speculative transactions? This would also net hundreds of billions of dollars in tax receipts, easing the growing world debt.

Thankfully, politicians are slowly becoming aware of the huge risk of the derivatives bubble and are taking steps in the right direction, but there is a long way still to go. And the financial speculation tax has yet to gain traction. By choosing to educate ourselves and spread the word on this vital issue, we can make a difference. For concrete ideas on how you can play a part, see the "What you can do" box below the article summaries.

With best wishes for greater financial integrity,

Note: For those who would like a simple explanation and very brief history of derivatives, click here.


A Secretive Banking Elite Rules Trading in Derivatives
December 12, 2010, New York Times
http://www.nytimes.com/2010/12/12/busine...ntage.html

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential. Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks. The banks in this group ... have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available. Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.

Note: To explore highly revealing news articles on the powerful secret societies which without doubt back these top bankers, click here.


OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Third Quarter 2011
December 2011, OCC (U.S. Office of the Comptroller of the Currency, Administrator of National Banks)
http://www.occ.gov/topics/capital-market.../derivativ...

The OCC’s quarterly report on trading revenues and bank derivatives activities is based on Call Report information provided by all insured U.S. commercial banks and trust companies, reports filed by U.S. financial holding companies, and other published data. The notional amount of derivatives held by insured U.S. commercial banks decreased $1.4 trillion, or 0.6%, from the second quarter of 2011 to $248 trillion. Notional derivatives are 5.7% higher than at the same time last year. Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. The five banks with the most derivatives activity hold 96% of all derivatives. Insured commercial banks have more limited legal authorities than do their holding companies.

Note: Graphs in this OCC report (pg. 25 & 26) show that five U.S. banks, JPMorgan Chase, Citibank, BofA, Goldman Sachs, and Morgan Stanley, hold $235 of the $248 trillion above, while their holding companies control an additional $311 of the $326 trillion in derivatives held by holding companies. So these five banks and their holding companies combined hold $546 trillion in derivatives, 95% of the U.S. derivatives market, nearly 80% of the global market, and equivalent to over $75,000 for every person on the planet. If the above link fails, click here. For quarterly derivative reports by the OCC going back to 1995, click here.

The $700 trillion elephant
March 6, 2009, MarketWatch (Wall Street Journal Digital Network)
http://www.marketwatch.com/news/story/Th...m/story.as...

There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy. Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth. But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world. Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion. Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges. To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values. Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade."

Note: The GDP of the entire world is estimated at around $60 trillion. Banks and financial firms deemed "too big to fail" were bailed out worldwide at taxpayers' expense. But what will happen if losses in the derivatives market skyrocket? No government in the world has the resources to save financial corporations from a collapse in their derivatives trading. For a treasure trove of reports from reliable sources detailing the amazing control of major banks over government and society, click here.



OTC derivatives market activity in the first half of 2011
November 16, 2011, Bank for International Settlements (Intergovernmental organization of central banks)
http://www.bis.org/press/p111116a.htm

After an increase of only 3% in the second half of 2010, total notional amounts outstanding of over-the-counter (OTC) derivatives rose by 18% in the first half of 2011, reaching $708 trillion by the end of June 2011.

Note: The Bank for International Settlements (BIS) is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks." It is not accountable to any national government. Their accounting shows a total global derivatives market controlled by the banks of over $700 trillion. That's $100,000 for every man, woman, and child on the planet. As reported in Reuters, the derivatives market is largely unregulated. Do you think there is any manipulation going on here? BIS helps the bankers to work together to keep their hidden power.


Buffett warns on investment 'time bomb'
March 4, 2003, BBC News
http://news.bbc.co.uk/2/hi/2817995.stm

The rapidly growing trade in derivatives poses a "mega-catastrophic risk" for the economy and most shares are still "too expensive", ... investor Warren Buffett has warned. The derivatives market has exploded in recent years, with investment banks selling billions of dollars worth of these investments to clients as a way to off-load or manage market risk. But Mr Buffett argues that such highly complex financial instruments are time bombs and "financial weapons of mass destruction" that could harm not only their buyers and sellers, but the whole economic system. Derivatives are financial instruments that allow investors to speculate on the future price of, for example, commodities or shares - without buying the underlying investment. Outstanding derivatives contracts - excluding those traded on exchanges such as the International Petroleum Exchange - are worth close to $85 trillion, according to the International Swaps and Derivatives Association. Some derivatives contracts, Mr Buffett says, appear to have been devised by "madmen". He warns that derivatives can push companies onto a "spiral that can lead to a corporate meltdown", like the demise of the notorious hedge fund Long-Term Capital Management in 1998.

Note: Investor Warren Buffett was ranked the world's richest man by Forbes magazine in 2008. Though written in 2003 when the value of the derivatives market was about 1/4 of what it is now, the excellent article above reveals Buffett's thinking on the incredible risk of creating derivatives that have many times more value than the entire GDP of the world. The risk has increased tremendously since then.


Deregulation of derivatives set stage for collapse
January 30, 2011, San Francisco Chronicle (San Francisco's leading newspaper)
http://articles.sfgate.com/2011-01-30/bu...atives-otc...

"We certainly applaud the efforts of the commission," said White House press secretary Robert Gibbs, referring to the Financial Crisis Inquiry Report. "Frankly, I'm not sure much has changed," said one of commissioners, Byron Georgiou. "The concentration of assets in the nation's 10 biggest banks is bigger now than it was five years ago, from 58 percent in 2006 to 63 percent now." Referring to executives who remain at the head of those banks that almost ran aground, Georgiou said ... "Either they knew and didn't want to tell us, or they really didn't know. Either way, they put their institutions at risk." And have yet to be held accountable. Commissioner Brooksley Born can enjoy a certain sense of vindication. Not only had "over-the-counter derivatives contributed significantly to this crisis," ... but the enactment of legislation in 2000 to ban their regulation "was a key turning point in the march toward the financial crisis." As head of the Commodity Futures Trading Commission in the 1990s, Born was aware of the damage the largely unregulated instruments had already caused. Born suggested some more regulation. [She] was squashed like a bug by Clinton administration heavyweights, including Lawrence Summers and Robert Rubin, [and] Federal Reserve Chairman Alan Greenspan. One of the results: The Commodity Futures Modernization Act of 2000 eliminated government oversight of the OTC market. As the report documents, the use of such derivatives ... helped bring the entire financial system to its knees. Born hasn't seen much change in terms of accountability. One thing the report makes clear ... is just how preposterous were the "Who knew?" and "Who could have predicted?" statements offered up by chief executives and top government officials.

Note: So the 10 biggest banks now control 63% of total U.S. bank assets. According to the New York Times, the total for all U.S. banking assets as of the second quarter of 2010 were calculated at $13.22 trillion. Yet four of these megabanks also control an astounding 95% of the $574 trillion derivatives market, a sum over 40 times the amount of bank assets! Do you think there might be a problem with a derivatives bubble?


JPMorgan's Dangerous Derivatives
May 7, 2009, Bloomberg/Businessweek
http://www.businessweek.com/magazine/con...034013.htm

Gillian Tett [is the author of] Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. Tett is a respected business journalist at the Financial Times. Tett successfully pieces together the colorful backstory of the bank's work to win acceptance in the market for its brainchild, turning credit derivatives "from a cottage industry into a mass-production business." With the benefit of hindsight, we know that while these inventions were intended to control risk, they amplified it instead. This novel idea turned noxious when applied broadly to residential mortgages, a game that the rest of Wall Street later entered into with gusto. We learn in deep detail about not only how collateralized debt obligations are assembled but also their many iterations. Perhaps it's noteworthy that Tett's book begins when JPMorgan had the face-value equivalent of $1.7 trillion in derivatives on its books. Today that number has jumped to a mind-boggling $87 trillion. Part of that portfolio includes almost $8.4 trillion in credit derivatives, more than Bank of America's (BAC), Citi's, and Goldman Sachs' (GS) holdings combined.

Note: So JP Morgan has $87 trillion in derivatives, a mass market it helped to create. That is greater than the GDP for the entire world! To verify, click here. For a New York Times review of this revealing book, click here.

Derivatives the new 'ticking bomb'
March 10, 2008, (Part of the Wall Street Journal's digital network)
http://www.marketwatch.com/story/derivat...-time-bomb

"In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." That warning was in [Warren] Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. Despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession. Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. Keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets." The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business.

Note: Do you think the financial industry is out of control? For lots more powerful, reliable information on major banking manipulations, click here.


How Goldman gambled on starvation
July 2, 2010, The Independent (One of the UK's leading newspapers)
http://www.independent.co.uk/opinion/com...n-hari-how...

This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn't afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it "a silent mass murder", entirely due to "man-made actions." Through the 1990s, Goldman Sachs and others lobbied hard and the regulations [controlling agricultural futures contracts] were abolished. Suddenly, these contracts were turned into "derivatives" that could be bought and sold among traders who had nothing to do with agriculture. A market in "food speculation" was born. The speculators drove the price through the roof.

Note: For a very powerful New York Times article by a top Goldman Sachs executive who recently quit for reasons of conscience, click here. Some researchers speculate that the global elite are aware that alternative energies will eventually replace oil, which has been a prime means of control and underlying cause of many recent wars. As a replacement for oil, the elite and their secret societies are increasingly targeting control of the world's food supply through terminator crops which produce no seed, and through the patenting of seeds.


Stock market time bomb?
May 10, 2010, Washington Times
http://www.washingtontimes.com/news/2010.../?page=all

Even the world’s most savvy stock-market giants (e.g., Warren E. Buffett) have warned over the past decade that derivatives are the fiscal equivalent of a weapon of mass destruction. And the consequences of such an explosion would make the recent global financial and economic crisis seem like penny ante. But generously lubricated lobbyists for the unrestricted, unsupervised derivatives markets tell congressional committees and government regulators to butt out. While banks all over the world were imploding and some $50 trillion vanished in global stock markets, the derivatives market grew by an estimated 65 percent, according the Bank for International Settlements. BIS convenes the world’s 57 most powerful central bankers in Basel, Switzerland, for periodic secret meetings. Occasionally, they issue a cry of alarm. This time, derivatives had soared from $414.8 trillion at the end of 2006 to $683.7 trillion in mid-2008 - 18 months’ time. The derivatives market is now estimated at $700 trillion. What’s so difficult to understand about derivatives? Essentially, they are bets for or against the house - red or black at the roulette wheel. Or betting for or against the weather in situations in which the weather is critical (e.g., vineyards). Forwards, futures, options and swaps form the panoply of derivatives. Credit derivatives are based on loans, bonds or other forms of credit. Over-the-counter (OTC) derivatives are contracts that are traded and privately negotiated directly between two parties, outside of a regular exchange. All of this is unregulated.

Note: This incisive article lays bare severe market manipulations that greatly endanger our world. The entire article is highly recommended. And for a powerful analysis describing just how crazy things have gotten and giving some rays of hope by researcher David Wilcock, click here.


BofA Said to Split Regulators Over Moving Merrill Contracts
October 18, 2011, Bloomberg/Businessweek
http://www.businessweek.com/news/2011-10...lators-ove...

Bank of America Corp., hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits. Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates. Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation. Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC-insured bank accounts from risks generated by investment-banking operations. “The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.” Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June. That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives.

Note: Remember that the GDP of the entire world is estimated at around $60 trillion, less than JPMorgan or BofA own in derivatives. For an excellent article laying out the incredible risk this creates of a major economic collapse, click here. For more on the high risk and cost to taxpayers of BofA moving its massive amount of derivatives to its subsidiary, click here. For lots more from major media sources on the illegal profiteering of major financial corporations enabled by lax government regulation, click here.





Brooksley Born foresaw disaster but was silenced
December 5, 2010, San Francisco Chronicle (San Francisco's leading newspaper)
http://www.sfgate.com/cgi-bin/article.cg...1GLHFA.DTL

There's a brief scene in "Inside Job," the locally produced documentary on the Great Financial Meltdown, in which a colleague of the head of the Commodity Futures Trading Commission in 1997 describes how "blood drained from her face" after receiving a phoned-in tongue-lashing from deputy Treasury Secretary Larry Summers. The target of Summers' wrath was Brooksley Born, ... the first female president of the Stanford Law Review and a recognized legal expert in the area of complex financial instruments. Her crime: Born had the temerity to push for regulation of the increasingly wild trading in derivatives, which, as we learned a decade later, helped bring the U.S. economy, and much of the world's, to its knees. Summers, with 13 bankers in his office, told Born to get off it "in a very grueling fashion," said the colleague. The story is told in much more detail in All the Devils are Here, the latest, but eminently worthwhile, book on the roots of the crisis, by Bethany McLean and ... Joe Nocera. It makes for dispiriting, even appalling, reading. Responding to growing evidence of manipulation and fraud in unregulated derivatives trading – "the hippopotamus under the rug," as Born and others referred to it – Born suggested the commission should perhaps be given some sort of oversight. She had a 33-page policy paper drawn up, full of questions and suggestions, like, for example, whether establishing a public exchange for derivatives might not be a bad idea. Responding to the policy paper, Summers, "screaming at her," according to the book, told Born the bankers sitting in his office "threatened to move their derivatives business to London," if she didn't stop.





Interview: Brooksley Born
August 28, 2009, PBS Frontline
http://www.pbs.org/wgbh/pages/frontline/.../born.html

As head of the Commodity Futures Trading Commission [CFTC], Brooksley Born became alarmed by the lack of oversight of the secretive, multitrillion-dollar over-the-counter derivatives market. Her attempts to regulate derivatives ran into fierce resistance from then-Fed Chairman Alan Greenspan, then-Treasury Secretary Robert Rubin and then-Deputy Treasury Secretary Larry Summers, who prevailed upon Congress to stop Born and limit future regulation. PBS: Let's start with September 2008 as we all sat there and watched the economy melting down. Born: It was like my worst nightmare coming true. I had had enormous concerns about the over-the-counter derivatives [OTC] market ... for a number of years. The market was totally opaque. Nobody really knew what was going on. And then it became obvious as Lehman Brothers failed, as AIG suddenly appeared to be on the brink of tremendous defaults and turned out [to have been a major derivatives] dealer. PBS: How did it happen? Born: It happened because there was no oversight of a very, very big, dynamic, growing market. I would never say derivatives should be banned or forbidden. The problem is that they can be extremely misused. Traditionally, government has had to protect the public interest by overseeing the marketplace and keeping the extreme behavior under some check. All other financial markets have some kind of government oversight protecting the public interest. [But] not this one. The over-the-counter derivatives dealers business ... was something like 40 percent of the profits of many of these big banks as recently as a couple of years ago. PBS: We're the losers. Who were the winners? Born: Our largest banks. It was short-term benefit for a few major institutions at the expense of all the people who have lost their jobs, who have lost their retirement savings, who have lost their homes.

Note: Don't miss this entire, astonishing interview with Born, who practiced derivatives law for 20 years before being appointed head of the CFTC, which was tasked with overseeing the derivatives market. She lays bare the level of deceit, greed, and corruption by both bankers and some of the politicians who protect them.




Admin

15 REASONS WHY THE US ECONOMIC CRISIS IS REALLY AN ECONOMIC CONSOLIDATION BY THE ELITE BANKING POWERS

http://endoftheamericandream.com/archive...ing-powers

Is the United States experiencing an "economic crisis" or an "economic consolidation"?  Did the financial problems of the last several years
"happen on their own",  or are they part of a broader plan to consolidate financial power in the United States?  Before you dismiss that possibility, just remember what happened back during the Great Depression.  During that era, the big financial powers cut off the flow of credit, hoarded cash and reduced the money supply.  Suddenly nobody had any money and the economy tanked.  The big financial powers were then able to swoop back in and buy up valuable assets and real estate for pennies on the dollar.  So are there signs that such a financial consolidation is happening again?

Well, yes, there are.

The U.S. government is making sure that the big banks are getting all the cash they need to make sure that they don't fail during these rocky economic times, but the U.S. government is letting small banks fail in droves.  In fact, in many instances the U.S. government is actually directing these small banks to sell themselves to the big sharks.

So is this part of a planned consolidation of the U.S. banking industry?  Just consider the following 15 points....

#1) The FDIC is planning to open a massive satellite office near Chicago that will house up to 500 temporary staffers and contractors to manage receiverships and liquidate assets from what they are expecting will be a gigantic wave of failed Midwest banks.

#2) But if the economic crisis is over, then why would the FDIC need such a huge additional office just to handle bank failures?  Well, because the economic crisis is not over.  The FDIC recently announced that the number of banks on its "problem list" climbed to 702 at the end of 2009.  That is a sobering figure considering that only 552 banks were on the problem list at the end of September and only 252 banks that were on the problem list at the end of 2008.

#3) Waves of small and mid-size banks are going to continue to fail because the U.S. housing market continues to come apart at the seams.  The U.S. government just announced that in January sales of new homes plunged to the lowest level on record.  The reality is that the U.S. housing market simply is not recovering.

#4) In fact, a lot more houses may be on the U.S. housing market very shortly.  The number of mortgages in the United States more than 90 days overdue has climbed to 5.1 percent.  As the housing market continues to get increasingly worse, it will put even more pressure on small to mid-size banks.

#5) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009.  Large numbers of American homeowners are deciding to walk away from these homes rather than to keep making payments on loans that are for far more than the homes themselves are worth.

#6) If all that wasn't bad enough, now a huge "second wave" of adjustable rate mortgages is scheduled to reset beginning in 2010.  We all saw what kind of damage the "first wave" of adjustable rate mortgages did.  How many banks are going to be able to survive the devastation of the second wave?

#7) In fact, one stunning new study forecasts that five million houses and condos will go through foreclosure within the next couple of years.  If that actually happens it will be absolutely catastrophic for the banking industry.

#8) But it is not just residential real estate that is a problem.  Many financial analysts now believe that the next "shoe to drop" in the ongoing economic crisis will be commercial real estate. U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is now sitting vacant.

#9) So are the financial powers doing anything to help?  In 2008 and 2009 they did, but now it appears that they plan to dramatically tighten credit.  In fact, Federal Reserve Chairman Ben Bernanke recently warned Congress that the Federal Reserve does not plan to "print money" to help Congress finance the exploding U.S. national debt.  So either Congress will have to spend less money or borrow it at higher interest rates from someone else.  Either of those alternatives will be bad for U.S. economic growth.

#10) In addition, the Federal Reserve is in discussions with money market mutual funds on agreements to help drain as much as 1 trillion dollars from the financial system.  But when you withdraw money from a financial system it slows down an economy.  Why would the Federal Reserve want to do this now when the economy is struggling so much?

#11) There are also persistent rumors that the Federal Reserve is plotting a series of interest rate hikes.  Federal Reserve Chairman Ben Bernanke says that the Federal Reserve may raise the discount rate "before long" as part of the "normalization" of Fed lending.  By raising that rate, Bernanke says that the central bank "will be able to put significant upward pressure on all short-term interest rates".  But higher interest rates will mean that it will cost more for everyone to borrow money.  This will also slow down the U.S. economy.

#12) Recent data suggests that there has been a very significant decline in the "real" M3 money supply, and every time that this has happened in the past it has resulted in a drop in economic activity.  In fact, this dramatic contraction in the money supply has many economic analysts now warning that it is not a matter of "if" we will have a "double-dip" recession, but of "when" it will occur.

#13) There are also signs that big U.S. banks are now hoarding cash.  In fact, the biggest banks in the U.S. cut their collective small business lending balance by another 1 billion dollars in November 2009.  That drop was the seventh monthly decline in a row.

#14) In fact, in 2009 U.S. banks posted their sharpest decline in lending since 1942.  This is the same kind of thing that happened at the beginning of the Great Depression.

#15) Meanwhile, the biggest U.S. banks are gobbling up a larger and larger share of the U.S. banking market.  At the end of 2007, the Big Four U.S. banks - Citigroup, JPMorgan Chase, Bank of America and Wells Fargo - held 32 percent of all deposits in FDIC-insured institutions. As of June 30th of last year it was 39 percent.

So do you see what is going on?

The real estate crash of the last several years has left hundreds of small to mid-size banks across the United States extremely vulnerable.

These small to mid-size banks desperately need the U.S. economy to get cranking again.

But now the big financial powers are reducing their lending, hoarding cash and shrinking the money supply.

All of those things reduce economic activity.

Many businesses will fail because they cannot get loans.

The real estate market will continue to suffer because banks are raising their standards and are lending less money.

Small to mid-size banks that are already on the edge of disaster are almost virtually certain to collapse when the "second wave" of the housing crisis starts hitting.

But when they do collapse the U.S. government is directing them to sell themselves to the big sharks.

So whether it is "planned" or not, what we are witnessing is a consolidation of the banking industry in the United States.

And that is not a good thing.


ADDENDUM

Who Said:
"I fear the foreign bankers with their craftiness and torturous tricks will entirely control the exuberant riches of America and use it to systematically corrupt civilization."


Who Said:
"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."


Who Said:
"The government should create, issue and circulate all the currency and credits needed... the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity."

Answer -
Otto von Bizmark,
German Chancellor


Answer -
James Madison,
4th US President


Answer -
Abraham Lincoln,
16th US President



The Private Fed can create an unlimited amount of money from nothing for:

·         Buying anything it wants

·         Buying US Treasury bonds

·         Lending to its favorite commercial banksters at near zero interest rates who then turn around to buy interest bearing US T-bills


Commercial banks can create a limited amount of money from nothing based on the reserve ratio set by their godfather the Private FED.

Meanwhile, the biggest U.S. banks are gobbling up a larger and larger share of the U.S. banking market.  At the end of 2007, the Big Four U.S. banks - Citigroup, JPMorgan Chase, Bank of America and Wells Fargo - held 32 percent of all deposits in FDIC-insured institutions. As of June 30th of 2009 it was 39 percent. As more and more small banks are being forced to fail, the big 4 are gobbling them up.

Note: The Fed has kept the federal funds overnight rate to fellow banksters near 0%, and has pulled out all the stops to keep interest rates low, a huge subsidy for banks that are charging their best customers 20% or more to borrow on their credit cards. The ever-helpful Fed banksters also allowed their fellow banksters to deplete some of their precious capital. According to an investigative report by Jesse Eisinger in ProPublica, a year ago the Fed overruled an objection by the Federal Deposit Insurance Corp. and allowed 19 large banks to reduce their retained earnings by paying dividends and buying back shares. Read “Fed Shrugged Off Warnings, Let Bank Pay Shareholders Billions” on ProPublica.  

Admin

GLOBAL FINANCE :THE SHYLOCK MODEL
http://rt.com/news/global-finance-shylock-model-605/


A Greek brainstorming session would sound something like this: Default! Downgrade! Bond Swap! ECB Bailout! Austerity Measures! IMF Recipes! Riots! Euro Collapse! Pay up!! Can anybody make any sense out of this??

Let’s try… Because it’s a question of joining the dots… correctly!

First and foremost, Sovereign Debt “Crises” explode, then collapse only to “resurrect” bigger and fatter according to a Model: let’s call it “The Shylock Model” after William Shakespeare’s despicable Usurer in “The Merchant of Venice”: Shylock loaned money to Antonio, a Venetian Merchant, demanding he sign a bond pledging a pound of his flesh as collateral…

Models are orderly, consistent and sequential representations of complex systems. Like a Road Map, Models can guide us from point “A” to point “B” so that we don’t go astray. When you understand how a Model works, the complex system it represents becomes predictable.



­A Comedy of Errors

In my 23rd February article for RT on Greece (http://rt.com/news/argentina-advice-gree...033/print/), I stressed that Sovereign Debt Crises are not the result of bad luck, worse judgment or coincidence. For over a quarter century we’ve seen the same show staged again and again with little variation. Greece, Argentina, Spain, Italy, Portugal, Brazil, Mexico, Iceland, Ireland, Russia, Asian Tigers… all “stupidly” borrowed too much from private bankers only to “discover” they couldn’t pay them back.

Symmetrically, the same group of powerful global Mega-Banks lent too much to those countries only to “discover” they couldn’t recover those loans.

A Comedy of Errors in which governments and bankers are either very stupid or… are they discretely winking at each other as they carve out pound after pound of flesh?

­

Can somebody please clean our dirty sheets…!

Bankers and politicians make strange bedfellows. Invariably, their Comedies of Errors get their linen soiled. When that happens, bankers know they cannot go banging on the doors of presidential palaces, ministries of finance and parliaments yelling “Pay up, or else!”

The farce of “democracy” and “national sovereignty” must be maintained. That’s when banker-controlled “public multilateral agencies” come on stage – IMF, ECB, World Bank – to do the, er… banging!!

After all Greece, you ARE a member of the ECB so you must obey their orders (even if written in German). And you, Argentina, you ARE a member of the IMF so stop wailing and do your homework!!

­

Doctor, I’ve got a fever…

Market Analysts and Rating Agencies are today’s financial witch doctors telling us why stock markets go up and down like a patient’s fever. Currencies rise, currencies fall in a casino-like roller-coaster; Sovereign Debt Bond Ratings are up-graded or down-graded, all to the tune of the Pied Pipers at S&P, Finch’s and Moody’s, FT and The Wall Street Journal… And, yes, these oracles of “good” and “bad” are on Mega-banker payrolls.

Whatever they utter is Revealed Truth. So what if in 2008 they rated AIG, Lehman, Merrill Lynch, Fannie Mae “AA”, even “AAA” until they dissolved into oblivion?

In perfect sync, they downgrade Greece and Argentina, Spain and Italy, Ireland and Iceland forcing them to pay higher interest to the Mega-bankers…

­

I’ll have my Bond!

When Shylock the Usurer got ready to cut a pound of flesh nearest Antonio’s heart, he parrots time and again, “I’ll have my bond!” waving his legal contract, formally enforceable under the laws of Venice. One will never understand a Usurer’s mindset if you believe that Shylock loaned the money to Antonio in order to get it back. Oh, no!! Shylock was betting on NOT getting it back!!

You see, rich, sovereign creditors who cannot pay back loans are music to bankers’ ears! What good is a sovereign creditor who CAN and will actually pay back a loan? That undermines the very essence of usury! It thwarts parasitism forcing usurer bankers to have to work to find new victims to loan all that money to…

Jesus! Do you expect a banker to work!?!? Banking Business thrives on refinancing debt, rolling it over year after year, exponentially ballooning it through compound interest…

When a country can’t pay its debts, then our modern Shylock Banksters demand their “pound of flesh”: full control of the country turning it into a Financial Colony of the Global Power Masters, who impose their Trilateral Commission brethren in key positions of power: Papademos, Monti, Cavallo, Geithner…

It was never Shylock’s goal to recover his 3.000 Ducats. No, Sir! He only wanted his pound of flesh. The loan and the bond were just the mechanism to get to that flesh. Shylock’s Model was to legally indebt Antonio under the laws of Venice, so that those laws would then enforce his immoral outrage of executing the collateral: a pound of flesh.



­Bankers’ Worst Nightmare!

What’s the worst thing that could happen to Goldman Sachs, JP Morgan, Rockefeller, and Rothschild who manage the Shylock Model? If any sovereign country – Argentina, Greece, Spain, Brazil, Italy – were to turn around and say: “Hey! How much did you say I owed you? 200 billion? No sweat! Come pick up your check Monday morning…”

If that ever happened, bankers would be confronted with two very serious problems:

· Problem One (a Technical Hitch): Where would they find another group of ‘sheeple’ to impose unnecessary – even fictitious – 200 billion dollar debts at usury interest?

· Problem Two (a Political Hitch): They would lose control over Greece, or Argentina, or Spain, or Ireland or Italy just when they had them right under their thumb, controlling their resources and governments; running the show because if any government were to do something “stupid” like being Sovereign, then all the bankers needed to do was say, “No, no!! Remember: you owe us Zillions in “sovereign debt” that you can’t pay back.

If you do something foolish like prioritizing your people’s national interests, we will wipe you off the global financial map; our global media will destroy you; we’ll throw S&P and Fitch downgrades at you! Watch out: we can literally set your country on fire!!”.

Yes, when a country finally owes nothing to the bankers then that country is truly FREE! Make no mistake: true national sovereignty, independence and freedom are the greatest enemies of the Global Money Power Masters.

Today’s Global Financial System functions according to “The Shylock Model”: it will go to great lengths to carve out its pound of flesh…

Good doctors say: proper Diagnosis is the first step to being cured.



Admin

BILDERBERG MEETING 2012 LIST OF PARTICIPANTS
Global Research, May 31, 2012

Source: Biliderberg Meetings Website: http://www.bilderbergmeetings.org/participants2012.html

The 60th Bilderberg Meeting will be held in Chantilly, Virginia, USA from 31 May - 3 June 2012. The Conference will deal mainly with political, economic and societal issues like Transatlantic Relations, Evolution of the Political Landscape in Europe and the US, Austerity and Growth in Developed Economies, Cyber Security, Energy Challenges, the Future of Democracy, Russia, China and the Middle East.

Approximately 145 participants will attend of whom about two-thirds come from Europe and the balance from North America and other countries. About one-third is from government and politics, and two-thirds are from finance, industry, labor, education, and communications. The meeting is private in order to encourage frank and open discussion.

http://www.bilderbergmeetings.org/meeting_2012.html

Bilderberg Meetings
Chantilly, Virginia, USA, 31 May-3 June 2012

Final List of Participants

Chairman

FRA Castries, Henri de Chairman and CEO, AXA Group


DEU Ackermann, Josef Chairman of the Management Board and the Group Executive Committee, Deutsche Bank AG
GBR Agius, Marcus Chairman, Barclays plc
USA Ajami, Fouad Senior Fellow, The Hoover Institution, Stanford University
USA Alexander, Keith B. Commander, US Cyber Command; Director, National Security Agency
INT Almunia, Joaquín Vice-President – Commissioner for Competition, European Commission
USA Altman, Roger C. Chairman, Evercore Partners
PRT Amado, Luís Chairman, Banco Internacional do Funchal (BANIF)
NOR Andresen, Johan H. Owner and CEO, FERD
FIN Apunen, Matti Director, Finnish Business and Policy Forum EVA
TUR Babacan, Ali Deputy Prime Minister for Economic and Financial Affairs
PRT Balsemão, Francisco Pinto President and CEO, Impresa; Former Prime Minister
FRA Baverez, Nicolas Partner, Gibson, Dunn & Crutcher LLP
FRA Béchu, Christophe Senator, and Chairman, General Council of Maine-et-Loire
BEL Belgium, H.R.H. Prince Philippe of
TUR Berberoğlu, Enis Editor-in-Chief, Hürriyet Newspaper
ITA Bernabè, Franco Chairman and CEO, Telecom Italia
GBR Boles, Nick Member of Parliament
SWE Bonnier, Jonas President and CEO, Bonnier AB
NOR Brandtzæg, Svein Richard President and CEO, Norsk Hydro ASA
AUT Bronner, Oscar Publisher, Der Standard Medienwelt
SWE Carlsson, Gunilla Minister for International Development Cooperation
CAN Carney, Mark J. Governor, Bank of Canada
ESP Cebrián, Juan Luis CEO, PRISA; Chairman, El País
AUT Cernko, Willibald CEO, UniCredit Bank Austria AG
FRA Chalendar, Pierre André de Chairman and CEO, Saint-Gobain
DNK Christiansen, Jeppe CEO, Maj Invest
RUS Chubais, Anatoly B. CEO, OJSC RUSNANO
CAN Clark, W. Edmund Group President and CEO, TD Bank Group
GBR Clarke, Kenneth Member of Parliament, Lord Chancellor and Secretary of Justice
USA Collins, Timothy C. CEO and Senior Managing Director, Ripplewood Holdings, LLC
ITA Conti, Fulvio CEO and General Manager, Enel S.p.A.
USA Daniels, Jr., Mitchell E. Governor of Indiana
USA DeMuth, Christopher Distinguished Fellow, Hudson Institute
USA Donilon, Thomas E. National Security Advisor, The White House
GBR Dudley, Robert Group Chief Executive, BP plc
ITA Elkann, John Chairman, Fiat S.p.A.
DEU Enders, Thomas CEO, Airbus
USA Evans, J. Michael Vice Chairman, Global Head of Growth Markets, Goldman Sachs & Co.
AUT Faymann, Werner Federal Chancellor
DNK Federspiel, Ulrik Executive Vice President, Haldor Topsøe A/S
USA Ferguson, Niall Laurence A. Tisch Professor of History, Harvard University
GBR Flint, Douglas J. Group Chairman, HSBC Holdings plc
CHN Fu, Ying Vice Minister of Foreign Affairs
IRL Gallagher, Paul Former Attorney General; Senior Counsel
USA Gephardt, Richard A. President and CEO, Gephardt Group
GRC Giannitsis, Anastasios Former Minister of Interior; Professor of Development and International Economics, University of Athens
USA Goolsbee, Austan D. Professor of Economics, University of Chicago Booth School of Business
USA Graham, Donald E. Chairman and CEO, The Washington Post Company
ITA Gruber, Lilli Journalist – Anchorwoman, La 7 TV
INT Gucht, Karel de Commissioner for Trade, European Commission
NLD Halberstadt, Victor Professor of Economics, Leiden University; Former Honorary Secretary General of Bilderberg Meetings
USA Harris, Britt CIO, Teacher Retirement System of Texas
USA Hoffman, Reid Co-founder and Executive Chairman, LinkedIn
CHN Huang, Yiping Professor of Economics, China Center for Economic Research, Peking University
USA Huntsman, Jr., Jon M. Chairman, Huntsman Cancer Foundation
DEU Ischinger, Wolfgang Chairman, Munich Security Conference; Global Head Government Relations, Allianz SE
RUS Ivanov, Igor S. Associate member, Russian Academy of Science; President, Russian International Affairs Council
FRA Izraelewicz, Erik CEO, Le Monde
USA Jacobs, Kenneth M. Chairman and CEO, Lazard
USA Johnson, James A. Vice Chairman, Perseus, LLC
USA Jordan, Jr., Vernon E. Senior Managing Director, Lazard
USA Karp, Alexander CEO, Palantir Technologies
USA Karsner, Alexander Executive Chairman, Manifest Energy, Inc
FRA Karvar, Anousheh Inspector, Inter-ministerial Audit and Evaluation Office for Social, Health, Employment and Labor Policies
RUS Kasparov, Garry Chairman, United Civil Front (of Russia)
GBR Kerr, John Independent Member, House of Lords
USA Kerry, John Senator for Massachusetts
TUR Keyman, E. Fuat Director, Istanbul Policy Center and Professor of International Relations, Sabanci University
USA Kissinger, Henry A. Chairman, Kissinger Associates, Inc.
USA Kleinfeld, Klaus Chairman and CEO, Alcoa
TUR Koç, Mustafa Chairman, Koç Holding A.Ş.
DEU Koch, Roland CEO, Bilfinger Berger SE
INT Kodmani, Bassma Member of the Executive Bureau and Head of Foreign Affairs, Syrian National Council
USA Kravis, Henry R. Co-Chairman and Co-CEO, Kohlberg Kravis Roberts & Co.
USA Kravis, Marie-Josée Senior Fellow, Hudson Institute
INT Kroes, Neelie Vice President, European Commission; Commissioner for Digital Agenda
USA Krupp, Fred President, Environmental Defense Fund
INT Lamy, Pascal Director-General, World Trade Organization
ITA Letta, Enrico Deputy Leader, Democratic Party (PD)
ISR Levite, Ariel E. Nonresident Senior Associate, Carnegie Endowment for International Peace
USA Li, Cheng Director of Research and Senior Fellow, John L. Thornton China Center, Brookings Institution
USA Lipsky, John Distinguished Visiting Scholar, Johns Hopkins University
USA Liveris, Andrew N. President, Chairman and CEO, The Dow Chemical Company
DEU Löscher, Peter President and CEO, Siemens AG
USA Lynn, William J. Chairman and CEO, DRS Technologies, Inc.
GBR Mandelson, Peter Member, House of Lords; Chairman, Global Counsel
USA Mathews, Jessica T. President, Carnegie Endowment for International Peace
DEN Mchangama, Jacob Director of Legal Affairs, Center for Political Studies (CEPOS)
CAN McKenna, Frank Deputy Chair, TD Bank Group
USA Mehlman, Kenneth B. Partner, Kohlberg Kravis Roberts & Co.
GBR Micklethwait, John Editor-in-Chief, The Economist
FRA Montbrial, Thierry de President, French Institute for International Relations
PRT Moreira da Silva, Jorge First Vice-President, Partido Social Democrata (PSD)
USA Mundie, Craig J. Chief Research and Strategy Officer, Microsoft Corporation
DEU Nass, Matthias Chief International Correspondent, Die Zeit
NLD Netherlands, H.M. the Queen of the
ESP Nin Génova, Juan María Deputy Chairman and CEO, Caixabank
IRL Noonan, Michael Minister for Finance
USA Noonan, Peggy Author, Columnist, The Wall Street Journal
FIN Ollila, Jorma Chairman, Royal Dutch Shell, plc
USA Orszag, Peter R. Vice Chairman, Citigroup
GRC Papalexopoulos, Dimitri Managing Director, Titan Cement Co.
NLD Pechtold, Alexander Parliamentary Leader, Democrats ’66 (D66)
USA Perle, Richard N. Resident Fellow, American Enterprise Institute
NLD Polman, Paul CEO, Unilever PLC
CAN Prichard, J. Robert S. Chair, Torys LLP
ISR Rabinovich, Itamar Global Distinguished Professor, New York University
GBR Rachman, Gideon Chief Foreign Affairs Commentator, The Financial Times
USA Rattner, Steven Chairman, Willett Advisors LLC
CAN Redford, Alison M. Premier of Alberta
CAN Reisman, Heather M. CEO, Indigo Books & Music Inc.
DEU Reitzle, Wolfgang CEO & President, Linde AG
USA Rogoff, Kenneth S. Professor of Economics, Harvard University
USA Rose, Charlie Executive Editor and Anchor, Charlie Rose
USA Ross, Dennis B. Counselor, Washington Institute for Near East Policy
POL Rostowski, Jacek Minister of Finance
USA Rubin, Robert E. Co-Chair, Council on Foreign Relations; Former Secretary of the Treasury
NLD Rutte, Mark Prime Minister
ESP Sáenz de Santamaría Antón, Soraya Vice President and Minister for the Presidency
NLD Scheffer, Paul Professor of European Studies, Tilburg University
USA Schmidt, Eric E. Executive Chairman, Google Inc.
AUT Scholten, Rudolf Member of the Board of Executive Directors, Oesterreichische Kontrollbank AG
FRA Senard, Jean-Dominique CEO, Michelin Group
USA Shambaugh, David Director, China Policy Program, George Washington University
INT Sheeran, Josette Vice Chairman, World Economic Forum
FIN Siilasmaa, Risto Chairman of the Board of Directors, Nokia Corporation
USA Speyer, Jerry I. Chairman and Co-CEO, Tishman Speyer
CHE Supino, Pietro Chairman and Publisher, Tamedia AG
IRL Sutherland, Peter D. Chairman, Goldman Sachs International
USA Thiel, Peter A. President, Clarium Capital / Thiel Capital
TUR Timuray, Serpil CEO, Vodafone Turkey
DEU Trittin, Jürgen Parliamentary Leader, Alliance 90/The Greens
GRC Tsoukalis, Loukas President, Hellenic Foundation for European and Foreign Policy
FIN Urpilainen, Jutta Minister of Finance
CHE Vasella, Daniel L. Chairman, Novartis AG
INT Vimont, Pierre Executive Secretary General, European External Action Service
GBR Voser, Peter CEO, Royal Dutch Shell plc
SWE Wallenberg, Jacob Chairman, Investor AB
USA Warsh, Kevin Distinguished Visiting Fellow, The Hoover Institution, Stanford University
GBR Wolf, Martin H. Chief Economics Commentator, The Financial Times
USA Wolfensohn, James D. Chairman and CEO, Wolfensohn and Company
CAN Wright, Nigel S. Chief of Staff, Office of the Prime Minister
USA Yergin, Daniel Chairman, IHS Cambridge Energy Research Associates
INT Zoellick, Robert B. President, The World Bank Group

Rapporteurs
GBR Bredow, Vendeline von Business Correspondent, The Economist
GBR Wooldridge, Adrian D. Foreign Correspondent, The Economist


Admin

£13tn HOARD HIDDEN FROM TAXMAN BY GLOBAL ELITE

http://www.guardian.co.uk/business/2012/...re-economy  

Heather Stewart Guardian Saturday 21 July 2012

• Study estimates staggering size of offshore economy
• Private banks help wealthiest to move cash into havens


The Cayman Islands: a favourite haven from the taxman for the global elite. Photograph: David Doubilet/National Geographic/Getty Images

A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least £13tn – perhaps up to £20tn – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.

The detailed analysis in the report, compiled using data from a range of sources, including the Bank of International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.

Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests. Once the returns on investing the hidden assets is included, almost £500bn has left Russia since the early 1990s when its economy was opened up. Saudi Arabia has seen £197bn flood out since the mid-1970s, and Nigeria £196bn.

"The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments," the report says.

The sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor. According to Henry's calculations, £6.3tn of assets is owned by only 92,000 people, or 0.001% of the world's population – a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies.

"These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people," said John Christensen of the Tax Justice Network. "People on the street have no illusions about how unfair the situation has become."

TUC general secretary Brendan Barber said: "Countries around the world are under intense pressure to reduce their deficits and governments cannot afford to let so much wealth slip past into tax havens.

"Closing down the tax loopholes exploited by multinationals and the super-rich to avoid paying their fair share will reduce the deficit. This way the government can focus on stimulating the economy, rather than squeezing the life out of it with cuts and tax rises for the 99% of people who aren't rich enough to avoid paying their taxes."

Assuming the £13tn mountain of assets earned an average 3% a year for its owners, and governments were able to tax that income at 30%, it would generate a bumper £121bn in revenues – more than rich countries spend on aid to the developing world each year.

Groups such as UK Uncut have focused attention on the paltry tax bills of some highly wealthy individuals, such as Topshop owner Sir Philip Green, with campaigners at one recent protest shouting: "Where did all the money go? He took it off to Monaco!" Much of Green's retail empire is owned by his wife, Tina, who lives in the low-tax principality.

A spokeswoman for UK Uncut said: "People like Philip Green use public services – they need the streets to be cleaned, people need public transport to get to their shops – but they don't want to pay for it."

Leaders of G20 countries have repeatedly pledged to close down tax havens since the financial crisis of 2008, when the secrecy shrouding parts of the banking system was widely seen as exacerbating instability. But many countries still refuse to make details of individuals' financial worth available to the tax authorities in their home countries as a matter of course. Tax Justice Network would like to see this kind of exchange of information become standard practice, to prevent rich individuals playing off one jurisdiction against another.

"The very existence of the global offshore industry, and the tax-free status of the enormous sums invested by their wealthy clients, is predicated on secrecy," said Henry.


TAX HAVENS CAUSE POVERTY
http://www.taxjustice.net/cms/front_content.php?idcatart=2&lang=1


The Tax Justice Network promotes transparency in international finance and opposes secrecy. We support a level playing field on tax and we oppose loopholes and distortions in tax and regulation, and the abuses that flow from them. We promote tax compliance and we oppose tax evasion, tax avoidance, and all the mechanisms that enable owners and controllers of wealth to escape their responsibilities to the societies on which they and their wealth depend. Tax havens, or secrecy jurisdictions as we prefer to call them, lie at the centre of our concerns, and we oppose them.

Take a look at our core themes:

■We support sustainable finance for development
■We support international co-operation on tax, regulation and crime
■We oppose tax havens and offshore finance
■We support transparency and we oppose corruption
■We support a level playing field in competitive markets
■We support progressive and equitable taxation
■We support corporate responsibility and accountability
■We support tax compliance and a culture of responsbility
These issues affect rich and poor countries, and, like the fight against corruption, our approach does not fit easily into either of the old political categories of left and right. We do not argue generally for high or low taxes (that is for voters to decide) but we note the often better human development outcomes in higher-tax countries and oppose the demonisation of tax that is fashionable in some circles. What we do support is progressive and equitable taxation, which is what voters around the world have chosen. We wish to see nations’ sovereignty restored, so that electorates are given back the power to get the tax systems they vote for. To this end we advocate much stronger co-operation between states on tax and regulation. This will help us address the growing tension between global integration and a shortage of credible international governance.

For more details, see "Resources," to the left of this page.

Who are we?

The Tax Justice Network is led by economists, tax and financial professionals, accountants, lawyers, academics and writers, and we are driven by original research and ideas. We are supported by a growing community of individuals, economists, faith groups, non-governmental organisations, academics, lawyers, trade unions -- and many others. (Read more)

Why tax and tax havens?
Tax is the foundation of good government and a key to the wealth or poverty of nations. Yet it is under attack. These places allow big companies and wealthy individuals to benefit from the onshore benefits of tax – like good infrastructure, education and the rule of law – while using the offshore world to escape their responsibilities to pay for it. The rest of us shoulder the burden.

Tax havens offer not only low or zero taxes, but something broader. What they do is to provide facilities for people or entities to get around the rules, laws and regulations of other jurisdictions, using secrecy as their prime tool. We therefore often prefer the term "secrecy jurisdiction" instead of the more popular "tax haven."


The corrupted international infrastructure allowing élites to escape tax and regulation is also widely used by criminals and terrorists. As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.

The offshore system is a blind spot in international economics and in our understanding of the world. The issues are multi-faceted, and tax havens are steeped in secrecy and complexity – which helps explain why so few people have woken up to the scandal of offshore, and why civil society has been almost silent on international taxation for so long. We seek to supply expertise and analysis to help open tax havens up to proper scrutiny at last, and to make the issues understandable by all.

The fight against tax havens is one of the great challenges of our age. Our approach challenges basic tenets of traditional economic theory and opens new fields of analysis on a diverse array of important issues such as foreign aid, capital flight, corruption, climate change, corporate responsibility, political governance, hedge funds, inequality, morality – and much more. (Read more in Part II of our Manifesto for Tax Justice)

How big is the problem, and what is its nature?
Assets held offshore, beyond the reach of effective taxation, are equal to about a third of total global assets. Over half of all world trade passes through tax havens. Developing countries lose revenues far greater than annual aid flows. We estimate that the amount of funds held offshore by individuals is about $11.5 trillion – with a resulting annual loss of tax revenue on the income from these assets of about 250 billion dollars. This is five times what the World Bank estimated in 2002 was needed to address the UN Millenium Development Goal of halving world poverty by 2015. This much money could also pay to transform the world’s energy infrastructure to tackle climate change. In 2007 the World Bank has endorsed estimates by Global Financial Integrity (GFI) that the cross-border flow of the global proceeds from criminal activities, corruption, and tax evasion at US$1-1.6 trillion per year, half from developing and transitional economies. In 2009 GFI's updated research estimated that the annual cross-border flows from developing countries alone amounts to approximately US$850 billion - US$1.1 trillion per year.


Offshore finance is not only based in islands and small states: `offshore’ has become an insidious growth within the entire global system of finance. The largest financial centres such as London and New York, and countries like Switzerland and Singapore, offer secrecy and other special advantages to attract foreign capital flows. As corrupt dictators and other élites strip their countries’ financial assets and relocate them to these financial centres, developing countries’ economies are deprived of local investment capital and their governments are denied desperately needed tax revenues. This helps capital flow not from capital-rich countries to poor ones, as traditional economic theories might predict, but, perversely, in the other direction.

Countries that lose tax revenues become more dependent on foreign aid. Recent research has shown, for example, that sub-Saharan Africa is a net creditor to the rest of the world in the sense that external assets, measured by the stock of capital flight, exceed external liabilities, as measured by the stock of external debt. The difference is that while the assets are in private hands, the liabilities are the public debts of African governments and their people. (Read more)


Globalisation and international trade and finance have got a bad name of late. Each brings opportunities, and risks. We must now start to address seriously what may be the biggest risk of all: tax abuse, and tax havens and everything they stand for.

What can you do?
Our resources are small, yet the huge, well-funded public and private interests that oppose us have no answers to the agenda we are setting. Our message is starting to spread fast. Please join us, support us, and engage with the emerging debate.

OUR CORE THEMES
Our core themes are briefly outlined below. The Resources section to the left of this page has more details.  

We support sustainable finance for development  
Tax is the most sustainable source of finance for development. The long-term goal of poor countries must be to replace foreign aid dependency with tax self-sufficiency. Developing nations in Africa, Latin America and elsewhere are especially vulnerable to the offshore world. Action on tax has the potential to deliver gains to poor countries that are orders of magnitude greater than what can be achieved with aid. To meet the Millennium Development Goals, OECD countries have been urged to raise their levels of aid to 0.7 percent of Gross National Income – but this is as nothing when compared to potential tax revenues: in some rich countries, tax constitutes over 40 percent of GDP.  


Tax is the link between state and citizen, and tax revenues are the lifeblood of the social contract. The very act of taxation has profoundly beneficial effects in fostering better and more accountable government. It is astonishing that so many members of the aid community have ignored tax for so long. Action on international taxation is, quite simply, the key to lifting hundreds of millions of people out of poverty. Read More


We support international co-operation on tax, regulation and crime
The tax policies of one country can seriously harm the citizens of another. In the 19th and 20th Centuries, rich nations agreed that a balance should be struck between corporations, governments and societies. Tax and regulation lay at the heart of these democratic contracts, and it was feasible to set up coherent systems under single nation states. But these grand bargains began to unravel in the 1920s, as multinational companies began to emerge as a force in world markets and exploit cross-border loopholes to reduce their taxes. This accelerated in the 1970s, as financial liberalisation increasingly allowed companies to shop around for jurisdictions to escape tax and regulation. Tax havens are now intensifying competition between jurisdictions on tax and regulation in a beggar-my-neighbour scramble to attract international capital, undermining already weak regulation of public companies and stock exchanges. International efforts to tackle this harmful “tax competition” are, to date, feeble, and the amount of wealth offshore is growing fast.


Insular, nationally-based approaches cannot do justice to these challenges. From the perspective of individual countries, it may be relatively easy to argue in favour of cracking down on outflows of money into tax havens, but it is far harder to challenge the inflows. Only a global approach will do: this means co-operation between nations on tax havens. Far from weakening state sovereignty, as is sometimes suggested, stronger tax cooperation is the best way to strengthen national tax systems in this age of globally mobile capital. Read More

We oppose tax havens and offshore finance
Tax havens and offshore financial centres have created an interface between the illicit and licit economies, corrupting national tax regimes and onshore regulation. The result is a shift of the tax burden away from capital and onto labour, and a dramatic rise in income and wealth inequality, as well as the corruption of democracies around the world as élites escape their responsibilities with impunity. Supporters of tax havens point to the wealth enjoyed by such tax havens as Switzerland or the Cayman Islands to bolster their arguments. This is like pointing to the wealth of a corrupt politician and arguing that corruption is therefore a good thing: tax havens effectively appropriate other countries' taxes for themselves.

We recognise that some small island economies depend heavily on hosting harmful tax practices, and may lose investment and economic growth from efforts to tackle the abuses. But the harm these activities cause are orders of magnitudes greater than any claimed benefits. We propose multilateral support for these countries to assist with re-structuring as part of efforts to clean up the tax haven scandal. In any case, the biggest culprits are the big financial centres such as in Britain, the United States and Switzerland. Read More

We support transparency and we oppose corruption
The Tax Justice Network supports transparency and opposes secrecy in international finance. We want companies to be made more open about their financial affairs and to publish data on every country where they operate. We want the finances of wealthy individuals to be visible to their tax authorities, so they pay their fair share of tax. Markets work better, and companies are more accountable, in an environment of transparency. Secrecy hinders criminal investigation and fosters criminality and corruption such as insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the illicit funding of political parties – and much more. We want to expand the commonly accepted definitions of corruption so that they no longer focus only on narrow aspects of the problem such as bribery. We must bring tax, tax avoidance and tax evasion decisively into the corruption debate.

Corruption, crime and corporate abuse have a demand side (such as the theft of public assets by a politician) and a supply side – the provision of corruption services, like the concealment of a politician’s stolen assets offshore. Tax havens and associated activities stimulate the demand side – so they are a central part of the corruption problem.  Eva Joly, an investigating magistrate who broke open the “Elf Affair” in France (Europe’s biggest corruption investigation since the Second World War) was furious about how tax havens stonewalled her probes. She compared magistrates to sheriffs in the spaghetti westerns who watch the bandits celebrate on the other side of the Rio Grande. “They taunt us – and there is nothing we can do.” As she says, the fight against tax havens must be “Phase Two” in the international fight against corruption. Read More

We support a level playing field in competitive markets
We support simplicity and a level playing field on tax. Complexity and loopholes provide a windfall for a pinstripe infrastructure of lawyers, bankers and accountants and distort markets, undermining market competition, mis-directing investment, and rewarding economic free-riders. These distortions favour  multinational companies over national ones; they promote big companies over small, and they hinder start-up companies in the face of established vested interests. New forms of finance that have become prominent recently, such as hedge funds and private equity companies, greatly benefit from lower tax rates, lack of transparency and minimal accountability which provide them with competitive advantages over their peers that have nothing to do with efficiency or innovation in the real world, or with the quality or price of what they offer. Companies wishing to act in an ethical manner find themselves at a competitive disadvantage vis à vis their more irresponsible competitors. Read More

We favour progressive and equitable taxation
We support progressive taxation, founded on the basic principle that tax should be based on ability to pay -  that is, the wealthy should pay higher rates of tax. The principle of progressive taxation has been supported almost unanimously by democratic choices in countries around the world – and we support those choices. To advocate progressive taxation is to oppose regressive tax systems where the poorer sections of society pay a higher share of their income. Financing public goods, according to voters’ wishes and ability to pay, mitigates inequality, which is one of the greatest political challenges facing the world today.  

Tax systems should also be comprehensive, containing layers of different taxes such as income tax, corporation tax, enviromental taxes, inheritance taxes, customs duties and so on. Different taxes have different functions, and tax systems should contain an appropriate mix of them all. Read More

We support corporate responsibility and accountability
Tax is the forgotten element in the corporate social responsibility debate – and probably the most important. We believe that corporate responsibility starts with paying tax.

We oppose a financial and legalistic approach to tax, which focuses exclusively on the boundary between what is legal (tax avoidance) and what is illegal (tax evasion.) Instead we favour an accountability-driven approach, differentiating between what is responsible, and what is not. A responsible approach sees tax not as a cost to a company to be avoided, but like a dividend: a distribution out of profits to all stakeholders. Companies do not make profit merely by using investors' capital. They also use the societies in which they operate -- whether the physical infrastructure provided by the state, the people the state has educated, or the legal infrastructure that allows companies to protect their rights. Tax is the return due on this investment by society from which companies benefit.

We suppport greater transparency in corporate reporting. We want to see corporate tax policies brought firmly and transparently into wider governance frameworks such as business principles and corporate values. We also support intervention to protect company directors who wish to behave in an ethical manner from being undermined by predatory actors who thrive on abuse. Read more

We favour tax compliance and a culture of responsbility
Tax compliance means paying the right tax in the right place at the right time. We want to see the restoration of a culture of tax compliance among individuals, corporations, tax professionals, and governments, and an ethical approach to tax. They should follow not only the letter of the law, but the spirit of the law, with respect to their tax affairs.

Both tax evasion and tax avoidance are anti-social and equally harmful. Tax avoidance may be the more so, because it is so insidious. Highly paid professionals spend their lives devising ingenious schemes to reduce or eliminate the tax liability of wealthy people, and they have set themselves up as the “experts” on international taxation, developing and propagating a world view that sees these kinds of abuses as acceptable. Huge, well-resourced vested interests support them and have skewered international efforts to address the problems. Politicians, economists and civil society groups, perhaps daunted by the complexity of the issues or unable to see or measure what is happening in the secret world of offshore, too rarely challenge this world view. Meanwhile, tax authorities rarely have the staff or time to combat the enormous resources and wiles of the tax avoidance industry. The resulting mouse-and-cat game – besides its effect on corrupting democracy – is enormously wasteful.  

It is time for change. Our code of conduct on taxation outlines our approach. Civil society groups, economists, journalists, and ordinary people need to rouse themselves and make this one of the great political struggles of this young century.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  





Admin

HOW LONDON BECAME THE MONEY LAUNDERING CAPITAL OF THE WORLD
July 15th, 2012

Rowan Bosworth-Davies
http://www.ianfraser.org/how-london-beca...the-world/


Speaking on the Marr Show on BBC One on March 23rd, the former Daily Telegraph editor and historian Max Hastings said a “senior central banker” recently told him that London is now considered to be the “money-laundering capital of the world”.

Hastings was discussing the shooting of a Russian banker in London. The remark was all the more pertinent since Russia is now said to be controlled by a ‘gangster culture’ and because of the large number of Russian oligarchs and other business people who now live and work in the UK. A lot of these people carry criminal baggage, but the authorities seem entirely comfortable with the idea they should reinforce London’s position as the world’s “funny” money hub.

How did this state of affairs come about when, on paper at least, the UK has some of the strictest anti-money laundering legislation in the world?

The answer, I believe, lies in the fact that our many laws and regulations have never been effectively enforced by financial regulators, and banks and other financial institutions know they can get away with paying lip service to the rules.

Only this year has the Financial Services Authority managed to bring a money laundering charge against a UK-based financier, and he is a very small fish indeed. In an insider trading case against Richard Anthony Joseph, the FSA added two money laundering charges. It charged him with eight counts of insider dealing and two counts of money laundering.

The charges follow Joseph’s arrest in May 2010. The interest in the case is not in the insider dealing per se but in the addition of charges of money laundering. Although the FSA has had the power to prosecute this offence for some time, it has rarely, if ever, used it.

There is a world of difference between having rules which are meant to be obeyed, and doing everything within one’s power to avoid providing any meaningful form of compliance with the rules. The purpose of the regulations is to make it as difficult as possible for people who have acquired their money illicitly, anywhere in the world, to find a safe haven in the international banking system.

So there are rules and regulations which impose a burden on banks and financial institutions requiring them to ensure that before they accept money from a client, that they have a clear picture of its provenance, that they know as much as possible about their clients, their businesses, the sources of their funds, and if they have held high political office, to make sufficient enquiries to ensure that the monies being deposited are not in fact the proceeds of international aid payments which have been stolen from the country’s Treasury.

These rules are routinely flouted by the financial institutions.

They will say that they have large compliance departments, with many staff dedicated to ensuring that such situations do not arise, and in many senses, they are telling the truth. The problem is that they are not telling the whole truth. In 2011, The Financial Services Authority conducted an investigation into London banks and found that three-quarters of them were not doing enough to verify the sources of some customers’ wealth. The probe shed some light on a system that is failing to stop the flow of corrupt money, a problem that continues to have disastrous consequences for millions of people. Predictably, the regulator did not name the banks that had ignored the rules, nor gave any indication they would do so.

Predictably, the FSA also failed to take any public action against any of these institutions for this egregious flouting of the rules. They could have brought prosecutions against them for failing to implement the relevant regulations, but they did not do so. This is typical of the regulatory response to flagrant wrong-doing in our banking sector, and it is looked upon by the banks and their employees as a sign of immense weakness, which they feel able to exploit at every opportunity.

The compliance regime is undermined by the calibre and quality of people employed by the banks to implement the anti-money laundering regulations. Repeatedly, in discussions with recruitment consultants I am told that the kind of person being sought to fill a particular role is a ‘low-level’ employee with minimal length of service. They are looking for someone with a couple of years’ experience who might be capable of filling a new position, but they don’t want to pay any real money for anyone with any skills, real experience, or more importantly, the sense of independent knowledge to be able to stand up to the commercial people and say, ‘you can’t do that’!

You only have to look at the salary levels paid to compliance officers and then compare them to the salaries paid to traders and business getters, to see the huge discrepancies in functional importance the banks place on compliance. At a Group Compliance Director level, you may be seeing six figure salaries, but these are rare. The vast number of employees in this function are being paid peanuts compared to the business side of the organisation.

Another problem with the British mentality towards compliance is the over-emphasis on ‘process’ as compared with ‘effective enforcement’. The compliance function is awash with processes and procedures, they have manuals full of them, but all they are doing is seeking to demonstrate to any regulator that, if asked, they complied with the process.

But any process that is not rigorously tested and then analysed by a skilled and experienced person will be worthless. I once did a pre-Arrow review for a major global bank of their anti-money-laundering function. They had processes and procedures written down in manuals, provided at vast expense by the consultancy arm of one of the ‘Big Four’ accountancy firms. When I tested how the staff were applying these processes, I found a huge lacuna in their areas of knowledge. To make matters worse, they had no-one with any ‘grey hair’ sitting in the middle of the web, holding all the ends of the processes, in order to ensure that they were being effectively implemented.

If we have a regulatory agency that repeatedly refuses to enforce the anti-money laundering regulations, and is sufficiently inept to accept that the level of compliance being provided by the banks and other financial institutions can be performed using a ‘tick box’ mentality, it provides a key part of the answer as to why London is now the money laundering capital of the world.

This is typical of the British attitude towards any kind of financial regulation. It is as if governments of whichever persuasion, have swallowed the canard that if they are seen to be heavy-handed towards the banks, then this will in some way deprive the UK of some hidden special advantage.

So, we have regulations which only get enforced at the margins, and which the major players ignore at whim. Yes, from time to time the regulators do seek to fine the banks for the worst examples of their egregious behaviour, but fining a bank is nothing more than an HP commitment as far as the bank is concerned. All it does is dilute their profitability, harming the shareholders not the executive perpetrators, which is reflected in even less tax being paid on their profits. If they are not named and shamed, as is routinely the case, then there is no reputational risk attached to the penalty either, and no stigma is applied.

As with so many other areas of financial wrong-doing, it seems the banks have seen off the regulators yet again, and the only loser would appear to be the UK financial services’ arena which is now, apparently, the venue of choice for every international crook’s dirty money. We must prepare ourselves to witness more Russian-style assassination attempts on our streets, as the organised criminals who deposit their money with the even better organised criminals in the banking sector, continue to see London as the money laundry of choice.

This article was written by Rowan Bosworth-Davies and first posted on his blog on March 26th 2012. It is reused with permission. Since then, it has emerged that HSBC faces a $1 billion penalty in the United States for weak anti money laundering controls by the US government. At a hearing in Washington this Tuesday, the US Senate Permanent Subcommittee on Investigations is poised to deliver a blistering attack on the London-headquartered bank’s anti-money laundering systems and controls, highlighting its role in transactions tied to Iran, terrorist financing and drug cartels. In a Reuters Special Report published July 13th 2012, Carrick Mollenkamp and Brett Wolf have detailed how the bank’s Delaware-based anti-money laundering hub pays lip-service to tackling the problem of money laundering.


HSBC & TERRORIST FINANCE  
July 30, 2012
Tom Burghardt
http://www.blacklistednews.com/Black_Dossier:_HSBC_&%3B_Terrorist_Finance_/20768/0/0/0/Y/M.html

http://www.hsgac.senate.gov/subcommittee...se-history


It's tough being the world's second largest bank.

HSBC, the London-based British multinational banking and financial services giant operates in 85 countries with 7,200 offices worldwide with assets totaling more than $2.6 trillion (£4.06tn).

They're also caught-up in serial scandals: the Libor interest rate-fixing scam, serious charges of drug money laundering as well as suspicions that bank officers "palled around" with terrorist financiers.

Founded in 1865 when the British Crown seized Hong Kong as a colony in the aftermath of the First Opium War, British merchants (today we'd call them drug lords) needed a bank to handle the brisk trade in the illicit substance and launched the Hongkong and Shanghai Banking Company Limited. Rebranded "HSBC" in 1991, the bank expanded at breakneck speed in the heady days after The Wall fell.

While some might call them a success story, exemplars of financial wizardry in tough economic times, more appropriately perhaps, we might borrow a term from Mafia lore to describe their preeminent position in the capitalist pantheon of corrupt institutions: juiced.

'Sorry, now Go Away'

Today, the "War on Drugs" rivals the "War on Terror" for top spot on the global hypocrisy index.

Moral equivalencies abound. After all, when American secret state agencies manage drug flows or direct terrorist proxies to attack official enemies it's not quite the same as battling terror or crime.

Pounding home that point, a new report by the Senate Permanent Subcommittee on Investigations accused HSBC of exposing "the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls."

That 335-page report, "U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History," (large pdf file available here) was issued after a year-long Senate investigation zeroed-in on the bank's U.S. affiliate, HSBC Bank USA, N.A., better known as HBUS.

Drilling down, we learned that amongst the "services" offered by HSBC subsidiaries and correspondent banks were sweet deals with financial entities with terrorist ties; the transportation of billions of dollars in cash by plane and armored car through their London Banknotes division; the clearing of sequentially-numbered travelers checks through dodgy Cayman Islands accounts for Mexican drug lords and Russian mafiosi.

From richly-appointed suites at Canary Wharf, London, the bank's "smartest guys in the room" handed some of the most violent gangsters on earth the financial wherewithal to organize their respective industries: global crime.

A case in point. In 2008 alone the Senate revealed that the bank's Cayman Islands branch handled some 50,000 client accounts (all without benefit of offices or staff on Grand Cayman, mind you), yet still managed to ship some $7 billion (£10.9bn) in cash from Mexico into the U.S. Now that's creative accounting!

Playing fast and loose with U.S. banking rules, Subcommittee Chairman Carl Levin (D-MI) said that by exploiting the bank's "poor AML controls, HBUS exposed the United States to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions."

Describing a "compliance culture" that was "pervasively polluted for a long time," Levin said it "will take more than words for the bank to change course."

Yet weasel words and butt-covering were all that were proffered to the American people even before Senate hearings began. Bank spokesman Robert Sherman said in an emailed statement that HSBC "will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect. We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."

Right on cue, chief compliance officer David Bagley dramatically fell on his sword during those hearings and resigned on camera. It was quite a performance even by Washington's tawdry standards.

Appearing contrite, Bagley told the panel: "Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators. ... I recommended to the group that now is the appropriate time for me and for the bank, for someone new to serve as the head of group compliance."

While there's no word yet just how big Bagley's golden parachute will be, it's a sure bet he won't spend a day in jail, nor for that matter will Lord Stephen Green, HSBC's former Chairman and Chief Executive Officer.

Between 2003-2010, Green tilled the helm after serial stints directing The Bank of Bermuda Ltd., HSBC Mexico, SA, HSBC Private Banking Holdings (Suisse) SA and HSBC North American Holdings Inc.; units which feature prominently in the scandal. Sensing perhaps that the jig was up, last year he joined David Cameron's Conservative government as Minister of State for Trade and Investment.

Unlike Pappy Bush who claimed to be "out of the loop" during the Iran-Contra guns-for-drugs affair, Green was fully apprised of bank shenanigans and the Senate published emails which prove it.

Cheekily however, while underlings take the fall, Green told The Daily Telegraph, "I do not believe that I have a case to answer other than in the important sense that as chairman and chief executive I was responsible for what the company did. HSBC has expressed regret for the failures. I share that regret."

The Telegraph noted that Green has not considered resigning from Cameron's government, saying he was "very engaged" with his current plum post.

Ironically enough, the current Baron of Hurstpierpoint is an ordained priest in the Church of England and the author of an inspirational tome, Good Value: Reflections on Money, Morality and an Uncertain World. And no, you can't make this stuff up!

The top spot is now occupied by Stuart Gulliver who, quicker than you can say "we're sorry," admonished employees to "do better" and expressed remorse over his firm's "unacceptable behavior." Never mind that before ascending the throne, Gulliver was director of HBUS, HSBC Latin American Holdings Ltd., and HSBC Bank Middle East Ltd., divisions that have raised more than an eyebrow or two amongst Subcommittee investigators.

Topping Bagley's Kabuki-lite performance with her own rendition of clown car camp, Irene Dorner, HBUS's President and CEO told the Senate: "We deeply regret and apologize for the fact that HSBC did not live up to the expectations of our regulators, our customers, our employees, and the general public. HSBC's compliance history, as examined today, is unacceptable. ... We've worked hard to foster a new culture that values and rewards effective compliance, and that starts at the top."

Bathos aside, it was a polite way of saying "let's move on" and get back to the business of lining our pockets; after all, it's what we do best.

'The past is never dead. It's not even past'

Years before hijackers slammed passenger planes into the World Trade Center and the Pentagon killing nearly 3,000 people, secret state agencies began to exploit the fraternal links between Osama bin Laden's Afghan-Arab database of disposable Western intelligence assets, also known as al Qaeda, and prominent financial institutions.

In his 1999 book, Dollars for Terror, journalist Richard Labévière relates how a former CIA analyst explained: "The policy of guiding the evolution of Islam and helping them against our adversaries worked marvelously well in Afghanistan against the Red Army. The same doctrines can still be used to destabilize what remains of Russian power, and especially to counter the Chinese influence in Central Asia."

Was a new Cold War dawning?

No. In fact, it was the same Cold War. Only this time it was tricked-out in seductive finery by denizens of Western think-tanks and on-the-make NGOs. In the age of spin and endless news cycles, they'd hit upon a splendid formula to pour the "old" imperialist wine into new bottles: "humanitarian intervention" and a "responsibility to protect."

It was a brilliant script. In the blink of an eye our media-saavy masters could "enhance democracy" and "reform markets," magically transforming publicly-owned resources into privately-held assets controlled by banks! That terrorist proxies would serve as walk-ons and help drive the final nail into the coffin of national sovereignty wasn't considered proper conversation in polite company.

Labévière wondered whether "the new forms of terrorism actually embody the highest stage of capitalism?" They did, and "the straw men of the bin Laden Organization's subsidiaries [were] very well received by the business lawyers of Wall Street and the Bahamas, by the wealth managers of Geneva, Zurich and Lugano, and in the hushed salons of the City of London."

Not so curiously perhaps, "the privatization of violence and the privatization of the economy has become paradigmatic." In fact, "apart from any religious purpose," Labévière wrote, "the 'Jihad' is gaining ground as a profitable activity. It becomes liable to all the mafioso devolutions, and sinks into pure banditry. In many cases, Islamist ideology is used as a wonder worker to paper over banditry in all its forms."

Bin Laden as a Mafia capo di tutti capi? It certainly was a novel reading of geopolitical machinations!

More to the point, if an "army marches on its stomach," who then are the money men who put food in their bellies and kalashnikovs in their hands?

Bankrolled by Saudi and Gulf banks with a wink, a nod and logistical support from their old friends, the CIA and the Pentagon, today's Green condottieri once again are on the march, wrecking havoc and sowing chaos, with particular attention paid to states targeted as official enemies by the Global Godfather. Just ask the Iraqis, Libyans and Syrians.

While the Senate report may have disclosed that HSBC turned a blind eye to terrorist financing among it correspondent banks, the Riyadh-based Al Rajhi Bank for one, Saudi Arabia's largest privately-held financial institution, such arrangements hardly flourished in a vacuum.

With assets totaling $59 billion (£92.5bn), the Al Rajhi's are amongst the wealthiest families in the Kingdom. Investigators found that after 9/11 "evidence began to emerge that Al Rajhi Bank and some of its owners had links to organizations associated with financing terrorism, including that one of the bank's founders was an early financial benefactor of al Qaeda."

While the Al Rajhi family deny any role in financing terrorism, they have declined "to address specific allegations made in American intelligence and law-enforcement records, citing client confidentiality," The Wall Street Journal reported back in 2007.

Journalist Glenn R. Simpson averred that "a 2003 CIA report claims that a year after Sept. 11, with a spotlight on Islamic charities, Mr. Al Rajhi ordered Al Rajhi Bank's board 'to explore financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny'."

"A few weeks earlier," the Journal disclosed, the Agency said that "Mr. Al Rajhi 'transferred $1.1 billion to offshore accounts--using commodity swaps and two Lebanese banks--citing a concern that U.S. and Saudi authorities might freeze his assets.' The report was titled 'Al Rajhi Bank: Conduit for Extremist Finance'."

Although U.S. law enforcement and secret state agencies "acknowledge it is possible that extremists use the bank's far-flung branches and money-transfer services without bank officials' knowledge," the Journal noted that CIA analysts had concluded that "senior Al Rajhi family members have long supported Islamic extremists and probably know that terrorists use their bank."

It goes without saying that one should always approach CIA reports with a healthy dose of skepticism, especially in light of the Agency's well-documented history of employing cut-outs such as al Qaeda as terrorist cats' paws.

Such reports however, lay a trail of bread crumbs that policy makers can either act upon or more likely, ignore. That senior Bush and Obama administration officials did nothing with this information, never mind the regulatory agencies charged to enforce anti-money laundering laws, is testament to the corrupt, bipartisan nature of American policy as a whole.

It also beggars belief that Lord Green or the bank's compliance officers were unaware of CIA allegations or that Britain's own foreign intelligence arm, MI6, hadn't apprised top officials of the risks involved. In fact, as we'll see below, HSBC's own internal documents prove otherwise.

Osama's 'Golden Chain'

There were certainly plenty of red flags flying which should have alerted bank officials.

In March 2002, al Qaeda's list of financial benefactors surfaced when computers were seized in Sarajevo at the Bosnian headquarters of the Benevolence International Foundation, "a Saudi based nonprofit organization which was also designated a terrorist organization by the Treasury Department."

Osama bin Laden, who held a Bosnian passport issued by the breakaway government fronted by Western "liberal interventionist" darling Alija Izetbegović during NATO's dismemberment of socialist Yugoslavia, was a supporter of the Nazi SS Handschar Division during World War II. Bin Laden referred to this group of financial angels as his "Golden Chain."

Additional evidence also emerged in 2002 during Operation Green Quest, a Treasury Department effort to "disrupt terrorist financing in the United States."

In March of that year, law enforcement officials raided the Herndon, Virginia offices of the SAAR Foundation "an Al Rajhi-related entity." Indeed, the name "SAAR" was an acronym for the organization's founder, Sulaiman Abdul Aziz Al Rajhi, the controlling partner of the Al Rajhi Bank.

Subcommittee investigators commented that "one of the 20 handwritten names in the Golden Chain document identifying al Qaeda's early key financial benefactors is Sulaiman bin Abdul Aziz Al Rajhi, one of Al Rajhi Bank's key founders and most senior officials."

An affidavit supporting the search warrants "detailed numerous connections between the targeted entities and Al Rajhi family members and related ventures. The affidavit stated that over 100 active and defunct nonprofit and business ventures in Virginia were part of what it described as the 'Safa Group,' which the United States had reasonable cause to believe was 'engaged in the money laundering tactic of 'layering' to hide from law enforcement authorities the trail of its support for terrorists."

Green Quest investigators were particularly keen on unraveling links between the SAAR Foundation and the Swiss Al Taqwa Bank, incorporated in the Bahamas in 1988 for "tax purposes."

Founded by Swiss Nazi sympathizer and convert to Islam, Albert Armand (Achmed) Huber, who professed admiration for both Adolph Hitler and Osama bin Laden, the bank was accused by U.S. officials in helping al Qaeda launder funds. Although the Treasury Department froze its assets in 2001, the investigation was shut down by the Bush administration before deeper linkages could be fully uncovered.

In 2011, a lawsuit was filed by insurance giant Lloyd's of London against Saudi Arabia which sought to recover pay outs to victims of the 9/11 attacks. The suit noted "that two individuals who were former executives at Bank al Taqwa, Ibrahim Hassabella and Samir Salah, were also associated with the SAAR Foundation."

At the time, The Independent reported that the legal claim suggested that defendants "'knowingly' provided resources, including funding, to al-Qa'ida in the years before the attack and encouraged anti-Western sentiment which increased support for the terror group."

According to court briefs, "Absent the sponsorship of al-Qa'ida's material sponsors and supporters, including the defendants named therein, al-Qa'ida would not have possessed the capacity to conceive, plan and execute the 11 September attacks. The success of al-Qa'ida's agenda, including the 11 September attacks themselves, has been made possible by the lavish sponsorship al-Qa'ida has received from its material sponsors and supporters over more than a decade leading up to 11 September 2001."

Senate investigators, citing Green Quest and Lloyd's case files, noted that "Mr. Hassabella was a former secretary of al Taqwa Bank and a shareholder of SAAR Foundation Inc. Mr. Saleh was a former director and treasurer of the Bahamas branch of al Taqwa Bank, and president of the Piedmont Trading Corporation which was part of the SAAR network. The U.S. Treasury Department has stated: 'The Al Taqwa group has long acted as financial advisers to al Qaeda, with offices in Switzerland, Liechtenstein, Italy and the Caribbean.' Regarding Akida Bank, the lawsuit complaint alleged that Sulaiman bin Abdul Aziz Al Rajhi was 'on the board of directors of Akida Bank in the Bahamas' and that 'Akida Bank was run by Youssef Nada, a noted terrorist financier'."

The report went on to state that "HSBC was fully aware of the suspicions that Al Rajhi Bank and its owners were associated with terrorist financing, describing many of the alleged links in the Al Rajhi Bank client profile."

As icing on the cake, a 2007 study published by the Congressional Research Service (CRS) also found that "Saudi individuals and other financiers associated with the Golden Chain enabled bin Laden and Al Qaeda to replace lost financial assets and establish a base in Afghanistan following their abrupt departure from Sudan in 1996."

Assets I might add, that were used to bankroll the 9/11 attacks.

'Keen to maintain the relationships'

HSBC's dubious links to the Al Rajhi Bank didn't end with information discovered in the "Golden Chain" files; it fact, they were the tip of the proverbial iceberg.

After 9/11, the FBI reported that three of the hijackers, Hani Hanjour, Nawaf Alhazmi and Abdulaziz Alomari cashed thousands of dollars in travelers checks and received wire transfers from an unnamed individual drawn on accounts at the Al Rajhi Bank.

As researcher Kevin Fenton pointed out in Disconnecting the Dots, links among most of the hijackers were discovered through their banking transactions. "In this context," Fenton wrote, "it is worth noting that Global Objectives, a British banking compliance company, identified fifteen of the nineteen hijackers as high-risk individuals and established database profiles for them before the attacks. ... The list of high-risk people maintained by Global Objectives was available to dozens of banks," a list that presumably also included HSBC.

While there is no evidence that HSBC, or for that matter the Al Rajhi Bank, had prior knowledge of the 2001 atrocity, the gross indifference exhibited by these institutions through their violation of "know your client" (KYC) rules governing financial transactions reveal a callous disdain for elemental norms as they raced to inflate their balance sheets come hell or high water.

Privileged communications amongst senior staff revealed they were well aware of the issues and risks involved, yet did worse than nothing, they lobbied that HSBC continue their arrangements with the Al Rajhi Bank.

Suspicions were such that senior staff "classified Al Rajhi Bank as a 'Special Category of Client' (SCC), its highest risk designation." This was done, Senate investigators noted, because the Kingdom was considered a "high risk country" and due to the fact Al Rajhi's largest shareholder, Sulaiman bin Abdul Aziz Al Rajhi was considered "a Politically Exposed Person (PEP)."

Internal HSBC documents also revealed that in 2002, that is, after the 9/11 provocation, "the International Private Banking Department asked to transfer [several] accounts to HSBC's Institutional Banking Department in Delaware which had superior ability to monitor account activity."

In fact, transferring Al Rajhi accounts to the bank's Delaware division would have just the opposite effect and bank officials knew it.

As journalist Nicholas Shaxson noted in his exposé of offshore banking, Treasure Islands, "Delaware is the biggest state provider of offshore corporate secrecy." Shaxson pointed out that Delaware's Chancery Court has a "'business judgement rule' under which courts should not second-guess corporate managers," thereby "granting corporate bosses extraordinary freedoms from bothersome stockholders, judicial review, and even public opinion."

So much for any alleged "superior ability to monitor account activity"!

HBUS's Joseph Harpster wrote an email, stating: "The most recent concern arose when three wire transfers for small amounts ($50k, $3k and $1.5k) were transferred through the account for names that closely resembled names, not exact matches, of the terrorists involved in the 9/11 World Trade Center attack. ... The profile of the main account reflects a doubling of wire transfer volume since 9/01, a large number of travelers checks but with relatively low value and some check/cash deposits. According to the account officer, traffic increased because they have chosen to send us more business due to their relationship with Saudi British Bank and the added strength of HBC versus Republic. ... Maintaining our business with this name is strongly supported by David Hodghinson of [Saudi British Bank] and Andre Dixon, Deputy Chairman of [HSBC Bank Middle East]. Niall Booker and Alba Khoury [of HBUS] also support."

Aside from adverse publicity, the "low value" of the transactions seemed not to have troubled Harpster or his associates in the least. After all, the total "cost" of murdering 3,000 human beings were certainly small compared to the price of a vacation home in the Hamptons or a new Maserati.

Anxious there might be increased scrutiny from regulators (no worries there!), Harpster's email was forwarded by Douglas Stolberg, the head of Commercial and Institutional Banking to Alexander Flockhart, then a senior executive in Retail and Commercial Banking at HBUS. Stolberg noted: "As we discussed previously, Compliance has raised some concerns regarding the ongoing maintenance of operating/clearing accounts for Al Rajhi group." He forwarded recommendations on how to handle the account: "Retain [International Private Banking] as the relationship manager domicile for continuity purposes, and as we understand there is interest in further developing private banking business with family members. ... Domicile the actual accounts with Delaware where HBUS's most robust account screening capabilities reside."

"Screening capabilities" which could be shielded from nosy regulators due to Delaware's strict bank secrecy laws.

Stolberg went on to state: "[T]his has become a fairly high profile situation. Compliance’s concerns relate to the possibility that Al Rajhi's account may have been used by terrorists. If true, this could potentially open HBUS up to public scrutiny and/or regulatory criticism. SABB [Saudi British Bank] are understandably keen to maintain the relationships. As this matter concerns primarily reputational and compliance risks, we felt it appropriate for SMC [Senior Management Committee] members to be briefed ... so that they may opine on the acceptability of the plan. Please advise how you would prefer us to proceed." (emphasis added)

According to Senate staff, "Mr. Harpster reported a week later that Mr. Flockhart had decided to transfer the accounts to HBUS in the Delaware office."

But HSBC weren't the only entities hoping to curry favor with the Kingdom. A 2009 Government Accountability Office (GAO) report went on to note that "certain performance targets set by the State Department had been dropped in 2009, such as the establishment of a Saudi Commission on Charities to oversee actions taken by Saudi charities abroad as well as certain regulations of cash couriers."

Although GAO "recommended that the United States reinstate the dropped performance targets to prevent the flow of funds from Saudi Arabia 'through mechanisms such as cash couriers, to terrorists and extremists outside Saudi Arabia,' the State Department's "most recent annual International Narcotics Control Strategy Report contains no information about Saudi Arabia's anti-money laundering or terrorist financing efforts."

One reason why the State Department's report contains "no information" just might be the Obama administration's policy of supporting Saudi-backed Salafi terrorists soon to come online in Libya and Syria, financed through "Saudi charities abroad" or more directly through "cash couriers."

'You'd better be making lots of money!'

The Senate disclosed that HSBC "provided Al Rajhi Bank with a wide range of banking services, including wire transfers, foreign exchange, trade financing, and asset management services."

"In the United States," investigators learned that "a key service was supplying Al Rajhi Bank with large amounts of physical U.S. dollars, through the HBUS U.S. Banknotes Department."

"The physical delivery of U.S. dollars to Al Rajhi Bank was carried out primarily through the London branch of HBUS, often referred to internally as 'London Banknotes'."

Indeed, "HBUS records indicate that the London Banknotes office had been supplying U.S. dollars to Al Rajhi Bank for '25+ years.' In addition to the London branch, HBUS headquarters in New York opened a banknotes account for Al Rajhi Bank in January 2001. The U.S. dollars were physically delivered to Al Rajhi Bank in Saudi Arabia."

"On one occasion in 2008," Senate staff reported, the head of HSBC Global Banknotes Department told a colleague: 'In case you don't know, no other banknotes counterparty has received so much attention in the last 8 years than Alrajhi.' Despite, in the words of the KYC client profile, a 'multitude' of allegations, HSBC chose to provide Al Rajhi bank with banking services on a global basis."

Even though the Al Rajhi Bank "had not been indicted, designated a terrorist financier, or sanctioned," HSBC's Group Compliance section recommended that affiliates should sever their ties.

After that initial decision however, "HSBC affiliates disregarded the recommendation and continued to do business with the bank, while others terminated their relationships but protested HSBC's decision and urged HSBC to reverse it."

Complaints by lower level staff continued, disregarded by higher-ups, even though a U.S. indictment was issued in February 2005 for two individuals "accused among other matters, of cashing $130,000 in U.S. travelers cheques at Al Rajhi Bank in Saudi Arabia" and then smuggling the cash to CIA-backed terrorists in Chechnya.

Although internal bank documents showed that officials decided to cut their ties to the Saudi financial institution, they reversed themselves when pressure was brought to bear by Al Rajhi officials. Between 2006 and 2010, Al Rajhi received shipments totaling more than $1 billion in physical cash in the lucrative banknotes business from HSBC's U.S. affiliate according to investigators. Officials at the Saudi bank "had threatened to pull all of its business from HSBC if the U.S. banknotes business were not restored."

Senate staff reported that on January 4, 2005, "HBUS AML Compliance head Ms. Pesce sent an email to Daniel Jack, an HBUS AML Compliance Officer who often dealt with the London Banknotes office, instructing him to: '[p]lease communicate that Group Compliance will be recommending terminating the Al Rajhi relationship.' Mr. Jack inquired as to when that recommendation would be made. She responded: 'I expect to see an email from Susan Wright today. She tells me that HBME [HSBC Bank Middle East] does not agree with Compliance and will not be terminating the relationship from the Middle East, but she/David B[agley] recommend that in light of US scrutiny, climate, and interest by law enforcement, we in the US sever the relationship from here'."

At the time, Susan Wright was "the Chief Money Laundering Control Officer for the entire HSBC Group. She reported to David Bagley, head of the HSBC Group's overall Compliance Department."

Senate investigators noted that the "documents do not explain why HSBC Middle East disagreed with the decision or why it was allowed to continue its relationship with Al Rajhi Bank, when HSBC's Group Compliance had decided to sever the relationship between the bank and other HSBC affiliates due to terrorist financing concerns."

It soon became clear however, that "HSBC Group Compliance began to narrow its scope." Shortly thereafter a trader in the Banknotes department wrote, "for us is business as usual." Alan Ketley, HBUS AML Compliance Officer commented on the decision not to include Al Rajhi Trading in their earlier decision to sever all ties: "Looks like you're fine to continue dealing with Al Rajhi. You'd better be making lots of money!"

Meanwhile, "Al Rajhi Bank communicated the threat to 'pull any new business with HSBC' unless given a 'satisfactory explanation' why HSBC had stopped supplying it with U.S. dollars via its relationship managers," the Senate disclosed.

In short order, it was business as usual.

Despite continuing allegations of terrorist financing swirling around Al Rajhi Bank, HBUS "continued to supply, through its London branch, hundreds of millions of U.S. dollars to Al Rajhi Bank in Saudi Arabia. In addition, at Al Rajhi Bank's request, HBUS expanded the relationship in January 2009, by authorizing its Hong Kong branch to supply Al Rajhi Bank with non-U.S. currencies, including the Thai bat, Indian rupee, and Hong Kong dollar." (emphasis added)

When concerns were raised internally once again, Christopher Lok, the head of HSBC's Global Banknotes Department in New York fired back: "This is an on-going debate that will never go away. My stance remains the same, i.e. until it[']s proved we cannot simply rely on the Wall Street Journal['s] reports and unconfirmed allegations and 'punish’ the client'."

Needless to say, Hong Kong's "arrangement" with Al Rajhi went forward.

Despite "troubling information" which should have led to HSBC's quick exit from the banknotes market, the Senate reported that "HBUS continued to supply U.S. dollars to the bank, and even expanded its business, until 2010, when HSBC decided, on a global basis, to exit the U.S. banknotes business."

In conclusion, one needn't be a "conspiracy buff" to posit a link from HSBC to Al Rajhi to "cash couriers" operating across the Middle East in support of a multitude of U.S.-Saudi-backed "regime change" gambits in play today; policies which "worked marvelously well in Afghanistan against the Red Army."

As investigative journalist Ed Vulliamy pointed out in The Observer, the issues involved here are wider than drug money laundering or terrorist finance. "It is about where banks, law enforcement officers and the regulators--and politics and society generally--want to draw the line between the criminal and supposed 'legal' economies."

Commenting on the HSBC scandal, Robert Mazur, a former Customs Department deep-cover specialist and author of The Infiltrator, who penetrated Medellín cartel money laundering operations during the prosecution and collapse of BCCI in 1991, told The Observer that "the only thing that will make the banks properly vigilant to what is happening is when they hear the rattle of handcuffs in the boardroom."

"The stark truth is," Vulliamy wrote, "the notion of any dichotomy between the global criminal economy and the 'legal' one is fantasy. Worse, it is a lie. They are seamless, mutually interdependent--one and the same."
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