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GLOBAL SYSTEMIC CRISIS IN SUMMER 2009: THE CUMULATIVE IMPACT OF THREE ROGUE WAVES

Summer 2009 GEAB N°36 (June 17, 2009)
http://www.leap2020.eu/GEAB-N-36-is-avai...a3359.html-

Three rogue waves by H-J Fandrich for LEAP/E2020 As anticipated by LEAP/E2020 as early as October 2008, on the eve of summer 2009, the question of the US and UK capacity to finance their unbridled public deficits has become the central question of international debates, thus paving the way for these two countries to default on their debt by the end of this summer.

At this stage of the global systemic crisis’ process of development, contrary to the dominant political and media stance today, the LEAP/E2020 team does not foresee any economic upsurge after summer 2009 (nor in the following 12 months) (1). On the contrary, because the origins of the crisis remain unaddressed, we estimate that the summer 2009 will be marked by the converging of three very destructive « rogue waves » (2), illustrating the aggravation of the crisis and entailing major upheaval by September/October 2009. As always since this crisis started, each region of the world will be affected neither at the same moment, nor in the same way (3). However, according to our researchers, all of them will be concerned by a significant deterioration in their situation by the end of summer 2009 (4).

This evolution is likely to catch large numbers of economic and financial players on the wrong foot who decided to believe in today’s mainstream media operation of “euphorisation”.

In this special « Summer 2009 » edition, our team describes in detail these three converging « rogue waves » and their impact, and gives a number of strategic recommendations (currencies, gold, real estate, bonds, stocks, currencies) to avoid being swept away in this deadly summer.

Duration (in months) of US recessions since 1900 (average duration: 14,43 months) - Sources: US National Bureau of Economic Research / Trends der Zukunft
LEAP/E2020 believes that, instead of « green shoots » (those which international media, experts and the politicians who listen to them (5) kept perceiving in every statistical chart (6) in the past two months), what will appear on the horizon is a group of three destructive waves of the social and economic fabric expected to converge in the course of summer 2009, illustrating the aggravation of the crisis and entailing major changes by the end of summer 2009… more specifically, debt default events in the US and UK, both countries at the centre of the global system in crisis. These waves appear as follows:

1. Wave of massive unemployment: Three different dates of impact according to the countries in America, Europe, Asia, the Middle East and Africa

2. Wave of serial corporate bankruptcies: companies, banks, housing, states, counties, towns

3. Wave of terminal crisis for the US Dollar, US T-Bond and GBP, and the return of inflation


World trade shrinks : Chart 1: Year-over-year change in total exports from 15 major exporting countries (1991-02/2009) / Chart 2: Year-over-year change in exports from 15 major exporters between February 2008 and February 2009 (size of circles reflects vo
In fact, these three waves do not appear in quick succession like the « sisters rogue waves ». They are even more dangerous because they are simultaneous, asynchronous and non-parallel. Hence their impact on the global system accentuates the risks because they hit at various angles, at different speeds and with varying strength. The only certain thing at this stage is that the international system has never been so weak and powerless to face such a situation. The IMF and global governance institutions’ reforms announced by the London G20 are at a standstill (7). The G8 becomes more like a moribund club whose utility is increasingly questioned (8). US leadership is the shadow of what it used to be, mostly concerned by desperately trying to find purchasers for its T-Bonds (9). The global monetary system is in a process of disintegration, with the Russians and Chinese in particular accelerating their positioning in the post-Dollar era. Companies foresee no improvement in the business climate and speed up the pace of layoffs. A growing number of states falter under the weight of their accumulated debt created to “rescue banks” and are about to be faced with a welter of failings by the end of this summer (10). And, last but not least, the banks, once they have squeezed money out of naive savers thanks to the market upsurge orchestrated in the past few weeks, will be have to admit that they are still insolvent by the end of summer 2009.

In the United States and United Kingdom in particular, the colossal public financial effort made in 2008 and at the beginning of 2009 for the sole benefit of large banks became so unpopular that it was impossible to consider injecting more public money into banks in spring 2009, despite the fact that they were still insolvent (11). It then became necessary to invent a “fairy tale” to convince the average saver to inject his/her own money into the financial system. By means of the « green shoots » story, overpriced stock indices based on no real economic grounds and promises of « anticipated public funding repayment », the conditioning was achieved. Hence, while big investors from oil-producing and Asian countries (12) withdrew capital from these banks, large numbers of small individual investors returned, full of hope. Once these small investors discover that public funding repayment is only a drop in the ocean of public aid granted to these banks (to help them dispose of their toxic assets) and that, after three or four months at best (as analyzed in this GEAB N°36), these banks are again on the verge of collapse, they will realize, powerless, that their share is worth nothing once again.

Growth in GDP (green) and US debt (red) (Bn USD) - Sources: US Federal Reserve / US Bureau of Economic Analysis / Chris Puplava, 2008
Intoxicated by financiers, world political leaders will be surprised - once again – to see all the problems of last year reappear, all the more severe since they were not addressed but only buried under piles of public money. Once that money has been squandered by insolvent banks compelled to « rescue » even more insolvent rivals, or by ill-conceived economic stimulus plans, problems will re-emerge, further exacerbated. For hundreds of millions of citizens in America, Europe, Asia and Africa, the summer 2009 will be a dramatic transition towards lasting impoverishment due to the loss of their jobs, with no hope of finding new ones in the next two, three or four years, or due to the disappearance of their savings invested in stocks or capital-based pension funds, or in banking investments linked to stock markets or denominated in US dollars or British pounds, or investment in shares of companies pressured to desperately wait for an improvement not coming soon.

Notes:

(1) Not even the « jobless recovery » many experts are trying to make us believe in. In the United States, United Kingdom, Eurozone and Japan, it is a « recoveryless recovery » we must expect, i.e. a pure invention aimed at convincing US and UK insolvent consumers to start buying again and keeping US T-Bonds’ and UK Gilts’ country purchasers waiting as long as possible (until they decide that there is really no future selling their products to the lands of the US Dollar and British Pound.

(2) « Rogues waves » are very large and sudden ocean surface waves which used to be considered as rare, though we now know that they appear in almost every storm above a certain strength. « Rogue waves » can reach heights of 30 meters (98 ft) and exert tremendous pressure. For instance, a normal 3 meter-high wave exerts a pressure of 6 tons/m². A 10 meter-high tempest wave exerts a pressure of 12 tons/m². A 30 meter-high rogue wave can exert pressure of up to 100 tons/m². No ship yet built is able to resist such pressures. One specific kind of rogue wave is called the “three sisters”, i.e. a group of three rogue waves all the more dangerous in that, even if a ship had time to react properly to the first two waves, there is no way she could be in the right position to brave the third one. According to LEAP/E2020, it is a similar phenomenon that the world is about to encounter this summer; and no country (ship) is in a favourable position to face them, even if some countries are more at risk than others, as explained in this GEAB (N°36).

(3) LEAP/E2020 estimate that their anticipations of social and economic trends in the various regions of the world - published in GEAB N°28 (10/16/2008) – are still relevant.

(4) More precisely, in every region, media and stock markets will no longer be able to hide the deterioration.

(5) Our readers have not failed to notice that the same people, media and institutions, considered everything was for the best in the best of worlds 3 years ago, that there was no risk of a severe crisis 2 years ago, and that the crisis was under control a year ago. Their opinion is therefore highly reliable!

(6) As regards US economic statistics, it will be interesting to follow the consequences of the revision of the indexing formula by the Bureau of Economic Analysis due to take place on 07/31/2009. Usually, this type of revision results in further complexity of historical comparisons and favourable modification of important figures. For example, some previous revisions enabled the division of the average level of measured inflation by three. Source: MWHodges, 04/2008.

(7) Except at a regional level where each political entity is organized the way that it wants. For instance, the EU is taking advantage of the political fading away of the UK - mired in a financial, economic and political crisis - and taking supervisory control of the City of London (source: Telegraph, 06/11/2009). It is likely that summer 2009 will be the end of 300 years of the City’s supremacy at the centre of British power. On this subject, it is instructive to read George Monbiot’s article in The Guardian dated 06/08/2009 and take the time to read John Lanchester’s brilliant essay published in the London Review of Books dated 05/28/2009 entitled « It's finished ».

(8) Who cares any more about G8 final statements, such as that following the June 13th G8-Finance meeting (source: Forbes, 06/13/2009), at a time when each player in fact plays by his own rules: Americans on one side, Canadians and Europeans on another, British and Japanese in the middle, while the Russians play a complete different game?

(9) US Treasury’s Secretary of State, Timothy Geithner, recently suffered a very embarrassing experience whilst giving a speech in front of Beijing University students: his audience simply burst into laughter when he reassured that the Chinese government had made the right choice investing their holdings in US T-Bonds and Dollars (source: Examiner/Reuters, 6/02/2009)! There is nothing worse than arousing irony or ridicule when you are an established power because that power is nothing without respect (on the part of both friends and enemies), especially when the one mocking is supposed to be “trapped” by the one mocked. According to LEAP/E2020, this laughter is worth a thousand explanations of the fact that China does not feel at all « trapped » by the US dollar and the Chinese authorities know exactly what tracks greenbacks and T–Bonds are following. This kind of situation was unthinkable only 12 months, maybe even 6 months ago, first because the Chinese were still naive, second because they thought it was in their interest to make everyone believe they were naive. Obviously, on the eve of summer 2009, this situation has vanished: no need to pretend anymore, as highlighted by this survey of 23 famous Chinese economists, published on the first day of Timothy Geithner’s visit to Beijing, and revealing that most of them deem US assets « risky » (source: Xinhuanet, 05/31/2009). This student burst of laughter will continue to echo for many months to come…

(10) Not only in the US will shareholders be systematically prejudiced by the state under the pretext of higher common interest, as in the case of pension fund and bondholder losses related to the Chrysler and GM bankruptcies, or when the US government and Federal Reserve pressured Bank of America to hide the calamitous state of Merrill Lynch from its shareholders at the time of the latter’s takeover. Sources: OpenSalon, 06/10/2009 / WallStreetJournal, 04/23/2009. In the UK, Europe and Asia, the same causes will produce the same effects: the « raison d'état » has always been the simplest excuse to justify large-scale plundering … and severe crises are perfect times to call in the « raison d'état ».

(11) Germany has a similar problem due to next September’s national election. After the election, the country’s banking problems will be in the headlines, as several hundreds of billions of risky assets on the balance sheets of a number of banks, mainly regional ones, will need dealing with. It is far from the scope of US and UK banking problems, nevertheless Berlin will probably be faced with a number of potential bank failures. Source: AFP/Google, 04/25/2009. In the United States, the banks bailed out by the federal state have simply lowered the amount of loans granted when they are supposed to do the contrary. Source: CNNMoney, 06/15/2009

(12) Sources: Financial Times, 06/01/2009; YahooFinance, 06/04/2009; StreetInsider+Holdings/4656921.html, 05/15/2009; Financial Times, 06/01/2009


Admin

THE GREAT AMERICAN BUBBLE MACHINE
http://www.rollingstone.com/politics/sto...le_machine

Matt Taibbi on how Goldman Sachs has engineered every major market manipulation since the Great Depression

Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs. The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding, "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." Taibbi shot back: "Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it." Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.


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.

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.

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.

See Taibbi discuss Goldman Sachs' big scam.


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.

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.

And 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.


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.

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.


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 bail out 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 of 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."

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WE HAVE CREATED A MONSTER ... BANKS WITH ACCESS TO PUBLIC FUNDS
Ian Macwhirter
http://www.globalresearch.ca/index.php?context=va&aid=14061


THE ECONOMY: an apology.

"Readers of the nation's press over the last six months might have been forgiven for believing that there was an economic recession. Headlines like: Doom Britain, It's Worse Than The Great Depression and Mothers Start Selling Children For Food might have led casual readers to conclude that Britain was in a very severe financial crisis. We would like to make it clear that there was not a jot or tittle of truth in these reports and that the British economy is bouncing back, house prices are booming and happy days are here again. On behalf of all newspapers and politicians, we would like to apologise for any confusion. Mr Robert Peston of the BBC has agreed to a 40% salary reduction, which he will donate to charity."

It is the most dramatic turnaround in economic history: from bust to boom in a matter of weeks. The pound is up, oil prices are up, consumer confidence is up, bank lending is up and house prices rose 2.6% in May. That last figure is the most astonishing, since hardly any houses are actually being sold right now, and the vast majority of mortgages require a 25% deposit. But who am I to argue with the green shoots consensus? Killjoys might point out that unemployment is still growing fast, that most of our manufacturing industry is collapsing, and that personal and public debt levels remain at intolerable levels. You could point out that the Baltic Dry Shipping index - a measure of world trade - has collapsed again. But the word has gone out that the recession has "bottomed out" and anyone who departs from it is seen as talking down the economy.


So, what has happened exactly to achieve this remarkable turnaround? Well, it's just a guess, but £1.3 trillion in public money may have had something to do with it. That's how much the government has put at the disposal of the banking system in loans, equity, swaps and asset protection schemes. All this cash has to go somewhere, and it is going, first to bank profits and then indirectly to middle-class home-owners. Anyone with a relatively large mortgage has just had a colossal windfall, with their monthly repayments slashed in many cases by more than half. So long as interest rates are kept artificially low the relatively well-off are being insulated from economic uncertainty. They are also feeling better off because the stock market has increased by nearly a third in the last six months. This feeds into pensions and other investments. Banks can start selling mortgage bonds again; they lend more, people buy houses, retail sales rise, taxes recover and we're all off to the races again.

Except, of course, that it isn't quite that easy. This is all being done at a cost, and that money used to bail out insolvent banks has to come from somewhere. And as the real economy sheds jobs, the government has to pay more money in unemployment benefits while getting less revenue from taxes because fewer people are in work. Hence the "great debate" last week about who is going to cut public spending most: Labour or the Tories. The Conservative health spokesman, Andrew Lansley, admitted that there would have to be a 10% cut in spending in non-health departments. This allowed Labour to indulge in some electioneering by painting the Tories as the party of cuts in services. In reality, the cuts are clearly set out in the government's own spending forecasts to 2014. These show that spending will have to rise much more slowly than before, which means that planned spending is being cut even if it is rising in cash terms.

The government doesn't want to admit this because it is banking on our flexible friend, inflation, to come along and pay off the debt for it. The Bank of England is in the process of effectively printing billions of pounds through Quantitative Easing, which will have the effect of undermining the purchasing power of the pound. The government hopes this will erode the deficit, expected to rise to over £150 billion.

And the losers? Well, the usual victims. Older people living on fixed incomes have seen their wealth transferred to middle-aged home-owners. Anyone who has had the misfortune to save for the future is being robbed blind right now because interest rates are less than CPI inflation. Young families will have to take on immense debt to buy a house which will chain them for life to the banks. Public services will decline as inflation erodes the pounds we put into health and education and public service workers lose their jobs.

The real winners are the big banks - the ones left standing, that is. Recessions generally involve structural changes in the economy, and the big gain for the financial sector this time is consolidation. We have been left with a handful of giant financial behemoths like Lloyds, which alone has one-third of all UK mortgages and 40% of retail banking. We already had banks that were too big to fail; now we have banks that are so big, they can make the government fail.

Last week, Lloyds axed hundreds jobs by closing the Cheltenham & Gloucester branches without a murmur from government, even though we own nearly half of Lloyds. The government is desperate for the economic recovery to be sustained, and the last thing it wants to do is interfere. It wants to go back to the golden days of bank lending in 2006/07, when money was so cheap HBOS was practically giving it away. We no longer hear Lord Turner of the Financial Services Authority, threatening to get tough on the banks. Britain is even resisting EU reforms which would regulate private equity and hedge fund activity.

We are emerging from this recession with a new kind of economy: a banking kleptocracy that has captured government and regulators. After a two-year financial crisis, largely of their own making, the banks have been rewarded by massive public subsidies, freedom from regulation and the lifting of anti-monopoly rules. No government will stand up to banks for fear of precipitating another crisis, such as the one that followed the collapse of Lehmans last October. Talk about moral hazard. The banks can return to their gambling table again, confident that the government will bail them out, should they lose. Notice how few bankers lost their jobs and how rapidly bosses of even nationalised banks like RBS have returned to paying themselves multi-million-pound bonuses again.

We may now have six months of "recovery" from the latest trauma, but we have assuredly laid the foundations for another even more epic crash a few years down the line. We have created a monster: banks which have ceased being capitalist entities working in a market, and have effectively become a branch of the state, with a pipeline straight into our wallets. Enjoy.

Admin

BANKSTERS LOVE CAP AND TRADE : ECONOMIC COLLAPSE ABOUT TO ACCELERATE

The well-placed and well-connected are set to make trillions off new climate bill
James Corbett
http://www.globalresearch.ca/index.php?context=va&aid=14209

The sweeping new bill which just passed the House last Friday, the Clean Energy and Security Act of 2009, is ostensibly about climate change, but it is in fact a bill of staggering economic ramifications that is going to accelerate the takeover of the economy by the well-placed financiers who have already plundered the Treasury and the Fed of $12+ trillion and counting. It was rushed through the House in the tradition of such nightmarish legislation as the Patriot Act and the banker bailout of last October: hundreds of pages were added to it at the last minute and it was humanly impossible for anyone to have read it before they voted on it. This, of course, is exactly what Obama promised his administration would never allow to happen, and for good reason; bills passed in this manner are always the result of fear and panic and inevitably results in legislation that would never be passed upon sober second thought.

In this case, the rush to pass this new bill was an attempt to stop any scrutiny of a plan that is going to utterly transform the American economy, further centralize control of citizens' lives in the hands of unaccountable federal bureaucrats and complete the transfer of the American economy from Main Street to Wall Street. And all of this in the name of fighting a threat which itself is a demonstrable fraud. In short, the banksters and bureaucrats are sharpening their knives, preparing to butcher what's left of the carcass of the United States, and a good portion of the public are not only willing to allow it but are actually clamoring for it.

The first thing that needs to be understood about the brand new trillion dollar carbon-trading commodities market that will be brought into existence if this bill passes the Senate is that it is a ripoff designed by and for the very corporate interests the environmentalists claim to be fighting. For an historical precedent of what is being proposed under this cap-and-trade scam one can look to Enron, which immediately found ways to plunder billions of dollars from new energy market legislation passed by the Clinton Administration in 2000. They gave schemes for manipulating billions of dollars out of Californians funny little names like Death Star and even went so far as to rig up a completely fake trading floor in their offices in order to bamboozle investors who were interested in the company's remarkable success. They got away with it because they were The Smartest Guys in the Room, much brighter than the government bureaucrats who were supposed to stop them from committing such blatant fraud (assuming the regulators weren't simply paid to look the other way). And now supporters of this new bill are putting their blind faith in these same bureaucrats to regulate a scheme to create a vastly more complex market with hundreds of times as much money at stake. Is it any wonder Enron was a booster for cap-and-trade?

That the new carbon trading market can and will be manipulated by the very same financial oligarchs and government bureaucrats who have brought the world to the brink of economic Armageddon is laid bare in a must-read article by Matt Taibi in the latest issue of Rolling Stone. In "The Great Bubble Machine" Taibi meticulously documents how the amazingly well-connected Goldman Sachs has managed to manipulate and profit from every financial bubble since the Roaring Twenties and how they're getting set to do it all over again with the creation of a carbon trading bubble:

"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."

In effect, this bill creates an entirely new commodity that is guaranteed to generate ever-increasing profit for those who have already spent millions preparing to get in on the ground floor. Here's a hint: that does not include your average mom and pop investor or your dual-income family struggling to make ends meet in a crashing economy. Here's another hint: it does include financial juggernauts like Goldman Sachs who have been investing in solar, wind, and biofuels for years and now just happen to find themselves in the perfect position to start reaping vast profits from their headstart in the new carbon credit economy (and you thought Paulson was into going green for any other reason than making green?). It also includes Obama, who was instrumental in helping set up the Chicago Climate Exchange for his political cronies like Al Gore, who already has a company which he uses to buy carbon credits from himself and who had made multi-million dollar investments in companies developing carbon tracking software that will be essential to the new carbon-swindle economy.

There are still those out there, however, who believe that this time it's going to be different. This time the government is going to set up a new trillion dollar industry overnight, make sure it is regulated by angels of unquestionable integrity and goodwill, prevent it from being manipulated by big business, and create scores of new "green" jobs in the renewable energy industry (presumably to replace the hundreds of thousands of jobs that the economy is already hemorrhaging or the hundreds of thousands more that will be shed when these carbon taxes and penalties really ratchet up in the next decade). Well, let's assume for a moment that we have crossed into just such a fantasy world. It still does not change the fact that the bill itself only offers phony solutions to a problem that doesn't exist.

The phony solution is the "Clean Energy" part of the Clean Energy and Security Act. What feelgood platitudes about pumping billions of dollars into solar, wind and alternative energy projects obscure is that throwing money hand over fist at inherently flawed technologies will not actually make them work, nor will it make the money-hungry charlatans who promote them any more honest. Just ask Albert Lanier. He's a freelance journalist who has been writing a series of articles about First Wind, a Massachusetts-based wind developer that is currently being investigated by the New York Attorney General's office. In a recent interview with The Corbett Report he revealed how the Mafia has been linked to the Italian wind farm industry, which might say more about the industry than it does about the mob.

Of course, the entire idea of "cleaning" the atmosphere of carbon dioxide seems a bit ridiculous when you realize that by historical levels we are living in a CO2-starved environment, that global surface temperatures are dropping, that global ocean temperatures are dropping, that key proponents of the manmade global warming theory have been caught faking data to support their arguments, that Arctic sea ice is expanding, and that sea levels are not rising. But why let actual science get in the way of a good scare story, especially when that scare story can be used to create a new trillion dollar industry for the banksters?

For those who cannot be convinced to consider an issue until it affects them personally, rest assured this draconian new legislation will reach into every American citizen's living room...literally. As Congressman Steve Scalise has already pointed out, this "climate bill" contains within it a new national building code that supersedes all existing state codes. If enacted, this legislation will create an entirely new class of federally-funded green brigades with the mandate to perform house-to-house inspections to look for violations of this new "green" building code. They would even be able to impose civil penalties for code violations (like having the wrong windows or lightbulbs). Watch Congressman Scalise's comments in the player below:

This bill is not only unnecessary, it is dangerous. It is not only economically reckless, it is economically suicidal. It's passage will be a particularly dark day in American legislative history, something almost unthinkable given the constitution-destroying atrocities passed during the Bush years. There is only one thing left for Americans to do: call their senators and let them know that it's time to make a decision: vote against the Clean Energy & Security Act of 2009 or join the unemployment line come next election.

Admin

WHEN WILL THE RECOVERY BEGIN? NEVER

Robert B. Reich
http://informationclearinghouse.info/article23026.htm

The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.

Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.

That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.

Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.
Robert Reich is professor of public policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. He was secretary of labor in the Clinton administration.


OBAMA ECONOMIC RECOVERY PLAN DOOMED
Biden Admission

Gerald Celente
http://www.globalresearch.ca/index.php?context=va&aid=14277

KINGSTON, NY -- Vice President Joseph Biden's admission that the Obama Administration's economic recovery plan was predicated on egregiously inaccurate forecasts consigns the entire effort to failure, predicts Gerald Celente.

"The plan is based upon false premises," said Celente, Director of The Trends Research Institute, referring to White House projections used to sell the stimulus package to the nation. To make their case, Washington warned that without the Obama stimulus, unemployment, then at 7.2 percent, would rise above 8 percent in 2009 and peak at 9 percent in 2010.

Yet, only midway through 2009, the unemployment rate is already 9.5 percent and rising. "This is an enormous miscalculation," contends Celente. "In real world terms, it means that 2.5 million more Americans than anticipated have lost their jobs. The inaccuracy of the forecast undermines the validity not only of the plan, but also of the planners."

Joe Biden sidestepped blame, pleading "guilty with an explanation." Weaseled Biden, "The truth is, we and everyone else misread the economy."

NO! "Everyone else" did not "misread the economy." The Trends Research Institute read it correctly, and has been reading it correctly for decades.

"How often does the government have to be wrong, and how wrong do they have to be before people and the media stop taking them seriously?" wondered Celente. "The first spending package didn't deliver as promised, and now Obama's advisors want another stimulus, as if doubling up on failure will achieve success."

"If we made forecasts as inaccurate as the Obama team's and implemented similarly unsuccessful plans, and then tried to salvage the situation by repeating exactly the same mistakes, we'd have been laughed out of business long ago," Celente said.

Celente contends there are but three possible explanations for President Obama and his "brilliant" team of economic advisors "misreading how bad the economy was":

1. They're ignorant, despite PhD's and impressive resumes. 2. They are so arrogant they are incapable of acknowledging that anyone outside the incestuous Beltway circle could possibly get it right ... when they've got it wrong. 3. They actually do know better, but are lying.

"None of these suffice as excuses," concluded Celente, "but the inability or unwillingness to make accurate forecasts appears to be a Vice Presidential prerequisite." This past January, departing VP Dick Cheney sloughed off his administration's central role in accelerating the financial crisis and failure to head it off, claiming, "Nobody anywhere was smart enough to figure it out."

Anyone in the media interested in interviewing one person who was "smart enough to figure it out" should talk to Gerald Celente.

The Greatest Depression is at hand. The stimulus, bailout and buyout packages being forced on the nation by an Administration that "misread how bad the economy was" will only lead to "Obamageddon": The Fall of Empire America.

Admin

HOW BAD WILL THE ECONOMY GET? REALLY, REALLY BAD

Thomas Greco, Jr.
July 15, 2009 "AlterNet" --

Historically, every financial and economic crisis has been used to further centralize power and concentrate wealth. This one is no different, and in fact the moves being promoted by the Obama administration and the central banks of the Western powers will take the whole world to the pinnacle of financial despotism -- unless enough people wake up and claim their own "money power.”
In recent months, the Fed has expanded its "assets" from about $800 billion to more than $2,000 billion. Those so-called assets are securities it bought from financial institutions and loans made to central banks in other countries. But the Fed refuses to name the specific recipients of those funds, while admitting that by doing so they are manipulating the value of the US dollar on foreign exchange markets. (Congressman Alan Grayson Grills Fed Vice Chair Donald Kohn.)

Where does the Fed get the money to buy those "assets" or to make those loans? Quite simply, it creates the money. Unlike you or me or any other economic entity, the Fed has the power to create Federal Reserve dollars by effectively writing a check against no funds. This is the function known as "Open Market Operations."

What is the economy experiencing now, and what is in prospect for the future? Despite unprecedented inflation of the money supply, we are now (mid-July, 2009) in a period of depression. How can we have simultaneous inflation of the currency and still have economic depression?

It is a matter of where the money is going. While the public sector (federal government) is being lavishly funded to maintain a global empire, and the banks are being bailed out to try to keep a dysfunctional and destructive financial system from collapsing, the private productive sector is being starved for credit. As a result, businesses are bankrupting, people are losing their jobs and their incomes, and lower levels of government are being squeezed because their tax revenues are shrinking.

There is also the matter of the real estate bubble that was created by the financial institutions as they loaded up the private sector with a debt burden that was way beyond its ability to bear. Now that burden is being shifted to the public sector as the government assumes those "toxic" loans. Unfortunately, it is not the poor suckers who were lured into the debt trap that are being relieved, but the predatory lenders who laid the traps. So mortgages are being foreclosed at an unprecedented scale, people are losing their equity as housing values plunge, and more Americans are being made homeless.

These are the factors that have so far kept the effects of monetary inflation from becoming extreme. Ultimately, however, such abusive issuance of political money shows up as rising prices.

When will the price effects of hyper-inflation begin to kick in? How will the government respond to it? What will be the social and political fallout? What can ordinary people do to protect themselves from monetary and legislative abuses? These are the questions that beg for answers.

Already there are rumblings and signs that the U.S. dollar is about to lose its status as the global reserve currency. When that happens, imports of energy and other necessities will become more expensive. The U.S.’s massive trade deficits will not be sustained into the future. China, the OPEC countries, and others that have been buying massive amounts of U.S. government bonds with their dollar earnings, are indicating that their appetite has been sated. Bilateral and multilateral trade agreements are being made that bypass the use of the dollar for international trade.

One thing is clear -- we cannot rely upon the government to act in the best interests of the people. Already, President Obama has moved to give the Federal Reserve even more power to control the people's credit and financial resources. According to a June 18 article in the Wall Street Journal, "The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn't normally supervise the institution." This is not a new plan; it was floated as a trial balloon during the Bush administration. As early as March 2008, then Treasury Secretary Paulson was proposing to "give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system."

Ostensibly that would be done to prevent the errant financial institutions from repeating their sins of the recent past, but more likely it will have the effect of suppressing any private initiative that might compete with the financial cartel. The Fed is, after all, a private company run by the bankers for the bankers. A recent Reuters article is critical of Obama's move because of the Fed's lack of accountability. It is a plan that seeks to preserve at all costs the credit monopoly that exists under the central banking regime and to perpetuate the looting of the economy by monetization of federal government debts and other ultimately worthless "assets."

During the Great Depression, President Franking Roosevelt, upon taking office in 1933, declared a "bank holiday." He ordered all banks to close. Many of those banks never reopened and many people lost their savings. He also demanded that all Americans turn in their gold holdings in return for paper currency, which was one of the biggest robberies in history up to that time. Some pundits are predicting that another such bank holiday is being planned to put the brakes on price increases, once they begin in earnest, by depriving people of access to their savings, as was done in Argentina in 2002.

Governments that mismanage money invariably use the force of law to prevent the sheep from escaping from the shearing pen (or the slaughter house). So long as people are completely dependent upon political money and banks, they will docilely (or grudgingly) accept whatever "solutions” the political leadership puts forth, and do whatever the government demands of them.

Fortunately there is a way out. The primary purpose of money is to facilitate the exchange of goods and services in the markets. But it is possible to mediate the exchange process without using political money as the payment medium, and without borrowing from banks.

There is plenty of precedent for this sort of cashless trading. It involves a process of direct credit clearing among associated buyers and sellers. During the Great Depression the entrepreneurial middle class in Switzerland organized themselves into the WIR Economic Circle Cooperative. After 75 years, the WIR clearing circle continues to thrive with more than 60,000 member businesses trading the equivalent of about US$1.3 billion per year.

The past four decades have seen the emergence of a new industry comprised of commercial trade exchanges, sometimes called "barter" exchanges, that act as "third part record keepers" enabling the same sort of direct credit clearing for thousands of businesses in cities around the world. Efforts at the grassroots by social entrepreneurs to localize exchange and finance have been similarly widespread in many communities over the past twenty-five years.

Measures to properly reform the money and banking system by political means have about as much chance as the proverbial snowball in hell. However, what is possible, and what seems to be gaining traction to transcend the dominant system, is the materialization of voluntary, private initiatives that enable the cashless exchange of goods and services. As these systems continue to improve, proliferate, and scale up, they will provide a pathway toward a sustainable economy, greater local control, and a better quality of life for all.

Thomas H. Greco, Jr. is the director of the Community Information Resource Center, which he founded in 1992. CIRC is a nonprofit consulting organization and networking hub dedicated to economic equity, social justice, and community improvement, specializing in community currency and mutual credit design, development, and implementation. His newest book is The End of Money and the Future of Civilization.

Admin

GLOBAL BANKING ECONOMIST WARNED OF COMING CRISIS
THE MAN NOBODY WANTED TO HEAR

Beat Balzli and Michaela Schiessl
http://www.globalresearch.ca/index.php?context=va&aid=14651

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

William White had a pretty clear idea of what he wanted to do with his life after shedding his pinstriped suit and entering retirement.

White, a Canadian, worked for various central banks for 39 years, most recently serving as chief economist for the central bank for all central bankers, the Bank for International Settlements (BIS), headquartered in Basel, Switzerland.


Then, after 15 years in the world's most secretive gentlemen's club, White decided it was time to step down. The 66-year-old approached retirement in his adopted country the way a true Swiss national would. He took his money to the local bank, bought a piece of property in the Bernese Highlands and began building a chalet. There, in the mountains between cow pastures and ski resorts, he and his wife planned to relax and enjoy their retirement, and to live a peaceful existence punctuated only by the occasional vacation trip. That was the plan in June 2008.

And now this.

White is wearing his pinstriped suits again. He has just returned from California, where he gave a talk at a large mutual fund company. Then he packed his bags again and jetted to London, where he consulted with the Treasury. After that, he returned to Switzerland to speak at the University of Basel, and then went on to Frankfurt to present a paper at the Center for Financial Studies. From there, White traveled to Paris to attend a meeting at the Organization for Economic Cooperation and Development (OECD). Finally, he flew back across the Atlantic to Canada. White is clearly in demand, including in North America.

Since the economy went up in flames, the wiry retiree has been jetting around the globe like a paramedic for the world of high finance. He shows no signs of exhaustion, despite his rigorous schedule. In fact, White, with his gray head of hair, is literally beaming with energy, so much so that he seems to glow.

Perhaps it is because someone, finally, is listening to him.

Listening to him, that is, and not to his rival of many years, the once-powerful former chairman of the US Federal Reserve Bank, Alan Greenspan. Greenspan, who was reverentially known as "The Maestro," was celebrated as the greatest central banker of all time -- until the US real estate bubble burst and the crash began.

Before then, no one in the world of central banks would have dared to openly criticize Greenspan's successful policy of cheap money. No one except White, that is.

'A Disorderly Unwinding of Current Excesses'

White recognized the brewing disaster. The analysis department at the BIS has a collection of data from every bank around the globe, considered the most impressive in the world. It enabled the economists working in this nerve center of high finance to look on, practically in real time, as a poisonous concoction began to brew in the international financial system.

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market. To give all this money somewhere to go, investment bankers invented new financial products that were increasingly sophisticated, imaginative -- and hazardous.

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy. "One hopes that it will not require a disorderly unwinding of current excesses to prove convincingly that we have indeed been on a dangerous path," White wrote in 2006.

In the restrained world of central bankers, it would have been difficult for White to express himself more clearly.


DER SPIEGEL
Graphic: The curse of cheap money

Now White has been proved right -- to an almost apocalyptical degree. And yet gloating is the last thing on his mind. He, the chief economist at the central bank for central banks, predicted the disaster, and yet not even his own clientele was willing to believe him. It was probably the biggest failure of the world's central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space.

For years, the regulators of the global money supply ignored the advice of their top experts, probably because it would require them to do something unheard of, namely embark on a fundamental change in direction.

The prevailing model was banal: no inflation, no problem. But White wanted central bankers to take things a step further by preventing the development of bubbles and taking corrective action. He believed that interest rates ought to be raised in good times, even when there is no risk of inflation. This, he argued, counteracts bubbles and makes it possible to lower interest rates in bad times. He also advised the banks to beef up their reserves during a recovery so that they would be in a position to lend money in a downturn.

If White's model had been applied, it might have been possible to avoid the collapse of the financial system -- or at least soften the fall. But there was simply no support for his ideas in the singular, and highly secretive, world of central bankers.


Prima Donnas of the Banking World


The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.


The penthouse at the top of the building, with its magnificent view of Basel, is decorated for the annual dinner, the nuclear shelter in the basement is swept out and the wine cellar is restocked with the best wines. At the BIS's private country club, gardeners prepare the tennis courts as if a Grand Slam tournament were about to be held there. The losers of matches can find comfort in the clubhouse, where the Indonesian guest chef serves up Asian delicacies à la carte.

"Central bankers can sometimes be prima donnas," says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.

The corridors of the BIS headquarters buildings are lined with retro white leather chairs and sofas from the 1970s. The round table where the delegates address the problems of the global economy is polished to a high gloss. But the most impressive space of all is the auditorium, with its modern armchairs in white leather and chrome, the thousands of tiny LED lights, the booths in the back where the interpreters sit behind one-way glass, and the console where the financial masters of the world do their work, centrally positioned at the front of the room. The room is evocative of the control room in "Star Trek." It was supposed to be the hub from which the financial world was to be guided through every possible hazard.

Naturally, the building is largely bugproof, the goal being to prevent anything from leaking to the outside and any unauthorized individuals from penetrating into its interior. There are no public minutes of the meetings. Everything that is discussed there is confidential. The word transparency is unknown at the BIS, where nothing is considered more despicable than an indiscreet central banker.

Central bankers, proud of their independence, are intent on holding themselves above all partisan influences while taking all necessary measures to keep the global economy healthy.

These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.

It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world's total currency reserves, or €217 trillion ($304 trillion), as well as 120 tons of gold.

"Our strength is that we have no power," says BIS Secretary General Peter Dittus. "Our meetings are generally not oriented toward decision-making. Instead, their value consists in the exchange of views." There are no across-the-board agreements on the order of: "Let's raise the prime rate by a point." Opinions take shape in a much more subtle fashion, through something resembling osmosis.

Central bankers are not elected by the people but are appointed by their governments. Nevertheless, they wield power that exceeds that of many political leaders. Their decisions affect entire economies, and a single word from their lips is capable of moving financial markets. They set interest rates, thereby determining the cost of borrowing and the speed of global financial currents.

Their greatest responsibility is to prevent a bank or market crash from jeopardizing the viability of the financial system and, with it, the real economy. It is no accident that central bankers are also in charge of bank supervision in most countries.

But this time they failed miserably. How could this community of central bankers, despite its access to insider information, have so seriously underestimated the dangers? And why on earth did it not intervene?

"Somehow everybody was hoping that it won't go down as long as you don't look at the downside," William White told SPIEGEL. "Similar to the comic figure Wile E. Coyote, who rushes over a cliff, keeps running and only falls when he looks into the depth. Of course, this is nonsense. One falls, because there is an abyss."

But why did they all refuse to recognize the abyss? Why did the central bankers, of all people -- those whose actions are above profit expectations, shareholder pressure and the need to please voters -- keep their eyes tightly shut? Did they too succumb to the general herd instinct?

"As long as everything goes well, there is a great reluctance to (make) any kind of change," says White. "This behavior is deeply rooted in the human mind."

White calls it the human factor. And that factor had a name: Alan Greenspan.


The Killjoy Vs. the Party Animal


Greenspan was long a member of the BIS board of directors and was effectively White's superior. As a fervent champion of the free market, he advocated the model of minimal intervention. In his view, the role of central banks was to control inflation and price stability, as well as to clean up after burst bubbles. Because no one can know when bubbles are about to burst, he argued, it would be impossible to intervene at the right moment.


In his eyes, the instrument of sharply raising interest rates to counteract market excesses routinely failed. Leaning "into the wind," he argued, was pointless. He could even cite historical proof for his thesis. Between the beginning of 1988 and the spring of 1989, the Fed raised the prime rate by three percentage points, the goal being to curtail lending by raising the cost of borrowing. The textbook conclusion was that this would be toxic to the markets, but precisely the opposite occurred: Prices continued to rise.

This supposed paradox repeated itself five years later. Once again, the Fed raised interest rates and, again, the market shot up.

These experiences only strengthened Greenspan's conviction that raising interest rates was an ineffective tool to counteract bubbles. However he never tried raising interest rates to a significantly greater degree than had previously been done, to see what would happen.

The question of who was right, Greenspan or White, didn't exactly lead to a power struggle in Basel. The forces were too unevenly distributed for that. On the one side was the admonishing chief economist, with his seemingly antiquated model that advocated the establishment of reserves, and on the other side was the glamorous central banker, under whose aegis the economy was booming -- the killjoy vs. the party animal.

The central bankers certainly discussed the competing models. But most of them were behind Greenspan, because his system was what they had studied at their elite universities. They refused to accept White's objections that the economy is not a science. There was no way of verifying his model, they said.

Besides, who was about to question success? Greenspan was their superstar, the inviolable master, a living legend. "Greenspan always demanded respect," White recalls, referring to the Maestro's appearances. Hardly anyone dared to contradict the oracular grand master.

And why should they have contradicted Greenspan? "When you are inside the bubble, everybody feels fine. Nobody wants to believe that it can burst," says White. "Nobody is asking the right questions."

He even defends his erstwhile rival. "Greenspan is not the only one to blame. We all played the same game. Japan as well as Europe followed the low interest policy, almost everybody did."

Meanwhile, White noted with concern what the central bankers were triggering as a result. Their policy of cheap money led to the Asian financial crisis in 1997. When the debt that banks had accumulated went into default, the International Monetary Fund (IMF) and other donors had to inject more than $100 billion (€71 billion) to rescue the world economy.

In describing the failure of the markets as far back as 1998, White wrote that it is naïve to assume that markets behave in a disciplined way.

But Greenspan, the champion of free markets, remained impassive.


DER SPIEGEL
Graphic: The curse of cheap money

A few weeks later, the market demonstrated its destructive power once again, when Russia plunged into a financial crisis, bringing down the New York hedge fund Long Term Capital Management (LTCM) along with it. The New York Fed hurriedly convened a meeting of the heads of international banks, initiating a bailout that remains unprecedented to this day. The global economy was saved from a systemic crisis -- at a cost of $3.6 billion (€2.6 billion).

And what did Greenspan do? He lowered interest rates. Then the next bubble, the so-called New Economy, began to grow in Silicon Valley. It burst in the spring of 2000. What did Greenspan do? He lowered interest rates. This time the reduction was massive, with the benchmark rate dropping from 6 percent to 1 percent within three years. This, according to White, was the cardinal error. "After the 2001 crash, interest rates were lowered very aggressively and left too low for too long," he says.

While the economy was recovering from the demise of the dotcom sector and from the terrorist attacks of Sept. 11, 2001, cheap money was already on its way to triggering the next excess. This time it took place in the housing market, and this time it would be far more devastating.

White was losing his patience. Was there no other option than to regularly allow the economy to collapse? Didn't the policy of operating without a safety net border on stupidity? And wasn't it written, in both the Bible and the Koran, that it was important to provide for seven years of famine during seven good years?

This time, White didn't just want to discuss his views behind closed doors. This time, he decided to seek a broader audience.


One Villain Replaced by Another


His destination was Jackson Hole in Wyoming, a kind of Mecca for financial experts. It was August 2003.

Once a year, the Federal Reserve Bank of Kansas City invites leading economists and central bankers to a symposium in Jackson Hole. Against the magnificent backdrop of the Grand Teton National Park, the world's financial elite spends its time unwinding on hiking trails and in canoes, before retreating into conference rooms to discuss the state of the global economy. Only those who can hold their own in front of this audience are considered important in the industry.


"This is an opportunity we can't afford to miss," BIS economist Claudio Borio told his boss, White, as he wrote himself a few last-minute notes in his room at the Jackson Lake Lodge in preparation for his speech to the symposium.

Greenspan was in the audience when Borio and White presented their theories -- theories that had absolutely nothing in common with the powerful Fed chairman's worldview, or that of most of his colleagues.

White and Borio described the dramatic changes that had taken place since deregulation of the financial markets in the 1980s. Price stability was no longer the problem, they argued, but rather the development of imbalances in the financial markets, which were increasingly causing earthquake-like tremors. "It is as if one villain had gradually left the stage only to be replaced by another," White and Borio wrote in the paper they presented at Jackson Hole. As it turned out, it was a villain with the ability to unleash devastatingly destructive forces.

It was created by what the two BIS economists called the "inherently procyclical" nature of the financial system. What they meant is that perceptions of value and risk develop in parallel. People suffer from a blindness to future dangers that is intrinsic to the system. The better the economy is doing, the higher the ratings issued by the rating agencies, the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater the willingness to assume risk.

A bubble develops. When it bursts, the results can be devastating. "In extreme cases, broader financial crises can arise and exacerbate the downturn further," White wrote in his analysis. The consequences, according to White, are high costs to the real economy: unemployment, a credit crunch and bankruptcies.

All it takes to predict such imbalances, White argued, is to monitor "excessive credit expansion and asset price increases," and to take corrective action early on, even without a pending threat of inflation.

This task, the authors concluded, must be performed by monetary policy, among other things. The central banks, according to White and Borio, could limit credit expansion and thus avoid adverse effects on the global economy.

The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

'All We Could Do Was to Present our Expertise'

Now that the US prime rate is bobbing up and down between zero and 0.25 percent, and the Fed is pumping hundreds of billions of dollars into the market, White's words at the 2003 conference have undoubtedly come back to haunt many a central banker.

In that speech, White had prophesied that if the "worst scenario materializes, central banks may need to push policy rates to zero and resort to less conventional measures, whose efficacy is less certain."

He warned that the money supply could dry up. Markets, he wrote, "can freeze under stress, as liquidity evaporates." He also identified -- a full four years before the bursting of the real estate bubble -- the disturbing developments in the US real estate market as a consequence of lax monetary policy.

"Further stimulus has not come free of charge and has raised questions about the sustainability of the recovery," he warned. From today's perspective, White's predictions are almost frightening in their accuracy.

But when push came to shove, he was unable to overturn the prevailing ideology. "We were staff," he says. "All we could do was to present our expertise. It was not within our power how it was used."

Despite the disappointment at Jackson Hole, White didn't give up on supplying data, facts and analyses. Perhaps, he reasoned, this constant flow of information could help to break through mental barriers.

He would repeatedly refer to the "Credit Risk Transfer" report published by the BIS's Committee on the Global Financial System in 2003. The publication describes how loans were packaged into tranches using so-called collateralized debt obligations and then marketed worldwide. For banks, the experts wrote, "CRT instruments may reduce banks' incentives to monitor their borrowers and alter their treatment of distressed borrowers."

That, in a nutshell, was the underlying problem that would eventually trigger the mother of all crises. Many US bankers lowered their guard when it came to issuing subprime mortgages, because they could be repackaged and quickly resold, for example to unsophisticated bankers at German state-owned Landesbanken in places like Dresden, Hamburg and Munich.

The central bankers were also not exactly taken by surprise by the failure of the rating agencies. In their report, the BIS experts derisively described the techniques of rating agencies like Moody's and Standard & Poor's as "relatively crude" and noted that "some caution is in order in relation to the reliability of the results."

But nothing happened.

A Greek Tragedy in the Making

In the 2004 BIS annual report, White was unusually frank in criticizing the Fed's lax monetary policy. Although Greenspan sat on the bank's board of directors at the time, the board never sought to influence the analyses of its experts. But neither did it take them seriously.

In January 2005, the BIS's Committee on the Global Financial System sounded the alarm once again, noting that the risks associated with structured financial products were not being "fully appreciated by market participants." Extreme market events, the experts argued, could "have unanticipated systemic consequences."


DER SPIEGEL
Graphic: The curse of cheap money

They also cautioned against putting too much faith in the rating agencies, which suffered from a fatal flaw. Because the rating agencies were being paid by the companies they rated, the committee argued, there was a risk that they might rate some companies too highly and be reluctant to lower the ratings of others that should have been downgraded.

These comments show that the central bankers knew exactly what was going on, a full two-and-a-half years before the big bang. All the ingredients of the looming disaster had been neatly laid out on the table in front of them: defective rating agencies, loans repackaged to the point of being unrecognizable, dubious practices of American mortgage lenders, the risks of low-interest policies. But no action was taken. Meanwhile, the Fed continued to raise interest rates in nothing more than tiny increments.

"You can see all the ingredients of a Greek tragedy," says White. The downfall was in sight, and yet no one dared disrupt the party, no one except White, the lone BIS economist, who says: "If returns are too good to be true, then it's too good to be true."

And yet the economy was humming along, and billions in bonuses were being handed out like candy on Wall Street. Who would be willing to put an end to the orgy?

Clearly not Greenspan.


'I Asked Myself: Is This the Big One?'


The Fed chairman was not even impressed by a letter the Mortgage Insurance Companies of America (MICA), a trade association of US mortgage providers, sent to the Fed on Sept. 23, 2005. In the letter, MICA warned that it was "very concerned" about some of the risky lending practices being applied in the US real estate market. The experts even speculated that the Fed might be operating on the basis of incorrect data. Despite a sharp increase in mortgages being approved for low-income borrowers, most banks were reporting to the Fed that they had not lowered their lending standards. According to a study MICA cited entitled "This Powder Keg Is Going to Blow," there was no secondary market for these "nuclear mortgages."


Three days later, Greenspan addressed the annual meeting of the American Bankers Association in Palm Desert, California, via satellite. He conceded that there had been "local excesses" in real estate prices, but assured his audience that "the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices."

The Maestro had spoken -- and the party could continue.

William White and his Basel team were dumbstruck. The central bankers were simply ignoring their warnings. Didn't they understand what they were being told? Or was it that they simply didn't want to understand?

In the March 2006 BIS quarterly report, the Basel analysts described, once again, the grave risks of the subprime market. "Foreign investment in these securities has soared," they wrote. They also cautioned that there were "signs that the US housing market is cooling" and warned that investors "may be exposed to losses in excess of what they had anticipated."

A short time later, White argued for his model once again in a working paper titled "Is Price Stability Enough?" Low inflation rates are not a sign of normalcy, he warned, and central banks should not allow themselves to be led astray by low rates. Both the LTCM bankruptcy and the collapse of the stock markets in 2001 occurred "in an environment of effective price stability."

It was a waste of time and effort. Roger Ferguson, the then-deputy Fed chairman, ironically started to refer to the BIS's Cassandra-like chief economist as "Merry Sunshine."

"There are limits to pressing your argument," White says. "If you keep repeating your point over and over again, nobody will listen anymore."

A Loss of Confidence

Ben Bernanke, who succeeded Greenspan as Fed chief in early 2006, was especially deaf to White's warnings. When he presented his biannual report on the state of the economy to the US Congress on July 19, 2006, he made no mention whatsoever of the subprime risk.

A few months later, in December, the BIS reported that the index for securitized US subprime mortgages had fallen sharply in the fourth quarter of the year. A loss of confidence began to take shape.

The first casualties began surfacing a few weeks later. On Feb. 8, 2007, HSBC, the world's third-largest bank at the time, issued the first profit warning in its history. On April 2, the US mortgage lender New Century Financial filed for bankruptcy.

Bernanke remained unimpressed. "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system," he said. It was June 5, 2007.

White made one last, desperate attempt to bring the central bankers to their senses. "Virtually no one foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s, respectively. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived," he wrote in June 2007 in the BIS annual report.

But even if Bernanke had listened, it would have been too late by then. On June 22, the US investment bank Bear Stearns announced that it needed $3 billion (€2.1 billion) to bail out two of its hedge funds, which had suffered heavy losses during the course of the US real estate crisis. In Germany, entire banks were soon seeking government bailout funds. Banks increasingly lost trust in one another, and the money markets gradually dried up.

It was the beginning of the end. "When the crisis started, I asked myself: Is this the big one?" White recalls. "The answer was: Yes, this is the big one."


Just as Predicted


Meanwhile, the global economy is on the brink of disaster, as it faces the most devastating and brutal crisis in a century. The only reason the financial system is still intact is that governments are spending billions to support it. Central bankers have been forced to abandon their air of sophisticated aloofness and to try, together with politicians, to save what can be saved. Nowadays no one is talking about the free market's ability to heal itself.


And everything happened just the way White predicted it would.

This is visibly unpleasant for officials at the BIS. Even though they can pride themselves for having provided the best analyses, they have also been forced to admit that their central bankers failed miserably. "We had the right nose, but we didn't know how to use it," says BIS Secretary General Dittus. "We didn't manage to portray the global and financial imbalances in a convincing fashion."

Did White express himself unclearly? No, it was more that he represented a system that only questioned the prevailing view. "Ultimately, an economic model can only be defeated by an opposing model," says BIS Chief Economist Stephen Cecchetti, White's successor. "Unfortunately, we don't have a generally recognized model yet. Perhaps this partly explains why our warnings were less effective than would have been desirable."

The group of the 20 most important industrialized and emerging nations, which is now left with the task of cleaning up the wreckage of the crisis, apparently faces less academic problems. At the London G-20 summit in April, the group decided to promote a crisis-prevention model based on White's theories.

They want to introduce what might be called his hoarding model, which calls for banks to build up reserves in good times so that they can be more flexible in bad times. The central banks, according to White, must actively counteract bubbles and exert stronger control over the financial industry, including hedge funds and insurance companies.

As an adviser to German Chancellor Angela Merkel's group of experts, White helped to shape the basic tenets of the new order. And the 79th annual report of the BIS, published in Basel last week, also reads like pure White. It lists, as the causes of the crisis, extensive global imbalances, a lengthy phase of low real interest rates, distorted incentive systems and underestimated risks. In addition to improved regulation, the BIS argues that "asset prices and credit growth must be more directly integrated into monetary policy frameworks."

Simply Part of Life

Even though this is what he has been saying for more than 10 years, White, a passionate financial professional, is the last person to show signs of bitterness. During a conversation in his Paris office at the OECD, he has no harsh words for those who had long dismissed him as an alarmist. For White, the BIS will always be the greatest experience for an economist. The errors made by central bankers, politicians and business executives, he says, are simply part of life.

"Take the Enron example," he says. "We analyzed the disaster and found that 12 different levels of the government malfunctioned. This is part of human nature."

He is familiar with human nature, and he knows how to handle it. White is more concerned about the things he doesn't understand. New Zealand is a case in point. Interest rates were raised early in the crisis there, and yet the central bank was unable to come to grips with the credit bubble. Investors were apparently borrowing cheap money from foreign lenders.

This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"

Perhaps his model has a flaw in that regard. Could it be possible that central bankers today have far less influence than he assumes?

The thought causes him to wrinkle his brow for a moment. Then he smiles, says his goodbyes and quickly disappears into a Paris Metro station.

He knows that he is needed.

Admin

GLOBAL BANKING ECONOMIST WARNED OF COMING CRISIS
THE MAN NOBODY WANTED TO HEAR

Beat Balzli and Michaela Schiessl
http://www.globalresearch.ca/index.php?context=va&aid=14651

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

William White had a pretty clear idea of what he wanted to do with his life after shedding his pinstriped suit and entering retirement.

White, a Canadian, worked for various central banks for 39 years, most recently serving as chief economist for the central bank for all central bankers, the Bank for International Settlements (BIS), headquartered in Basel, Switzerland.


Then, after 15 years in the world's most secretive gentlemen's club, White decided it was time to step down. The 66-year-old approached retirement in his adopted country the way a true Swiss national would. He took his money to the local bank, bought a piece of property in the Bernese Highlands and began building a chalet. There, in the mountains between cow pastures and ski resorts, he and his wife planned to relax and enjoy their retirement, and to live a peaceful existence punctuated only by the occasional vacation trip. That was the plan in June 2008.

And now this.

White is wearing his pinstriped suits again. He has just returned from California, where he gave a talk at a large mutual fund company. Then he packed his bags again and jetted to London, where he consulted with the Treasury. After that, he returned to Switzerland to speak at the University of Basel, and then went on to Frankfurt to present a paper at the Center for Financial Studies. From there, White traveled to Paris to attend a meeting at the Organization for Economic Cooperation and Development (OECD). Finally, he flew back across the Atlantic to Canada. White is clearly in demand, including in North America.

Since the economy went up in flames, the wiry retiree has been jetting around the globe like a paramedic for the world of high finance. He shows no signs of exhaustion, despite his rigorous schedule. In fact, White, with his gray head of hair, is literally beaming with energy, so much so that he seems to glow.

Perhaps it is because someone, finally, is listening to him.

Listening to him, that is, and not to his rival of many years, the once-powerful former chairman of the US Federal Reserve Bank, Alan Greenspan. Greenspan, who was reverentially known as "The Maestro," was celebrated as the greatest central banker of all time -- until the US real estate bubble burst and the crash began.

Before then, no one in the world of central banks would have dared to openly criticize Greenspan's successful policy of cheap money. No one except White, that is.

'A Disorderly Unwinding of Current Excesses'

White recognized the brewing disaster. The analysis department at the BIS has a collection of data from every bank around the globe, considered the most impressive in the world. It enabled the economists working in this nerve center of high finance to look on, practically in real time, as a poisonous concoction began to brew in the international financial system.

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market. To give all this money somewhere to go, investment bankers invented new financial products that were increasingly sophisticated, imaginative -- and hazardous.

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy. "One hopes that it will not require a disorderly unwinding of current excesses to prove convincingly that we have indeed been on a dangerous path," White wrote in 2006.

In the restrained world of central bankers, it would have been difficult for White to express himself more clearly.


DER SPIEGEL
Graphic: The curse of cheap money

Now White has been proved right -- to an almost apocalyptical degree. And yet gloating is the last thing on his mind. He, the chief economist at the central bank for central banks, predicted the disaster, and yet not even his own clientele was willing to believe him. It was probably the biggest failure of the world's central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space.

For years, the regulators of the global money supply ignored the advice of their top experts, probably because it would require them to do something unheard of, namely embark on a fundamental change in direction.

The prevailing model was banal: no inflation, no problem. But White wanted central bankers to take things a step further by preventing the development of bubbles and taking corrective action. He believed that interest rates ought to be raised in good times, even when there is no risk of inflation. This, he argued, counteracts bubbles and makes it possible to lower interest rates in bad times. He also advised the banks to beef up their reserves during a recovery so that they would be in a position to lend money in a downturn.

If White's model had been applied, it might have been possible to avoid the collapse of the financial system -- or at least soften the fall. But there was simply no support for his ideas in the singular, and highly secretive, world of central bankers.


Prima Donnas of the Banking World


The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.


The penthouse at the top of the building, with its magnificent view of Basel, is decorated for the annual dinner, the nuclear shelter in the basement is swept out and the wine cellar is restocked with the best wines. At the BIS's private country club, gardeners prepare the tennis courts as if a Grand Slam tournament were about to be held there. The losers of matches can find comfort in the clubhouse, where the Indonesian guest chef serves up Asian delicacies à la carte.

"Central bankers can sometimes be prima donnas," says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.

The corridors of the BIS headquarters buildings are lined with retro white leather chairs and sofas from the 1970s. The round table where the delegates address the problems of the global economy is polished to a high gloss. But the most impressive space of all is the auditorium, with its modern armchairs in white leather and chrome, the thousands of tiny LED lights, the booths in the back where the interpreters sit behind one-way glass, and the console where the financial masters of the world do their work, centrally positioned at the front of the room. The room is evocative of the control room in "Star Trek." It was supposed to be the hub from which the financial world was to be guided through every possible hazard.

Naturally, the building is largely bugproof, the goal being to prevent anything from leaking to the outside and any unauthorized individuals from penetrating into its interior. There are no public minutes of the meetings. Everything that is discussed there is confidential. The word transparency is unknown at the BIS, where nothing is considered more despicable than an indiscreet central banker.

Central bankers, proud of their independence, are intent on holding themselves above all partisan influences while taking all necessary measures to keep the global economy healthy.

These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.

It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world's total currency reserves, or €217 trillion ($304 trillion), as well as 120 tons of gold.

"Our strength is that we have no power," says BIS Secretary General Peter Dittus. "Our meetings are generally not oriented toward decision-making. Instead, their value consists in the exchange of views." There are no across-the-board agreements on the order of: "Let's raise the prime rate by a point." Opinions take shape in a much more subtle fashion, through something resembling osmosis.

Central bankers are not elected by the people but are appointed by their governments. Nevertheless, they wield power that exceeds that of many political leaders. Their decisions affect entire economies, and a single word from their lips is capable of moving financial markets. They set interest rates, thereby determining the cost of borrowing and the speed of global financial currents.

Their greatest responsibility is to prevent a bank or market crash from jeopardizing the viability of the financial system and, with it, the real economy. It is no accident that central bankers are also in charge of bank supervision in most countries.

But this time they failed miserably. How could this community of central bankers, despite its access to insider information, have so seriously underestimated the dangers? And why on earth did it not intervene?

"Somehow everybody was hoping that it won't go down as long as you don't look at the downside," William White told SPIEGEL. "Similar to the comic figure Wile E. Coyote, who rushes over a cliff, keeps running and only falls when he looks into the depth. Of course, this is nonsense. One falls, because there is an abyss."

But why did they all refuse to recognize the abyss? Why did the central bankers, of all people -- those whose actions are above profit expectations, shareholder pressure and the need to please voters -- keep their eyes tightly shut? Did they too succumb to the general herd instinct?

"As long as everything goes well, there is a great reluctance to (make) any kind of change," says White. "This behavior is deeply rooted in the human mind."

White calls it the human factor. And that factor had a name: Alan Greenspan.


The Killjoy Vs. the Party Animal


Greenspan was long a member of the BIS board of directors and was effectively White's superior. As a fervent champion of the free market, he advocated the model of minimal intervention. In his view, the role of central banks was to control inflation and price stability, as well as to clean up after burst bubbles. Because no one can know when bubbles are about to burst, he argued, it would be impossible to intervene at the right moment.


In his eyes, the instrument of sharply raising interest rates to counteract market excesses routinely failed. Leaning "into the wind," he argued, was pointless. He could even cite historical proof for his thesis. Between the beginning of 1988 and the spring of 1989, the Fed raised the prime rate by three percentage points, the goal being to curtail lending by raising the cost of borrowing. The textbook conclusion was that this would be toxic to the markets, but precisely the opposite occurred: Prices continued to rise.

This supposed paradox repeated itself five years later. Once again, the Fed raised interest rates and, again, the market shot up.

These experiences only strengthened Greenspan's conviction that raising interest rates was an ineffective tool to counteract bubbles. However he never tried raising interest rates to a significantly greater degree than had previously been done, to see what would happen.

The question of who was right, Greenspan or White, didn't exactly lead to a power struggle in Basel. The forces were too unevenly distributed for that. On the one side was the admonishing chief economist, with his seemingly antiquated model that advocated the establishment of reserves, and on the other side was the glamorous central banker, under whose aegis the economy was booming -- the killjoy vs. the party animal.

The central bankers certainly discussed the competing models. But most of them were behind Greenspan, because his system was what they had studied at their elite universities. They refused to accept White's objections that the economy is not a science. There was no way of verifying his model, they said.

Besides, who was about to question success? Greenspan was their superstar, the inviolable master, a living legend. "Greenspan always demanded respect," White recalls, referring to the Maestro's appearances. Hardly anyone dared to contradict the oracular grand master.

And why should they have contradicted Greenspan? "When you are inside the bubble, everybody feels fine. Nobody wants to believe that it can burst," says White. "Nobody is asking the right questions."

He even defends his erstwhile rival. "Greenspan is not the only one to blame. We all played the same game. Japan as well as Europe followed the low interest policy, almost everybody did."

Meanwhile, White noted with concern what the central bankers were triggering as a result. Their policy of cheap money led to the Asian financial crisis in 1997. When the debt that banks had accumulated went into default, the International Monetary Fund (IMF) and other donors had to inject more than $100 billion (€71 billion) to rescue the world economy.

In describing the failure of the markets as far back as 1998, White wrote that it is naïve to assume that markets behave in a disciplined way.

But Greenspan, the champion of free markets, remained impassive.


DER SPIEGEL
Graphic: The curse of cheap money

A few weeks later, the market demonstrated its destructive power once again, when Russia plunged into a financial crisis, bringing down the New York hedge fund Long Term Capital Management (LTCM) along with it. The New York Fed hurriedly convened a meeting of the heads of international banks, initiating a bailout that remains unprecedented to this day. The global economy was saved from a systemic crisis -- at a cost of $3.6 billion (€2.6 billion).

And what did Greenspan do? He lowered interest rates. Then the next bubble, the so-called New Economy, began to grow in Silicon Valley. It burst in the spring of 2000. What did Greenspan do? He lowered interest rates. This time the reduction was massive, with the benchmark rate dropping from 6 percent to 1 percent within three years. This, according to White, was the cardinal error. "After the 2001 crash, interest rates were lowered very aggressively and left too low for too long," he says.

While the economy was recovering from the demise of the dotcom sector and from the terrorist attacks of Sept. 11, 2001, cheap money was already on its way to triggering the next excess. This time it took place in the housing market, and this time it would be far more devastating.

White was losing his patience. Was there no other option than to regularly allow the economy to collapse? Didn't the policy of operating without a safety net border on stupidity? And wasn't it written, in both the Bible and the Koran, that it was important to provide for seven years of famine during seven good years?

This time, White didn't just want to discuss his views behind closed doors. This time, he decided to seek a broader audience.


One Villain Replaced by Another


His destination was Jackson Hole in Wyoming, a kind of Mecca for financial experts. It was August 2003.

Once a year, the Federal Reserve Bank of Kansas City invites leading economists and central bankers to a symposium in Jackson Hole. Against the magnificent backdrop of the Grand Teton National Park, the world's financial elite spends its time unwinding on hiking trails and in canoes, before retreating into conference rooms to discuss the state of the global economy. Only those who can hold their own in front of this audience are considered important in the industry.


"This is an opportunity we can't afford to miss," BIS economist Claudio Borio told his boss, White, as he wrote himself a few last-minute notes in his room at the Jackson Lake Lodge in preparation for his speech to the symposium.

Greenspan was in the audience when Borio and White presented their theories -- theories that had absolutely nothing in common with the powerful Fed chairman's worldview, or that of most of his colleagues.

White and Borio described the dramatic changes that had taken place since deregulation of the financial markets in the 1980s. Price stability was no longer the problem, they argued, but rather the development of imbalances in the financial markets, which were increasingly causing earthquake-like tremors. "It is as if one villain had gradually left the stage only to be replaced by another," White and Borio wrote in the paper they presented at Jackson Hole. As it turned out, it was a villain with the ability to unleash devastatingly destructive forces.

It was created by what the two BIS economists called the "inherently procyclical" nature of the financial system. What they meant is that perceptions of value and risk develop in parallel. People suffer from a blindness to future dangers that is intrinsic to the system. The better the economy is doing, the higher the ratings issued by the rating agencies, the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater the willingness to assume risk.

A bubble develops. When it bursts, the results can be devastating. "In extreme cases, broader financial crises can arise and exacerbate the downturn further," White wrote in his analysis. The consequences, according to White, are high costs to the real economy: unemployment, a credit crunch and bankruptcies.

All it takes to predict such imbalances, White argued, is to monitor "excessive credit expansion and asset price increases," and to take corrective action early on, even without a pending threat of inflation.

This task, the authors concluded, must be performed by monetary policy, among other things. The central banks, according to White and Borio, could limit credit expansion and thus avoid adverse effects on the global economy.

The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

'All We Could Do Was to Present our Expertise'

Now that the US prime rate is bobbing up and down between zero and 0.25 percent, and the Fed is pumping hundreds of billions of dollars into the market, White's words at the 2003 conference have undoubtedly come back to haunt many a central banker.

In that speech, White had prophesied that if the "worst scenario materializes, central banks may need to push policy rates to zero and resort to less conventional measures, whose efficacy is less certain."

He warned that the money supply could dry up. Markets, he wrote, "can freeze under stress, as liquidity evaporates." He also identified -- a full four years before the bursting of the real estate bubble -- the disturbing developments in the US real estate market as a consequence of lax monetary policy.

"Further stimulus has not come free of charge and has raised questions about the sustainability of the recovery," he warned. From today's perspective, White's predictions are almost frightening in their accuracy.

But when push came to shove, he was unable to overturn the prevailing ideology. "We were staff," he says. "All we could do was to present our expertise. It was not within our power how it was used."

Despite the disappointment at Jackson Hole, White didn't give up on supplying data, facts and analyses. Perhaps, he reasoned, this constant flow of information could help to break through mental barriers.

He would repeatedly refer to the "Credit Risk Transfer" report published by the BIS's Committee on the Global Financial System in 2003. The publication describes how loans were packaged into tranches using so-called collateralized debt obligations and then marketed worldwide. For banks, the experts wrote, "CRT instruments may reduce banks' incentives to monitor their borrowers and alter their treatment of distressed borrowers."

That, in a nutshell, was the underlying problem that would eventually trigger the mother of all crises. Many US bankers lowered their guard when it came to issuing subprime mortgages, because they could be repackaged and quickly resold, for example to unsophisticated bankers at German state-owned Landesbanken in places like Dresden, Hamburg and Munich.

The central bankers were also not exactly taken by surprise by the failure of the rating agencies. In their report, the BIS experts derisively described the techniques of rating agencies like Moody's and Standard & Poor's as "relatively crude" and noted that "some caution is in order in relation to the reliability of the results."

But nothing happened.

A Greek Tragedy in the Making

In the 2004 BIS annual report, White was unusually frank in criticizing the Fed's lax monetary policy. Although Greenspan sat on the bank's board of directors at the time, the board never sought to influence the analyses of its experts. But neither did it take them seriously.

In January 2005, the BIS's Committee on the Global Financial System sounded the alarm once again, noting that the risks associated with structured financial products were not being "fully appreciated by market participants." Extreme market events, the experts argued, could "have unanticipated systemic consequences."


DER SPIEGEL
Graphic: The curse of cheap money

They also cautioned against putting too much faith in the rating agencies, which suffered from a fatal flaw. Because the rating agencies were being paid by the companies they rated, the committee argued, there was a risk that they might rate some companies too highly and be reluctant to lower the ratings of others that should have been downgraded.

These comments show that the central bankers knew exactly what was going on, a full two-and-a-half years before the big bang. All the ingredients of the looming disaster had been neatly laid out on the table in front of them: defective rating agencies, loans repackaged to the point of being unrecognizable, dubious practices of American mortgage lenders, the risks of low-interest policies. But no action was taken. Meanwhile, the Fed continued to raise interest rates in nothing more than tiny increments.

"You can see all the ingredients of a Greek tragedy," says White. The downfall was in sight, and yet no one dared disrupt the party, no one except White, the lone BIS economist, who says: "If returns are too good to be true, then it's too good to be true."

And yet the economy was humming along, and billions in bonuses were being handed out like candy on Wall Street. Who would be willing to put an end to the orgy?

Clearly not Greenspan.


'I Asked Myself: Is This the Big One?'


The Fed chairman was not even impressed by a letter the Mortgage Insurance Companies of America (MICA), a trade association of US mortgage providers, sent to the Fed on Sept. 23, 2005. In the letter, MICA warned that it was "very concerned" about some of the risky lending practices being applied in the US real estate market. The experts even speculated that the Fed might be operating on the basis of incorrect data. Despite a sharp increase in mortgages being approved for low-income borrowers, most banks were reporting to the Fed that they had not lowered their lending standards. According to a study MICA cited entitled "This Powder Keg Is Going to Blow," there was no secondary market for these "nuclear mortgages."


Three days later, Greenspan addressed the annual meeting of the American Bankers Association in Palm Desert, California, via satellite. He conceded that there had been "local excesses" in real estate prices, but assured his audience that "the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices."

The Maestro had spoken -- and the party could continue.

William White and his Basel team were dumbstruck. The central bankers were simply ignoring their warnings. Didn't they understand what they were being told? Or was it that they simply didn't want to understand?

In the March 2006 BIS quarterly report, the Basel analysts described, once again, the grave risks of the subprime market. "Foreign investment in these securities has soared," they wrote. They also cautioned that there were "signs that the US housing market is cooling" and warned that investors "may be exposed to losses in excess of what they had anticipated."

A short time later, White argued for his model once again in a working paper titled "Is Price Stability Enough?" Low inflation rates are not a sign of normalcy, he warned, and central banks should not allow themselves to be led astray by low rates. Both the LTCM bankruptcy and the collapse of the stock markets in 2001 occurred "in an environment of effective price stability."

It was a waste of time and effort. Roger Ferguson, the then-deputy Fed chairman, ironically started to refer to the BIS's Cassandra-like chief economist as "Merry Sunshine."

"There are limits to pressing your argument," White says. "If you keep repeating your point over and over again, nobody will listen anymore."

A Loss of Confidence

Ben Bernanke, who succeeded Greenspan as Fed chief in early 2006, was especially deaf to White's warnings. When he presented his biannual report on the state of the economy to the US Congress on July 19, 2006, he made no mention whatsoever of the subprime risk.

A few months later, in December, the BIS reported that the index for securitized US subprime mortgages had fallen sharply in the fourth quarter of the year. A loss of confidence began to take shape.

The first casualties began surfacing a few weeks later. On Feb. 8, 2007, HSBC, the world's third-largest bank at the time, issued the first profit warning in its history. On April 2, the US mortgage lender New Century Financial filed for bankruptcy.

Bernanke remained unimpressed. "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system," he said. It was June 5, 2007.

White made one last, desperate attempt to bring the central bankers to their senses. "Virtually no one foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s, respectively. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived," he wrote in June 2007 in the BIS annual report.

But even if Bernanke had listened, it would have been too late by then. On June 22, the US investment bank Bear Stearns announced that it needed $3 billion (€2.1 billion) to bail out two of its hedge funds, which had suffered heavy losses during the course of the US real estate crisis. In Germany, entire banks were soon seeking government bailout funds. Banks increasingly lost trust in one another, and the money markets gradually dried up.

It was the beginning of the end. "When the crisis started, I asked myself: Is this the big one?" White recalls. "The answer was: Yes, this is the big one."


Just as Predicted


Meanwhile, the global economy is on the brink of disaster, as it faces the most devastating and brutal crisis in a century. The only reason the financial system is still intact is that governments are spending billions to support it. Central bankers have been forced to abandon their air of sophisticated aloofness and to try, together with politicians, to save what can be saved. Nowadays no one is talking about the free market's ability to heal itself.


And everything happened just the way White predicted it would.

This is visibly unpleasant for officials at the BIS. Even though they can pride themselves for having provided the best analyses, they have also been forced to admit that their central bankers failed miserably. "We had the right nose, but we didn't know how to use it," says BIS Secretary General Dittus. "We didn't manage to portray the global and financial imbalances in a convincing fashion."

Did White express himself unclearly? No, it was more that he represented a system that only questioned the prevailing view. "Ultimately, an economic model can only be defeated by an opposing model," says BIS Chief Economist Stephen Cecchetti, White's successor. "Unfortunately, we don't have a generally recognized model yet. Perhaps this partly explains why our warnings were less effective than would have been desirable."

The group of the 20 most important industrialized and emerging nations, which is now left with the task of cleaning up the wreckage of the crisis, apparently faces less academic problems. At the London G-20 summit in April, the group decided to promote a crisis-prevention model based on White's theories.

They want to introduce what might be called his hoarding model, which calls for banks to build up reserves in good times so that they can be more flexible in bad times. The central banks, according to White, must actively counteract bubbles and exert stronger control over the financial industry, including hedge funds and insurance companies.

As an adviser to German Chancellor Angela Merkel's group of experts, White helped to shape the basic tenets of the new order. And the 79th annual report of the BIS, published in Basel last week, also reads like pure White. It lists, as the causes of the crisis, extensive global imbalances, a lengthy phase of low real interest rates, distorted incentive systems and underestimated risks. In addition to improved regulation, the BIS argues that "asset prices and credit growth must be more directly integrated into monetary policy frameworks."

Simply Part of Life

Even though this is what he has been saying for more than 10 years, White, a passionate financial professional, is the last person to show signs of bitterness. During a conversation in his Paris office at the OECD, he has no harsh words for those who had long dismissed him as an alarmist. For White, the BIS will always be the greatest experience for an economist. The errors made by central bankers, politicians and business executives, he says, are simply part of life.

"Take the Enron example," he says. "We analyzed the disaster and found that 12 different levels of the government malfunctioned. This is part of human nature."

He is familiar with human nature, and he knows how to handle it. White is more concerned about the things he doesn't understand. New Zealand is a case in point. Interest rates were raised early in the crisis there, and yet the central bank was unable to come to grips with the credit bubble. Investors were apparently borrowing cheap money from foreign lenders.

This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"

Perhaps his model has a flaw in that regard. Could it be possible that central bankers today have far less influence than he assumes?

The thought causes him to wrinkle his brow for a moment. Then he smiles, says his goodbyes and quickly disappears into a Paris Metro station.

He knows that he is needed.

Admin

GLOBAL BANKING ECONOMIST WARNED OF COMING CRISIS
THE MAN NOBODY WANTED TO HEAR

Beat Balzli and Michaela Schiessl
http://www.globalresearch.ca/index.php?context=va&aid=14651

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

William White had a pretty clear idea of what he wanted to do with his life after shedding his pinstriped suit and entering retirement.

White, a Canadian, worked for various central banks for 39 years, most recently serving as chief economist for the central bank for all central bankers, the Bank for International Settlements (BIS), headquartered in Basel, Switzerland.


Then, after 15 years in the world's most secretive gentlemen's club, White decided it was time to step down. The 66-year-old approached retirement in his adopted country the way a true Swiss national would. He took his money to the local bank, bought a piece of property in the Bernese Highlands and began building a chalet. There, in the mountains between cow pastures and ski resorts, he and his wife planned to relax and enjoy their retirement, and to live a peaceful existence punctuated only by the occasional vacation trip. That was the plan in June 2008.

And now this.

White is wearing his pinstriped suits again. He has just returned from California, where he gave a talk at a large mutual fund company. Then he packed his bags again and jetted to London, where he consulted with the Treasury. After that, he returned to Switzerland to speak at the University of Basel, and then went on to Frankfurt to present a paper at the Center for Financial Studies. From there, White traveled to Paris to attend a meeting at the Organization for Economic Cooperation and Development (OECD). Finally, he flew back across the Atlantic to Canada. White is clearly in demand, including in North America.

Since the economy went up in flames, the wiry retiree has been jetting around the globe like a paramedic for the world of high finance. He shows no signs of exhaustion, despite his rigorous schedule. In fact, White, with his gray head of hair, is literally beaming with energy, so much so that he seems to glow.

Perhaps it is because someone, finally, is listening to him.

Listening to him, that is, and not to his rival of many years, the once-powerful former chairman of the US Federal Reserve Bank, Alan Greenspan. Greenspan, who was reverentially known as "The Maestro," was celebrated as the greatest central banker of all time -- until the US real estate bubble burst and the crash began.

Before then, no one in the world of central banks would have dared to openly criticize Greenspan's successful policy of cheap money. No one except White, that is.

'A Disorderly Unwinding of Current Excesses'

White recognized the brewing disaster. The analysis department at the BIS has a collection of data from every bank around the globe, considered the most impressive in the world. It enabled the economists working in this nerve center of high finance to look on, practically in real time, as a poisonous concoction began to brew in the international financial system.

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market. To give all this money somewhere to go, investment bankers invented new financial products that were increasingly sophisticated, imaginative -- and hazardous.

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy. "One hopes that it will not require a disorderly unwinding of current excesses to prove convincingly that we have indeed been on a dangerous path," White wrote in 2006.

In the restrained world of central bankers, it would have been difficult for White to express himself more clearly.


DER SPIEGEL
Graphic: The curse of cheap money

Now White has been proved right -- to an almost apocalyptical degree. And yet gloating is the last thing on his mind. He, the chief economist at the central bank for central banks, predicted the disaster, and yet not even his own clientele was willing to believe him. It was probably the biggest failure of the world's central bankers since the founding of the BIS in 1930. They knew everything and did nothing. Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space.

For years, the regulators of the global money supply ignored the advice of their top experts, probably because it would require them to do something unheard of, namely embark on a fundamental change in direction.

The prevailing model was banal: no inflation, no problem. But White wanted central bankers to take things a step further by preventing the development of bubbles and taking corrective action. He believed that interest rates ought to be raised in good times, even when there is no risk of inflation. This, he argued, counteracts bubbles and makes it possible to lower interest rates in bad times. He also advised the banks to beef up their reserves during a recovery so that they would be in a position to lend money in a downturn.

If White's model had been applied, it might have been possible to avoid the collapse of the financial system -- or at least soften the fall. But there was simply no support for his ideas in the singular, and highly secretive, world of central bankers.


Prima Donnas of the Banking World


The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.


The penthouse at the top of the building, with its magnificent view of Basel, is decorated for the annual dinner, the nuclear shelter in the basement is swept out and the wine cellar is restocked with the best wines. At the BIS's private country club, gardeners prepare the tennis courts as if a Grand Slam tournament were about to be held there. The losers of matches can find comfort in the clubhouse, where the Indonesian guest chef serves up Asian delicacies à la carte.

"Central bankers can sometimes be prima donnas," says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.

The corridors of the BIS headquarters buildings are lined with retro white leather chairs and sofas from the 1970s. The round table where the delegates address the problems of the global economy is polished to a high gloss. But the most impressive space of all is the auditorium, with its modern armchairs in white leather and chrome, the thousands of tiny LED lights, the booths in the back where the interpreters sit behind one-way glass, and the console where the financial masters of the world do their work, centrally positioned at the front of the room. The room is evocative of the control room in "Star Trek." It was supposed to be the hub from which the financial world was to be guided through every possible hazard.

Naturally, the building is largely bugproof, the goal being to prevent anything from leaking to the outside and any unauthorized individuals from penetrating into its interior. There are no public minutes of the meetings. Everything that is discussed there is confidential. The word transparency is unknown at the BIS, where nothing is considered more despicable than an indiscreet central banker.

Central bankers, proud of their independence, are intent on holding themselves above all partisan influences while taking all necessary measures to keep the global economy healthy.

These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.

It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world's total currency reserves, or €217 trillion ($304 trillion), as well as 120 tons of gold.

"Our strength is that we have no power," says BIS Secretary General Peter Dittus. "Our meetings are generally not oriented toward decision-making. Instead, their value consists in the exchange of views." There are no across-the-board agreements on the order of: "Let's raise the prime rate by a point." Opinions take shape in a much more subtle fashion, through something resembling osmosis.

Central bankers are not elected by the people but are appointed by their governments. Nevertheless, they wield power that exceeds that of many political leaders. Their decisions affect entire economies, and a single word from their lips is capable of moving financial markets. They set interest rates, thereby determining the cost of borrowing and the speed of global financial currents.

Their greatest responsibility is to prevent a bank or market crash from jeopardizing the viability of the financial system and, with it, the real economy. It is no accident that central bankers are also in charge of bank supervision in most countries.

But this time they failed miserably. How could this community of central bankers, despite its access to insider information, have so seriously underestimated the dangers? And why on earth did it not intervene?

"Somehow everybody was hoping that it won't go down as long as you don't look at the downside," William White told SPIEGEL. "Similar to the comic figure Wile E. Coyote, who rushes over a cliff, keeps running and only falls when he looks into the depth. Of course, this is nonsense. One falls, because there is an abyss."

But why did they all refuse to recognize the abyss? Why did the central bankers, of all people -- those whose actions are above profit expectations, shareholder pressure and the need to please voters -- keep their eyes tightly shut? Did they too succumb to the general herd instinct?

"As long as everything goes well, there is a great reluctance to (make) any kind of change," says White. "This behavior is deeply rooted in the human mind."

White calls it the human factor. And that factor had a name: Alan Greenspan.


The Killjoy Vs. the Party Animal


Greenspan was long a member of the BIS board of directors and was effectively White's superior. As a fervent champion of the free market, he advocated the model of minimal intervention. In his view, the role of central banks was to control inflation and price stability, as well as to clean up after burst bubbles. Because no one can know when bubbles are about to burst, he argued, it would be impossible to intervene at the right moment.


In his eyes, the instrument of sharply raising interest rates to counteract market excesses routinely failed. Leaning "into the wind," he argued, was pointless. He could even cite historical proof for his thesis. Between the beginning of 1988 and the spring of 1989, the Fed raised the prime rate by three percentage points, the goal being to curtail lending by raising the cost of borrowing. The textbook conclusion was that this would be toxic to the markets, but precisely the opposite occurred: Prices continued to rise.

This supposed paradox repeated itself five years later. Once again, the Fed raised interest rates and, again, the market shot up.

These experiences only strengthened Greenspan's conviction that raising interest rates was an ineffective tool to counteract bubbles. However he never tried raising interest rates to a significantly greater degree than had previously been done, to see what would happen.

The question of who was right, Greenspan or White, didn't exactly lead to a power struggle in Basel. The forces were too unevenly distributed for that. On the one side was the admonishing chief economist, with his seemingly antiquated model that advocated the establishment of reserves, and on the other side was the glamorous central banker, under whose aegis the economy was booming -- the killjoy vs. the party animal.

The central bankers certainly discussed the competing models. But most of them were behind Greenspan, because his system was what they had studied at their elite universities. They refused to accept White's objections that the economy is not a science. There was no way of verifying his model, they said.

Besides, who was about to question success? Greenspan was their superstar, the inviolable master, a living legend. "Greenspan always demanded respect," White recalls, referring to the Maestro's appearances. Hardly anyone dared to contradict the oracular grand master.

And why should they have contradicted Greenspan? "When you are inside the bubble, everybody feels fine. Nobody wants to believe that it can burst," says White. "Nobody is asking the right questions."

He even defends his erstwhile rival. "Greenspan is not the only one to blame. We all played the same game. Japan as well as Europe followed the low interest policy, almost everybody did."

Meanwhile, White noted with concern what the central bankers were triggering as a result. Their policy of cheap money led to the Asian financial crisis in 1997. When the debt that banks had accumulated went into default, the International Monetary Fund (IMF) and other donors had to inject more than $100 billion (€71 billion) to rescue the world economy.

In describing the failure of the markets as far back as 1998, White wrote that it is naïve to assume that markets behave in a disciplined way.

But Greenspan, the champion of free markets, remained impassive.


DER SPIEGEL
Graphic: The curse of cheap money

A few weeks later, the market demonstrated its destructive power once again, when Russia plunged into a financial crisis, bringing down the New York hedge fund Long Term Capital Management (LTCM) along with it. The New York Fed hurriedly convened a meeting of the heads of international banks, initiating a bailout that remains unprecedented to this day. The global economy was saved from a systemic crisis -- at a cost of $3.6 billion (€2.6 billion).

And what did Greenspan do? He lowered interest rates. Then the next bubble, the so-called New Economy, began to grow in Silicon Valley. It burst in the spring of 2000. What did Greenspan do? He lowered interest rates. This time the reduction was massive, with the benchmark rate dropping from 6 percent to 1 percent within three years. This, according to White, was the cardinal error. "After the 2001 crash, interest rates were lowered very aggressively and left too low for too long," he says.

While the economy was recovering from the demise of the dotcom sector and from the terrorist attacks of Sept. 11, 2001, cheap money was already on its way to triggering the next excess. This time it took place in the housing market, and this time it would be far more devastating.

White was losing his patience. Was there no other option than to regularly allow the economy to collapse? Didn't the policy of operating without a safety net border on stupidity? And wasn't it written, in both the Bible and the Koran, that it was important to provide for seven years of famine during seven good years?

This time, White didn't just want to discuss his views behind closed doors. This time, he decided to seek a broader audience.


One Villain Replaced by Another


His destination was Jackson Hole in Wyoming, a kind of Mecca for financial experts. It was August 2003.

Once a year, the Federal Reserve Bank of Kansas City invites leading economists and central bankers to a symposium in Jackson Hole. Against the magnificent backdrop of the Grand Teton National Park, the world's financial elite spends its time unwinding on hiking trails and in canoes, before retreating into conference rooms to discuss the state of the global economy. Only those who can hold their own in front of this audience are considered important in the industry.


"This is an opportunity we can't afford to miss," BIS economist Claudio Borio told his boss, White, as he wrote himself a few last-minute notes in his room at the Jackson Lake Lodge in preparation for his speech to the symposium.

Greenspan was in the audience when Borio and White presented their theories -- theories that had absolutely nothing in common with the powerful Fed chairman's worldview, or that of most of his colleagues.

White and Borio described the dramatic changes that had taken place since deregulation of the financial markets in the 1980s. Price stability was no longer the problem, they argued, but rather the development of imbalances in the financial markets, which were increasingly causing earthquake-like tremors. "It is as if one villain had gradually left the stage only to be replaced by another," White and Borio wrote in the paper they presented at Jackson Hole. As it turned out, it was a villain with the ability to unleash devastatingly destructive forces.

It was created by what the two BIS economists called the "inherently procyclical" nature of the financial system. What they meant is that perceptions of value and risk develop in parallel. People suffer from a blindness to future dangers that is intrinsic to the system. The better the economy is doing, the higher the ratings issued by the rating agencies, the laxer the guidelines for approving credit, the easier it becomes to borrow money and the greater the willingness to assume risk.

A bubble develops. When it bursts, the results can be devastating. "In extreme cases, broader financial crises can arise and exacerbate the downturn further," White wrote in his analysis. The consequences, according to White, are high costs to the real economy: unemployment, a credit crunch and bankruptcies.

All it takes to predict such imbalances, White argued, is to monitor "excessive credit expansion and asset price increases," and to take corrective action early on, even without a pending threat of inflation.

This task, the authors concluded, must be performed by monetary policy, among other things. The central banks, according to White and Borio, could limit credit expansion and thus avoid adverse effects on the global economy.

The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

'All We Could Do Was to Present our Expertise'

Now that the US prime rate is bobbing up and down between zero and 0.25 percent, and the Fed is pumping hundreds of billions of dollars into the market, White's words at the 2003 conference have undoubtedly come back to haunt many a central banker.

In that speech, White had prophesied that if the "worst scenario materializes, central banks may need to push policy rates to zero and resort to less conventional measures, whose efficacy is less certain."

He warned that the money supply could dry up. Markets, he wrote, "can freeze under stress, as liquidity evaporates." He also identified -- a full four years before the bursting of the real estate bubble -- the disturbing developments in the US real estate market as a consequence of lax monetary policy.

"Further stimulus has not come free of charge and has raised questions about the sustainability of the recovery," he warned. From today's perspective, White's predictions are almost frightening in their accuracy.

But when push came to shove, he was unable to overturn the prevailing ideology. "We were staff," he says. "All we could do was to present our expertise. It was not within our power how it was used."

Despite the disappointment at Jackson Hole, White didn't give up on supplying data, facts and analyses. Perhaps, he reasoned, this constant flow of information could help to break through mental barriers.

He would repeatedly refer to the "Credit Risk Transfer" report published by the BIS's Committee on the Global Financial System in 2003. The publication describes how loans were packaged into tranches using so-called collateralized debt obligations and then marketed worldwide. For banks, the experts wrote, "CRT instruments may reduce banks' incentives to monitor their borrowers and alter their treatment of distressed borrowers."

That, in a nutshell, was the underlying problem that would eventually trigger the mother of all crises. Many US bankers lowered their guard when it came to issuing subprime mortgages, because they could be repackaged and quickly resold, for example to unsophisticated bankers at German state-owned Landesbanken in places like Dresden, Hamburg and Munich.

The central bankers were also not exactly taken by surprise by the failure of the rating agencies. In their report, the BIS experts derisively described the techniques of rating agencies like Moody's and Standard & Poor's as "relatively crude" and noted that "some caution is in order in relation to the reliability of the results."

But nothing happened.

A Greek Tragedy in the Making

In the 2004 BIS annual report, White was unusually frank in criticizing the Fed's lax monetary policy. Although Greenspan sat on the bank's board of directors at the time, the board never sought to influence the analyses of its experts. But neither did it take them seriously.

In January 2005, the BIS's Committee on the Global Financial System sounded the alarm once again, noting that the risks associated with structured financial products were not being "fully appreciated by market participants." Extreme market events, the experts argued, could "have unanticipated systemic consequences."


DER SPIEGEL
Graphic: The curse of cheap money

They also cautioned against putting too much faith in the rating agencies, which suffered from a fatal flaw. Because the rating agencies were being paid by the companies they rated, the committee argued, there was a risk that they might rate some companies too highly and be reluctant to lower the ratings of others that should have been downgraded.

These comments show that the central bankers knew exactly what was going on, a full two-and-a-half years before the big bang. All the ingredients of the looming disaster had been neatly laid out on the table in front of them: defective rating agencies, loans repackaged to the point of being unrecognizable, dubious practices of American mortgage lenders, the risks of low-interest policies. But no action was taken. Meanwhile, the Fed continued to raise interest rates in nothing more than tiny increments.

"You can see all the ingredients of a Greek tragedy," says White. The downfall was in sight, and yet no one dared disrupt the party, no one except White, the lone BIS economist, who says: "If returns are too good to be true, then it's too good to be true."

And yet the economy was humming along, and billions in bonuses were being handed out like candy on Wall Street. Who would be willing to put an end to the orgy?

Clearly not Greenspan.


'I Asked Myself: Is This the Big One?'


The Fed chairman was not even impressed by a letter the Mortgage Insurance Companies of America (MICA), a trade association of US mortgage providers, sent to the Fed on Sept. 23, 2005. In the letter, MICA warned that it was "very concerned" about some of the risky lending practices being applied in the US real estate market. The experts even speculated that the Fed might be operating on the basis of incorrect data. Despite a sharp increase in mortgages being approved for low-income borrowers, most banks were reporting to the Fed that they had not lowered their lending standards. According to a study MICA cited entitled "This Powder Keg Is Going to Blow," there was no secondary market for these "nuclear mortgages."


Three days later, Greenspan addressed the annual meeting of the American Bankers Association in Palm Desert, California, via satellite. He conceded that there had been "local excesses" in real estate prices, but assured his audience that "the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices."

The Maestro had spoken -- and the party could continue.

William White and his Basel team were dumbstruck. The central bankers were simply ignoring their warnings. Didn't they understand what they were being told? Or was it that they simply didn't want to understand?

In the March 2006 BIS quarterly report, the Basel analysts described, once again, the grave risks of the subprime market. "Foreign investment in these securities has soared," they wrote. They also cautioned that there were "signs that the US housing market is cooling" and warned that investors "may be exposed to losses in excess of what they had anticipated."

A short time later, White argued for his model once again in a working paper titled "Is Price Stability Enough?" Low inflation rates are not a sign of normalcy, he warned, and central banks should not allow themselves to be led astray by low rates. Both the LTCM bankruptcy and the collapse of the stock markets in 2001 occurred "in an environment of effective price stability."

It was a waste of time and effort. Roger Ferguson, the then-deputy Fed chairman, ironically started to refer to the BIS's Cassandra-like chief economist as "Merry Sunshine."

"There are limits to pressing your argument," White says. "If you keep repeating your point over and over again, nobody will listen anymore."

A Loss of Confidence

Ben Bernanke, who succeeded Greenspan as Fed chief in early 2006, was especially deaf to White's warnings. When he presented his biannual report on the state of the economy to the US Congress on July 19, 2006, he made no mention whatsoever of the subprime risk.

A few months later, in December, the BIS reported that the index for securitized US subprime mortgages had fallen sharply in the fourth quarter of the year. A loss of confidence began to take shape.

The first casualties began surfacing a few weeks later. On Feb. 8, 2007, HSBC, the world's third-largest bank at the time, issued the first profit warning in its history. On April 2, the US mortgage lender New Century Financial filed for bankruptcy.

Bernanke remained unimpressed. "The troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system," he said. It was June 5, 2007.

White made one last, desperate attempt to bring the central bankers to their senses. "Virtually no one foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s, respectively. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived," he wrote in June 2007 in the BIS annual report.

But even if Bernanke had listened, it would have been too late by then. On June 22, the US investment bank Bear Stearns announced that it needed $3 billion (€2.1 billion) to bail out two of its hedge funds, which had suffered heavy losses during the course of the US real estate crisis. In Germany, entire banks were soon seeking government bailout funds. Banks increasingly lost trust in one another, and the money markets gradually dried up.

It was the beginning of the end. "When the crisis started, I asked myself: Is this the big one?" White recalls. "The answer was: Yes, this is the big one."


Just as Predicted


Meanwhile, the global economy is on the brink of disaster, as it faces the most devastating and brutal crisis in a century. The only reason the financial system is still intact is that governments are spending billions to support it. Central bankers have been forced to abandon their air of sophisticated aloofness and to try, together with politicians, to save what can be saved. Nowadays no one is talking about the free market's ability to heal itself.


And everything happened just the way White predicted it would.

This is visibly unpleasant for officials at the BIS. Even though they can pride themselves for having provided the best analyses, they have also been forced to admit that their central bankers failed miserably. "We had the right nose, but we didn't know how to use it," says BIS Secretary General Dittus. "We didn't manage to portray the global and financial imbalances in a convincing fashion."

Did White express himself unclearly? No, it was more that he represented a system that only questioned the prevailing view. "Ultimately, an economic model can only be defeated by an opposing model," says BIS Chief Economist Stephen Cecchetti, White's successor. "Unfortunately, we don't have a generally recognized model yet. Perhaps this partly explains why our warnings were less effective than would have been desirable."

The group of the 20 most important industrialized and emerging nations, which is now left with the task of cleaning up the wreckage of the crisis, apparently faces less academic problems. At the London G-20 summit in April, the group decided to promote a crisis-prevention model based on White's theories.

They want to introduce what might be called his hoarding model, which calls for banks to build up reserves in good times so that they can be more flexible in bad times. The central banks, according to White, must actively counteract bubbles and exert stronger control over the financial industry, including hedge funds and insurance companies.

As an adviser to German Chancellor Angela Merkel's group of experts, White helped to shape the basic tenets of the new order. And the 79th annual report of the BIS, published in Basel last week, also reads like pure White. It lists, as the causes of the crisis, extensive global imbalances, a lengthy phase of low real interest rates, distorted incentive systems and underestimated risks. In addition to improved regulation, the BIS argues that "asset prices and credit growth must be more directly integrated into monetary policy frameworks."

Simply Part of Life

Even though this is what he has been saying for more than 10 years, White, a passionate financial professional, is the last person to show signs of bitterness. During a conversation in his Paris office at the OECD, he has no harsh words for those who had long dismissed him as an alarmist. For White, the BIS will always be the greatest experience for an economist. The errors made by central bankers, politicians and business executives, he says, are simply part of life.

"Take the Enron example," he says. "We analyzed the disaster and found that 12 different levels of the government malfunctioned. This is part of human nature."

He is familiar with human nature, and he knows how to handle it. White is more concerned about the things he doesn't understand. New Zealand is a case in point. Interest rates were raised early in the crisis there, and yet the central bank was unable to come to grips with the credit bubble. Investors were apparently borrowing cheap money from foreign lenders.

This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"

Perhaps his model has a flaw in that regard. Could it be possible that central bankers today have far less influence than he assumes?

The thought causes him to wrinkle his brow for a moment. Then he smiles, says his goodbyes and quickly disappears into a Paris Metro station.

He knows that he is needed.

Admin

ENTERING THE GREATEST DEPRESSION IN HISTORY
MORE BUBBLES WAITING TO BURST

Andrew Gavin Marshall
http://www.globalresearch.ca/index.php?context=va&aid=14680

Introduction

While there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.



Housing Crash Still Not Over



The housing real estate market, despite numbers indicating an upward trend, is still in trouble, as, “Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.” Further, “the overall market remains very soft [...] aside from speculators and first-time buyers.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington said, “It would be wrong to imagine that we have hit a turning point in the market,” as “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.” Foreclosures are still rising in many states “such as Nevada, Georgia and Utah, and economists say rising unemployment may push foreclosures higher into next year.” Clearly, the housing crisis is still not at an end.[1]



The Commercial Real Estate Bubble



In May, Bloomberg quoted Deutsche Bank CEO Josef Ackermann as saying, “It's either the beginning of the end or the end of the beginning.” Bloomberg further pointed out that, “A piece of the puzzle that must be calculated into any determination of the depth of our economic doldrums is the condition of commercial real estate -- the shopping malls, hotels, and office buildings that tend to go along with real- estate expansions.” Residential investment went down 28.9 % from 2006 to 2007, and at the same time, nonresidential investment grew 24.9%, thus, commercial real estate was “serving as a buffer against the declining housing market.”



Commercial real estate lags behind housing trends, and so too, will the crisis, as “commercial construction projects are losing their appeal.” Further, “there are lots of reasons to suspect that commercial real estate was subject to some of the loose lending practices that afflicted the residential market. The Office of the Comptroller of the Currency's Survey of Credit Underwriting Practices found that whereas in 2003 just 2 percent of banks were easing their underwriting standards on commercial construction loans, by 2006 almost a third of them were relaxing.” In May it was reported that, “Almost 80 percent of domestic banks are tightening their lending standards for commercial real-estate loans,” and that, “we may face double-bubble trouble for real estate and the economy.”[2]



In late July of 2009, it was reported that, “Commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate.  This category includes apartment buildings, hotels, office towers, and shopping malls.” Worth noting is that, “As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.” So again, the Fed is delaying the inevitable by providing more liquidity to an already inflated bubble. As the Financial Post pointed out, “From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents.”[3]



In April of 2009, it was reported that, “Office vacancies in U.S. downtowns increased to 12.5 percent in the first quarter, the highest in three years, as companies cut jobs and new buildings came onto the market,” and, “Downtown office vacancies nationwide could come close to 15 percent by the end of this year, approaching the 10-year high of 15.5 percent in 2003.”[4]



In the same month it was reported that, “Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade, as a spending slump forces retailers to trim down to stay afloat.” In the first quarter of 2009, retail tenants “have vacated 8.7 million square feet of commercial space,” which “exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.” Further, as CNN reported, “vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008.” Of significance for those that think and claim the crisis will be over by 2010, “mall vacancies [are expected] to exceed historical levels through 2011,” as for retailers, “it's only going to get worse.”[5] Two days after the previous report, “General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on [April 16] in the biggest real estate failure in U.S. history.”[6]



In April, the Financial Times reported that, “Property prices in China are likely to halve over the next two years, a top government researcher has predicted in a powerful signal that the country’s economic downturn faces further challenges despite recent positive data.” This is of enormous significance, as “The property market, along with exports, were leading drivers of the booming Chinese economy over the past decade.” Further, “an apparent rebound in the property market was unsustainable over the medium term and being driven by a flood of liquidity and fraudulent activity rather than real demand.” A researcher at a leading Chinese government think tank reported that, “he expected average urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.”[7]



In April, it was reported that, “The Federal Reserve is considering offering longer loans to investors in commercial mortgage-backed securities as part of a plan to help jump-start the market for commercial real estate debt.” Since February the Fed “has been analyzing appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and other mortgage assets as collateral for its Term Asset-Backed Securities Lending Facility (TALF).”[8]



In late July, the Financial Times reported that, “Two of America’s biggest banks, Morgan Stanley and Wells Fargo ... threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loan,” as “The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.” The commercial property market, worth $6.7 trillion, “which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.”[9]



The Bailout Bubble



While the bailout, or the “stimulus package” as it is often referred to, is getting good coverage in terms of being portrayed as having revived the economy and is leading the way to the light at the end of the tunnel, key factors are again misrepresented in this situation.



At the end of March of 2009, Bloomberg reported that, “The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year.” This amount “works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.”[10]



Gerald Celente, the head of the Trends Research Institute, the major trend-forecasting agency in the world, wrote in May of 2009 of the “bailout bubble.” Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.



On May 13, 2009, Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes [...] it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.” Further, “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it.”



Celente further explained that, “Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” Celente elaborated, “Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war,” and that, “While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow.”[11]







However, this “bailout bubble” that Celente was referring to at the time was the $12.8 trillion reported by Bloomberg. As of July, estimates put this bubble at nearly double the previous estimate.



As the Financial Times reported in late July of 2009, while the Fed and Treasury hail the efforts and impact of the bailouts, “Neil Barofsky, special inspector-general for the troubled asset relief programme, [TARP] said that the various US schemes to shore up banks and restart lending exposed federal agencies to a risk of $23,700bn  [$23.7 trillion] – a vast estimate that was immediately dismissed by the Treasury.” The inspector-general of the TARP program stated that there were “fundamental vulnerabilities . . . relating to conflicts of interest and collusion, transparency, performance measures, and anti-money laundering.”



Barofsky also reports on the “considerable stress” in commercial real estate, as “The Fed has begun to open up Talf to commercial mortgage-backed securities to try to influence credit conditions in the commercial real estate market. The report draws attention to a new potential credit crunch when $500bn worth of real estate mortgages need to be refinanced by the end of the year.” Ben Bernanke, the Chairman of the Fed, and Timothy Geithner, the Treasury Secretary and former President of the New York Fed, are seriously discussing extending TALF (Term Asset-Backed Securities Lending Facility) into “CMBS [Commercial Mortgage-Backed Securities] and other assets such as small business loans and whether to increase the size of the programme.” It is the “expansion of the various programmes into new and riskier asset classes is one of the main bones of contention between the Treasury and Mr Barofsky.”[12]



Testifying before Congress, Barofsky said, “From programs involving large capital infusions into hundreds of banks and other financial institutions, to a mortgage modification program designed to modify millions of mortgages, to public-private partnerships using tens of billions of taxpayer dollars to purchase 'toxic' assets from banks, TARP has evolved into a program of unprecedented scope, scale, and complexity.” He explained that, “The total potential federal government support could reach up to 23.7 trillion dollars.”[13]



Is a Future Bailout Possible?



In early July of 2009, billionaire investor Warren Buffet said that, “unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession,” and he further stated that, “we're not in a recovery.”[14] Also in early July, an economic adviser to President Obama stated that, “The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy.”[15]



In August of 2009, it was reported that, “THE Obama administration will consider dishing out more money to rein in unemployment despite signs the recession is ending,” and that, “Treasury secretary Tim Geithner also conceded tax hikes could be on the agenda as the government worked to bring its huge recovery-related deficits under control.” Geithner said, “we will do what it takes,” and that, “more federal cash could be tipped into the recovery as unemployment benefits amid projections the benefits extended to 1.5 million jobless Americans will expire without Congress' intervention.” However, any future injection of money could be viewed as “a second stimulus package.”[16]



The Washington Post reported in early July of a Treasury Department initiative known as “Plan C.” The Plan C team was assembled “to examine what could yet bring [the economy] down and has identified several trouble spots that could threaten the still-fragile lending industry,” and “the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks.”



Further, “The team is also responsible for considering potential government responses, but top officials within the Obama administration are wary of rolling out initiatives that would commit massive amounts of federal resources.” The article elaborated in saying that, “The creation of Plan C is a sign that the government has moved into a new phase of its response, acting preemptively rather than reacting to emerging crises.” In particular, the near-term challenge they are facing is commercial real estate lending, as “Banks and other firms that provided such loans in the past have sharply curtailed lending,” leaving “many developers and construction companies out in the cold.” Within the next couple years, “these groups face a tidal wave of commercial real estate debt -- some estimates peg the total at more than $3 trillion -- that they will need to refinance. These loans were issued during this decade's construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.”



However, as a result of the credit crisis, “few developers can find anyone to refinance their debt, endangering healthy and distressed properties.” Kim Diamond, a managing director at Standard & Poor's, stated that, “It's not a degree to which people are willing to lend,” but rather, “The question is whether a loan can be made at all.” Important to note is that, “Financial analysts said losses on commercial real estate loans are now the single largest cause of bank failures,” and that none of the bailout efforts enacted “is big enough to address the size of the problem.”[17]



So the question must be asked: what is Plan C contemplating in terms of a possible government “solution”? Another bailout? The effect that this would have would be to further inflate the already monumental bailout bubble.



The Great European Bubble



In October of 2008, Germany and France led a European Union bailout of 1 trillion Euros, and “World markets initially soared as European governments pumped billions into crippled banks. Central banks in Europe also mounted a new offensive to restart lending by supplying unlimited amounts of dollars to commercial banks in a joint operation.”[18]



The American bailouts even went to European banks, as it was reported in March of 2009 that, “European banks declined to discuss a report that they were beneficiaries of the $173 billion bail-out of insurer AIG,” as “Goldman Sachs, Morgan Stanley and a host of other U.S. and European banks had been paid roughly $50 billion since the Federal Reserve first extended aid to AIG.” Among the European banks, “French banks Societe Generale and Calyon on Sunday declined to comment on the story, as did Deutsche Bank, Britain's Barclays and unlisted Dutch group Rabobank.” Other banks that got money from the US bailout include HSBC, Wachovia, Merrill Lynch, Banco Santander and Royal Bank of Scotland. Because AIG was essentially insolvent, “the bailout enabled AIG to pay its counterparty banks for extra collateral,” with “Goldman Sachs and Deutsche bank each receiving $6 billion in payments between mid-September and December.”[19]



In April of 2009, it was reported that, “EU governments have committed 3 trillion Euros [or $4 trillion dollars] to bail out banks with guarantees or cash injections in the wake of the global financial crisis, the European Commission.”[20]



In early February of 2009, the Telegraph published a story with a startling headline, “European banks may need 16.3 trillion pound bail-out, EC document warns.” Type this headline into google, and the link to the Telegraph appears. However, click on the link, and the title has changed to “European bank bail-out could push EU into crisis.” Further, they removed any mention of the amount of money that may be required for a bank bailout. The amount in dollars, however, nears $25 trillion. The amount is the cumulative total of the troubled assets on bank balance sheets, a staggering number derived from the derivatives trade.



The Telegraph reported that, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.”[21]



When Eastern European countries were in desperate need of financial aid, and discussion was heated on the possibility of an EU bailout of Eastern Europe, the EU, at the behest of Angela Merkel of Germany, denied the East European bailout. However, this was more a public relations stunt than an actual policy position.



While the EU refused money to Eastern Europe in the form of a bailout, in late March European leaders “doubled the emergency funding for the fragile economies of central and eastern Europe and pledged to deliver another doubling of International Monetary Fund lending facilities by putting up 75bn Euros (70bn pounds).” EU leaders “agreed to increase funding for balance of payments support available for mainly eastern European member states from 25bn Euros to 50bn Euros.”[22]



As explained in a Times article in June of 2009, Germany has been deceitful in its public stance versus its actual policy decisions. The article, worth quoting in large part, first explained that:



Europe is now in the middle of a perfect storm - a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.



Taking the case of Latvia, the author asks, “If the crisis expands, other EU governments - and especially Germany's - will face an existential question. Do they commit hundreds of billions of euros to guarantee the debts of fellow EU countries? Or do they allow government defaults and devaluations that may ultimately break up the single currency and further cripple German industry, as well as the country's domestic banks?” While addressing that, “Publicly, German politicians have insisted that any bailouts or guarantees are out of the question,” however, “the pass has been quietly sold in Brussels, while politicians loudly protested their unshakeable commitment to defend it.”



The author addressed how in October of 2008:



[...] a previously unused regulation was discovered, allowing the creation of a 25 billion Euros “balance of payments facility” and authorising the EU to borrow substantial sums under its own “legal personality” for the first time. This facility was doubled again to 50 billion Euros in March. If Latvia's financial problems turn into a full-scale crisis, these guarantees and cross-subsidies between EU governments will increase to hundreds of billions in the months ahead and will certainly mutate into large-scale centralised EU borrowing, jointly guaranteed by all the taxpayers of the EU.



[...] The new EU borrowing, for example, is legally an ‘off-budget’ and ‘back-to-back’ arrangement, which allows Germany to maintain the legal fiction that it is not guaranteeing the debts of Latvia et al. The EU's bond prospectus to investors, however, makes quite clear where the financial burden truly lies: “From an investor's point of view the bond is fully guaranteed by the EU budget and, ultimately, by the EU Member States.”[23]



So Eastern Europe is getting, or presumably will get bailed out. Whether this is in the form of EU federalism, providing loans of its own accord, paid for by European taxpayers, or through the IMF, which will attach any loans with its stringent Structural Adjustment Program (SAP) conditionalities, or both. It turned out that the joint partnership of the IMF and EU is what provided the loans and continues to provide such loans.



As the Financial Times pointed out in August of 2009, “Bank failures or plunging currencies in the three Baltic nations – Latvia, Lithuania and Estonia – could threaten the fragile prospect of recovery in the rest of Europe. These countries also sit on one of the world’s most sensitive political fault-lines. They are the European Union’s frontier states, bordering Russia.” In July, Latvia “agreed its second loan in eight months from the IMF and the EU,” following the first one in December. Lithuania is reported to be following suit. However, as the Financial Times noted, the loans came with the IMF conditionalities: “The injection of cash is the good news. The bad news is that, in return for shoring up state finances, the new IMF deal will require the Latvian government to impose yet more pain on its suffering population. Public-sector wages have already been cut by about a third this year. Pensions have been sliced. Now the IMF requires Latvia to cut another 10 per cent from the state budget this autumn.”[24]



If we are to believe the brief Telegraph report pertaining to nearly $25 trillion in bad bank assets, which was removed from the original article for undisclosed reasons, not citing a factual retraction, the question is, does this potential bailout still stand? These banks haven’t been rescued financially from the EU, so, presumably, these bad assets are still sitting on the bank balance sheets. This bubble has yet to blow. Combine this with the $23.7 trillion US bailout bubble, and there is nearly $50 trillion between the EU and the US waiting to burst.



An Oil Bubble



In early July of 2009, the New York Times reported that, “The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.” Instability in the oil and gas prices has led many to “fear it could jeopardize a global recovery.” Further, “It is also hobbling businesses and consumers,” as “A wild run on the oil markets has occurred in the last 12 months.” Oil prices reached a record high last summer at $145/barrel, and with the economic crisis they fell to $33/barrel in December. However, since the start of 2009, oil has risen 55% to $70/barrel.



As the Times article points out, “the recent rise in oil prices is reprising the debate from last year over the role of investors — or speculators — in the commodity markets.” Energy officials from the EU and OPEC met in June and concluded that, “the speculation issue had not been resolved yet and that the 2008 bubble could be repeated.”[25]



In June of 2009, Hedge Fund manager Michael Masters told the US Senate that, “Congress has not done enough to curb excessive speculation in the oil markets, leaving the country vulnerable to another price run-up in 2009.” He explained that, “oil prices are largely not determined by supply and demand but the trading desks of large Wall Street firms.” Because “Nothing was actually done by Congress to put an end to the problem of excessive speculation” in 2008, Masters explained, “there is nothing to prevent another bubble in oil prices in 2009. In fact, signs of another possible bubble are already beginning to appear.”[26]



In May of 2008, Goldman Sachs warned that oil could reach as much as $200/barrel within the next 12-24 months [up to May 2010]. Interestingly, “Goldman Sachs is one of the largest Wall Street investment banks trading oil and it could profit from an increase in prices.”[27] However, this is missing the key point. Not only would Goldman Sachs profit, but Goldman Sachs plays a major role in sending oil prices up in the first place.



As Ed Wallace pointed out in an article in Business Week in May of 2008, Goldman Sachs’ report placed the blame for such price hikes on “soaring demand” from China and the Middle East, combined with the contention that the Middle East has or would soon peak in its oil reserves. Wallace pointed out that:



Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate's Permanent Subcommittee on Investigations' June 27, 2006, Staff Report and in the House Committee on Energy & Commerce's hearing last December. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices' climb to stratospheric heights has been driven by the billions of dollars' worth of oil and natural gas futures contracts being placed on the ICE—which is not regulated by the Commodities Futures Trading Commission.[28]



Essentially, Goldman Sachs is one of the key speculators in the oil market, and thus, plays a major role in driving oil prices up on speculation. This must be reconsidered in light of the resurgent rise in oil prices in 2009. In July of 2009, “Goldman Sachs Group Inc. posted record earnings as revenue from trading and stock underwriting reached all-time highs less than a year after the firm took $10 billion in U.S. rescue funds.”[29] Could one be related to the other?



Bailouts Used in Speculation



In November of 2008, the Chinese government injected an “$849 billion stimulus package aimed at keeping the emerging economic superpower growing.”[30] China then recorded a rebound in the growth rate of the economy, and underwent a stock market boom. However, as the Wall Street Journal pointed out in July of 2009, “Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump.” Further, “overseas money has been piling into China, inflating foreign exchange reserves and domestic liquidity. So perhaps it is not surprising that outstanding bank loans have doubled in the last few years, or that there is much talk of a shadow banking system. Then there is China’s reputation for building overcapacity in its industrial sector, a notoriety it won even before the crash in global demand. This showed a disregard for returns that is always a tell-tale sign of cheap money.”



China’s economy primarily relies upon the United States as a consumption market for its cheap products. However, “The slowdown in U.S. consumption amid a credit crunch has exposed the weaknesses in this export-led financing model. So now China is turning instead to cheap debt for funding, a shift suggested by this year’s 35% or so rise in bank loans.”[31]



In August of 2009, it was reported that China is experiencing a “stimulus-fueled stock market boom.” However, this has caused many leaders to “worry that too much of the $1-trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.”[32]



The same reasoning needs to be applied to the US stock market surge. Something is inherently and structurally wrong with a financial system in which nothing is being produced, 600,000 jobs are lost monthly, and yet, the stock market goes up. Why is the stock market going up?



The Troubled Asset Relief Program (TARP), which provided $700 billion in bank bailouts, started under Bush and expanded under Obama, entails that the US Treasury purchases $700 billion worth of “troubled assets” from banks, and in turn, “that banks cannot be asked to account for their use of taxpayer money.”[33]



So if banks don’t have to account for where the money goes, where did it go? They claim it went back into lending. However, bank lending continues to go down.[34] Stock market speculation is the likely answer. Why else would stocks go up, lending continue downwards, and the bailout money be unaccounted for?



What Does the Bank for International Settlements (BIS) Have to Say?



In late June, the Bank for International Settlements (BIS), the central bank of the world’s central banks, the most prestigious and powerful financial organization in the world, delivered an important warning. It stated that, “fiscal stimulus packages may provide no more than a temporary boost to growth, and be followed by an extended period of economic stagnation.”



The BIS, “The only international body to correctly predict the financial crisis ... has warned the biggest risk is that governments might be forced by world bond investors to abandon their stimulus packages, and instead slash spending while lifting taxes and interest rates,” as the annual report of the BIS “has for the past three years been warning of the dangers of a repeat of the depression.” Further, “Its latest annual report warned that countries such as Australia faced the possibility of a run on the currency, which would force interest rates to rise.” The BIS warned that, “a temporary respite may make it more difficult for authorities to take the actions that are necessary, if unpopular, to restore the health of the financial system, and may thus ultimately prolong the period of slow growth.”



Of immense import is the BIS warning that, “At the same time, government guarantees and asset insurance have exposed taxpayers to potentially large losses,” and explaining how fiscal packages posed significant risks, it said that, “There is a danger that fiscal policy-makers will exhaust their debt capacity before finishing the costly job of repairing the financial system,” and that, “There is the definite possibility that stimulus programs will drive up real interest rates and inflation expectations.” Inflation “would intensify as the downturn abated,” and the BIS “expressed doubt about the bank rescue package adopted in the US.”[35]



The BIS further warned of inflation, saying that, “The big and justifiable worry is that, before it can be reversed, the dramatic easing in monetary policy will translate into growth in the broader monetary and credit aggregates,” the BIS said. That will “lead to inflation that feeds inflation expectations or it may fuel yet another asset-price bubble, sowing the seeds of the next financial boom-bust cycle.”[36]



Major investors have also been warning about the dangers of inflation. Legendary investor Jim Rogers has warned of “a massive inflation holocaust.”[37] Investor Marc Faber has warned that, “The U.S. economy will enter ‘hyperinflation’ approaching the levels in Zimbabwe,” and he stated that he is “100 percent sure that the U.S. will go into hyperinflation.” Further, “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”[38]



Are We Entering A New Great Depression?



In 2007, it was reported that, “The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.” Further:



The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.



[...] In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be "cleaned up" afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.[39]



In 2008, the BIS again warned of the potential of another Great Depression, as “complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.”[40]



In 2008, the BIS also said that, “The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point,” and that all central banks have done “has been to put off the day of reckoning.”[41]



In late June of 2009, the BIS reported that as a result of stimulus packages, it has only seen “limited progress” and that, “the prospects for growth are at risk,” and further “stimulus measures won't be able to gain traction, and may only lead to a temporary pickup in growth.” Ultimately, “A fleeting recovery could well make matters worse.”[42]



The BIS has said, in softened language, that the stimulus packages are ultimately going to cause more damage than they prevented, simply delaying the inevitable and making the inevitable that much worse. Given the previous BIS warnings of a Great Depression, the stimulus packages around the world have simply delayed the coming depression, and by adding significant numbers to the massive debt bubbles of the world’s nations, will ultimately make the depression worse than had governments not injected massive amounts of money into the economy.



After the last Great Depression, Keynesian economists emerged victorious in proposing that a nation must spend its way out of crisis. This time around, they will be proven wrong. The world is a very different place now. Loose credit, easy spending and massive debt is what has led the world to the current economic crisis, spending is not the way out. The world has been functioning on a debt based global economy. This debt based monetary system, controlled and operated by the global central banking system, of which the apex is the Bank for International Settlements, is unsustainable. This is the real bubble, the debt bubble. When it bursts, and it will burst, the world will enter into the Greatest Depression in world history.



Notes



[1]        Barrie McKenna, End of housing slump? Try telling that to buyers, sellers and the unemployed. The Globe and Mail: August 6, 2009:
http://www.theglobeandmail.com/report-on...le1240418/



[2]        Gene Sperling, Double-Bubble Trouble in Commercial Real Estate: Gene Sperling. Bloomberg: May 9, 2009:
http://www.bloomberg.com/apps/news?pid=20601110&sid=a.X91SkgOd8g



[3]        AL Sull, Commercial Real Estate - The Other Real Estate Bubble. Financial Post: July 23, 2009:
http://network.nationalpost.com/np/blogs...ubble.aspx



[4]        Hui-yong Yu, U.S. Office Vacancies Rise to Three-Year High, Cushman Says. Bloomberg: April 16, 2009:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aegH6dXG8H8U



[5]        Parija B. Kavilanz, Malls shedding stores at record pace. CNN Money: April 14, 2009:
http://money.cnn.com/2009/04/10/news/eco.../index.htm



[6]        Ilaina Jonas and Emily Chasan, General Growth files largest U.S. real estate bankruptcy. Reuters: April 16, 2009:
http://www.reuters.com/article/businessN...8P20090417



[7]        Jamil Anderlini, China property prices ‘likely to halve’. The Financial Times: April 13, 2009:
http://www.ft.com/cms/s/0/9a36b342-280e-...abdc0.html



[8]        Reuters, Fed Might Extend TALF Support to Five Years. Money News: April 17, 2009:
http://moneynews.newsmax.com/financenews...medium=RSS



[9]        Francesco Guerrera and Greg Farrell, US banks warn on commercial property. The Financial Times: July 22, 2009:
http://www.ft.com/cms/s/0/3a1e9d86-76eb-...abdc0.html



[10]      Mark Pittman and Bob Ivry, Financial Rescue Nears GDP as Pledges Top $12.8 Trillion. Bloomberg: March 31, 2009:
http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4



[11]      Gerald Celente, The "Bailout Bubble" - The Bubble to End All Bubbles. Trends Research Institute: May 13, 2009:
http://geraldcelentechannel.blogspot.com...d-all.html



[12]      Tom Braithwaite, Treasury clashes with Tarp watchdog on data. The Financial Times: July 20, 2009:
http://www.ft.com/cms/s/0/ab533a38-757a-...abdc0.html



[13]      AFP, US could spend 23.7 trillion dollars on crisis: report. Agence-France Presse: July 20, 2009:
http://www.google.com/hostednews/afp/art...w6rlOKdz-A



[14]      John Whitesides, Warren Buffett says second stimulus might be needed. Reuters: July 9, 2009:
http://www.reuters.com/article/pressRele...MZ20090709



[15]      Vidya Ranganathan, U.S. should plan 2nd fiscal stimulus: economic adviser. Reuters: July 7, 2009:
http://www.reuters.com/article/newsOne/i...1D20090707



[16]      Carly Crawford, US may increase stimulus payments to rein in unemployment. The Herald Sun: August 3, 2009:
http://www.news.com.au/heraldsun/story/0...64,00.html



[17]      David Cho and Binyamin Appelbaum, Treasury Works on 'Plan C' To Fend Off Lingering Threats. The Washington Post: July 8, 2009:
http://www.washingtonpost.com/wp-dyn/con...id=topnews



[18]      Charles Bremner and David Charter, Germany and France lead €1 trillion European bailout. Times Online: October 13, 2009:
http://business.timesonline.co.uk/tol/bu...937516.ece



[19]      Douwe Miedema, Europe banks silent on reported AIG bailout gains. Reuters: March 8, 2009:
http://www.reuters.com/article/topNews/i...YD20090308



[20]      Elitsa Vucheva, European Bank Bailout Total: $4 Trillion. Business Week: April 10, 2009:
http://www.businessweek.com/globalbiz/co...op+stories



[21]      Bruno Waterfield, European bank bail-out could push EU into crisis. The Telegraph: February 11, 2009:
http://www.telegraph.co.uk/finance/finan...warns.html



[22]      Ian Traynor, EU doubles funding for fragile eastern European economies. The Guardian: March 20, 2009:
http://www.guardian.co.uk/world/2009/mar...cy-funding



[23]      Anatole Kaletsky, The great bailout - Europe's best-kept secret. The Times Online: June 4, 2009:
http://www.timesonline.co.uk/tol/comment...426565.ece



[24]      Gideon Rachman, Europe prepares for a Baltic blast. The Financial Times: August 3, 2009:
http://www.ft.com/cms/s/0/b497f5b6-8060-...abdc0.html



[25]      JAD MOUAWAD, Swings in Price of Oil Hobble Forecasting. The New York Times: July 5, 2009:
http://www.nytimes.com/2009/07/06/business/06oil.html



[26]      Christopher Doering, Masters says signs of oil bubble starting to appear. Reuters: June 4, 2009:
http://www.reuters.com/article/Inspirati...5620090604



[27]      Javier Blas and Chris Flood, Analyst warns of oil at $200 a barrel. The Financial Times: May 6, 2008:
http://us.ft.com/ftgateway/superpage.ft?...1414392593



[28]      Ed Wallace, The Reason for High Oil Prices. Business Week: May 13, 2009:
http://www.businessweek.com/lifestyle/co...720178.htm



[29]      Christine Harper, Goldman Sachs Posts Record Profit, Beating Estimates. Bloomberg: July 14, 2009:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2jo3RK2_Aps



[30]      Peter Martin and John Garnaut, The great China bailout. The Age: November 11, 2008:
http://business.theage.com.au/business/t...-5lpe.html



[31]      Paul Cavey, Now China Has a Credit Boom. The Wall Street Journal: July 30, 2009:
http://online.wsj.com/article/SB10001424...17196.html



[32]      Joe McDonald, China's stimulus-fueled stock boom alarms Beijing. The Globe and Mail: August 2, 2009:
http://www.globeinvestor.com/servlet/sto...2/GIStory/



[33]      Matt Jaffe, Watchdog Refutes Treasury Claim Banks Cannot Be Asked to Account for Bailout Cash. ABC News: July 19, 2009:
http://abcnews.go.com/Business/Politics/story?id=8121045&page=1



[34]      The China Post, Bank lending slows down in U.S.: report. The China Post: July 28, 2009:
http://www.chinapost.com.tw/business/ame...ending.htm



[35]      David Uren. Bank for International Settlements warning over stimulus benefits. The Australian: June 30, 2009:
http://www.theaustralian.news.com.au/sto...01,00.html



[36]      Simone Meier, BIS Sees Risk Central Banks Will Raise Interest Rates Too Late. Bloomberg: June 29, 2009:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aOnSy9jXFKaY



[37]      CNBC.com, We Are Facing an 'Inflation Holocaust': Jim Rogers. CNBC: October 10, 2008:
http://www.cnbc.com/id/27097823



[38]      Chen Shiyin and Bernard Lo, U.S. Inflation to Approach Zimbabwe Level, Faber Says. Bloomberg: May 27, 2009:
http://www.bloomberg.com/apps/news?pid=20601110&sid=avgZDYM6mTFA



[39]      Ambrose Evans-Pritchard, BIS warns of Great Depression dangers from credit spree. The Telegraph: June 27, 2009:
http://www.telegraph.co.uk/finance/econo...spree.html



[40]      Gill Montia, Central bank body warns of Great Depression. Banking Times: June 9, 2008:
http://www.bankingtimes.co.uk/09062008-c...epression/



[41]      Ambrose Evans-Pritchard, BIS slams central banks, warns of worse crunch to come. The Telegraph: June 30, 2008:
http://www.telegraph.co.uk/finance/marke...-come.html



[42]      HEATHER SCOFFIELD, Financial repairs must continue: central banks. The Globe and Mail: June 29, 2009:
http://v1.theglobeandmail.com/servlet/st...SCOFFIELD/

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