Wednesday, April 29, 2009

links between Bidens and Ponta Negra and Stanford Financial Group....

Bronte Capital with a Major Scoop on Alleged Fraudster...

Blogs uncover links between Bidens and Ponta Negra and Stanford Financial Group....

By Ryan Chittum

John Hempton the excellent Aussie blogger who writes Bronte Capital appears to have a blockbuster of a scoop.

A Connecticut hedge fund called Ponta Negra Group, run by 27-year old Francesco Rusciano has been frozen by the SEC, which accused it of fraud. Hempton was all over this a few weeks ago, but had to take down his posts when Ponta Negra lawyers threatened to sue him. They’re back up now.

But the big news here is Hempton’s discovery that the allegedly fraudulent fund has some, um, oddly coincidental connections to Vice President Joe Biden’s son and brother, who run a firm called Paradigm Global. The firms are run out of the same floor at 650 Fifth Avenue in New York, share the same “marketer,” a guy named Jeffrey Schneider of Onyx Capital LLC, whose website is currently down, and the SEC filing gives a phone number for Ponta Negra that goes through Paradigm’s switchboard.

Ruh roh. .....

This wouldn’t be the first time the Bidens’ fund has intersected with an alleged fraudster. Two months ago it was discovered to be entangled with disgraced financier Allen Stanford in a $50 million fund co-branded Paradigm Stanford Fund and marketed by Stanford.

Mr. Schneider was involved in that joint venture, which the Bidens say they made without ever even meeting Mr. Stanford:

A Paradigm marketer, Jeffrey Schneider, confirmed accounts provided by others that he brought in the Stanford business. Stanford would bring clients to the fund and Paradigm would manage it, according to Mr. LoPresti.

Now, I suppose there could just be an amazing amount of coincidences here. Hempton is good on the “to-be-sure” stuff:

I was worried at first that Ponta Negra might be a legitimate fund headquartered in another cubicle on the 17th Floor of 650 Fifth Avenue. It turns out that there are several funds also HQ’d there. Paradigm it seems does all the signage on the floor – but once you get past the couple of Paradigm people on the front desk you find several doors behind which reside several hedge funds – a hedge fund hotel if you want. Most of the offices were empty mid-morning – which was very surprising. These funds are largely marketed by Paradigm.

Still there could be a fund (Ponta Negra) independent of Paradigm on the 17th floor. There could be – they too would need to employ a Jeffrey Schneider as a marketing agent.

But let’s face it:

Ok – by this point you should at least be open to the possibility that the Vice President’s son and brother employ someone who uses the good Biden name and a stolen client list to market Ponzi schemes.

There is no allegation here that the Bidens are involved. Just that their standard of due diligence is low. Very low.

Now the Biden’s hedge fund hotel contains an assortment of other colourful funds. One of them is a SIPC registered broker dealer who also manages client money. This broker dealer does not list their auditor anywhere on their website. However they report startlingly good funds management results for 2006 and 2007 though they have surprisingly failed to update their website to include 2008 results. Their website boasts that their trades will be completed with zero commissions and transaction charges allowing them to focus exclusively on the investments that best meet the needs of the clients without the concern of transaction charges and hidden revenue sharing…

Here’s what Dow Jones says about Rusciano:

According to the complaint, Rusciano previously worked at UBS Securities before forming the Ponta Negra Group, but was later forced to resign after he allegedly misreported certain Brazilian bond transactions and non-deliverable forwards. He now also faces charges by the Federal Reserve that he engaged in illegal trading and banking practices and schemed to defraud UBS by trying to conceal major losses, the complaint said. After starting up his own company, the SEC further claims he never disclosed the Fed’s allegations against him or the reasons why he left UBS.

Not only did Hempton break the news on what he originally called a “Ponzi scheme” before having to take it down under legal threat, he’s put together this Biden family connection.

Just outstanding work.

It wouldn’t be the first time a fraud has been cracked by a blogger before the big media and regulators lumber around to it. Alex Dalmady broke the Stanford scandal, with a big push from Felix Salmon, then at Portfolio—and got disgracefully little credit by the media.

This is going to be a big story. I’ll be eyeballing the spin corporate press closely ....

Global Crisis: How Much Time do We Have?

The Nature of the Current Financial Crisis: The System is designed to exert Total Control over the Lives of Individuals

Mystery group in the driving seat:

Milan Police Seize UBS, JPMorgan, Deutsche Bank Funds

Milan Police Seize UBS, JPMorgan, Deutsche Bank Funds
City cites fraud in losses on derivatives.....

By Elisa Martinuzzi

April 28 (Bloomberg) -- Milan’s financial police seized 476 million euros ($620 million) of assets belonging to UBS AG, Deutsche Bank AG, JPMorgan Chase & Co. and Depfa Bank Plc amid a probe into alleged fraud linked to the sale of derivatives.

The police froze the banks’ stakes in Italian companies, real estate assets and accounts, the financial police said in a statement today. The assets seized yesterday also include those of an ex-municipality official and a consultant, the police said.

The City of Milan is suing the four banks after it lost money on derivatives it bought from the lenders in 2005. The securities swapped a fixed rate of interest on 1.7 billion euros of bonds for a variable rate that was losing the city 298 million euros as of June. Milan is among about 600 Italian municipalities that took out 1,000 derivatives contracts worth 35.5 billion euros in all, the Treasury said.

“Milan is an important case because it can be used as an example by others,” said Alfonso Scarano, who is heading a study into the trades by AIAF, a group representing Italian financial analysts. “This is a unique time for borrowers to shed light on their potential losses and renegotiate contracts” to take advantage of interest rates that have fallen to record lows. AIAF will next week testify before the Italian Senate’s inquiry into the cities’ use of derivatives contracts.

Officials at all four banks declined to comment. In January, JPMorgan filed a lawsuit against the city in London. The bank is seeking to have dispute heard in the U.K., according to two people familiar with the claims.

Cassa Depositi

A spokesman for Milan’s city council declined to comment. A report commissioned by the city last year into the derivatives trades didn’t identify the officials involved in the decision.

The banks reaped about 100 million euros in fees from the transactions, Milan’s financial police said today. Public officials, seeking to cut the cost of their debt and help fund their budgets, turned to the banks to refinance borrowings from the state-owned lender Cassa Depositi e Prestiti.

The 30-year bond carried annual interest of 4.019 percent. With the derivatives, the city swapped the fixed interest rate for a floating rate set at 12-month Euribor. Milan also agreed to repay the principal by annual payments instead of at maturity, according to the city’s report.

The banks and Milan later agreed on so-called interest-rate collars, under which the banks would pay the borrower if Euribor rose above a certain level, the so-called cap, while the borrower would pay the banks if Euribor fell below the so-called floor.

Credit-default Swaps

The banks misled municipal officials on the advantages of buying the derivatives, including the impact of the fees they charged on the contracts, the financial police have said. The banks made three times more money from the cap than Milan did from the floor, according to the city’s report.

Local governments often entered into derivative contracts without soliciting bids from competing buyers. In 2007, Milan also sold a credit-default swap, exposing itself to the risk that the Republic of Italy might default, the document shows.

The Milan case is among lawsuits filed by local governments from Germany to the U.S. amid allegations of mis-selling and fraud. Italy’s Senate is leading a review of the use of derivatives among local administrations.

Italian prosecutors can seize assets, subject to judicial approval, to prevent the worsening of the consequences of the crime or prevent further crimes being committed, according to Andrea Giannelli, a researcher at Milan’s Bocconi University.

‘Intimidating and unprecedented’

“Its use in this case is somewhat intimidating and unprecedented,” said Giannelli. “It’s a measure they may be using to accelerate a solution.”

Deutsche Bank, Germany’s largest bank, last year won dismissal of a lawsuit filed by Hagen, Germany, over losses on derivatives that the city purchased from the lender.

The U.S. Justice Department has been investigating for more than two years whether banks and brokers conspired to overcharge local governments on similar swap agreements.

Alabama challenged a so-called swaption deal last year as local governments across the U.S. faced rising bills after derivative trades with Wall Street banks backfired. The Alabama Public School and College Authority filed a lawsuit in October seeking to void a so-called swaption, or option on an interest- rate swap, that it sold to JPMorgan in 2002....

Reviewing Ellen Brown's "Web of Debt:" Part IV

Reviewing Ellen Brown's "Web of Debt:" Part IV - by Stephen Lendman

This is the fourth in a series of articles on Ellen Brown's superb 2007 book titled "Web of Debt," now updated in a December 2008 third edition. It tells "the shocking truth about our money system, (how it) trapped us in debt, and how we can break free." This article focuses on America's "web of debt" entrapment.

The Debt Spider Captures America - American Workers Consigned to Debt Serfdom

America has been trapped for over two centuries, with today's debt level way exceeding developing nations. Like bankrupt people staying "afloat by making the minimum payment(s) on (their) credit card(s), the government (avoids) bankruptcy by paying just the interest on its monster debt" - now double in size since Brown's first edition and onerous enough for Controller of the Currency David Walker to warn earlier of its unaffordability by this year. If America can't service the amount, it's officially bankrupt and the economy will collapse. If it happens, IMF austerity will follow and turn America into Guatemala. Other vulnerable economies as well - permanent debt bondage and worker serfdom.

Catherine Austin Fitts was a former high-level Wall Street and government insider. She points to a "financial coup d'etat" conspiracy between the two to hollow out America, centralize power and knowledge, shift wealth to the top, destroy communities and local infrastructure, create new wealth by rebuilding them, and leave human wreckage in its wake.

She also calls today's crisis "a criminal leveraged buyout of America (meaning) buying (the) country for cheap with its own money and then jacking up the rents and fees to steal the rest." She calls it the "American Tapeworm" model:

It's "to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic 'discretionary' spending...This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then to 'preserve bond ratings and the rights of creditors,' our leaders can be persuaded to sell our water, national resources and infrastructure assets at significant discounts of their true value to global investors" - masquerading as a plan to "save America by recapitalizing it on a sound financial footing."

In fact, it's to loot the country by shifting wealth offshore and to the top. Also, to destroy the country's middle class, consign US workers to serfdom, then meet expected civil disobedience with military force, followed by mass internment in over 800 FEMA detention camps in every state.

Today, the rich are getting richer while millions of Americans struggle daily to get by and live perilously from paycheck to paycheck, a mere one away from insolvent disaster.

Given where we're heading, Warren Buffett warns that America is changing from an "ownership society" to a "sharecroppers' " one, no different than feudal serfdom. Economist Paul Krugman calls it "debt peonage," much like the post-Civil War South that forced debtors to work for their creditors.

Make no mistake, it's a corporate America scheme for a plentiful reserve army of labor no better off than in developing countries - at low wages, no benefits, weak unions if any, and government engineering the whole scheme. Even personal bankruptcy protection eroded under the Bankruptcy Abuse Prevention and Consumer Protection of 2005 - benefitting lenders at the expense of borrowers by keeping them chained to their debts.

It requires many more people "to file under Chapter 13, which does not eliminate debts but mandates that they be repaid under a court-ordered payment schedule over a three to five year period." Homes, in some cases, may be seized and even owe a "deficiency, or balance due" if its sales price doesn't cover it. This Act "eroded the protection the government once provided against (various) unexpected catastrophes (like job loss and high medical expenses) ensuring that working people (henceforth) are kept on a treadmill of personal debt."

Even worse are loopholes in the law letting "very wealthy people and corporations....go bankrupt....and shield(ing) their assets from creditors..." This bill was written at the behest of credit card companies that entrap consumers in debt, charge usurious interest, and demand repayment no matter what besets them. In one respect, debt bondage is worse than slavery. As property, slaves had to be cared for. Debt slaves have to fend for themselves and pay tribute (interest) to their captors.

The Illusion of Home Ownership

In 2004, household home ownership rates were "touted" to be nearly 69%. In fact, only 40% of homes are debt-free, but that percentage fell given the amount of refinancing in recent years. As a result, "most mortgages on single-family properties today are less than four years old" meaning they're many years away from free and clear ownership.

"The touted increase in home ownership actually means an increase in debt (and) Households today owe more relative to their disposable income than ever before," although in recent months they've been repaying it and saving more.

Earlier, and still now, low "teaser rates" entrapped households in onerous debt, fueling the housing bubble as another Federal Reserve/lender ploy to pump "accounting-entry money into the economy," set it up for trouble, then let financial predators exploit it for profit. The same strategies for Third World countries are playing out in America with too few people the wiser.

The 19th century "Homestead Laws that gave settlers their own plot of land (cost and debt free) have been largely eroded by 150 years of the 'business cycle,' in which bankers have periodically raised interest rates and called in loans, creating successive waves of defaults and foreclosures" - worst of all for subprime and other risky mortgage holders defaulting in record numbers with millions still ahead in what's playing out as the nation's worst ever housing crisis showing no signs of ending.

The Perfect Financial Storm

It looms in the form of inflation and deflation given the enormity of newly created money at the same time borrowers can't repay loans that then default. When that happens, "the money supply contracts and deflation and depression result."

When the housing market corrected between 1989 - 1991, "median home prices dropped by 17%, and 3.6 million mortgages" defaulted. The equivalent 2005 decline "would have produced 20 million defaults, because the average equity-to-debt ratio....had dropped dramatically" - from 37% in 1990 to 14% in 2005, a record low as a result of equity extracted refinancings.

"What would 20 million defaults do to the money supply?" Two trillion dollars would evaporate or about one-fifth of M3. The fallout would cause huge stock and home value declines, income taxes needing to be tripled, Social Security, Medicare and Medicaid benefits halved, and pensions and comfortable retirements gone for the vast majority of workers. And that's assuming a modest housing price decline when it's already far more severe and continuing, giving pause to the virtually certain calamity ahead and devastation for the millions affected.

Policy changes in 1979 - 1981 laid the groundwork for today's crisis by "flood(ing) the housing market with even more new money," and much more. They let Fannie and Freddie speculate in derivatives and mortgage-backed securities and by so doing assume enormous risk.

In June 2002, writer Richard Freeman warned of the impending dangers in an article titled: "Fannie and Freddie Were Lenders - US Real Estate Bubble Nears Its End." He cited the largest housing bubble in history made all the greater by Fannie and Freddie manipulation and stated: ...."what started out as a simple home mortgage has been transmogrified into something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on (highly speculative derivatives as new) sources of funds," made all the riskier through leverage.

In 2003, Freddie was caught cooking its books to make its financial health look sound. In 2004, Fannie did the same thing. Meanwhile, housing peaked in 2006, then steadily imploded, bringing the economy down with it.

Derivatives in the Eye of the Cyclone

In November 2006, financial expert and investor safety advocate Martin Weiss called the derivatives crisis:

"a global Vesuvius that could erupt at almost any time, instantly throwing the world's financial markets into turmoil....bankrupting major banks....sinking big-name insurance companies....scrambling the investments of hedge funds (and) overturning the portfolios of millions of average investors."

Gary Novak's web site explains the derivatives crisis as follows: the banking system gridlocked because "pretended assets are fake and fake assets" consumed real ones. Deregulation, beginning in the 1980s, caused the problem. Once eliminated, "funny money became the order of the day (in the form) of very complex vehicles (called) derivatives, which were often made intentionally obscure and confusing." Even financial experts don't understand them, and that was the whole idea - to sell junk to the unsuspecting, profit hugely as a result, and let buyers handle the problems.

It was a Ponzi scheme disappearing money "down the derivatives hole." Holders are now stuck with "pretend" values. They can't sell and no one will buy. A global liquidity shortage resulted. "The very thing derivatives were designed to create - market liquidity - has been frozen to immobility in a gridlocked game." Ironically, derivatives are sold as insurance "against something catastrophic going wrong." The solution is now the problem writ large.

Something gone wrong makes counterparties (on the other side of the bet) "liable to fold their cards," take losses, "and drop out of the game."

In May 2005, early signs of a crisis emerged after GM and Ford debt was downgraded to junk. Dire warnings followed of "a derivatives crisis 'orders of magnitude beyond LTCM" in 1998. To head it off, the Fed and other central banks covertly flooded the market with liquidity by no longer reporting M3 - "the main staple of money supply management and transparent disclosure for the last half-century, the figure on which the world has relied in determining the soundness of the dollar."

Even worse is that the government isn't doing it interest and inflation-free. The private Federal Reserve and banks are creating a massive amount of government debt, debasing the currency, and risking a future hyperinflation even though none is around today. When the Fed buys government bonds with newly issued money, they stay in circulation, "become the basis for generating many times their value in new loans; and the result is highly inflationary."

Catherine Austin Fitts describes an Orwellian (pump and dump) scheme letting "the powers that be steal money by manipulation (then) keep this thing going, but in a way that leads to a highly totalitarian government and economy - corporate feudalism" with workers as serfs. Another observer said: "The only way government can function and maintain control in an economically collapsed state is through a military dictatorship," where it looks like we're heading with police state laws enacted and hundreds of concentration camps nationwide to handle expected civil disobedience disruptions once people realized they've been had.

Financial Market Rigging

The notion that markets move randomly and reflect investors' sentiment is rubbish. There's a "mechanism at work, like the Wizard of Oz behind a curtain, pulling on strings and pushing buttons." Indeed there is with names.

In 1989, Reagan's EO 12631 created the Working Group on Financial Markets (WGFM) in response to the 1987 market crash. It's more commonly known as the Plunge Protection Team (PPT), including the president, Treasury secretary, Fed chairman, SEC chairman, and Commodities Futures Trading Commission (CFTC) chairman. Its purpose: to enhance "the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and (maintain) investor confidence."

The plain truth is that the PPT rigs market performance up or down at Wall Street's discretion because insiders profit both ways. Money used to manipulate markets is "Monopoly money, funds created from nothing and given for nothing" just to move markets as insiders wish.

In a June 2006 article titled "Plunge Protection or Enormous Hidden Tax Revenues," Chuck Austin wrote bluntly stating:

"....Today the markets are, without a doubt, manipulated on a daily basis by the PPT. Government controlled 'front companies' such as Goldman Sachs, JP Morgan and many others collect incredible revenues through market manipulation. Much of this money is probably returned to government coffers, however, enormous sums....are undoubtedly skimmed off by participating companies and individuals."

They're no different from Mafia crime families but far larger and more profitable. Further, these banks are global crimes syndicates writ large, and, unlike the Mafia, have limitless Fed-supplied funds, free from accountability, investigation, and prosecution.

"The PPT not only cheats investors out of trillions of dollars, it also eliminates competition that refuses to be 'bought' through mergers. Very soon now, only global companies and corporations owned and controlled by the NWO (New World Order) elite will exist." Wall Street giants sit atop that pyramid.

Along with the PPT, the "Exchange Stabilization Fund (ESF) exists - "authorized by Congress to keep sharp swings in the dollar's exchange rate from 'upsetting' financial markets." In a word, like the PPT, it operates by rigging markets for insiders, the usual suspects being major Wall Street firms - getting inside information on how to invest or the equivalent of tomorrow's Wall Street Journal today.

Another organization exists for the same purpose - the so-called Counterparty Risk Management Policy Group (CRMPG), established in 1999 to handle the LTCM crisis and protect against future ones. According to one account, it was "set up to bail out its members from financial difficulty by combining forces to manipulate markets" with US government approval.

One of its devices is for the nation's giant banks to collude in large-scale program trading, amounting to over half of all daily New York Stock Exchange volume and on some days much more. Knowing which way to bet puts them at odds with smaller firms and ordinary investors, vulnerable to losing out by a scam designed to defraud them - supported, however, by the full faith, credit, and muscle of the government.

But is an eventual day of reckoning coming? Hans Schicht believes so and says:

"In 2003, master spider David Rockefeller was 88 years old, so today," he'll be 94 in June. "(W)herever we look, his central command is seen to be fading. Neither is there a capable successor in sight to take over the reigns....Corruption is rife....Rivalry is breaking up the empire."

"What has been good for Rockefeller, has been a curse for the United States. Its citizens, government and country indebted to the hilt, enslaved to his banks...The country's industrial force lost to overseas in consequence of strong dollar policies (pursued for bankers not the country....)"

With Rockefeller leaving the scene, sixty years of dollar imperialism (is ending)....The day of financial reckoning is not far off any longer....With Rockefeller's strong hand losing its grip and the old established order fading, the world has entered a most dangerous transition period, where anything could (and may) happen."

Consider also the possibility that the "spider" moved to London where a "navy of pirate hedge funds....rule the world out of Cayman Islands" - an "epicenter for globalization and financial warfare" run by "Anglo-Dutch oligarchy" chosen officials allied with major global banks and shadow financial system players.

But even best laid plans at times fail, given how vulnerable even major banks are from their derivatives bets. As gold expert Adrian Douglas observed:

The system is so corrupted that if huge bets go wrong, the giants "have no other choice (than) to manipulate the price of underlying asset prices to prevent financial ruin....Instead of stopping this idiotic sham business from growing to galactic proportions, they've let it spin out of control (placing them) all on the hook....(This) sham is coming unglued because the huge excess liquidity (in the system ballooned to) asset bubbles all over the place."

He concluded that when derivatives buyers catch on to the scam and "quit paying premiums for insurance that doesn't exist, (they'll be) a whole new definition of volatility....the financial equivalent of a hurricane Katrina hitting every US city on the same day....When the bubble(s collapse), the banking empire....built on (them) must collapse as well."

To fend it off, Wall Street and its European partners are using desperate measures, "including a giant derivatives bubble that is jeopardizing the whole shaky system." In a February 2004 article called "The Coming Storm," the London Economist warned that "top banks around the world are now massively exposed to high-risk derivatives (posing a systemic) risk of an industry-wide meltdown."

John Hoefle believes that "the Fed has been quietly rescuing banks ever since. (He) contends that the banking system went bankrupt in the late 1980s, with the collapse of the junk bond market and the real estate bubble." The S & L crisis was "just the tip of the iceberg."

The Fed secretly took over Citicorp in 1989," arranged shotgun mergers for other giant banks, back door bailouts, and "bank examiners were ordered to ignore bad loans. These measures, coupled with a headlong rush into derivatives and other forms of speculation gave banks a veneer of solvency while actually destroying what was left of the US banking system."

It got in trouble because big gambles failed, including Third World debt defaults as well as Enron and other corporate bankruptcies. Giant US banks "are masters at....counting trillions of dollars of worthless IOUs (like derivatives) on their books at face value (to make it look like they're) solvent."

Between 1984 - 2002, takeovers papered over failures by reducing bank numbers nearly in half and consolidating the top seven into three - Citigroup, JP Morgan Chase, and Bank of America. According to Hoefle:

"The result of all these mergers is a group of much larger, and far more bankrupt giant banks. (A) similar process played out worldwide." He added that "zombies have now taken over the asylum" and writer Michael Edward agreed in a 2004 article titled: "Cooking the Books - US Banks Are Giant Casinos (engaging in) smoke and mirror accounting," then merging with each other to conceal their derivatives losses with "paper asset" bookkeeping. It means that "US banks have become (a giant) Ponzi scheme paying account holders with other account holder assets or deposits" - robbing Peter to pay Paul but promising to end very badly.

Does this "mark the inevitable end times of a Ponzi scheme that is inherently unstable?" Perhaps private banking as well, replaced by pension and mutual funds, and others able to operate efficiently at low cost.

Battling back, giants expanded into investment banking with repeal of Glass-Steagall, but profits continued to fall as the economic downturn accelerated, resulting in investment banks converting to commercial ones and retrenching temporarily from core businesses like M & A and corporate lending. "Meanwhile, banking as a public service has been lost to the all-consuming quest for profits," the very strategy getting giants in trouble and needing periodic government bailouts.

Very few of their services involve "taking deposits, providing checking services, and making consumer or small business loans." Instead, they concentrate on "dubious practices" responsible for a giant Ponzi scheme with "the entire economy in its death grip." They created a "perilous derivatives bubble that has generated billions of dollars in short-term profits but has destroyed the financial system in the process."

The "too big to fail" concept resulted from the S & L crisis when many of them collapsed and Citibank lost half its value. In 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act, bailing S & Ls out with taxpayer money. It was a brushfire compared to today's global conflagration, making it far harder to contain and effectively teetering all banks on bankruptcy. Considering the damage they've done, it's time to cut them loose and let them survive or fail on their own. And if the latter, it will be a major step toward restoring economic health overall.

Banking services can more efficiently be provided than by parasites using us as their food source."The irony is that our economic system is built on an illusion. We have been tricked into believing we are inextricably mired in debt, when the 'debt' was for an advance of 'credit' that was ours all along." It's high time we reclaimed it....

OBONGO and the 5th Summit of the America's, a show of utter weakness.

OBONGO and the 5th Summit of the America's, a show of utter weakness.

The Summits of the Americas, launched in Miami in 1994, bring together the heads of state of the thirty-four members of the Organization of American States (OAS) along with the heads of the member institutions of the Joint Summit Working Group (JSWG) – including such organizations as the International Organization for Migration (IOM), the Inter-American Development Bank (IDB) and the Pan American Health Organization (PAHO) – who have observer status. Traditionally, these periodic Summits focus on issues directly affecting the approximately 800 million inhabitants of the combined member states.(1)

Regarding American participation, the previous Summit, held in Mar del Plata, Argentina in 2005, is seen widely as a diplomatic failure for former U.S. President G.W. Bush. Bush, considered the most unpopular U.S. president ever in Latin America according to polls at the time, arrived to anti-Bush riots in the streets and a mass demonstration against U.S. policy, led by Venezuelan President Hugo Chávez and soccer legend Diego Maradona and attended by 25,000 people.(2) On the last day of the Summit he left Argentina for Brazil during trade talks that later ended in failure. The Argentine paper El Clarín wrote that, despite several agreements reached during the Summit, it was the worse of all Summits in terms of its negative political impact in the hemisphere. Moreover, whereas the U.S., Brazil and Mexico – traditional leaders in hemispheric politics – seemed distracted, Chavéz was becoming increasingly effective at building regional consensus and exploiting anti-American sentiment.(3)

The results of the recently concluded Summit of the Americas, held in the two-island, Caribbean nation of Trinidad and Tobago, were anything but those that emerged from the 4th Summit in 2005. To begin, expectations in the run-up to the Summit were much more optimistic – relative to previous Summits – contributing to an upbeat atmosphere that remained virtually unbroken for the duration of the three-day Summit. This was based primarily on two factors. On one hand, the theme of this Summit, “Securing Our Citizens’ Future by Promoting Human Prosperity, Energy Security and Environmental Sustainability”, conveniently avoided topics related to free trade, thus largely eliminating the basis for anti-globalization protests. On the other, and perhaps most importantly, Obama represented a break with the past, a fresh start. Bush and his brand of cowboy diplomacy were out and Obama and his promise of a new era of diplomacy were in – and this resonated with the other attending heads of state.

However, a change in administrations is not enough to elicit such goodwill and enthusiasm. Obama also shrewdly preempted potential accusations of empty promises by relaxing some U.S. travel and remittance restrictions concerning Cuba. His action was immediately followed by a historic response from Raúl Castro declaring the Cuban government’s willingness to discuss all unresolved issues, even those pertaining to human rights, political prisoners and freedom of the press. The issue of Cuba is significant, because it has been a bone of contention since 1962 when the Caribbean country was suspended from participation in the OAS. Prior to this year’s Summit, member states of the Bolivarian Alternative to Latin America and the Caribbean (ALBA) – an alternative to the U.S.-sponsored Free Trade Area of the Americas (FTAA) – indicated their intent to not sign the official declaration of the Summit based on two reasons : the exclusion of Cuba and the lack of a response to the global financial crisis.(4) While not completely satisfying their demands, the recent progress made in U.S.-Cuban dialogue may have taken a considerable amount of the wind out of their sails for now.

In contrast to the rioting and protests of Mar del Plata, Port of Spain was marked in U.S. media by the “handshake seen ‘round the world” between Obama and Chávez, the book Open Veins of Latin America : Five Centuries of the Pillage of a Continent that Chávez presented to Obama (and which has subsequently become the number two seller on, and the overall open atmosphere of the meeting. Although most observers agree that Obama’s diplomatic demeanor was a step towards amending U.S. relations with Latin American and the Caribbean nations, he has also been receiving significant criticism from the U.S. conservative right. Former Vice President Dick Cheney admonished Obama for “cozying up” to Chávez and not defending remarks he considered disparaging towards the United States.(5) Pat Buchanan, a staunch conservative pundit and former senior advisor to three Republican presidents, blasted Obama for his lack of response in the face of a 50-minute “diatribe” by “a Marxist thug from Nicaragua” (Nicaraguan President Daniel Ortega) that charged “America with a century of terrorist aggression in Central America”.(6) While such comments only represent a segment of media in the United States, they have found resonance with a conservative base that is characterized by a worldview that is divided along ideological lines.

Upon analysis of the Summit coverage provided by media in a number of the other member states, it becomes apparent that, although Obama was a major story, he did not dominate the headlines as he did in U.S. news. Whereas American news sources were focused on Obama’s performance, El Universal, a prominent Mexican newspaper, concentrated more on the substance of the Summit. It indicated, for example, that the attending heads of state were unable to unanimously support the final declaration of the Summit, with the result that Patrick Manning, Prime Minister of Trinidad and Tobago, was the sole head of state to sign the twenty-two page document.(7) In addition, it mentions the poor organization of the Summit itself – such as overlapping press conferences – and the fact that the demonstrations that were allowed to take place were also strictly controlled by the largest security force mobilized in the history of Trinidad and Tobago.(8) The state-owned Cuban newspaper Granma made little reference to Obama and focused instead on the support given to Cuba by other Central and South American leaders during the summit, both in reference to its inclusion in future Summits of the Americas and the OAS as well as to ending the U.S. embargo. It, like El Universal, mentioned the fact that the Summit was unable to reach a consensus on the original themes.(9) The Toronto Star discussed the fact that, as indicated by the Canadian Prime Minister Stephen Harper, an improvement in U.S.-Latin American relations “should help in the promotion of [Canada’s] own relations” with Latin America.(10)

As shown, while Obama made headlines in each country, he only dominated the news cycle in the United States. Many of the news sources outside of the U.S. focused logically on the repercussions that the events of the Summit may have in relation to the political agendas of their respective countries. Other sources took a more objective point of view and concentrated almost entirely on the accomplishments and failures of the Summit itself. This fact challenges the notion supported by American conservatives that the rest of the Western Hemisphere’s interest is concentrated on the U.S. and appears to contradict Cheney’s belief that Obama’s diplomacy was a show of “a weak president” that could be exploited by “both our friends and our foes”.(11) More likely, Obama’s approach to diplomacy will continue to pay political dividends, as already seen in the agreement between Venezuela and the U.S. to restore their respective ambassadors.(12) Although the Summit was successful on several points, such as the leaders agreeing on more support for the IDB, the generally amicable atmosphere will remain the distinguishing feature of the three days in Trinidad and Tobago. As Canadian Prime Minister Stephen Harper indicated, “The most remarkable thing about this conference was the failure to fulfill expectations of great confrontation.”(13)


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www/site/p_contenido.php ?q=nodo/77551/Internacional/Ch%C3%A1vez-llega-a-Trinidad-y-Tobago-para-participar-en-Cumbre-de-las-Am%C3%A9ricas









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The future role of Business Intelligence within the global financial community...

The future role of Business Intelligence within the global financial community...

by Michael Brooks

Depending on who you ask, there are 195 countries in the world today. While the majority of economic resources are controlled by a small, yet very powerful subset of global corporations and sovereign nations, the impact of their actions is felt by the entire world community. That the recent economic crisis was triggered by a variety of factors including faulty assumptions, greed, malfeasance, ineptitude, lack of oversight and a host of other causes is not surprising in retrospect.

One of the most important revelations is how interconnected our world has become in the past 50 years. In his speech to the Council on Foreign Relations on March 10, 2009, FRB Chairman Ben Bernanke highlighted the significance of managing the systemic risk of the global financial system. Traditional assumptions around financial institutions once considered “too big to fail” or “too interconnected to fail” are being challenged in light of the enormous cost of the recent crisis to society as a whole. We are quickly understanding how difficult it is to apply traditional risk management practices, paradigms and assumptions to a highly interconnected and increasingly co-dependent world community view.

If the global financial system were characterized as a living organism, the recent crisis would be depicted as a series of rapidly forming blood clots that disrupted the life force and risked the mortality of the patient. The fact that such clots were triggered by a number of interconnected participants (government, banks, consumers, etc., etc.) illustrates the chain of ripple effects that not only disrupted the flow of capital but actually reversed the flow of capital out of the system.

Due to the complexity of this crisis, it’s extremely difficult to determine the triggering effects that caused the integrity of the system to degenerate and ultimately stall. In looking at the number of banks and businesses that failed, it is ironic that many of the participants had also invested millions of dollars in sophisticated business intelligence (BI) systems, processes and consulting firms. Decision makers at all levels were bombarded with conflicting and incomplete information from a wide variety of sources. Clearly the increased insights offered by these sources were insufficient to protect the patient from mortal danger.

So what happened? While the challenges of this crisis will be studied for decades to come, it is apparent that several common themes exist such as:

The majority of BI deployments was biased toward the internal operations of the individual institutions and did not adequately address the interactions between members of the value chain. Individuals, institutions and nations were focused on optimizing their own individual success at the expense of the system as a whole....

The assumptions used in building and implementing traditional BI systems were based on the world as we knew it, not on a holistic view of a global financial system of interconnected parts. Most BI systems were designed based on best practices and lessons learned from historical experience and repetitive practices. The interconnectedness of our world community view now requires a more open model that must factor in external data sources and analyze a variety of constantly changing future possibilities.

The majority of information yielded from BI deployments was based on hindsight and failed to deliver the foresight for management to make decisions based on a wide range of unfamiliar scenarios and risk threats. Most of the major financial institutions have easily invested over $10M in traditional reporting tools, data warehouses and applications that organize and report on historical results and current activity. While forward-looking analysis tools are used in specific departmental applications, they are often subject to latency and data quality limitations in up-stream systems.

There was a widespread presumption that as long as all participants engaged in shifting risk to each other, they would be smart enough to quickly react and cover their bets. The possibility that exposure of one firm would have ripple effect on other firms was not adequately factored in until the wheels of the crises were in motion.

As we begin to pick up the pieces and rebuild the global economy, it is clear that we cannot go back to doing business the old way, and yet we cannot take advantage of the situation by gaming the system through a combination of management practices, new business models, changes in accounting rules and other short-term quick fixes. As an industry, BI professionals and executives have a unique opportunity and responsibility to take a more systemic view of their business and how it relates to other participants in the global financial system.

So what is the role of business intelligence in transforming the global financial system?
In the short run, we must apply the best technology and methods we have to identify and exploit opportunities to revive the financial system while doing a better job of identifying and managing risk through efforts such as:

Increased emphasis on the use of high ROI applications: Applications such as risk management, fraud detection, asset valuation, customer segmentation and others offer enormous payback potential that can directly influence top- and bottom-line performance. Companies must take a balanced approach to managing both performance and risk to do a better job of addressing the potential factors that might quickly erode hard-earned gains.

Focused parallel deployments to reduce risk and achieve higher ROI: Traditional serial approaches to large BI projects can take years to achieve. By that that time, requirements, sponsors, technology platforms and market pressures have changed, resulting in scope creep, higher costs and unmet expectations. Quick-strike paralleled deployments offer faster payback, lower risk and much higher ROI than serial approaches.

Increased emphasis on the connection between the BI investment required and the business case in terms that relate to the ultimate stakeholder: Business intelligence professionals must develop new skills to justify, deploy and exploit new technologies based on a clear, significant and immediate business case.

Core support functions such as finance, IT and HR must use BI/analytics technology as a vehicle to transform their functions to become a more effective partner with line of business departments: Rather than serving as back-office administrative services, these departments must leverage their knowledge of resource management, corporate performance, resource utilization, analytics and other domains to address an array of evolving business models, alliances and product offerings.

In the long run, the private sector and government agencies must develop more effective ways to manage performance and risk at both the local level and between the various participants of the global financial community. To do this, the private sector and governments will need to consider steps such as:

Invest in technologies that are capable of harvesting information more efficiently for specific high value purposes: Information is growing at a faster rate than anything else on the planet, although the federal debt is making a good effort to catch up. As we shift from performing analysis at the local level to looking at more system-wide effectiveness, the potential for dynamically managing globally focused databases will require higher levels of performance and connectivity than exist today.

Develop new methodologies for managing system-wide performance and risk: The industry as a whole can no longer afford to operate with an impaired understanding of their risk profile and rely on gamesmanship to transfer risk to the next participant in the value chain. Better visibility is required at the customer, product, corporate and system-wide level. To do this, new processes, algorithms, management philosophies and business models will be required to operate in an interconnected global financial community.

Increase executive sponsorship to improve their knowledge-based skills and understand the relationship between their actions and the company’s financial performance within the context of the global financial community: As real-time analytics within a global financial system become more commonplace and embedded in the various information systems, it will be necessary for decision makers at all levels to develop new skills and adopt a more holistic awareness of their actions.

Increase funding for educational programs to enhance the knowledge-based skills in all disciplines, not just IT: Business intelligence as we know it is rapidly becoming a thing of the past. Just as IT and other technologies have permeated almost all roles within the company, knowledge-based skills and knowledge re-use are become more critical skills for future labor forces.

For business intelligence to move beyond data movement and reporting, it is important that the philosophy of knowledge utilization and optimization become embedded in our core processes. Decision makers within functions such as risk management, loan origination, application processing, management recruitment, sales and marketing, finance and strategy must all improve their ability to effectively utilize information to help avoid the clotting and sub-optimization of the global financial community. While we’ll find new controls that will provide some degree of comfort, we cannot depend on governments to come up with effective solutions that protect taxpayer dollars when we’ve seen billions in bailout funds disappear before our eyes. Even after spending millions on SOX, Basel II and other initiatives, individuals and institutions still found a way to exploit weaknesses in controls that resulted in the clotting of our global financial system. While it is likely that such problems will occur again in the future, we clearly cannot continue on the present course.

Years ago, Isaac Asimov wrote about a branch of mathematics called psychohistory in which it was possible to use sophisticated algorithms to predict the future course of human events on a massive scale. While we are far from his original concept, we are forced to come to grips with the fact that we must deploy systems and practices that look beyond the boundaries of individual organizations to manage the systemic risk factors that may trigger future clots in the global financial community. This will require a new generation of systems that go beyond the capabilities of traditional BI solutions; vendors must deliver the insight to operate effectively within a much larger, more dynamic system of interacting parts. Finally, we need a fundamental shift in the use of business intelligence that will allow us to react faster and anticipate changes that will occur rather than locking us into assumptions based on the way the world used to operate. We cannot manage the future by simply basing our decisions on the paradigms of the way the world is today or has been in the past – we must place a higher importance on using business intelligence and analytics to address the way the world will be in the future.

Michael Brooks
Michael is President of Checkmate Advisors LLC, a collaboration of strategy, business intelligence and analytics experts with experience in financial services, healthcare, information technology and management consulting.

His experience includes business strategy, process improvement, business development, sales, marketing and solutions development with organizations including Ernst & Young, Unica, Unisys, Theoris, Visual Mining and others. Representative technologies include predictive modeling, customer segmentation, performance management, data visualization, performance dashboards, scorecards, competitive intelligence, text analytics, risk management and data mining.

Michael is known for identifying high-value market opportunities, executing strategies to drive top- and bottom-line growth, building high-performing organizations, and leading business development strategies to acquire market share and increase profitability. He is a recognized thought leader that identifies industry trends and develops pragmatic strategies that move organizations to adopt new technologies and offerings. In addition, he has assisted several organizations in award winning projects, strategic alliances and other recognized programs...

In Advanced Analytic Techniques , we have been taking a quick look at a number of different intel analysis methods (with the results posted on our ADVAT blog) but we have also been examining some methods in a bit more detail.

One of the more interesting experiments was Jeff Welgan's attempt to do competitive intelligence analysis using free, online search engine optimization tools. Search Engine Optimization (SEO), for those of you new to the term, is basically about trying to make your website, blog, etc. easier to find.

Jeff noticed that there are many, many tools to help people do this on the cheap. His thought was that you could use these tools not to aid your own efforts but rather to gather data about a competitor company, organization or even a terrorist group through their web presence. This, in turn, might allow an analyst to gain insight into their strategies and, possibly, their next moves.

For his purposes, he focused on two competitors, Starbucks and Caribou Coffee for his case study. His site, however contains a good bit more data, however. He has included basic background material on SEO, a list of operational definitions, a fairly comprehensive list of online tools, and a concise section on how-to use these tools as an intelligence method.

I think Jeff would be the first to admit that relying on SEO analysis exclusively is kind of like relying on HUMINT exclusively when you have SIGINT and IMINT as well. That said, this approach certainly has the potential to add a rich, structured source of data to bounce off the anecdotal and unstructured stuff that makes up most of what is available to the intel analyst.

Thursday, April 23, 2009

Freddie Mac CFO hangs himself or so says Fairfax Police

Freddie Mac CFO hangs himself or so says Fairfax Police...

Tel Aviv Jane Steps in her Own Fewmets

Chinese mop-up crew? NO....

Federal Home Loan Mortgage Corporation (Freddie Mac) chief financial officer David B. Kellermann, 41, was found dead at his home in the early morning hours of April 22. Fairfax County Police immediately said there was no sign of foul play in what was termed an "apparent suicide," even before an autopsy was conducted and a thorough crime scene investigation of Kellermann's home and Freddie Mac office was completed. There were no police reports about a suicide note being found.

Kellermann's body was found by his wife Donna in the basement of his home at 1709 Raleigh Hill Road in the Hunter Mill Estates subdivision of Vienna, Virginia. Mrs. Kellermann phoned the Fairfax County police at 4:48 am. The house is located near the Dulles Airport Access Highway. Kellermann worked at Freddie Mac's headquarters in nearby McLean, Virginia.

Kellermann worked for Freddie Mac for 16 years, as a vice president and senior controller, accounting officer, and mortgage analyst. He assumed the duties of CFO in September 2008. Kellermann took over the CFO duties from Anthony "Buddy" Piszel who resigned with other Freddie Mac officers after the government assumed direct control of the corporation amid charges that Freddie Mac's mismanagement contributed to the mortgage meltdown.

Freddie Mac's government-appointed CEO, David Moffett, to whom Kellermann reported directly, resigned in March after only six months in the job, and was succeeded as non-executive chairman by John Koskinen, who was appointed by the Federal Housing Finance Agency, the federal oversight authority for both Freddie Mac and Fannie Mae. It was not known whether Moffett quit or was fired by the federal government overseers. Before taking the CEO job at Freddie Mac, Moffett had been a senior adviser to The Carlyle Group and prior to that CFO of US Bancorp.

At Carlyle, Moffett worked with Olivier Sarkozy, the half-brother of the French president, who had previously worked for UBS, and John Redett, who worked with Sarkozy at Credit Suisse First Boston.

Freddie Mac and its sister organization Fannie Mae once controlled half of America's $12 trillion mortgage industry. In 2008, Freddie Mac lost over $50 billion. Kellermann, as a former controller and auditor would have had intimate knowledge of Freddie Mac's business practices and what happened to not only the $50 billion but also the fate of over $13 billion in federal bailout money received in 2008. Kellermann would have also known all the designated recipients of over $210 million in bonuses being paid this year and in 2010 as incentives to Freddie Mac executives. Kellermann was slated to receive an $850,000 bonus. Executive Vice President Michael Perlman was scheduled to receive a bonus of $1.5 million.

Kellermann was well-liked by his neighbors and co-workers. Although the FBI has been investigating Freddie Mac, the Associated Press reported that Kellermann was not a target. There is a strong possibility that Kellermann was assisting the FBI and federal prosecutors in their investigation of the company, which makes his alleged "suicide" suspicious. Kellermann was Freddie Mac's acting CFO and the company was reportedly searching for a permanent replacement.

At Freddie Mac's annual investor/analyst conference held on March 12, 2008, the first held in eight years, Kellermann tempered the enthusiasm of some other corporate officials by stressing the firm's adjusted operating income (AOI), including all realized gains and losses, and compliance with Generally Accepted Accounting Principles (GAAP). Kellermann told the investors and analysts, "I will focus primarily on GAAP, but a lot of the guidance that I give you would also apply to adjusted operating income. So first, on our GAAP mark-to-market exposure which killed us in 2007, we should be -- they should be a lot less harmful in 2008." As it turned out, Freddie Mac saw a worse "killing" in 2008.

Kellermann would have also been aware of the accounting "tricks" that Freddie Mac's board of directors came up with and implemented to make the firm look more profitable than it was in order to increase bonuses for Freddie's top executives. One of those directors was Rahm Emanuel, President Obama's Chief of Staff, who was appointed to Freddie's board in 2000 by President Clinton...

Although there is a strong White House link to Freddie Mac through Emanuel's previous role in the firm, Obama's Press Secretary Robert Gibbs was evasive in the first question he received from the White House press corps yesterday on Air Force One, en route to Newton, Iowa:

Q Is the President aware of David Kellermann, and has he -- what are his thoughts on that?

MR. GIBBS: I'm sorry?

Q Is the President aware of David Kellermann's apparent suicide, and his thoughts on that.

MR. GIBBS: I haven’t talked to him about that. I would just say that -- I don't have any comment on it as the police look into the matter.

Buddy Piszel, the CFO and Kellermann's boss, told the conference: "So, where do we stand on capital? Well, for starters, on January 2, after adopting the fair value option, our capital stood at approximately $39 billion with an estimated surplus over the 30% of $4.5 billion. I might add that this is twice the surplus we had over the 30% starting out in '07 and it is about $12.4 billion over the minimum capital requirement." In fact, Piszel was far off base. Freddie Mac lost over $50 billion in 2008.

Patti Cook, Freddie's Chief Business Officer, told the conference, "Freddie Mac's market share in our three business lines has improved and should remain strong for the foreseeable future." Six months later, Freddie Mac would financially collapse.

Described as a good family man by his neighbors, there is also no explicable reason why Kellermann would have put his wife and 5-year old daughter Grace through the trauma of finding his body hanging in the basement....

Rahm Emanuel, Cheney, McConnell, Bushco.,Soros/CIA/MI6, Mukasey, RUIM, Abramoff,Gonzales, AIPAC, Libby, all are criminals, with criminal minds...guided by the threesome of killers, CIA2/MOSSAD/MI6...

Didn't Cheney have his own hit...squad? Would he have used it on the DC Madame, Deborah Jeanne Palfrey, to hide his sexpionage where they had the goods on him?

Did they kill reporters like Tim Russert and Peter Jennings with lasers and microwaves to create heart attacks and cancer? Did the head of the financial committee in Congress fall and die right before being able to expose this financial robber before the election?

Did Rumsfeld go along with Cheney/CIA-Israel's MOSSAD/9-11 created false flag because the pentagram of death was missing 3.2 trillion dollars and it was announced September 10th?

What exactly does Israel know about Obama that makes him have to have Rahm FREDDIE MAC Emanuel/MOSSAD be his watcher and controller?
Because Obongo's mother is Jewish, and he is totally controlled by MOSSAD/CIA geeks....


Crisis as a Means to Building a Global Totalitarian State: The world is being led to accept the “new order” idea step by step to avoid provoking events that are likely to make the universal protests against the worsening conditions of human existence take ‘a wrong course’ and become uncontrolled. The main thing that Stage One managed to achieve was to start a wide-ranging discussion on ‘global government’ and the ‘inadmissibility of protectionism’ with an emphasis on the ‘hopelessness’ of the national-state models for emerging from the crisis.

This discussion is proceeding against the background of information pressures that help to build up human anxieties, fear, and uncertainty. Some of those information actions are the following: WTO forecasts to the effect that 1.4 billion people are likely to sink below the poverty line in 2009; a warning by the WTO director general that the biggest world trade slide in postwar history is in the offing; a statement by the IMF’s Dominique Strauss-Kohn (a protégé of Sarkozy’s) that a world economic crash is impending unless a large-scale reform of the financial sector of the world economy is implemented, and a crash that is most likely to bring in its wake not only social unrest but also a war.

Against this background, the idea to introduce a common world currency as a cornerstone of the ‘new world order’ was put forward. The real masterminds of this long-standing project are as yet in the shadow. Let us note that some or other representatives of Russia are pushed to the fore. This is reminiscent of the situation before World War I, where the Anglo-French circles that possessed some well-elaborated plans for a new division of the world instructed the Russian Foreign Minister to draw up a general program for the Entente Cordiale. It went down in history as the ‘Sazonov program’, even though Russia did not play an independent role in that war and was from the start built into the system of interests of the British financial elite.

The G20 did not discuss the common world currency issue, since time had not yet come for that. The summit itself was a step forward on the way to chaos, because its decisions, if followed blindly, will only worsen the world socioeconomic situation and, to quote Lyndon LaRouche, will “finish off the patient.”

With Obama’s coming to power, the police order in America is getting tighter and tighter in two directions – strengthening internal security and militarization of civilian institutions. Tellingly, having condemned the infringements on individual freedoms done by the Bush administration, Obama has put his own staff under total control by making them fill out a 63-question form that touches upon the most intricate details of their private lives. In January, the US President signed bills that enable the continuation of the illegal practice of abducting people, keeping them secretly in prisons, and moving them to countries where tortures are used. He also proposed a bill called National Emergency Help Center Establishment Act, which stipulates the establishment of six such centers in US military bases to provide help to people who are displaced due to an emergency situation or disaster and thus get into military jurisdiction. Analysts connect this bill with possible disturbances and consider it proof that the US administration is preparing for a military conflict which may follow after the provocation that is being planned.

The American system of police control is actively implemented in other countries, primarily in Europe – through the establishment of American law hegemony on its territory by means of closing various agreements. A big part here was played by US–European talks out of the glare of publicity on creation of the common ‘area of control over the population’ that were held in spring 2008, when the European Parliament adopted resolution that ratified creation of the single transatlantic market abolishing all barriers to trade and investments by 2015. The talks resulted in the classified report prepared by the experts from six participating countries. This report described the project to create the ‘area of cooperation’ in the spheres of ‘freedom, safety and justice’....

Freddie Mac CEO who abruptly left firm last month returns after suicide of CFO...

The political intrigue at the troubled Freddie Mac mortgage finance firm has taken a strange turn with the re-hiring of the former government-appointed CEO David Moffett as a consultant following the April 22 suicide of the company's chief financial officer David Kellermann in his Vienna, Virginia home.

Moffett is reportedly overseeing the firm's finances in the wake of Kellermann's death.

On April 23, We reported: "Freddie Mac's government-appointed CEO, David Moffett, to whom Kellermann reported directly, resigned in March after only six months in the job, and was succeeded as non-executive chairman by John Koskinen, who was appointed by the Federal Housing Finance Agency, the federal oversight authority for both Freddie Mac and Fannie Mae. It was not known whether Moffett quit or was fired by the federal government overseers. Before taking the CEO job at Freddie Mac, Moffett had been a senior adviser to The Carlyle Group and prior to that CFO of US Bancorp. At Carlyle, Moffett worked with Olivier Sarkozy, the half-brother of the French president, who had previously worked for UBS, and John Redett, who worked with Sarkozy at Credit Suisse First Boston."

Moffett apparently resigned after disagreeing with Federal Housing Finance Agency regulators over governmental oversight. Kellermann, on the other hand, was reportedly working closely with federal regulators, as well as Securities and Exchange Commission (SEC) investigators and FBI and Justice Department law enforcement officials in an investigation of Freddie Mac. At no time was Kellermann a subject of the federal investigation. Kellermann was in the midst of preparing Freddie Mac's first quarter financial report at the time of his suicide....

Wednesday, April 22, 2009

Ecuadorian Attorney General testifies in Chveron Texaco-Ecuadorian Indian case

Ecuadorian Attorney General testifies in Chevron Texaco-Ecuadorian Indian case...

The Attorney General of Ecuador, Dr. Diego Garcia Carrion, spoke on April 22 at the National Press Club in Washington regarding a major case that could impact on the financial future of Chevron Texaco.

The case stems from Texaco's pollution of Ecuador's Amazon rain forest between 1964 and 1990. in November 1993, 30,000 Ecuadorian natives of Oriente Province filed a class action suit under the U.S. Alien Tort Claims Act against Texaco in the U.S. Court for the Southern District of New York. In 2002, the New York court dismissed the Ecuadorian lawsuit, as well as one from Peruvians downstream of the oil pollution, claiming that Ecuadorian and Peruvian courts were the proper venue for the cases. Last October, the U.S. Court of Appeal for the Second Circuit denied Chevron Texaco's attempt to force Ecuador to submit to binding arbitration to determine who is liable for the pollution, which has, among other things, causes an increase in cancer among the inhabitants of Oriente. A court-appointed expert concluded that Texaco dumped more than 18 billion gallons of toxic waste into the Amazon region during the 1970s and 80s.

The expert concluded that Chevron Texaco is liable for $27 billion in damages to Ecuador's rain forest and the people who lived in the affected area.

The stakes for Chevron Texaco in the class action suit of Maria Aguinda v. Chevron Texaco are enormous. In September 2008, two Chevron lawyers and seven former Ecuadorian government officials were indicted for fraud in Texaco's remediation of toxic waste clean-up during the 1990s. Chevron Texaco's lobbyists and lawyers in Washington also tried unsuccessfully to have Ecuador's preferential trade benefits with the United States revoked unless Ecuadorian courts ruled in the company's favor.

Texaco, which was bought by Chevron in 1991, claims that a series of agreements between Texaco and the government of Ecuador signed in 1994, 1995, and 1998, gave Texaco a "release" from indemnifying the inhabitants of Oriente for environmental damage and health problems caused by Texaco's pollution of previously pristine rain forest lands.

The Ecuadorian Attorney General is countering Chevron-Texaco's claim that a 1994 memorandum of understading between the Ecuadorian government and PetroEcuador on one side and Texaco on the other releases Chevron Texaco from any claims against the firm. Dr. Garcia's position as the chief attorney for Ecuador is that the 1994 MOU does not release Chevron Texaco from any claims that third parties, such as the current case of Aguinda v. Chevron Texaco.

If a three-person international arbitration court made up of Belgian, German, and British judges finds in favor of the Ecuadorian Indians, Chevron Texaco will be forced to pay out $27 billion. WMR has been told that would likely result in financial insolvency for the firm.

Ecuador's Attorney General's position is that the 1994, 1995, and 1998 MOUs did not release Texaco from Aguinda claims. The Attorney General's position demands that he remains neutral in the arbitration that is being conducted in accordance with United Nations Commission on International Trade Law (UNCITRAL) rules that work in tandem with regulations enacted by the World Trade Organization (WTO).

The Attorney General stated that he does not believe that Chevron Texaco acted fairly by trying to bring the Ecuadorian government into a case between a third party claimant and Chevron Texaco.

As a non-partisan chief counsel for the Republic of Ecuador, Diego, who is independent of the Ecuadorian executive, is not a counterpart to the U.S. Attorney General who is part of the executive branch of the U.S. government. Therefore, there were no invitations by the Justice Department to Diego to discuss any matters of mutual interest between the Obama administration and Ecuador. Diego said the future of the U.S. military base at Manta, Ecuador, which President Rafael Correa has ordered closed, is being handled by the Ecuadorian Foreign Ministry and the U.S. Department of State.

Postscript: The other major topic being discussed, aside from the Stanford Financial Group collapse and money laundering, between this editor and my confidential source on March 17 when we were arrested by the Alexandria, Virginia police, was the law suit against Chevron Texaco by the Ecuadorian Indians. The arrests took place after two off-duty Alexandria police officers attempted to provoke the source, who is involved in the case on behalf of the Indians, in a racially-tinged encounter.

Considering the lengths to which Chevron Texaco has bribed Ecuadorian officials and lobbied Congress to make the Aguinda case go away, paying a few off-duty police toughs in Alexandria would certainly fit neatly into Chevron Texaco's modus operandi....

The Financial war against Iceland is shameful to say the least...

Iceland is under attack – not militarily­ but financially. It owes more than it can pay. This threatens debtors with forfeiture of what remains of their homes and other assets. The government is being told to sell off the nation’s public domain, its natural resources and public enterprises to pay the financial gambling debts run up irresponsibly by a new banking class. This class is seeking to increase its wealth and power despite the fact that its debt-leveraging strategy already has plunged the economy into bankruptcy. On top of this, creditors are seeking to enact permanent taxes and sell off public assets to pay for bailouts to themselves.

Being defeated by debt is as deadly as outright military warfare. Faced with loss of their property and means of self-support, many citizens will get sick, lead lives of increasing desperation and die early if they do not repudiate most of the fraudulently offered loans of the past five years. And defending its civil society will not be as easy as it is in a war where the citizenry stands together in coping with a visible aggressor. Iceland is confronted by more powerful nations, headed by the United States and Britain. They are unleashing their propagandists and mobilizing the IMF and World Bank to demand that Iceland not defend itself by wiping out its bad debts. Yet these creditor nations so far have taken no responsibility for the current credit mess. And indeed, the United States and Britain are net debtors on balance. But when it comes to their stance vis-à-vis Iceland, they are demanding that it impoverish its citizens by paying debts in ways that these nations themselves would never follow. They know that it lacks the money to pay, but they are quite willing to take payment in the form of foreclosure on the nation’s natural resources, land and housing, and a mortgage on the next few centuries of its future.

If this sounds like the spoils of war, it is – and always has been. Debt bondage is the name of this game. And the major weapon in this conflict of interest is how people perceive it. Debtors must be convinced to pay voluntarily, to put creditor interests above of the economy’s prosperity as a whole, and even to put foreign demands above their own national interest. This is not a policy that my country, the United States, follows. But popular discussion in Iceland to date has been one-sided in defense of creditor interests, not that of its own domestic debtors.

Ultimately, Iceland’s adversary is not a nation or even a class, but impersonal financial dynamics working globally and domestically. To cope with its current debt pressure, Iceland must recognize how uniquely destructive an economic regime its bankers have created, through self-serving legislation and outright fraud. With eager foreign complicity, its banks have managed to create enough foreign debt to cause chronic currency depreciation and hence domestic price inflation for many decades to come.

To put Iceland’s financial dilemma in perspective, examine how other countries have dealt with huge debt obligations. Historically, the path of least resistance has been to “inflate their way out of debt.” The idea is to pay debts with “cheap money” in terms of its reduced purchasing power. Governments do this by printing money and running budget deficits (spending more than they take in through taxes) large enough to raise prices as this new money chases the same volume of goods. That is how Rome depreciated its currency in antiquity, and how America managed to erode much of its own debt in the 1970s – and how the dollar’s falling international value has wiped out much of the U.S. international debt in recent years. This price inflation reduces the debt burden – as long as wages and other income rise in tandem.

Faced with an unprecedented explosion of debt obligations – many of them apparently fraudulent, and certainly in violation of traditional credit practice – Iceland has turned this inflationary solution inside out. Instead of permitting the classic credit cure of inflating the currency, it has created a dream economy for creditors, preventing the classical escape from debt. Iceland has found a way to inflate its way into debt, not out of it. By indexing debt to the rate of inflation, it has guaranteed a unique windfall for banks that vastly increases what they receive in a “down market,” at the expense of wage earners and industrial profits. Linking mortgage loans to the consumer price index (CPI) in the face of a depreciating currency and heavy balance-of-payments drain to foreigners can have only one result: destruction of Iceland’s society and its traditional way of life.

Iceland needs to repudiate this debt bomb. Under present policy its debts will never lose value, because they are indexed to inflation. This in turn is being caused in large part by foreign debt service collapsing the currency, raising import prices and thus causing even larger debt payments in an endless treadmill. The economy shrinks, wages fall and assets lose value, yet debt obligations continue to grow and grow. The resulting evisceration of wages, living standards and consumer spending will further shrink the economy – a prescription for economic virus that threatens to plague Iceland for many decades if it is not reversed now. Capital formation will plunge as consumers lack money to spend. Many may not have enough to survive. The economy will be “crucified on a cross of gold,” to use William Jennings Bryan’s famous phrase in the 1896 American presidential election when he advocated an inflationary coinage of silver to alleviate debt pressure on U.S. farmers and labor.

Another side to the discussion?

Despite having spent the past half-century focusing on countries with balance-of-payments problems, even I find Iceland’s uniquely self-destructive financial regime shocking. Before you dismiss my candor, I should offer a short personal résumé so that you understand that my conclusions are based mainly on having been an insider to the game of imperial-style plundering of nations for forty years. In the mid-1960s I was the balance-of-payments economist for the Chase Manhattan Bank and then for Arthur Anderson, and later for the United Nations Institute for Training and Research (UNITAR). I have taught international economics at the graduate level since 1969, and now head an international group on economic and financial history based at Harvard. In 1990 at Scudder Stevens and Clark, I organized the world’s first sovereign-debt fund. All these jobs involved analyzing the limited ability of debtor countries to pay – how much could be extracted from them through foreign-currency loans and how much public infrastructure was available to be sold off in a voluntary virtual foreclosure process by countries willing to submit to creditor-dictated rules.

I first wrote about monetary imperialism in the 1970s in my book Super Imperialism. It should have been entitled “Monetary Imperialism” because it detailed how replacing gold with paper dollar IOUs for trade and balance-of-payments deficits in 1971 allowed the United States to exploit the rest of the world without limit. Phasing out gold payments among central banks in favor of fiat paper money allowed the United States to run up massive debts equal to its cumulative payments deficit, far beyond its ability to pay. It currently owes over $4 trillion, while running a chronic trade deficit with enormous overseas military spending, financed entirely by other countries through their central banks. This is euphemized as the “international monetary system.”

I also was an advisor to the Canadian government in the 1970s. My main work was to write a monograph explaining why countries should not borrow in foreign currencies, but should monetize their own credit for domestic spending and investment. In recent years I have taught in Latvia and given this same advice to its officials. I provide this background because it has obvious relevance to Iceland’s financial situation today. It has broken the cardinal rule of international finance: Never borrow in a foreign currency for credit that you can create freely at home. Governments can inflate their way out of domestic debt – but not out of foreign debt. That is a large part of the problem that Iceland now faces.

The main thrust of my comments therefore will focus on the international dimension of Iceland’s debt problem, especially with regard to its relations with Europe. It therefore is relevant to look at what is happening in today’s “expanded Europe.” As the financial press has been reporting, post-Soviet economies have met with disastrous results after having moved to join the European Union during the past decade. The recent riots of debtors, farmers and labor union members from the Baltics to Hungary are symptomatic of the deep economic woes surging over these countries. Resentment is growing that instead of helping them industrialize and become more efficient, Europe and its Lisbon Treaty simply handed matters over to its bankers, who looked at these countries simply as credit customers to be loaded down with debt – not for loans to build up manufacturing and the infrastructure sorely needed by these countries, but loans mainly against existing real estate and infrastructure collateral already in place. That is the quickest way to make money, after all – and finance traditionally has lived in the short run.

This problem was bound to arise, given Europe’s postindustrial faith that whatever increases “wealth” – even by the trick of puffing up real estate and other asset prices – is as productive as building new industrial capacity and infrastructure. The result of this ideology was a set of bubble economies built on debt-financed real estate and stock market inflation. Such bubbles always burst at some point. Only belatedly are nations re-discovering the classical axiom that the only way to pay for imports on a sustainable basis is to produce exports.

Unfortunately, neither foreign banks nor European advisors encouraged this. Their policy de-industrialized the post-Soviet countries, which financed deepening trade deficits by borrowing in foreign currency against their real estate. The Baltic States borrowed euros, sterling and Swiss francs, mainly from Swedish banks to finance a real estate bubble, while Hungary and its Central European neighbors borrowed heavily from Austrian banks. Their economies are shrinking now that their casino economies gambling on asset-price inflation have burst. Rental income and hence property prices are plunging, and exchange rates are following suit. This makes a foreign-currency mortgage cost more than local property is yielding. The result is widespread mortgage default, causing severe losses for Swedish and Austrian banks.

Bad real estate debts also are pulling down banks in the two leading creditor nations, Britain and the United States. Real estate prices, stock market prices and employment are going down in a straight line unprecedented even in the Great Depression of the 1930s. This has turned the neoliberal financial dream of “creating wealth” by inflating asset prices, by creating credit without actually increasing tangible capital formation (wages and living standards) into a nightmare. Just as individuals can’t live off a credit card forever, neither can nations. As any classical economist knows, societies that only manufacture debt are unsustainable. Casinos may be fun places to visit (customers pay by losing their money), but no place to live. The same is true of casino economies.

No help from the EU or the current global economy

The European Union is not in a position to offer much help in solving Iceland’s financial problems. The continent’s integration in the 1950s was pioneered by social democrats and pro-industrial idealistic capitalists such as Konrad Adenauer and Charles de Gaulle hoping to end the continent’s internecine wars forever. They succeeded, by forming the seven-nation Common Market in 1957. But further European expansion occurred largely on the financial sector’s terms. That is the source of problems fracturing “old” and “new” Europe today. It is the context in which Iceland’s debt problem is now being played out.

It seems natural enough for people to pay debts that have been taken on honestly. The normal expectation is that people will borrow – and banks will make loans – only for sound investments, ones that are able make a profit enabling the debtor to pay back the lender with interest. This is how banks have worked for many centuries – hence, the image of the prudent bankers who says “no” to any questionable deals brought before them.

At least that was the old way of doing things. Almost nobody anticipated a world in which bankers would create credit irresponsibly, leading to the massive defaults we are seeing throughout the world today. In the United States, for example, no less than a third of home mortgages have fallen into a state of Negative Equity. That is to say, the mortgage exceeds the market price of the real estate pledged as collateral. The U.S. national debt has tripled during the past year, from $5 trillion to $15 trillion as a result of financial bailouts including the government taking on the $5.2 trillion mortgage-packaging giants, Fannie Mae and Freddie Mac. A single insurance company, A.I.G., has been slated to receive a quarter-trillion dollars of bailout money, and a single bank, Citibank, has received over $70 billion and still counting. The stocks of these hitherto financial giants have fallen to just pennies, and Congress is now debating whether finally to nationalize them and wipe out their stockholders and even their bondholders.

In Britain much the same has occurred. Sitting in the lounge of Heathrow airport last month, I watched the hearings on BBC where members of Parliament expressed amazement that the most seriously affected banks were not led by bankers but by marketing men. Their job was not to calculate prudent loans, but to sell as much debt as possible, without regard for the debtor’s ability to pay. The result is that the Bank of England – like the U.S. Treasury – is printing new bonds whose interest charges will have to be paid by taxes on labor and industry.

How can Iceland be expected to cope in this kind of financial environment? To get a perspective on what would be a dystopian future, one may look at the dress rehearsal for the so-called financial “reforms” played out in the 1990s in Russia and other post-Soviet countries. These are reforms that creditors – including the European banks, I’m sorry to say – now wish to impose on Iceland. In Russia, life expectancies sharply declined, while health, prosperity and hope withered as outside forces imposed austerity measures and high interest rates. Russians woke up to find that the devastation of the reforms foisted on them were as severe as the Second World War in reducing population, destroying industry, spreading disease and losing control of their economy. Living standards plunged, especially for retirees, while employment prospects closed for the young. Much the same occurred throughout the former Soviet Union.

This policy remains the “fix” for debtor countries: Sell off assets for pennies on the dollar to kleptocrats across the globe, and gut the nation’s social welfare programs just at a time they are needed most. By contrast, look at the nations calling most loudly for Iceland to pay the loans made by global speculators and arbitrageurs. They include the largest debtor nations, headed by the United States and Britain, led by politicians who never would dream of imposing such hardship on themselves. While cutting their own taxes and increasing their own government budget deficits, these nations are attempting to extricate financial tribute from smaller, weaker countries that they can bully, as they did to Third World debtors in the 1980s and ‘90s.

Dismantling industrial capitalism

This is a crisis that calls for blunt truths. What creditor nations and their international financial institutions are promoting is not capitalism as traditionally understood. Instead of helping industrialize the countries to which they extended credit so as to make them viable and self-reliant with new means of paying for their imports – and indeed, paying the debts taken on to rebuild their productive capacity – European planners oversaw the dismantling of manufacturing.

Even worse, they did so in a way that empowered a neo-feudal set of financial oligarchs. Indebted economies have been turned into a gaggle of casinos, with special games (e.g., opaque financial instruments such as credit-default swaps) reserved exclusively for insiders. Even to get into this game, one must be at last a millionaire, signing legal releases that one can afford to lose the entire investment and still survive economically. The European Union thus adds insult to injury by presenting its financial agencies euphemistically as donors bringing aid. They turn out to be the same ideologues that have crippled industrial capitalism across the globe by proliferating debt-leveraged gambles that have redistributed wealth upwards wherever they have operated.

This policy creates debt peonage for most citizens, above all in the newer countries seeking to join the European Union. Even in the richest nation on earth – the United States – nearly half of all citizens now have no net worth, and the gulf between the wealthiest 10 percent and the rest of society has widened geometrically since 1980. This is the unfair system that the world’s top creditors would export to Iceland – if they can convince its voters to accept neoliberal debt pyramiding as a way to get rich. The recent riots throughout the post-Soviet states suggest that this plan is not working. Their populations are now feeling how deeply the so-called financial reforms (e.g., financial deregulation) promoted by European banks and the Lisbon Agreements have polarized their economies.

Recognizing the enemy within

The only defense against such disastrous policy is to recognize that there are better alternatives. It simply is not possible for today’s astronomically indebted economies to “work their way out of debt” with the old trick of inflating the money supply. Trying to do so will collapse the currency’s exchange rate and divert so much revenue to pay creditors – and transfer so much property out of local hands – that a new kind of post-capitalist, non-production/consumption economy will be created, one less and less able to be self-reliant and independent, to say nothing about being just and sustainable.

Iceland’s financial crisis today is less an issue of international law as of outright lawlessness perpetrated by the purveyors of so-called free market democracy. Nations pressing Iceland for payment impose one set of laws for others while following quite a different set for themselves. Preaching to Iceland about international law, the United States and Great Britain themselves have broken the clearest of international laws – those against waging aggressive war. Their propagandists are skillful at using the language of capitalism and morality, yet they are neither capitalist nor moral. Their financial strategy is to play an ages-old psychological game. Make countries like Iceland feel guilty about being debtors rather than recognizing they have been victims of an international Ponzi scheme. In a nutshell, the game is to lay down “laws” for debtors in the form of destructive austerity programs fashioned by irresponsible and indeed, parasitic creditors. This “aid advice” ends in outright asset stripping, both public and private.

Asset stripping to pay debts has caused collapse time and again in history, but is strangely downplayed in today’s academic curriculum as an “inconvenient truth” as far as vested financial interests are concerned. Income is siphoned off by a scheme that is elegant and simple. Hapless victims – and now entire economies, not just individuals – are maneuvered onto a debt treadmill from which there is no escape. Creditors pile on credit and let the debts grow at the “magic of compound interest,” knowing that their loans cannot be repaid – except by asset sell-offs. No economy’s productivity can keep pace with exponentially compounding debt. Whatever was owned (and indeed, financed originally by public debt but now paid off) is stripped away for interest payments that never end. The aim is for these payments to absorb as much of the surplus as possible, so that the national economy in effect works to pay tribute to the new global financial class – bankers and money managers of mutual funds, pension funds and hedge funds.

The product they are selling is debt. They build up their own wealth by indebting others, and then forcing sell-offs to buyers who take on their own debt in the hope of making asset-price gains as property prices are impossibly inflated relative to the wages of living labor. This has become the new, euphemistically dubbed post-industrial form of wealth creation – a strategy that is now collapsing economies throughout the world.

The role of the United States...

The United States has trapped other countries into a nightmarish system in which they have little practical choice but to recycle their excess balance-of-payments dollar inflows back to the United States, mainly in the form of loans to the U.S. Treasury. When foreign central banks receive dollars for their exports (or for the sale of their companies), they are limited in what they can do with these dollars. The U.S. Congress will not let them buy up important domestic companies or resources, and will not part with U.S. gold holdings. So foreign central banks are obliged to buy Treasury bonds – or, as the supply of these bonds has run out (being limited by the domestic budget deficit), mortgage-backed securities issued by the now-public Fannie Mae and Freddie Mac packagers of subprime mortgages. These two semi-official agencies were formally nationalized last year after a series of financial frauds and disastrous investments wiped out their capital, obliging the U.S. Government to step in and mollify governments from China to Israel whose central banks had been recycling their surplus dollar inflows into these securities.

Icelanders should keep one basic principle uppermost in their minds. The United States is the world’s largest debtor nation, and will never repay its own foreign debt. Over and above its presently outstanding four trillion dollars, its Treasury intends to keep on issuing new paper IOUs in exchange for the goods, services and real assets of China, Japan and other creditor nations – until governments stuck with these paper dollars turn their back on this Madoff-Ponzi scheme (note that these schemes always are named for American operators), recognizing what Adam Smith explained in The Wealth of Nations: No nation has ever repaid its debts. Small nations like Iceland, along with small taxpayers in wealthy countries, may be coerced with propaganda, mind games and outright threats into paying – until they have no assets left to hand over. But the big boys are above the law. They control the courts (which often rule without much regard for the actual law), just as they write history and newspaper coverage – and business school curricula – to serve their own interests.

The second important principle is how radically today’s post-capitalist order has inverted traditional ways of making money. Instead of making profits on new capital investment, the easiest path to quick riches in today’s global financial system is to foreclose at pennies on the dollar, and make a “capital gain” by flipping property onto world financial markets that are being inflated by central banks. While financial spokespersons promise that “there is no such thing as a free lunch,” today’s hit-and-run financial bubble, fraud and insider privatizations culminating in public-sector bailouts (“socializing the risk” while privatizing the profits and capital gains) – has become all about obtaining a free lunch.

Iceland’s zero-sum financial gamble

But it is a zero-sum gambling game, with losers on the other side of the table from the winners. One party’s gain is another’s loss – and indeed, this kind of game ends up shrinking the economy by diverting resources away from real investment in tangible capital formation. Unlike industrial capitalism, which employs labor and invests in capital equipment to turn raw materials into salable commodities, today’s post-industrial financialized system only offers the virtual (and temporary) wealth of asset bubbles. Its financial managers claim to be acting in the tradition of classical economists and share their concept of free markets, but in actuality they have been part of an intellectual fraud that depicts their system as something other than the financialized wealth extraction on the real economy of production and consumption that it is. Financialized wealth is extractive, not productive. That is because loans, stocks and bond securities are claims on wealth, not real wealth itself.

This is the context in which today’s financial war against Iceland is being waged. Homeowners are paying tribute, not in the form of taxes to an invading occupying force, but in interest to local sponsors of the debt pyramiding that has got Iceland into such deep trouble, and to the international creditors and enablers of this over-financialization of the economy. The nation’s public domain, its land and geothermal resources, its tourist industry and public assets are being eyed by foreign creditors as prey to be seized in the way that has occurred in many Third World countries. It is what ruined Turkey and Egypt in the late 19th century and brought down other kingdoms for centuries before that. Yet many Icelanders are heading into this future voluntarily, as if it somehow is fair rather than an exercise in predatory finance led by nations that have shown no willingness (or ability) to pay their own international debts.

Nations know when they are being attacked militarily. Defense forces fight to prevent invaders from seizing their land and imposing tribute. No country would think of welcoming a foreign army to do what William the Conqueror did to England after 1066. He ordered his accountants to compile the Domesday Book within thirty years (it was ready by 1086), calculating the rental value of English land in order to tax it for the Crown.

That is how most of Europe’s kingdoms were created. The rent was paid to the companions of military warlords, and their heirs ruled as absentee Lords for nine centuries. They quickly moved to keep what started out as royal revenue for themselves, celebrating this as the victory for free-market “democracy” in the Magna Carta liberatum (1215) and subsequent Revolt of the Barons (1258-65). Today, these lords of the land and those who have bought their property have run up mortgage debt, paying creditors what formerly was paid first as taxes and then taken as rent.

What took centuries to achieve in feudal Europe is now being threatened in Iceland, compressed into the space of just a decade or so. And in many ways this financial situation doesn’t make sense – unless one looks through history to see how the same tragedy has happened again and again.

The United States, Britain and the International Monetary Fund (“the global investment community”) are couching their demands for draconian austerity policies in the language of capitalism. But what they actually are promoting is a financial system that threatens to end in debt peonage, not democratic capitalism. Across the globe, from the Baltics to Hungary in Europe, and indeed from Russia to China, riots and wildcat strikes recently have broken out to protest this post-capitalist financial dynamic. It already has destroyed the industrial capacity of debtor countries subjected to the cruel austerity programs imposed by the IMF as acting agent for the global financial class. This merely repeats what the British did in India. Industrial growth has been replaced with a financialized real estate bubble. The “final stage” of this dynamic is to foreclose and sell off the assets of debtors at giveaway prices. Talk about democracy from the financial elite is a public-relations cover story. Their “magic of compound interest” sales pitch threatens to destroy entire nations.

Fortunately, this need not happen in countries that do not impose debt leveraging on themselves, but only in countries that let the public utility of money and credit creation be privatized in the hands of a cosmopolitan financial class. Iceland still has an alternative future before it, if voters recognize this in time. But to achieve the better future that most of its citizens want, it must understand the predatory debt trap into which it has fallen – or more accurately, been pushed by believing in the same illegitimate financial doctrine that has ruined Russia and other post-Soviet economies, as well as Third World countries before them under decades of IMF “austerity plans” designed to stifle domestic growth (and competition) and economic stability to pay foreign creditors. History provides tragic examples – the aftermath of World War I, and England itself in the centuries of its seemingly perpetual wars with France.

Industrial economies reverting to “tollbooth economies”

The world is plunging “back to the future,” to an epoch of neo-feudalism and debt peonage. It is a travesty of the promise of industrial capitalism as it seemed to be evolving on the eve of the 20th century and the Progressive Era of social democracy. What was not recognized was the financial time bomb implanted in the DNA of Europe as it evolved out of the Middle Ages.

As European feudalism gave way to the formation of nation-states, most kingdoms became dependent on foreign loans to fight their wars – starting with the Crusades, whose looting of Byzantium provided an enormous influx of gold and silver. This is what broke down Church bans on usury. Once governments paid interest to elite Church orders such as the Templars and Hospitallers, it became permissible for banks to join in lending at interest – to kings, the nobility and the merchant classes as major customers.

The birth of international post-medieval banking proved disastrous for many family banks that foundered on what turned out to be bad loans to the leading powers of early Europe, from Spain to France and England. The historian Richard Ehrenberg notes that Spanish bankruptcies “occurred at intervals of about twenty years – 1557, 1575, 1596, 1607, 1627, 1647,” often being rationalized by pious allusions to Church prohibitions against usury. England declared bankruptcy under Edward III in 1339, and Charles II shut down the Exchequer in 1672 and suspended payment on its floating debt. Wiping out debts was the only way to retain basic economic and political relations and national independence. In view of this long experience, England’s advice to Iceland today is in the character of “Do as we say, not as we ourselves have done and are doing.”

Central banks were formed to advance credit to governments, and commercial banks to help finance the Industrial Revolution’s expanding trade and related infrastructure spending, mining and shipping, capped by infrastructure monopolies such as canals, railroads and ports, and later by fuel and power. The medieval epoch’s “primitive accumulation” – the extraction of revenue by military seizure – was replaced by the more peaceful and seemingly civilized practice of creditors appropriating the economic surplus by making interest-bearing loans, and by foreclosing on property when the interest charges could not be paid.

In recent years financial managers have persuaded many countries to sell off public enterprises like their water or energy supplies, mainly to raise the money to pay debts or to cut taxes on the highest wealth brackets. This sale of the “commons” by naïve, myopic leaders (and the “useful idiots” promoted by financial lobbyists to be their economic advisors) turns debtor countries into “tollbooth economies” in which basic services become a vehicle to extract greater and greater portions of national income and wealth for the benefit of the few. This is the antithesis of “free markets” as classical economists understood the term. They are markets designed and controlled by the financial sector to appropriate for itself the surplus produced by labor and tangible capital investment.

To promote this siphoning off of surplus income, the rich have funded extensive disinformation (propaganda) campaigns around the world. Their tactic is to use familiar and revered ideological terms such as “free markets,” “economic democracy” and “fairness” to win the hearts and minds of the population while actually imposing a set of policies in stark contrast to Enlightenment ideology, classical political economy, Progressive Era reform and 20th century social democracy – the ideals of freedom-loving peoples everywhere. Financial lobbyists have spent billions of dollars spent on public-relations think tanks to achieve this ideological con job. They have endowed business schools and gained control of government agencies to promote their creditor-oriented point of view, headed by central banks to serve as the ideological wedge for today’s anti-democratic forces. This is the ideology that has pushed much of the Third World into poverty since the 1960s, as well as today’s tragically debt-ridden post-Soviet economies.

Financial warfare

Finance seems at first sight to be quite different from outright warfare. Everyone knows well enough that invading armies do not come on friendly terms. Foreign navies and troops are not welcomed, even if they promise to help build up the economy by constructing new roads and bridges (the better for their tanks and troops to travel on), hydropower and geothermal stations to export electricity (keeping the earnings for themselves), hotels and spas for themselves and foreigners to enjoy (and keep the rental incomes and site values), and create detailed statistical analyses (such as the Domesday Book alluded to above) to manage the economy in their favor.

Today this financial strategy has become multilateral. The IMF acts as enforcer for global creditors to appropriate the income of real estate, national infrastructure and industry as a financial boondoggle. What is remarkable is that countries throughout the world are losing their economic and fiscal independence peacefully – at least it is peaceful when target countries do not fight back. (Chile, Cuba and Iran are object lessons for the punitive economic sanctions imposed on countries that do not accept today’s predatory economic ethic.) Financial conquest is thus more covert than military warfare. It relies more on the educational and psychological dimension, and is most successful when the victim does not even realize it is being attacked.

But the effects are as devastating on human life as what Russia suffered at the hands of Western “reformers” in the 1990s. The financial austerity imposed by creditor-run regimes shortens life spans, reduces birth rates, and increases labor flight, suicide rates, disease, alcoholism and drug abuse. Just as war kills an economy’s males of fighting age (25-35), financial austerity drives them to emigrate to find work. This is why U.S. investor Warren Buffett has called collateralized debt obligations (CDOs), credit default swaps and similar debt-leveraging instruments “weapons of mass financial destruction.”

Consider the role of banking in this neo-feudal order. Banks do not create credit to finance manufacturing – that is done mainly out of retained earnings and equity. Banks create credit primarily to lend against collateral already in place – loans that simply extract money from the economy. This is an inherently destructive act, one that is anti-capitalist in the sense that it undercuts industrial growth in favor of interest extraction and short-term speculative gains.

The trick is to get this policy welcomed as if it were progress, as “post-industrial” rather than a lapse backward. Only today is it becoming apparent that the collateral-based lending of banks “creates wealth” mainly by inflating asset-price bubbles, especially in real estate. Bankers calculate how much debt a given flow of residential or commercial real estate income can support, and create enough credit to make a loan large enough to absorb this surplus revenue. Bankers do the same with industry by lending corporate raiders enough money in take-over “junk” bonds to turn profits into a flow of interest payments for themselves, and with capital gains for the raiders. Central banks fuel this process by swamping economies with easy credit (that is, debt) that keeps the financial sector fat while impoverishing the increasingly indebted nation.

Finance thus is the historical antithesis of property, sanctifying its own right to expropriate indebted property owners. Originally denounced by Christianity, Judaism and Islam, interest-bearing debt has sanctified itself as the predominant form of wealth. This is not what the classical economists and democratic political reformers expected to see. They explained how to avoid this economic dystopia by appropriate government tax policy and regulation to minimize the economic role and political power of post-feudal bankers and rentiers. (Rentiers are people who live off interest and rents, that is, off absentee incomes paid on a regular basis. A rente was a French government bond paying interest at regular intervals; the idea was extended to landlords.)

How banks and the financial sector gained dominant power

This supremacy of the banks and the financial sector took thousands of years to achieve. It was not easy to overthrow traditional social values and to impoverish so many economies by subordinating customary property relations with legal priority for creditors. Iceland only recently has come under this kind of financial attack by creditors operating globally. Bankers managed to convince ambitious fortune-seekers that the way to wealth and economic growth lay in debt leveraging, not in staying free of debt. Selling debt as their product, banks and speculators at the world’s financial core needed to prepare for what they must have known would lead to economic collapse and destroyed economies throughout history. They prepared the path to ruin by ideological engineering aimed at shaping how populations think about history, so as to accept debt pyramiding as a good economic strategy.

As an example of their warped thinking, consider an attractively priced home. Would you rather own 100% of a home free of all debt with a market value of 100,000 euros if free of debt – or, would you rather own 60% of the same home at an inflated market price valued at 250,000 euros? In the second scenario you would have 50,000 euros of “surplus wealth” (60% x 250,000 = 150,000 euros, compared to 100,000 in the first example). People across the globe have been convinced that the second scenario represents “wealth creation.” What is overlooked is that the higher-priced home carries interest charges on its higher market price. This charge would amount to 6,000 euros a year, or 500 euros a month, at 6% interest. The same property is worth more, but includes a much larger debt overhead – income for the financial sector.

In Iceland – but nowhere else – home mortgages have a uniquely bad twist. Creditors have managed to protect the weight of their claims on debtors by indexing mortgage loans to the nation’s consumer price inflation (CPI) rate. Each month the debt principal is increased by the CPI increase – and so is the interest charge. During 2008 that index rose by 14.2%, so a 100,000-euro mortgage at the start of 2008 would have grown to 114,230 euros by yearend. These monthly adjustments also would added an entire percentage point onto the interest payment – an extra 100 euros to be paid to creditors monthly, in addition to the growing principal to be amortized. Talk about making money without effort …!

Such heavy debt charges would shrink any economy, and that is what is happening in Iceland. Prices for real estate declined by an estimated 21 percent for housing in 2008. So in the above example, the market price of the house worth 100,000 euros at the beginning of the year would have been worth only 79,000 at yearend, while the mortgage would have grown by 14% to 114,230. This would have plunged the homeowner 35,000 euros into negative equity – a remarkable 35% change.

In every other country, investors lose out when prices decline for real estate, stocks and bonds, while creditors find the purchasing power of their loans eroded by inflation. That is how most countries have “inflated their way out of debt” for many centuries. But Iceland’s creditors have created a system in which their position actually is improved as the rest of the economy suffers inflationary price erosion. Their claims rise in proportion to the rate at which consumer-price inflation eats away at wages and business profits. Where is the sense in this?

What makes this so ironic is that the purpose of calculating the consumer-price index in all countries has been to support consumer income. It was to protect wage earners and retirees against inflation eating away at their ability to maintain their standard of living. That is why in the United States, Social Security retirees receive an annual cost-of-living adjustment based on the CPI. But Iceland inverts this political aim, protecting the claims of creditors against debtors (and hence against most wage-earners). The creditor’s objective is to maximize the power of debt over living labor. That is the literal meaning of “mortgage:” a “dead hand” of the past over the present, of past wealth and credit over the living. For Iceland the debts run up during the “wealth creation” phase of the financial bubble are to be left in place and even grow at an accelerating rate reflecting the pace of currency depreciation and hence import prices and consumer prices generally. Debtors lose out as prices plunge for the homes they own, while creditors maintain their economic grip intact and even strengthen their hand by increasing their take.

Turning economic power into political power

Creditors in most countries have been able to turn their economic power into political power with the aim of shifting the tax burden off themselves and onto labor and industry. The final coup de grace occurs when they get the government to bail them out from their losses on bad loans. In the United States, Congress has tripled the national debt in less than a year to bail out creditors with little thought of helping debtors, or even of prosecuting the massive financial fraud involved in its subprime real estate bubble and the sale of junk mortgages to gullible foreign buyers.

Iceland’s citizens will own a smaller and smaller proportion of their homes as its banks become the main claimants on the nation’s property value. By subjecting Iceland to this unique kind of financial squeeze, Icelandic policy stands in diametrical contrast to that of the United States. The U.S. policy is to stabilize its economy and avoid depression by writing down debts to bring them in line with today’s lower market prices and, more specifically, to bring carrying charges on mortgage debt within the ability of homeowners to pay no more than 32% of their income. Other countries also are writing down their debts to bring them in line with the ability to pay. But Iceland is subjecting its own homeowners and consumers into debt deflation and plunging them into Negative Equity status – by law!

The only way its banks can succeed in this ploy is to keep Iceland’s voters unaware of what is happening in the rest of the world – and indeed, to block the government from drawing up a balance sheet of the nation’s debts, a roster of whom these debts are owed to, and a calculation of the economy’s ability to pay.

Iceland’s present policy will lower disposable income for homeowners and other debtors – the great majority of its citizens – while wealth gushes to the top of the economic pyramid, to those who are creating as much credit as they can find borrowers for. The result is not what former Federal Reserve chairman Alan Greenspan and President George W. Bush claimed to be creating in America – an “ownership” society. It really is a “loanship” society, an economy of ersatz assets in which debt pyramiding – owning less and less of a home or other asset – seemed to be a strategy for growing richer instead of the debt trap it is. Has Iceland fallen into a similar semantic trap?

Pensions and retirement

As in the United States, Iceland has convinced labor to “prefund” its retirement. The idea is to save up in advance, so as to provide for retirement in a purely financial way. Of course, the most important way to support retirees is to see that they can afford the basic goods and services needed to live. To the extent that “financializing” an economy ends up eroding the “real” economy, pension funding – and government Social Security funds (regressive taxes that enable the Treasury to cut taxes for the higher wealth brackets) – tends to shrink the economy rather than provide for the expansion in output needed to support an aging population. As matters stand, pension savings are mobilized to increase the volume of interest-extracting debt and fuel financial bubbles (as in America’s “pension-fund capitalism” that pushed up stock markets in the past). Pension savings works against employment most visibly when they are lent to corporate raiders who pay off their bondholders by downsizing the work force and squeezing more “productivity” out of the remaining employees. Economic “growth” under such circumstances takes the form of a financial and property-sector overhead, not growth or stability in living standards or the capacity to produce.

Allowing economies to be crippled with interest payments was unthinkable until recently. To achieve so radical a break in the public’s idea of prosperity and self-reliance, it has been necessary for creditors to wipe out knowledge of how legal systems have been amended to put creditor interests above those of debtors over the past eight centuries – and how the leading classical economists and Enlightenment cultural and religious leaders sought to subordinate creditor interests to those of growth and prosperity for the economy at large. But the new banking class has been clever enough to hire the best propagandists money can buy while remaining blind to the havoc they are wreaking with people’s lives.

The debt game

Like many people, Icelanders tend to think of debt in personal terms, as if creditors are neighbors much like themselves. The normal thing to do when problems arise would be to sit down and reach a common agreement. But Iceland’s creditors are impersonal billion-dollar financial conglomerates, and creditor-debtor relations under such conditions are inherently adversarial, as anyone who has had a recent disagreement with a bank can attest. Whatever creditors can gain in today’s highly politicized, legalistic and ideological tug-of-war will be the debtor’s loss. And the magnitude of Iceland’s prospective loss threatens to plunge its economy into depression for generations, turning it into a Third World oligarchy, or worse, a dictatorship. The price of paying its debts thus threatens to be loss of its national identity and a loss of its future.

The trick is to fool debtors into thinking that “free markets” means paying one’s debts. Creditors can succeed in letting debt leveraging and “the magic of compound interest” empty out economies only by diverting attention from what Adam Smith and other classical economists warned against. For them, a free market was one free of debt – especially foreign debt. In The Wealth of Nations (especially Book V, chapter 3), Smith warned against creditors becoming “free” enough to disable the ability of governments to protect citizens from creditors – especially the Dutch, who were the major investors in British monopolies created to be sold to pay for that nation’s seemingly eternal wars with France. The problem was that creditors sought to extract the wealth of nations for themselves, not to create wealth. Their greed was destructive to society as a whole, because it was easier to simply strip assets than to create real capital.

That is the problem with creditors historically. They tend to care only about how to extract as much as they can, as quickly as possible. “A creditor of the public, considered merely as such,” wrote Smith, “has no interest in the good condition of any particular portion of land, or in the good management of any particular portion of capital stock. As a creditor of the public he has no knowledge of any such particular portion. He has no inspection of it. He can have no care about it. Its ruin may in some cases be unknown to him, and cannot directly affect him.” The problem obviously is worst with absentee creditors.

Smith concluded: “When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about is by bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”

Adam Smith’s portrait is engraved on England’s £20-pound note, and Andrew Jackson on the US $20 bill. The irony is that Smith denounced public debts and urged wars to be financed on a pay-as-you-go basis so that people would feel their burden – and stay out of debt. As for Andrew Jackson, he closed down the Second Bank of the United States, accusing bankers of ruining the nation and seeking to destroy democracy. Bankers and finance therefore leave something important out of the account when it comes to the views of their own patron saints of democratic free markets.

As noted above, creditors for many centuries now have suffered bankruptcies when foreign countries default. That is the norm, not the exception. Yet today’s popular media greet every new default as “unanticipated” and “surprising,” as if it were not the bankers’ fault that they failed to understand the market’s inability to pay. Dumbed-down economics textbooks chime in with their inbred ignorance voiced by the financial sector’s proverbial “useful idiots” prattling about “equilibrium” and “automatic stabilizers.” These un-learned academics are useful to the bankers because of the passion with which they proclaim that all debts should and can be paid by suitable “adjustments” (including what turns out to be economic and demographic collapse). The question being asked with a straight face is: If it is the fault of victims rather than the bankers, then is it not proper for governments to bail out the banks?

The tacit assumption is not that bankers’ exorbitant greed is achieved at the expense of the economy at large, but that the financial sector’s prosperity is a precondition for the economy to grow. The bankers try to cap matters by trotting out poor retirees (like the widows and orphans of old – presumably those living on “fixed incomes” in the form of trust funds) whose meager savings should be supported. Doing so just happens to save the financial oligarchy of billionaires at the top of the economic pyramid, but not the proverbial victims.

The use of human shields such as union members concerned about the investments of their pension funds to protect the wealth of the kleptocrats is likewise shameless. Wall Street sages in the United States, for example, shed crocodile tears over the fate of the working people suffering from the stock market collapse, knowing full well that financial assets are heavily concentrated at the top of the economic pyramid, with workers having, only a meager share of those stocks and bonds. Ignored is the fact that the government could bail out failing pension funds (like Social Security) directly at just a small fraction of the cost of propping up the assets of the affluent.

Likewise, the volume of government bailout money for the financial sector ostensibly to deal with the subprime mortgage crisis – about $13 trillion during 2008-09 – clashes with the fact that the total value of mortgage debt owed by all households in the entire United States is only $11 trillion as of yearend 2008! The bailout funds ended up being used mainly to buy other banks to create even larger financial conglomerates “too big to fail,” to pay executives whose greed for short-term gains and bonuses caused the financial meltdown, and to pay dividends to stockholders to support their stock price and hence the value of stock options that financial managers gave themselves. The closest parallel to this scandal is the “watered stock” practices of Wall Street’s railroad barons and other financial manipulators in the late 19th-century Gilded Age.

There was a time when banks hesitated to make loans irresponsibly, that is, beyond the ability of debtors – and entire national economies – to generate a surplus to pay their creditors. My job as balance-of-payments economist for the Chase Manhattan Bank in the 1960s was to calculate how much export earnings and other foreign exchange the major Latin American countries could generate. Their balance-of-payments surplus represented how much they could afford to borrow. The aim of New York banks was to lend Third World countries money to absorb their entire economic surplus. From the bankers’ point of view, that was what a national surplus was for – not to sustain higher living standards or invest in becoming economically self-sufficient, but simply to pay creditors. And “wealth” was defined as the capitalized value of the entire economic surplus they could generate – discounted at the going rate of interest, as if it all could be paid as debt service, so that the entire surplus would be paid to carry the debt.

This certainly is not a model of human progress. But it was that decade’s version of “wealth creation,” and it is the concept of “wealth creation” in terms of the market value of debt-financed asset prices that Alan Greenspan would foist on the United States in the 1990s to convince it that an asset bubble was the path to postindustrial wealth, not the road to debt serfdom.

So Adam Smith was right. Today, creditors and bondholders care about foreign economies only to the extent that they can charge interest that will absorb their entire economic surplus. Until recently, creditors thought that lending more than can be repaid would be “irresponsible.” Not any more.

Political checks and balances on the economy

The best path for nations is to put their own economic growth before the interests of creditors. For many generations this ethic supported a set of political checks and balances that kept the growth of international debt in terms considered to be tolerable – much too heavy by the free-market standards of Smith and John Stuart Mill, but not so high as to prompt widespread defaults and debt repudiation.

This ethic has changed in recent years. Countries have accepted creditor propaganda that debts are a “point of honor,” much as the poor believe that paying their debts – even when they are in negative equity – is the “honest thing to do.” Obviously this ethic is not self-applied to the world’s largest financial institutions or real estate speculators. But Iceland accepted it in what is a characteristic of small, closely-knit communities where the word of neighbors is their bond. The root of Iceland’s ethic is mutual aid and prosperity for all. It is a fine, highly socialized attitude, and therefore tragic that it has helped lead the nation to fall prone to the snake oil of debt peonage.

Political leaders who fail to recognize the fact that checks and balances are a proper function of government are liable to sacrifice their nation’s hope for economic growth and rising living standards in a vain attempt to pay creditors. Such attempts must be in vain, because “the magic of compound interest” is a cruel myth: In reality every rate of interest implies a doubling time, and no economy’s “real” growth ever has been able to grow exponentially at a fast enough rate to pay the debts that keep accruing interest.

In today’s deregulated environment where “the sky’s the limit,” these accruals have been recycled in yet new loans. These then are packaged and resold, loading the economy down with more and more debt that so far has been almost impossible to track. And to cap matters, financial speculators then place trillions of dollars of bets on whether the debts can be paid or not, and how much their market prices are likely to change. What was supposed to be a financial system designed to fund new capital investment to produce more and raise living standards has turned into a casino economy – where gamblers are staked by the bankers to play the debt game, with the government standing by to make the winners “whole” in cases where the debtors have lost too much of their play-money to pay up.

Debts that can’t be paid, won’t be

Every economist who has looked at the mathematics of compound interest has pointed out that in the end, debts cannot be paid. Every rate of interest can be viewed in terms of the time that it takes for a debt to double. At 5%, a debt doubles in 14½ years; at 7 percent, in 10 years; at 10 percent, in 7 years. As early as 2000 BC in Babylonia, scribal accountants were trained to calculate how loans principal doubled in five years at the then-current equivalent of 20% annually (1/60th per month for 60 months). “How long does it take a debt to multiply 64 times?” a student exercise asked. The answer is, 30 years – 6 doubling times.

No economy ever has been able to keep on doubling on a steady basis. Debts grow by purely mathematical principles, but “real” economies taper off in S-curves. This too was known in Babylonia, whose economic models calculated the growth of herds, which normally taper off. A major reason why national economic growth slows in today’s economies is that more and more income must be paid to carry the debt burden that mounts up. By leaving less revenue available for direct investment in capital formation and to fuel rising living standards, interest payments end up plunging economies into recession. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course.

Nations that have not paid their debts

Let us draw up a roster of nations that have annulled their debts – or run them up with no intention of paying. The list starts with the world’s largest debtor, the United States. Its government owes $4 trillion to foreign central banks. A moment’s thought will show that there is no way it can pay, even if it wanted to do so. The United States is running a chronic trade deficit, on top of which is a deepening outflow of military spending. In addressing this chronic living beyond the nation’s international financial means, American diplomats are almost the only ones in the world who conduct international diplomacy the way that textbooks assume that all countries should do: They act purely and ruthlessly in their own national interest. This interest lies in getting the proverbial free lunch, by giving IOUs for other countries’ real resources and assets, with no intention or ability to pay.

U.S. officials already have suggested that this debt be wiped out. Their plan would convert it into “paper gold.” Foreign central banks would simply stamp their U.S. Treasury bonds “good only for payment among central banks and the International Monetary Fund.” No other nation would be allowed to wipe out its debts in this way. Only the debtor at the center would be able to continue issuing debt-money without foreign constraint.

To be sure, U.S. diplomats have freed countries from debt when they have a political reason to do so. The most famous modern example of an economy-wide debt cancellation is that of Germany in 1947. The Allies cancelled German personal and business debt, on the ground that most were owed to former Nazis. The only debts left on the books were current wage-debts that employers owed to their work force, and basic working balances for companies and families.

A generation earlier, in 1931, the Allies wiped out Germany’s reparations debt stemming from World War I, and negotiated a moratorium on their arms debts to the United States. The world’s leading governments realized that keeping these debts on the books would collapse the global economy. But by the time they reached this conclusion it already was too late. The combination of Inter-Ally arms debts owed to the United States and the reparations debts imposed by the Allies largely to pay America already was one of the major factors pushing the world into a depression.

The U.S. economy was collapsing under the weight of its domestic debt pyramiding. Other countries had used less debt leveraging, but all ended up writing off large swaths of real estate and business debts during the Depression Years. By the time the Second World War ended in 1945, most countries were free of debt. Prices reflected direct production costs, with minimum diversion of revenue to pay banks, absentee property owners and other rentiers.

In the postwar period the World Bank lent dollars for governments to build infrastructure – only to turn around a generation later and help loot what it had financed. After Mexico and other Latin American governments announced that they were insolvent in 1982, U.S. diplomats organized a debt write-down in the form of “Brady bonds.” By 1990, Argentina and Brazil had to pay 45% on new dollarized foreign debt, and Mexico paid 23%.

Having stuck Third World countries with debts beyond their ability to pay, the IMF and World Bank used their creditor leverage to force governments to impose draconian austerity plans that had the effect of preventing growth toward industrial and agricultural self-sufficiency, thereby also crushing prospects for competitiveness. The IMF and World Bank then demanded that debtor countries sell off their public infrastructure, land, subsoil rights and other assets to pay the debts that these institutions sponsored so irresponsibly. (If IMF loans were not simply irresponsible, then they knowingly crippled debtor-country economies.) It is an age-old story of conquest, now accomplished without conventional warfare.

Two thousand years ago Rome stripped Asia Minor and other provinces and colonies of money using military force. Its financial oligarchy then translated their economic power into political power, destroying democracy and bringing on centuries of Dark Ages. The historical lesson is that economies taken over by creditors are plunged into depression as predatory lending strips away the surplus, leaving nothing remaining for subsistence, let alone capital renewal. This prevents nations from paying their debts, leading to widespread foreclosure, an extreme polarization of property and wealth, and impoverishment of its people. The ensuing lack of prosperity ends up crippling the ability to sustain a military overhead, and such countries tend to be conquered, as the Goths overran Rome. Outsiders always were at the gates – but it was the hollowing out of Rome’s domestic economy that left it prone to conquest.

Most recently, creditor-sponsored dirigiste takeover of national economic and social institutions has turned Russia, the Baltic States and other post-Soviet economies into neoliberal kleptocracies, driving skilled labor abroad in tandem with capital flight. Latvia is being pushed back toward subsistence life on the land. Creditor mismanagement is the most important problem that any country today should strive to avert.

Creditors play the terrorism card

9/11 signaled the beginning of a new power grab in the United States and Britain. U.K. officials have used anti-terrorist legislation to seize Icelandic assets abroad. What makes this so ironic is that throughout history it has been creditors who have used violence against debtors, not the other way around. I know of only one exception, and it did not involve bloodshed: Jesus overthrew the tables of the moneychangers in Jerusalem’s temple. It is the only record of a violent act in his life.

Psychologists have explained the creditor proclivity for violence by the tendency for rentiers to fight for unearned income – inheritance, or other “free wealth” that they have obtained without effort of their own. People who work for a living and are able to support themselves believe that they can survive, and so there is less of the kind of panic that creditors and other free lunchers feel at the thought that their extractive revenue may end. They fight passionately against the prospect of having to live on what they produce or earn by their own merits. So the last thing that rentiers really want is a free market. In a shameless irony, they tend to accuse populations of being terrorists if they seek to defend themselves against predatory creditors and land-grabbers!

Describing creditor violence, Plutarch describes how Sparta’s king Agis IV and his successor Cleomenes III sought to cancel the debts late in the 3rd century BC. The city-state’s creditors murdered Agis, drove Cleomenes to suicide in exile, and killed Sparta’s next leader, Nabis – and then called in Rome to fight against pro-debtor democracies throughout Greece. Livy and other Roman historians describe how a century later, in 133 BC, the Roman Senate responded to the Gracchi Brothers attempt at debt and land reform by pushing the democratic Senators over the cliff to their death, inaugurating a century of bloody civil war.

In the 19th century the United States sent gunboats to collect debts from Latin American countries, installing collectors at the local customs houses. England applied similar imperial force to ruin India, Egypt and Turkey, stripping their assets with debt and plunging their populations into poverty that persists to the present day. More recently, America’s hand in the violence that overthrew Chile’s elected president Salvador Allende has continued this policy. Having south to isolate the Soviet Union, Cuba and other countries that rejected creditor-oriented rules and rentier property interests, the United States then capped its Cold War victory over the Soviet Union by promoting a flat-tax regime that imposed the fiscal burden entirely on labor and industry, not on finance and real estate. Instead of being democratized, the post-Communist countries were steered directly into oligarchic kleptocracies that ran up rising debts to the West.

This is just the opposite of the free markets that were promised them back in 1990-91. Instead of economic growth, the “real” economy of production and consumption shrunk, even as foreign financial inflows inflated property prices for housing and office space, fuel and public utilities. Real estate and utility services hitherto provided freely or at subsidy to the economy at large were turned into a predatory vehicle for foreigners to extract income, putting the domestic population on rations, much as what occurs under military occupation. Yet the public media, academic centers and parliaments have persuaded populations that this is part of a natural order, even the product of how a free-market is supposed to operate, rather than a retrogression back to quasi-feudal institutions. The simplistic idea is that making money is itself “capitalist” ipso facto, regardless of whether industrial capital is being created or dismantled and stripped.

How hard times affect people

Public health reports throughout the world document how lifespans shorten as economic inequality and poverty increase. The moral is that “debt kills,” by impoverishing and destroying populations. Those who try to defend themselves are branded as terrorists by their financial predators. Malthus’s population doctrine, after all, was composed to rationalize the free lunch of his landlord class, and World Bank policies to reduce the populations of indebted Third World countries likewise was the natural complement to the financial asset stripping it endorsed. Fewer people to feed, clothe and house in a situation where investors seek mainly the public enterprises for whose construction governments have already run into foreign debt, plus land and resources supplied by nature rather than by human labor.