Roll Back the State or Become Communists
Want to end the crisis? Close down the world’s central banks and restore free banking, in other words a system without the centrally planned and controlled financial system imposed by central banks, says Steve Baker, a UK Conservative MP in an interview on the Russia Today network.
Steve Baker, a co-founder of the Cobden Centre for sound money says that bankers, politicians and governments are closely intertwined and interdependent, so none want the pain of reforms that are inevitable if we want to end the crisis.
Central banks plan the production of the cash governments need to roll out more and more interventionism in the economy and control over peoples lives, leading to an ever more elephantine state. End central banks he urges and return to what banks once were — unlimited partnerships whose directors were wholly exposed to and responsible for their risks. This he suggests, would bring money power in the world back under control.
His views are neatly underlined in a recent investigative report by Frank Partnoy and Jesse Eisinger in the US magazine The Atlantic revealing heightened concerns in the United States about whether banks can still be trusted: What’s Inside America’s Banks?
“At the heart of the problem is a worry about the accuracy of banks’ financial statements. Some of the questions are basic: How do banks account for loans? Can investors accurately assess the value of those loans? Others are far more complicated: What risks are posed by complex financial instruments, such as the ones that caused JPMorgan’s massive loss? The answers are supposed to be found in the publicly available quarterly and annual reports that banks file with the Securities and Exchange Commission.
“The Financial Accounting Standards Board, an independent private-sector organization, governs the accounting in these filings. Don Young, currently an investment manager, was a board member from 2005 to 2008. “After serving on the board,” he recently told us, “I no longer trust bank accounting.”
“Accounting rules have proliferated as banks, and the assets and liabilities they contain, have become more complex. Yet the rules have not kept pace with changes in the financial system. Clever bankers, aided by their lawyers and accountants, can find ways around the intentions of the regulations while remaining within the letter of the law. What’s more, because these rules have grown ever more detailed and lawyerly—while still failing to cover every possible circumstance—they have had the perverse effect of allowing banks to avoid giving investors the information needed to gauge the value and risk of a bank’s portfolio. (That information is obscured by minutiae and legalese.) This is true for the complicated questions about financial innovation and trading, but it also is true for the basic questions, such as those involving loans.
“At one point during Young’s tenure, some members of the Financial Accounting Standards Board wanted to make banks account for loans in the same way they do for securities, by recording them at current market values, a method known as “fair value.” Banks were instead recording the value of their loans at the initial loan amount, and setting aside a reserve based on their assumptions about how likely they were to get paid back. The rules also allowed banks to use different methods to measure the value of the same kind of loans, depending on whether the loans were categorized as ones they planned to keep for a long time or instead as ones they planned to sell. Many accounting experts believed that the reported numbers did not give investors an accurate or reliable picture of a bank’s health.
“After bitter battles, turnover on the board, worries about acting in the middle of the financial crisis, and aggressive bank lobbying, the accounting mandarins preserved the existing approach instead of switching to fair-value accounting for loans. Young believes that the numbers are even less reliable now. “It’s gotten worse,” he says. When we asked another former board member, Ed Trott, whether he trusted bank accounting, he said, simply, “Absolutely not.”
“The problem extends well beyond the opacity of banks’ loan portfolios—it involves almost every aspect of modern bank activity, much of which involves complex investment and trading, not merely lending….” (Read the rest here)
The authors are not alone in their concerns. Some have expressed their views about what banksters have been been up to even more virulently… take for instance this headline on a recent article by banking commentator William D. Cohan published by Bloomberg, a respected major global news service : UBS Libor Manipulation Deserves the Death Penalty
“There is no point in mincing words: UBS AG (UBSN), the Swiss global bank, has been disgracing the banking profession for years and needs to be shut down.
“The regulators that allow it to do business in the U.S. — the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of Comptroller of the Currency — should see that the line in the sand was crossed last week. On Dec. 19, the bank paid $1.5 billion to global regulators — including $700 million paid to the CFTC, the largest fine in the agency’s history — to settle claims that for six years, the company’s traders and managers, specifically at its Japanese securities subsidiary, manipulated the London interbank offered rate and other borrowing standards. … two former UBS traders, Tom Hayes and Roger Darin, were sued by the Justice Department and charged with “conspiring to manipulate” Libor.
” ‘The alleged conspirators we’ve charged — along with others at UBS — manipulated the benchmark interest rate upon which many transactions and consumer financial products are based,” Attorney General Eric Holder said in a statement. “They defrauded the company’s counterparties of millions of dollars. And they did so primarily to reap increased profits, and secure bigger bonuses, for themselves.’ ” — William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. The opinions expressed are his own
While for an illuminating peek into the arcane world of high finance and who manipulates what Zero Hedge recently lifted the curtains on JP Morgan here: Meet JP Morgan’s Matt Zames: “…a bank situated at the nexus of public and private finance: JP Morgan, which courtesy of its monopolist position at the apex of the Shadow Banking’s critical Tri-Party Repo system (consisting of The New York Fed, The Bank of New York, and JP Morgan, of course) has an unparalleled reach (and domination – much to Lehman Brother’s humiliation) into not only traditional bank funding conduits, but “shadow” as well…”
- Central Banks Don’t Trust Each Other. (tarpon.wordpress.com)
- Gold: The Solution To The Banking Crisis? (zerohedge.com)
- What is Germany scared of? Bundesbank to retrieve $200bn of gold reserves from central banks in Paris and New York (dailymail.co.uk)
- Diagnosing “Fedophilia” Among the Economists: Why We Don’t Need the Government to Have Money (reason.com)
- World War Is Coming, Currency War That Is – Russia Warns (zerohedge.com)
- Germany brings gold reserves home (bbc.co.uk)
- Happy (Global-Debt-Jubilee) New Year to All
- How Bankers Bust The West and Killed the Kids
- Scapegoat or Rogue – a 4.9bn Euro Question
- European Democracy Hijacked by Crisis?
- Ending the Era of Ponzi Finance