Archive for the ‘credit crunch’ Category
From Craig Murray
By inventing more money, there is an effect – not as simple as it sounds but very real – of reducing the value of existing money, to the detriment of those who have some, and redistributing value to those who get the new money.
This is the Zimbabwe solution, where Mugabe’s regime prints ever more zeros denominated notes, which of course go massively disproportionately to the military and regime members. They have the additional advantages of being able to change them at a hugely advantageous “official” exchange rate open only to them.
And in Brown’s Zimbabwe solution, who are the equivalent of the regime members, those who benefit from the game at the expense of you and me? Why, exactly the same beneficiaries who have already received over £15,000 from every man, woman and child in the country in various rescue measures and guarantees – the banks!
Yes folks, the 75 billion, and perhaps 150 biilion, of newly invented money is to go to the banks, in return for some pretty worthless bonds, in the hope that somehow the banks will lend it out responsibly to businesses and “Kickstart” the economy. As opposed to pay it out in massive bonuses to themselves, use it to hide their incredible bundles of “toxic debt” and invest it in dubous financial instruments, which is how they have wasted all the huge amounts of taxpayer cash they have been fed so far.
Brown’s blind faith in the banking system which he deregulated and allowed to go rotten, is the modern “trickledown economics”. The government hopes if they pump enough money into the banks, it will trickle out again and do something useful. The main useful thing they hope it will do is reinflate the bubble of our ludicrously inflated property market. In fact that would not be useful at all. If you have been the victim of a pyramid scam, it is not a good idea to try to repair your finances by joining another one.
Some weeks ago, readers of this blog were asked to vote on one of the most pressing issues of our time: whose fault is the global economic meltdown?
Seldom has an online poll been more fiercely contested – and seldom have the stakes been so high.
But the votes are now in, and it is clear that by a landslide 64%, the rock star and sometime actor David Bowie is known to be the man responsible, with Robert Peston coming in a distant second at just 29%, and Barack Obama almost nowhere to be seen.
The implications of this news have yet to be determined, but one thing already seems beyond doubt – neither “Diamond Dogs” nor “Black Tie White Noise” will ever sound quite the same way again.
In “Don’t Get Fooled Again“, I look at the rise and fall of Enron, whose management sought to inflate the company’s share price by hiding bad debts amid a fiendishly complex internal accounting structure.
Bethany McLean, the journalist credited with being the first to raise serious questions about the company, has just written a fascinating piece highlighting parallels between the Enron scandal and the current financial crisis triggered by the “credit crunch”:
After Enron’s implosion, everyone talked about how important it was to be able to understand how a company makes money. Now raise your hand if you understand how a modern financial services firm makes money. No hands? The truth is, there is no way to understand. These companies are as opaque as Enron. Just as Enron had off balance-sheet vehicles – SIVs – that allowed it to book earnings and hide debt, Citigroup and other financial institutions had structured investment vehicles that did the same. Indeed, Citigroup had to take almost $50bn of SIVs back on to its balance sheet after they ran into trouble. It would be nice if the accounting rule-makers would grasp this basic tenet: if they want to hide it, we want to know about it.
Of course, SIVs are only a small manifestation of the deeper problem, which is the evolution of financial engineering into a dark art. Enron now seems like the canary in the coal mine. After its bankruptcy, Steve Cooper, who was in charge of restructuring it, told the Wall Street Journal his task might leave him “in a wheelchair and drooling” due to the complexity of its financial structures and the “unbelievable amount of debt accumulated around the company”. Doesn’t that sound like our entire financial system?
Just as Enron packaged bad investments into a private equity fund run by its chief financial officer, Wall Street packaged mortgages given to people who couldn’t afford the payments into sleek new instruments called RMBS and CDOs. But Enron’s machinations couldn’t make the losses go away, and Wall Street’s shiny acronyms can’t turn a defaulted mortgage into good money…
…Most of the believers in the free market only believe in it when it is going their way. When it doesn’t, it’s someone else’s fault. Enron’s former leaders often cited their free-market beliefs. Its demise, they said, was due to a short-sellers’ conspiracy.
Indeed, when all was booming, Wall Streeters said they deserved their pay because the market said they were worth it. But now things are falling apart, they say the market doesn’t work, and we need to stop short-selling, and taxpayers need to pony up. If there is a tiny bit of good in all this, it’s that Wall Street, although it was complicit in the Enron mess, managed to walk away relatively unscathed. This time, Wall Street has brought itself down.