- What's clear from the behavior of European financial
markets over the past two weeks is that the dramatic stories of financial
meltdown and panic are deliberately being used by certain influential factions
in and outside the EU to shape the future face of global banking in the
wake of the US sub-prime and Asset-Backed Security (ABS) debacle. The most
interesting development in recent days has been the unified and strong
position of the German Chancellor, Finance Minister, Bundesbank and coalition
Government, all opposing an American-style EU Superfund bank bailout. Meanwhile
Treasury Secretary Henry Paulson pursues his Crony Capitalism to the detriment
of the nation and benefit of his cronies in the financial world. It's an
explosive cocktail that need not have been.
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- Stock market falls of 7 to 10% a day make for dramatic
news headlines and serve to foster a broad sense of unease bordering on
panic among ordinary citizens. The events of the last two weeks among EU
banks since the dramatic state rescues of Hypo Real Estate, Dexia and Fortis
banks, and the announcement by UK Chancellor of the Exchequer, Alistair
Darling of a radical shift in policy in dealing with troubled UK banks,
have begun to reveal the outline of a distinctly different European response
to what in effect is a crisis 'Made in USA.'
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- There is serious ground to believe that US Goldman Sachs
ex CEO Henry Paulson, as Treasury Secretary, is not stupid. There is also
serious ground to believe that he is actually moving according to a well-thought-out
long-term strategy. Events as they are now unfolding in the EU tend to
confirm that. As one senior European banker put it to me in private discussion,
'There is an all-out war going on between the United States and the EU
to define the future face of European banking.'
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- In this banker's view, the ongoing attempt of Italian
Prime Minister Silvio Berlusconi and France's Nicholas Sarkosy to get an
EU common 'fund', with perhaps upwards of $300 billion to rescue troubled
banks, would de facto play directly into Paulson and the US establishment's
long-term strategy, by in effect weakening the banks and repaying US-originated
Asset Backed Securities held by EU banks.
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- Using panic to centralize power
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- As I document in my forthcoming book, Power of Money:
The Rise and Decline of the American Century, in every major US financial
panic since at least the Panic of 1835, the titans of Wall Street-most
especially until 1929, the House of JP Morgan-have deliberately triggered
bank panics behind the scenes in order to consolidate their grip on US
banking. The private banks used the panics to control Washington policy
including the exact definition of the private ownership of the new Federal
Reserve in 1913, and to consolidate their control over industry such as
US Steel, Caterpillar, Westinghouse and the like. They are, in short, old
hands at such financial warfare to increase their power.
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- Now they must do something similar on a global scale
to be able to continue to dominate global finance, the heart of the power
of the American Century.
-
- That process of using panics to centralize their private
power created an extremely powerful, concentration of financial and economic
power in a few private hands, the same hands which created the influential
US foreign policy think-tank, the New York Council on Foreign Relations
in 1919 to guide the ascent of the American Century, as Time founder Henry
Luce called it in a pivotal 1941 essay.
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- It's becoming increasingly obvious that people like Henry
Paulson, who by the way was one of the most aggressive practitioners of
the ABS revolution on Wall Street before becoming Treasury Secretary, are
operating on motives beyond their over-proportional sense of greed. Paulson's
own background is interesting in that context. Back in the early 1970's
Paulson started his career working for a rather notorious man named John
Erlichman, Nixon's ruthless adviser who created the Plumbers' Unit during
the Watergate era to silence opponents of the President, and was left by
Nixon to 'twist in the wind' for it in prison.
-
- Paulson seems to have learned from his White House mentor.
As co-chairman of Goldman Sachs according to a New York Times account,
in 1998 he forced out his co-chairman, Jon Corzine 'in what amounted to
a coup' according to the Times.
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- Paulson, and his friends at Citigroup and JP Morgan Chase,
had a strategy it is becoming clear, as did the Godfather of Asset Backed
Securitization and deregulated banking, former Fed Chairman Alan Greenspan,
as I have detailed in my earlier series here, Financial Tsunami, Parts
I-V.
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- Knowing that at a certain juncture the pyramid of trillions
of dollars of dubious sub-prime and other high risk home mortgage-based
securities would come falling down, they apparently determined to spread
the so-called 'toxic waste' ABS securities as globally as possible, in
order to seduce the big global banks of the world, most especially of the
EU, into their honey trap.
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- They had help. In recent testimony under oath by Eric
Dinallo, the Superintendent of the New York Insurance Department at the
AIG Bailout Oversight Hearing, into the AIG rescue by Paulson, Dinallo
testified that funding cutbacks in recent years directed by the Bush-Cheney
Administration had reduced the responsible department that should regulate
or watch over the $80 trillions in Asset Backed Securities (ABS), which
included the toxic sub-prime and Alt-A mortgage securities and much more.
The Bush Administration took the staff from more than one hundred people
down to one---yes that was not a typo. One as in 'uno.'
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- Was that just ideological budget cutting fervor, or was
it deliberate? Was former Goldman Sachs man, the man who convinced the
President to hire Paulson, Bush's former Director of the Office of Management
and Budget (OMB), Joshua Bolten, now the President's Chief of Staff, responsible
for insuring there was no effective government oversight on the exploding
securitization of mortgage assets?
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- These are perhaps some questions which the good Congressmen
ought to be asking people like Henry Paulson and Josh Bolten, and not such
red herring questions as how large Richard Fuld's bonus pay at Lehman was.
Are Mr Bolten's fingerprints on the corpse here? And why is no one questioning
the role of Paulson as CEO of Goldman Sachs, then the most aggressive promoter
of exotic and other Asset Backed Securitization products on Wall Street?
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- It now would appear that the Paulson strategy was to
use a crisis-a crisis that was pre-programmed and predictable as far back
as 2003 when Josh Bolten became head of OMB-when it exploded, to panic
the more conservative European Union governments into rushing to the rescue
of US toxic waste assets.
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- Were that to have happened, it would in the process destroy
what was left of sound EU banking and financial institutions, bringing
the world one step closer to a global money market controlled by Paulson's
cronies-US-style Crony Capitalism. Crony Capitalism is certainly appropriate
here. Paulson's predecessor at both Goldman Sachs and at Treasury, Robert
Rubin, liked to accuse the Asian bankers of Thailand, Indonesia and other
lands hit with the speculative attacks of US-financed hedge funds in 1997
of 'crony capitalism,' leaving the impression the crisis was home grown
in Asia and not the result of a deliberate executed attack by US-financed
financial institutions to eliminate the Asia Tiger model among other goals,
and turn Asia into the funder of US debt.
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- Interesting to note is that Rubin is now a Director of
Citigroup, obviously one of Paulson's crony bank 'survivors,' and the bank
which to date has had to write off the largest sum in toxic waste securitized
assets.
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- If the allegation of pre-planned panic, a la the Panic
of 1907 is accurate, and it is a big if, then the plan workedSup to a point.
That point came over the weekend of October 3, coincidentally the national
unification holiday of Germany.
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- Germany breaks with US model
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- In closed door talks well into the evening of Sunday
October 5, Alex Weber the hard-nosed head of the Bundesbank, BaFin head
Jochen Sanio and representatives of the Berlin coalition Government of
Chancellor Merkel came up with a rescue package for Hypo Real Estate of
a nominal ?50 billion. However, behind the dramatic headline number, as
Weber pointed out in a September 29 letter to Finance Minister Peer Steinbrück
that has been made public, not only did the private German banks have to
come up with 60% of that figure, the state with 40%. But also, given the
careful manner in which the Government in cooperation with the Bundesbank
and BaFin, structured the rescue credit agreement, the maximum possible
loss, in a worst case scenario, to the state would be limited to ?5.7 billion,
not ?30 billion as many believed. It's still real money but not the blank
check for $700 billion that a US Congress under duress and a few days of
falling stock market prices agreed to give Paulson.
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- The swift action by Finance Minister Steinbrück
to fire the head of HRE, in stark contrast to Wall Street where the same
criminal fraudsters remain at their desks reaping huge bonuses, indicates
as well a different approach. But that does not cut to the heart of the
issue. The situation of HRE arose as noted previously, from excesses in
a wholly-owned daughter bank of HRE subsidiary DEPFA in Ireland, an EU
country known for its liberal loose regulation and low tax regime.
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- A British policy shift
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- In the UK, after the costly and foolish bailout of Northern
Rock earlier in the year, the Government of Prime Minister Gordon Brown
has just announced a dramatic change in policy in the direction of Germany's
position. Britain's banks will get an unprecedented 50 billion-pound (?64
billion) government lifeline and emergency loans from the Bank of England.
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- The government will buy preference shares from Royal
Bank of Scotland Group Plc, Barclays Plc and at least six other banks,
and provide about 250 billion pounds of loan guarantees to refinance debt,
the Treasury said. The Bank of England will make at least 200 billion pounds
available. The plan doesn't specify how much each bank will get.
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- That means the UK Government will at least partially
nationalize its most important international banks, rather than buy their
bad loans as under the unworkable Paulson plan. Under such an approach,
costs to UK taxpayers once the crisis abates and business returns to more
normal conditions, the Government can sell the state shares back to a healthy
bank at perhaps a nice profit to the Treasury. The Brown Government has
apparently realized that the blanket guarantees it gave to Northern Rock
and Bradford & Bingley merely opened the floodgates of government costs
without changing the problem.
-
- The new nationalization policy is a dramatic contrast
to the Paulson ideological 'free market' approach of buying the worthless
bonds held by the select banks Paulson chooses to save, rather than recapitalize
those banks to allow them to continue to function.
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- The battle lines drawn
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-
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- What has emerged are the outlines of two opposite approaches
to the unfolding crisis. The Paulson plan is now clearly part of a project
to create three colossal global financial giants-Citigroup, JP MorganChase
and, of course, Paulson's own Goldman Sachs, now conveniently enough a
bank. Having successfully used fear and panic to wrestle a $700 billion
bailout from the US taxpayers, now the big three will try to use their
unprecedented muscle to ravage European banks in the years ahead. So long
as the world's largest financial credit rating agencies-Moody's and Standard
& Poors-are untouched by the scandals and Congressional hearings, the
reorganized US financial power of Goldman Sachs, Citigroup and JP Morgan
Chase could potentially regroup and advance their global agenda over the
coming several years, walking over the ashes of a bankrupt American economy
made bankrupt by their follies.
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- By agreeing on a strategy of nationalizing what EU finance
ministers deem are 'EU banks too systemically strategic to fail,' while
guaranteeing bank deposits, the largest EU governments, Germany and the
UK, in contrast to the US, have opted for what will in the longer run allow
European banking giants to withstand the anticipated financial attacks
from the likes of Goldman or Citigroup.
-
- The dramatic selloff of stocks across European bourses
and across Asia is in reality a secondary and far less critical issue.
According to market reports, the selloff is being driven mainly by US hedge
funds desperate to raise cash as they realize the US economy is going into
economic depression, that they are exposed and that the Paulson Plan does
nothing to address that.
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- A functioning solvent banking and interbank system is
far the more strategic issue. The ABS debacle was 'Made in New York.' Nonetheless,
its effects have to be isolated and viable EU banks defended in the public
interest, not just the interest of Paulson's banking cronies as in the
US. Unregulated offshore vehicles such as hedge funds, unregulated banking,
unregulated insurance all went into building the $80 trillion ABS Tsunami
as I have called it. Certain more conservative EU hands are not about to
buy the remedy being offered by Washington.
-
- The coordinated interest rate cut by the ECB and other
European central banks while grabbing headlines, in effect do little to
address the real problem: banks fear to lend to each other until their
solvency is assured.
-
- By initiating state partial nationalizations across the
EU, and rejecting the Berlusconi/Sarkozy bailout scheme, the governments
of the EU, interestingly enough this time led by the German, are laying
a more sound foundation to emerge from the crisis.
-
- Stay tuned, it's far from over. This is a fight for the
survival of the American Century which has been bvuilt since 1939 on the
twin pillars of American financial dominance and American military dominance-Full
Spectrum, Dominance.
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- Asian banks, badly burned by Wall Street's manipulated
1997-98 Asia Crisis, are apparently very little exposed to the US problem.
European banks are exposed in different ways, but none so serious as in
the US banking world.
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- * F. William Engdahl is author of the book, A Century
of War: Anglo-American Oil Politics and the New World Order (Pluto Press
Ltd) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation
(www.globalresearch.ca) He may be contacted through his website, www.engdahl.oilgeopolitics.net.
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