- 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.
-
- 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.
-
- 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
-
- 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.
-
- 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
-
-
-
- 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.
-
- 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.
-
- 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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