Description
Five years ago Jonas Cleary asked me to write a foreword for “Brothers,
sisters.. with a focus on the socio-economic aspects of the book. As
“Brothers, sisters.. is now republished as a trilogy, he has asked me for a
new, revised foreword to the book or better, an updated one mirroring the
prevailing socio-economic environment relative to what he has written.
In that original foreword I had not only outlined how the then economic
factors determining the world’s financial system would inevitably lead to its
collapse, but could do so in a frighteningly short space of time.
I mentioned that seemingly bedrock behemoths from General Motors to
the House of Saud would be swept away in the wake of such a breakdown.
That the only beneficiaries of the AAA rated bonds, then flooding the
financial markets, were bankers skimming fat fees from peddling them, but
otherwise, they were worthless ‘paper’ puffed up with ‘air money’.
These years later, the world’s financial system has narrowly escaped - yet
again - from implosion. Those supposedly secure bonds have indeed been
found to be worthless, and General Motors swept into insolvency, as have
many financial institutions, whose gluttony for ever higher profits were
largely responsible for bringing about this latest financial crisis. However, the
prediction I made, and has not - as yet - materialised is fall of the House of
Saud (although it too, is now being buffeted by the storms, unleashed by
jobless graduates, sweeping through the Middle East).
Finance ministers across the world believe that their immediate
intervention in, and assistance to, the financial markets staved off this
impending breakdown. In this they are deluded. It was money, more than
$13 trillion of it - equal to the US’s GDP - high-handedly taken from
ordinary peoples’ tax payments by those ministers’ governments, and
rushed to the outstretched hands of the then desperate, near as destitute
banks, which prevented a worldwide economic collapse.
None of these ministers have acknowledged that their administrations’ -
individually and collectively - lax monetary policies and laissez faire attitudes
towards the financial markets were largely responsible for precipitating the
crisis. Nor has there been admission from a single financial institution that
their irresponsible wagering and employees’ greed for ever higher
remuneration were also responsible for the near collapse of financial markets.
Since the near breakdown in 2008, and despite politicians’ and bankers’
pronouncements to the contrary, nothing of substance has changed. The
sole product of the much vaunted inter-government regulatory oversight of
the banks is the ‘Basel III Accord’.
This Accord called on banks to increase their capital reserves and clean
up accounting procedures. Basel III is a beefed-up successor to Basel II,
which banks cheerfully ignored and was itself created in an attempt to stop
banks avoiding the similar tenets of Basel I.
Gallingly for governments, most major banks neglected to comply with
Basel III. Moreover, many of them, or so it appears, also quickly found ways
of circumventing it.
Having handed over so much of their taxpayers’ money too bail out the
banks, many governments’ treasury cupboards are bare. In increasingly
desperate bids to stave off the consequences of their own wastrel ways, they
have been forced to borrow from the money (bond) markets.
While much of the finance provided by these markets is usually puffedup
leveraged ‘air money’, interest on the bonds is paid with [taxpayers’] real
money. However, increasing amounts of the sums governments borrow is
not for the benefit of their countries’ economies but is spent on paying back
their earlier bond borrowings.
Because most governments are for all intents insolvent, bond markets,
led by banks and rating agencies, exact ever harsher terms on the money
lent. In so doing these markets exercise ever greater power over countries’
economies than do their governments.
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