An open letter to the Western banking establishment

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency system involved.”

-          Ludwig von Mises, Human Action (1949).

 

“In a world of debt and deflation, inflation is our friend.”

 

-       Crispin Odey, Financial Times (28.1.2009)

 

“Not if you’re a saver.”

 

-       Anon (29.1.2009)

 

Re. your unauthorised overdraft

 

Dear Western banking establishment,

 

I notice that your unauthorised credit facility from international lenders of last resort now totals approximately $10 trillion. As a taxpayer and therefore your largest shareholder I would be grateful if you could repay this facility at your earliest convenience. I have charged you an additional £30 for this letter and a monthly unauthorised overdraft fee of £28. If you do not repay this facility shortly I will have no choice but to become further massively impoverished along with legions of fellow taxpayers for multiple generations to come.

 

I would also be grateful if the strategists and economists who work for you could abstain from publishing their unsolicited opinions about resolving the banking crisis within the financial media. I am sure you will agree that hearing from the same strategists who worked for the architects of such widespread financial destruction is likely to irritate those of us who were not actually complicit in the extraordinary and venal credit boom of the last several decades. There is an expression that if you’re not part of the solution, you’re part of the problem. Those of your employees who were the public face of the problem are, I think you will agree, unlikely to represent the solution, unless perhaps they are fired – en masse, from a giant howitzer, into an area where they can do no further harm. Alaska, perhaps. I would further suggest that the high profile commentators who work for you and who have implicitly played their part in marketing and then amplifying this catastrophe might consider quietly entering another field with superior ethics and enhanced value to society at large: perhaps as piano players in brothels. This note has been copied to the letters editors of The Financial Times and The Wall Street Journal (which I understand is shortly to be renamed simply The Journal on the basis that Wall Street no longer actually exists – as was noted this week by Messrs Wen Jiabao and Vladimir Putin at Davos. Don’t worry about not being there – you weren’t missed).

 

Since the start of the year is always a time for slimming and working off the excesses of the festive period, I wonder whether your industry would consider operating along similar lines. Just as there is no real need to have 18 different coffee bars all touting their wares along my High Street, there is probably no real need to have 18 different banks, not all of which are subsidiaries of Santander, clogging the High Street and busily not wanting to extend me back any of my own money so generously lent to them.

 

I would also be interested in your views as to the wisdom and efficacy of the monstrous pile of credit being shovelled at you and your peers by governments when it was overmuch credit creation that precipitated this crisis. I do not, of course, expect anything other than a self-interested response. But you may find the following observations pertinent. If they seem acutely relevant today it is because they were written in the early 1930s, by one Garet Garrett (and a grateful hat tip to M. Gandon):

 

“The general shape of this universal delusion [that is, credit] may be indicated by three of its familiar features.. First, the idea that the panacea for debt is credit.. The burden of Europe’s private debt to this country now is greater than the burden of her war debt; and the war debt, with arrears of interest, is greater than it was the day the peace was signed.. Debt was the economic terror of the world when the war ended. How to pay it was the colossal problem. Yet you will hardly find a nation, state, city, town or region that has not multiplied its debt since the war. The aggregate of this increase is prodigious, and a very high proportion of it represents recourse to credit to avoid payment of debt.

 

“Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life. If they cannot immediately afford them.. nevertheless people are entitled to them, and credit must provide them.. Result: Probably one half of all government, national and civic, in the area of western civilization is either bankrupt or in acute distress from having over-borrowed according to this doctrine.. Now as credit fails and the standards of living tend to fall from the planes on which credit for a while sustained them, there is political dismay.. When [people] have been living on credit beyond their means the debt overtakes them. If they tax themselves to pay it, that means going back a little. If they repudiate their debt, that is the end of their credit. In this dilemma the ideal solution, so recommended even to the creditor, is more credit, more debt.

 

“Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase and exchange of wealth, and credit was its product.”

 

It will probably not have escaped your attention that the National Housing Federation this week urged the UK government and its wholly owned banking subsidiary, Northern Rock, to extend mortgages to people on lower incomes. “Given that Northern Rock has been nationalised it should now be made by ministers to take on a social purpose and ensure that those people on low-to-moderate incomes who can afford to buy a low cost home, and have a good credit rating, are given access to mortgages,” said NHF chief executive David Orr. Be careful what you wish for. The Nationwide building society, on the same day, reported UK house prices falling at an annualised 17%. Perhaps Mr. Orr wishes a whole new sub-class of low-to-moderate wage owners to be lured into a collapsing housing market. Nice one. Said wage owners should perhaps be grateful that the banking system is currently so dysfunctional (a.k.a. “finally prudent”) – it may end up saving them a fortune in lost housing equity.

 

Perhaps you, like I, find it richly ironic that members of the public still use your investment subsidiaries as a means to protect and grow their private wealth. I think you should promote the activities of these subsidiaries more widely. My idea for an advertising slogan: “When it comes to moral hazard, we’re Number One. We helped trigger the biggest financial and economic collapse in history through our imprudent lending and investment. Between 18 million and 30 million jobs throughout the world are almost certain to be lost. And more than 50 million jobs throughout the world are now in jeopardy. As a result of our investment expertise, we’ve lost billions, and those of us that still exist and aren’t owned by the taxpayer are technically insolvent. Now, how can we help you with your finances ?”

 

In any event, this letter is also to let you know that now that you and your members, in collusion with your governmental paymasters, are offering negative real returns to cash depositors, I am withdrawing what remains of my funds since I can find altogether better opportunities for the preservation and growth of my capital within high quality pockets of the equity and corporate bond markets, and I can get sufficient “insurance” for my increasingly worthless fiat currency in the form of gold. I appreciate that the withdrawal of my funds may send you spiralling into nationalisation. Sorry about that. And since you appear not to know the meaning of the word:

 

“Sorry. (“sQrI), a. Pained at heart; distressed, sad; full of grief or sorrow. In later use freq. in weakened sense, and often employed in the phrase “I’m sorry” to express mere sympathy or apology. But not by members of the banking profession.”

 

Yours sincerely

 

A. Customer.

Comments

[Beezer]

Quite right.

Let's have another tax cut, just to make the deficit bigger. At least the taxpayer can take the money and buy gold.

[timprice]

I don't know where you get the tax cut thesis from. My satirical (?) rant was directed solely against banks. I would have hoped that free markets might have helped us out, but we'll never know now as they no longer exist.

[David A. Burack]

Priceless.

[Peter]

I haven't laughed so much for ages.
Oh, hang on, it's my money, isn't it :-(

[The Economic Fractalist]

From the Western Bank of the Atlantic.......
A Modest Proposal And Two New Concepts:

The People's Bank of The United States And
Debt Negation For The Little People

In the States instead of creating 'new bad banks' to sewage service toxic assets and instead of bailing out bad old banks that are currently insolvent, perhaps the creation of a 'new good' bank' represents a better pathway. After all in the final analysis the Federal Reserve has often demonstrated that banking is only a manipulation of electronic ones and zeros - backed by US weapons and reasonably reliable delivery systems. The creation of a new United States 'People's Bank' is proposed. This American Taxpayer's Bank can borrow directly from the US Treasury at extremely low rates bypassing the Federal Reserve. Better still, no borrowing is necessary - just use the couple of trillion dollars of virtual money in the social security trust fund that is backed by the good intentions of future taxing politicians. Leveraging those virtual dollars in exponential fractional manner could double or qradruple-dectuple the amount available for lending. Think of it: 4 or 80 trillion to lend. Lending could target new mortgage applications and new entrepreneurial industries that are defined as beneficial to the country. Newly unemployed lower level banking managers from collapsing financial institutions could be hired at nominal rates to manage the transactions and assure reasonable credit worthiness. Of course toxic banks would likely not score out as a good enough credit risk to borrow from the People's Bank. Ultimately the US social security trust fund would be backed by hard assets with folks paying interest on loans. This would of course be in addition to the high interest rates that the Treasury is already currently paying for the use of this virtual money; double interest earnings for the US Taxpayer - that's just plain good business and investor savvy.

And if the private banks go under because of their toxic debt and if bank equity owners lose all their value and if the well bonused CEO's ultimately lose their jobs, ces't la vie: mortgage owners and squatters not yet evicted from their homes win the mini lotto and all outstanding debt on mortgages owned by insolvent banks is forgiven - after all if the banks went under, they didn't really have the money as an asset to lend in the first place (practicing the worse kind of Made Off fraud.)

This debt negation would really eliminate a big chunk of outstanding bad debt where valuations of the asset were often lower than the debt owed. This would help right the equilibrium. After all the houses were really never worth the leveraged price that banks and the real estate industry perpetrated on the public - relative to ongoing wages. Debt negation would immediately help to increase asset valuations, get people spending again and jump start the economy faster than any of the available plans. Inflation would be back and gold hoarders would be happy.

The People's Bank of The United States - The People's Banner Bank of Britain - the latter has even an alliterative ring to it. In this milieu of hair brained ideas, don't count these out.

And... the little guys have a chance to win for once in their life time.

[Myron Martin]

Blame has been attached to many different people and institutions and sectors of the economy, but mostly they are representative of mere symptoms, and yes, there are discernible cycles as others have noted.

The problem is that ALL of the supposed culprits and proposed solutions as in the various "bailout" pians: IGNORE the fundamentals, they deal only with SYMPTOMS, not the underlying STRUCTURAL problems! For this reason I am going to focus on your statement of: "How did we get into this mess?"

It started in 1913 with the passage of the Ponzi scheme known as the Federal Reserve Act which effectively made the government and all its citizens DEBT SLAVES! Why you ask, because it gave PRIVATE BANKERS a monopoly (supposedly illegal) to create our money supply out of thin air and loan it out at INTEREST! This is actually un-constitutional as this power was to be exercised by CONGRESS, not private bankers

If you doubt that it is a monopoly as charged, try printing some numbers on pretty paper and calling it MONEY and see how long it takes until hard nosed people in uniforms and drawn guns show up at your door and put you behind bars.

Now look up "fiat currency" in the dictionary and you will see that our legal tender laws have substituted worthless paper I.O.U.'s that FORCE people to use these creations of private bankers in place of a specific weight and purity of gold and silver (HONEST MONEY with intrinsic value) as specified in the constitution based on the biblical laws of having "JUST" weights and measures so nobody is defrauded.

Fiat currency as created by our fractional reserve banking system IS a FRAUD because "each bank loan is a new creation of money, and when it is paid back it ceases to exist", Graham Towers former Governor of the Bank of Canada!
The key here is that since mortgages (French meaning DEATH GAMBLE) usually have a 25 year amortization requiring the borrower to pay back almost DOUBLE the original principal borrowed, (depending on interest rate) and this means that on a progressive basis, since the interest is never created by this iniquitous system, TWICE the amount originally created is REMOVED from the economy.

Now look up the definition of a Ponzi scheme in the dictionary and you will realize if you can add 2 + 2 and come up with 4, that the fractional reserve banking system requires an exponentially increasing number of NEW LOANS to maintain adequate specie in circulation to run a stable economy just as ANY pyramid operates!

As the scheme progressed and got into trouble as the DEBT PYRAMID expanded,various "patch jobs" were used to revive the economy, including taking us off the gold standard (Nixon, 1971) which was the one thing that kept the excesses somewhat in check. As the limits of the DEBT PYRAMID re-emerged in ever more tightening cycles, exotic new products were added to keep the Ponzi scheme going for another round, with ever more sophisticated elements not understood by the masses including but not limited too, credit cards, CDO,s, derivatives etc. Even the creators of derivatives have no idea what the ultimate consequences will be WHEN, not if, that deck of cards collapses, No wonder as sophisticated an investor as Warren Buffet calls them "financial weapons of mass destruction."

Back in the days when we had at least a semblance of honest money most people were thrifty and SAVED a good portion of their income and put it in the bank where they magically became "RESERVES" allowing the banks to progressively create as much as 20-X in NEW DOLLARS for every one on deposit with them! It is a complete MYTH, (no lets call it what it is, an outright LIE designed to deceive the masses) that banks loan out their depositors money!

THINK, how can a bank loan out a LIABILITY, after all it is your money that you are able to withdraw at will unless you have made a term deposit! IT is all the overreaching, the creation of new DEBT instruments piled layer on layer to keep this Ponzi scheme going that is at the foundation of the present crisis, and it is only being made WORSE by the government in CREATING MORE DEBT that dilutes the value of every existing dollar. This is WHY the present dollar is worth about 4c in PURCHASING POWER compared to the 1913 dollar before the Federal Reserve was enacted!

In contrast, an ounce of gold will still buy the best suit in town, just as it did at the turn of the century!
People talk about inflation, but they don't understand HOW it is created, in a word, "INTEREST" so no wonder the government tries to HIDE the real rate of inflation which numerous experts estimate to be at LEAST DOUBLE the governments official statistics.

The bottom line on all of this is quite simple, we have been SEDUCED by easy credit, instead of saving, (which would finance business expansion or provide the down payment for a home) we are encouraged to "get it now"whether buying on credit cards at teaser rates as low as 1.9% or interest only mortgages, liar loans, sub-prime etc. all in a DESPERATE attempt to keep a FAILED fiat currency system on life support! Th U.S. is technically bankrupt and IF interest rates rise back to traditional levels the level of debt after the bailouts, will make interest payments untenable so we can view the present low interest rtes not as a gift, but the death throes of a flawed system, a failed experiment that must be acknowledged and CHANGED before the system collapses of its own weight as pyramids always do!

The bottom line is that UNTIL enough Americans listen to Ron Paul and put pressure on their elected representatives for positive changes, the situation will only continue to get worse in ever more destructive downward spirals. Ron Paul has introduced a Bill in Congress to abolish the Federal Reserve,the Income tax and the IRS!

EDUCATE YOURSELF on the subject by plugging the following into the Google search engine; America: from Freedom to Fascism a video that will make your hair stand on end if this subject is new too you!

I would also recommend reading the book The Creature from Jekyl Island by G. Griffin and there are many more where you can apply common sense and reason when you see FACTS that PROVE you have been hoodwinked by bankster propaganda. Instead of being a patsy to the International Bankers scheme to enslave you, learn HOW you can at least partially avoid their enslavement and propaganda by avoiding their hidden tax of inflation and debasement of the currency