The Debt Spider Captures America
excerpted from the book
Web of Debt
The Shocking Truth About Our Money
System And How We Can Break Free
by Ellen Hodgson Brown
Third Millennium Press, 2007,
The U.S. has now surpassed even Third World countries in its debt
level. By 2004, the debt of the U.S. government had hit $7.6 trillion,
more than three times that of all Third World countries combined.
Like the bankrupt consumer who stays afloat by making the minimum
payment on his credit card, the government has avoided bankruptcy
by paying just the interest on its monster debt; but Comptroller
General David M. Walker warns that by 2009 the country may not
be able to afford even that mounting bill. When the government
cannot service its debt, it will have to declare bankruptcy, and
the economy will collapse.
Al Martin is a retired naval intelligence
officer, former contributor to the Presidential Council of Economic
Advisors, and author of a weekly newsletter called "Behind
the Scenes in the Beltway." He observed in an April 2005
newsletter that the ratio of total U.S. debt to gross domestic
product (GDP) rose from 78 percent in 2000 to 308 percent in April
2005. The International Monetary Fund considers a nation-state
with a total debt-to-GDP ratio of 200 percent or more to be a
"de-constructed Third World nation-state." Martin wrote:
What "de-constructed" actually
means is that a political regime in that country, or series of
political regimes, have, through a long period of fraud, abuse,
graft, corruption and mismanagement, effectively collapsed the
economy of that country.
editorialist Mike Whitney in CounterPunch in April 2005
[T]he towering [U.S.] national debt coupled
with the staggering trade deficits have put the nation on a precipice
and a seismic shift in the fortunes of middle-class Americans
is looking more likely all the time... The country has been intentionally
plundered and will eventually wind up in the hands of its creditors
This same Ponzi scheme has been carried out repeatedly by the
IMF and World Bank throughout the world Bankruptcy is a fairly
straightforward way of delivering valuable public assets and resources
to collaborative industries, and of annihilating national sovereignty.
After a nation is successfully driven to destitution, public policy
decisions are made by creditors and not by representatives of
the people .... The catastrophe that middle class Americans face
is what these elites breezily refer to as "shock therapy";
a sudden jolt, followed by fundamental changes to the system.
In the near future we can expect tax reform, fiscal discipline,
deregulation, free capital flows, lowered tariffs, reduced public
services, and privatization.
Catherine Austin Fitts, formerly managing director of a Wall Street
investment bank and was Assistant Secretary of the Department
of Housing and Urban Development (HUD) under President George
Bush Sr.. She calls what is happening to the economy "a criminal
leveraged buyout of America," something she defines as "buying
a country for cheap with its own money and then jacking up the
rents and fees to steal the rest." She also calls it the
"American Tapeworm" model:
[T]he American Tapeworm model is to simply
finance the federal deficit through warfare, currency exports,
Treasury and federal credit borrowing and cutbacks in domestic
"discretionary" ,spending .... This will then place
local municipalities and local leadership in a highly vulnerable
position - one that will allow them to be persuaded with bogus
but high-minded sounding arguments to further cut resources. Then,
to "preserve bond ratings and the rights of creditors,"
our leaders can he persuaded to sell our water, natural resources
and infrastructure assets at significant discounts of their true
value to global investors .... This will be described as a plan
to "save America" by recapitalizing it on a sound financial
footing. In fact, this process will simply shift more capital
continuously from America to other continents and from the lower
and middle classes to elites.
In 1894, Jacob Coxey warned of the destruction of the great American
middle class. That prediction is rapidly materializing, as the
gap between rich and poor grows ever wider. The Federal Reserve
reported in 2004 that:
* The wealthiest 1 percent of Americans
held 33.4 percent of the nation's wealth, up from 30.1 percent
in 1989; while the top 5 percent held 55.5 percent of the wealth.
* The poorest 50 percent of the population
held only 2.5 percent of the wealth, down from 3.0 percent in
* The very wealthiest 1 percent of Americans
owned a bigger piece of the pie (33.4 percent) than the poorest
90 percent (30.4 percent of the pie). They also owned 62.3 percent
of the nation's business assets.
* The wealthiest 5 percent owned 93.7
percent of the value of bonds, 71.7 percent of nonresidential
real estate, and 79.1 percent of the nation's stocks.
American corporations are assured of cheap, non-mobile labor of
the sort found in Third World countries by a medical insurance
system and other benefits tied to employment People dare not quit
their jobs, however unsatisfactory, for fear of facing medical
catastrophes without insurance, particularly now that the escape
hatch of bankruptcy has narrowed substantially.
The Bankruptcy Reform Act of 2005 eroded the protection the government
once provided against these unexpected catastrophes, ensuring
that working people are kept on a treadmill of personal debt.
Meanwhile, loopholes allowing very wealthy people and corporations
to go bankrupt and to shield their assets from creditors remain
The 2005 bankruptcy bill was written by and for credit card companies.
Credit card debt reached $735 billion by 2003, more than 11 times
the tab in 1980. Approximately 60 percent of credit card users
do not pay off their monthly balances; and among those users,
the average debt carried on their cards is close to $12,000. This
"sub-prime" market is actually targeted by banks and
credit card companies, which count on the poor, the working poor
and the financially strapped to not be able to make their payments.
According to a 2003 book titled The Two-Income Trap by Warren
More than 75 percent of credit card profits
come from people who make those low, minimum monthly payments.
And who makes minimum monthly payments at 26 percent interest?
Who pays late fees, over-balance charges, and cash advance premiums?
Families that can barely make ends meet, households precariously
balanced between financial survival and complete collapse. These
are the families that are singled out by the lending industry,
barraged with special offers, personalized advertisements, and
home phone calls, all with one objective in mind: get them to
borrow more money.
Hazard Circular circulated during the American Civil War
[S]lavery is but the owning of labor and
carries with it the care of the laborers, while the European plan,
led by England, is that capital shall control labor by controlling
wages. This can be done by controlling the money. The great debt
that capitalists will see to it is made out of the war, must be
used as a means to control the volume of money.
The slaves kept in the pre-Civil War South had to be fed and cared
for. People enslaved by debt must feed and house themselves.
In 2004, home ownership was touted as being at all-time highs,
hitting nearly 69 percent that year... Only 40 percent of homes
were owned "free and clear, that figure included properties
owned as second homes as vacation homes, and by landlords who
rented the property out to non-homeowners Even homes that were
at one time owned free and clear could have mortgages on them,
after the owners were lured by lenders into taking cash out through
home equity loans. As a result of refinancing and residential
mobility, most mortgages on single-family properties today are
less than four years old, which means they have a long way to
go before they are paid off.
... In late 2004, mortgage debt amounted
to 85 percent of disposable income, a record high.
... From 2001 through 2005, outstanding
mortgage debt rose from $5.3 trillion to $8.9 trillion, the biggest
debt expansion in history.
... Homeowners took equity out of their
homes through home sales, refinancings and home equity loans totaling
about $700 billion in 2004, more than twice the $266 billion taken
five years earlier. Debts due to residential mortgages exceeded
$8.1 trillion, a sum larger even than the out-of-control federal
debt, which hit $7.6 trillion the same year.
In the 1980s, the Fed reacted to a stock market crisis by lowering
interest rates, making investment money readily available, inflating
the stock market to unprecedented heights in the 1990s. When the
stock market topped out in 2000 and started downward, the Fed
could have allowed it to correct naturally; but that alternative
was politically unpopular, and it would have meant serious losses
to the banks that owned the Fed. The decision was made instead
to prop up the market with even lower interest rates. The federal
funds rate was dropped to 1.0 percents launching a credit expansion
that was even greater than in the 1990s, encouraging further speculation
in both stocks and real estate.
By 2005, about half of all U.S. mortgages were at "adjustable"
Loans are structured so that the borrower who agrees to a 30-year
mortgage at a fixed rate of 7 percent will actually pay about
2-1/2 times the list price of the house over the course of the
loan. A house priced at $330,000 at 7 percent interest would accrue
$460,379. in interest, for a total tab of $790,379.36. The bank
thus actually gets a bigger chunk of the pie than the seller,
although it never owned either the property or the loan money,
which was created as it was lent; and home loans are completely
secured, so the risk to the bank is very low. The buyer will pay
about 2-1/2 times the list price to borrow money the bank never
had until the mortgage was signed.
Gary North, in a November 2005 article "Surreal Estate on
the San Andreas"
A squeeze is coming that will affect the
entire banking system. The madness of bankers has become unprecedented...
Banks will wind up sitting on top of bad loans of all kinds because
the American economy is now housing-sale driven.
The American money supply is being continually pumped up with
new money created as loans, but borrowers are increasingly unable
to repay their loans, which are going into default. When loans
are extinguished by default, the money supply contracts and deflation
and depression result. The collision of these two forces can result
in "stagflation" - price inflation without economic
Today's stocks are owned by over half of Americans, the highest
number in history.
In a June 2002 article titled "Fannie and Freddie Were Lenders,"
Richard Freeman warned that the housing bubble was the largest
bubble in history, dwarfing anything that had gone before; and
that it had been pumped up to its gargantuan size by Fannie Mae
(the Federal National Mortgage Association) and Freddie Mac (the
Federal Home Mortgage Corporation)...
Focusing on the larger of these two institutional
cousins, Fannie Mae, Freeman noted that if it were a bank, it
would be the third largest bank in the world; and that it made
enormous amounts of money in the real estate market for its private
owners. Contrary to popular belief, Fannie Mae is not actually
a government agency. It began that way under Roosevelt's New Deal,
but it was later transformed into a totally private corporation.
It issued stock that was bought by private investors, and eventually
it was listed on the stock exchange. Like the Federal Reserve,
it became "federal" only in name.
In 2002, Fannie Mae's bonds made up over $700 billion of outstanding
debt total of $764 billion. Only one source of income was available
to pay the interest and principal on these bonds, the money Fannie
collected on the mortgages it owned. If a substantial number of
mortgages were to go into default, Fannie would not have the cash
to pay its bondholders. Freeman observed that no company in America
had ever defaulted on as much as $50 billion in bonds, and Fannie
Mae had over $700 billion - at least ten times more than any other
corporation in America. A default on a bonded debt of that size,
he said, could end the U.S. financial system virtually overnight.
Like those banking institutions considered
"too big to fail," Fannie Mae had tentacles reaching
into so much of the financial system that if it went, it could
take the economy down with it. A wave of home mortgage defaults
would not alone have been enough to bring down the whole housing
market, said Freeman; but adding the possibility of default on
Fannie's riskier obligations, totaling over $2 trillion in 2002,
the chance of a system-wide default had been raised to "radioactive"
levels. If a crisis in the housing mortgage market were to produce
a wave of loan defaults, Fannie would not be able to meet the
terms of the guarantees it put on $859 billion in Mortgage-Backed
Securities, and the pension funds and other investors buying the
MBS would suffer tens of billions of dollars in losses.
Colt Bagley wrote in 2004
Once upon a time, the American banking
system extended loans to productive agriculture and industry.
Now, it is a vast betting lilac/line, gaming on market distortions
of interest rates, stocks, currencies, etc.. JP Morgan Chase Bank
(JPMC) dominates the U.S. derivatives market... JPMC Bank alone
has derivatives approaching four times the U.S. Gross Domestic
Product of $11.5 trillion. Next come Bank of America and Citibank,
with $14.9 trillion and $14.4 trillion in derivatives, respectively.
The OCC [Office of the Comptroller of the Currency] reports that
the top seven American derivatives banks hold 96% of the U.S.
banking system's notional derivatives holding. If these banks
suffer serious impairment of their derivatives holdings, kiss
the banking system goodbye.
Guy Novak ... explains that the banking system has become gridlocked
because its pretended "derivative" assets are fake;
and the fake assets have swallowed up the real assets. It all
began with deregulation in the 1980s, when government regulation
was considered an irrational scheme from which business had to
Derivative bets are sold as a form of insurance against something
catastrophic going wrong. But if something catastrophic does go
wrong, the counterparties (the parties on the other side of the
bet, typically hedge funds) are liable to fold their cards and
drop out of the game. The "insured" are left with losses
both from the disaster itself and from the loss of the premium
paid for the bet. To avoid that result, the Federal Reserve, along
with other central banks, a fraternity of big private banks, and
the U.S. Treasury itself, have gotten into the habit of covertly
bailing out losing counterparties. This was done when the giant
hedge fund Long Term Capital Management went bankrupt in 1998.
It was also evidently done in 2005, but very quietly.
financial analyst Rob Kirby in the article "The Grand Illusion",
On March 23, 2006, the Board of Governors
of the Federal Reserve System will cease publication of the M3
monetary aggregate. The Board will also cease publishing the following
components: large-denomination time deposits, repurchase agreements
(RPs), and Eurodollars .... [These securities] are exactly where
one would expect to find the "capture" of any large
scale monetization effort that the Fed would embark upon - should
the need occur.
Iran announced that it would be opening an oil market (or "bourse")
in euros in March 2006, sidestepping the 1974 agreement with OPEC
to trade oil only in U.S. dollars. An article in the Arab online
magazine Al-Jazeerah warned that the Iranian bourse "could
lead to a collapse in value for the American currency, potentially
putting the U.S. economy in its greatest crisis since the depression
era of the 1930s." Rob Kirby wrote:
[I]f countries like Japan and China (and
other Asian countries) with their trillions of U.S. dollars no
longer need them (or require a great deal less of them) to buy
oil ... [and] begin wholesale liquidation of U.S. debt obligations,
there is no doubt in my mind that the Fed will print the dollars
necessary to redeem them - this would necessarily imply an absolutely
enormous (can you say hyperinflation) bloating of the money supply
- which would undoubtedly be captured statistically in M3 or its
related reporting. It would appear that we're all going to be
"flying blind" as to how much money the Fed is truly
going to pump into the system .... "
For the Federal Reserve to "monetize" the government's
debt with newly-issued dollars is actually nothing new. When no
one else buys U.S. securities, the Fed routinely steps in and
buys them with money created for the occasion.
Richard Daughty, a commentator who writes in The Daily Reckoning
... commented in April 2006
There was ... a flurry of excitement last week when there was
a rumor that the Federal Reserve had printed up, suddenly, $2
trillion in cash... With this amount of cash, the American government
can pretty much buy all the government securities that any foreigners
want to sell, but the inflationary effects of creating so much
money won't be felt in prices for awhile.
It might be clever, if it really were the American government
buying back its own securities; but it isn't. It is the private
Federal Reserve and private banks. If dollars are to be printed
wholesale and federal securities are to be redeemed with them,
why not let Congress do the job itself and avoid a massive unnecessary
debt to financial middlemen? Arguably, if the government were
to buy back its own bonds and take them out of circulation, it
could not only escape a massive federal debt but could do this
without producing inflation. Government securities are already
traded around the world just as if they were money. They would
just be turned into cash, leaving the overall money supply unchanged.
When the Federal Reserve buys up government bonds with newly-issued
money, on the other hand, the bonds aren't taken out of circulation.
Instead, they become the basis for generating many times their
value in new loans; and that result is highly inflationary.
Catherine Austin Fitts former assistant secretary of HUD, in a
We've reached a point... where rather
than let financial assets adjust, the powers that be now have
[such] control of the economy through the banking system and through
the governmental apparatus [that] they can simply steal more money
... ,whether it's [by keeping] the stock market pumped up, the
derivatives going, or the gold price manipulated down .... In
other words, you can adjust to your economy not by letting the
value of the stock market or financial assets fall, but you can
use warfare and organized crime to liquidate and steal whatever
it is you need to keep the game going. And that's the kind of
Orwellian scenario whereby you can basically keep this thing going,
but in a way that leads to a highly totalitarian government and
economy - corporate feudalism.
Latter-day Paul Reveres warned that domestic security measures
were being tightened and civil rights were being stripped. These
developments mirrored IMF policies in Third World countries, where
the "IMF riot" was actually anticipated and factored
in when "austerity measures" were imposed. Conspiracy
theorists pointed to efforts to get the Constitution suspended
under the Emergency Powers Act, martial law imposed under the
Patriot and Homeland Security Acts, and the American democratic
form of government replaced with a police state. They noted the
use of the military in 2005 to quell rioting in New Orleans following
Hurricane Katrina, in violation of posse comitatus, a statute
forbidding U.S. active military participation in domestic law
enforcement." They observed that fully-armed private mercenaries,
some of them foreign, even appeared on the streets. The scene
recalled a statement made by former U.S. Secretary of State Henry
Kissinger at a 1992 conference of the secretive Bilderbergers,
covertly tap by a Swiss delegate. Kissinger reportedly said:
Today, America would be outraged if U.N.
troops entered Los Angeles to restore order. Tomorrow they will
be grateful! ... The one thing every man fears is the unknown.
When presented with this scenario, individual rights will be willingly
relinquished for the guarantee of their well-being granted to
them by the World Government.
Al Martin in a November 2005 newsletter
FEMA is being upgraded as a federal agency,
and upon passage of PATRIOT Act III, which contains the amendment
to overturn posse comitatus, FEMA will be re-militarized, which
will give the agency military police powers .... Why is all of
this being done? Why is the regime moving to a militarized police
state and to a dictatorship? It is because of what Comptroller
General David Walker said, that after 2009, the ability of the
United States to continue to service its debt becomes questionable.
Although the average citizen may not understand what that means,
when the United States can no longer service its debt it collapses
as an economic entity. We would be an economically collapsed state.
The only way government can function and can maintain control
in an economically collapsed state is through a military dictatorship.
When commercial borrowers aren't creating enough money by borrowing
it into existence, the government must take over that function
by spending money it doesn't have, justifying its loans in any
way it can. Keeping the economy alive means continually finding
ways to pump newly-created loan money into the system, while concealing
the fact that this "money" has been spun out of thin
George Stephanopoulos, President Clinton's senior adviser on policy
strategy - on "Good Morning America" on September 17,
[T]he Fed in 1989 created what is called
the Plunge Protection Team (PPT), which is the Federal Reserve,
big major banks, representatives of the New York Stock Exchange
and the other exchanges ... and they have kind of an informal
agreement among major banks to come in and start to buy if there
appears to he a problem.
... there was a global currency crisis
[in 1998]. And [the PPT] at the guidance ' of the Fed, all of
the banks got together when that started to collapse and propped
up the currency markets. And they have plans in place to consider
that if the stock markets start to fall.
The Plunge Protection Team (PPT) is formally called the Working
Group on Financial Markets (WGFM). Created by President Reagan's
Executive Order 12631 in 1988 in response to the October 1987
stock market crash, the WGFM includes the President, the Secretary
of the Treasury, the Chairman of the Federal Reserve, the Chairman
of the Securities and Exchange Commission, and the Chairman of
the Commodity Futures Trading Commission. Its stated purpose is
to enhance "the integrity, efficiency, orderliness, and competitiveness
of our Nation's financial markets and [maintain] investor confidence."
According to the Order:
To the extent permitted by law and subject
to the availability of funds therefore, the Department of the
Treasury shall provide the Working Group with such administrative
and support services as may be necessary for the performance of
In plain English, taxpayer money is being
used to make the markets look healthier than they are. Treasury
funds are made available, but the WGFM is not accountable to Congress
and can act from behind closed doors. It not only can but it must,
since if investors were to realize what was going on, they would
not fall for the bait. "Maintaining investor confidence"
means keeping investors in the dark about how shaky the market
[New York Post columnist John] Crudele tracked the shady history
of the PPT in his June 2006 New York Post series:
Back during a stock market crisis in 1989,
a guy named Robert Heller - who had just left the Federal Reserve
Board - suggested that the government rig the stock market in
times of dire emergency. He didn't use the word "rig"
but that's what he meant. Proposed as an op-ed in the Wall Street
Journal, it's a seminal argument that says when a crisis occurs
on Wall Street "instead of flooding the entire economy with
liquidity, and thereby increasing the danger of inflation, the
Fed could support the stock market directly by buying market averages
in the futures market, thus stabilizing the market as a whole."
The stock market was to be the Roman circus
of the twenty-first century, distracting the masses with pretensions
of prosperity. Instead of fixing the problem in the economy, the
PPT would just "fix" the investment casino. Crudele
Over the next few years ... whenever the
stock market was in trouble someone seemed to ride to the rescue
.... Often it appeared to be Goldman Sachs, which just happens
to be where [newly-appointed Treasury Secretary] Paulson and former
Clinton Treasury Secretary Robert Rubin worked.
For obvious reasons, the mechanism by
which the PPT has ridden to the rescue isn't detailed on the Fed's
website; but some analysts think they know. Michael Bolser, who
belongs to an antitrust group called GATA (the Gold Anti-Trust
Action Committee), says that PPT money is funneled through the
Fed's "primary dealers," a group of favored Wall Street
brokerage firms and investment banks. The device used is a form
of loan called a "repurchase agreement" or "repo,"
which is a contract for the sale and future repurchase of Treasury
securities. Bolser explains:
It may sound odd, but the Fed occasionally
gives money ["permanent" repos] to its primary dealers
(a list of about thirty financial houses, Merrill Lynch, Morgan
Stanley, etc). They never have to pay this free money back; thus
the primary dealers will pretty much do whatever the Fed asks
if they want to stay in the primary dealers "club."
The exact mechanism of repo use to support
the DOW is simple. The primary dealers get repos in the morning
issuance and then buy DOW index futures (a market that is far
smaller than the open DOW trading volume). These futures prices
then drive the DOW itself because the larger population of investors
think the "insider" futures buyers have access to special
information and are "ahead" of the market. Of course
they don't have special information... only special money in the
form of repos.
The money used to manipulate the market
is "Monopoly" money, funds created from nothing and
given for nothing, just to prop up the market. Not only is the
Dow propped up but the gold market is held down, since gold is
considered a key indicator of inflation. If the gold price were
to soar, the Fed would have to increase interest rates to tighten
the money supply, impairing the housing market and forcing the
government to raise inflation-adjusted payments for Social Security.
Most traders who see this manipulation going on don't complain,
because they think the Fed is rigging the market to their advantage.
But gold investors have routinely been fleeced; and the PPT's
secret manipulations created a stock market bubble that would
take everyone's savings down when it burst, as bubbles invariably
do. Unwary investors have been induced to place risky bets on
a nag on its last legs. The people become complacent and accept
bad leadership, had policies and had laws, because they think
it is all "working" economically.
GATA's findings were largely ignored until
they were confirmed in a carefully researched report released
by John Embry of Sprott Asset Management of Toronto in August
2004. An update of the report published in The Asia Times in 2005,
included an introductory comment that warned, "the secrecy
and growing involvement of private-sector actors threatens to
foster enormous moral hazards." Moral hazard is the risk
that the existence of a contract will change the way the parties
act in the future; for example, a firm insured for fire may take
fewer fire precautions. In this case, the hazard was that banks
were taking undue investment and lending risks, believing they
would be bailed out from their folly because they always had been
in the past. The comment continued:
Major financial institutions may be acting
as de facto agencies of the state, and thus not competing on a
level playing field. There are signs that repeated intervention
in recent years has corrupted the system.
In a June 2006 article titled "Plunge
Protection or Enormous Hidden Tax Revenues, Chuck Augustin was
more blunt, writing:
Today the markets are, without doubt,
manipulated on a daily basis by the PPT. Government controlled
"front companies" such as Goldman-Sachs, JP Morgan and
many others collect incredible revenues through market manipulation.
Much of this money is probably returned to government coffers,
however, enormous sums of money are undoubtedly skimmed by participating
companies and individuals.
The operation is similar to the Mafia-controlled
gambling operations in Las Vegas during the 50's and 60's but
much more effective and beneficial to all involved. Unlike the
Mafia, the PPT has enormous advantages. The operation is immune
to investigation or prosecution, there [are] unlimited funds available
through the Treasury and Federal Reserve, it has the ultimate
insider trading advantages, and it fully incorporates the spin
and disinformation of government controlled media to sway markets
in the desired direction .... Any investor can imagine the riches
they could obtain if they knew what direction stocks, commodities
and currencies would move in a single day, especially if they
could obtain unlimited funds with which to invest! ... [T]he PPT
not only cheats investors out of trillions of dollars, it also
eliminates competition that refuses to he "bought" through
mergers. Very soon now, only global companies and corporations
owned and controlled by the NWO elite will exist.
Michael Bolser as carefully tracked the Dow against the "repo"
pool... His charts show that the Fed has routinely "engineered"
the Dow and the dollar to make the economy appear sounder than
Alex Wallenstein in an April 2004 article
People would never give up their property
rights voluntarily, directly. But if we can be sucked by Fed interest
rate policy into no longer saving money (because stock market
gains are so much higher than returns on CDs and savings bonds),
and instead into throwing all of our retirement hopes and dreams
at the stock market (that can be engineered into a catastrophic
collapse in the blink of an eye), then we can all become "good
little sheep." Then we can be made to march right up to be
fleeced and then slaughtered and meat-packed for later consumption
by our handlers.
Addison Wiggin in a 2005 book "The Demise of the Dollar
How can the government promise to pay
its debts when the total of that debt keeps getting higher and
higher? It's already out of control .... In fact, a collapse is
inevitable and it's only a question of how quickly it is going
to occur. The consequences will be huge declines in the stock
market, savings becoming worthless, and the bond market completely
falling apart .... It will be a rude awakening for everyone who
has become complacent about America's invulnerability.
Hans Schicht in 2003 noted that David Rockefeller, the "master
spider," was then 88 years old
What has been good for Rockefeller, has
been a curse for the United States. Its citizens, government and
country indebted to the hilt, enslaved to his banks .... The country's
industrial force lost to overseas in consequence of strong dollar
policies .... A strong dollar pursued purely in the interest of
the banking empire and not for the best of the country. The USA,
now degraded to a service and consumer nation.
With Rockefeller leaving the scene, sixty
years of dollar imperialism are drawing to a close .... As one
of the first signs of change, the mighty dollar has come under
attack, directly on the currency markets and indirectly through
the bond markets. The day of financial reckoning is not far off
any longer .... ...With Rockefeller's strong hand losing its grip
and the old established order fading, the world has entered a
most dangerous transition period, where anything could happen."
In a March 2007 article, Richard Freeman observed that the Cayman
Islands are a British Overseas Protectorate. The Caymans function
as "an epicenter for globalization and financial warfare,"
with officials who have been hand-selected by what Freeman calls
the "Anglo-Dutch oligarchy":
For the Anglo-Dutch oligarchy, closely
intertwined banks and hedge funds are its foremost instruments
of power, to control the financial system, and loot and devastate
companies and nations. The three island specks in the Caribbean
Sea, 480 miles south from Florida's southern tip - which came
to be known as the Caymans, after the native word for crocodile
(caymana) - had for centuries been a basing area for pirates who
attacked trading vessels.
In 1993, the decision was made to turn
this tourist trap into a major financial power, through the adoption
of a Mutual Funds Law, to enable the easy incorporation and/or
registration of hedge funds in a deregulated system The 1993 Mutual
Fund Law had its effect: with direction from the City of London,
the number of hedge funds operating in the Cayman Islands exploded:
from 1,685 hedge funds in 1997, to 8,282 at the end of the third
quarter 2006, a fivefold increase. Cayman Island hedge funds are
four-fifths of the world total. Globally, hedge funds command
up to $30 trillion of deployable funds. . According to reports,
during 2005, the hedge funds were responsible for up to 50% of
the transactions on the London and New York stock exchanges ....
The hedge funds are leading a frenzied wave of mergers and acquisitions,
which reached nearly $4 trillion last year and they are buying
up and stripping down companies from auto parts producer Delphi
and Texas power utility TXU, to Office Equities Properties, to
hundreds of thousands of apartments in Berlin and Dresden, Germany.
This has led to hundreds of thousands of workers being laid off.
They are assisted by their Wall Street
allies. Taken altogether the hedge funds, with money borrowed
from the world's biggest commercial and investment banks, have
pushed the world's derivatives bubble well past $600 trillion
in nominal value, and put the world on the path of the biggest
financial disintegration in modern history.
Adrian Douglas observed in a June 30 article called "Derivatives"
The DOW is not allowed to drop more than
200 points and it must rally the following day. Interest rates
must not rise, if they do the FED must issue more of their now
secret M3, ship it offshore to the Caribbean and pretend that
an unknown foreign bank is buying US treasuries like crazy.
In a February 2004 article called "The Coming Storm,"
the London Economist warned that top banks around the world were
massively exposed--to--high-risk derivatives, and that there was
a very real risk of an industry-wide meltdown. The situation was
compared to that before the 1998 collapse of Long Term Capital
Management, when " [b]ets went spectacularly wrong after
Russia defaulted; financial markets went berserk, and LTCM, a
very large hedge fund, had to be rescued by its bankers at the
behest of the Federal Reserve."
John Hoefle wrote in 2002 that the Fed
had been quietly rescuing banks ever since. He contended that
the banking system actually went bankrupt in the late 1980s, with
the collapse of the junk bond market and the real estate bubble
of that decade. The savings and loan sector collapsed, along with
nearly every large Texas bank; and that was just the tip of the
Citicorp was secretly taken over by the
Federal Reserve in 1989, shotgun mergers were arranged for other
giant banks, backdoor bailouts were given through the Fed's lending
mechanisms, and I bank examiners were ordered to ignore bad loans.
These measures, coupled with a headlong rush into derivatives
and other forms of speculation, gave the banks a veneer of solvency
while actually destroying what was left of the U.S. banking system.
The big banks were in trouble because
of big gambles that had not paid off - Third World loans that
had gone into default, giant corporations that had gone bankrupt,
massive derivative bets gone wrong. Like with the bankrupt giant
Enron, profound economic weakness was masked by phony accounting
that created a "veneer of solvency." [John] Hoefle wrote:
The U.S. banks - especially the derivatives
giants - are masters at this game, counting trillions of dollars
of worthless IOUs derivatives, overblown assets, and unpayable
debts - on their books at face value, in order to appear solvent
in the late 1980s, the term "zombie" was used to refer
to banks which manifested some mechanical signs of life but were
in fact dead.
Between 1984 and 2002, bank failures were
accompanied by a wave of consolidations and takeovers that reduced
the number of banks by 45 percent. The top seven banks were consolidated
into three - Citigroup, JP Morgan Chase, and Bank of America.
[John] Hoefle wrote:
The result of all these mergers is a group
of much larger, and far more bankrupt, giant banks... [A] similar
process has played out worldwide .... The global list also includes
two institutions which specialize in pumping up the U.S. real
estate bubble. Both Fannie Mae and Freddie Mac specialize in converting
mortgages into mortgage-backed securities, and will vaporize when
the U.S. housing bubble pops.
In a February 2004 article titled "Cooking the Books: U.S.
Banks Are Giant Casinos," Michael Edward concurred. He wrote
that U. S. banks were engaging in "smoke and mirror accounting,"
in which they were merging with each other in order to hide their
derivative losses with "paper asset" bookkeeping:
[T]he public is being conned into thinking
that U.S. banks are still solvent because they show "gains"
in their stock "paper" value. If the U.S. markets were
not manipulated, U.S. banks would collapse overnight along with
the entire U.S. economy.
... Astronomical losses for U.S. banks
(as well as most world banks) have been concealed with mispriced
derivatives. The problem with this is that these losses don't
have to be reported to shareholders, so in all truth and reality,
many U. S. banks are already insolvent. What that means is that
U.S. banks have become nothing less than a Ponzi Scheme paying
account holders with other account holder assets or deposits.
... always ended abruptly with great losses
for every person who invested in them. U.S. bank account holders
are about to find this out.
William Hummel in 'Money: What It Is How It Works' the ten largest
U.S. banks hold almost half the country's total banking assets.
These banks, called "money market banks" or "money
center banks," include Citibank, JPMorgan Chase, and Bank
of America. They are large conglomerates that combine commercial
banking with investment banking However, very little of their
business is what we normally think of as banking - taking deposits,
providing checking services, and making consumer or small business
Hedge funds are groups of investors colluding to acquire companies
and bleed them of their assets, speculate in derivatives, manipulate
markets, and otherwise make profits for themselves at the expense
of workers and smaller investors.
The big money center banks facilitating
these dubious practices are also the banks that must periodically
be bailed out by the Fed and the government because they are supposedly
"too big to fail." Yet these banks are not even providing
what we normally think of as banking services! They are "too
big to fail" only because they are responsible for a giant
Ponzi scheme that has the entire economy in its death grip. They
have created a perilous derivatives bubble that has generated
billions of dollars in short-term profits but has destroyed the
financial system in the process. Collusion among mega-banks has
made derivative trading less risky, but this has not served the
larger community but rather has hurt small investors and the fledgling
corporations targeted by "vulture capitalism.
The "too big to fail" concept came in at the end of
the 1980s, when the savings and loans collapsed and Citibank lost
50 percent of its share price. In 1989, Congress passed the Financial
Institutions Reform, Recovery and Enforcement Act, which bailed
out the S&Ls with taxpayer money. Citibank's share price also
recouped its losses. Then in 1991, a Wall Street investment bank
called Salomon Brothers threatened bankruptcy, after it was caught
submitting false bids for U.S. Treasury securities and the New
York Fed Chief announced that the bank would no longer be able
to participate in Treasury auctions. Warren Buffett, whose company
owned 12 percent of the stock of Salomon Brothers, negotiated
heavily with Treasury Secretary Nicholas Brady; and Salomon Brothers
Murray Rothbard in an article called "Fractional Reserve
Banks make money by literally creating
money out of thin air, nowadays exclusively deposits rather than
bank notes. This sort of swindling or counterfeiting is dignified
by the term "fractional-reserve banking," which means
that bank deposits are backed by only a small fraction of the
cash they promise to have at hand and redeem.
Before 1913, if too many of a bank's depositors came for their
money at one time, the bank would have come up short and would
have had to close its doors. That was true until the Federal Reserve
Act shored up the system by allowing troubled banks to "borrow"
money from the Federal Reserve, which could create it on the spot
by selling government securities to a select group of banks that
created the money as bookkeeping entries on their books. By rights,
Rothbard said, the banks should be put into bankruptcy and the
bankers should be jailed as embezzlers, just as they would have
been before they succeeded in getting laws passed that protected
their swindling. Instead, big banks are assured of being bailed
out from their folly, encouraging them to take huge risks because
they are confident of being rescued if things go amiss. This "moral
hazard" has now been built into the decision-making process.
But small businesses don't get bailed out when they make risky
decisions that put them under water. Why should big banks have
that luxury? In a "free" market, big banks should be
free to fail like any other business. It would be different if
they actually were indispensable to the economy, as they claim;
but these global mega-banks spend most of their time and resources
making profits for themselves, at the expense of the small consumer,
the small investor, and small countries.
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