Banking Collapse and the theft of peoples Pensions

One of the rules of thumb that I have always used when it comes to financial products is simply; if I can not understand how the growth is achieved or how the product works I personally will not touch it. As simply as an observer, I have never had the money to seriously invest, over the years every time there has been a scandal, a failure or a fraud it has been with devilishly complex vehicles that very few, if any understood. Often in fact it was the lack of understanding, of how the product worked or the risk, that brought an end to these schemes.

When the banking crisis hit, there was one major question in the back of my mind, about where all this money went. I can understand the loss in value of real assets like property, particularly commercial property as that fell in value by forty and fifty percent. Therefore the loans against these were greater than the asset value. Therefore the banks needed to make provision for some of those loans not being repaid.

That was all straight forward but add to this the “Fake” assets of security bonds. Even these as explained via the media had some sense to them. However as these were vehicles for getting loans off the books there was something suspicious about them in my mind. Put simply what was a loan and a liability by financial wizardry designed by Harry Potter, this became an Asset.

Now when I studied accounting and business at university, that was false accounting. Am I glad that I did not go into accounting as it is just far to racy and exciting if they can do that. But do it they did and on a grand scale. As the other fact that emerged when the media were full of stories about the Inter-Bank lending rates, was that transactions for the year prior to the collapse were six times the entire global economy. At the time this was being explained away by some cleaver mathematics, but while the explanations may have fooled most people, to me even with the clever maths, as the GDP (Gross Domestic Product) of all the countries in the world added together is a measure of the money and capital flowing across the planet. Therefore it should be impossible for transactions to exceed twice the global GDP. This can be explained as each transaction gets counted twice, once at the sending bank, and once at the receiving bank.

This posed a serious question about what the banks were doing. The Bank Bonds of slices of other peoples debt were devised purely to get Liabilities off of the Banks Books and fool the regulator. Once one bank does this then all follow. They have to follow as the Banks are in a club and they all follow the same rules. Not our rules, theirs!

This allowed the banks to lend out more and more money. But where was that money being generated? One of the major sources was the pension funds and insurance monies. This is where the hidden scandal of the banking collapse lays as over the next twenty years when people come to retire and claim their pension, they will discover that the pension pot is empty.

When AIG were bailed out by the US taxpayers, it was simply that to grow the business AIG had failed to keep in reserve enough cash to match its insured liabilities. What they had done was to buy the junk bank bonds. This had added money to the dividends but done nothing for the long term viability of the business. This is exactly the same situation the pension funds are now in. The cash that should be there to pay out the pensions has been replaced by Junk Bank Bonds.

Putting aside for a moment the junk bank bonds, there was serious failings by the regulators in not controlling the market. When house prices were spiralling out of control and beyond any logic, had the regulators stopped the banks lending 125% mortgages and making loans of up to eight and even ten times peoples earning it would have stopped the house prices going out of control and lessened the effects of the banking crash.

But to even have suggested long before the banking crash, that house prices were out of control was to create derision and abuse. I was told that I was just jealous and that I did not understand the housing market. But it was because I did understand that I was looking the gift horse that was laying the golden egg in the mouth, and could see the inevitable collapse of the property markets.

The crash was inevitable, not just in the housing market but in this structured credit, as simply the banks with these Junk Bonds they had devised was the equivalent of a massive pyramid scam. In the US you call it a ponzi scheme. By taking these liabilities of the books and turning them into assets was no different to what Enron did.

The ponzi scheme aspect is where this appeared to have created transactions that were six times the global GDP. The bonus culture is where some of that missing money went, but most of it just never existed in the first place as was only by cooking the books that the banks made it look as though they had the money in the first place.

While I don't think that the banks set out to defraud, that is exactly what they did. This happened simply because they thought they were more clever than us mere mortals. Governments failed to stop any of it as while it looked like it was working and they were getting their taxes, they did not even look to carefully at what the banks were doing. Even the Bankers themselves did not understand what they were doing as the products and trades were so complex that no one, and I mean NO ONE, ever understood what was happening. But like all Pyramid scams eventually the flow of money in to pay out ends.

This scam relied on asset bubbles and as long as new ones can be created, The Dot com Bubble, The Housing bubble, Securitised Finance, Commodities and food, Oil, it can continue almost unnoticed. The effect though has and will leave at least eighty percent of the people of the planet poorer and without a pension.

Even now, the people who are retiring soon, are looking at their pension pot and have seen it fall over the last year. The assumption is that this is about the fall in share values. But as pension funds are required by law to maintain a mix of assets, the biggest hole is the result of the Banks Junk Bonds that these funds were persuaded to buy as being as good as gilts (Government Bonds). Effectively this is stolen money as because these Securitised Assets were an elaborate Ponzi Scheme, then the banks, that's all the Banks, are guilty of fraud.

It has taken me well over a year to work this all out, and it is complex. But once all the convoluted pieces of this jigsaw are fitted together, the Securitised Assets scheme comes out as a fraud. It hid liabilities off the books, it created money out of nowhere just by creative accounting, and no one, the regulators, governments, central banks ever thought to question how the banks were getting returns of forty percent on assets when interest rates were so low?

When the Banking Crisis first started, I reluctantly thought that saving the economy by saving the banks was the correct thing to do. That was based upon what we were being told then. However as more of the fact have slowly leaked out, then quite simply it has been completely the wrong thing to do.

The big question that puzzled me was what triggered the banks to stop lending to each other? Various explanations have been hypothesised in the media, the real reason was that the banks knew full well that the Securitised Assets scheme was going to fail and that because of their false accounting they knew they were in the upper reaches of a very polluted stream without any means propulsion. (Translation Up Shit Creek without a Paddle).