2012-030 The Cause of the Financial Crash

The Cause of the Financial Crash, the Euro Crisis and the City of London

First we have to get a grasp of what money really is.

In the Stone Age if you had a goat and wanted some chickens you would haggle with someone with chickens over how many chickens your goat was worth

This is bartering.

If you were a bronze axe maker in the Bronze Age your axe may have been worth 5000 chickens. There was no way a bronze-smith could handle 5000 chickens so bits of copper, silver or gold were used instead of barter.

These ‘bits of silver’ evolved into coins of a standard size.

This is money.

Coins worked well until very large scale trade developed. Ships would arrive full of goods and the quantity and weight of coins needed became too inconvenient. Simple banks developed who began to issue ‘notes’. These stated the bank would pay the bearer the fixed sum in gold or silver coins on presentation of the note. The bank would have the necessary silver and gold coins in their possession to give their ‘notes’ validity. Merchants then began to exchange these banknotes as if they were money. It relied heavily on trust, the good will of the merchants and the bank having the required stock of gold and silver coins.

Governments then got involved to own and control the central bank and to formally print the official banknotes so guarantee them and give them validity.

As governments squandered the gold reserves and needed more money they realised they could cheaply print more banknotes. This is FIAT money – that is paper money with no substance or value. The true value of the banknote is the cost of the paper and printing. For FIAT money to work everyone has to join in the charade that a valueless bit of paper is worth say £20 not 20p. This works until the printing of notes is overdone. That leads to roaring inflation and loss of trust in the banknotes. In Germany in the 1920s this became so bad that people took their pay home in wheel barrows. Even then it lost much of its value by the next day and always with the risk of having the wheelbarrow stolen. This may be apocryphal but it illustrates the collapse of paper currency. Paper currency is essentially a fraud purpetrated on the working man and used to encourage him to become enmashed in a debt economy.

So how does all this relate to the Euro and the Financial Crash?

The European Commission are implementing a common financial services structure across Europe. This is based on the expensive French “three peaked” system and has two principle aims. Firstly – for Brussels to take bureaucratic control of the financial services industry, particularly the City of London. Secondly, it is to raise the “rival’s costs” of the City of London so the inefficient French and other EU markets can compete.

Over the past decade the EU has been implementing this strategy by issuing dozens of EU financial services directives. These include the Collective Investment Scheme Directives of Banks, Insurance Capital, Investment firms and Stockbrokers under MiFID – Markets in Financial Instruments Directive.

The European Commission is now nearing completion of the job of controlling financial services by regulating hedge funds and private equity funds under the proposed Alternative Investment Fund Managers Directive (“AIFMD”) and the establishment of a European Securities and Markets Authority.

The European Commission intends to control financial institutions through the Super Regulator of the European Securities and Markets Authority (“ESMA”). UK regulation of its own Insurance Market will be transferred to Frankfurt and regulation of shares and bonds transferred to Paris. Two Thirds of the activities of the City of London, now regulated by the FSA, are therefore to be transferred to France and Germany.

This has happened with the tacit consent of both Labour and Tory Elite and open approval of the Liberal Democrats. The City of London has been in a state of denial and steadily sleepwalking into this trap. All of these EU Regulations have cost British business dearly in terms of regulatory costs. Investors get either higher charges or lower rates of return.

Finance businesses are leaving, or about to leave, London in droves. Yet again the EU will devastate another successful UK enterprise by increasing UK costs substantially to the advantage of France, Germany and Switzerland.

In addition, if we hadn’t had to comply with these EU Directives the Bank of England could have been quietly saved Northern Rock in their traditional manner. EU regulations prevented it. RBS and Lloyds would not have had to fire so many staff if they hadn’t had to comply with the EU competition rules which also required them to do so.

The origin of the banking crisis was a consequence of US social policy.

Clinton and his extreme Socialist Administrator Roberta Achtenberg compelled US banks to comply with Jimmy Carter’s Community Reinvestment Act. This forced them to give mortgages to over 2 million people, for grossly overvalued properties, who did not have the income to support a mortgage (on the premise that it was racial discrimination not to but in reality in the hope they would then vote Democrat). The US mortgage companies did so with vigour then often bundled these toxic loans, or Collateral Debt Obligations, alongside normal sound loans and sold them on to other banks and made millions. Curiously banks regard loans as ‘assets’ and sell them to each other. Credit Reference agencies gave them their seal of approval so Banks did not check them out properly to judge their true worth.

The Labour controlled Treasury gave the UK Commercial Banks the green light to encourage the British public to take out excessive loans and mortgages. Very little concern was shown as to how they could ever be repaid. We, the public, eagerly did so by overstating our incomes and profligate over-spending on credit cards with equal enthusiasm. Our houses doubled in value – but only on paper.

This was made far, far worse by 13 years of NuLabour financial mismanagement that reduced the UK to a state of near bankruptcy and trashing most private pensions. The wealth of our nation has been squandered on a catalogue of very expensive political howlers. Public sector management and Quangos have been packed with NuLabour acolytes in phoney non-productive jobs. Work has been transferred overseas and the benefit culture changed for many from a safety net to something more like a hammock.

Vast sums of our money have been poured into the even more iniquitous EU.

                Sooner or later the bubble had to burst.

The 15 years of Labour government has left the UK with a monumental debt that will effectivly bankrupt our children, grandchildren and great grandchildren. There is no money left and the social structure built up since the end of WWll is steadily collapsing.

Was this astonishing catalogue of appalling financial judgements over the last 13 years due to massive incompetence, sheer stupidity or a deliberate policy to impoverish England and so ease our complete submission to Brussels?

It is  continually claimed that to ensure job security in the UK we have to be absorbed into the EU and be governed by unelected bureaucrats in Brussels. This is as logical as saying that the Japanese can only maintain their job security by being absorbed into China, becoming Chinese and then governed by the unelected panjandrums of Beijing. The ‘loss-of-jobs’ scare if we leave the EU is clearly nonsense. We buy far more from the EU than they buy from us to the tune of a £50billion/year.

The European Commission has many secret committees which are staffed by bureaucrats who have never done a proper days work in their lives. They produce the blizzard of Regulations that act like a monstrous ball and chain around the ankles of UK industry and commerce. Remove this impediment and with the right UK political lead jobs will flood back into the UK. We will then be able to negotiate more favourable trading arrangements with the Commonwealth and the rest of the world.

The Euro currency has no financial validity.

It is purely a political ego trip of the unelected Elite Politique running the EU to help establish a European State. The inherent flaws in the Euro are now becoming brutally exposed and pushing the Euro-zone, sooner of later, into a terminal crisis. As a consequence the European Commission is in a state of major panic. The Eurobureaucrats are throwing almost unlimited Euros at the Euro-zone in an attempt to shore it up. They are, however, doing this with more FIAT money, albeit mostly electronically generated. Now given the fancy name of Quantitative Easing it still has no substance or assets to back it up. The longer they prop up the Euro the more disastrous will be the eventual crash.

The European Commission is, in effect, buying its own debt with worthless money.

Added to this Europe is flooded with forged euro banknotes.

The mantra ‘You cannot buck the Market’ will come back to bite them – and us.

It will all end in tears – and they will be our tears not those of the Elite Politique.

The latest futile attempt to save the Euro is the issuing of Eurobonds. These are merely a ‘promise to pay’ but there are still no assets to back up them up. They have no more intrinsic value than Monopoly money. The only way they will work is if everyone joins in the pantomime, against all the evidence, that they do have value.

The government and banks have encouraged the uninformed, naive and foolish public to borrow more money that their income could not repay. Quantatitave Easing is printing Monopoly money with no assets to back it up. It is effectively shifting the debts generated now onto our grandchildren. They will have to repay them with their labour impoverishing them for years to come.

© Mick Greenhough 2009

http://info.moneyweek.com/urgent-bulletins/the-end-of-britain

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