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London Banking Center at Core of Financial Crisis
By Jeff Smith
New York’s normally far left Village Voice has published a revealing article, which for the first time here placed the central blame for the current major economic problems in the U.S. on the behavior of several London banks.
The article, “What cooked the world’s economy? It wasn’t your overdue mortgage” focuses on the legendary banking community of the City of London and the very questionable rise of its derivative market along with the classic cooperation by the British government as being the central avenue through which the U.S. and world’s economic system has been seriously damaged.
The City of London is not that ancient city on the Thames River. It is not only separate, it once controlled the whole British Empire. It is generally considered to be a Rothschild entity.
Derivatives, briefly a financial note that hedges a loan’s risk against default, became increasingly popular in recent years driven ,many say, by the sweeping changes brought on by the one world economic globalization movements starting in the mid-1980s to today.
In the mid-1990s, several published accounts show that Congress under the Clinton administration removed almost all effective legal overview on derivative markets, which quickly began providing unprecedented, ultra-huge profits for key figures in the market, many of whom were politically well connected.
While many seasoned financial experts published a mounting list of warnings that the derivatives were as ultra dangerous as they were ultra profitable, few in any position of power showed any inclination to even examine what was occurring.
But besides official noninvolvement being a factor, the article clearly, for the first time, points out that the derivative industry is based in the City of London—long the world’s most important, secretive and officially protected banking compound in the world, located outside of the reach of U.S. regulators.
The British government adopted its classic noninvolvement behavior. The result was that the London derivative market skyrocketed to $100 trillion, many say more, by 2003.
The article quotes sources as placing the current value of the London derivative market at over $600 trillion, which far overshadows the value of all other financial markets. In providing an overview of what has gone wrong the article notes that disgraced mega financier Bernie Madoff, despite the media attention, represents “peanuts” in the current economic disaster. The authors contrasted the losses under Madoff to the huge damage caused by the London banking compound and their U.S. bank partners, always the junior partner, many patriotic figures note, when the City of London is involved.
The Voice followed the derivative money trail till it reached AIG financial products and its chief officer, Joseph Cassano, who openly described the institutions that became involved in the London-controlled derivative world as a “global swath” of hedge funds, investment banks, money managers, high net worth individuals, municipal governments, sovereigns and supra- national business corporations and pension funds.
Many other written accounts have detailed what resulted. With the legendary secrecy the London banks and the British government practice, exact figures are impossible to secure. But knowledgeable observers say that at least half of the major derivative operations, which critics call “bucket shops,” after the crooked storefront stock trading operations of the mid-to-late 1800s, have ceased operations, leaving their major investors, including major pension funds, high and dry.
The Voice article and many other published reports have focused on the financial community and the handling of the taxpayer-funded $700 billion bailout for the U.S., and by proxy, British financial institutions destabilized by chronic mismanagement.
Both the Voice article and many other published accounts to this point have focused on the extensive secrecy which shrouds just what is being done with taxpayer funds in the financial markets.
Also due to public uproar over the secrecy, it became known that the Federal Reserve, which is not a government entity but is privately-owned and controlled, late in 2008 made loans to key banks on a level significantly larger than the congressional bailout. With no public knowledge, the “Fed” lent key banks what is reported to be $1.2 to 1.5 trillion. The Federal Reserve refuses to disclose major details of the emergency aid to major banks, stating that standard Freedom of Information Act disclosure laws do not apply to it.
But while the Village Voice article is the first major establishment publication to openly connect the present crisis to the British banks, a general recognition of the London banking compound as being the world economic power center has been growing through unusual avenues of late.
Jeff Smith is a writer based in New York.
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(Issue # 8, February 23, 2009)
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