GOLDMAN REX

MAP DOES NOT INCLUDE PRIME MINISTERS or CENTRAL BANKS
http://www.goldmansachs.com/who-we-are/locations/index.html
http://www.businessinsider.com/current-goldman-alumni-in-key-public-positions-2012-11
http://www.bloomberg.com/news/2012-11-14/goldman-sachs-names-70-partners-fewest-as-public-company.html
http://dealbook.nytimes.com/2008/10/20/the-guys-from-government-sachs/
http://dealbook.nytimes.com/2012/11/26/bank-of-englands-new-leader-a-member-of-the-government-sachs-club/

COUP DE MONDE
http://truth-out.org/opinion/item/12996-goldman-sachs-global-coup-de-tat
Goldman Sachs’ Global Coup D’etat
by Thom Hartmann and Sam Sacks / 27 November 2012

When the people of Greece saw their democratically elected Prime Minister George Papandreou forced out of office in November of 2011 and replaced by an unelected Conservative technocrat, Lucas Papademos, most were unaware of the bigger picture of what was happening all around them. Similarly, most of us in the United States were equally as ignorant when, in 2008, despite the switchboards at the US Capitol collapsing under the volume of phone calls from constituents urging a “no” vote, our elected representatives voted “yes” at the behest of Bush’s Treasury Secretary Henry Paulsen and jammed through the biggest bailout of Wall Street in our nation’s history. But now, as the Bank of England, a key player in the ongoing Eurozone crisis,announces that former investment banker Mark Carney will be its new chief, we can’t afford to ignore what’s happening around the world. Steadily – and stealthily – Goldman Sachs is carrying out a global coup d’etat.

There’s one tie that binds Lucas Papademos in Greece, Henry Paulsen in the United States, and Mark Carney in the U.K., and that’s Goldman Sachs. All were former bankers and executives at the Wall Street giant, all assumed prominent positions of power, and all played a hand after the global financial meltdown of 2007-08, thus making sure Goldman Sachs weathered the storm and made significant profits in the process. But that’s just scratching the surface. As Europe descends into an austerity-induced economic crisis, Goldman Sachs’s people are managing the demise of the continent. As the British newspaper The Independent reported earlier this year, the Conservative technocrats currently steering or who have steered post-crash fiscal policy in Greece, Germany, Italy, Belgium, France, and now the UK, all hail from Goldman Sachs. In fact, the head of the European Central Bank itself, Mario Draghi, was the former managing director of Goldman Sachs International.

And here in the United States, after Treasury Secretary and former Goldman CEO Henry Paulsen did his job in 2008 securing Goldman’s multi-billion dollar bailout, he was replaced in the new Obama administration with Tim Geithner who worked very closely with Goldman Sachs as head of the New York Fed and made sure Goldman received more than $14 billion from the bailout of failed insurance giant AIG.

What’s happening here goes back more than a decade. In 2001, Goldman Sachs secretly helped Greece hide billions of dollars through the use of complex financial instruments like credit default swaps. This allowed Greece to meet the baseline requirements to enter the Eurozone in the first place. But it also created a debt bubble that would later explode and bring about the current economic crisis that’s drowning the entire continent. But, always looking ahead, Goldman protected itself from this debt bubble by betting against Greek bonds, expecting that they would eventually fail. Ironically, the man who headed up the Central Bank of Greece while this deal was being arranged with Goldman was – drumroll please – Lucas Papademos.

Goldman made similar deals here in the United States, masking the true value of investments, then selling those worthless investments to customers while placing bets that those same investments would eventually fail. The most notorious example was the “Timberwolf” deal, which brought down an Australian hedge fund, and which Goldman Sachs banksters emailed each other about, bragging, “Boy, that Timberwolf was one shitty deal.” This sort of behavior by Goldman helped inflate, and then eventually pop, the housing bubble in the United States. The shockwave then ran across the Atlantic, hitting Europe and turning Goldman’s debt-masking deal with Greece years earlier sour, thus deepening the crisis.

All of these antics should have brought about the demise of Goldman as well, but with their alumni in key policy positions on both sides of the Atlantic, Goldman not only survived, it flourished. As the DailyKos sums up, “The normal scenario usually involves helping a nation hide a problem and sell its debt until the problem blows up into a bubble that bursts in a spectacular way…Goldman Sachs then puts their ‘man’ into a position of power to direct the bailouts so that Goldman gets all its money back and more, while the nation’s economy gets gutted.”

For years, tinfoil hat crazies who’ve bookmarked Glenn Beck’s websites and often appear as “experts” on Fox so-called News have warned us about a one-world government (herehere, and here). The latest threat, according to them, is Agenda 21and the creation of a Soviet-style world authority that will confiscate private party everywhere, redistribute wealth to developing nations, and force us all to live by new global laws that sacrifice our national sovereignty. It’s totalitarian governments and not transnational corporations that we should be afraid of, they warn. But when the tinfoil hat is removed, you can see that a sort of one-world government has already been established in a far more subtle form, through the rise of Goldman Sachs and their colleagues in the Wall Street elite. A million questions arise when looking at what’s happening around the world. But many of these questions can be answered, once it’s acknowledged that Goldman Sachs alumni have executed a global coup d’etat.

Why are the working people of Greece, Portugal, Spain, and Italy suffering under austerity and being asked to sacrifice their pensions, their wages, and their jobs when, after five years, it’s clear these policies are only making these nations’ debts even harder to pay off? It’s because Goldman Sachs is sucking the last remaining wealth out of those nations to recoup whatever failed investments they made before the Crash. Why have thousands of homeowners in the United States turned to suicide, domestic violence, and even mass murder when faced with home foreclosure, when a simple solution like re-writing mortgages, which FDR did successfully during the Great Depression, could put an end to the bloodshed and misery?

It’s because re-writing mortgages would force banks like Goldman Sachs to take a hit. And thanks to the game they’ve created, they actually make more money when a home they own is foreclosed on. Why, despite mountains of evidence, have banksters at Goldman Sachs and other Wall Street institutions not been thrown in jail for defrauding customers, manipulating LIBOR interest rates, and throwing thousands of Americans out of their homes illegally in a massive robo-signing scandal? It’s because we have a two-tiered justice system in which those in power, like Goldman Sachs executives, get a slap on the wrist when they steal $50 billion, but people like you and me go to jail for stealing a 7-11 Slurpee. Now does it make sense why Wall Street was bailed out and Main Street was sold out?

In this post-crash world, where agents of Goldman Sachs have infiltrated key positions of power all around the world, we must all fundamentally re-understand how we view the global economy and just how much effect our democratic institutions have on this economy. We no longer have an economy geared to benefit working people around the world; we have an economy that’s geared to exploit working people for Goldman Sachs’ profits. Trader Alessio Rastani told the BBC in September before Goldman’s Lucas Papademos was installed as Greece’s Prime Minister, “We don’t really care about having a fixed economy, having a fixed situation, our job is to make money from it…Personally, I’ve been dreaming of this moment for three years. I go to bed every night and I dream of another recession.” Rastani continued, “When the market crashes… if you know what to do, if you have the right plan set up, you can make a lot of money from this.” And as we’ve seen over the last decade, Goldman Sachs knows exactly what to do. They’ve had the right plan set-up, and it’s nothing short of a global coup d’etat. As Rastani bluntly told the BBC, “This is not a time right now for wishful thinking that governments are going to sort things out. The governments don’t rule the world, Goldman Sachs rules the world.”

CITY of LONDON
http://blogs.wsj.com/source/2012/11/27/mark-carney-the-u-k-s-savior-maybe-not/
http://www.zerohedge.com/news/2012-11-26/goldmans-global-domination-now-complete-its-mark-carney-takes-over-bank-england
http://www.zerohedge.com/news/goldman-path-complete-world-domination-mark-carney-his-way-head-bank-england

“Far more importantly, Carney was a 13 year veteran of Goldman Sachs, most recently and very appropriately co-head of sovereign risk, which is ironic considering that Goldman had a grand rehearsal for the Greek currency swaps fiasco precisely with Carney at the helm in 1998, when Goldman got into hot water for the first time because while the company was advising Russia it was simultaneously betting against the country‘s ability to repay its debt.”

GREECE
http://www.spiked-online.com/index.php/site/article/11390/
http://wallstreetpit.com/85811-a-financial-coup-detat-in-the-making

LIBYA
http://www.deathandtaxesmag.com/97180/goldman-sachs-and-gaddafi-a-splendid-conspiracy/

GOLDMAN SACHS CONQUERS EUROPE
http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html
by Stephan Foley / 18 November 2011

The ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic. This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons. Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts – and Goldman’s interests are intricately tied up with the answer to that question.

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”



This is The Goldman Sachs Project. Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

Mr Monti is one of Italy’s most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman Sachs started to get interested in him. First as commissioner for the internal market, and then especially as commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman’s bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury’s committee on the banking and financial system, which set the country’s financial policies. With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank’s two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro. Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman’s UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalisation he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country’s financial woes. The EU agreed to cut Ireland’s interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 – only to return to government as president of the Italian central bank. Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn’t be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.

The bank’s traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channelled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap. On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece’s unity government, was a technocrat running the Central Bank of Greece at the time. Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals. Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: “It is clear with hindsight that the standards of transparency could have been and probably should have been higher.” When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn’t involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a “voluntary” haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent’s big banks, and it is their health that is the primary concern of policymakers. The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus. “My former colleagues at the IMF are running around trying to justify bailouts of €1.5trn-€4trn, but what does that mean?” says Simon Johnson. “It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same.” So certain is the financial elite that the banks will be bailed out, that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm’s money that Italian government bonds will not default. When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance, including an undisclosed amount on eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank – and especially not the Vampire Squid – can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse. Shared illusions, perhaps? Who would dare test it?

Mario Monti, Lucas Papademos and Mario Draghi have something in common: they have all worked for the American investment bank. This is not a coincidence, but evidence of a strategy to exert influence that has perhaps already reached its limits.

a ‘FRATERNAL ASSOCIATION’
http://www.presseurop.eu/en/content/article/1177241-our-friends-goldman-sachs
Our friends from Goldman Sachs…
by Marc Roche / 16 November 2011 / Le Monde

Serious and competent, they weigh up the pros and cons and study all of the documents before giving an opinion. They have a fondness for economics, but these luminaries who enter into the temple only after a long and meticulous recruitment process prefer to remain discreet. Collectively they form an entity that is part pressure group, part fraternal association for the collection of information, and part mutual aid network. They are the craftsmen, masters and grandmasters whose mission is “to spread the truth acquired in the lodge to the rest of the world.” According to its detractors, the European network of influence woven by American bank Goldman Sachs (GS) functions like a freemasonry. To diverse degrees, the new European Central Bank President, Mario Draghi, the newly designated Prime Minister of Italy, Mario Monti, and the freshly appointed Greek Prime Minister Lucas Papademos are totemic figures in this carefully constructed web.

Heavyweight members figure large in the euro crisis
Draghi was Goldman Sachs International’s vice-chairman for Europe between 2002 and 2005, a position that put him in charge of the the “companies and sovereign” department, which shortly before his arrival, helped Greece to disguise the real nature of its books with a swap on its sovereign debt. Monti was an international adviser to Goldman Sachs from 2005 until his nomination to lead the Italian government. According to the bank, his mission was to provide advice “on European business and major public policy initiatives worldwide”. As such, he was a “door opener” with a brief to defend Goldman’s interest in the corridors of power in Europe. The third man, Lucas Papademos, was the governor of the Greek central bank from 1994 to 2002. In this capacity, he played a role that has yet to be elucidated in the operation to mask debt on his country’s books, perpetrated with assistance from Goldman Sachs. And perhaps more importantly, the current chairman of Greece’s Public Debt Management Agency, Petros Christodoulos, also worked as a trader for the bank in London. Two other heavyweight members of Goldman’s European network have also figured large in the euro crisis: Otmar Issing, a former member of the Bundesbank board of directors and a one-time chief economist of the European Central Bank, and Ireland’s Peter Sutherland, an administrator for Goldman Sachs International, who played a behind the scenes role in the Irish bailout.

Relay exclusive information to the bank’s trading rooms
How was this loyal network of intermediaries created? The US version of this magic circle is composed of former highly placed executives of the bank who effortlessly enter the highest level of the civil service. In Europe, on the other hand, Goldman Sachs has worked to accumulate a capital of relationships. But unlike its competitors, the bank has no interest in retired diplomats, highly placed national and international civil servants, or even former prime ministers and ministers of finance. Goldman’s priority has been to target central bankers and former European commissioners. Its main goal is to legally collect information on initiatives in the near future and on the interest rates set by central banks. At the same time, Goldman likes its agents to remain discreet. That is why its loyal subjects prefer not to mention their filiation in interviews or in the course of official missions. These well-connected former employees simply have to talk about this and that secure in the knowledge that their prestige will inevitably be rewarded with outspoken frankness on the part of those in powerful positions. Put simply they are there to see “which way the wind is blowing,” and thereafter to relay exclusive information to the bank’s trading rooms.

Bid for global dominance
Now that it has a former director at the head of the ECB, a former intermediary leading the Italian government, and another in charge in Greece, the bank’s antagonists are eager to highlight the extraordinary power of its network in in Frankfurt, Rome and Athens, which could prove extremely useful in these turbulent times. But looking beyond these details, the power of Goldman’s European government before and during the financial ordeal of 2008 may well prove to be an obstacle. The relationships maintained by experienced former central bankers are less likely to be useful now that politicians are aware of the unpopularity of finance professionals who are seen to be responsible for the present crisis. Where Goldman Sachs used to be able to exercise its talents, it now has to contend with opposition from public authorities raising questions about a series of scandals. A well stocked address book is no longer sufficient in a complex and highly technical financial world, where a new generation of industry leaders are less likely to be imbued with an unquestioning respect for the establishment. In their bid for global dominance, they no longer need to rely on high finance crusaders in the Goldman mould, while the quest to protect shareholder’s rights, demands for more transparency and active opposition from the media, NGOs, and institutional investors continue to erode the potency of “the network effect.”

{Translated from the French by Mark McGovern}



The giant American investment bank which is accused of helping the Greek state to conceal the real nature of its financial situation while speculating on its debts can count on a remarkable network of advisers with very close links to European leaders, reports Le Monde.

“GOVERNMENT SACHS”
http://www.presseurop.eu/en/content/article/1177241-our-friends-goldman-sachs
Goldman Sachs, the international web
by Marc Roche / 3 March 2010 / Le Monde

Petros Christodoulou affects not to care about compliments or their source. Ever since he was a teenager, this top-of-the-class student has grown used to hearing his praises sung. Appointed on 19 February to the head of the organization for the management of Greek public debt, he has arrived at the top of the tree. However, the trouble is that the former manager of global markets at the National Bank of Greece (NBG) is at the centre of an inquiry, announced on 25 February by the United States Federal Reserve, on contracts relating to Greek national debt, which link Goldman Sachs and other companies to the government in Athens. The New York based investment bank was paid as a banking advisor to the Greek government while speculating on the Hellenic nation’s sovereign debt. In particular, the American regulator is interested in the role played by Petros Christodoulou, who, in collaboration with Goldman, supervised the creation of the London company Titlos to transfer debt from Greece’s national accounts to the NBG. Before joining the NBG in 1998, Mr Christodoulou had worked as a banker for – you guessed it – Goldman Sachs.

“Government Sachs”
The affair has highlighted the powerful network of influence that Goldman Sachs has maintained in Europe since 1985 – a tightly woven group of underground and high-profile go-betweens and loyal supporters, whose address books open the doors of ministries of finance. These carefully recruited and extraordinarily well-paid advisors understand all the subtleties of the corridors of power within the European Union, and have a direct line to decision makers that they can call during moments of crisis. But who are the members of the European arm of the institution which is so powerful in Washington that it is referred to as “government Sachs”? The key figure is Peter Sutherland, chairman of Goldman Sachs International, the bank’s London-based European subsidiary. The former European commissioner for competition and ex-chairman of BP, is an essential link between the investment bank and the 27 EU member states and Russia. In France, Goldman Sachs benefits from the support of Charles de Croisset, a former chairman of Crédit Commercial de France (CCF), who took over from Jacques Mayoux, a government inspector of finances and former chairman of Société Générale. In the United Kingdom, it can count on Lord Griffiths, who advised former prime minister Margaret Thatcher, and in Germany, on Otmar Issing, a one-time board member of the Bundesbank and ex-chief economist of the European Central Bank (ECB).

Discreetly advances its interests
And that is not to mention the many Goldman alumni who go onto hold positions of power, which the bank can count on to advance its position. The best known of these is Mario Draghi, Goldman’s vice-president for Europe between 2001 and 2006, who is the current governor of the Bank of Italy and Chairman of international regulator, the Financial Stability Board. But do not expect to come across former diplomats in the austere corridors of Goldman Sachs International. As an institution with real world interests, the bank prefers to recruit financiers, economists, central bankers, and former highly placed civil servants from international economic organizations, but considers retired ambassadors to be jovial status symbols without any real high-level contacts or business sense. For Goldman Sachs, this network has the advantage of enabling it to discreetly advance its interests. In the Financial Times of 15 February, Otmar Issing published an article voicing his hostility to any attempt by the European Union to rescue Greece. However, he omitted to mention the fact that he has been an international advisor to Goldman Sachs since 2006. Nor did he say that the bank’s traders, who have been speculating against the single European currency, might well lose their shirts if the EU does intervene.


Max Keiser & Catherine Austin Fitts on Goldman Sachs (2009)

$7 TRILLION in SECRET LOANS
http://www.slate.com/articles/business/moneybox/2011/11/the_7_trillion_secret_loan_program_the_government_and_big_banks_should_be_punished_for_deceiving_the_public_about_their_hush_hush_bailout_scheme_.html
The government and the big banks deceived the public about their $7 trillion secret loan program. They should be punished
by Eliot Spitzer  /   Nov. 30, 2011

Imagine you walked into a bank, applied for a personal line of credit, and filled out all the paperwork claiming to have no debts and an income of $200,000 per year. The bank, based on these representations, extended you the line of credit. Then, three years later, after fighting disclosure all the way, you were forced by a court to tell the truth: At the time you made the statements to the bank, you actually were unemployed, you had a $1 million mortgage on your house on which you had failed to make payments for six months, and you hadn’t paid even the minimum on your credit-card bills for three months. Do you think the bank would just say: Never mind, don’t worry about it? Of course not. Whether or not you had paid back the personal line of credit, three FBI agents would be at your door within hours. Yet this is exactly what the major American banks have done to the public. During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn’t want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.

The banks’ claims of financial stability and solvency appear at a minimum to have been misleading—and may have been worse. Misleading statements and deception of this sort would ordinarily put a small-market player or borrower on the wrong end of a criminal investigation. So where are the inquiries into the false statements made by the bank CEOs? And where are the inquiries about the Fed and Treasury officials who stood by silently as bank representatives made claims that were false, misleading, or worse? Only now, because of superb analysis done by Bloomberg reporters—who litigated against the Fed and the banks for years to get the information—are we getting a full picture of the Fed and Treasury lending. The reporters also calculated that recipient banks and other borrowers benefited by approximately $13 billion simply by taking advantage of the “spread” between their cost of capital in these almost interest-free loans and their ability to lend the capital.

In addition to the secrecy, what is appalling is that these loans were made with no strings attached, no conditions, and no negotiation to achieve any broader public purpose. Even if one accepts the notion that the stability of the financial system could not be sacrificed, those who dispensed trillions of dollars to private parties made no apparent effort to impose even minimal obligations to condition the loans on the structural reforms needed to prevent another crisis, made no effort to require that those responsible for creating the crisis be relieved of their jobs, took zero steps towards the genuine mortgage-reform that is so necessary to begin a process of economic renewal. The dollars lent were simply a free bridge loan so the banks could push onto others the responsibility for the banks’ own risk-taking. If ever there was an event to justify the darkest, most conspiratorial view held by many that the alliance of big money on Wall Street and big government produces nothing but secret deals that profit insiders—this is it.



So what to do? The revelations of the secret loan program may provide the opportunity for Occupy Wall Street to suggest a few concrete steps that would be difficult to oppose.

First: Demand a hearing where the bank executives have to answer questions—under oath—about the actual negotiations, or lack thereof, that led to these loans; about the actual condition of each of the borrowing banks and whether that condition differed from the public statements made by the banks at the time.

Second: Require the recipient banks to use this previously undisclosed gift—the profit they made by investing this almost interest-free money—to write down the value of mortgages of those who are underwater. The loans to the banks were meant to solve a short-term liquidity problem, not be a source of profits to fund bonuses. Take back the profits and put them to apublic use.

Third: Require the government officials responsible for authorizing these loans to explain why there was no effort made to condition these loans on changes in policy that would protect the public going forward.

Fourth: Ask congress to examine every filing and statement made to Congress by the banks about their financial condition and their indebtedness to see if any misrepresentations were made in an effort to hide these trillions of dollars of loans. Misleading Congress can be a felony, and willful deception of the Congress to hide the magnitude of the public bailouts should not go unprosecuted.

Finally: Demand that politicians return all contributions made by the institutions that got hidden loans. Pressure the politicians who continue to feed from the trough of Wall Street, even as they know all too well how the banks and others have gamed the system and the public.



“RESCUE”
http://www.nomiprins.com/thoughts/2011/11/30/the-feds-european-rescue-another-back-door-us-bank-goldman-b.html
The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?
by Nomi Prins /  November 30, 2011

In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right. The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball.  Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks). Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks. Before getting into the timing of the Fed’s god-father actions, let’s discuss its two kinds of swaps (jargon alert – a swap is a trade between two parties for some time period – you swap me a sweater for a hat because I’m cold, when I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street’s staunchest ally, and Tim Geithner’s old stomping ground, the New York Fed.

The dollar swap lines give foreign central banks the ability to borrow dollars against their currency, use them for whatever they want – like to shore up bets made by European banks that went wrong, and at a later date, return them. A ‘temporary dollar liquidity swap arrangement” with 14 foreign central banks was available between December 12, 2007 (several months before Bear Stearn’s collapse and 9 months before the Lehman Brothers’ bankruptcy that scared Goldman Sachs and Morgan Stanley into getting the Fed’s instant permission to become bank holding companies, and thus gain access to any Feds subsidies.) Those dollar-swap lines ended on February 1, 2010. BUT – three months later, they were back on, but this time the FOMC re-authorized dollar liquidity swap lines with only 5 central banks through January 2011. BUT – on December 21, 2010 – the FOMC extended the lines through August 1, 2011. THEN– on June 29th, 2011, these lines were extended through August 1, 2012.  AND NOW – though already available, they were announced with save-the-day fanfare as if they were just considered.

Then, there are the sneakily-dubbed “foreign currency liquidity swap” lines, which, as per the Fed’s own words, provide “foreign currency-denominated liquidity to US banks.” (Italics mine.) In other words, let US banks play with foreign bonds. These were originally used with 4 foreign banks on April, 2009  and expired on February 1, 2010. Until they were resurrected today, November 30, 2011, with foreign currency swap arrangements between the Fed, Bank of Canada, Bank of England, Bank of Japan. Swiss National Bank and the European Central Bank. They are to remain in place until February 1, 2013, longer than the original time period for which they were available during phase one of the global bank-led meltdown, the US phase. (For those following my work, we are in phase two of four, the European phase.) That’s a lot  of jargon, but keep these two things in mind: 1) these lines, by the Fed’s own words, are to provide help to US banks. and 2) they are open ended.

There are other reasons that have been thrown up as to why the Fed acted now – like, a European bank was about to fail. But, that rumor was around in the summer and nothing happened. Also, dozens of European banks have been downgraded, and several failed stress tests. Nothing. The Fed didn’t step in when it was just Greece –or Ireland  – or when there were rampant ‘contagion’ fears, and Italian bonds started trading above 7%, rising unabated despite the trick of former Goldman Sachs International advisor Mario Monti replacing former Prime Minister, Silvio Berlusconi’s with his promises of fiscally conservative actions (read: austerity measures) to come. Perhaps at that point, Goldman thought they had it all under control, but Germany’s bailout-resistence was still a thorn, which is why its bonds got hammered in the last auction, proving that big Finance will get what it wants, no matter how dirty it needs to play.  Nothing from the Fed, except a small increase in funding to the IMF. Rating agency Moody’s  announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.

Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to  $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )



Breaking that down:  JPM Chase holds 11% of the world’s derivative exposure, Citibank, Bank of America, and Goldman comprise about 7% each. But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government. The next highest ratio belongs to Citibank with $1.2 trillion in assets and $56 trillion in derivative exposure, or 46 to 1. JPM Chase’s ratio is 44 to 1. Bank of America’s ratio is 36 to 1. Separately Goldman happened to have lost a lot of money in Foreign Exchange derivative positions last quarter. (See Table 7.) Goldman’s loss was about equal to the total gains of the other banks, indicative of some very contrarian trade going on. In addition, Goldman has the most credit risk with respect to the capital  it holds, by a factor of 3 or 4 to 1 relative to the other big banks. So did the Fed’s timing have something to do with its star bank? We don’t really know for sure.

Sadly, until there’s another FED audit, or FOIA request, we’re not going to know which banks are the beneficiaries of the Fed’s most recent international largesse either, nor will we know what their specific exposures are to each other, or to various European banks, or which trades are going super-badly. But we do know from the US bailouts in phase one of the global meltdown, that providing ‘liquidity’ or ‘greasing the wheels of ‘ banks in times of ‘emergency’ does absolute nothing for the Main Street Economy. Not in the US. And not in Europe. It also doesn’t fix anything, it just funds bad trades with impunity.



LEVERAGE
http://www.nomiprins.com/thoughts/2011/11/21/as-the-world-crumbles-the-ecb-spins-fed-smirks-and-us-banks.html
As the World Crumbles: the ECB spins, FED smirks, and US Banks Pillage
by Nomi Prins / November 21, 2011

Often, when I troll around websites of entities like the ECB and IMF, I uncover little of startling note. They design it that way. Plus, the pace at which the global financial system can leverage bets, eviscerate capital, and cry for bank bailouts financed through austerity measures far exceeds the reporting timeliness of these bodies. That’s why, on the center of the ECB’s homepage, there’s a series of last week’s rates – and this relic – an interactive Inflation Game (I kid you not)  where in 22 different languages you can play the game of what happens when inflation goes up and down. If you’re feeling more adventurous, there’s also a game called Economia, where you can make up unemployment rates, growth rates and interest rates and see what happens. What you can’t do is see what happens if you bet trillions of dollars against various countries to see how much you can break them, before the ECB, IMF, or Fed (yes, it’ll happen) swoops in to provide “emergency” loans in return for cuts to pension funds, social programs, and national ownership of public assets. You also can’t input real world scenarios, where monetary policy doesn’t mean a thing in the face of  tidal waves of derivatives’ flow. You can’t gauge say, what happens if Goldman Sachs bets $20 billion in leveraged credit default swaps against Greece, and offsets them (partially) with JPM Chase which bets $20 billion, and offsets that with Bank of America, and then MF Global (oops) and then…..you see where I’m going with this.

We’re doomed if even their board games don’t come close to mimicking the real situation in Europe, or in the US, yet they supply funds to banks torpedoing local populations with impunity. These central entities also don’t bother to examine (or notice) the intermingled effect of leveraged derivatives and debt transactions per country; which is why no amount of funding from the ECB, or any other body, will be able to stay ahead of the hot money racing in and out of various countries.  It’s not about inflation – it’s about the speed, leverage, and daring of capital flow, that has its own power to select winners and losers. It’s not the ‘inherent’ weakness of national economies that a few years ago were doing fine, that’s hurting the euro. It’s the external bets on their success, failure, or economic capitulation running the show. Similarly, the US economy was doing much better before banks starting leveraging the hell out of our subprime market through a series of toxic, fraudulent, assets.

Elsewhere in my trolling, I came across a gem of a working paper on the IMF website, written by Ashoka Mody and Damiano Sandri,  entitled ‘The Eurozone Crisis; How Banks and Sovereigns Came to be Joined at the Hip” (The paper does not ‘necessarily represent the views of the IMF or IMF policy’.) The paper is full of mathematical formulas and statistical jargon, which may be why the media didn’t pick up on it, but hey, I got a couple of degrees in Mathematics and Statistics, so I went all out.  And it’s fascinating stuff. Basically, it shows that between the advent of the euro in 1999, and 2007, spreads between the bonds of peripheral countries and core ones in Europe were pretty stable. In other words, the risk of any country defaulting on its debt was fairly equal, and small. But after the 2007 US subprime asset crisis, and more specifically, the advent of  Federal Reserve / Treasury Department construed bailout-economics, all hell broke loose – international capital went AWOL daring default scenarios, targeting them for future bailouts, and when money leaves a country faster than it entered, the country tends to falter economically. The cycle is set.

The US subprime crisis wasn’t so much about people defaulting on loans, but the mega-magnified effects of those defaults on a $14 trillion asset pyramid created by the banks. (Those assets were subsequently sold, and used as collateral for other borrowing and esoteric derivatives combinations, to create a global $140 trillion debt binge.) As I detail in It Takes Pillage, the biggest US banks manufactured more than 75% of those $14 trillion of assets. A significant portion was sold in Europe – to local banks, municipalities, and pension funds – as lovely AAA morsels against which more debt, or leverage, could be incurred. And even thought the assets died, the debts remained.

Greek banks bought US-minted AAA assets and leveraged them. Norway did too (through the course of working on a Norwegian documentary, I discovered that 8 tiny towns in Norway bought $200 million of junk assets from Citigroup, borrowed money from local banks to pay for them, and pledged 10 years of power receipts from hydroelectric plants in return. The AAA assets are now worth zero, the power has been curtailed for residents, and the Norwegian banks want their money back–blood from a stone.) The same kind of thing happend in Italy, Spain, Portugal, Ireland, Holland, France, and even Germany – in different degrees and with specific national issues mixed in.  Problem is – when you’ve already used worthless collateral to borrow tons of money you won’t ever be able to repay, and international capital slams you in other ways, and your funding costs rise, and your internal development and lending seize up, you’re screwed – or rather the people in your country are screwed.

In the IMF paper, the authors convincingly make the case that it wasn’t just the US subprime asset meltdown itself that initiated Europe’s implosion, but the fact that our Federal Reserve and Treasury Department adopted a reckless don’t-let-em-fail doctrine. Even though Bear Stearns and Lehman Brothers failed, their investors, the huge ones anyway, were protected. The Fed subsidized, and still subsidizes, $29 billion of risk for JPM Chase’s acquisition of Bear. The philosophy of saving banks and their practices poisoned Europe, as those same financial firms played euro-roulette in the global derivatives markets, once the subprime betting train slowed down.

The first fatal stop of the US bailout mentaility was the ECB’s 2010 bailout of Anglo Irish bank, which got the lion’s share of the ECB’s Irish-bailout: $51 billion euro of ELA (Emergency Loan Assistance) and $100 billion euro of regular lending at the time. After the international financial community saw the pace and volume of Irish bank bailouts, the game of euro-roulette went turbo, country by country.  More ‘fiscally conservative’ governments are replacing any semblance of population-supportive ones. The practice of  extracting ‘fiscal prudency’ from people and providing bank subsidies for bets gone wrong has infected all of Europe. It will continue to do so, because anything less will threathen the entire Euro experiement, plus otherwise, the US banks might be on the hook again for losses, and the Fed and Treasury won’t let that happen. They’ve already demonstrated that. It’d be just sooo catastrophic.

In the wings, the smugness of Treasury Secretary Tim Geithner and Fed Chairman, Ben Bernanke is palpable – ‘hey, we acted heroically and “decisively” to provide a multi-trillion dollar smorgasbord  of subsidies for our biggest banks and look how great we  (er, they) are doing now? Seriously, Europe – get your act together already, don’t do the trickle-bailout game – just dump a boatload of money into the same banks – and a few of your own before they go under  – do it for the sake of global economic stability. It’ll really work. Trust us.’ Most of the media goes along with the notion that US banks exposed to the ‘euro-contagion’ will hurt our (nonexistent) recovery. US Banks assure us, they don’t have much exposure – it’s all hedged. (Like it was all AAA.) The press doesn’t tend to question the global harm caused by never having smacked US banks into place, cutting off their money supply, splitting them into commercial and speculative parts ala Glass-Steagall and letting the speculative parts that should have died, die, rather than enjoy public subsidization and the ability to go globe-hopping for more destructive opportunity, alongside some of the mega-global bank partners.

Today, the stock prices of the largest US banks are about as low as they were in the early part of 2009, not because of euro-contagion or Super-committee super-incompetence (a useless distraction anyway) but because of the ongoing transparency void surrouding the biggest banks amidst their central-bank-covered risks, and the political hot potato of how many emergency loans are required to keep them afloat at any given moment.  Because investors don’t know their true exposures, any more than in early 2009. Because US banks catalyzed the global crisis that is currently manifesting itself in Europe. Because there never was a separate US housing crisis and European debt crisis. Instead, there is a worldwide, systemic, unregulated, uncontained,  rapacious need for the most powerful banks and financial institutions to leverage whatever could be leveraged in whatever forms it could be leveraged in. So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.



MEANWHILE:
the WORLD ACCORDING to GOLDMAN SACHS
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
by Bob Ivry, Bradley Keoun and Phil Kuntz   /  Nov 27, 2011

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing. The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue. Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse. A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

‘Change Their Votes’
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.” The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open. The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort — and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.

$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. “TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.” Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

‘Motivate Others’
JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation. Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment. The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.

‘Core Function’
“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.” The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland. The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view. The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.

Big Six
The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment. The six — JPMorgan, Bank of America, Citigroup Inc. (C)Wells Fargo & Co. (WFC)Goldman Sachs Group Inc. (GS) and Morgan Stanley — accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.

Bank Supervision
While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says. Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.” On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.

‘Need Transparency’
Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup. “I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee. Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark. “We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs. “We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”

Disclose Lending
Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival. It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank. “The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.” The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.

Protecting TARP
TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says. “Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says. Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.

No Clue
Lawmakers knew none of this. They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible. Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs. Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.

Moral Hazard
Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard — the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers. If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks. Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking. “Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.

Getting Bigger
Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble. Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data. For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.” Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.

‘Wanted to Pretend’
“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.” Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.

Prevent Collapse
Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase. “These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo. JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.

‘Regulatory Discretion’
“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.” The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms. “When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.” Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.

‘Can We Survive?’
“The amount of pain that people, through no fault of their own, had to endure — and the prospect of putting them through it again — is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?” Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up — a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported. Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF. The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.

‘Serious Burden’
In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.  “The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.” Dearie says his group didn’t mean to imply that Williamson endorsed big banks. Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.

Geithner, Kaufman
On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission. At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman. Anthony Coley, a spokesman for Geithner, declined to comment.

‘Punishing Success’
Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says. The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble. Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner. “Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”

Below Market
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter — getting loans at below-market rates during a financial crisis — is quite a gift.” The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg. The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest. Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.

Added Income
The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show. The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion. “The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia. While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out. Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.

Standing Access
Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed. “Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?” In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise — to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).

Occupy Wall Street
The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California. The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor. “The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”

In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries. They take full effect in 2019. Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”

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the FAKE-GOLD STANDARD

FILLED with TUNGSTEN? (or DEPLETED URANIUM?)
http://www.zerohedge.com/news/tungsten-filled-10-oz-gold-bar-found-middle-manhattans-jewelry-district
Tungsten-Filled 10 Oz Gold Bar Found In The Middle Of Manhattan’s Jewelry District
by Tyler Durden  /  09/18/2012

It is one thing for tungsten-filled gold bars to appear in the UK, or inGermany: after all out of sight, and across the Atlantic, certainly must mean out of mind, and out of the safe. However, when a 10 ounce 999.9 gold bar bearing the stamp of the reputable Swiss Produits Artistiques Métaux Précieux (PAMP, with owner MTP) and a serial number (serial#038892, likely rehypothecated in at least 10 gold ETFs across the world but that’s a different story), mysteriously emerges in the heart of the world’s jewerly district located on 47th street in Manhattan, things get real quick. Moments ago, Myfoxny reported that a 10-ounce gold bar costing nearly $18,000 turned out to be a counterfeit. The discovery was made by the dealer Ibrahim Fadl, who bought the PAMP bar in question from a merchant who has sold him real gold before. “But he heard counterfeit gold bars were going around, so he drilled into several of his gold bars worth $100,000 and saw gray tungsten — not gold. The bar was filled with tungsten, which weighs nearly the same as gold but costs just over a dollar an ounce.”

What makes so devious is a real gold bar is purchased with the serial numbers and papers, then it is hollowed out, the gold is sold, the tungsten is put in, then the bar is closed up. That is a sophisticated operation. MTB, the Swiss manufacturer of the gold bars, said customers should only buy from a reputable merchant. The problem, he admits, is Ibrahim Fadl is a very reputable merchant. Raymond Nessim, CEO Manfra, Tordell & Brookes, said he has reported the situation to the FBI and Secret Service. The Secret Service, which deals with counterfeits, said it is investigating.

And cue panic on the realization that virtually any gold bar in the world, not just those in Europe and Australia, which have already had close encounters with Tungsten substitutes, but also New York may be hollowed out and have a real worth of a few dollars max. Which, sadly, is fitting considering our main story from last night was the realization that an unknown amount of Chinese iron ore had either never existed or had simply vaporized, and was no longer serving as the secured collateral to various liabilities circulating in the electronic ether. After all, only the most naive out there could conceive of gold being sacrosanct when every other asset class is being diluted to infinity by a regime that has long since run out of money. As for gold-based transactions on West 47th street: look for that market to grind to a halt at least for as long as it takes for this scandal to be forgotten too. The only open question remaining will be how much of the gold located 90 feet below Liberty 33 is in the same Tungstenized format. For what it’s worth: it is unlikely we will ever find out.

This is what glaring gold counterfeiting looks like.

ONGOING
http://www.gata.org/node/wallstreetjournal
Tungsten-Filled 1 Kilo Gold Bar Found In The UK
by Tyler Durden on 03/24/2012

The last time a story of Tungsten-filled gold appeared on the scene was just two years ago, and involved a 500  gram bar of gold full of tungsten, at the W.C. Heraeus foundry, the world’s largest metal refiner and fabricator. It also became known that said “gold” bar originated from an unnamed bank. It is now time to rekindle the Tungsten Spirits with a report from ABC Bullion of Australia, which provides photographic evidence of a new gold bar that has been drilled out and filled with tungsten rods, this time not in Germany but in an unnamed city in the UK, where it was intercepted by a scrap metals dealer, and was supplied with its original certificate. The reason the bar attracted attention is that it was 2 grams underweight. Upon cropping it was uncovered that about 30-40% of the bar weight was tungsten. So two documented incidents in two years: isolated? Or indication of the same phenomonenon of precious metal debasement that marked the declining phase of the Roman empire. Only then it was relatively public for anyone who cared to find out on their own. Now, with the bulk of popular physical gold held in top secret, private warehouses around the world, where it allegedly backs the balance sheets of the world’s central banks, yet nobody can confirm its existence, nor audit the actual gold content, it is understandable why increasingly more are wondering: just how much gold is there? And alongside that – while gold, (or is it GLD?), can be rehypothecated, can one do the same with tungsten?

From ABC Bullion:

ABC Bullion received the following email from one of our trusted suppliers this week. Attached are photographs of a legitimate Metalor 1000gm Au bar that has been drilled out and filled with Tungsten (W). This bar was purchased by staff of a scrap dealer in xxxxx, UK yesterday. The bar appeared to be perfect other than the fact that it was 2gms underweight. It was checked by hand-held xrf and showed 99.98% Au. Being Tungsten, it would not be ferro-magnetic. The bar was supplied with the original certificate. The owner of the business that purchased the bar only became suspicious when he realized the weight discrepancy and had the bar cropped. He estimates between 30-40% of the weight of the bar to be Tungsten. This is very worrying and reinforces the lengths that people are willing to go to profit from the current high metal prices. Please be careful.

Photos of the cropped bars: 1000g Gold bar cut showing inserted tungsten rods

Two halves of the cropped bar:

MEANWHILE : 80% of WORLD’s GOLD DOESN’T EXIST
http://www.wealthwire.com/news/metals/3397
80% of the Gold the World Owns Doesn’t Exist
by Mark O’Byrne  /  June 22nd, 2012

Chris Powell, Secretary and Treasurer of the Gold Anti-Trust Action Committee told Bernie Lo on CNBC Asia overnight that central banks are continuing to manipulate the gold market as they are interested in supporting government bonds and the dollar and keeping interest rates low. Powell warns about “paper gold” and says that we “try to persuade investors that if they are purchasing gold, they had better get real gold – metal. They should not get “paper gold” and keep it within the banking system.” He says that “there is huge naked short position in gold” and estimates that perhaps “75% to 80% of the gold that the world thinks it owns does not exist and is just a claim on a bullion bank that is underwritten basically by the central banks.”

Bernie Lo asks what is the “end result”? With regard to price Powell said that he does not make predictions but he wonders “what the value or the price of gold will be if the world ever discovers that 80% of the gold that it thinks it owns – does not exist. There may not be enough zeros in the world to put behind the gold price then.” Powell said that buyers should own gold in “your hand”or in allocated format outside of the banking system. He concluded by saying that surreptitious intervention in the gold market can continue as long as gold buyers do not own real physical bullion. We do not endorse GATA’s opinions however some of their evidence and many of their arguments are persuasive. We have yet to see any analyst or commentator address the substantive issues they have raised and debunk or refute their allegations. Free markets need freedom of speech and a plurality of opinion.  Group think and cosy consensus got us into today’s the financial and economic mess. Therefore, open, frank and rational debate about all aspects of the precious metal and other markets and our current monetary system is important. Being fully informed of all of the facts and fundamentals driving markets are essential in order to protect and grow wealth.

SPACE GOLD
https://www.npr.org/templates/story/story.php?storyId=7397200
http://www.nature.com/nature/journal/v477/n7363/full/nature10399.html
http://io9.com/5838101/all-our-gold-was-brought-here-by-asteroids
All our gold was brought here by asteroids
by Alasdair Wilkins / Sep 7, 2011

This may sound strange, but there’s simply too much gold. That is, there shouldn’t be gold here at the Earth’s crust – it all should have been sucked deep into the core long ago. For that, we can thank asteroids. Gold is one of the precious metals, along with platinum, silver, palladium, iridium, and a bunch of others. While these metals do have a few industrial uses, they’re mostly valuable simply because they’re rare and they happen to make for pretty jewelry. (That may be a slight oversimplification.) The strange thing isn’t that these metals are rare, but that there are any of these metals at all. The reason for this is that the precious metals tend to be attracted to iron. Over the lifetime of our planet, the naturally occurring precious metals should have been sucked towards places with high concentrations of iron. That means all the way down to the planet’s molten iron core. And while it isn’t exactly impossible that some of these metals would simply be left behind, that could only account for about a ten-thousandth of all the existing precious metals.

Now researchers at the University of Bristol might have found a solution. They ran some high-precision tests on rocks found in Greenland. These rocks date back about four billion years and are the remnants of asteroids. The nature of the tungsten isotopes found within these rocks support the idea that asteroids carried a second round of precious metals to Earth billions of years ago, long after the original metals had been subsumed into the core. So then, it wasn’t just gold that people spent lifetimes chasing after – it was space gold. It’s also an interesting reminder of how Earth is never truly isolated from the rest of the universe. Of course, that idea is hardly in dispute – it’s looking increasingly likely that asteroids also brought water and the building blocks of life to Earth – but this is a unique case in which ancient asteroids helped shape our recent history. After all, without this space gold, what the hell would be the point of playing Yukon Trail? I’m sure there are other historical factors to consider, but really, that strikes me as the most important.

HOW to MAKE CONVINCING FAKE-GOLD BARS
http://www.popsci.com/diy/article/2008-03/how-make-convincing-fake-gold-bars#
by Theo Gray  /   03.14.2008

“On Wednesday, the BBC reported that millions of dollars in gold at the central bank of Ethiopia has turned out to be fake: What were supposed to be bars of solid gold turned out to be nothing more than gold-plated steel. They tried to sell the stuff to South Africa and it was sent back when the South Africans noticed this little problem. This is an amazing story for two reasons. First, that an institution like a central bank could get ripped off this way, and second that the people responsible used such a lousy excuse for fake gold. I consider myself something of an expert on fake gold (I’m not really, I just think I am) ever since I was asked to give advice on the subject to the author Damien Lewis for his recent thriller, Cobra Gold. I worked out in detail for him how you could make really convincing fake gold, and ended up as a minor character in the novel, where I am known as “Goldfinger Gus”.

The problem with making good-quality fake gold is that gold is remarkably dense. It’s almost twice the density of lead, and two-and-a-half times more dense than steel. You don’t usually notice this because small gold rings and the like don’t weigh enough to make it obvious, but if you’ve ever held a larger bar of gold, it’s absolutely unmistakable: The stuff is very, very heavy. The standard gold bar for bank-to-bank trade, known as a “London good delivery bar” weighs 400 troy ounces (over thirty-three pounds), yet is no bigger than a paperback novel. A bar of steel the same size would weigh only thirteen and a half pounds. According to the news, the authorities have arrested pretty much everyone involved, from the people who sold the bank the gold, to bank officials, to the chemists responsible for testing and approving it on receipt.

The problem is, anyone who so much as picked up one of these bars should have known immediately that they were fake, no fancy test required. The weight alone is an instant dead giveaway. Even a forklift operator lifting a palette full of them should have noticed that his machine wasn’t working hard enough. I think they must have been swapped out while in storage: Someone walked in each day with a new fake gold bar and walked out with a real one. If they were fake on arrival then everyone who handled them in any way must have either had no experience with gold or been in on the scam. Now, for me the more interesting question is, how do you make a fake gold bar that at least passes the pick-it-up test? The problem is that there are very few metals that are as dense as gold, and with only two exceptions they all cost as much or more than gold. The first exception is depleted uranium, which is cheap if you’re a government, but hard for individuals to get. It’s also radioactive, which could be a bit of an issue.

The second exception is a real winner: tungsten. Tungsten is vastly cheaper than gold (maybe $30 dollars a pound compared to $12,000 a pound for gold right now). And remarkably, it has exactly the same density as gold, to three decimal places. The main differences are that it’s the wrong color, and that it’s much, much harder than gold. (Very pure gold is quite soft, you can dent it with a fingernail.) A top-of-the-line fake gold bar should match the color, surface hardness, density, chemical, and nuclear properties of gold perfectly. To do this, you could could start with a tungsten slug about 1/8-inch smaller in each dimension than the gold bar you want, then cast a 1/16-inch layer of real pure gold all around it. This bar would feel right in the hand, it would have a dead ring when knocked as gold should, it would test right chemically, it would weigh *exactly* the right amount, and though I don’t know this for sure, I think it would also pass an x-ray fluorescence scan, the 1/16″ layer of pure gold being enough to stop the x-rays from reaching any tungsten. You’d pretty much have to drill it to find out it’s fake. (Unless, of course, central bank gold inspectors are wise to this trick and have developed a test for it: Something involving speed of sound say, or more powerful x-rays, or perhaps neutron activation analysis. If bars like this are actually a common problem, you certainly could devise a quick, non-destructive test for them, and for all I know, they have. Except, apparently, in Ethiopia.)

Such a top-quality fake London good delivery bar would cost about $50,000 to produce because it’s got a lot of real gold in it, but you’d still make a nice profit considering that a real one is worth closer to $400,000. A lower budget version could be made by using the same under-sized tungsten slug but casting lead-antimony alloy around it (to match the hardness, sound, and feel of gold), then electroplating on a heavy coating of gold. Such a bar would still feel and sound right and be only very slightly underweight, while costing less than $500 to produce in quantity. It would not pass x-ray fluorescence, and whether it passes a chemical test would depend on how thick the electroplating is. This is the solution I recommended for Cobra Gold, because they only needed their fake gold to pass a field inspection, which is to say, someone picking it up and knowing what gold should feel like when you lift it. You may quibble for other aspects of the plot if you like, but I think the fake gold would have worked. And let me tell you, it’s a sad day for criminal masterminds when my fictional fake gold, designed only to trick a terrorist cell, is so much better than the real fake gold used to rip off a real government bank for millions of real dollars.”

DIY
http://www.popsci.com/diy/article/2005-05/make-everything-golden
Make Everything Golden
Using sheets so thin they’re measured in atoms
by Theodore Gray  /  05.03.2005

Dept.: Gray Matter
Element: Gold
Project: Gilding
Cost: $60
Time: One hour

Malleable things can be hammered thinner without breaking; ductile things can be stretched thinner without snapping. Every material has its limit, but with gold, that limit is just a few hundred atoms thick. Gold is the most malleable and the most ductile of all metals. A cube of it about 21/2 inches on edge could be beaten out to cover an entire football field (at a cost of roughly $68,000, plus beating fees). Gold this thin is called gold leaf, and the ancient art of applying it for decoration is called gilding.

How thin is gold leaf? Using my steel rolling mill, I can make gold foil about one thousandth of an inch thick, similar to aluminum foil. Thin, sure, but gold leaf is nearly 500 times as thin as that. Only then does it become affordable enough and flexible enough to be used almost like paint to cover finely detailed carvings or anything else you want to be shiny for years to come. To make gold leaf, start with gold foil, interleave a few dozen squares of it with layers of special vellum (so the foil sheets don´t stick to one another), and beat the heck out of the stack with a 16-pound hammer for many hours, turning the squares into larger squares of thinner foil. Then cut the sheets in quarters, restack them, and pound them out again. The malleability of gold is what allows the sheets to just keep getting thinner and thinner without splitting. (OK, I admit, I tried and failed at this. Just haven´t got the arm for it. Or the proper vellum, or the family secrets handed down over generations. Making gold leaf is, like other ancient arts, not quite the garage project it might seem.)

Gilding, on the other hand, is not a particularly difficult skill. To gild a home-run baseball, I used commercially prepared gold leaf from an art-supply store. The process is simple: Paint the object with a sticky liquid called gold size, lay the sheets of gold leaf on, and rub them in. The catch is the part where you try to pick up the leaf. Don´t even think about using your fingers-this stuff is more like a soap bubble than a sheet of metal and will start wrapping around your fingers and then tear the instant you try to unwrap it. Brushes known as gilders´ tips, made of red-squirrel hair (none of that gray-squirrel crap, mind you) are used to pick up the sheets by static electricity. It takes a delicate touch, but at $2 per four-inch-by-four-inch sheet, you´re motivated to learn fast.

Gold leaf instantly welds to itself. Overlapping layers fuse together invisibly when rubbed in, so even if you´re sloppy, the end result will look smooth. It´s OK to touch it with your fingers at this point because the gold size will hold it in place. Gilded objects survive from 5,000 years ago (think King Tut´s mask), proving that gold is impervious to air, water, alkalis and most acids, no matter how thin it is.

1. Mini rolling mill squeezes one gram of gold into foil, which is still about 500 times as thick as gold leaf.
2. Gold leaf held to a squirrel-hair brush by static electricity, ready to be applied.

http://www.nbe.gov.et/
http://www.geology.gov.et/

GOLD-PLATED STEEL
http://news.bbc.co.uk/2/hi/africa/7294665.stm
Fake fears over Ethiopia’s gold
by Elizabeth Blunt  /  13 March 2008
The price of real gold is currently soaring

Ethiopia’s national bank has been told to inspect all the gold in its vaults to determine its authenticity. It follows the discovery that some of the “gold” it had bought for millions of dollars was gold-plated steel. The first hint that something was wrong reportedly came when the Ethiopian central bank exported a consignment of gold bars to South Africa. The South Africans sent them back, complaining that they had been sold gilded steel. An investigation revealed that the bank had bought a consignment of fake gold from a supplier, who is now under
arrest.

Other arrests followed, including business associates of the main accused; national bank officials; and chemists from the Geological Survey of Ethiopia, whose job it is to assay the bank’s purchases of gold and certify that they are real. But what has clearly now got the government even more worried is that another different batch of gold in the bank’s vaults has also been found to be fake, and this time it was gold which had been there for several years, after being seized from smugglers trying to take it to Djibouti.

Mining
The Ethiopian parliament’s budget and finance committee ordered the inspection of all gold in the national bank’s vaults. A report from the auditor-general on the affair is expected to be presented to parliament during its current session. Gold is mined in Ethiopia in considerable quantities, and a trader selling gold to the central bank has to have it tested and certified by the Geological Survey. Whether the bank bought fake gold in the first place, or whether real gold from the vaults has been swapped for gilded steel, the fraud has cost the bank many millions of dollars, and it must have involved collusion on a considerable scale.

RADIOACTIVE GOLD
http://www.washingtonpost.com/wp-srv/national/daily/aug99/metals14.htm
Gold May Have Too Much Glow
by Joby Warrick  /  August 14, 1999

It was one of the most secretive missions at a factory that was all about secrecy: Nuclear warheads, retired from service and destined for the junkyard, were trucked at night to the Paducah Gaseous Diffusion Plant to be dismantled, hacked into unrecognizable pieces and buried. Workers used hammers and acetylene torches to strip away bits of gold and other metals from the warheads’ corrosion-proof plating and circuitry. Useless parts were dumped into trenches. But the gold – some of it still radioactive – was tossed into a smelter and molded into shiny ingots.

Exactly what happened next is one of the most intriguing questions to arise from a workers’ lawsuit against the former operators of the U.S.-owned uranium plant in western Kentucky. Three employees contend that the plant failed for years to properly screen gold and other metals for radioactivity. Some metals, they say, may have been highly radioactive when they left Paducah, bound perhaps for private markets.

The claim – based partly on circumstantial evidence – is now being investigated by Department of Energy officials who are also probing the workers’ accounts of plutonium contamination and alleged illegal dumping of radioactive waste at the uranium plant. “It is my belief that these recycled metals were injected into commerce in a contaminated form,” Ronald Fowler, a radiation safety technician at the plant, states in court documents that were unsealed this week by the Justice Department.

The investigation comes amid heightened scrutiny of government efforts to recycle valuable metals piling up at more than 16 factories that are part of the U.S. nuclear weapons complex. In the past week, congressional leaders, industry officials and scores of environmental groups have called on the Clinton administration to reconsider a controversial Department of Energy program to recycle scrap metal from nuclear weapons facilities into products that could end up in household goods or even children’s braces.

Opponents’ concerns soared this week with revelations, first reported in The Washington Post, that plutonium and other highly radioactive metals slipped into the Paducah plant over a 23-year period in shipments of contaminated uranium. The plutonium accumulated over decades in nickel-plated pipes where uranium was processed into fuel for bombs, government documents show. Smaller amounts of tainted uranium went to sister plants at Oak Ridge, Tenn., and Portsmouth, Ohio, the records show.

Scrap nickel from those plants is now the primary target of the Energy Department’s metal recycling program, which would be run jointly by the federal government, the state of Tennessee and a private contractor, British Nuclear Fuels Ltd. (BNFL). “If DOE denied or didn’t know plutonium was present at Paducah, why should we trust them to release waste from identical production plants into products ranging from intrauterine devices to hip replacements?” asked Wenonah Hauter of the watchdog group Public Citizen, one of 185 organizations to sign a letter to Vice President Gore Thursday demanding a halt to the program.

Recovering gold and other valuable metals from retired nuclear weapons had been a little-known mission of the government’s uranium enrichment plants over the past five decades. At Paducah, the process began in the 1950s and was conducted under extraordinary security, with heavily armed guards escorting warheads into the plant under cover of darkness. Garland “Bud” Jenkins, one of three Paducah workers involved in the lawsuit filed under seal in June, says he worked for several years in Paducah’s metals program recovering gold, lead, aluminum and nickel from nuclear weapons and production equipment. “We melted the gold flakes in a furnace to create gold bars,” Jenkins said in court documents. “The gold was never surveyed radiologically prior to its release, to my knowledge.”

Jenkins also says he never saw tests performed on nickel and aluminum ingots that were hauled out of the plant in trucks. In later years, when plant managers did begin screening the metals, many were found to be contaminated, he said. Hundreds of nickel ingots are still stored at the plant, too tainted to go anywhere, he said. A plant report included in the lawsuit filings may shed light on the degree of contamination in the gold. In a radiological survey of the plant last year, technicians discovered gold flakes inside an old ingot mold used for gold recovery. The fish scale-sized flakes were tested and found to emit radiation at a rate of 500 millirems an hour, the report said. By comparison, the average person receives between 200 and 300 millirems each year from all sources, including X-rays, radon gas and cosmic radiation from space. “If you had a wedding ring made out of those flakes you’d be getting twice as much radiation in an hour as most people get in a year,” said Joseph R. Egan, a lawyer representing the employees.

Fowler, the radiation safety technician, said he filed a report on the discovery of the radioactive gold in December but received no response from the plant’s management. Nothing further was done to investigate “the possibility that [the plant] may have contaminated the nation’s gold supply” at Fort Knox, he said. Plant officials shed little light on the process. U.S. Enrichment Corp., the plant’s current operator, says gold recovery at Paducah was the responsibility of the Energy Department. Department officials, in a response to written questions from The Post, acknowledged that gold was recovered from nuclear weapons at Paducah. But, “since these actions occurred many years ago, information regarding their past dispositions is not readily available,” the statement said.

In a letter to Rep. John D. Dingell (D-Mich.)., department officials strongly defended their efforts to salvage nickel and other valuable metals that have been piling up at nuclear complex sites for years. “Let me assure you that the safety of the public and workers and compliance with state and federal regulations are of paramount importance,” said Undersecretary of Energy T.J. Glauthier. Glauthier said BNFL’s license requires that “any metals released for unrestricted use will not pose a risk to human health or the environment.”

The recycling program, announced in 1996 by Gore as part of his “reinventing government” initiative, was touted at the time as a “win-win” deal for the environment, industry and taxpayers. BNFL, which was awarded the recycling contract in a noncompetitive bid, has already begun recycling some of the 100,000 tons of radioactively contaminated metal that were once part of the defunct K-25 complex at Oak Ridge, the world’s first full-scale uranium enrichment plant. Eventually the program expanded to Paducah and other facilities.

Purifying nickel is technically difficult because the radioactive contamination extends below the surface of the metal. According to department officials, BNFL was awarded the contract because it has developed a unique technology that can safely remove nearly all of the contaminants. But opponents say the technology has never been proven on such a large scale. Moreover, they note, there are no federal standards for releasing contaminated metal into the marketplace. Previous attempts to set such standards in the early 1990s were abandoned because of public opposition.

And, opponents add, the lack of restrictions on the recycled metal leaves the public in the dark about which products may have come from contaminated scrap. Even if radioactivity levels are low, consumers are entitled to an informed choice when buying materials that might be used by children, activists said. “The DOE has admitted they can’t protect the safety of their workers and misled them,” said Robert Wages, executive vice president of the Paper, Allied-Industrial, Chemical & Energy Workers International Union. “Now DOE wants to dump radioactive metals into everything from baby rattles to zippers . . . and tell us not to worry.”

Because there are no federal standards, the Energy Department’s recycling program relies on the state of Tennessee to set guidelines and regulate the process. In June, a federal judge sharply criticized the arrangement, saying the DOE had effectively thwarted public debate of an issue in which “the potential for environmental harm is great.” But U.S. District Judge Gladys Kessler rejected an attempt by labor and environmental groups to halt the recycling program, citing a law that prohibits courts from delaying federal cleanup of contaminated sites. Still, in unusually blunt language, the judge accused the Energy Department of “startling and worrisome” behavior in its alleged attempts to avoid federal oversight and public review. “There has been no opportunity at all for public scrutiny or input on such a matter of such grave importance,” Kessler wrote in her opinion. “The lack of public scrutiny is only compounded by the fact that the recycling process which BNFL intends to use is entirely experimental at this stage.”

DEBASEMENT
http://www.zerohedge.com/article/charting-non-linearity-hyperinflation-and-predicting-americas-future-courtesy-ancient-histor:
from Paul Mylchreest

Let’s consider the run-up to Rome’s hyperinflation. I think this comment from jaysromanhistory.com “Good Money, Bad Money, and Runaway Inflation” resonates with what’s happening in the US today:

“Severus Alexander (AD 222-235) tried to reform by going back to the denarius but, once started, this path of runaway inflation and financial irresponsibility on the part of the imperial government proved impossible to control.”

It also seems that the hyperinflation was preceded by some kind of banking crisis, which is an interesting parallel. From “Demise and Fall of the Augustan Monetary System” by Koenraad Verboven:

“Papyri show it was common for private individuals to deposit money at a bank and to make and accept payments through bankers.Bankers in the west disappear from view around the middle of the 3rd c… A famous papyrus from Oxyrhynchus from 260 CE shows exchange bankers closing in order to avoid having to change the ‘imperial money’. The strategos ordered the exchange bankers to reopen and accept all genuine coins and warned businessmen to do the same. In 266 CE we find for the first time transactions being expressed in ‘ptolemaeic’ or ‘old silver’ as opposed to ‘new silver’.”

The chart shows how inflation remained relatively subdued until a tipping point was reached in the late- 260s A.D Monetary systems can absorb substantial abuse before there is a dramatic impact on the price level. For example, the debasement of the coinage was already accelerating in the early part of the third century A.D., before plunging in the latter part. Indeed, the chart below (apologies for the quality) only shows the trend up to 253 AD. By around 290 AD, the coins were only dipped in silver to give them a coating (<0.5%).

and STILL ONE of the BEST CONSPIRACY THEORIES EVER :

NO GOLD in FORT KNOX
http://en.wikipedia.org/wiki/Fort_Knox_Bullion_Depository

“A popular and recurring conspiracy theory, as alleged by Edward Durrell, Norman Dodd, Tom Valentine, Peter Beter and others, claims that the vault is mostly empty and that most of the gold in Fort Knox was removed to London in the late 1960s by President Lyndon Johnson. [3] In response, on September 23, 1974, Senator Walter Huddleston of Kentucky, twelve congressmen, and about 100 members of the news media toured the vault and opened various cells and doors, each filled with gold. Radio reporter Bill Evans, when asked if it seemed like the gold might have been moved in just for the visit, replied that “all I can say is that I saw gold there” and that it seemed like it was always there.[4] Additionally, audits of the gold by the General Accounting Office (in cooperation with the United States Mint and the United States Customs Service in 1974 and the Treasury Department) from 1975-1981 found no discrepancies between the reported and actual amounts of gold at the Depository.[5] However, the audit has been described as a peculiar process because it was only a partial audit done over an extended period of time.[6] The report states only 21 percent of the gold bars were audited as of 1981 (the audit report’s issue date) and that the audit has “covered more than 212.7 million fine troy ounces of gold” which “represents over 80 percent of the total amount of United States-owned gold of 264.1 million fine troy ounces.”[5] A small amount of gold is removed for regularly scheduled audits to ensure the purity matches official records.[1] The theory continues to persist, however. Of this alleged scandal, the ex-general counsel of the Export-Import Bank of the United States, Peter Beter, commented: “The Watergate scandal was child’s play compared with the covered-up Fort Knox Gold Scandal”.[7]”

“INTERESTING SCIENCE FICTION”
http://en.wikipedia.org/wiki/Peter_Beter
http://en.wikipedia.org/wiki/David_Rockefeller
http://www.peterdavidbeter.com/docs/all/dbal56.html

“This is the Dr. Beter AUDIO LETTER, 1629 K St. NW, Washington, D.C. 20006 Hello, my friends, this is Dr. Beter. Today is July 30, 1980, and this is my AUDIO LETTER No. 56.

IAN FLEMING and the FT. KNOX GOLD SCANDAL
In writing his stories, Ian Fleming was drawing upon his own secret weapon. That weapon was knowledge. Fleming had been a high-ranking officer of Britain’s crack Intelligence agency called MI-5. It was the British who practically invented and perfected the modern concept of Intelligence, and to this day British Intelligence remains the equal of any in the world.

When Fleming left Her Majesty’s Secret Service to become a writer, he was severely limited in what he could publish. He was bound by the restrictions of the British “Official Secrets Act.” Under that Act, Fleming would have been liable for punishment for revealing any official secret without authorization. And so Ian Fleming, the former British Intelligence officer, became what is known as a “fictionalizer”–that is, he started with factual knowledge but rearranged and modified it in order to create startling stories of fiction. He was always extremely careful about how he did this. He always knew that he was skirting the fringes of the Official Secrets Act. He could not afford to make a mistake, because it would have meant prison for him and possible forfeiture of pension rights; and so he always altered every situation, every secret technology, and every personality enough to avoid revealing actual secrets. It was a long and meticulous process both to protect himself and to make each final story readable. For that reason Fleming completed a new James Bond novel only about once a year. If it had all been imagination, as many people believe, he would have been capable of producing a new book every few months, making himself far richer. But because his stories were all rooted in fact, secret fact, he did not dare speed up and run the risk of making a mistake.

Ian Fleming had two purposes in writing his famous series of spy novels. One purpose, of course, was to earn a very comfortable living; but beyond that he was also trying to subtly open the eyes of the reading public by the medium of fiction. Because of the Official Secrets Act he could not publish the facts that he knew as fact without modification, so he did what he felt was the next best thing, and that was to use his stories to open our minds to at least think in terms which were otherwise hidden from us. Fleming truly believed that this was something which somehow had to be done, because knowing what he knew he was not an optimistic man.

A perfect example of all of this took place with a book Fleming published 21 years ago in 1959. It was titled “GOLD FINGER.” The starting point for the book was knowledge about certain secrets. Fleming knew that there was a long-range plan to create monetary chaos for private gain and power. He also knew that a central feature of the plan was to be the secret disappearance of America’s monetary gold hoard at Fort Knox, and he knew that the kingpin of this international plot was a man with legendary greed for gold. His name: DAVID ROCKEFELLER. It was a plan that was totally unsuspected by the public. It was still the Eisenhower era, the heyday of the so-called “almighty dollar.” The dollar was good as gold, because it was backed by the world’s largest monetary gold hoard. Fort Knox was thought to be impregnable; and in those days, my friends, no one dared speak ill of the Four Rockefeller Brothers.

Ian Fleming decided to write a book that would begin to alert people to what was afoot. He could not tell the whole story, nor tell it as fact because of the Official Secrets Act; but by fictionalizing he was able to cause people to think of possibilities which would never have occurred to them otherwise. For example, in the 50’s it was a rare American who considered even the possibility of monetary turmoil. The dollar was good as gold, and that was that. Why even think about gold? Individual citizens could not own it except in jewelry. Wasn’t all the rest of it thought to be sealed up in Fort Knox? Everyone knew no one could get in there, and so we didn’t even think about it. But in his book GOLD FINGER, Fleming brought several key thoughts to our minds. He devised a fictional scheme to show that Fort Knox might not be impregnable after all. He raised the question: “What would happen to the dollar and other currencies if the Fort Knox gold were no longer available?” And he proposed the unthinkable thought that someone, if they were rich enough and greedy enough, might want to get their hands on America’s gold.

The actual GOLD FINGER story, of course, was fiction; but the basic points which I have just mentioned were fact. GOLD FINGER was published in 1959; and barely two years later in 1961, the hemorrhaging of America’s monetary gold supply began. Agents of David Rockefeller within the United States Government provided a cloak of authority called the “London Gold Pool Agreement”; and then for seven years until 1968, big Army trucks loaded with gold bullion rolled out of Fort Knox constantly–and all without a word to the public!

Some of the gold shipments during those seven years were recorded on a list kept by the United States Mint. Almost without exception the shipments listed went to the New York Assay Office, where they disappeared without any further accounting. As you may recall, the New York Assay Office was the focus of a scandal in December 1978 involving missing gold. Over 5,000 ounces had simply disappeared; but that, my friends, was a very small tip of a very large iceberg, and so the controversy over the missing millions in gold at the New York Assay Office was quickly smoothed over and covered up. They could not afford to allow any real investigation which might let the public know the truth. According to the official list of shipments I mentioned earlier, a large fraction of America’s monetary gold went to the New York Assay Office in the 60’s. There it disappeared, never to be seen again.

But, my friends, the real situation was even worse. Long ago my sources gave me hard evidence of many large gold shipments from Fort Knox which were not even listed. Five years ago this month in AUDIO LETTER No. 2 I revealed a specific example of this. It was a shipment on January 20, 1965, in which four (4) tractor-trailers loaded up at Fort Knox and then headed for railroad tracks across the river at Jeffersonville, Indiana. My sources provided me with details, including photographs, of the operation. But the shipment was one of many which did not show on any official Government list of shipments.

In June 1975, Mr. Edward Durell and my other associates were able to confront officials of the United States Mint with this example of missing shipments, and for once the confrontation took place under circumstances in which the Mint was under great pressure to respond. In the most specific terms the Bureau of the Mint was asked what was shipped out of Fort Knox in the four tractor-trailers on January 20, 1965. The written answer dated June 19, 1975 came from the then Director of the United States Mint, Mrs. Mary Brooks. She confirmed that this unlisted shipment amounted to more than one and three-quarter (1-3/4) million ounces of gold–and, my friends, it was not junk gold melted down from old coins which were confiscated from Americans in 1934. The shipment was part of America’s true monetary gold, good delivery gold which is .995 fine or better. After this admission in writing about an enormous secret shipment of gold out of Fort Knox, one would have thought that there would be fireworks, but not so!

My friend Mr. Durell showered the appropriate officials throughout the Government with this evidence of massive fraud at Fort Knox, and he notified the major media and all of the appropriate leaders in Congress about this evidence. For reasons which I will explain later in this message, I believe it’s time to call attention to one of these people. He is Senator William Proxmire of Wisconsin, Chairman of the Senate Banking Committee.

Proxmire loves to parade as a great defender of our financial interests in Washington. He’s famous for his so-called “Golden Fleece Award.” Proxmire searches through the Federal Budget with a fine-tooth comb, and he’s always able to find some project or contract which rightly or wrongly will look ridiculous to the public. He then trots it out, announces how much it costs, and with a great flourish gives it his Golden Fleece Award. By this and other means Proxmire is a master at maintaining his image as a protector of the American economy.

But if ever a situation deserved the Proxmire Golden Fleece Award, it is the FORT KNOX GOLD SCANDAL. The petty examples usually chosen by Proxmire fleece the American public out of perhaps hundreds of thousands or a few million dollars. It makes good publicity for Proxmire, but it’s insignificant. By contrast, the Fort Knox Gold Scandal is fleecing every one of us out of the shirt on our back. It has undermined the dollar itself, which is on its way to destruction. It has set off ever-worsening inflation even while our economy is stagnating. The Gold Scandal is fleecing us all, but what has Senator William Proxmire done about that??

Let me tell you what he has, and has not, done. For more than five years Proxmire has been among the top American leaders who have been kept informed about major developments and evidence in the Gold Scandal. He has been given the evidence I mentioned earlier about the missing shipment from Fort Knox, as well as other evidence of major discrepancies; but up to now, Proxmire has kept his lips sealed about discrepancies about America’s gold supply–with one exception. That exception took place in December 1978. Word had leaked out about the 5,000-or so missing ounces of gold at the New York Assay Office worth over $3,000,000 at today’s prices. As Chairman of the Senate Banking Committee, Proxmire immediately jumped on the story. Frowning in disapproval, he proclaimed that this would have to be looked into. Hearing those words from the champion of the Golden Fleece Award, the public relaxed and quickly forgot about it. And almost as quickly, Senator William Proxmire made sure he forgot about it too. To this day, no real investigation has ever taken place over the missing gold at the New York Assay Office.

Proxmire’s failure to follow up that $3,000,000 gold discrepancy was bad enough, but it’s nothing compared to his apparent disinterest in investigating the truth about the Fort Knox Gold Scandal. The case of the missing Fort Knox shipment is a case in point. At today’s prices, that one shipment alone was worth more than one billion dollars ($1,000,000,000)–not a mere million but 1000 times a million! And that, in truth, was only one example. There were many unreported shipments like that. That is why the Treasury figures, which show a huge remaining American gold hoard, are a fraud–a total fraud. And that’s why the United States could auction off only a small amount of junk gold over a period of time and then had to stop. And that’s why the United States dollar is no longer “as good as gold”; instead, it’s fast becoming worth less than the paper it’s printed on.

Senator William Proxmire, like many others trusted by the American public, has been given massive evidence about all of this; but his actions so far have helped only those who have taken our own gold in order to fleece us of everything we own. Later in this message I will have more to say about Senator William Proxmire and the Fort Knox Gold Scandal. But for now I want to finish the story of Ian Fleming’s aborted efforts to alert the public about things like these. As I already explained, his principle was “Fictionalize to open eyes”; but after his untimely death in 1964 his stories were seized upon and warped, especially in movies, for the opposite purpose. The new purpose became “Fictionalize to CLOSE eyes.” Nothing could be done to alter and neutralize Fleming’s books once they had been published, so instead attention was drawn away from the books to the James Bond movies; and as the movies were in preparation, disinformation agents were planted on the scene to guide the process. As a result, the James Bond who emerged on film was a very different character from the one in Fleming’s novels. The basic story lines remained the same, but in many subtle ways the psychology was radically changed. The movies retained the adventure, fast action, dazzling secret technologies, and bold plots which Fleming had pioneered; but by clever use of satirical humor, every James Bond movie ended up by laughing at itself. Secret weapons were exaggerated or twisted so as to make them entertaining but also ridiculous; and by filling the movies with strange characters and never-ending gimmicks, viewers were distracted from the underlying warnings of the basic plot.

The GOLD FINGER story was a perfect example of all this. Fleming’s original novel called attention to something which most readers would never have thought about otherwise. That was the potential relationship between Fort Knox gold and international monetary chaos, and through his fictional plot he also planted the idea that the legendary Fort Knox bullion depository might not be invulnerable after all. But these lessons were rarely, if ever, realized by those who saw only the movie; instead, the typical viewer walked out of the movie laughing. It was obviousthat what he had seen could happen only in fiction, and from that point onward he was programmed to react with disbelief if he should ever hear of tampering with Fort Knox gold. Such a thing could only be fiction–it was just too ridiculous ever to really happen.

This is the attitude I encountered more than seven years ago when I began giving public warnings about deliberate plans for economic chaos. I myself was first alerted to the Fort Knox Gold Scandal by none other than British Intelligence in London after completing a secret mission for Queen Elizabeth in Zaire; and in my book THE CONSPIRACY AGAINST THE DOLLAR, I outlined the overall plan, including the unseen role of America’s gold. I had one major advantage which Ian Fleming did not have. The United States does not yet have an Official Secrets Act like that of Britain, and so I was not forced to fictionalize. Instead I was able to give the real plans and real names of those responsible for things to come.

The prototype for Ian Fleming’s GOLD FINGER of two decades ago was none other than David Rockefeller, and in my book I showed in detail how he played his kingpin role in the plan to destroy our economy. I described how this was leading to a collapsing dollar, skyrocketing gold prices, a stagnating economy, spiraling financial problems for State and local governments, urban unrest, and eventually NUCLEAR WAR. But when David Rockefeller himself was interviewed about my book, even he resorted to the technique “Fictionalize to close eyes.” His comment about THE CONSPIRACY AGAINST THE DOLLAR was: “Interesting science fiction.”

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PLUTONOMY NOW

RISING TIDES LIFT ALL YACHTS

REVOLT of the RICH
http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/308600/
http://www.theamericanconservative.com/articles/revolt-of-the-rich/
Our financial elites are the new secessionists
by Mike Lofgren / August 27, 2012

It was 1993, during congressional debate over the North American Free Trade Agreement. I was having lunch with a staffer for one of the rare Republican congressmen who opposed the policy of so-called free trade. To this day, I remember something my colleague said: “The rich elites of this country have far more in common with their counterparts in London, Paris, and Tokyo than with their fellow American citizens.” That was only the beginning of the period when the realities of outsourced manufacturing, financialization of the economy, and growing income disparity started to seep into the public consciousness, so at the time it seemed like a striking and novel statement.

At the end of the Cold War many writers predicted the decline of the traditional nation-state. Some looked at the demise of the Soviet Union and foresaw the territorial state breaking up into statelets of different ethnic, religious, or economic compositions. This happened in the Balkans, the former Czechoslovakia, and Sudan. Others predicted a weakening of the state due to the rise of Fourth Generation warfare and the inability of national armies to adapt to it. The quagmires of Iraq and Afghanistan lend credence to that theory. There have been numerous books about globalization and how it would eliminate borders. But I am unaware of a well-developed theory from that time about how the super-rich and the corporations they run would secede from the nation state. I do not mean secession by physical withdrawal from the territory of the state, although that happens from time to time—for example, Erik Prince, who was born into a fortune, is related to the even bigger Amway fortune, and made yet another fortune as CEO of the mercenary-for-hire firm Blackwater, moved his company (renamed Xe) to the United Arab Emirates in 2011. What I mean by secession is a withdrawal into enclaves, an internal immigration, whereby the rich disconnect themselves from the civic life of the nation and from any concern about its well being except as a place to extract loot.

Our plutocracy now lives like the British in colonial India: in the place and ruling it, but not of it. If one can afford private security, public safety is of no concern; if one owns a Gulfstream jet, crumbling bridges cause less apprehension—and viable public transportation doesn’t even show up on the radar screen. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare? Being in the country but not of it is what gives the contemporary American super-rich their quality of being abstracted and clueless. Perhaps that explains why Mitt Romney’s regular-guy anecdotes always seem a bit strained. I discussed this with a radio host who recounted a story about Robert Rubin, former secretary of the Treasury as well as an executive at Goldman Sachs and CitiGroup. Rubin was being chauffeured through Manhattan to reach some event whose attendees consisted of the Great and the Good such as himself. Along the way he encountered a traffic jam, and on arriving to his event—late—he complained to a city functionary with the power to look into it. “Where was the jam?” asked the functionary. Rubin, who had lived most of his life in Manhattan, a place of east-west numbered streets and north-south avenues, couldn’t tell him. The super-rich who determine our political arrangements apparently inhabit another, more refined dimension. To some degree the rich have always secluded themselves from the gaze of the common herd; their habit for centuries has been to send their offspring to private schools. But now this habit is exacerbated by the plutocracy’s palpable animosity towards public education and public educators, as Michael Bloomberg has demonstrated. To the extent public education “reform” is popular among billionaires and their tax-exempt foundations, one suspects it is as a lever to divert the more than $500 billion dollars in annual federal, state, and local education funding into private hands—meaning themselves and their friends. What Halliburton did for U.S. Army logistics, school privatizers will do for public education. A century ago, at least we got some attractive public libraries out of Andrew Carnegie. Noblesse oblige like Carnegie’s is presently lacking among our seceding plutocracy. In both world wars, even a Harvard man or a New York socialite might know the weight of an army pack. Now the military is for suckers from the laboring classes whose subprime mortgages you just sliced into CDOs and sold to gullible investors in order to buy your second Bentley or rustle up the cash to get Rod Stewart to perform at your birthday party. The sentiment among the super-rich towards the rest of America is often one of contempt rather than noblesse.

Stephen Schwarzman, the hedge fund billionaire CEO of the Blackstone Group who hired Rod Stewart for his $5-million birthday party, believes it is the rabble who are socially irresponsible. Speaking about low-income citizens who pay no income tax, he says: “You have to have skin in the game. I’m not saying how much people should do. But we should all be part of the system.” But millions of Americans who do not pay federal income taxes do pay federal payroll taxes. These taxes are regressive, and the dirty little secret is that over the last several decades they have made up a greater and greater share of federal revenues. In 1950, payroll and other federal retirement contributions constituted 10.9 percent of all federal revenues. By 2007, the last “normal” economic year before federal revenues began falling, they made up 33.9 percent. By contrast, corporate income taxes were 26.4 percent of federal revenues in 1950. By 2007 they had fallen to 14.4 percent. So who has skin in the game? While there is plenty to criticize the incumbent president for, notably his broadening and deepening of President George W. Bush’s extra-constitutional surveillance state, under President Obama the overall federal tax burden has not been raised, it has been lowered. Approximately half the deficit impact of the stimulus bill was the result of tax-cut provisions. The temporary payroll-tax cut and other miscellaneous tax-cut provisions make up the rest of the cuts we have seen in the last three and a half years. Yet for the president’s heresy of advocating that billionaires who receive the bulk of their income from capital gains should pay taxes at the same rate as the rest of us, Schwarzman said this about Obama: “It’s a war. It’s like when Hitler invaded Poland in 1939.”  For a hedge-fund billionaire to defend his extraordinary tax privileges vis-à-vis the rest of the citizenry in such a manner shows an extraordinary capacity to be out-of-touch. He lives in a world apart, psychologically as well as in the flesh.

Schwarzman benefits from the so-called “carried interest rule” loophole: financial sharks typically take their compensation in the form of capital gains rather than salaries, thus knocking down their income-tax rate from 35 percent to 15 percent. But that’s not the only way Mr. Skin-in-the-Game benefits: the 6.2 percent Social Security tax and the 1.45 percent Medicare tax apply only to wages and salaries, not capital gains distributions. Accordingly, Schwarzman is stiffing the system in two ways: not only is his income-tax rate less than half the top marginal rate, he is shorting the Social Security system that others of his billionaire colleagues like Pete Peterson say is unsustainable and needs to be cut. This lack of skin in the game may explain why Romney has been so coy about releasing his income-tax returns. It would make sense for someone with $264 million in net worth to joke that he is “unemployed”—as if he were some jobless sheet metal worker in Youngstown—if he were really saying in code that his income stream is not a salary subject to payroll deduction. His effective rate for federal taxes, at 14 percent, is lower than that of many a wage slave. After the biggest financial meltdown in 80 years and a consequent long, steep drop in the American standard of living, who is the nominee for one of the only two parties allowed to be competitive in American politics? None other than Mitt Romney, the man who says corporations are people. Opposing him will be the incumbent president, who will raise up to a billion dollars to compete. Much of that loot will come from the same corporations, hedge-fund managers, merger-and-acquisition specialists, and leveraged-buyout artists the president will denounce in pro forma fashion.

The super-rich have seceded from America even as their grip on its control mechanisms has tightened. But how did this evolve historically, what does it mean for the rest of us, and where is it likely to be going? That wealth-worship—and a consequent special status for the wealthy as a kind of clerisy—should have arisen in the United States is hardly surprising, given the peculiar sort of Protestantism that was planted here from the British Isles. Starting with the Puritanism of New England, there has been a long and intimate connection between the sanctification of wealth and America’s economic and social relationships. The rich are a class apart because they are the elect. Most present-day Americans, if they think about the historical roots of our wealth-worship at all, will say something about free markets, rugged individualism, and the Horatio Alger myth—all in a purely secular context. But perhaps the most notable 19th-century exponent of wealth as virtue and poverty as the mark of Cain was Russell Herman Conwell, a canny Baptist minister, founder of perhaps the first tabernacle large enough that it could later be called a megachurch, and author of the immensely famous “Acres of Diamonds” speech of 1890 that would make him a rich man. This is what he said:

I say that you ought to get rich, and it is your duty to get rich. … The men who get rich may be the most honest men you find in the community. Let me say here clearly … ninety-eight out of one hundred of the rich men of America are honest. That is why they are rich. That is why they are trusted with money. … I sympathize with the poor, but the number of poor who are to be sympathized with is very small. To sympathize with a man whom God has punished for his sins … is to do wrong … let us remember there is not a poor person in the United States who was not made poor by his own shortcomings.

Evidently Conwell was made of sterner stuff than the sob-sister moralizing in the Sermon on the Mount. Somewhat discordantly, though, Conwell had been drummed out of the military during the Civil War for deserting his post. For Conwell, as for the modern tax-avoiding expat billionaire, the dollar sign tends to trump Old Glory. The conjoining of wealth, Christian morality, and the American way of life reached an apotheosis in Bruce Barton’s 1925 book The Man Nobody Knows. The son of a Congregationalist minister, Barton, who was an advertising executive, depicted Jesus as a successful salesman, publicist, and the very role model of the modern businessman.

But this peculiarly American creed took a severe hit after the crash of 1929, and wealth ceased to be equated with godliness. While the number of Wall Street suicides has been exaggerated in national memory, Jesse Livermore, perhaps the most famous of the Wall Street speculators, shot himself, and so did several others of his profession. There was then still a lingering old-fashioned sense of shame now generally absent from the über-rich. While many of the elites hated Franklin Roosevelt—consider the famous New Yorker cartoon wherein the rich socialite tells her companions, “Come along. We’re going to the Trans-Lux to hiss Roosevelt”—most had the wit to make a calculated bet that they would have to give a little of their wealth, power, and prestige to retain the rest, particularly with the collapsing parliamentary systems of contemporary Europe in mind. Even a bootlegging brigand like Joe Kennedy Sr. reconciled himself to the New Deal. And so it lasted for a generation: the wealthy could get more wealth—fabulous fortunes were made in World War II; think of Henry J. Kaiser—but they were subject to a windfall-profits tax. And tycoons like Kaiser constructed the Hoover Dam and liberty ships rather than the synthetic CDOs that precipitated the latest economic collapse. In the 1950s, many Republicans pressed Eisenhower to lower the prevailing 91 percent top marginal income tax rate, but citing his concerns about the deficit, he refused. In view of our present $15 trillion gross national debt, Ike was right. Characteristic of the era was the widely misquoted and misunderstood statement of General Motors CEO and Secretary of Defense Charles E. “Engine Charlie” Wilson, who said he believed “what was good for the country was good for General Motors, and vice versa.” He expressed, however clumsily, the view that the fates of corporations and the citizenry were conjoined. It is a view a world away from the present regime of downsizing, offshoring, profits without production, and financialization. The now-prevailing Milton Friedmanite economic dogma holds that a corporation that acts responsibly to the community is irresponsible. Yet somehow in the 1950s the country eked out higher average GDP growth rates than those we have experienced in the last dozen years.

After the 2008 collapse, the worst since the Great Depression, the rich, rather than having the modesty to temper their demands, this time have made the calculated bet that they are politically invulnerable—Wall Street moguls angrily and successfully rejected executive-compensation limits even for banks that had been bailed out by taxpayer funds. And what I saw in Congress after the 2008 crash confirms what economist Simon Johnson has said: that Wall Street, and behind it the commanding heights of power that control Wall Street, has seized the policy-making apparatus in Washington. Both parties are in thrall to what our great-grandparents would have called the Money Power. One party is furtive and hypocritical in its money chase; the other enthusiastically embraces it as the embodiment of the American Way. The Citizens United Supreme Court decision of two years ago would certainly elicit a response from the 19th-century populists similar to their 1892 Omaha platform. It called out the highest court, along with the rest of the political apparatus, as rotted by money.


http://historymatters.gmu.edu/d/5361/

We meet in the midst of a nation brought to the verge of moral, political, and material ruin. Corruption dominates the ballot-box, the Legislatures, the Congress, and touches even the ermine of the bench. The people are demoralized. … The newspapers are largely subsidized or muzzled, public opinion silenced, business prostrated, homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workmen are denied the right to organize for self-protection, imported pauperized labor beats down their wages. … The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind, and the possessors of these, in turn, despise the Republic and endanger liberty. From the same prolific womb of governmental injustice we breed the two great classes—tramps and millionaires.

It is no coincidence that as the Supreme Court has been removing the last constraints on the legalized corruption of politicians, the American standard of living has been falling at the fastest rate in decades. According to the Federal Reserve Board’s report of June 2012, the median net worth of families plummeted almost 40 percent between 2007 and 2010. This is not only a decline when measured against our own past economic performance; it also represents a decline relative to other countries, a far cry from the post-World War II era, when the United States had by any measure the highest living standard in the world. A study by the Bertelsmann Foundation concluded that in measures of economic equality, social mobility, and poverty prevention, the United States ranks 27th out of the 31 advanced industrial nations belonging to the Organization for Economic Cooperation and Development. Thank God we are still ahead of Turkey, Chile, and Mexico!

This raises disturbing questions for those who call themselves conservatives. Almost all conservatives who care to vote congregate in the Republican Party. But Republican ideology celebrates outsourcing, globalization, and takeovers as the glorious fruits of capitalism’s “creative destruction.” As a former Republican congressional staff member, I saw for myself how GOP proponents of globalized vulture capitalism, such as Grover Norquist, Dick Armey, Phil Gramm, and Lawrence Kudlow, extolled the offshoring and financialization process as an unalloyed benefit. They were quick to denounce as socialism any attempt to mitigate its impact on society. Yet their ideology is nothing more than an upside-down utopianism, an absolutist twin of Marxism. If millions of people’s interests get damaged in the process of implementing their ideology, it is a necessary outcome of scientific laws of economics that must never be tampered with, just as Lenin believed that his version of materialist laws were final and inexorable. If a morally acceptable American conservatism is ever to extricate itself from a pseudo-scientific inverted Marxist economic theory, it must grasp that order, tradition, and stability are not coterminous with an uncritical worship of the Almighty Dollar, nor with obeisance to the demands of the wealthy. Conservatives need to think about the world they want: do they really desire a social Darwinist dystopia? The objective of the predatory super-rich and their political handmaidens is to discredit and destroy the traditional nation state and auction its resources to themselves. Those super-rich, in turn, aim to create a “tollbooth” economy, whereby more and more of our highways, bridges, libraries, parks, and beaches are possessed by private oligarchs who will extract a toll from the rest of us. Was this the vision of the Founders? Was this why they believed governments were instituted among men—that the very sinews of the state should be possessed by the wealthy in the same manner that kingdoms of the Old World were the personal property of the monarch? Since the first ziggurats rose in ancient Babylonia, the so-called forces of order, stability, and tradition have feared a revolt from below. Beginning with Edmund Burke and Joseph de Maistre after the French Revolution, a whole genre of political writings—some classical liberal, some conservative, some reactionary—has propounded this theme. The title of Ortega y Gasset’s most famous work, The Revolt of the Masses, tells us something about the mental atmosphere of this literature. But in globalized postmodern America, what if this whole vision about where order, stability, and a tolerable framework for governance come from, and who threatens those values, is inverted? What if Christopher Lasch came closer to the truth in The Revolt of the Elites, wherein he wrote, “In our time, the chief threat seems to come from those at the top of the social hierarchy, not the masses”? Lasch held that the elites—by which he meant not just the super-wealthy but also their managerial coat holders and professional apologists—were undermining the country’s promise as a constitutional republic with their prehensile greed, their asocial cultural values, and their absence of civic responsibility. Lasch wrote that in 1995. Now, almost two decades later, the super-rich have achieved escape velocity from the gravitational pull of the very society they rule over. They have seceded from America.

Plutonomy: The Memo Citigroup Doesn’t Want You to See – Bill Black
White collar criminologist William Black dissects a 2005 Citigroup memo intended for its wealthist clients that describes the US, UK, and Canada as plutonomies — countries where rule by an ultra-rich managerial class has replaced democracy. Black is former federal regulator and author of “The Best Way to Rob a Bank is to Own One.”

CITIGROUP’s PLUTONOMY MEMOS
http://wexfordrebelalliance.files.wordpress.com/2011/08/plutonomy-1-1.pdf
http://wexfordrebelalliance.files.wordpress.com/2011/08/plutonomy-2-1.pdf
http://rebel-alliance.org/2011/08/17/leaked-from-citi-group-plutonomy-part-1-2005/
http://politicalgates.blogspot.com/2011/12/citigroup-plutonomy-memos-two-bombshell.html
Two bombshell documents that Citigroup’s lawyers try to suppress, describing in detail the rule of the first 1%
by Patrick  /  December 10, 2011

“Are they real?” That’s the question people usually ask when they hear for the first time of the “Citigroup Plutonomy Memos.” The sad truth is: Yes, they are real, and instead of being discussed on mainstream media outlets all over America and beyond, Citigroup was surprisingly successful so far in suppressing these memos, using their lawyers to issue takedown-notices whenever these memos were being made available for download on the internet. So what are we talking about? In 2005 and 2006, several analysts at Citigroup took a very, very close look at the economic inequalities within the USA and other countries and wrote two memos which were addressed to their very wealthy customers. If there is one group of people who need to know the truth about what is really going on within the society and the economy, minus the propaganda, then it’s businesspeople who have a lot of money to invest, and who want to invest wisely. So Citigroup did their duty and published two explosive memos, which should have become mainstream news, but eventually did not. The first memo is dated October 16, 2005 (35 pages) and is titled:“Plutonomy: Buying Luxury, Explaining Global Imbalances.” The second memo is dated March 5, 2006 (18 pages) and is titled: “Revisiting Plutonomy: The Rich Getting Richer”

Memo March 5, 2006 - screenshot

A few years ago, two copies of these memos were leaked and were published on the internet. Usually one should think that once such important documents are in the “public domain”, nothing should stop them any more from being distributed and being openly discussed. However, the lawyers of Citigroup, Kilpatrick Townsend & Stockton LLC, work hard to prevent exactly that from happening. Examples of their activities can be found all over the internet. It is apparent that Citigroup is paranoid that these memos by their analysts are being widely distributed. It is not necessary to include a download link in this post, as the memos are pretty easy to find with a simple google search. However, Citigroup seems to have been successful in preventing a wider discussion about the memos, due to their legal actions. This needs to stop, as every American and every citizen in the western world needs to know what people like the analysts of Citigroup really think about the inequalities which exist within the societies, how the rich should preserve their domination, and what possible “backlash” can be expected – and what the consequences are of living in a “plutonomy.” At the beginning of the first memo “Plutonomy: Buying Luxury, Explaining Global Imbalances”, the analysts introduce the subject:

Little of this note should tally with conventional thinking. Indeed, traditional thinking is likely to have issues with most of it. We will posit that:

1) the world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S. What are the common drivers of Plutonomy? Disruptive technology-driven productivity gains, creative financial innovation, capitalist- friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions. Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

2) We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization.

Citigroup explains how the “non-rich” consumers become increasingly irrelevant within the “plutonomies”:

4) In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie. Consensus analyses that do not tease out the profound impact of the plutonomy on spending power, debt loads, savings rates (and hence current account deficits), oil price impacts etc, i.e., focus on the “average”consumer are flawed from the start. It is easy to drown in a lake with an average depth of 4 feet, if one steps into its deeper extremes. Since consumption accounts for 65% of the world economy, and consumer staples and discretionary sectors for 19.8% of the MSCI AC World Index, understanding how the plutonomy impacts consumption is key for equity market participants.


USA Sources of Income, Top 1% (Source: Citigroup Investment Research)

The analysts of Citigroup then invent a new term – “The New Managerial Aristocracy”:

THE UNITED STATES PLUTONOMY – THE GILDED AGE, THE ROARING TWENTIES, AND THE NEW MANAGERIAL ARISTOCRACY

Let’s dive into some of the details. As Figure 1 shows the top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie!

Clearly, the analysis of the top 1% of U.S. households is paramount. The usual analysis of the “average” U.S. consumer is flawed from the start. To continue with the U.S., the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better(or worse, depending on your political stripe) – the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together. 

This is data for 2000, from the Survey of Consumer Finances (and adjusted by academic Edward Wolff). Since 2000 was the peak year in equities, and the top 1% of households have a lot more equities in their net worth than the rest of the population who tend to have more real estate, these data might exaggerate the U.S. plutonomy a wee bit. Was the U.S. always a plutonomy – powered by the wealthy, who aggrandized larger chunks of the economy to themselves? Not really.

Citigroup also makes clear what the CEO’s of the world need: More money.  Quote:

Society and governments need to be amenable to disproportionately allow/encourage the few to retain that fatter profit share. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot. We think that despite the post-bubble angst against celebrity CEOs, the trend of cost-cutting balance sheet-improving CEOs might just give way to risk-seeking CEOs, re-leveraging, going for growth and expecting disproportionate compensation for it. It sounds quite unlikely, but that’s why we think it is quite possible. Meanwhile Private Equity and LBO funds are filling the risk-seeking and re-leveraging void, expecting and realizing disproportionate remuneration for their skills.

But does placing so much money in so few hands also pose risks? Maybe the 99% of the population, or let it be 90-95%, it does not matter, will be unhappy about being ruled by the super rich? Fortunately for the investors, the analysts at Citigroup also considered these points and started to think about the plebs who, as history shows, have a tendency to be unruly, if poor. So the analysts started to think about “losers”, as they call them, or the people who could need a bath, as Newt Gingrich would call it. The Citigroup analysts basically predicted the OWS-movement. In considering these aspects, the analysts also discovered that there is a terrifying factor to consider – that the poor don’t have much economic power, but that they “have equal voting power with the rich.” Quote:

IS THERE A BACKLASH BUILDING?

Plutonomy, we suspect is elastic. Concentration of wealth and spending in the hands of a few, probably has its limits. What might cause the elastic to snap back? We can see a number of potential challenges to plutonomy.

The first, and probably most potent, is through a labor backlash. Outsourcing, offshoring or insourcing of cheap labor is done to undercut current labor costs. Those being undercut are losers in the short term. While there is evidence that this is positive for the average worker (for example Ottaviano and Peri) it is also clear that high-cost substitutable labor loses. Low-end developed market labor might not have much economic power, but it does have equal voting power with the rich. We see plenty of examples of the outsourcing or offshoring of labor being attacked as “unpatriotic” or plain unfair. This tends to lead to calls for protectionism to save the low-skilled domestic jobs being lost. This is a cause championed, generally, by left-wing politicians. At the other extreme, insourcing, or allowing mass immigration, which might price domestic workers out of jobs, leads to calls for anti-immigration policies, at worst championed by those on the far right. To this end, the rise of the far right in a number of European countries, or calls (from the right) to slow down the accession of Turkey into the EU, and calls from the left to rebuild trade barriers and protect workers (the far left of Mr. Lafontaine, garnered 8.5% of the vote in the German election, fighting predominantly on this issue), are concerning signals. This is not something restricted to Europe. Sufficient numbers of politicians in other countries have championed slowing immigration or free trade (Ross Perot, Pauline Hanson etc.).

Then comes a key-part of the first “Plutonomy” memo: Plutonomy only works if the members of a society have the impression that they can still participate, despite the harsh inequalities, that they “can join it.”The analysts use the term “robber-baron economies” and conclude that a “potential social backlash” is possible. Becoming a “Pluto-participant” is the “embodiement of the ‘American Dream'” -and this dream should not die, otherwise the Plutocrats could be in real trouble. Quote:

A third threat comes from the potential social backlash. To use Rawls-ian analysis, the invisible hand stops working. Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it? In a sense this is the embodiment of the “American dream”. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich.

Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes. But we suspect this is a threat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off. There are signs around the world that society is unhappy with plutonomy – judging by how tight electoral races are. But as yet, there seems little political fight being born out on this battleground.

A related threat comes from the backlash to “Robber-barron” economies. The population at large might still endorse the concept of plutonomy but feel they have lost out to unfair rules. In a sense, this backlash has been epitomized by the media coverage and actual prosecution of high-profile ex-CEOs who presided over financial misappropriation. This “backlash” seems to be something that comes with bull markets and their subsequent collapse. To this end, the cleaning up of business practice, by high-profile champions of fair play, might actually prolong plutonomy.

The second memo, titled “Revisiting Plutonomy: The Rich Getting Richer” deals mainly with the consequences for investments which follow the analysis in the first memo. Quote:

There are, in our opinion, two issues for equity investors to consider. Firstly, if we are right, that plutonomy is to blame for many of the apparent conundrums that exist around the world, such as negative savings, current account deficits, no consumer recession despite high oil prices or weak consumer sentiment, then so long as the rich continue to get richer, the likelihood of these conundrums resolving themselves through traditionally disruptive means (currency collapses, consumer recessions etc) looks low. The first consequence for equity investors who worry about these issues, is that the risk premia they ascribe to equities to reflect these conundrums/worries, may be too high. Secondly, if the rich are to keep getting richer, as we think they will do, then this has ongoing positive implications for the businesses selling to the rich. We have called these businesses “Plutonomy stocks”. We see three reasons to take another look at those plutonomy stocks.

Citigroup seems to be perfectly happy with the rule of the rich. They are also perfectly happy to suppress these explosive memos. What if Americans don’t believe into the American Dream any more? What if the thoughts of OWS-protesters slip into the mainstream? (Fortunately, this is already happening). The rule of the 1% is not a conspiracy theory, it’s a fact, as the Citigroup analysts explain in great detail. The citizens in the “Plutonomies” are expected to swallow this bitter pill. The Koch Brothers and others can buy politicians and make sure that they get their way, also thanks to the Koch-friend Clarence Thomas and his colleagues in the Supreme Court who made the “Citizens United” decision possible. But don’t forget: You “have equal voting power with the rich.” To me, free elections do not seem to be compatible with a plutonomy. But the 1% seem to try to take care of this problem, as the USA has witnessed sophisticated examples of election fraud since 2000, and the country is at the same time drowning in propaganda, for example by the Koch-Brothers propaganda machine, who are gearing up for 2012, the “the mother of all wars”, because “we have Saddam Hussein”, as Charles Koch casually remarked at their secret summer seminar in 2011:

While I researched the subject, I discovered that there also exists an additional third, shorter Citigroup memo, dated September 29, 2006, which is being mentioned here. The summary on the first page of this memo, which another report for their super-wealthy investors, boldly presents “Plutonomy” not only as a fact, but a business great business opportunity:

The Plutonomy Symposium — Rising Tides Lifting Yachts

➤ Time to re-commit to plutonomy stocks – Binge on Bling. 
Equity multiples appear too low, the profit share of GDP is high and likely going higher, stocks look likely to beat housing, and we are bullish on equities. The Uber-rich, the plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption. Buy plutonomy stocks (list inside).
➤ Plutonomy stocks at a premium, but relative pricing power is key. 
➤ Our Plutonomy Symposium take-aways. 
The key challenge for corporates in this space is to maintain the mystique of prestige while trying to grow revenue and hit the mass-affluent market. Finding pure-plays on the plutonomy theme, however, is tricky.
➤ Plutonomy and the Great Conundrums of our age.
We think the balance sheets of the rich are in great shape, and are likely to continue to improve. Don’t be shocked if the savings rate worsens as equities do well.
➤ What could go wrong?
Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more ‘equitable’ share of wealth.

Yes, what could possibly “go wrong?” The “threat” exists that societies would be “demanding a more ‘equitable’ share of wealth.” Thank God that we have such splendid police forces whose members seem to be very happy to quash any unrest with batons, tear gas, pepper spray and a high degree of rough behaviour in order to keep the plutonomists happy! Despite not having received widespread mainstream coverage, the Citigroup memos have been discussed in a handful TV-clips or documentaries. When Bill Moyers “signed off” with his last broadcast in 2010, he extensively quoted from the Citigroup memos and explicitly warned that Plutocracy and Democracy “do not mix”:

Finally, a note for you-know-who:

17 U.S.C. § 107

Notwithstanding the provisions of sections 17 U.S.C. § 106 and 17 U.S.C. § 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include:

the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

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BANKS RUN by CHILDREN

http://butterflieschildrights.org/

for CHILDREN
http://www.news.com.au/business/street-children-bank-on-hope/story-fn7mjon9-1226420082736

Ram Singh, 17, earns just one dollar from the 100 cups of tea he makes every day outside Delhi railway station, but each evening, after packing up, he goes to the bank and deposits nearly half of it. Singh holds an account at a special bank, run for – and mostly by – Indian street children, that keeps what little money they have safe and seeks to instil the idea that savings, however meagre, are important. Just one among millions of street children who rely on menial jobs for survival, Singh is determined to make his work pay some sort of future dividend. “I’m smart, but that alone isn’t enough to start a business. I save money everyday, hoping to start something of my own. Someday soon,” he said as he served glasses of India’s ubiquitous, spicy milk tea in sweltering heat at a stall near the teeming train station.

The Children’s Development Khazana (treasure chest) opened its first office in New Delhi 2001 and has since spread across the country and overseas with 300 affiliated branches in India, Nepal, Bangladesh, Afghanistan, Sri Lanka and Kyrgyzstan. Delhi counts 12 branches with around 1000 child clients aged between nine and 17. The brightly painted metal cubicles which serve as teller counters are located in shelters that provide children with free meals and sleeping mats, as well as school classes.

The branches are run almost entirely by and for the children, with account holders electing two volunteer managers from the group every six months. “Children who make money by begging or selling drugs are not allowed to open an account. This bank is only for children who believe in hard work,” said Karan, a 14-year-old “manager”. During the day, Karan earns a pittance washing up at wedding banquets or other events. In the evening, he sits at his desk to collect money from his friends, update their pass books and close the bank. “Some account holders want to withdraw their money. I ask them why and give it to them if other children approve. Everyone earns five per cent interest on their savings.”

An adult staff member is always present to collect the takings at the end of each day, depositing the cash in a nationalised bank to earn the interest component. Sharon Jacob, who works for the rights group Butterflies that set up the bank, said it aimed to give the children a genuine stake in their own future. “They work in shops as hawkers or porters but they never had a safe place to keep their money. They were always cheated of it or somebody also stole their money,”Ms Jacob said. “So this is a place where they could keep their money safely and they are also taught life skills, how to manage their finances. They are taught budgeting, they are taught democratic participation,” Ms Jacob said.

Child labour is officially illegal in India but millions of boys and girls have no choice but to earn a living to support themselves or help their families. Many move to the cities from rural areas, seeking an escape from grinding poverty or abusive homes. “I ran away from home at the age of 11 after my father beat me for stealing a kitchen appliance,” said Samir who works in a sweatshop. “For days I slept on a railway platform. I was beaten by the police and even harassed by the drug peddlers. I wanted to go back home but was ashamed of myself.” Now 14, Samir lives in the children’s shelter and holds an account in the bank. “I have saved 4000 rupees ($70.68) in the last seven months. It’s a good feeling to have some money. I will buy a shirt and a watch for my father and send it to him to seek his apology.” “He might forgive me and ask me to be with him at home.”

http://www.rt.com/news/indian-children-banking-system-637/

A group of kids in a shelter for homeless children in New Delhi have a few lessons for the world’s international bankers. They have invented a financial system of their own to save for a brighter future. In a shelter for homeless runaway teens in New Delhi, a tiny, self-starting democracy has sprung up. The residents have created an unlikely society where everything from healthcare to banking has been initiated, implemented and executed by the kids themselves. “There are children who have a job and they deposit their money in our bank and even the children who go to school save their money,” explained bank manager Satish Kumar. Satish Kumar’s peers elected him to be bank manager of this branch of the children’s development ‘khazana’ (Indian for ‘treasure’) that serves around 9,000 street children across South Asia and has 77 branches in the region.

Many of the runaway teens now have a place to safely keep their money, save for the future and take out development or welfare advances to invest in starting businesses or buying books for school. Mohammad Shah, a 12-year-old bank client, told RT that he has taken an advance three times. “The first time I took 500 rupees to buy the school uniform and other things, the second time I took the advance because my mother was sick. I took 1000 rupees and got the necessary check up done for my mother. The third time I took the advance was because I had to repay some money I had borrowed to help my father open a shop,” he said. The kids have a monthly meeting where they review applications for those who wish an advance and then, based on their track record of saving and earning, they decide who to grant the advances to and how quickly they need to pay it back.

In a time when many people would argue that the global financial system is on the brink of collapse and that the system itself might be fundamentally flawed, it seems like these teenagers from the streets of New Delhi have the whole thing figured out. They hold everyone from the account managers to the clients accountable for their financial decisions. Through meetings and discussions over lunch the children have taught each other how to save and invest in their future: “I think that if we don’t put the money in the bank then we tend to spend it on unnecessary things and waste the money. So when we save the money it can be used to do important things that may come up in the future like buying new clothes,” Sameer, a bank client, shared. It’s a sense of responsibility and survival that has shocked the supervisors of the shelters themselves and one that they say leaders around the world might want to take a look at. “They can be the super models in this whole thing because they know how to save money. They know how to utilize money for the best because they learn how to prioritize their needs, which we as adults actually don’t know,” Sharon Jacob from “Butterflies” child rights non-profit organization said.

Mohammad Shah is hoping that he can save the money he makes selling bottles of water at night to put towards his education so he can one day accomplish his goal of becoming a policeman. “I am thinking for the future as I want to save the money and do some thing useful with it when the time comes,” he says.

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POST-EURO CURRENCIES BACK in PRINT

DRACHMA ALREADY in PRODUCTION?
http://www.energytribune.com/articles.cfm/10805/Has-De-La-Rue-Already-Printed-the-Post-Euro-Currencies
Has De La Rue Already Printed the Post-Euro Currencies?
by Peter C Glover  /  Jun. 04, 2012

Rumours that British firm De La Rue Currency, the world’s largest banknote printer, has started printing drachmas in anticipation of Greece’s euro exit have been rife for a while. However, I have received information that a De La Rue insider confirms that not only has the Hampshire-based company printed drachma, it has already printed substantial reserves of all 17 pre-euro banknote currencies, including the Deutschmark.

While there is no way of independently verifying this it would make sense for a number of reasons. Not least the inevitability that ‘somethings gotta give’ and soon in Euroland. And no one can predict the extent of the economic fallout. De La Rue’s CEO Tim Cobbold has already stated that to print new currency in the space of a couple of weeks “would be impossible”. Indeed the sheer number of banknotes required to replace a national currency requires strategic forward planning. It would not be at all surprising therefore if a currency Plan B was in place in the event of a euro break-up, or in lieu of an exit by the Greeks. And I am advised that De La Rue is currently in an even higher state of information lockdown than usual.

There is little point in asking De La Rue. They have a long-standing and strict policy of never commenting on their currency printing arrangements. CEO Cobbold would only, as he has done before, point out that most Eurozone states have their own printers. True enough. But De La Rue has the advantage of a solid history of high security and its printing press is outside prying Eurozone eyes. Given that news of an official sanctioning of the printing of pre-euro currencies would likely create a run on European banks already teetering on the brink of crisis, keeping tight-lipped about contingency arrangements is hardly surprising. And there is background that lends support to the view that anyone looking for a good investment could do a lot worse than consider how well-placed De La Rue is to cash in on the meltdown of the European single currency.

De La Rue is a half a billion pound operation that prints banknotes and other security documents, including passports for 150 countries. As recently as 2011, the discovery of “production irregularities” at De La Rue caused it to lose some market credibility, a key customer (India), and its then chief executive. Rumours of a takeover by French rival Oberthur surfaced. As a listed UK company, De La Rue’s economic fortunes remain unchanged for a number of years. Since last year that has begun to change.

With the arrival of new CEO Tim Cobbold, De La Rue’s market stock has stabilised and steadily risen. But it was Cobbold’s reference to “a strong pipeline of opportunities” in the group’s annual results published in May that sent the currency whispers into overdrive. The company admits that its order book has increased by 14 percent to £248 million, but it won’t reveal details. Operating profits are also currently up post-tax by 56 percent. At the beginning of this year a further formal bid of £9.35 from Oberthur was again rebuffed. Just a few months later De La Rue’s shares are trading just above the £10 mark. Even so, investors considering De La Rue for a quick killing on the back of the euro crisis should be warned it would not be without risk. Even if oodles of pre-euro currencies are sitting in De La Rue’s warehouse in southern England, the EU has a history of making political decisions aimed at keeping the ‘European Dream’ alive at almost any cost to its constituent states and its taxpayers.

Meanwhile the chorus for a new economic arrangement is growing by the day. The latest voice calling for a Plan B for the eurozone is that of Mario Draghi, President of the European Central Bank. Draghi has lately made it clear that the current set up for the euro is “unsustainable”. Just how far EU and Eurozone leaders will go to sustain Plan A remains unclear. And that means that investors considering a swoop for De La Rue shares could still get their fingers burnt, printed pre-euro currencies or not.

But, as former UK PM Maggie Thatcher famously pointed out, “The trouble with socialism is that eventually you run out of other people’s money”. The moment the Germans pulled the life support system plug on the profligate southern socialist states, the writing was on the wall. Indeed, Belshazzar’s mene, mene, Tekel u-pharsin is a more than an apt analogy for a collapsing empire and its centrally planned economic system weighed by market forces – and found wanting.


De La Rue shares have staged a recovery since scandal struck in 2010

http://www.independent.co.uk/news/business/sharewatch/market-report-return-of-drachma-could-be-good-news-for-de-la-rue-7746887.html
Return of drachma could be good news for De La Rue
by Toby Green /  15 May 2012

While markets were panicking over the future of the euro yesterday, not everyone appeared so worried. Trading screens may have been swamped in red, but De La Rue managed to climb amid suggestions that the banknote printer could be in the money if the eurozone breaks up. The group ticked up 31.5p to 1,024p as dealers speculated whether it may find itself in line for new contracts if currencies need to be revived. Back in November, De La Rue’s boss, Tim Cobbold, said the crisis “can create opportunities for us” although he refused to go into great detail.

Some of the more cautious voices in the City argued that Greece’s size meant a return to the drachma may not be that lucrative, while Mr Cobbold has pointed out that the country has its own state-owned printer. However, Panmure Gordon’s Paul Jones – who called De La Rue “a good stock for political turmoil” – argued that even if De La Rue did not win the contract it “would be a beneficiary”, saying that “the knock-on effect would probably be to tighten the market given the speed of printing necessary”.

At the same time traders were pointing out that the group – which rejected two takeover bids from France’s Oberthur in 2010 and 2011 – would get a boost if the Bank of England decides that another round of quantitative easing is required The fears over Greece saw the FTSE 100 slump 110 points to 5,465.52, a new low for 2012. With the benchmark index now having given up 6 per cent in just eight sessions, Capital Spreads’ Angus Campbell warned that the “likelihood of [a Greek government] being able to steer the country through the crisis whilst staying in the euro is very slim”.

http://www.guardian.co.uk/business/2012/may/29/greek-drachma-rumours-banknote-printer
Banknote printer won’t be drawn on drachma rumours
De La Rue refused to confirm rumours it was printing drachmas in case Greece leaves the eurozone
by Josephine Mould  /  29 May 2012

Banknote printer De La Rue said a strong performance in currencies drove underlying profits up 73% last year, but refused to confirm rumours it was printing drachmas in case Greece leaves the eurozone. Chief executive Tim Cobbold said: “There are 200 countries in the world. Every country doesn’t order every year. This year there are orders for customers we didn’t supply in a previous year.” Forward orders for currencies at the year end in March rose 18%, compared with long-term growth in the banknote market of 4%.

De La Rue is still recovering from a scandal in 2010 when employees were found to have falsified certain paper specification test certificates for a limited number of customers. Its then-chief executive and several managers subsequently resigned and profits tumbled. Cobbold said on Tuesday morning that “discussions remain ongoing with the principal customer concerned”, previously identified as the Reserve Bank of India. He said the dispute was taking longer to settle because the company had to deal with a government who “have a whole series of pressures on them”. Last summer De La Rue introduced a so-called improvement plan, closing two facilities, which resulted in 200 job losses. Asked whether there would be any further job losses, Cobbold said: “Largely we have been through the actions on the improvement plan.” He said the company was making “good progress” with the plan and is on track to hit its target of over £100m operating profits next year.

Full-year pre-tax profits fell by 55% to £32.9m as a result of a one-off boost to profits last year from the sale of De La Rue’s stake in Camelot, and the one-off costs of implementing the recovery plan. But underlying pre-tax profit rose to £57.7m and revenues were up 14% at £528m. Chairman Nicholas Brookes will retire in July, handing over to Philip Rogerson, 67, who is also chairman of Bunzl and Carillion. Cobbold said: “[Rogerson] joined the board on March 1. I can only say from the time he’s given since then that I’m very confident he will have the time to dedicate to De La Rue.” The company will pay a final dividend of 28.2p on 2 August, making the total dividend 42.3p, the same as the previous year. The shares slipped 7p to £10.02.

http://en.wikipedia.org/wiki/De_La_Rue#Operations
http://uk.reuters.com/article/2012/05/18/uk-delarue-greece-idUKBRE84H0DH20120518
UK banknote printer readies for Greek call – source
by Neil Maidment  /  May 18, 2012

De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday. The news comes as EU trade commissioner Karel De Gucht said on Friday the European Commission and the European Central Bank are working on an emergency scenario in case Greece has to leave the euro zone – the first time an EU official has confirmed the existence of contingency plans. The source, who asked not to be named, said that as a commercial printer De La Rue needed to be alive to the possibility of a Greek exit from the single currency and prepare accordingly.

Crisis-hit Greece will be led by an emergency government into new elections on June 17 which will ultimately determine whether it must quit the euro – possibly spreading financial devastation across the continent. An exit from Europe’s single currency would spark a major demand for the returning drachma and while the country’s state printers could orchestrate its production, a handful of global firms like De La Rue could be called on to help. Buffeted equity investors looking for respite from the Greek turmoil have been busy buying up De La Rue shares in anticipation, helping push them up 11 percent in the last month.

Panmure analyst Paul Jones said the firm would be in with a chance of work if extra capacity was needed and could also benefit from other work as Greek printers were less likely to be quoting for contracts elsewhere. “If they (Greece) decide to pull out of the euro the first thing is it won’t be an overnight job, partly because of the implications of what they are trying to do but secondly because of the sheer number of banknotes that are needed to replace a currency,” Jones told Reuters. “It will be a huge job which the state printing works will do, but they will probably pull in some additional volume from outside and De La Rue will be in with a chance.” On Thursday, as rating agency Fitch downgraded Greece’s debt a further notch below investment grade to CCC, a poll showed Greek voters returning to pro-bailout parties, offering some encouragement to markets shaken by the prospect of a euro exit.

De La Rue, the world’s largest commercial banknote printer producing over 150 national currencies, told Reuters in November that regime changes and the euro zone crisis could fuel further growth for the group. Shares in the FTSE-250 firm, which has not produced drachma in over 20 years, were up 0.3 percent at 994.5 pence by 11:20 a.m., outperforming a 0.8 percent weaker FTSE 250 midcap index .FTMC.


Staff at De La Rue falsified data for quality control tests on banknote paper

PREVIOUSLY (2010) : FAKE PAPER
http://www.thisismoney.co.uk/money/markets/article-1703671/SFO-joins-probe-into-scandal-at-De-La-Rue.html

The Serious Fraud Office has been called in by currency printer De La Rue after the company discovered that employees faked the results of quality control tests on paper used for banknotes. The company admitted in July that it had uncovered ‘quality and production irregularities’ at a plant producing high-security paper. Last month, chief executive James Hussey abruptly quit, declaring he had to take responsibility for the debacle. And yesterday, De La Rue announced that following an investigation, the managing director of its currency business and another senior employee had quit.

‘The company has reported its findings to the relevant law enforcement agencies,’ said De La Rue. According to rel iable sources, the Serious Fraud Office has been asked to monitor De La Rue’s internal inquiry. The company is using law firm Herbert Smith to help find out what has been going on. De La Rue said yesterday that ‘some of the company’s employees have deliberately falsified certain paper specification test certificates’. It insisted that in a ‘small number’ of cases, paper used in banknotes was not up to scratch. Paper was shipped to customers before De La Rue realised that the results of quality control tests had been faked.

De La Rue £1bn note
Our De La Rue £1bn note features these details: 1. RAF airdrop of notes printed by De La Rue. 2. The Park Lane Hotel: the company regularly entertains ambassadors and diplomats in London. 3. Company founder Thomas de la Rue. 4. Spies: the world of espionage has often crossed paths with De La Rue. 5. The fall of the Shah of Iran. 6. Former boss James Hussey’s university, Oxford. 7. De La Rue’s Overton plant. 8. US troops guard the arrival of Iraqi currency. 9. £1bn: The estimated company value in June this year

LICENSE to PRINT MONEY
http://www.dailymail.co.uk/home/moslive/article-1320222/What-went-wrong-British-company-licence-print-money.html#ixzz1xD4y9TxA
What went wrong with the British company with a licence to print money?
by Adam Luck /  16 October 2010

It was a brilliant British success story: the impeccably well-bred banknote makers with a licence to print money in 150 countries – and are a retinue of former MI6 men to throw a cloak and dagger at upstart rivals. And then De La Rue decided to cut corners…

The Boeing 747 banked over Baghdad Airport before entering a steep dive, levelling up at the last moment and touching down on the runway. A line of U.S. military Humvees and armoured personnel carriers, flanked by more than 80 heavily armed infantrymen, fanned out across the Tarmac. Their job was to protect one of the most secretive cargos to be landed in the aftermath of the allied invasion of Saddam Hussein’s Iraq. They hadn’t been told that 90 tons of freshly printed Iraqi dinars, remarkable for not bearing the head of the deposed dictator, were stacked in the hold of the specially adapted jumbo; only the British sales executives who’d arrived with the steel crates of vacuum-packed notes were privy to that information. The troops simply ferried the crates into the vehicles and drove in convoy to the sanctuary of Baghdad’s Green Zone, while Apache helicopters hammered out a steady drumbeat above. Once the cargo had arrived in the Green Zone it was broken up and dispatched to various ‘secure’ points around the country to be dispersed. The notes were designed to kick-start the paralysed Iraqi economy. They were also a powerful symbol of President Bush’s determination to wipe the slate clean. But it wasn’t just the Americans who’d pulled off a coup in Iraq; this was a significant moment for the British company that printed the notes. The new Iraqi dinars had been flown in from the UK and were the work of one of our most daring and secretive institutions. De La Rue had been handed the $120 million contract to make the high-security, counterfeit-resistant notes by the U.S.-led Iraqi administration with good reason. The company supplies banknotes to over 150 countries across the world and has brokered deals in some of the most volatile nations on the planet.

Former De La Rue chief executive James Hussey
Former De La Rue chief executive James Hussey resigned in mid-August

De La Rue’s personnel are used to danger and secrecy. The company has routinely employed former military specialists, many of them linguists with an intelligence background, and has close ties with the Foreign Office and the Secret Intelligence Service, MI6. In the world in which they operate, murders, coups, espionage and dirty tricks are routine. De La Rue was a true British world leader and, with its licence to print money, was worth nearly £1 billion in June this year. But that was before disaster struck. Production of banknote paper at its dedicated plant was halted in July; a month later its chief executive James Hussey, an Old Etonian and godson of the Queen, resigned; and then it emerged staff had falsified test certificates that were meant to prove the paper was up to scratch. Three months later, De La Rue is worth a third less, around £650 million, and the company is now facing the mother of all battles for its future. The sprawling industrial complex of Overton Mill, overlooking the Hampshire village of Overton, abuts the north side of the railway line from London to Salisbury. Security at De La Rue’s paper-production plant borders on military-grade, as one might expect of the factory that makes the security paper for all Bank of England notes, euro notes and scores of other currencies. The squat gatehouse has thick bulletproof glass. Double sliding gates and two layers of high-security fencing keep out prying eyes. Access to the most highly sensitive areas, such as research and development, are controlled by iris-recognition cameras. Most staff only have clearance for their specific work area and nothing more. All are carefully vetted by an internal security department, which scrutinises bank statements, mortgage contracts and previous employment history to ensure none are apparently living beyond their means and therefore vulnerable to blackmail or temptation. Mobile phones are strictly forbidden inside, principally to prevent photographs being taken. The heart of this most mightily secure of operations is a series of giant wire-mesh drums, 6ft high and 6ft wide. Resembling out-sized Catherine wheels, they’re the starting point for an impressively rigorous production process. The wheels dip down into industrial baths containing millions of strands of cotton fibre, pick up the fibres and revolve to drain them of water. The layers of pulp that remain are then compressed into large sheets, rolled and dried in a series of procedures, each requiring verification and the completion of a test certificate. In this process covert security features are added, the most sensitive being the watermark. Each customer will have their own specifications; anti-counterfeiting measures incorporated in the paper will broadly reflect the budget of the client. (The Bank of England specifications are particularly exacting, with notes undergoing additional checks before being shrink-wrapped.)

De La Rue's Debden plant where bank notes are printed for The Bank of England.De La Rue’s Debden plant where bank notes are printed for The Bank of England. Security borders on military-grade

Once the security paper is ready, it’s transferred to the similarly well-protected printing plant at Debden in Essex. Here the sheets are fed into a German-made and Swiss-designed ‘Super Simultan’ press, which prints the background images and designs for both sides of the notes. The ‘Super Giori’ machine is then fed 10,000 sheets at a time, each sheet yielding 40 to 60 notes depending on their size. The portrait of the relevant monarch or state principal and the denomination are printed on each note, with 300-400,000 produced per hour. They’re then passed onto the ‘Foiler’, which inserts the thin strip of foil used in British notes as another anti-counterfeiting measure. The fourth stage sees the sheets fed into a rotary numbering machine, which applies serial numbers via ink-covered barrels; finally they’re fed into a ‘cut-pack machine’, with 100 sheets going in one end and 1,000 shrink-wrapped and sequentially numbered bundles of individual notes emerging from the other. Throughout, a number of inks are used, including fluorescent and UV ink, as well as OVI, or optically variable ink (which displays different colours depending on the viewing angle). Less well-known features include ‘see-through registration’, allowing a note to be checked for precise alignment between the printing on each side; micro-lettering and fine lines that ensure photocopies come out blurred; and ‘intaglio’ elements – the raised writing and ridges you can feel on the surface of notes. Confidence in the quality of De La Rue’s security paper helped it to post impressive annual results earlier this year. Profits and sales were up. But in late July, the company stunned the market by revealing it had ceased production of a type of banknote paper in Overton. The company cited ‘quality’ issues and said production and shipment of the paper had been halted while it investigated the problem. Its shares dropped 16 per cent.


Iraq’s bank notes made by De La Rue. Saddam Hussein had his done in China, replacing him on the note is non-political Abu Ali Hasan Ibn Al-Haithan

In mid-August, Hussey resigned after taking ‘responsibility’ for the unfolding disaster. Shares dropped by a further 12 per cent. Weeks later De La Rue revealed that an internal investigation had uncovered evidence that staff had been guilty of falsifying test certificates. The implications were profound, even if De La Rue insisted the paper in question was nothing to do with sterling or euros. The fear is that some of the substandard paper may have got into circulation, allowing counterfeiters to understand the security measures by comparing the high-quality paper to the poor quality. They could then exploit the weakness to produce their own notes. De La Rue has attempted to shrug off the security implications. After the company’s own internal investigations, the Serious Fraud Office was informed. And if shareholders weren’t already concerned at the prospect of an SFO investigation, they were then warned the affair was likely to cost the company at least £35 million. Shares dropped a further three per cent. In an industry where quality, reliability, reputation and discretion, not to mention secrecy, are fundamental to success, it couldn’t get much worse for De La Rue. ‘In the highly developed world of banknote printing, secrecy is paramount, because none of the central banks want their super anti-forgery device talked about,’ says banking expert Michael Jones, who was a senior executive at the Bank of England. ‘They don’t even want anyone to know the devices are there; it doesn’t matter if it’s in the paper or printing. You can’t underestimate the impact this will have on De La Rue and its business.’

Murders, coups and billion-pound banknote deals

Thomas de la Rue set up shop as a stationer and printer in London in 1821. The Guernsey-born businessman initially specialised in playing cards, but tax and postage stamps soon followed. By 1860 the company was printing its first banknotes, for Mauritius. Excluded from printing Bank of England banknotes because it zealously kept production in-house, De La Rue focused on the Empire, and when colonies gained independence, it was well placed to profit. World War II also offered the company the chance to build ties with exiled governments. Yugoslavs, Greeks, Czechs, Poles and Norwegians paid their resistance fighters in notes printed by De La Rue and flown in by the RAF in cloak-and-dagger operations. ‘In many ways the perfect cover for James Bond would be as a De La Rue salesman,’ says analyst Paul Jones from broker Panmure Gordon. Indeed, many of the firm’s staff have worked for MI6. ‘There was one man at De La Rue who I knew was with the intelligence agencies,’ says a former De La Rue executive who, like all his contract-bound colleagues, cannot be named. ‘He’d disappear for months at a time on leave sanctioned by the company. Apparently he has specialist skills, but I never found out what they were, where he went or what he was up to.’ By the late Fifties the company had 10,000 employees working in 24 plants in 14 countries. And throughout the next 30 years the company’s fluctuating fortunes echoed the rhythms of boom and bust in its traditional markets. By the turn of the millennium, however, De La Rue was suffering in the face of competition from German rival G&D (see below), and three outsiders were brought in as chief executive in quick succession to turn the business around.

Then in 2003 De La Rue won a seven-year contract to take over the running of the Bank of England’s printing plant in Debden, Essex. It also won the contract with Iraq. As the decade drew to a close results and prospects started to improve, but there were also plant closures both here and abroad. Many experienced staff left, and those still around were often asked to assume multiple roles. By the time James Hussey was appointed chief executive in 2009 the workforce had shrunk to barely 4,000. Hussey was a De La Rue man to the core and is one of the best-connected businessmen in London. His father was Marmaduke Hussey, the former BBC chairman, and his mother Lady Susan Hussey is a lady-in-waiting to the Queen, as well as a godmother to Prince William. Every summer De La Rue executives play host to their banker clients at Wimbledon in the company’s hospitality suite. In June the company also holds its famously discreet Ambassadors Reception at London’s Dorchester hotel. This has long been regarded as one of the high points of the diplomatic calendar, with as many as 200 ambassadors, diplomats, politicians, top brass and bankers gathering for a banquet and speeches. Before World War II, royals and Prime Ministers were regular visitors, and De La Rue was renowned for the presents it handed out to guests. In one case each guest was presented with monogrammed gold cufflinks.

De La Rue's Overton printing plant in Hampshire
De La Rue’s Overton printing plant in Hampshire, where staff were found to have falsified test certificates. The fear is that some of the substandard paper may have got into circulation

But the event has also attracted the wrong sort of attention. In 1982 the Israeli ambassador Shlomo Argov was shot and paralysed by followers of the notorious terrorist Abu Nidal after leaving the reception. The incident provoked Israeli Prime Minister Menachen Begin into launching his country’s invasion of Lebanon. For De La Rue, Hussey’s appointment signalled a return to not just old money, but also the old school. His patrician charm, however, belied his drive and ambition, and many claim he countenanced no contradiction. When he announced results in May this year Hussey appeared to have good reason to be pleased. Revenues had increased 12 per cent to £561 million and profits before tax stood at £97 million. The currency division, which prints the notes, contributed over 73 per cent of total revenues, and banknote-paper production had risen three per cent in the year. It was then that disaster struck at Overton. To compound the problems, the paper affected was destined for India and one of De La Rue’s biggest clients, the Reserve Bank of India, which is believed to account for up to a third of the company’s profits. One industry insider said, ‘There was a lax management culture, and below senior-management level, people were doing things that were detrimental to the business. They were cutting corners.’

An air of obsessive secrecy surrounds De La Rue to this day. One of the world’s most eminent experts in banknote printing and security paper, Rudolf van Renesse, refused to even comment on the controversy, simply noting, ‘I will get into trouble with my friends.’ De La Rue’s strict hierarchy meant that few people were prepared to speak out, and as a consequence, falsifying certificates became routine. The Overton paper mill was running at close to capacity. Managers and staff found themselves under immense pressure to get the paper printed and out of the gates, at any cost. One source close to the company told Live that De La Rue simply couldn’t achieve the paper-security specifications required by the Reserve Bank of India. ‘The implication is that this problem arose because of commercial pressures,’ says Paul Jones. ‘They cut corners to make sure the contract was fulfilled. Now you have to wonder what else has been going on within the company.’ De La Rue has admitted that ‘the full impact on the current-year financial results and on the group’s prospects has yet to be determined. You have to remember that these countries will have perhaps a 12-month contract with De La Rue and there will probably be penalty clauses built into those contracts,’ adds Jones. ‘They will have breached the contract, because the shipments have been delayed. When that contract comes round for renewal, what do you think the clients will be saying? They’ll be asking for a discount, or they may decide not to renew at all.’ The Indian bank has already sent over a high-level delegation to the Overton plant, and is now talking about making its own paper. Both the Bank of England and the European Central Bank are expected to follow with delegations of their own. But De La Rue doesn’t only have to worry about its clients. Its competitors are watching, and with its share price and credibility on the slide, it’s increasingly vulnerable to a takeover ‘This is a mature market,’ says Jones. ‘The demand for banknotes will surely decrease over time, and you can see the argument for consolidation. Competitors may look at De La Rue and may well be prepared to take a bit of a chance.’ At one point De La Rue toyed with the idea of taking over its long-term rival G&D, but its approach was rebuffed by the Germans, who bristled at the idea of being consumed by a British company. The irony is that the Germans could yet end up printing Bank of England notes. This, after all, can’t be any more far-fetched than a British company printing banknotes for Iraq.

People waiting outside a Tripoli bank
People waiting for money outside a bank in Tripoli

http://www.bbc.co.uk/news/uk-14746873
How did Libyan money come to be printed in Britain?
by Chris Summers / 2 September 2011

The RAF has delivered £140m worth of Libyan banknotes back to the country after the downfall of Colonel Muammar Gaddafi. But why is so much foreign currency printed in the UK? It is perhaps unsurprising that De La Rue, the British firm which printed the 280 million Libyan dinars (£140m) returned this week, is somewhat reticent about its business. The banknotes were ordered by the Gaddafi regime a year ago but were seized following the imposition of sanctions by the United Nations. When the rebels reached Tripoli and overthrew the Libyan leader, the UN agreed to lift sanctions and unfreeze some of the $20bn of assets the Libyan government had in the UK. A total of 1.86 billion dinars (£929m) would be returned. Foreign Secretary William Hague said: “The bank notes will be used to pay the wages of Libyan public sector employees, including nurses, doctors, teachers and police officers.” The cash will also be used to restock depleted cash machines across Libya.

Increasing demand
Pira International, a world authority on the print industry, said the global banknote trade was enormous. A total of 150 billion banknotes were printed last year, which is likely to rise to 162 billion this year and carry on rising, partially driven by increasing demand for cash in booming China. Pira’s chief consultant on print security, Michael Chamberlain, said 84% of the world’s banknotes were printed by state-owned enterprises – but the remaining 16% included 76% of the world’s currencies. Many countries, including Britain, the United States, Russia and China, will not allow their notes to be printed abroad. The US dollar is printed at two federal government-owned sites, in Washington DC and Fort Worth, Texas. But many smaller countries approach De La Rue or its main rival, Giesecke & Devrient. The German firm’s customers include Japan, Cambodia, Croatia and Guatemala. But De La Rue, based in Basingstoke, Hampshire, produces 150 foreign currencies as well as passports, driving licences and identity cards for several nations.

Old Libyan banknotes
Libyan banknotes carry the image of fallen leader Colonel Gaddafi

De La Rue was founded in Guernsey in 1813 by Thomas De La Rue, originally printing newspapers and later postage stamps before turning to paper money. It began printing money for foreign countries in 1930, when Chiang Kai-Shek’s Chinese nationalist government put in an order. Since 2003 it has also been producing Bank of England banknotes, from a printing plant in Debden, Essex. But the company refuses to give details of its overseas customers and a spokeswoman told the BBC: “We are bound by confidentiality with our customers and we have to respect their wishes not to have publicity.” There is no international body for the regulation of currency issue, which means there is nothing to stop companies printing money for “rogue states” like Syria or North Korea, or “emerging” states like Somaliland or Western Sahara which are not universally recognised.

Security threads
Mr Chamberlain said: “These states don’t have difficulty getting their money printed. The Chinese might do it, or the Russians.” De La Rue is fairly tight-lipped about their operations but it does admit to having plants in Loughton, Essex; Gateshead, Tyneside; and Bathford, Somerset. It uses security threads and holography as well as special security paper to defeat the counterfeiters. Some countries are happy to admit their banknotes are printed by De La Rue. One of them is Samoa in the South Pacific. De La Rue printed tens of thousands of notes for the Central Bank of Samoa, which introduced its new currency in 2008. Leasi Papali’i Tommy Scanlan, who stepped down recently as the bank’s governor, recently told De La Rue’s company magazine: “Counterfeiting was one of the biggest problems we faced with our previous banknote issue. “This is one of the main reasons we decided to issue a new series of banknotes, incorporating the latest security feature.” Counterfeiting is a lot harder nowadays.

A man holds up a Saudi banknote
Saudi Arabia is one of many countries which use De La Rue to print their notes

In the 1940s Adolf Hitler used a group of concentration camp inmates to create fake sterling banknotes in an attempt to destabilise Britain’s economy. Last month a set of fake notes from that wartime operation were put up for auction in Shropshire. There have also been allegations that North Korea has been printing fake US dollars, although the dollar is much harder to counterfeit than it was 10 years ago. Technology has moved on a great deal in the last 70 years and De La Rue has cornered the market. It also makes electronic identity cards for Rwanda and passports for Malta, Qatar and the Bahamas.

Regime change
Another banknote customer is Saudi Arabia, which uses the face of King Abdullah Bin-Abd-al-Aziz Al Saud on all denominations except the 500 riyal. The Saudi king and Queen Elizabeth II are not the only heads of state to be used on banknotes, but it can be a problem when there is a regime change. For the next couple of years Libyans will just have to put up with carrying around notes bearing the likeness of their fallen leader, just like Iraqis did with Saddam Hussein. Mr Chamberlain said: “They will have to use them but the new government is probably already thinking about issuing a brand new currency with the appropriate message on it.”

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the CENTRAL BANK of SOMALIA

http://www.somalbanca.org/currency.html

“Following the political crisis, the older banking system collapsed, including the Central Bank of Somalia’s right of being the sole and exclusive issuer of the Somali banknotes and coins, and as of today, the formal commercial banking activity in the context of Monetary Policy does not exist and there reserve money is wholly composed of bank notes issued by various unofficial issuers. Since 1996, Warlords and business people have been printing Somali Shillings Bank notes. The Central Bank of Somalia is resuming its role as the sole and exclusive authority to issue banknotes and coins as a first step to take control of monetary policy.”


Currency traders at work

A Currency Issued in the Name of a Central Bank that No Longer Exists
http://www.economist.com/node/21551492
Somalia’s mighty shilling : Hard to kill / Mar 31st 2012

Use of a paper currency is normally taken to be an expression of faith in the government that issues it. Once the solvency of the issuer is in doubt, anyone holding its notes will quickly try to trade them in for dollars, jewellery or, failing that, some commodity with enduring value (when the rouble collapsed in 1998 some factory workers in Russia were paid in pickles). The Somali shilling, now entering its second decade with no real government or monetary authority to speak of, is a splendid exception to this rule.

Somalia’s long civil war has ripped apart what institutions it once had. In 2011 the country acquired a notional central bank under the remit of the Transitional Federal Government. But the government’s authority does not extend far beyond the capital, Mogadishu. The presence of the Shabab, a murderous fundamentalist militia, in the south and centre of the country, makes it unlikely that Somalia will become whole anytime soon. Meanwhile, 2.3m people are in need of edible aid. Why, then, are Somali shillings, issued in the name of a government that ceased to exist long ago and backed by no reserves of any kind, still in use?

One reason may be that the supply of shillings has remained fairly fixed. Rival warlords issued their own shillings for a while and there are a fair number of fakes in circulation. But the lack of an official printing press able to expand the money supply has given the pre-1992 shilling a certain cachet. Even the forgeries do it the honour of declaring they were printed before the central bank collapsed: implausibly crisp red 1,000-shilling notes, with their basket weavers on the front and orderly docks on the back, declare they were printed in the capital in 1990.

Abdirashid Duale, boss of Dahabshiil, the largest network of banks in Somalia, says that his staff are trained to distinguish good fakes from the real thing before exchanging them for dollars. Others accept the risk of holding a few fakes as a cost of doing business (shillings are often handed over in thick bundles of 100 notes). By this alchemy, an imitation of a thing which is already of notional value turns out to be worth something.

Shelling out shillings
A second reason for the shilling’s longevity is that it is too useful to do away with. Large transactions, such as the purchase of a house, a car, or even livestock are dollarised. But Somalis need small change with which to buy tea, sugar, qat (a herbal stimulant) and so on. Many staples are not produced domestically, making barter impractical. The shilling serves as well as shells or beads would as a medium of exchange. It also has a role as a secondary store of value. Once a year the economy gets an injection of dollars when goats are sold to Saudi Arabia to feed pilgrims undertaking the haj. Herders need to find ways to save money received then for spending over the next year. The shilling is one of them.

The shilling has a further source of strength. Since each party to a transaction is likely to be able to place the other within Somalia’s system of kinship, the shilling is underpinned by a strong social glue. Paper currencies always need tacit consent from their users that they will exchange bills for actual stuff. But in Somalia this pact is rather stronger: an individual who flouts the system risks jeopardising trust in both himself and his clan.

Having survived against great odds, the shilling now faces a serious challenge in the form of dollars transferred by mobile phone. Zaad, a mobile-money service, allows users to pay for goods by texting small amounts of money to a merchant’s account, and is proving popular in Mogadishu. But the shilling’s endurance suggests it should not be counted out. If it can survive without a government, it can probably brush off modern technology, too.

ZAAD
http://www.zaad.net/

What is ZAAD SERVICE?
ZAAD is a MOBILE MONEY service, allowing customers to use their money for transfers, purchases, payment of bills , and airtime recharge.

WHY ZAAD SERVICES?
ZAAD services is a benefit for the following sectors:
The whole community
Government and non-government organizations Major companies and agencies

Telesom ZAAD Service
Telesom is pleased to become the Fifth company in the world after (Smart, MTN, Vodafone, Zain ) to provide Mobile Money. Telesom is the first African fully owned company in the world to announce Mobile money . ( MTN is a multinational company based in South Africa )

RE-OPERATIONAL
http://english.alshahid.net/archives/17861
Somalia Central Bank officially re-opened by PM / February 2, 2011

“Somali Prime Minister Mohamed Abdullahi Mohamed (Farmajo) had made as one of his top priorities the re-operationalisation of the country’s central bank which had grinded to a halt since 1991. The Central Bank of Somalia was established on June 30, 1960 and has now opened its doors to the public. The Prime Minister said the bank opening is an important symbol for the independence and sovereignty of somalia, as well as the growth and stability of the institution. The Central Bank of Somalia was one of the largest financial institutions in Somalia, with 130 branches located throughout the country. The bank of the nation was destroyed by warlords and Criminal gangs that overthrew Somali President Mohamed Siad Barre in 1991.”

WORTH SOMETHING
http://www.islamicbanknotes.com/Somalia.htm

“In 1996 Mohammed Farah Aideed, still the head of one of the major forces in Somalia, placed an order for Somali shillings with the British American Banknote Company, a Canadian company based in Ottawa. Despite condemnation in Canada for the transaction, the banknotes were printed and delivered to Somalia. The deal was evidently brokered by a Malaysian businessman on behalf of Aideed. However, Mohammed Farah Aideed never saw the money, as he died on 1 August 1996 from wounds received during a battle in Mogadishu. Ultimately, his son, Hussein Aideed, and other members of his clan received four shipments of the currency that was estimated at 165 billion Somali shillings.

The notes printed for Aideed were probably in denominations of 500 and 1000 shillings, although this has not been confirmed, and they can be identified in a number of ways. Firstly, the notes carry the date ‘1996’ at the bottom of the notes and they are signed by Ali Amalow as Guddoomiyaha. Amalow was appointed Governor of the Central Bank of Somalia in October 1990, just prior to the fall of Siad Barre, and he did not sign any ‘official’ notes issued by the Central Bank of Somalia. Secondly, the use of the letter ‘D’ as the series identifier for the 1000-shilling notes suggests that these were the notes introduced by Aideed, as it can be expected that he would use the existing identifier for this series. The only known 500-shilling note issued after the fall of Siad Barre uses the same font for the serial numbers as the 1000-shilling note with the ‘D’ series identifier, suggesting they were printed at the same time. However, the use of ‘A’ as the series identifier for the 500-shilling notes does not follow the use of ‘D’ for the previously issued notes and therefore there is some doubt as to whether these notes were printed for Aideed.

The bold initiative by Aideed, of issuing his own notes, did not go unnoticed by other faction leaders in Somalia. In 1999 the Puntland administration contracted printers in Indonesia to produce Somali shillings for their own use. These notes can be recognized by the different colour for the number ‘1000’ that appears in the centre of the notes. On these notes the number is purple, whereas for all other printings of this note it is green. In fact the differences are more varied, but this is the chief distinguishing point. On the original notes, there is a green, orange and purple intaglio print, but on the Indonesian-printed notes there is no intaglio printing. Instead the colours are printed by lithographic printing and areas that should have been green are printed in purple.

Following the conclusion of the Somali National Peace Conference in Djibouti on 22 August 2000, a Transitional National Government was elected with Abdiqasim Salad Hassan chosen as president. As there had been a dozen different peace conferences over the previous ten years with no satisfactory outcome, this result looked promising. Relocating to Mogadishu, the government moved tentatively and soon the control of the government moved to businessmen who worked in concert with the politicians. One of the products of this collaboration was that the Transitional National Government became involved in importing fake banknotes to help prop up the economy. The Transitional Government imported Somali shillings from an unknown source but when it became apparent that almost anyone could have money printed and imported into the country, many business men did just that.

In February 2001 Mogadishu businessmen imported 60 billion Somali shillings into the country. In order to gain control of the economy, the Transitional Government was forced to purchase this money from the businessmen for the cost of printing and transportation. An undertaking was also elicited from the businessmen that they would import no more money. However, later shipments of banknotes were brought into the country under the protection of the Transitional Government. Endnote

Around May 2000 it was reported that Mohamed Hasan Nur, the leader of the Rahaweyn Resistance Army, had visited Italy and had arranged to have 500- and 1000-shilling notes printed in Italy and shipped to Somalia. He evidently intended that the currency would circulate in the Bay and Bakool regions of Somali, which were under his control. Endnote (It is not known whether these notes were actually printed and delivered.)

The importation of fake currency was not limited to the old Somali shilling. It was only a matter of time before importations of fake new shillings began to appear and notes of this issue with a prefix commencing with ‘X’ are believed to be an ‘unauthorized’ importation. The new shillings were apparently imported by Mogadishu businessmen who probably found that there was more profit to be made in importing the higher value notes.

It is not easy to follow all the trading, importing and printing of fake Somali banknotes. Certainly, the printing of notes by the British American Banknote Company for Mohammed Farah Aideed is one of the few well-documented cases of the printing of fake notes. However, many reports implicate Canada, Indonesia and Malaysia as sources of fake money without nominating the recipient or the printer. One report nominates the Indonesian company Pt. Pura Baru Kudus, located in Java, as involved in printing US$4 million worth of Somali bank notes, but there is no indication whether they were the suppliers for the Puntland administration or for another authority. While most of the businessmen importing currency are nameless, Mohamed Abdulle Daylaaf and Hussein Goley of Mogadishu are two businessmen who have been reported as importers of fake currency.

(There is one interesting aspect to the factions circulating fake currency in Somalia. On 3 September 1998 Mohamed Said Hersi, known as ‘General Morgan’, declared Jubaland independent. Jubaland is in southern Somalia, bordering on Kenya, and has as its capital Kismayo. Of all the reports concerning fake currency, none have been found in reference to the administration led by Hersi. However, his reign was short, surviving only until June 1999, and it is understood that he may not have had the finances to purchase a stock of banknotes.)

In many ways it is surprising that the importation of fake Somali shillings continues to occur. When the importation of the fake notes first occurred, importers realized a huge windfall due to the seigniorage gained in the issuing of the currency. Seigniorage is the difference in the cost of producing the banknotes and the value of the note when placed into circulation. It was reported by some Somali businessmen that the cost of producing a 1000-shilling note was US$0.028. In 1991 1000 shillings was worth US$0.20 and so the seigniorage (excluding transport and storage) was US$0.172 per 1000-shilling note. The exchange rate fluctuated over the ensuing years, but towards the end of the 1990s the rate plunged dramatically to the extent that, by 2001, a 1000-shilling note was equivalent to US$0.0416 and, if the cost of production remained steady, the seigniorage had dropped to US$0.0136. At some point in time, if inflation continues, it becomes unprofitable to print 1000-shilling notes. This is why 500-shilling notes are no longer printed. However, where 50-new-shilling notes are printed, it remains profitable for a much longer period.

A significant aspect to consider in regard to the distribution of fake shillings is the social and economic effect on the market into which the currency is introduced. If fake currency floods the market, it immediately devalues the currency in circulation. In Somalia, where the poor are affected, this causes distress amongst the majority of people who have lower incomes. The BBC News reported in June 1999 that two people were killed by market guards in Mogadishu after riots broke out following the importation of fake currency. Endnote By this time the public of Somalia were all too aware of the economic impact of the importation of fake currency and in this instance the riot was the result of people venting their anger.

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the PRIVATE BANK of DENNY RAY HARDIN

NEVER ASKED for the MONEY BACK
http://gawker.com/5840953/the-private-bank-of-denny-ray-hardin-wasnt-a-real-bank

After reading some books about banking, Denny Ray Hardin set up a website, created 2,000 fake promissory notes, and opened up “the Private Bank of Denny Ray Hardin” (not necessarily in that order) from his home in Kansas City. How entrepreneurial! And illegal. On his website—sorry, the Private Bank’s website—Hardin claimed that the notes, which he made on his home computer, were bonded and authorized by the U.S. Treasury Department. From September 2008 to September 2009 he sold more than $100 million of these things, reports the Kansas City Star.

In a March 2010 profile by the Kansas City alt-weekly The Pitch, Hardin comes off as a tragic and complicated character who has some altruistic motives but is also driven by extremist “don’t tread on me” ideology. Fittingly, the article introduces him by way of a his many life troubles, which seem to have begun when he and his girlfriend were in a car accident, she lost her ability to work, and he was laid off from his construction job. “The one good thing we had was Betsy,” he told The Pitch, referring to his beloved Corvette Stingray. But then a friend set him up in a small-time marijuana deal, and Hardin was arrested. The cops confiscated the Corvette, and Hardin was sentenced to jail time plus probation. Upon his release, he experienced this horror: “The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.” Seriously, that’s tragic.

Besides seeing his old hot rod being used to promote snitching on your parents, Hardin faced other troubles. His woman left him. He began smoking crack. His life essentially fell apart. Then he went to rehab and read about various subjects, including banking. He applied his knowledge and opened the Private Bank of Denny Ray Hardin, under this theory that we don’t understand:

Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. The Americans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

Hardin didn’t really charge people much of a fee to his customers, whose mortgages he paid off using his special-issued Denny Ray bonds (for more on how this works, see this LA Timesarticle). Like an official bank, he gave his customers information packets describing “all the steps he had taken, what laws he had to abide by, the ordinances that must be followed.” And, as The Pitch notes, he was just one banker in a small yet diverse niche market; the Gadsden flag-flyingAmericans Republic Party, which has supported Hardin over the years, knows of other private banks operating right here in America.

On Wednesday, Hardin was found guilty in federal court on 11 counts of creating fictitious obligations and 10 counts of mail fraud, reports the Kansas City Business Journal; he now faces at least 20 years in prison. At the time of his indictment in May 2010, he was already incarcerated in state prison on a probation violation based on a 2006 incident in which he tried to arrest the lieutenant governor of Kansas for violating the Constitution. The government did not agree with Hardin about the lieutenant governor’ behavior. Hardin and the government are rarely in agreement on the issues, it seems.

It’s amazing that people would do business with a bank named after some random guy. Then again, people do business with all kinds of banks. At least this can be said about the now-shuttered Private Bank of Denny Ray Hardin: it was probably one of the only banks in Kansas City that was helping people to avoid foreclosure instead of making foreclosure more likely.


Among those who say Hardin is their savior (from left): Denelle Ginder-Brown; her husband, James Brown; and their daughter, Michelle Elam. – Michael McClure

NOT a ‘REAL’ BANK
http://www.pitch.com/gyrobase/denny-hardins-weapon-against-the-us-government-his-own-private-bank/Content?oid=2197865&showFullText=true

Denny Hardin’s weapon against the U.S. government: his own private bank
by Peter Rugg  /  March 11, 2010

It started over a cherry 1977 Corvette named Betsy. “Ever since they took that car, the fight’s been on,” Denny Hardin says. He’s talking to The Pitch by phone from the Moberly Correctional Center, where he’s serving the first months of a five-year sentence for a probation violation. By “they,” he means the United States of America. Hardin didn’t plan to wage a one-man war against the government. He was once a loyal citizen; he even served in the Navy in the 1980s. By 1991, he was in his late 20s, divorced from the wife he’d met in Tokyo, and back in his hometown of Kansas City. He began dating a hairdresser named Sherry Lee, who wanted to open her own salon. They found a space and started work on it, sleeping on the floor of the shop when they didn’t have enough money to also rent an apartment. But then they were in a car accident. The insurance company paid out $20,000 for medical bills and the cost of the car. They spent $7,780 on Betsy. Hardin found the car on the lot of a Raytown Chevrolet dealer. It was in such pristine condition that it was just a thousand dollars less than the original sticker price. A ’77 Stingray is one of the most popular Corvette models ever made, the type of car that bikini-wearing models still recline against on the covers of muscle-car magazines. The rest of the money went to medical bills, but Lee couldn’t work. Her hands, which she had relied on to style hair, now shook uncontrollably. “Then I got laid off from my construction job,” Hardin remembers. “The one good thing we had was Betsy.” For the next few months, money was scarce. One day, a friend of Hardin’s from grade school asked if Hardin could help him find some weed. His friend promised that Hardin would make a couple of bucks for setting up the deal. When they got to the dealer’s house, the friend feigned shyness, telling Hardin that because the dealer didn’t know him, it was better that he stay in the car while Hardin bought the dope. Hardin went in and bought a half-pound of pot. When he came back out, police arrested him. “It turned out, that friend had been busted by the cops earlier, and he set me up because he’d made a deal with them to deliver people,” Hardin says. He served 120 days and got five years’ probation. Even worse, the cops claimed that the Stingray had been bought with drug money, so they confiscated it. The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.

Lee eventually left him. He knows that she’s in Iowa somewhere, working as a paralegal, but they haven’t spoken in years. “When they took Betsy away, that just about destroyed her. Betsy was repayment for almost dying,” he says. “I promised her I’d make up for what they did, and I still keep that promise.” He didn’t start right away. Hardin spent the next few years in a crack-smoking stupor, dropping down to 87 pounds before checking himself into a hospital for rehab. As he convalesced, he read history and law books. Eventually, the man who was still three credits short of his associate’s degree at Longview Community College was offering legal advice to friends and family. Before long, he learned how to make his own bank.

The Private Bank of Denny Hardin, responsible for writing more than $160 million in bonded promissory notes to borrowers all around the country, is a two-story house on the East Side of Kansas City. Taped to the door is a notice declaring that no foreign agents are allowed to search the premises. Inside, shelf after shelf is filled with accordion folders holding the names and addresses of the people for whom Hardin, with the help of his fiancée, Melinda Harrington, has written bonds. Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. TheAmericans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

In April 2009, the Office of Inspector General at the U.S. Department of the Treasury posted a fraud alert. In 2008, Treasury agents noticed that people were sending in notes and bonds to pay their taxes. “These scams have been directed towards banks, charities, individuals, and companies which seek payment on the fraudulent securities,” the Treasury warned. In most cases, perpetrators were writing bonds with a Treasury Bureau routing number in place of a bank’s and were writing their own Social Security numbers where the checking-account numbers would normally be listed. “Fraudulent seminars are being held throughout the United States, which teach attendees how to create the aforementioned fictitious documents and how to use federal routing numbers,” the Treasury warned.

Other than the part about putting on seminars, the warning was essentially a description of Hardin’s operation. Hardin says he has never charged his clients anything more than the administrative cost of filing his notes (typically no more than $100) and has never asked for repayment on a loan. If he’s telling the truth, that’s a lot of risk for little payoff. One of Hardin’s early customers was Bob Suppenbach, who had known him when the cops took Betsy but had lost track of him. (Those were the years when Hardin was addicted to crack, Suppenbach learned.) “I ran into a mutual friend, and he told us what had happened to him.” The mutual friend then told Hardin about running into Suppenbach. “Denny came out to see us two days later and he’s been coming to the house ever since.” Suppenbach wasn’t immediately sold on Hardin’s new calling. But as a man who had his own troubles with the government, he saw the appeal. In the late 1960s, state agents removed Suppenbach and his three brothers from their mother’s care. Suppenbach says his two brothers were later molested by people who were supposed to watch out for them, and both died in the 1980s after contracting HIV. Before Hardin was busted in a drug sting, Suppenbach served four months in the U.S. Penitentiary at Leavenworth for making cable descramblers for satellite dishes. “I’m the only man in the whole damn country who’s served time in a federal prison for stealing HBO,” Suppenbach says.

He had money troubles, too. “Seems like everything I went and got involved in, for one reason or another after two or three years, got obsolete. Got into TV repair, VCR repair, then computers. Then I thought I’d try construction. I got a company set up, got all my trailers, my tools, spent thousands of dollars getting set up in construction. Then the market fell out.” Suppenbach had a $60,000 mortgage hanging over him. Then in 2006, he joined the class of plaintiffs in a multistate lawsuit against the company that supposedly held his title, Ameriquest Mortgage. The nation’s largest subprime lender settled claims of predatory lending by agreeing to pay $295 million in restitution and changing its lending practices. A year later, Suppenbach got a collection notice for the same loan from Citibank, whose parent company, Citigroup, had acquired much of Ameriquest in 2007. During last year’s bank bailout, Citigroup’s arrangement with the government ensured that about $20 billion in federal dollars would be directly invested in the company, in addition to $306 billion to help back loans and securities. “They were selling them back and forth. It didn’t matter that they defrauded me and I won in court. They got rewarded for it.”

When it comes to not knowing exactly who owns his mortgage, Suppenbach has a lot of company. In many cases, even the banks aren’t sure. (Last year, researchers at the University of Iowa found that out of 1,733 foreclosures begun in 2006, 40 percent of the foreclosing creditors showed no proof of ownership on the note or security investment in the property.) If a bank has to contest a payment’s legitimacy — for example, if payment is presented in the form of a bonded promissory note from a self-proclaimed banker — then not being able to show proof of ownership could actually help the homeowner, or at least let the homeowner delay getting kicked into the street. After Hardin’s 2009 incarceration, the Americans Republic Party Web site posted a list of other private banks. As of February, the only links were to a man named Charles Elliot in Henderson, Arkansas (who did not return The Pitch‘s calls), and J.W. Patterson, president and founder of Shadow Mountain Bank in Ash Fork, Arizona. The latter is probably the only financial institution in the country whose Web site includes links to prove it’s a real bank, along with clip art of doves carrying roses in their teeth and a teddy bear that somersaults and dances over the P.O. Box number. Patterson says the Treasury Department is just catching up. “I’ve been doing this since the ’80s,” he says.

The Private Bank of Denny Hardin is the originator of more than $160 million – in bonded promissory notes to borrowers all around the country. – Sarah Rae

Patterson says he has written bonds for thousands of people, including members of the Montana Freemen — the group that spent 81 days in a standoff with the FBI in 1996, defending land they claimed was their own, separate from the United States. (They were also known for passing counterfeit checks and money orders.) Today, the group’s most famous former member is Scott Roeder, admitted killer of Kansas abortion provider George Tiller. Patterson won’t say how many clients request his help in a given day, just that Shadow Mountain has a budget of $500 a week for ink. In Kansas City, at least one family considers Hardin an angel. In March 2009, KCTV Channel 5 aired video of a 44-year-old named Denelle Ginder-Brown, who was near tears. All around the country, people had been losing their homes. Ginder-Brown, who worked as a cashier, lived in a house on East 93rd Street near Indiana Avenue with her husband, 63-year-old James Brown, and their two children. They had lived there for 15 years and had a deal with the owner: They would make the monthly mortgage payments and eventually the house would be theirs. In 2004, the owner died and willed the house to them. They kept writing checks to Capitol Federal and never missed a payment.

But within months of the owner’s death, Capitol Federal ordered that the remaining $10,000 balance on the mortgage be paid immediately or else it would foreclose on the house. The Browns didn’t have the money. A representative from the Neighborhood Assistance Corporation of America — a group that helps families facing foreclosure — looked at the case and discovered that Capitol Federal had continued accepting payments even though it knew that the Browns’ deal wasn’t a legal sale of the property. NACA’s local director tried to work out a payment plan, but Capitol Federal refused. In a suit brought against Ginder-Brown by Capitol Federal, a judge ruled that the bank owned the property because her name was never on the title. The family was given a week to find a new place to live. Channel 5 aired the story on Monday, March 2, 2009, and the property was scheduled for auction on Monday, March 9.

On the day of the auction, Channel 5 aired a new story. This time, Denelle Ginder-Brown was smiling. Capitol Federal had relented because, as it turned out, it was only servicing a loan that was owned by Freddie Mac, which had decided to work with her on a new loan. But there was even better news. An anonymous good Samaritan had seen the Browns on the previous week’s broadcast and offered to pay the loan completely. All Ginder-Brown had to do was wait for the bank to confirm that it had received the house payment in full, and then she could see her name on the title. The moral to the story: There are good people in the world. The family’s anonymous savior was Hardin. “We got down on our knees and we prayed for God to help us because we didn’t have anything else we could do,” says Brown, who is currently on disability. “We believe God makes a way out of no way, and he sent Denny Hardin.”

At first, the Browns were skeptical of Hardin’s claims that he was a private bank. Then he gave them a packet with all the steps he had taken, what laws he had to abide by, the ordinances that must be followed. They decided their prayers had been answered. Immediately after Hardin paid their mortgage, the couple says, they received a visit from FBI agents telling them that Hardin was paying off other people’s homes with fraudulent bonds. James Brown claims that the agents asked him to inform on Hardin. But it’s hard to convince people to roll on a man sent by God to save them. The Browns believe that the status of their house is still uncertain; they claim that they’re still fighting over the initial loan disagreement. Most of their belongings are in storage, and they’re ready to move on a moment’s notice. “We’re down to the barest of essentials in here,” Brown says. “Our house is almost naked because we don’t know the final outcome. But if it hadn’t been for Denny’s help, we’d have been steamrolled right over from the start.” Since he started his bank in September 2008, Hardin says, most of the $160 million in notes that he has written have been to pay off people’s bank loans and keep them from going into foreclosure. “As far as I can tell, nobody’s lost their house who he helped,” Brown says. “He put a new roof on our house, and he saved us from being on the street, and he never asked us for a dime.”

The thing about probation-violation hearings is that they’re supposed to be simple. There are no mitigating circumstances. There are no degrees of violation. Either you broke the terms of your probation or you didn’t. Denny Hardin has a gift for making simple things complicated. At this late-summer hearing in 2009, Hardin is accused of violating a probation order restricting him from appearing in court or filing papers on behalf of anyone other than himself. The probation stems from an incident in 2006, when he camped out on the steps of the Capitol in Jefferson City and tried to arrest Lt. Gov. Peter Kinder for violating the U.S. Constitution. Hardin appears unassuming for a man who wants to bring down the federal government — a “paper terrorist,” as some agents refer to him. He is slight, with long hair and a beard, wearing blue jeans and a T-shirt that reads “Americans Republic Party” and “Don’t Tread On Me.” Along with the slogans, the shirt bears the yellow Gadsden flag — a favorite symbol among Tea Partiers — with its symbol of a coiled snake ready to strike.

The snake also appears on the chests of 30 other men and women of the Americans Republic Party who have filled the right side of the courtroom. Each one holds a black, leather-bound copy of the Constitution. The Browns are there. So is Suppenbach. Several supporters are Hardin’s bank customers. Over the course of what becomes a two-hour hearing, Hardin objects to every possible authority that the court tries to exert over him, including its authority to make him sit down. On this point, Judge Stephen Nixon concedes, and Hardin spends the trial brandishing a copy of the Constitution over his head as if it were a Bible at an exorcism. Hardin’s argument against being forced to sit down is the only victory he has today. To list each overruled objection would take more pages than a pocket Constitution. Nixon overrules with a calm that seems uncaring to the members of the Americans Republic Party and generous to the two prosecuting attorneys.

Hardin’s most minor objections involve claims that he was forced to sign documents under duress. His most sweeping denounce the legitimacy of the judge, the court, the legal systems of the state of Missouri and the United States, and the bar-admitted lawyers who have sworn allegiance to British royalty. Hardin’s followers take copious notes, recording their leader’s argument every time Nixon denies a motion. When the hearing ends, Hardin has been sentenced to five years in prison. There’s a collective gasp from Hardin’s supporters. The prosecuting attorneys and the judge are unmoved. Sentencing is always followed by a gasp. Hardin takes off his choker necklace and gives it to Harrington. “I guess now I’ll be writing that letter to the president of the United States from the Jackson County Jail,” he says, before officers escort him away in handcuffs.

In the Moberly Correctional Center, Hardin’s days are scheduled around four strict appointments. At 7:15 a.m., 11 a.m., 4 p.m. and 7 p.m., he gets a phone call from Harrington. Hardin spends time in the law library. Being incarcerated hasn’t given him second thoughts about offering his services to his fellow inmates. “My theory is that if there’s no property damage and no injured party, there’s no crime,” he tells The Pitch. “Most of the guys in here never committed a crime. It’s just the system bringing them in so it can make money off of their incarceration.” He’s certain that if he files enough motions, if he cites the right laws, he can build a chain of arguments he can follow back to the world. In Kansas City, the Americans Republic Party is confident that, any day now, Hardin will be released. “We’re all working on it and doing what we can,” James Brown says. “I think he’ll be out in a couple weeks.” Patterson, in Arizona, is also trying to help. “Probably 90 percent of the people he was helping have come to me,” Patterson says. “I’m writing a bond to try and get him out right now. Of course, he didn’t set his bank up totally right — he missed a few things, but I can help him correct it all when he gets out.” The right paperwork is crucial, Hardin says. “I have to show them I’m right. We can’t be violent. We can’t tell people to go out and get guns. We have to win with the power of our reason. We have to show them they’re wrong and we’re right.”

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