European Banking Fraud

CrossTalk: Libor or Lie-more?

What will be the implications of the Libor scandal? Will anybody get into prison for the wrongdoing? What message does it send to the authorities? Should there be more regulation, or can banks regulate themselves?

CrossTalking with Richard Wellings and William Black.

Max Keiser: 'European banks are technically bankrupt'

Press TV,,

13 July, 2012

A new report by the International Labor Organization (ILO) says the eurozone is in danger of losing 4.5 million jobs over the next four years, unless it changes its current economic policies.

According to the report, if the 17-nation bloc does not prevent the spike by shifting away from austerity, the number of its unemployed workers will reach to 22 million. 

“It’s not only the eurozone that’s in trouble, the entire global economy is at risk of contagion,” the report said. 

It also added that young people are to be severely hit by the unwelcome consequences of a longer period of austerity. 

Press TV has conducted an interview with Max Keiser, a journalist and broadcaster in Paris, to shed some light on the issue. 

The video also offers the opinions of two additional guests: Simon Dixon, the CEO of BankToTheFuture.com in London, and Paolo Raffone, secretary general of CIPI Foundation in Brussels. 

What follows is an approximate transcript of the interview. 

Press TV: Max Keiser, looking here at 4 or 5 years of austerity measures have failed to stimulate the European economies. How can economies be stimulated and then create jobs at the same time if there is a global slowdown occurring, if you agree with the fact that there is a global slowdown? 

Keiser: Well, let’s look at the case of Ireland for a second. A few years ago, the Irish public debt was virtually non-existent. Then one of their banks, Anglo Irish, ran up debts that were ten times the country’s GDP. They went bankrupt and the Irish government decided to move those debts or guarantee those debts onto the bound sheet of the citizen and then they started imposing austerity measures to bailout Anglo Irish Bank and their unsecured debtors. 

So this pattern is what we have seen play out all over Europe. You have got these debts that were incurred by banks; they cannot pay the debts and the governments are doing the bidding of the banks by transferring these debts to the public and then imposing austerity measures. We saw it in Argentina. City Bank was in Argentina back in the late 80s or early 90s or 90s to 2000 and they went bust basically and the government forced the citizens to pay off City Bank’s debts.

So that was the model. So this is a common theme now. You do something about this transference of bank debt to the public and you are going to have these problems continue. It is playing out all over the world. 

Press TV: The root cause of the problem is something that it seems that is not being tackled because it seems like just by buying time and getting these loans, of course some are wondering where these all the money is actually coming from; maybe it is the citizens of each country; like in the case of Greece you have 20 banks that have lent Greece money. 

Ultimately, are they going to be able to pay back, in Greece’s case for example, the money? I mean that is the fundamental question that is faced in some of these debt-ridden countries, isn’t it? 

Keiser: To follow up on what was just said about finding new markets for debt, to find too not a little bit, they are finding new innovative ways for the banks to sell debt back and forth to each other without having to increase their reserve requirement in any way, in fact reduce their reserve requirement. 

So you have a bank like Deutsche Bank with three trillion in debt that is supported by less than one and a half percent of tier one capital. So you have less than a one or two percent fluctuation in the value of those assets and the bank is technically bankrupt. 

These banks in Europe are technically bankrupt. Their balance sheets, if you were to freeze-frame them and forensically look at them, you would find that they are without any collateral whatsoever. They are only supported by the illusion of whipping these debts around in the washing machine that is the euro money laundering system to keep themselves going and like for example they introduce the European stability mechanism. 

This just means that the same debts that were swapped amongst banks six months ago are being swapped again into a new lending facility that is collateralized by the same banks. This is the very definition of a Ponzi game; this is what put Bernie Madoff in jail and this can continue on additionally because what will happen is that once they establish a European-wide Central Bank in Brussels to mimic what is happening in Washington DC or the Federal Reserve Bank and then once that game was out, then the Federal Reserve Bank and this new European Central Bank in Brussels will create a new global Central Bank and then they will do the whole thing over again and then everyone who is suffering austerity today will have to pay additional tax to this new global Central Bank.

So the people suffering austerity are going to continue to suffer austerity except their tax burden is going to go up substantially and the bankers who make money created this Ponzi game will continue to suck wealth out of this system and load it over in this neo-feudal model, as they have been doing now for the past 5-10-20 years. 

Press TV: Reading between the lines here, it would be positive to see what actually are on the books of these different banks. Are there hidden costs? Because it seems like for example with Bankia, when we hear about the bailout that they need, do these countries know how much their banks have on paper in terms of assets, in terms of funds before they can reach out and bail them out? Or are these debts going to all of a sudden surface in the news that they owe this much more? If you can elaborate on that more for us and give us some examples, please. 

Keiser: No, they do not know how much debt these banks have. It is part of what is called the shadow banking system. The shadow banking system in America is estimated to be over 16 trillion dollars. So it is in excess of the entire GDP of the United States and this is true throughout the world. There is 800 trillion dollars in derivatives that are part of the shadow banking system. The entire globe GDP has called 50 trillion dollars. 

What happens is that when banks want to get more laws passed to deregulate the system, to make it easier for them to continue this Ponzi game, they suddenly flash huge debt that they say they just found; they just discovered it. Hank Pualson did this in 2008; [Richard] Fuld did this in Lehman Brothers; the troika did this when they were talking about Greece. 

They have trillions of dollars worth of debt that they can use as a scare tactic to get the citizens and the government to sign off as was the memo of understanding with Greece with the troika and then when they sign it off, they suddenly say, ‘OK, while this new lending facility is going to take care of this debt, we are going to lower interest rates again toward zero percent.’ Of course so the debt service is down to as low as possible it can be but I want to follow up on Simon Dickson about the nature of money itself. Most people assume that a bank takes on a deposit and then they loan that deposit out and this creates liquidity in the system. That is false.

In today’s banking system, banks first lend money into existence. That is where money comes from: it is loaned into existence as debt. A small fraction of that ends up on another bank’s balance sheet that they then call collateral. But it is just debt. There is no hard collateral. 

That is why, at this time around the world, there is a mad scramble to try to reclassify gold as a tier one asset because that is the only unimpingeable collateral that you can have at this point to solve the fact that none of these banks have any collateral that is worth anything in a resell market. 

They are all technically bankrupt and this is what they discovered in Iceland which is why they had to let the three major banks collapse; the currency collapsed; the economy collapsed but now they are growing again because they went through that moment; they realized that they had this huge problem. 

These banks in Europe have to understand that they must allow the banks to crash and let happen what is going to happen. But until that happens, there is going to be more debt servitude, more problems like we are seeing; more austerity and more social unrest. There is a real risk now that some of these bankers are going to be rounded up.

In the mainstream media in American, noble price winning economists and people like Nouriel Roubini are suggesting that bankers should be hung. I said that in this show three years ago and people thought I was being exaggerating but now Nouriel Roubini is calling for the bankers to be hung. So this is a very interesting sea change.