Citigroup coins crisis "Foreclosures gone wild!"

Zero Hedge founder, Tyler Durden, and his crew have been (as usual) on point with the unfolding foreclosure/mortgage/title fraud fiasco, and yesterday they brought us another report:

"Citigroup Call on Implications on Foreclosure: "Just the Tip of the Iceburg."

You know things are getting interesting when Citigroup hosts a conference call during which their expert guest speaker, associate law professor at Georgetown University Adam Levitin, calls the current visible ramifications of the foreclosure/mortgage/title fraud crisis "just the tip of the iceberg" and suggests major unseen problems to come, and then Citi, one the largest and "most respected" (ha!) banks in the world, issues its an official report on the crisis and the conference call which the bank decides to title along the lines of "Girls Gone Wild" with a Citi spin: "Foreclosures Gone Wild."

I kid you not.

Here's the document, "Foreclosures Gone Wild," available for our scribd'ing thanks to the Village Whisperer. The following are what I think are the most telling parts of the Citi document...with a little bit of my take added for good measure:

1.) Curse those "arcane" laws-- they're always getting in the way of our fraud!

Page 1: The underlying issues which have recentlyerupted involve the proper transfer of paperwork in the mortgage securitization process. Real estate law is “arcane” and requires that paperwork be physically transferred when mortgage ownership is transferred (“assigned”) from one party to another party. It appears that in many instances during the mortgage securitization process over the past few years, the paperwork was not properly transferred. If the paperwork was not transferred in the legally required manner, it raises questions not only about who owns the mortgages in question but also about the validity and tax exempt status of the trusts in which the mortgages reside. All of these issues also bear directly on the role played by the title insurance industry.

My comment: the reason why so many "instances" over the "past few years" when "paperwork was not properly transferred" were able to manifest is because of the bank-funded MERS front operation, which "appears" to have been basically attempting not only to circumvent those "arcane" laws, but actually to supersede them. MERS was hailed as a "replacement" to these damn pesky laws--and if it wasn't for those meddling judges, it'd have gotten away with it!

2.) Don't worry--everything is under control: we'll just pay people to commit perjury!

Page 1: Banks have attemptedto remedy the aforementioned problems by having employees sign affidavits that they have personal knowledge that the trust was once in possession of the necessary documents. Two problems have emerged with regards to these affidavits. First, several news stories have reported that the people signing these affidavits had no knowledge of the matters in question despite the fact that there were legally swearing that they did. Second, the affidavits may be irrelevant because the issue is not that the documents were lost but they were never properly transferred at each step of the aforementioned securitization process.

My comment: "Having employees sign affidavits" is a very interesting way to phrase the robo-signing debacle. From whom the orders came, we do not yet know. But we do have an admission from the operations supervisor at JPM's Chase Home Finance, Beth Ann Cottrell, who gave sworn deposition on May 19, that she and seven other JPM employees signed approximately 18,000 documents per month, and that they did this for several years. These so-called robo-signers often used wildly different signatures from one document to the next, and an unconfirmed report is floating around that another confirmed robo-signer Marshe Craine's signature is even on some of President Obama's mortgage paperwork. People are searching the internet for the names of these individuals, and inspecting their own mortgage/foreclosure documents. Indeed it is "just the tip of the iceberg."


3.) C’mon, America--who do you trust: us, the criminal consortium of banks hell-bent on extracting every last drop of wealth we can out of you, your house, your investments, and most especially, your government, or those damn pesky “arcane” laws of yours?! We repeat, in case you didn't hear us the first time, your laws are just stupid and "arcane," and are unnecessarily complicating the massive international fraud-based housing system we are attempting to implement, dammit!

Page 2: The underlying problems center around the proper transfer of paperwork. It is important to appreciate that real estate law is arcane and requires the physical transfer of documents when ownership changes hands. In industry parlance this transfer is known as “assignment.”
When a mortgage is securitized and placed in a mortgage pool, there are typically four parties involved. The mortgage bank or lender originates a mortgage and then sells it to a “sponsor” who in turn sells it to a “depositor” who then sells it to the “trust” which governs the pool. Importantly, as noted above, the original paperwork must be transferred at each step of the process.
It now appears that in many cases (1) the paperwork was not properly transferred and (2) it is unclear in many cases where the actual paperwork actually rests today.

My comments: Citigroup, repeating opinions, such as calling laws "arcane", do not magically make them fact.


4.) And how dare you people demand that we pay taxes! Taxes?! How are we
gonna completely enslave you to our evil fiat system if we have to pay taxes?!

Page 3: Most mortgage trusts were set up as REMICs (Real Estate Mortgage Investment Conduits) which are special purpose vehicles used to pool mortgages. Under the IRS code, REMIC confers a special tax status in which the cash flows to the trust are not taxed. Investors in the trust pay taxes. The tax exempt nature is important. If the trusts were in fact to be taxed, the taxes would distort the yields required by investors.
To qualify as a REMIC under the IRS code and enjoy the beneficial tax treatment, the trust (1) must be passive and (2) cannot acquire any new assets 90 days following the trust’s creation. If, as described above, mortgage documents were never correctly passed through to the trust when it was established, then the trust may not actually own the underlying mortgages it purports to own. Although it is possible that this issue could be remedied by some legal maneuvering, doing so could violate the REMIC status since the trust would be acquiring assets long after the aforementioned 90 day period has expired. Such a violation in turn could trigger a sizeable tax burden for investors. Our speaker indicated that there are a handful of open questions on this front and that this is a legal gray area.

My comments: "...the trust may not actually own the underlying mortgages it purports to own," not to mention, it might not have any entitlement to the "underlying" asset, and if the asset was derived through fraud, those in the trust collecting through the fruits of fraud might themselves be liable for repayment. Just ask the Madoff "investors."


5.) Drat! We should have made our buddy Paulson force the taxpayers buy the title insurance companies—that's what we should have done! How dare they do this to us banks?! But its not too late---we'll show them. Call Timmy G!

Page 3: If a scenario emerges in which title companies are unwilling to issue title insurance, in those scenarios lenders may cease lending. When a home with a mortgage on it is sold, the mortgage must be released at closing by the current mortgage owner before a new mortgage with title insurance is issued. If it is not known with certainty who owns the mortgage in question, it cannot be released. If the title company is not satisfied that there is a good release on the old mortgage, it will refuse to insure the new mortgage.

My comment: we have now reached the "scenario" of title insurance companies refusing to issue title insurance, including the nation's largest title holding company, Old Republic, refusing Ally Bank (GMAC Mortgage) and JPMorgan. I'm sure title insurance companies are searching like mad for the titles they do insure, because many no doubt have fraudulent transfers on their hands, and in their books.


6.) So what we created MERS to help us commit fraud---you got a problem with that?

Page 4: MERS (Mortgage Electronic Registration Systems) functions as a centralized electronic registry of mortgages and tracks ownership of mortgages. MERS allows mortgage ownership to change hands efficiently and relatively quickly since it is electronic and allows all parties to forgo making a filing in local land records. Indeed, MERS was designed to function as a substitute for local land records.

My comment: Well, hey, what's wrong with designing a bank-funded front corporation to "function as a substitute for local land records," aka "laws"? Get outta here--I do it all the time! Just last week I finalized my latest system, "TERS" or Truck Electronic Reigistration System, which allows me to state what my rig weighs and that my axles are legal, and blah blah blah, and hit the road, baby! Its been working like a charm for all those 79,000 lbs copper loads--I just state my empty wieght as 1,000lbs! Pretty cool, huh? Oh, and wait till you see my other invention CERS--Currency Electronic Registration System--that allows me to register my junk mail are vertiable currency. Yo, let me tell you what--substitutes for laws and records are waaaaaay better than the real thing!


7.) Oh, this Levitin guys is just another one of those lawyers who are so concerned about “laws.” Doesn’t he know that laws for people, not banks?

Page 4: Although MERS was designed to enhance efficiency in the mortgage assignment process, Levitin argued it may not conform with the law. “Slowly but surely” courts are issuing decisions which “cast validity on the MERS process.” Although ~60% of mortgages list MERS as the “nominee” which owns the mortgage, a handful of recent court cases have ruled that MERS has no standing in foreclosure actions either because (1) physical paperwork must be transferred when a mortgage is assigned by one party to another or (2) MERS has no true economic interest in the mortgage in question since it collects no payments from the borrowers.

My comments: whooops.


8.) Whatever with your “laws:” we own the government, so we have you either way.
Page 4: Ultimately, if these issues do in fact escalate, the Administration may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that “some payment” will be exacted from the lenders and servicers. The Administration could bargain for more mortgage principal write downs.

My comment: in other words, the Administration could completely ignore the systemic fraud and outrageous criminal behavior of the banks, and placate the voters with a mortgage principal write down plan funded by other taxpayers, leaving the banks completely untouched for their several years-long fraud scheme, and further paving the path of the United States to certain doom. Of course, that is all to completely ignore that fact that the federal government has no jurisdiction over a particular state's mortgage filing rules, or its "arcane" law, but can only constitutionally intervene in cases of interstate transactions under the Commerce clause. But that's didn't stop the feds before, so why start now?

And exactly this is happening right now. The mysteriously well-greased Interstate Recognition of Notarizations Act (HR 3808) slid through both the House and Senate without even making the news, and just in time for the Congressional recess. As for now, the president has pocket-vetoed the bill by refusing to sign it, which now sends the bill back to the House (I say "as for now" because you trust this president about as much as you could trust the last one). The bill is just a couple of pages long, and sounds benign at first:

HR 3808, Section 2:
Each Federal court shall recognize any lawful notarization made by a notary public licensed or commissioned under the laws of a State other than the State where the Federal court is located if--

(1) such notarization occurs in or affects interstate commerce; and

(2)(A) a seal of office, as symbol of the notary public’s authority, is used in the notarization; or...

As this sounds a lot like each State recognizing the others' driver's licenses (it is not, but it sounds like that). Of course, the federal government would never allow the same argument with guns or drugs, but this doesn't sound too bad. However, then you get to (2)(B), the very next line of the bill, and see exactly why this slid through the most pro-bankster Congress in decades like a bankster's newly sharped and nicely heated knife through a large, mindless, cowardly block of butter:

... (B) in the case of an electronic record, the seal information is securely attached to, or logically associated with, the electronic record so as to render the record tamper-resistant.

In other words, in States that have those pesky "arcane" laws that require physical transfer of the necessary documents, the rule of law in States that allow for robo-signing and non-judicial foreclosure will reign supreme. In other other words, States best shut up and listen to the banks and believe whatever they say especially if they can't prove it, and even if the States have the very signatory admitting that they lied, and even if the States have knowledge of the same notary "verifying" the words of the signatory even while the notary is looking at documents from the same signatory that have three different signatures. The notaries are not off the hook in this, either, as it appears many of them facilitated this operation (probably for the right price). The real name for the bill should have been the "Mortgage Document Fraud Immunity" bill.

So why do I call the lump of butter known as our Congress "cowardly," as well as "pro-bankster" and "mindless"? Why don't I name names? Well, you know I love naming names, but you see, we can't name names and we can't know which crooks voted for these crooks because the bill was passed in the House by a voice vote, and in the Senate by unanimous consent! That is as cowardly as it gets: the members of Congress apparently learned from TARP-stain, as pro-TARP congressman after pro-TARP congressman fails in the primaries and struggles for reelection, that flicking off the people and voting with the criminal elite isn't exactly good voting policy. So, instead of deciding not to flick off the people anymore, they'll just do it under the cowardly cover of a voice vote. That's why--its disgusting.

So, now for president Obama has curtailed the Mortgage Document Fraud Immunity Act of 2010, but I remain suspicious. I have no evidence for the following speculation, but here it is anyway: I think Mr Levitin is right. I think the administration is holding out for some election-saving last minute "bargain" with the banks that presents the appearance of principal reduction, moves perhaps 25% of the currently underwater loan-owners just to the surface, restores the banks' balance sheets through a massive taxpayer funded infusion, and disables the now 50 State AG's investigating the fraud. In reality, the "bargain" will be a TARP 2 under cover of "principal reduction," and will result by another massive transfer of wealth from the American people to to elite--and immune--banks. The people moved from underwater to treading water and gasping for air will be able to continue to pay the banks for perhaps another 2 years, at which point they will run out of stream, sink under, and have their houses taken after all, and after having paid the fraud-infested bank, which probably doesn't even own the loan or the title, another 50% of their income.

Sorry to be so "Debbie-downer", but that's what happens when you ignore fraud and cover it over with "bargains." Its like watching snow fall over a dunghill: it doesn't get rid what's underneath.

Citigroup: Livin' in a Bankster's Paradise

This week's revelations on the financial chicanery that should have decimated the monstrous zombie bank commonly known as Citigroup are little surprise to anyone with a healthy skepticism of fiatists, but it is at least encouraging to see that the Financial Crisis Inquiry Committee is bringing to the forefront, for everyone to see, the dirty laundry of Citi's irresponsible, multi-billion dollar balance sheet "omissions." As you can would expect, it stinks.

An article today from Bloomberg reveals the FCIC's latest disclosures regarding the major role of liquidity puts that crippled Citi in what I would call "Level-1 Jenga tower fashion." The liquidity puts Citi offered were basically guarantees on the debt-backed securities it sold that allowed the buyers to re-sell the securities back to Citi at face value if the markets froze and the buyers were not able to sell the debt themselves. The liquidity puts were obligations to buy back the debt if the securities did not perform: in other words, from Citi's perspective, they were collateralized debt obligations, or CDO's, and from the investor's perspective, they were debt-backed securities. Thus, Citi sold the securitized debt from its balance sheet in the bundled securities to investors, and promised to buy it back at face value if the investors wanted to sell and for some reason the market wouldn't pay full price. This is very important: what that simple statement should tell you is that Citi never thought they'd need to actually pay-out on the liquidity puts.

Think of this way: if you bought debt from Citi and you wanted to sell it, and could get a higher price on the market that you paid for it (ie: profit), then you'd surely sell the debt on the market, right? Of course: you would be crazy to sell the debt back to Citi at only face value when you could get more on the market. The only reason you wouldn't be getting a better offer on the market would be because the debt was not performing. Citi, on the other hand, is happily assuming that they'll never have to buy your debt back because they have declared that there will always be another buyer in the market because the "value" of the debt you purchased from them--with their buy-back guarantee--will only ever go up, up, up!

Do you get this? This is so patently arrogant that it is insane! Have you ever heard of a gold dealer who would sell you and your 5,000 closest friends $1150 gold today and guarantee that he'll buy it back from you tomorrow for $1150 if the price drops to $750 overnight? No--you haven't, because that guy would be outta business in no time! (But if you happen to know one, please give me his number.) Furthermore, can you imagine the capital that dealer would have to keep on hand to back up a promise like that--what would be the point of being a dealer? Sure, Walmart has its "Satisfaction Guarantee" that has allowed me to actually witness people returning birthday cakes with missing pieces at the customer service counter (and no, I'm not exaggerating), but Walmart's "guarantee" actually means Walmart is just going to send whatever you return to them back to the product maker and Walmart will demand a refund from the maker. Do you think Walmart would have such a generous return policy if it was actually costing them? No, because they, and the gold dealer, aren't totally insane. Citi on the other hand...

Indeed, in Citi's world--a world called Bankster's Paradise--it is apparently quite possible to create up risky assets, sprinkle them with fairy dust, chant a magic phrase, sell them with a money-back guarantee, and be totally confident that such assets will never, ever, ever lose value. And for would-be investors, any little apprehensions about purchasing something from Citi that was otherwise and fundamentally risky (because all investments are risky), despite what nonsense the market and ratings agencies say, could be assuaged and neutralized by the promise of a money-back guarantee! Sounds great, right?

You might be wondering, then, what possibly was packaged in these rock-solid debt securities that Citi was selling, and guaranteeing with face-value "liquidity puts," that Citi was so absolutely positively sure would never, ever, ever decrease in value, yet that investors needed just a little bit of encouragement to purchase. Well, take a wild guess--and no, it's not birthday cakes, and we know it's not gold. Think, now: what market bubble was never, ever, ever supposed to pop--what "asset" was never, ever, ever supposed to lose value, and what was everyone just so absolutely sure was an "investment" so solid that banks could give anyone a loan to buy one...or two....or three, whether or not the debtors had a job or even a pulse?

C'mon--a wild guess! You got it: the housing market!

Yes, indeed, we are back to those glorious mortgage-backed securities, the sure-fire, rock-solid debt behind Citi's liquidity-put-backed "assets." Buyers would purchase the securities thinking their value would increase, and for years, the buyers were right. Citi benefited from not only the sales, but also the fact that they never had to cover the liquidity puts they guaranteed. It moved the debt off their balance sheet and freed up capital for--guess what?--more loans! They couldn't sell them fast enough: according to the FCIC, the debt sales were in the hundreds of BILLIONS--$400 Billion in just 2005 and 2006 alone. In Citi's world, the market obviously could only go up forever: why else guarantee them? And lazy, non-investigative investors are saying, "Citi is guaranteeing them--they must be rock-solid!"

Rock-solid, huh? Hardly: we all know now that Citi was wrong. Investors were wrong. Testimony at the FCIC today revealed that in 2007, Citi found itself looking down the barrel of a $25,000,000,000 gun held by hundreds of debt holders who all the sudden wanted their face value back. The debt was toxic: no one on the market would buy it for face value, as the underlying assets--those pesky mortgages--were turning sour at record pace. This left the debt holders with one option: Citi's promise, and a very long line at the customer returns counter. Only unlike Walmart, Citi's the one left holding the bag.

See, in Bankster's Paradise, Citi thinks you can have it both ways, and given that they were bailed out by the taxpayer under threats of collapsing the entire global financial system and destabilizing the rings of Saturn, I guess they're right. Still, even realizing the insanity of guaranteeing hundreds of billions of debt-backed securities as CDO's on your side, one might think that someone crazy enough (Citi) to do that would at least put a little dough aside--just in case. So, did Citi do this?

Hell no! Citi, according to the FCIC, capitalized the guarantees at 0.8%. In other words, Citi put aside $1 for every $125 it "guaranteed" by the liquidity puts. This meant that with $25 Billion pointed at them, Citi had a whole $200 million. All the fairy dust in the world is not going to make that work. Nope, sorry. But if you've got friends in high places with the power to steal $787 Billion with the stroke of Bush's pen, that will work!

The American people should be outraged. To this day, in regards to Citigroup alone, US taxpayers remain on the hook at for at least $25 Billion and "own" a staggering 27% of this fraud-laced multi-national zombie banking behemoth. Additionally, the FDIC-backed paper Citi was allowed to sell accounts to at least $301 Billion. Citi has "repaid" $20 Billion of the original 2008 infusion of $45 Billion: I say "repaid" because, of course, this money is only being returned to the always bankster-run US Treasury's TARP (Troubled Asset Relief Program) fund. Of course, TARP was originally started by former Goldman Sachs CEO turned Bush administration Treasury Secretary Mr Hank Paulson, and the program is now in the hands of our latest pro-bankster Treasury Secretary, Mr Timothy Geithner. Mr Geithner, with the enthusiastic support of the Obama administration, has determined that TARP will basically be a never-ending, revolving bank-bailout account. Who knows how much more Citi and other zombies will get--again, it still has $25 Billion to return and $301 Billion in paper to settle before we're anywhere near off the hook. The FCIC has a lot of laundry to go through. Is somewhere in there some good ol' fashioned fraud?

An interview aired today, April 13, on the Charlie Rose Show with Jim Chanos, the legendary short-seller who has made billions by seeing through the smoke and mirrors of fraud-laced balance sheets ranging from Baldwin United in 1982 to Enron in the last decade. In the interview, Chanos noted that the "hole in Lehman Brothers was $150 Billion, give or take," which was "twice Enron." He noted that such "holes" in balance sheets mean that "there's fraud involved." Rose asked Chanos if he thought there ought to be criminal indictments, in reference to Lehman, and Chanos replied, "I think there ought to be a lot of criminal indictments." To date, no Lehman executives have faced any criminal charges.

I mention this because at least Lehman was allowed to drown under its own crimes. Citi, on the other hand, not only has seen no criminal investigation into fraud or anything else, but was bailed out with money stolen from the American taxpayers. Last week, Citi's former CEO Charles "Chuck" Prince gave testimony to the FCIC that he simply had no knowledge of how exposed Citi was, and that he "was not aware of the decisions being made on the trading desks" to retain the very CDO's that got Citi into trouble. Interestingly, though, he continued that admission with the statement that it would be "hard" for him "to fault the traders who made the decisions to retain these positions on Citi's books" if he had know about them. Mr Prince talked quite a bit in both his opening statement and in response to questions about how much he and his bank relied on credit ratings for, apparently, their own decision-making, and pretty much hung Citi's balance sheet on them. He seems to me to be laying much of his firms fiduciary responsibility on the backs of the credit rating agencies. Of course, if Citi wasn't up to such machinations, the credit rating agencies would not be of much concern. Mr Prince did a lot of blaming against the credit rating agencies (which, don't get me wrong, deserve plenty of scrutiny), but strangely, he didn't acknowledge that it was their very inflated ratings that allowed his bank's operations to work under Basel II. They were accomplices, and like after many crimes, they turned on each other. Mr Prince resigned on November 4, 2007--the same day Citi announced $11 Billion in write-downs due to it "money-back guarantee" MBS that had now become hard-core CDO's, and stated in his testimony that he watched his personal wealth of Citi stock nose dive from over $50/share to $1. Considering that he made many, many millions while at Citi, the commissioners didn't seem too sympathetic.

The write-downs that forced Mr Prince out of office, however much he wanted to blame it on the credit rating agencies, were not something that just appeared in November 2007. As this week's FCIC's hearings demonstrate, the demons were there all along--they just weren't on the balance sheet, and the idea that Prince and Rubin simply "didn't know" about $55 Billion in CDO's is specious at best. Citi investors didn't know, because the bank hid the exposure--which is why there was such a backlash, including against Mr Prince, in November 2007 when the bank finally acknowledged that huge $11 Billion loss. Up to that point, Citi had considered their magical liquidity puts so utterly risk-free that they literally did not place the $55 Billion in liabilities on the balance sheet. Does that sound right to you? It doesn't sound right to me, either. Check this out from a November 2007 Fortune article:

"Meanwhile, you might think the existence of the (liquidity) put would make it impossible for Citi to get those CDOs entirely off its balance sheet. But in fact Citi found a complex accounting rationale for doing exactly that, and the CDOs jumped entirely to somebody else's balance sheet. All that remained in Citi's realm was this sticky little matter of the puts - which, as we shall immediately see, ultimately worked to get these CDOs right back to their creator, Citi."

Ah, yes, balance sheets are rather flexible in Bankster's Paradise, don't you know. (Some day they'll be optional!) Actually, this is where Basel II rears its ugly head, yet again. Again, the above article was written in November 2007: within three months, we saw Countrywide and Bear Stearns fall, followed by infusions for Freddie and Fannie, a collapse of Lehman, a takeover of AIG, Merrill Lynch, WaMu, Citi, GM, and on and on. The FCIC has already taken testimony from Alan Greenspan over the role of his Federal Reserve in the financial crisis, and for the past couple of weeks, it has been focusing on these critical days early in the crisis at Citi. During those days in 2007, the man seated next to CEO Chuck Prince in the boardroom at Citi was the same man seated next to him at the FCIC hearing. That man was former Citi chairman and director, Robert Rubin.

Robert Rubin's testimony matched Mr Prince's insofar as its ability to demonstrate outright incompetence at the boardroom level. Case in point: Mr Rubin, who made over $100 Million at Citi, literally claimed to have simply not known or understood the banks exposure. This is quite a statement to believe when it's coming from the former CEO of Goldman Sachs and former Clinton Treasury Secretary, who sat on the board of directors of Citigroup for over a decade. Perhaps even more unbelievable is a claim Rubin made in November 2007, as Mr Prince was resigning and Citi was posting $55 Billion CDO exposure and $11 Billion losses. What Rubin said then he repeated to the FCIC last week, and did so with all little concern for its gravity as when he stated it the first time. In November 2007, as he was raking in over $1.5 Million a month at Citi while the bank was posting $11 Billion losses, Rubin said, simply, "Myself, at that point, I had no familiarity at all with CDOs."

"No familiarity at all with CDOs?" You gotta be kidding me.

Oh, okay, Mr Rubin. So--did you give that $100 Million back?

Didn't think so.

Cuz it's a "Bankster's Paradise," son. Coolio said it for gangstas, and I say it for bankstas. Of course, you've probably already recognized this entity by its other name--"The Taxpayers' Hell." As mentioned above, taxpayers remain on the hook for $25 Billion with Citi TARP money, $301 Billion in tax-payer backed Citi paper, and "own" 27% of Citi shares. And if that's not enough to get your blood pressure up, Mr Goldman-Sachs-Citi Robert Rubin has had the ear of the Obama administration since November 2008. In fact, he was under consideration for Treasury Secretary until he withdrew himself, and Obama picked Rubin's protégé, Mr Geithner. Rubin still holds "enormous influence" in the administration--just don't ask him about CDO's, of course. Or Citi. Or balance sheets. Or ethics.

And, finally, that last fact just demonstrates yet another phenomenon in Bankster's Paradise otherwise not normally seen in the real world: in Bankster's Paradise, no one ever gets held responsible for anything--especially incompetence, failure, or even fraud. That's who the FCIC is up against.

Good luck.

How Citi makes $2.5 billion when the BIS changes the rules

(originally composed April 2009.)

Is it possible to make $2.5 billion with the stoke of a pen?

Ask Citigroup--they did! With the help of the BIS's Financial Accounting Forum, that is. The big story on Friday was all about the fluffy profits for Citi--the international bank's first "profits" in 18 months. It was a $1.6 Billion black mark, which is great considering they only needed $45 Billion in from the Treasury $300 Billion in US-backed guarantees to get the chance to "make a profit" in the first place. And don't worry, they still claim that nice imaginary $87 Trillion in derivatives on their balance sheet, which you can see on the Bank Find at the FDIC's site. The only problem is--in regards to this "profit"-- is that is was created not through wise investment and measured risk-taking. No: the bank's $1.6 billion "profit" was the result of a stroke of a pen, and the accounting rule change that resulted. This has BIS written all over it.

Bloomberg, April 17, 2009:
Stress Tests "Citigroup posted a $2.5 billion gain from accounting rules that allow companies to profit when their own creditworthiness declines. The rules reflect the possibility that a company could buy back its own liabilities at a discount, which under traditional accounting methods would result in a profit."

My words: So let me get this right: I don't pay for my liabilities, let my creditworthiness decline, and now I can rewrite a $2.5 Billion gain, apply it to my also re-written losses, and claim a $1.6 Billion profit? Cool! But that's only one change to the rules, here's the other:

"Citigroup already is benefiting from the Financial Accounting Standards Board’s decision earlier this month to ease rules that forced banks to write down assets whose market value had been depressed so long their impairment was no longer considered "temporary.” That rule change reduced impairment charges by $631 million on a pretax basis, the bank said."

Wow! Who would think that a bank could claim a profit if they were allowed to assign their own values to otherwise worthless toxic assets on their books? I would have never guessed. (Especially if they could re-assign the value to something high enough to reduce their creditworthiness and thus take advantage of the first rule change as well!) According to Bloomberg, between the two accounting rules, Citi gained $2,500 (million) + 631 (million) = $3.131 BILLION. That's pretty nice penwork, there. You know, this must be a coincidence, because it just so happens that the exact "rule change" that allowed for this re-working of the books at the various banks was something that the Financial Accounting Standards Board (FASB) decided just after the G20 meeting. Perhaps a little info on this FASB, then, might be appropriate.

First thing about the FASB is that you might sometimes hear their name on the radio as one word, pronounced as "Faz-bee", and this is indeed the same FASB. The FASB is under the authority of the Financial Accounting Forum, originally established in 1972. According to itself, the FAF is "a non-stock Delaware corporation that operates exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Foundation, FASB, and GASB are located in Norwalk, CT." The FAF has a number of boards under its domain, including the FASB. Here's what the FASB is, according to the FASB:

"Since 1973, the Financial Accounting Standards Board (FASB) has been the designated organization in the private sector for establishing standards of financial accounting. Those standards govern the preparation of financial statements. They are officially recognized as authoritative by the Securities and Exchange Commission (SEC)."

So, are they as "private" and 501(c)(3) "unbiased" as they claim, and as the SEC apparently finds them? You can decide for yourself, but here's some more info. As well as the FAF, the FASB has a very cozy relationship with the Accounting Task Force. Here's more on the ATF:

"The Accounting Task Force (ATF) works to help ensure that international accounting and auditing standards and practices promote sound risk management at financial institutions, support market discipline through transparency, and reinforce the safety and soundness of the banking system. To fulfil this mission, the task force develops prudential reporting guidance and takes an active role in the development of international accounting and auditing standards. Ms Sylvie Mathérat, Director of Financial Stability, Bank of France, chairs the ATF. Three working groups report to the ATF: the Conceptual Framework Issues Subgroup, the Financial Instruments Practices Subgroup, and the Audit Subgroup. The Conceptual Framework Issues Subgroup monitors and responds to the conceptual accounting framework project of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board in the United States."

So, now, what then is the Accounting Task Force, the ATF? The ATF is a subcommittee of the Basel Committee on Banking Supervision (BCBS) at the Bank for International Settlements. Funny how that works.

So back to the "rule change." Citi (and Wells, and BB&T, and lots of others) was able to re-write the books this quarter because of the FASB's decision to pull back the mark-to-market rule that made these banks attribute market values to assets. If there was no market, then the value decreased or the "asset" became a liability. Those who prefer an even more ridiculously leveraged and manipulated market than we currently have get very upset at the idea of the market determining value, and so they don't much like the mark-to-market. The FSF (Financial Stability Forum at the Bank for International Settlements) seems to hate it—“those damn markets are always messing with our ‘stability.’ They're so ‘procyclical.’ After all, why can't we just make up values?! We’re the BIS, dammit!” The FASB's big decision in early April was to side with this incredible philosophy, basically. And it seems perhaps they were told to do so by the FSF.

A March 2009 FSF document titled "Report on the FSF Working Group on Provisioning" is important. Remember, the FSF is part of the BIS. Here's what it says:

"Provisions for loan losses reduce an institution’s reported net income in the period in which the provision is recognized and decreases the carrying value of the loans held by the institution. The basic principles provided in generally accepted accounting principles in the United States (US GAAP) as issued by the Financial Accounting Standards Board (FASB) for recognizing loan loss provisions have been formally in place since 1975, and, after enhancement in 1993, have remained relatively unchanged. The basic principles provided in International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) for recognizing loan loss provisions are very similar to those provided in US GAAP and the principles have been in place since the IASB revised its standards in 2003. Many financial institutions in Europe and other parts of the world began to report using IFRS in 2005."

That's in the introduction. The FSF is citing the FASB as the body it wishes to call out, and the FSF does not mince words. Its demands are very clear. Very clear. In fact the following text is literally printed in bold with a square around it! You cannot miss it! It says:

"The FASB and IASB should issue a statement that reiterates for relevant regulators, financial institutions, and their auditors that existing standards require the use of judgment to determine an incurred loss for provisioning of loan losses." (pg 7).

Repeat: "use of judgment to determine an incurred loss?" The FSF is telling the FASB to “issue a statement” that “the use of judgement” should be used to “determine an incurred loss.” So much for the FASB’s “independence.” This FSF document further elaborates on the typical denial assumed by a body that sees no worth to those pesky markets determining value: (pg 8)

"The FSF believes that institutions that effectively use required judgment to incorporate the impact of changes in current factors (such as environmental indicators and relaxing underwriting standards) into the methodologies used to determine the provisioning for loan losses would likely recognize higher provisions earlier in the credit cycle than those that placed greater emphasis on historical loss experience. The FSF believes that improving the diligence used by all institutions to incorporate reasonable judgments regarding the impact of factors that are likely to cause loan losses to differ from historical levels may improve practice and help lessen procyclicality while enhancing the consistency of information provided to investors. Therefore, the FASB and IASB should issue a statement that reiterates the required use of judgment in incorporating the impact of factors that are likely to cause loan losses to differ from historical levels under existing requirements for the provisioning of loan losses. This statement should be developed and issued by end-2009."

There’s the FSF repeating that request of the FASB yet again. As far as the words above that last sentence,--why, yes, I agree: the "consistency of information" provided to investors can certainly be "enhanced" if it continues to be all lies, based on the financial institution's "reasonable judgment" that the negative circumstances that it might be encountering don't have to be addressed as "loan losses" because those circumstances, the financial institution determined, "differ from historical levels," so the financial institution can continue to attribute the status of "asset" to those loans instead of what they actually are--liabilities. This is the same nonsense logic that Geithner had with his "legacy asset" Public-Private Investment Program: La, la, la, we can manufacture a market, I swear, we can! But notice--what has happened to the talk about the PPIP since the G20 and the FASB rule change? Not much. The reason is simple: Why would the institutions even want to sell to the PPIP when they can just keep the "assets" and actually benefit from doing so? With the new rule change, they would actually be hurt by selling the worthless stuff, because then they would have actualized the liability, thus permanently making it a loss. With the new rule, they can just keep pretending it’s an asset!

Back to the March 2009 FSF document from above: the FSF demands of the FASB to "issue a statement that reiterates the required use of judgment in incorporating the impact of factors that are likely to cause loan losses to differ from historical levels under existing requirements for the provisioning of loan losses." "Required use of judgment"--it means, the FSF's judgment that the current losses that institutions are experiencing are not really losses, they just look like losses because this is a "historically different" circumstance because there's no credit, but, the FSF claims, if there was credit, people would surely buy them up in droves if the financial institutions needed to sell them, right? No, FSF--no one wants them, PERIOD. And now, because of this rule change, it has effectively become an advantage that no one wants them, because then those "assets" become special assets that can be treated differently on an institution's balance sheet, and Citi can swing them from billions in losses to $1.6 billion in profit.

I hate to be redundant, but again from the FSF document, and again a section that was bold and in a special square (pg 8):

The FASB and IASB should reconsider the incurred loss model by analyzing alternative approaches for recognizing and measuring loan losses that incorporate a broader range of available credit information. The FSF recommends that the FASB and IASB establish a resource group to provide input on technical issues and complete this project on an expedited basis.

Oh, no please, tell us how you really feel. So, the FSF suggests "alternative approaches for recognizing and measuring loan losses", and now we have Citi running a profit for the first time in 18 months in the middle of the worst economic downturn in 70 years.

The FSF runs the show, and they are the apparatus of the BIS. But it gets worse: The working group at the FSF which wrote the above document, the FSF Working Group on Provisioning, is co-chaired by Kathleen Casey and John Dugan (see pg 18 of the document). Who are these people? Kathleen Casey is Commissioner of the SEC, and John Dugan is Comptroller of the Currency. Oh, fine!

Remember who authorizes the independent "standards (that) govern the preparation of financial statements" established by the FASB? From the FASB link I cite above, "They are officially recognized as authoritative by the Securities and Exchange Commission (SEC)." Hmm. So, what, the Commissioner of the SEC just happens to be the co-chair of a BIS forum FSF Working Group that is recommending accounting standards changes to be established by the "independent" FASB weeks before they do? And as for her co-chair, US Comptroller of the Currency John Dugan: we guess who's the Chairman of the BIS' Joint Forum? John Dugan. By the way, the Joint Forum is a subcommittee of the BCBS, the BIS body responsible for the supervision of Basel II policy. Well, what a coincidence.

The SEC obviously holds sway over the FASB, as it authorizes the FASB's standards, which is the only reason those standards have weight. And that is the way it should be: I don't have a problem if a national regulatory body like the SEC authorizing the regulations. My question is: who's authorizing the SEC? The SEC Commissioner is co-chair of a Working Group at the BIS's Financial Stability Forum, which just so happens to be making FASB suggestions that are totally contrary to US current accounting rules yet totally consistent with BIS Basel II ideas. The FASB's decision was not a surprise. And though it was effectively told to do so in March by the FSF, the timing of the decision after the G20 meeting in April links it perfectly to one of the products resulting from one of the biggest declarations of the G20 Summit.

Specifically, the G20 made a serious declaration that changed the game internationally, and the BIS was smiling (and that's redundant, as the G20 finance ministers are all BIS members). The G20 declaration was that the FSF should be renamed and re-armed, and that that it should determine the deadlines to which the other national "accounting standards setters" (such as the “independent” FASB) must comply.

Well, hell, it was already doing that back in March! (FSF said, "FASB, jump!" and the FASB said "Okay, BIS, how high?") But now to make this official is something else: it is a major shift to move from "independent" national boards, like FSAB, which are authorized by their relative national regulators, like the SEC, to a super FSF, authorized by the BIS and its 55 owner-member central banks, calling the shots. But that is exactly what has occurred, and this sweeping change comes straight out of the G20. Check out the release "Declaration on Strengthening the Financial System". The sweeping declaration is that:

"We have agreed that the Financial Stability Forum (FSF) should be expanded, given a broadened mandate to promote financial stability, and re-established with a stronger institutional basis and enhanced capacity as the Financial Stability Board (FSB)." (pg 1)
- the FSB, BCBS, and CGFS, working with accounting standard setters, should take forward, with a deadline of end 2009, implementation of the recommendations published today to mitigate procyclicality, including a requirement for banks to build buffers of resources in good times that they can draw down when conditions deteriorate;
- all G20 countries should progressively adopt the Basel II capital framework (pg 2)

Again, the FSF comes out in March and says the FASB and its like-institutions need to do what it says, dammit, then the G20 declares allegiance to three BIS institutions, and seeks to empower one of them, the FSF, over the national authority (ceremonial as it was) of the "independent" accounting standards-setters like the FASB. Viola: supervisory regulatory authority is standardized. Folks, I believe this is called Pillar 2.

Additionally, looking at the first subsection above, we know about the FSF (part of the BIS), and the BCBS (part of the BIS)...but what about this CGFS to which the G20 is rendering the duty to "take forward...implementations of the recommendations?" Oh, well, they are totally different, you see, they are, uh....well...they are part of the BIS too. Wow. The CGFS is the Committee on the Global Financial System, BIS through and through. Now, the CGFS is worth pausing over. Because this is were it gets crazy.

To the lunatic fringe we go....

According to the BIS, the CGFS was formed in 1971--under a different name. It was the ECSC, or the Euro-Currency Standing Committee. Funny: I didn't know there was a "Euro-currency" in 1971....oh wait! That's because there WASN'T a euro in 1971! So, what happened in 1971 that the BIS would see as a clue to establish the Euro-currency Standing Committee? Well, that would be an economic crisis, the disintegration of Bretton Woods, and of course, Nixon's official severance of the US dollar as a (internationally) gold-pegged currency. In other words, the world reserve currency (US dollar) blinked in 1971, and the BIS noticed. From a document on the BIS website, Historical Background to the Statistical Activities of the BIS:

"the process of European unification, started by the 1957 Treaty of Rome, gave rise to its own BIS-based committee. In 1964, the Committee of Governors of the Central Banks of the EEC Member States started holding regular meetings in Basel, at which the Governors of the Six exchanged information on domestic monetary policies with a view to increasing cooperation and coordination within the EEC framework. International developments in the 1970s cemented and further expanded the role of the BIS as a meeting place for monetary policymakers and a hub for information exchange. The unbridled development of the euro-dollar markets led to the creation in 1971 of a specific G-10 committee, the Euro-currency Standing Committee, which continues its work to this day with a broader scope as the Committee on the Global Financial System. The collapse of the Bretton Woods system in 1971-73 by no means spelt the end of efforts towards intensified international cooperation. Quite the contrary. The Americans may have become less active in this field after the abandonment of the gold-dollar parity in 1971 and the floating of the dollar from 1973. The fact remains that, under the regime of fluctuating exchange rates which followed Bretton Woods and in conditions of increased uncertainty following the 1973 oil crisis, there was, if anything, a need for more information exchange and cooperation, albeit again more on a European than on a global level." (pg 30)

The year, 1971, when the ECSC pops up, when there wasn't even a "euro" currency....but there was a "European Economic Community," and thus, I'm sure the BIS noted, the potential for a single, unified, central-bank controlled, fiat euro-currency. But, you wonder, why harp on the old name of the Committee, if it is now called the CGFS? Is that a big deal? When did it change names (and perhaps focus?)?

That's the question, when did it change names (focus?) and here's your answer: How about 36 days after the euro was officially introduced as an electronic currency on Jan 1 1999?! Oh yeah. The ECSC, after 28 years of hard work, accomplished its ostensible but never stated (other than in their name!) goal, and the "euro-currency" appeared. It only took a month for the G20 (BIS-run, “Governors of the Twenty”) to recalibrate the group as the Committee on the Global Financial System. And now, the latest G20 is calling on it again.

The ECSC, like its new CGFS, claimed in its mandate to seek to gather statistical information on bank activity for "risk analysis." But it focused its statistical collections on the Treaty of Rome's creation, the European Economic Community (EEC). Ironically, the EEC itself was the result of a body with the same anocrymn of ECSC, but that was the European Coal and Steel Community. The ECSC (the BIS one) consolidated information, and this internal national policy information was happily handed over by the owner-member central banks under the auspices of monitoring international (European) risk. Almost immediately, the ECSC used to the info to create the "currency snake" (pg 30). The currency-snake linked European currencies to each other in a fashion that attempted to remove the risk for the banks in holding them, as it did not adhere to the post-Bretton Wood method of market-valued currency exchange. Of course, it did reduce risk for the banks, but it wasn't too good for the people (not that anyone at BIS cared). The currency-snake ate its own tail, and the European Monetary System (EMS) replaced it, itself laying the foundation for the 1995 acceptance of the euro-currency by the EEC. Long story short, the BIS's ECSC was as instrumental in creating the euro as the other ECSC was in created the European Union.

And the ECSC’s bizarre creation, the euro, as you know, is a strange phenomenon. It ran for 3 solid years as an electronic currency before anyone even touched one: the banknotes/coins did not appear till Jan 1 2002. It may be the first total fiat internationally-recognized currency, some people say, having not even a history as anything other than promise-backed. Banksters rejoice, too, as it is probably the first internationally electronic and paper bank-created currency (the IMF's SDR's are not used like paper, and all other paper currencies are claimed by a specific nation, but no one nation country "owns" the euro). And it didn't take long for this BIS creation "euro-currency" to begin to rival the big, bad US dollar as an alternative world reserve currency. Although euro-holdings don't come near dollar-holdings, they would if the holders switched confidences. And at any rate, the euro, and the ECSC, is proof that totally a baseless, banking-created, 100% fiat currency can be done. Electronic to paper.

So, remember this history on the newly-renamed CGFS, Committee on the Global Financial System, as we go back to consider it today. The Chairman of this CGFS is Donald Kohn, current Vice-Chairman of the Board of Governors of the Federal Reserve System (Background: Kohn replaced Roger Ferguson at the CGFS, who also was also former Vice-Chairman of the Board at the FRS before resigning and Kohn receiving that spot as well. Ferguson was Chairman of the FSF till 2006, and now sits on Obama's Financial Advisory Panel.) Mr Kohn is a FRS veteran. He's been part of the System, holding positions from Secretary to Economist to Board Governor and now to #2 man, since he joined the FRB of Kansas City in 1970.

Kohn has served the FRS under every Chairman for the last 39 years, including Bernanke, Greenspan, and Volker. And now he's Chairman of the formerly-known-as Euro-currency BIS creation, CGFS. The goal of the ECSC was clear: to collect information on currency exchange, statistical bank holdings, national bank holding, interest rates, and according to the BIS, that's "all" they did. Okay. Well, somehow all that information that the BIS collected--again, and think about this, currency exchange, circulation, bank holdings, and interest rates--somehow that information was eventually used in the establishment the "Euro-currency," and somehow all those other currencies are no longer on the planet. Information gathering is all they claim to be doing (yeah, I've heard that before from the CIA), even now with the CGFS. What is the goal of the CGFS then, and does Kohn as Chairman have any significance?

The CGFS claims to have the same mandate as the ECSC, but instead of just a European scope, it’s a global scope. Also from the mandate:

"The Committee is encouraged to co-operate with other national, supranational and international institutions with responsibilities for pursuing related objectives. In particular, it shall co-ordinate its activities with other Basel-based committees, such as the Basel Committee on Banking Supervision and the Committee on Payment and Settlement Systems (CPSS), in order to strengthen the overall effectiveness of the process."

(Sidenote: Until his move to Treasury Secretary, Timothy Geithner was chairman of the CPSS, but I'm sure that has nothing to do with anything. Not.)

Here's something the CGFS Chairman, Donald Kohn, wrote of the group in BIS CGFS No. 29, Dec 2006 document, Research on global financial stability: the use of BIS international financial statistics:

"BIS statistics on international bank lending, collected by central banks under the auspices of the Euro-currency Standing Committee at the BIS since the late 1970s, have long been used to monitor risk exposures in the international financial system. For instance, these statistics provided clear and timely warnings about the scale and nature of external bank debt accumulation before almost all the crises to hit the emerging markets from the early 1980s. As international financial intermediation has evolved over the years, the scope of these statistics has been gradually broadened beyond bank lending to cover debt securities, syndicated credit facilities, and derivatives. These statistics are being used increasingly in economic research on questions related to global financial stability."

Never mind the first part of that, about "these statistics provided clear and timely warnings about the scale and nature of external bank debt accumulation before almost all the crises to hit the emerging markets from the early 1980s" (...yeah, and you want us to think you didn't know this one was coming? Right.), because the real deal is that last sentence addressing the "broadened" scope. What this says is clear: the ECSC was collecting statistics on international bank lending, interest rates, circulation, holdings, etc from information submitted by the central banks and through regular surveillance. But, as Kohn states, the scope has "broadened" from firstly this central bank data, to now debt securities, syndicated credit facilities, and derivatives. In other words, to the entire OTC market.

So recap: the CGFS has detailed statistical information submitted by member central banks (remember, we the public don't even get to see the FR's M3 anymore because they stopped issuing that in 2005) including total money supply, interest rates, bank holding, mutual fund holdings, debt securities, credit facilities, derivatives, and more. This Committee has a lot of information at its fingertips, doesn't it? Its goal is GLOBAL financial stability. Not local. Not even national. Global. Now, from the BIS' perceptive, do you think the euro-currency stabilized or de-stabilized the EEC? Hmm. What do you think the BIS might think could, from their perspective, "stabilize" the global economy?

I'll tell you what I think: I think that once you have all the information you could think of on all the currencies that matter, from the happily submitted statistics of the (BIS owner/member) 56 central banks', to the entire banking system, to the non-bank institutions, and to OTC markets (think Basel II, Pillar 1 capital reporting requirements and Pillar 2 supervisory authority), you can call the shots. You can start talking about a single, global, international reserve currency, to which all other "currencies" are based. And you can control them all.

Check out this March 26 article from the WSJ, From the article:

"As if the dollar didn't have enough problems, Timothy Geithner took China's bait yesterday and said he was "quite open" to its suggestion this week to displace the greenback with an "international reserve currency." The dollar promptly fell and stocks followed, before the Treasury Secretary re-emerged to say "the dollar remains the world's dominant reserve currency. I think that's likely to continue for a long time."Mr. Geithner is learning on the job, and yesterday's lesson is that it isn't smart to fool with currency markets when you are already tempting fate with a gigantic U.S. reflation. Treasury and the Federal Reserve are flooding the world with dollars to break the recession, and the world is rightly getting nervous. Since the collapse of Bretton Woods in 1971, the global economy has tried to function with floating exchange rates, in which the "market" is said to set currency prices. As the world discovered in the 1970s and the Bush Treasury forgot, however, the market for currencies isn't the same as for apples or copper. Central banks control the supply of currencies through their monopoly on money creation. Often, as at the Alan Greenspan-Ben Bernanke-Donald Kohn Federal Reserve this decade, they get policy wrong, with disastrous consequences. Amid the global economic downturn, some central banks, like Vietnam's, are also turning to currency devaluation for a trade advantage."

I'm not surprised to see Kohn's name in there, the FRS veteran that he is. And also, Vietnam isn't the only CB to engage in intentional currency devaluation, of course, because China does it too. But so also has the Federal Reserve, and Mr Kohn was there when it happened, diligently working away under Chairman Paul Volker. Kohn was there when the US dollar was intentionally devalued by means of an international agreement, and I'm sure he remembers it well.

I'm referring to the 1985 Plaza Accord, which was the result of a BIS/G5 meeting at the Plaza Hotel in NYC, attended by the central bankers and national policy makers of France, UK, US, Germany, and Japan. Then Treasury Secretary James Baker later admitted that though the group did not present the Plaza Accord as a complete shift in policy, he and everyone else there knew it was: it was a multi-lateral intervention in the currency market to intentionally devalue the dollar against the Japanese yen and German duetsche mark. The plan was to weaken the dollar to increase the demand for cheaper US goods, to reduce the relative negative value of the national deficit and debt, and intervene in the currency markets to prevent the dollar from rising. And it worked: in less than 2 years, the dollar lost more than half its value compared to the yen and duetsche mark. The trend continued, as policy, until it was reversed, as policy, in 1987 by the Louvre Accord. It was too late for the yen, of course, as the Plaza Accord was a major factor in Japan's looming "Lost Decade" because the newly and artificially "strong" yen led to way too much liquidity, liquidity that the BoJ has still not mopped up. So Mr Kohn knows a thing or two about currency devaluation, and as Chairman of the CGFS, he's know more than a thing or two about global reserve currencies.

You don't have to replace the currencies at all if you can just get hold of 1.) their interest rates, and 2.) their liquidity. You can call it whatever you want, put whoever's mug on it you'd like, make it green, purple or polka-dot--once you have the ability to artificially manipulate currencies through their interest rates and circulation, you can manipulate their value into perfect synchronization, and their issuance from a single body. From the WSJ article above, the author states simply, and truthfully, that "central banks control the supply of currencies through their monopoly on money creation." This, of course, totally sucks, but at least the "banks" part is plural. Imagine if it is singular. Well, we have singularity of sorts--one consolidated central bank with lots and lots and lots of information and you know who I'm talking about. In my opinion, this latest G20 Summit does much more to vastly increase that info-hoarding by the BIS by specifically strengthening the BCBS and CGFS, and especially by elevating the FSF to the status of FSB, and bowing down to it. It is really incredible when you think about it.

The IMF, of course, has weighed in on this. I'm sure Timothy Geithner heard plenty about a new world reserve currency when he was there, and maybe that's why he expressed openness to the idea of replacing the dollar's status before promptly reversing himself. Geithner was chairman of the Committee on Payment and Settlement Systems at the Bank for International Settlements, while he was FRBNY president, right up until he was sworn into Treasury. Geithner was at the BIS and IMF--he knows plenty about how to manipulate currencies. Meanwhile, real-time over at the IMF, the head, Dominique Strauss-Kahn, gave a speech in October 2008 about the 10th anniversary of the euro. The title: "The Euro At 10: the Next Global Currency?" Despite this ambitious top line, Strauss-Kahn actually didn't talk much about the euro, but mostly about the economic crisis. However, what he did say about the euro is interesting. He states that despite the turmoil, "We have not seen a foreign exchange crisis." He attributes this to the euro, and apparently thinks that it gives the currency the potential for the next global reserve currency:

"Why is this? Well one reason is obviously the success of the euro. For example, consider what the last year might have been like if Europe had not had the euro. If the past is any guide, the appreciation pressure on the euro would have gone disproportionately into the German Mark, which may have appreciated much more than the euro now has. In other countries, political and business forces would have lined up in favor of decoupling or devaluing against the Mark. Anticipating the possibility of exchange rate realignments, market participants would have withdrawn capital from countries at risk of realignment, driving up interest rates and risk spreads and potentially causing current account financing problems. Higher interest rates would have undermined housing markets and choked growth. As in the past, exchange rate realignments would likely have been needed to restore order, and these exchange rate realignments in turn would have caused inflationary pressures in countries that devalued. So there is no question that the euro has contributed to the stability of its member countries during this crisis. And—for its members—it has become an essential element of the global monetary system."

"So there is no question that the euro has contributed to the stability of its member countries during this crisis"? That's a lot of praise for the euro, considering that Strauss-Kahn has absolutely NO idea what would have happened if there was no euro around (because no one knows that), and considering that as a matter of fact, the economic collapse is happening with the euro around! He seems to think that the euro and the economic crisis are utterly unrelated. Okay, maybe he's right (I don't think so) but he has to admit that internationality of the euro for European banks removed the firewalls that sovereign currencies presented, and therefore the uniformity of the euro very likely may have contributed to the crisis. Who knows. The fact is, we have a euro now, and we have crisis now. But Strauss-Kahn's euro-as-the-"Next Global Currency" speech was waaaay back in October. I wonder what the head of the IMF is saying currently?

Well, here's an article for your convenience from March 26, in anticipation of the G20. From it:

"The issue of the world currency reserve is expected to be raised at the April 2 summit of the G20 club of developed and emerging economies. On Wednesday IMF managing director Dominique Strauss-Kahn said that talks on a new global reserve currency to replace the US dollar were "legitimate" and could take place "in the coming months." "

and:

"But the UN panel warned that a two (or three) country reserve system "may be equally unstable."
It said a new Global Reserve "is feasible, non-inflationary and could be easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries."

There is a big difference between a global reserve currency and a global currency. Just as there is a big difference between a Federal Reserve Note and a US Dollar. Well, oops, let me correct that. Just as there used to be a big difference between a FRN and a US dollar. Until, of course, it became law that taxes must be denoted in US dollars and paid in FRN's. Then all the sudden the two are interchangeable. Interchangeable, that is, except for the fact that you will never get a US dollar for an FRN. And yet mysteriously, the Federal Reserve still claims they'll exchange FRN for "lawful money." Consider Section 16, Paragraph 1 of the Federal Reserve Act, in my opinion the most totally nonsensical and utterly oppressive part of the entire law, and think of it in the context of a legal global reserve currency:

“Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.”

FRN's are issued for "no other purpose" than making advances to the FR banks, are obligations of the United States, and "shall be redeemed in lawful money on demand" at the Treasury or any Federal Reserve bank? Lawful money, huh? I'm gonna try this stunt next time I'm in St Louis. I'm gonna go to the FRB of St Louis with a $5 Federal Reserve Note and a copy of this Section 16.1 of the FRA, and I'm gonna demand lawful money. We'll see what happens. I'm guessing either nothing will happen, or I'll get to know a little more about FRA Section 11, Paragraph (q), which is the one that lets the Federal Reserve establish its own police force. Yeah, either nothing or police action, but I can guarantee I'm not getting "lawful money."

My point in bringing up the FRN/US dollar paradox in regards to global reserve currency/global currency is simply that it was the legal requirement that taxes had to be denoted in dollars and paid in FRN's that started the decoupling of the US dollar from the FRN, and the takeover of the FRN. The "Dollar" is the world reserve currency--but that is by choice. No one is required to hold dollars (and I think we will learn this the hard way soon), but instead they choose to (true, they might get invaded if they don't, but its still technically not legally required). Even China with all its complaining about the dollar, still chooses the dollar. True, countries have a good reason to be mad at the US for devaluing the dollar through the FRN, but for some reason, countries still choose it. So its the world reserve currency of choice. But imagine if there arises a world reserve currency of law?

Think about what happened in this country: the law made it impossible for the "dollar" to beat the FRN, the FRN issued for "no other purpose" than as an advance to member banks. You know this, but of course at the time when the Federal Reserve Act was written, there still was "lawful money" of the metallic sort, so there was "lawful money" to which an FRN could be converted. As that metallic money was not made by the Federal Reserve, but by the Treasury, from its own purchases, sales, and reserves. Still, it didn't take long for the FR to put the Treasury out of the metal "lawful money" making business, first through the illegalization of gold as domestic currency in 1933, and second by devaluing the dollar and inflating prices so much that by 1962, silver was well over $1 an ounce and moving higher in melt value than the face value of the US coins containing it, and by 1963 the Treasury was replacing silver certificates with $1 Federal Reserve Notes. That said, the "lawful money" remains part of the Act to this day, despite the fact that many other sections have been removed or declared "obsolete" in the Act, by the Act, and it remains in there because they can't really change it. Well, they could but then it would make less sense than it does now, but I say they can't change it, because if they did, it would remove the FRN from being the "lawful money" for which it itself is exchangeable. Confused? Good, that's way you're supposed to be. In other words: the currency is exchangeable for a currency. That's it. Now get back in your cage.

And back to Mr Kohn's Committee on the Global Financial System at the Bank for International Settlements. The amount of information that is coming into consolidation in the hands of so few is very disturbing. As I said before, we ourselves, American citizens, are prevented from seeing the Federal Reserve's M3 money aggregate, but then the BIS, an institution that the average American has never even heard of, has more information on the dollar and FNR that we can imagine. I will be monitoring the business of the CGFS as closely as I can, which will be substantially less closely than they, apparently, can monitor me!

The G20's obsequiousness to the BIS is both disgusting and predictable: they are the same creature, but you would think that they would at least try to think of national sovereignty. And after investigating this CGFS, I am admittedly quite paranoid that it used to be called the Euro-currency Standing Committee. Those banksters did get the Euro-currency standing, alright, making their first mission “accomplished.”

The question is, what are they trying to stand up now?


Newsflash: This just in, the Federal Reserve has announced that it will begin taking Monopoly money as collateral for future loans to Investment Banks. Fed Chairman Ben Bernanke was quoted as saying "We have come to respect the Parker Brothers..."