Busted: Bankers and The Global Economy

May 18, 2008

Paradox of Market Turmoil

World financial market turmoil has revealed two paradoxes. The first is that after several years of high profits the global banking sector was thought to be well capitalized, even bullet-proof. Actual capital buffers and provisioning in banking were much less robust than they had seemed. Everyone forgot to measure risk and looked at the profit. Little, if nothing has changed.

The second paradox is that elements of a massive liquidity freeze occurred in certain financial market segments (for example, the United States) within a context of overall excess dollar liquidity worldwide. In other words, because of bad bank securities and the risk of accepting them or trading value-for-value, bankers on a global scale began to refuse to trade with fellow bankers to protect themselves.

World bankers are looking at these arenas for salvation: risk management in financial institut- ions; the originate-to-distribute business model of the large banks; and the coordination of financial regulation and supervision across financial institutions, markets and national borders.

World bankers say that improvement in financial literacy can be made by realigning the incentives among the originators and other participants in the securitization chain through attention to detail.
Being honest about the risks inherent in structured bank products is imperative, even though bankers refuse to use the word “honesty”. Ratings agencies need to improve the usefulness and transparency of credit ratings so that investors can more appropriately apply market discipline. In other words, aggregate information of the past is largely trash in the real world. The proof is in the pudding of the past.

One problem that all bankers around the world seem to miss is that their industry is built on a measure of trust. This is not recognized and in the the industry, I have never heard the word mentioned by mainstream bankers and certainly not the central banking community. Trust has been violated and bankers are clueless.

For the time being, many investors have taken substantial hits and are cold to the prowess of the banking community at-large. Trust will have to be rebuilt. Fortunately, the greed of investors is on their side. Using clever marketing tactics and clever persuasion, eventually investors will be wooed back into the mix.

Bankers, including central bankers, have been insistent on promoting financial innovation for the generation of capital. Even World Bankers have revealed that they are against regulation while looking forward to “market-based solutions”.

For those that wonder, nothing has really changed. Politicians are talking and squirming, while generating new law. Everyone is looking at symptoms, but rarely the root cause of any problem. Making money in the long-term is always more important than stability or morality. The World of International Banking doesn’t know what morality or ethics is.

Banking has become the “new politic of power”. The entire world is politically-powered through the financial power of the International Society of Bankers, a framework of legally independent, yet totally self-dependent and self-generating authority mongers. World Bankers have control of the world in their hands. They have money and want to make more at the expense of all.

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