Home > Corruption, Papua New Guinea > 37 Years of Corruption: Do we accept corruption as a norm or is there a way forward for the country?

37 Years of Corruption: Do we accept corruption as a norm or is there a way forward for the country?

By Lucas Kiap on PNG Blogs

For the last 37 years of nationhood, we have been letting corruption to grow systematic and systemic – making our lives difficult, limiting our opportunities, making our systems malfunction, setting back our progresses, creating loopholes for our systems to be manipulated, distorting of our democratic values, depriving and denying us of our basic human rights and trapping millions of our citizens in poverty.

We have forsaken our country and its future by confessing and accepting corruption as a norm, part of our history, cultures, and traditions. We have regarded it is as part of our way of life, for instance “Big Man” are not punishable even when they commit serious crimes. We regarded “wantok system” or nepotism as helping one another or returning a favor. Bribery has been regarded as normal and is considered as a gift to facilitate requests in a speedy or timely manner. Unfortunately, our traditional norms have presided over western norms. We are a nation at confusion and lost between two extreme worlds – one inherited from our ancestors and one inherited from colonial masters during independence.

At this juncture, I would like to propose this question – do we accept corruption as a norm or is there a way forward for the country after 37 years of corruption?

In this article I attempt to answer the above question in three parts. The first part, I write about corruption as I see it. The second part I write about corruption as the rest of Papua New Guineans see it according to my 12 years of judgment. In the third or final part, I write about the way forward for the country as according to the way I see it.

When I first begin to understand the corruption problem in the country 12 years ago in 2001, I want to find out how it affects my life and my country. As I searched deeply into the problem of corruption I came face to face with a young, ugly, and black monster yet appeared friendly. The monster was appeared to be looking healthy, well fed and looked after. From its appearance I could guess it was 37 years of age. The monster starred at me with its big and red eyes through which I could be able to see all its internal organs. I saw the intestines and what it has been feeding on. I could see human bones – the bones of the mothers died of breast cancer, the bones of children died of malnutrition, the bones of tribal warriors died in tribal fights and the bones of those who died as the direct result of lack of basic government services. As a searched further deep into all its internal parts and organs I noticed some of the ugliest sights decorated with sign boards of different shapes and sizes I had never imagine exist in our real world today. The writings on the signboards read, “I will deny and deprive you of the opportunities to education, employment, health care, transport and basic government services”. The sight of what I saw really frightened the hell out of me – drained and exhausted all my energy. I sat motionless, my heart pounding, eyes filled with tears of bitter sadness – all I could managed to say was “God, why are you letting this to happen for so long in a country where its people considered to be your own people or Christians?” As I come to face to face with this deeply rooted monster, I see my future slowing evaporating before its eyes.

Corruption as it appears to me is a sinister monster with thousands of mouths that we have been feeding and looking after for the last 37 years of nationhood. We have tamed it to be our family member, best friend, relative, wantok and countrymen. We have let it grow its roots among family, cultural, social, political and economical settings. In the dark when no one notices it, it has slowly been creeping and knocking at the doorsteps of every Papua New Guineans, feeding on our greed and selfishness to escalate the deteriorating of our integral and moral human values. As a result, we have been in the race to be the conquerors of Mt. Everest before others, we want to reach the North and the South Poles to rewrite history, we want our initials curved on some deep sea monsters, we want to fly our flags on the moon, and we want to travel to Jupiter before the NASA scientists.

Yes we have mustered the art for the destruction of our own country and future and we are already addicted to it – we are on an endless mission.

Corruption as I described above is a monster to me. But what about the rest of Papua New Guineans think? Read on to find out what I think is their perceptions about corruption in the country.

Unfortunately, the rest of Papua New Guineans have allowed corruption as a norm, originated from our cultures and traditions. For instance, a “big man” in a typical PNG culture is not punishable by the laws. The big man culture is well versed in PNG politics where politics have been misconceived as a means to personal wealth creation. Politicians or PNG big men begin their political careers as ordinary persons, or civil servants, and graduate as business entrepreneurs after their discontinuation from office. A browse through the political chronicles of PNG will reveal this interesting trend. In fact, most medium scale business activities in PNG are owned or partly owned by politicians and ex-politicians. The emergence of politicians-turned-businessmen or vice versa after 1975, and the difficulties in separating business from politics, had sent out false signals to aspirants to political office. Contesting elections today has become a god sent opportunity to wealth accumulation. Cases of diverting public monies into personal accounts or into those of the politician’s business associates are reported everyday in the daily newspapers.

An example of how politicians or PNG’s “big men” divert and steal public funds – when government funds (millions of Kina) are released for projects, politicians often pretend to open trust accounts to be managed by government department secretaries. While the money is in the trust accounts, a network of signatories to the money is established to draw out the money. When this is done and in order, third parties (often their cronies) are consulted and asked to submit project proposals or register ghost companies with bogus claims so that payments can be made to them. Eventually the money is transferred and shared between the key players. The key players of this political mafia gang type network include some of our politicians; government CEOs, secretaries, directors; and their financial controllers. They establish networks with bankers, accountants, lawyers or other specialists to help them generate, move or store their illicit income. The transaction is often enabled by professionals from many fields. With the network strongly established, creating an atmosphere of mutual trust and reciprocity; they attempt to provide a legal appearance to corrupt transactions, producing legally enforceable signatories; and they help to ensure that no one is blamed in case of detection.

Tribalism in the Highlands and other parts of the has also been promoting the “big man” culture. In the Highlands, where tribalism is common, there is a stiff competition between rival tribes in the numbers game of “big man”. The tribe that boasts more big men is a powerful tribe. As a result the tribal big men in the highlands are as powerful as little gods. When the tribal “big man” commands his tribes, they respond with “yes boss”. All tribal members stand ready to defend their tribal big man even when he is guilty. To promote more members of the tribe to big-man status, the big man usually a politician from the tribe requests tribal members to register ghost companies and submit ghost project proposals. He then diverts all or part of the District Development and Improvement grants or other project funds to the companies where the money is stolen – sometimes there is little work done or most of the times the quality of work done is very poor. The transactions are often aided by government officials and bureaucrats. This practice is widespread and is common in PNG were District Development and Improvement grants or other project funds have been diverted, misused and stolen.

Coupled with the PNG “big man” culture, greed, selfishness and individualism has allowed corruption to be integrated into part of our culture escalating the deteriorating of our integral and moral human values. The selfishness and greed of wanting more has led to people stealing from the State wealth through ghost project proposals or by other means such as registering ghost companies where public funds can be diverted to, often aided by corrupt politicians and bureaucrats who benefit from the scheme. As a result we have developed a culture of only caring for ourselves. We don’t care about the consequences of our actions or decisions in the lives of others. We simply tend to think that what happens to others is “none of our business”. Sadly, this is not a reflection of our Christian values and believes, which we always claim as in a Christian country.

The desire for the destruction of our country and future in the pretext of accepting corruption as a norm for the last 37 years of independence has led to the emergence of a complicated attitude problem. As a result it has become part of our upbringing and has been slowly fueling corruption. We have invented shields of ignorance and pretended that there is nothing happening at our doorsteps or that of our neighbors. We defend ourselves when we are criticized, exposed or investigated for corrupt practices. We always try to play the game of not guilty, knowing well that we will eventually come out clean by manipulating a corrupted and often flawed judicial system. We take refuge as Christians in a Christian Country; pray, attend church services, take the Bread of Life and preach the gospel to be trusted and accepted. We take temporarily relief by blaming others for own problems, taking advantage of a very large illiterate population.

We have accepted corruption as a norm but did we admit it as a problem. In the following I will discuss some of the confessions by our former and current politicians and citizens who admitted corruption is a problem, as reported in our two daily news papers.

Our inability to address corruption, confusing ourselves between the two extremes (cultures) – one inherited from our ancestors and one inherited from our colonial masters have allowed corruption to flourish in the social, economical and political settings unattended for the last 37 years of independence. But did we admit we have a problem? In the following, I discussed some of the confessions by our former and current politicians and citizens who admitted corruption is a problem, as reported in our two daily news papers.

When tried to shake off a shaky coalition government surrounded by scandals of the Sandline and economic crisis in 1997, the former Prime Minister late Sir William Bill Skate in a press release, attacked Sir Julius Chan (also a former Prime Minister) as ‘ultimately responsible’ for his Ministers’ conduct during the Sandline crisis. He said ‘our great nation of Papua New Guinea has been plundered and pillaged by a scattering of politicians and corrupt leaders and we want this sad chapter to be closed.’ He then called for an Independent Commission Against Corruption (ICAC), saying ‘if you have nothing to hide you have nothing to fear’. Soon after, Mr Skate expelled Chan’s PPP from the Government. It’s sad especially when a head of a country confessed corruption is an issue yet let unaddressed to grow from bad to worse over the years.

Sir Mekere Mourata when he was PNG’s Prime Minister in 1999 once described corruption in Papua New Guinea as Systematic and Systemic. Systematic because it is well planned, organized and cleverly executed to steal large sums of public funds (money) avoiding being detected and caught. Systemic because the current systems in place or the lack of strict checks and balances facilitates or is conducive for corrupt practices to flourish in the public sector for the last 37 years. Is Sir Mekere Mourata not responsible for failing to promptly investigate into the fatal shooting in June 2001 of Steven Kil, Peter Noki, Thomas Moruwo and Matthew Paven during a police operation against anti-government protesters at UPNG?

Former MP for Lae Open and then Deputy Opposition leader Bart Philemon in 2007 claimed the PNG’s politicians as ‘Dirty money MPs’. He claimed that Papua New Guinean politicians were walking on a “minefield” of “dirty money” from unscrupulous people with money, who were hell-bent on influencing political outcomes for their vested interests. The claim was made at the 7th annual Ethics Symposium of the Divine Word University’s Faculty of Business and Management in Madang. Mr Philemon said the country faced the real danger of seeing its Members of Parliament bought out by those with “big pockets (of money)” to get political favours for their vested interests. “How can we ensure our politicians survive this minefield?” Mr Philemon asked. In direct reference to the 2007 election where he observed large sums of money allegedly used by vested interests, Mr Philemon claimed some of the winning candidates demanded their election expenses be refunded if they were to join certain political groups in the lead-up to the formation of the new government last month. Such claims by MPs are common when in the Opposition but when in the Government it is a rare scenario.

The former National Planning Minister, Paul Tiensten in 2008 claimed that there was a “10 per cent” syndicate operating out of the Vulupindi Haus, the headquarters of the departments of Finance, Treasury and National Planning. The Minister made this revelation when announcing the National Executive Council’s decision to replace department secretary Valentine Kambori with Joseph Lelang. Mr Tiensten said: “This building houses a syndicate … everybody is getting a 10 per cent cut to approve a cheque.” He said National Planning will start cleaning the department and the rollover effect will help clean the other two departments as they work together. Is Mr. Tiensten a credible and reputable person to raise such allegations? From what I know he is yet to tell the people of Papua New Guinea about the disappearance and whereabouts of billions of kina he managed under the National Planning department.

HR Holdings Limited managing director and former chairman of the PNG Manufacturer’s Council Sir Ramon Thurecht in March 2008 made a similar claim of a 30 per cent syndicate involving bureaucrats and politicians begging businesses for money before work can be done. But, he said the businesses could not speak out because of fear the bureaucrats and politicians would retaliate. He said “our biggest challenge now is to work with the Government”.

“Corruption in PNG will reach a dangerous trend if leaders and publics servants implicated are not prosecuted”, prominent lawyer Dr John Nonggorr said in September 2007 when commenting on PNG’s ranking in the Transparency International Corruption Index , which fell by 13 places. Dr Nonggorr said the implications of widespread corruption domestically must not be underestimated. He said it had serious consequences for governments, governance and the continued functioning of a State. Dr Nonggorr said that with basic public services such as schools, hospitals, roads and bridges in a deplorable state throughout the country, the inability of the State to protect public property by preventing corruption, would lead to the loss of respect for the State, its institutions and authority generally. “This would give rise to public disobedience, which may demonstrate itself in public disorder including violence.

The rest of Papua New Guinea has joined the bandwagon; as I have observed a lot of anti-corruption websites or blogs starting to emerge. Papua New Guineans are now in large growing numbers using the social media to their advantage by writing and posting about our country’s worst night mare, corruption epidemic. Also, the editorial or viewpoints columns of our local news papers contain a significant number of letters or views of Papua New Guineans writing everyday about our friend, relative, and wantok – corruption. Papua New Guineans are now starting to wake up from their long sleep to face their tamed monster – describing it as a faceless evil or something worse, whatever they can think, name or describe it.

We have accepted corruption as a norm yet we have admitted it is a problem yet we let it to flourish unattended for the last 37 years of independence. That means everyone in this country must have benefited from it and are better off than other countries. But how much have we benefited?

I am from the highlands where the PNG’s “big men” culture strongly exists. To me I don’t easily accept the fact that these big men or chiefs have been subjecting the future of our beautiful country to ransom. I find it extremely impossible to understand why Papua New Guineans have been tolerating the big men culture letting them getting away unpunished while we have been suffering in a rich country.

Because I don’t drink from the same cup or eat from the same plate with politicians. I don’t share a same wife and children with them. They don’t provide the daily needs of my family. I struggle everyday to provide something on the table for my family from my own hard work and sweat. The fortnight salary I get is simply not enough to rent a house in the city. It cannot even last two weeks. Having three meals a day is still a luxury and a dream.

I see our politicians with bitter sadness and pain. When I see them, I reflect on the many years of suffering I have been enduring in a rich country. I have been blaming them for making our lives difficult, limiting our opportunities, making our systems malfunction, setting back our progresses, creating loopholes for our systems to be manipulated, distorting of our democratic values, depriving and denying us of our basic human rights and trapping millions of our citizens in poverty.

As a result of corruption, the government of Papua New Guinea has neglected our infrastructure – our lifeline to deteriorate over the years, often blaming the public servants for not implementing government policies.

The daily local newspapers continue to reveal the breakdown of law and order with escalating in violent crimes that often scares foreign investors and tourists away and out of the country. Papua New Guinea is regarded as one of the high risk countries in the world to do business or to visit.

In cities and towns, squatter settlements are quickly developing, becoming a breeding grounds for street ‘mangis’ (boys) who eventually found themselves on the streets searching for opportunities to survive – they simply don’t care if taking another person’s life is a crime or a crime commit to survive. Far worse, there is total no control over the influx of illegal Asian immigrants into the country, taking away business and employment opportunities from the locals. Worse still, there is a stiff rise in the smuggling of cheap low-quality counterfeit goods by Asians into the country, invading government tax systems and feeding our people with rubbish and rob our off our hard earned Kina. The number of illegal businesses (brothels, pornographic movies and gambling) conducted by Asians has dramatically increased over the years, undermining the rule of the law.

These are painful, deep problems that quick fixes will not solve them. But we cannot let it unaddressed only to haunt our future or that of our children’s or their children. There should be a way out and I will discuss this bellow in the final session of my discussion.

Yes there is a way forward. The big men culture is neither our destiny nor our future. We cannot deny ourselves of a better life and pretend that corruption is a norm. Every Papua New Guinea must be on equal footing with our political leaders and play on a same level playing field. There are no two sets of laws in this country. There is only one constitution for every citizen in the country regardless of creed, race, ethnicity, religious background or political affiliations.

We cannot let big men ruin and deprive our future because we don’t eat from the same cup, eat from the same plate or sleep on the same bed. Everyone should be given and should have equal opportunity to excel in life as one desires. This country and everyone who occupies it from time to time should rise above their full potential.

We are not going to and shall not continue to suffer in a very rich country where we should be better off than other countries that are not rich as our country. Nor we cannot to walk under the shadows of the so called PNG’s “big men” culture. This is not our future and our destiny.

I don’t want my children to go through the suffering that I am going through every day in this rich country. I don’t want to live and die leaving behind a future that is uncertain for my children. When I know that I have the opportunity to at least achieve a change for this country – I don’t want to die without trying it.

The time is now to start act to stop corruption. To stop corruption we must rise above our own fears and doubts. We must defeat our confessions of “big men” culture and reject it. We must trade our greed, selfishness, bribery and wantok system cultures and adopt caring, giving, protecting and defending cultures. Remember, our ability to extract our natural resources to sustain our future will not be achieved without consequences. One day our ability to extract more of these resources will be questioned as our country is struggling to maintain a delicate balance between our increasing demands and natural laws which will eventually come into play and halt our ability to extract more of these resources.

It’s about time we need to write a bible about corruption in Papua New Guinea. Let’s preach our corruption bible in every corner of Papua New Guinea exposing the people who have been stealing and how much they have been stealing from the national wealth. We expose how much they have before becoming politicians or public office holders and how much they have amassed after becoming a public servant. If we can expose corruption to every Papua New Guinean, I believe they will accept it as a message of hope because 99 percent of the populations are not aware of the corruption problem. They are not aware of what we have been writing and discussing on every social networking sites and blogs. None one in this country has committed his life to preach the gospel of anti-corruption.

Yes this is the ONLY way forward. If you truly believe in this country and have been thinking that this country should be on its way progressing and advancing to achieve the status of a developed country in less than hundred years but is not because of the corruption, please do not hesitate to join me. I have lived in this country long enough to know exactly what has been going on. I also know a way forward for PNG to be a country free of corruption but full of patriots who will bet their lives for this country and want to achieve greater and extra ordinary things.

Contact the writer: lucaskiap1080@gmail.com
Facebook : PNG Anti Corruption Movement.

  1. April 16, 2013 at 9:08 am

    Thanks for posting this article on this blog. I guess everyone has seen and experienced what has been going on in this country. We have created a monster under the pretext of tolerating our cultural norms or demons and attracting foreign investment into the country – confusing everyone else in the midst while destroying our own country and future. Sadly, we are responsible for our own future and destiny as a country. The Chinse and Asians are only exploiting our existing cultures that have been fuelling corruption to their advantage. While this goes on, we continue to invent our own unique cultures blending all the bad cultures – yes it will not get any better if we continue down the path we are taking.

    There are many good things about this country but the sad part is that, we have tolerated corruption for 37 years – it’s only a matter of time people must wake up and face this monster. Or it’s always going to be a big problem to manage this country.


    Lucas Kiap

  2. pambakapaka
    April 17, 2013 at 2:01 pm

    Corruption is a virus that has already entered and eaten into the core being of the human population of PNG. It is continuously being fueled by our so called MPs and Educated Elites in high offices observed by the not to previliaged population. 37 years of corruption has left PNG close to its bones with no flesh. Ordinaty PNG people are scavanging around to make ends meet, while the King Pins ( MPS) are sitting some thousands of miles up in the stroaphere looking down at the very people who put them there and throwing down bones at them. When we look up, they move further and further away from us and gess what?, when they come down to land, they land in Australia, New Zealand, Fiji ,Samoa or even America here their investments are and do not see you and me face to face.

    The court systems do not work and will not be effective to pass on honest judgements to these crooks. Commission of Enquires are just anotherpart time luxary job earing people millions for nothing.

    So what is the solution to eridicate Corruption. Money, Power, court systems, political parties, church organisations, cultural organisations, pastors, priests. MPS.Prime Ministers, Governor Generals etc.. apart from God, every ways, people and techiniques applied or even a rocket scientist will not stop corruption ” IT IS IN THE BLOOD OF ALL PAPUA NEW GUINEANS.

    The only way to reduce and finaly erridicate this virous is the terminate the carrier. Assassinate or kill by which ever meand applicable all MPs who are corrupt or do corrupt deals discriminately. Than do the same to all Govt Heads , Publice office holders and those who are in position of trust who misuse the trust placed on them. Kill all without fear or favour those who practice corruption and that will open eyes and drive a strong message to those would be corrupt leaders what awaits them.

    I would be prepared to be the first person to join up in a organisation formed by no nonsense people whose sole purpose is to Terminate all Corrupt people.. big or small. That is the only way to erridicate corruption and get it off peoples minds as the price for it is not Luxary this time but Death.

    This is the only way and if we do not address it this way, corruption will be tripped in the next 37 years and by this time its mouth would be so big that it will swallow PNG.

    I have posted this as my honest opinion.

    Thoughts and comments…. welcome.

    Kambia Karama

    • Kur Kient
      April 18, 2013 at 10:42 am

      I would like to share my honest view how this country can be saved from corruption (with those who have been hating corruption in the country).

      First if you are a corruption hater than you are a patriot of this country. The first thing we can do to stop corruption is to build a team and establish network of Patriots around the country. This is a movement of Patriots against corruption. When we have enough members or patriots, we can then propose a way how we can stop corruption once and for all. All options will be explored and considered.

      For instance, one of the options I considered to stop corruption is for our Patriots to get into politics through a Political Party and form the government. When the Patriots control the government, the rest will be history. The constitution and all laws in the country will be reviewed and changed – the focus being on corruption. After the laws changed, all of those who have been stealing from the public purse since 1975 will be investigated, prosecuted and put behind bars and all their looted wealth will be recovered and returned to the people of Papua New Guinea.

      Not the barrel of the gun will stop us from achieving what we believe. Nothing will stand our way. We will sacrifice our lives to save PNG. The world no longer exists but the sufferings of the people and the country is what we will do anything to die for.

      Remember, our freedom will never be guaranteed by our elected leaders because they are part of the problem. Remember they are not the Solution. We have to take on from here or the wicked will triumph. The realities are just the shadows of fear. For a man to sacrifice his life, it’s the victory for the poor, oppressed, the deprived, the helpless and the like. To save PNG, we must sacrifice and sacrifice is going to be our life.

      If you are a patriot of this beloved nation, lets form a group of Patriots and save this nation. If you are not, this is an opportunity of a lifetime to live and die as a legend. We are now at the cross roads whether to save this nation or help destroy this county. We either become the solutions and save this country or become ignorant and wipe this country off the map. Which one are you?


  3. Robin Lillicrapp
    April 22, 2013 at 7:06 pm

    The common thread among citizens of many countries is the same as the writer of the article opines: hatred of corruption.

    As to the way forward in combating this insidious evil, that is an argument of major proportion.
    I feel it is difficult in the extreme to get a handle on this creeping political paralysis without understanding roots to the contemporary state of affairs..
    Apart from corruption being a moral issue with its fountain-head in the Garden of Eden, it is also, now, an issue of global proportion surpassing the ability of individuals and nations to contain it.

    As I’ve indicated in past comments, Naomi Klein’s book: “Shock Doctrine- The Rise Of Disaster Capitalism,” is an excellent primer to explain the rise to prominence of the economic and political debacles of the past century in particular.

    How this state of play affects us all is the subject of the writes article.

    My thought is that we’d better have a grip on a personal relationship with the soon coming Saviour because the world around us is a rapidly evolving nightmare demanding the benevolent attentions of God Himself.

    We are progressing within a matrix of deception designed to dominate or destroy in an endeavour to exercise control over nations and states with a view especially to eradicate our treasured notions of rights to property and the like..
    National borders and ethnic distinctions are of no import in the world of tomorrow.

    As another writer puts it in an article pasted below, the Banker’s hounds are loose and “the Fleecing Has Only Begun.”


    The Fleecing Has Only Begun

    — Posted Friday, 12 April 2013 | Share this article | 2 Comments
    My Two Cents

    By Andy Sutton

    The story broke from nowhere and caught many off guard. To others it was the manifestation of previously unspoken fears. It was, and is, by far the biggest story of 2013, the decade, and quite possibly the millennium. It was the crossing of another Rubicon. For years and decades, the financial piranhas had wandered around the edges, nibbling a little here and a little there. Inflation, bailouts, and other monetary mischief had already eroded the value of most currencies. But never before had they actually made the boldest of moves – to steal what were always considered to be the most liquid and secure of funds – bank deposits. In a weekend, the liquid became the illiquid and the secure became the repossessed. Hey, let’s not split hairs here, the money was stolen. The media dutifully came up with another new buzzword – the ‘bail-in’. Talk about putting a positive spin on outright theft.

    We’ve already covered Cyprus in great detail. That story goes on and is largely ignored by the mainstream press corps; however, Cyprus was just a small prize. There are much bigger fish to fry – like you. This week’s column will cover the groundwork that has already been laid to turn America into the next Cyprus. I am not positing here that we will necessarily be the next in line chronologically, but it will happen eventually – and likely sooner than later. There are other pools of wealth in other parts of the world that may serve as additional beta tests prior and I claim no inside knowledge of the blueprint, but can only attest to the fact that it does in fact exist and more importantly, to make you aware of it now.

    Spain, Canada, and New Zealand have already adopted specific measures using the ‘bail-in’ approach to guarantee the solvency of the ‘too big to fail and too big to jail’ banksters using depositor money. For simplicity’s sake, a bail-in is pretty much the opposite of a bailout. In a bailout, which we all know far too well, everyone shoulders the losses of the offensive, insolvent institution. Think of TARP. However, that ‘socialization’ of losses tends to annoy folks; especially those who had no prior pecuniary interest in the aforementioned offensive institution. And yes, I do mean offensive.

    However, in a bail-in, instead of getting the funds from the general public, the strategy is to swipe (not write-down, not give a haircut, etc.) depositor assets. This is done by a bit of wordsmithing. Under previous customary definitions, depositor assets were also known as the bank’s liabilities. Obviously an insolvent bank has more liabilities than assets (in simple terms) and as such changing the status of account holders from ‘depositors’ to ‘unsecured creditors’ means the bank can ‘repatriate’ your money to pay off its bad debts. Truth told, this is nothing new; there is already the precedent of a series of frighteningly similar situations that are already part of America’s decaying reputation as an advocate for private property rights.

    The Precursor – Sentinel Management Group
    If all this is starting to sound a bit familiar, that is because in principle a variation of this has already happened in the case of the Sentinel Group. Late on Friday August 17, 2007 (always over a weekend, don’t EVER forget that), the company filed for Chapter 11 bankruptcy protection.

    Blockage of the sale of firm assets to the hedge fund Citadel Investment Group caused lawsuits to be filed against Sentinel by two brokerages: Farr Financial and Velocity Futures. On August 20, 2007, the SEC filed a complaint in US District Court in Chicago alleging that Sentinel had used falsified statements to obtain a $321 million line of credit and had comingled $460 million of segregated client assets with assets in its proprietary ‘dealer’ or ‘house’ account. On June 1, 2012, the former CEO and head trader were indicted on federal fraud charges for defrauding more than 70 customers of over $500 million.

    Here’s where it gets dicey. BNY Mellon is the firm that provided the $321 line of credit and it filed suit and the courts have ruled (in error and on the side of criminal behavior) that customer funds may be used by Sentinel to pay off BNY Mellon’s credit line. There have been two similar subsequent cases in the brokerage world – MFGlobal and Peregrine Financial Group. The Sentinel ruling is going to make it awfully difficult, if not impossible, for the clients of those firms to recoup lost funds. This is precisely the type of moral hazard that we need to be avoiding, not encouraging. To allow a few too big to fail – too big to jail firms to leverage the entire system is not only insanely foolish, but criminal as well.

    Granted, Sentinel was a brokerage house that went belly up because it made bad bets, but allowing the firm to steal customer money to make good on its line of credit was little more than a precursor for a savings and loan entity to do the same thing. Or in the case of Cyprus, several savings and loan entities. However, given the incestuous relationship between commercial banks and brokerages thanks to the 1999 repeal of Glass-Steagall, there is ostensibly no difference between the situations at Sentinel, MFGlobal, and PFG and what happened in Cyprus. Can the brokerage arm of a big bank put the entire operation at risk? Absolutely. Are you protected if you happen to have deposits in such a bank? Absolutely not.

    Of course in any case, the big insiders will be tipped off well in advance and have the opportunity to move their money elsewhere long before the hammer falls, leaving the Proletariat scrambling for ATMs after the banks close on a Friday afternoon.
    Act Two – Canada, Spain, New Zealand, or America?

    Let’s look at the blueprints and what we’ve got regarding Canada, Spain, New Zealand, and even from our ever quiet, perpetually underfunded friends at the FDIC. There has been a bevy of whitepapers released over the past few months that outline how various jurisdictions are going to deal with future crises. Note that the emphasis is on cleanup rather than prevention. Nobody is interested in preventing another disaster and that is precisely why we’re going to have one. I am going to link these whitepapers from our site so that you can look for yourself and draw your own conclusions. I challenge everyone reading this paper to do exactly that.
    Exhibit One: “Resolving Globally Active, Systemically Important, Financial Institutions” – FDIC / Bank of England

    They call them G-SIFIs; short speak for Globally Active, Systemically Important Financial Institutions. These are your Citigroup, JP Morgan, Lloyds of London, BNP Paribas, and Societe Generale folks. They’re intertwined in a web of deceit, corruption, and astronomical leverage and when one goes, they all go. That is why the paper refers to them as being ‘Systemically Important’. Like we need these characters for something. These aren’t even banks really; they’re casinos on steroids. Let’s take a look at some of the bankerspeak from the Bank of England and FDIC shall we?

    “These strategies have been designed to enable large and complex cross-border firms to be resolved without threatening financial stability and without putting public funds at risk.” – Note the emphasis on ‘public funds’ ie: bailouts and the concomitant promise that bailouts will no longer be used.

    “A process to ensure the equitable treatment of the creditors, depositors, counterparties and shareholders of group entities, regardless of the jurisdiction in which they are located, which would require careful assessment of the provision of intra-group financing;” – Note ‘equitable treatment’ clause.

    Here’s the London Whale and the essence of the entire paper:
    In the U.S., the strategy has been developed in the context of the powers provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Such a strategy would apply a single receivership at the top-tier holding company, assign losses to shareholders and unsecured creditors of the holding company, and transfer sound operating subsidiaries to a new solvent entity or entities. – Still no specific mention of where depositors fit in.

    And a bit more on who ultimately takes the hit, but in vague terms:
    Title II (of the Dodd-Frank Act) requires that the losses of any financial company placed into receivership will not be borne by taxpayers, but by common and preferred stockholders, debt holders, and other unsecured creditors, and that management responsible for the condition of the financial company will be replaced.

    Note that depositors are not mentioned anywhere in this exchange. It only says that taxpayers won’t take the hit. So there will be no more bailouts. Allegedly. The portion of interest to depositors is the bit about ‘other unsecured creditors’. If only equity and debt holders are going to be held responsible for ‘making the firm whole’ in receivership, then what happens when a hundred dollar stock can’t get a bid at five bucks because the firm is insolvent? Look at Lehman. Confiscating every share and selling it wouldn’t have even come close to righting the ship. Double that for bonds. Besides, who would even want it? Even assuming there were buyers at par, thanks to leverage, the amount needed to effectively resolve the insolvent firm could easily be many times the proceeds of any sale. The ONLY liquid assets within reach for an insolvent bank are the deposits. Yet deposits and depositors aren’t even mentioned in the FDIC/BOE report.
    Follow along:
    “An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities.”

    And this is where the noose closes around the necks of depositors. Pay close attention. Unsecured debt is money that is OWED by the now insolvent bank to creditors. That debt is unsecured, meaning that the creditors can’t repossess buildings, etc. to make good on the unpaid debt. So they’re going to take a bunch of people that are owed something and turn them into owners of the company by converting debt to equity. So what you have is the common and preferred stockholders wiped out and a bunch of creditors now owning the company. But where does the capital come from that is mentioned in the above paragraph? All we’ve done to this point is shuffled some deck chairs on the SS BrokenBank. We’ve wiped out the original capital/owner’s equity and replaced it with ‘unsecured debt’ holders. This resolution mechanism ONLY works if you assume that the deposits fall into the same category as ‘unsecured debt’ and as such are written-down along with unsecured debt (a la Cyprus). Otherwise you’d be in a situation where public money would be needed to re-liquefy the new firm and both Dodd-Frank and the FDIC/BOE report specifically state that public money will not be put at risk. Instead, depositor money will be at risk. Yet the FDIC/BOE report does not explicitly say that, and in fact does quite a bit of outstanding grammatical grandstanding to avoid even alluding to it.

    It must also be noted that the FDIC/BOE report was dated 10-December-2012; well in advance of the Cypriot bank holiday. The blueprints for America and Europe were laid well ahead of the beta test.

    Exhibit II – “Report and Recommendations of the Cross-Border Bank Resolution Group” – Bank for International Settlements – 2010

    This report pre-dated the combined FDIC/BOE report by nearly 2 years and was one of the first whitepapers released by a major banking ‘authority’ after the demise of Lehman Brothers and several other firms in 2008. Again, the ambiguity of the language must be noted and the not-so –subtle grouping of depositors with ‘other creditors’. See below:
    “The operation of national regulatory, corporate and insolvency regimes in home/host jurisdictions including the scope of potential ring fencing measures, the treatment of intra-group claims, safe harbour provisions for financial contracts, the treatment of depositors and other creditors under the relevant resolution frameworks, and market, regulatory and legal constraints that may require early disclosure of an impending crisis;”

    Note again as in the FDIC/BOE report the lumping together of depositors and ‘other creditors’. Formerly, depositors were NOT considered creditors and had separate and distinct rights under the law. For US bank account holders, the biggest ‘right’ is FDIC protection afforded depositors. That protection is not afforded to creditors.
    Below is another example of where depositors are amalgamated with creditors. What obligations do depositors have to a bank anyway? And even further, what obligations do they have when a bank goes bust other than to safeguard their assets? Follow along as the BIS report begins to shift the definition of and mindset concerning depositors:
    A commitment of national jurisdictions to undertake the necessary legal reforms, which may require a harmonization of national rules governing cross-border crisis management and resolutions, including rules on core issues such as a common definition for bank insolvency, avoidance powers, minimum rights and obligations of creditors including depositors, treatment of intra-group claims, ranking of claims, rights to set-off and netting, and the treatment of certain financial contracts, submission and admission of claims, and distributions to creditors;

    Also, and perhaps ironically, the BIS paper and the FDIC/BOE paper differed dramatically with regards to the possibility of public bailouts for compromised firms such as Lehman. Banks shoot their own wounded. When one gets in trouble, credit lines are withdrawn, loans refused, and the failing institution is isolated. That is what caused the need for tremendous publicly funded bailouts in 2008. Obviously such actions are politically unfavorable, especially when you have a Treasury Secy who blatantly lies about how the money will be used.
    Making a note of the change in tenor from 2010 to 2012 is critical. The emphasis shifted from taxpayer-funded bailouts to the model of swiping depositor money to sustain broken firms. Of course nobody was really sure how that would work out. Hence the perfect test in Cyprus. Physically isolated, the Cypriots never had a chance. And, right on schedule, the biggies were forewarned and made their quiet exit before D-Day. This part always comes out later and is released very quietly.

    In Conclusion – Some Pointers

    In America, the segment of folks who are actually awake are pretty upset about all this and have noticed the change in tone from the bailout to bail-in model. Understandably, they’re not too happy about it and seek insight. There are a couple of signposts and points to remember about these types of events:

    1) Beware of Friday afternoons after market close. This is when the big actions occur. Bankruptcy filings are made and these crises are whipped up to a frenzy state. This is done for a reason. It gives the powers that be the entire weekend to plot behind closed doors while nobody can do a thing. In Cyprus they closed the banks and when the ATMs were empty, that was it. The crisis was on. Lehman happened over a weekend. That is no guarantee, but that has been the modus operandi in the past.

    2) We’re one headline from an identical crisis here. The same applies to the EU and the rest of the world. This is the nature of the game that is played. It is literally impossible for any person to fully comprehend the amount of leverage that is being employed in terms of the OTC derivative market alone. The exposure is tremendous and systemic. The BIS and the rest can write all the whitepapers and talk about orderly this and that all they want. The truth is when (not if) that mountain starts shaking, all bets are off. And again, the focus of the banking ‘authorities’ has been on cleanup rather than prevention. Understanding this is key to grasping the concept that these folks realize they can’t control these markets or events. It’s a financial Frankenstein and nobody really knows what it is going to do.

    3) Follow the blueprints – and the money. The BIS paper, and more importantly, the FDIC/BOE paper, lay the blueprints on how these crises will be dealt with moving forward. I find it hilarious that the papers cite a public distaste for bailouts. I guess they figure that swiping bank accounts is going to be more palatable. Of course it won’t be packaged that way. We’ll be told that the ‘haircut’ will only be for the ‘rich’. However, by the time it is over, everyone will be cleaned out to some extent. Just look at the end result in Cyprus. They knew all along the Proletariat was going to take a beating. Class warfare is the oldest weapon in the book when it comes to getting people to subscribe to draconian social measures. Yep, nail the other guy, just leave me alone. It works every time.

    There are many analysts who believe these events are imminent. I tend to disagree. Don’t forget that this is, in many ways, a psychological warfare operation. There is always the potential of a black swan event, however, I would think that there would be some time separation between Cyprus and the next event(s) to allow the public to go back to sleep. That said, those who adequately prepare now should be prepared to maintain those preparations – perhaps indefinitely.
    This is not a one or two month, then back to the party type situation. Our world has changed many times in the last decade. This is just another step in that progression away from liberty.

    The FDIC/BOE report may be found by clicking here.
    The BIS report may be found by clicking here.
    Andrew W. Sutton, MBA
    Chief Market Strategist
    Sutton & Associates, LLC
    Sutton & Associates, LLC is a Registered Investment Adviser in the Commonwealth of Pennsylvania. This message, and its contents is intended solely for the entity named herein. If you have received this message in error, please reply to the message’s originator then delete the message from your system.
    Interested in what is going on in the markets and the economy? Read Andy Sutton’s weekly market and economic commentary ‘My Two Cents’ – go to http://www.my2centsonline.com

    — Posted Friday, 12 April 2013

  4. Robin Lillicrapp
    April 26, 2013 at 11:10 pm

    It might fill the gap in an awkward silence if I proffer some research in the public domain that goes some way toward fleshing out what otherwise is an amorphous financial phantom.

    The Tower of Basel: Secretive Plans for the Issuing of a Global Currency By Ellen Brown
    Global Research, April 17, 2013
    Url of this article:

    This carefully research article by Ellen Brown was first published in April 2009. It sheds light on the current crisis of the World monetary system. (GR ed. M. Ch.)
    In an April 7 [2009] article in The London Telegraph titled “The G20 Moves the World a Step Closer to a Global Currency,”

    Ambrose Evans-Pritchard wrote:
    “A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.
    “‘We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,’ it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

    > “In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”
    Indeed they will. The article is subtitled, “The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.” Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world’s central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated:

    > “[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS). . . . The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.”

    1 And if the vision of a global currency outside government control does not set off conspiracy theorists, putting the BIS in charge of it surely will. The BIS has been scandal-ridden ever since it was branded with pro-Nazi leanings in the 1930s. Founded in Basel, Switzerland, in 1930, the BIS has been called “the most exclusive, secretive, and powerful supranational club in the world.”
    Charles Higham wrote in his book Trading with the Enemy that by the late 1930s, the BIS had assumed an openly pro-Nazi bias, a theme that was expanded on in a BBC Timewatch film titled “Banking with Hitler” broadcast in 1998.

    2 In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.
    Modest beginnings, BIS Office, Hotel Savoy-Univers, Basel
    First Annual General Meeting, 1931
    In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton’s mentor. He was also an insider, groomed by the powerful clique he called “the international bankers.” His credibility is heightened by the fact that he actually espoused their goals. He wrote:
    “I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960′s, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. . . . In general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known.”

    Quigley wrote of this international banking network:
    > “[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

    The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The statement echoed one made in the eighteenth century by the patriarch of what would become the most powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild famously said in 1791:

    “Allow me to issue and control a nation’s currency, and I care not who makes its laws.”

    Mayer’s five sons were sent to the major capitals of Europe – London, Paris, Vienna, Berlin and Naples – with the mission of establishing a banking system that would be outside government control. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers.
    Eventually, a privately-owned “central bank” was established in nearly every country; and this central banking system has now gained control over the economies of the world.

    Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations. The result is a global economy in which not only industry but government itself runs on “credit” (or debt) created by a banking monopoly headed by a network of private central banks; and at the top of this network is the BIS, the “central bank of central banks” in Basel.

    Behind the Curtain

    For many years the BIS kept a very low profile, operating behind the scenes in an abandoned hotel. It was here that decisions were reached to devalue or defend currencies, fix the price of gold, regulate offshore banking, and raise or lower short-term interest rates.
    In 1977, however, the BIS gave up its anonymity in exchange for more efficient headquarters. The new building has been described as “an eighteen story-high circular skyscraper that rises above the medieval city like some misplaced nuclear reactor.” It quickly became known as the “Tower of Basel.” Today the BIS has governmental immunity, pays no taxes, and has its own private police force.

    4 It is, as Mayer Rothschild envisioned, above the law.

    The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper’s Magazine called “Ruling the World of Money,” Edward Jay Epstein wrote that where the real business gets done is in “a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat” – those from Germany, the United States, Switzerland, Italy, Japan and England. Epstein said:
    > “The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments. . . . A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system.”

    In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of Ten nations (now expanded to twenty). The BIS provides the twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls. In a 2003 article titled “The Bank for International Settlements Calls for Global Currency,” Joan Veon wrote:
    > “The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them.
    . . .
    > “When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency.”
    The Controversial Basel Accords

    The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from 6% to 8%. By then, Japan had emerged as the world’s largest creditor; but Japan’s banks were less well capitalized than other major international banks. Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell and loans went into default as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks. The banks had to be nationalized, although that word was not used in order to avoid criticism.

    Among other collateral damage produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans. The BIS capital adequacy standards required loans to private borrowers to be “risk-weighted,” with the degree of risk determined by private rating agencies; and farmers and small business owners could not afford the agencies’ fees. Banks therefore assigned 100 percent risk to the loans, and then resisted extending credit to these “high-risk” borrowers because more capital was required to cover the loans. When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the “financial exclusion” of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.

    Similar complaints have come from Korea. An article in the December 12, 2008 Korea Times titled “BIS Calls Trigger Vicious Cycle” described how Korean entrepreneurs with good collateral cannot get operational loans from Korean banks, at a time when the economic downturn requires increased investment and easier credit:
    > “‘The Bank of Korea has provided more than 35 trillion won to banks since September when the global financial crisis went full throttle,’ said a Seoul analyst, who declined to be named. ‘But the effect is not seen at all with the banks keeping the liquidity in their safes. They simply don’t lend and one of the biggest reasons is to keep the BIS ratio high enough to survive,’ he said. .
    . .
    > “Chang Ha-joon, an economics professor at Cambridge University, concurs with the analyst. ‘What banks do for their own interests, or to improve the BIS ratio, is against the interests of the whole society. This is a bad idea,’ Chang said in a recent telephone interview with Korea Times.”
    In a May 2002 article in The Asia Times titled “Global Economy: The BIS vs. National Banks,” economist Henry C K Liu observed that the Basel Accords have forced national banking systems “to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies.” He wrote:
    > “National banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans. . . . National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize . . . .
    > “BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies. . . . The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis,

    The IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS.”

    Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that trapped them in debt to outsiders:
    > “Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.”

    When governments fall into the trap of accepting loans in foreign currencies, however, they become “debtor nations” subject to IMF and BIS regulation.

    They are forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed “capital inadequate” have to deal with strictures comparable to the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending.”
    Liu wrote:
    “Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system.”

    The Last Domino to Fall
    While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the “risk” of default out from the loans and selling it off to investors, using a form of derivative known as “credit default swaps.”
    However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. It has been all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive

    Basel II requires banks to adjust the value of their marketable securities to the “market price” of the security, a rule called “mark to market.”

    9 The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule.

    Financial analyst John Berlau complained:
    “The crisis is often called a ‘market failure,’ and the term ‘mark-to-market’ seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery. . . . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don’t like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques.”

    Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS.
    And that is where the conspiracy theorists come in. Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused?

    Why did it sit idly by as the global economy came crashing down?

    Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens . . . .
    Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are http://www.webofdebt.com and http://www.ellenbrown.com.
    1. Andrew Marshall, “The Financial New World Order: Towards a Global Currency and World Government,” Global Research (April 6, 2009).
    2 Alfred Mendez, “The Network,” The World Central Bank: The Bank for International Settlements, http://r20.rs6.net/tn.jsp?e=001qabkEpDrUlCIVNJ7r5wlyOXz76jcF3mwKWLt5jPPZOmaHB1WnDP2FjRot9mmL9xSoxQLQfkQlNFvxU3leesOdj9WgWe0CRUNpNcZp4u8nmdCX_1CscvPKKoDWPCQy5iPJQwz08lwff4=.
    3 “BIS – Bank of International Settlement: The Mother of All Central Banks,” hubpages.com (2009).
    4 Ibid.
    5 Joan Veon, “The Bank for International Settlements Calls for Global Currency,” News with Views (August 26, 2003).
    6 Peter Myers, “The 1988 Basle Accord – Destroyer of Japan’s Finance System,” http://r20.rs6.net/tn.jsp?e=001qabkEpDrUlDLio3jLryXgzHg8OphPUmW3xoSj-v3HgFbGvpcFjH2KdEV8j0jQuFfAuERmiadKxxz_rBpZO01ajdU3R-q5T7x2NbW3jlCY6VtZheeWtFwkICPZ_viTQdO (updated September 9, 2008).
    7 Nirmal Chandra, “Is Inclusive Growth Feasible in Neoliberal India?”, http://r20.rs6.net/tn.jsp?e=001qabkEpDrUlCfhBV0qnf-Z6mFhRW22-rQ1JRJbvjRKURjsunKwg42fDce9aScNaRjIQvNd5awg-LsDNtv5QHpBbmoQAdZ3p8dzfyW6_b3JZVmItJR7gknGw== (September 2008).
    8 Bruce Wiseman, “The Financial Crisis: A look Behind the Wizard’s Curtain,” Canada Free Press (March 19, 2009).
    9 See Ellen Brown, “Credit Where Credit Is Due,” http://r20.rs6.net/tn.jsp?e=001qabkEpDrUlAO7rx9_GnQKak9iH7Aiz0WzkyKYVmyRC35sF9cUyCKcdB5T__5LgCugtk2qa1VxsR0prUp5ynPlCumDyNDN-_ECVPXlm23ix-DQm4DimLTP2O5kpVJIL8ZUdUJv-vnYh5fNSWDbJPSFg== (January 11, 2009).
    10 John Berlau, “The International Mark-to-market Contagion,” OpenMarket.org (October 10, 2008).
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