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June 2009

On April 2, 2009, control of the planet’s banks was turned over to the secret decisions of eleven men—board
members of a Swiss organization with a troubling Nazi past.
Banking wasn’t always that way. . . .
My secretary would come into my office every morning at 9:00 a.m. with a room-service smile and an armload of
computer printouts.

She would place the reports on my desk as if she were serving a fine meal and arrange them just so, with the overdraft
report on top, and then slip out of the office as if she were trying not to wake anyone.

The customer’s name was on the left side of the page followed by the date the account was opened, the six-month
average balance, and a listing of the offending checks that had sentenced the account to the OD report. The amount of
the checks and the total overdraft were featured prominently on the right-hand side of the page like perps in a police

The decisions were twofold: do I pay the checks and, whether paid or not, do I assess overdraft charges? Overdraft
charges have gotten rapacious in recent years, but they were $4.00 an item back then, and believe it or not, it takes
time, money and effort for bank personnel to track down the impostor and send it home branded with banking’s scarlet
letter—insufficient funds.

I would usually let the charges stand, but I was not a tough close if someone called in with a plausible story on why the
check beat the deposit to their account. This was usually good for one round of reversed OD charges, but rarely
repeated despite screenplay-quality presentations.

A friend of mine had a leather shop down the street where he handcrafted sandals, belts and wallets adorned with
peace symbols, which, in those days, were found on everything from condoms to dog collars. He was of the genus
Hippy, drove a ratty VW van covered in flowery orange and yellows, and wore iconic bell-bottomed Levi’s. There was
great profit in leather goods, but Jimmy paid no attention to his bank balance and overdrew the account with such
regularity I sometimes wondered if he was trying to ensure the branch remained profitable.

Banking was more personal then:

“Jimmy, you’re OD again.”

“That’s bullshit, man.”

“No, Jimmy. It’s not bullshit. You’re overdrawn $312.”

“I can’t be overdrawn. I just gave you guys a bunch of bread. You probably held it so some checks would come in first
and you could hit me with a bunch of overdraft charges.”

“Lay off the weed, Jimmy. When did you make the deposit?”

“Yesterday. Seven hundred bones. Gave it to that foxy black chick with the Afro.”

“Yes. I see it. But you’re still OD.”

“You’re bummin’ me out, man, really bummin’ me out.”

“When was the last time you reconciled your account, Jimmy?”

“Don’t put that on me, man. That form is a bad trip. Gives me a migraine.”

“Bring your last three statements down to the branch and I’ll have bookkeeping reconcile the account for you.”

“Groovy. You gonna reverse the OD charges?”

“Not a prayer. Bring $312 with you.”


Your local bank was also where you went to get a loan to buy your new home. And there it stayed until it was paid off.

A customer would come into the branch, fill out an application and, if approved, we would finance 75%–80% of the
purchase. The borrower would come up with the balance. When the loan was approved, we would issue the funds to
escrow at the appropriate time and put the loan on our books, where it would stay, earning the bank the going rate of
interest for home loans.

I’m sure there are still some community banks that offer personal service instead of having you talk to someone in the
Philippines about your credit card, but I wrote this to make the point that banking—and mortgage banking in
particular—had changed.

Banks started selling loans to investors while keeping the servicing. In other words, the borrower would keep making
his mortgage payments to the bank that made the loan but the payment would be sent on to the investor who had
purchased the loan from the bank. The investors were usually pension plans or large investment funds.

But this change in mortgage lending was just beginning.

A group of leading bankers would soon turn mortgage banking into a cancer that would eat the industry alive. What
follows is the earlier beginning to our story “The Financial Crisis: A Look Behind the Wizard’s Curtain”—a chronicle of
the men and institutions who designed the current crisis: a crisis by design.

The purpose of this financial crisis is to take down the United States and the U.S. dollar as the stable datum of
planetary finance and, in the midst of the resulting confusion, put in its place a Global Monetary Authority—a planetary
financial control organization to “ensure this never happens again.”

But I am getting ahead of myself.


It is 1985 and the Land of the Rising Sun has become the planet’s largest creditor nation. Words like Toyota,
Panasonic and Yamaha have become part of the lexicon in places such as Omaha, Cleveland and Des Moines. In
1970, the ten largest banks in the world were American. By the end of the eighties, six of the ten largest banks in the
world are Japanese.

What happened?

The Japanese banks were pampered and protected by their government like corporate rock stars. They were
permitted to operate with small amounts of reserve capital, which gave them an advantage over other banks and
enabled them to expand their market share at the expense of their competition—the major money-center banks in New
York and London represented by the dual-headed Darth Vaders of international finance, the U.S. Federal Reserve
Bank and the Bank of England.

The Gunfight at the O.K. Corral had nothing on what was about to occur to the banking samurai of Tokyo.

In the eighties, governments had varying regulations about how much capital their banks had to maintain. These
standards were supposed to ensure that banks had enough in reserves to protect themselves and their depositors
against bad loans.

These “capital adequacy standards” were set as a percentage of the bank’s assets. In other words, if the capital
requirements were 8% and a bank had $8,000,000 in capital, they could expand their balance sheet to $100,000,000
in assets (loans and other investments).

But let’s say the capital requirements were 4%. Taking the same bank with the same $8,000,000 in capital, they could
carry $200,000,000 in loans and other assets, generating a great deal more income and profit for the bank.

If the capital requirements were 10%, that same bank could have assets of $80,000,000—fewer loans, less income.

You get the picture: the capital requirements dictated what amount of assets the bank could carry. And the amount of
assets determined how much income the bank could generate.

The Japanese banks had low capital requirements—one central banker reported them to be as low as 3%. Others
claimed 6%. But in either case, they were low. The low capital requirements enabled them to hold more assets, which
in turn spun off more income. The elevated income enabled them to offer lower interest rates on loans than the
competition could. Their market share grew.

In time, Japanese banking became the Godzilla of international finance—a condition that did not sit well with Alan
Greenspan, the recently appointed Chairman of the Federal Reserve Bank, who dealt with the matter like a Mafia
chieftain whose turf had been violated by the yakuza.

As soon as he assumed the throne at the Fed, Greenspan, complaining about advantage enjoyed by the Japanese
banks, went to his comrades in coin at the Bank of England and executed a two-party agreement establishing capital
adequacy standards for U.S. and UK banks. The two of them then turned on their pinstriped Nipponese brothers and
told them that they were going to be excluded from Western markets unless they agreed to an international standard of
capital adequacy.

The Japanese, dragged to the agreement like a dog to a bath, signed the agreement on July 15, 1988, along with the
central bankers of nine other industrialized nations, setting forth “international . . . regulations governing the capital
adequacy of international banks.”

The agreement was signed at the secretive Bank for International Settlements in Basel, Switzerland, and is referred to
as the Basel Accord. However, since a second accord was signed in 2004 (which we deal with in “Behind the Wizard’
s Curtain”), this agreement is now referred to as Basel I and the 2004 agreement as Basel II.


I have dealt with the Bank for International Settlements in the two previous articles on the financial crisis and am going
to take the liberty of quoting from them here. First, “A Look Behind the Wizard’s Curtain”:

Central banks . . . govern a country’s monetary policy and create the country’s money.

The Bank for International Settlements (BIS), located in Basel, Switzerland, is the central bankers’ bank. There are 55
central banks around the planet that are members, but the BIS is controlled by a board of directors, which is
comprised of the elite central bankers of 11 different countries (U.S., UK, Belgium, Canada, France, Germany, Italy,
Japan, Switzerland, the Netherlands and Sweden).

Created in 1930, the BIS is owned by its member central banks, which, again, are private entities. The buildings and
surroundings that are used for the purpose of the bank are inviolable. No agent of the Swiss public authorities may
enter the premises without the express consent of the bank. The bank exercises supervision and police power over its
premises. The bank enjoys immunity from criminal and administrative jurisdiction.

In short, they are above the law.

And from the second article, “Hitler’s Bank Goes Global”:

But then the Bank for International Settlements (BIS) . . . has never seen transparency as one of its core values. In fact,
given its fascist pedigree, transparency hasn’t been a value at all. Known as Hitler’s bank, the Bank for International
Settlements worked arm in arm with the Nazis, facilitating the transfer of gold from Nazi-occupied countries to the
Reichsbank, and kept their lines open to the international financial community during the Second World War. . . .

It is like a sovereign state. Its personnel have diplomatic immunity for their persons and papers. No taxes are levied on
the bank or the personnel’s salaries. The grounds are sovereign, as are the buildings and offices. The Swiss
government has no legal jurisdiction over the bank and no government agency or authority has oversight over its


Basel I established the terms for the minimum capital requirements for the ten central banks that signed the accord:
Belgium, Canada, France, Italy, Japan, the Netherlands, the UK, the U.S., Germany and Sweden (Switzerland signed

A standard had been set: banks had to maintain capital of 8% of their assets. But according to the agreement, all
assets were not the same. Basel I introduced a special system of weighing the risk of different kinds of assets and
loans—they referred to it as risk-weighted assets. For example, corporate loans to businesses called for a higher
percentage capital than mortgage loans. As a consequence, banks started cutting back on corporate loans and
seeking ways to expand their mortgage portfolios.

As for the Japanese banks, they had to adjust. But the Nikkei Index (the Japanese stock market) was booming at the
time, so they didn’t consider it a big problem. Between 1984 and 1989 the Nikkei had risen from 11,500 to 38,900. As
stocks increased in value, the capital base of the Japanese banks (made up largely of stock) increased as well.

Things were cool. Sake flowed, geishas danced and banker-san was happy. But the good times were short lived.
Less than a year later, in May of 1989, the Nikkei began a decline that eventually brought the index down to below

As went the Nikkei, so went the capital structure of the banks. Down they went, slashing their ability to lend and
sending the entire Japanese economy into a recession that has been called the “Lost Decade.”

You don’t cross the Fed and the Bank of England and get away with it. Not on this planet.

It was a different story for the U.S. banks. The new capital adequacy standards laid down as Basel I had loopholes
through which the American bankers were able to drive their Porsches to bonuses larger than the budgets of several
third-world countries.


Writers have referred to the consequences of Basel I as unintended.

Were they really?

Greenspan not only sat on the board of directors of the Bank for International Settlements, he was also of course the
Chairman of the Federal Reserve Bank. From this position he kept interest rates suppressed at abnormally low levels,
ushering in a lethal binge of credit excess in America; advanced the Community Reinvestment Act, which mandated
mortgage lending to anyone who drew breath (and some who didn’t); and, along with Robert Rubin and Larry
Summers, actively fought efforts to regulate the exploding market in toxic financial instruments called derivatives.

This included using his influence to help eliminate laws that had been on the books for decades protecting people from
speculative excess and abuse in financial markets (see “The Financial Crisis: A Look Behind the Wizard’s Curtain”).


Derivatives are what Warren Buffet has called “financial weapons of mass destruction”—financial products that seem
to have been imported from a galaxy far, far away.

Derivatives are financial instruments that derive their value from some underlying asset. An example of a derivative is
one you have heard a lot of lately: mortgage-backed securities.

Here’s how this works. Mortgage loans are packaged up and legally pooled into a financial document called a
security. This simply means that there is a formal certificate that represents a group of loans. The investor buys the
security. The security pays interest to the investor, which is based on the interest rates of the underlying mortgages.

You can see where the name comes from: the financial instrument, the mortgaged-backed security, is backed by the

It is a derivative because the financial instrument, the security, derives its value from the underlying assets (the
mortgage loans).

So what were the intentions of the central bankers when they crafted Basel I? One was to take out the Japanese
banks. Mission accomplished.

The other was obvious: to curtail lending to corporations while focusing the attention and appetites of those same
lenders on the increased income and bonuses available by investing in mortgage-backed securities.

Under Basel I, banks only had to have half as much capital to invest in mortgages as was required for corporate loans.
Or put another way, they could invest twice as much in mortgages as they could in corporate loans with the same
amount of capital. The more loans, the more income.

What else did the bankers of Basel think was going to happen other than an explosion in mortgage lending? Nothing
of course. And later, when the lenders bought credit insurance for the securities, the capital requirements were
reduced even further, pouring gas on what had by then become a raging inferno of credit speculation.


It wasn’t actually called credit insurance, though. It had another one of those off-planet names: credit default swaps, but
in essence that’s what it was. Here’s how this piece of the puzzle fit.

The bank would buy a contract from an insurer that covered the credit risk of the derivative. In other words, the bank
would pay a fee to the insuring company—just like an insurance premium—and if the security turned bad, if the loans
failed to pay, the insurance company was obligated to cover the bank’s loss.

When banks bought credit default swaps for their derivatives from an AAA-rated insurance company, the derivative
itself took on an AAA rating.

When the derivative received an AAA rating, the bank’s capital requirements—already reduced because the
derivatives were made up of mortgages—were reduced even more, freeing up more capital, which enabled them to
buy more derivatives, which . . .

There were just a couple of small problems. The credit default swaps—not technically being insurance—were entirely
unregulated. This meant that the insurance companies that issued these—think American Insurance Group (AIG),
which was the world’s largest insurance company and rated AAA, but which is now owned by thee and me—did not
have to carry reserves to cover the loss if the trillions of dollars of derivatives they insured went bad.

The other was the fact that with the passage of the Community Reinvestment Act, the mortgage market was awash in
subprime loans (borrowers with poor credit, low income, and no or low down payments). And it was these loans that
were packaged into mortgage- backed securities by the trillions and sold to virtually every major bank on the planet,
making the international financial structure pregnant with disaster.

It was at this point, having originally set the stage with Basel I, that the world’s central bankers returned to the Bank for
International Settlements in Basel, Switzerland, and issued a second set of rules referred to as Basel II. Included in the
Basel II Accord was an accounting rule called mark to market, which brought the planet’s entire financial system to its
knees. Mark to market was like pulling the pin on an enormous hand grenade made up of trillions of dollars of toxic


On April 2, 2009, at a meeting of world leaders in London, the final card was played: terrified about the potential
consequences of a planetary meltdown, they agreed to a plan that established a global financial dictatorship at the
Bank for International Settlements called the Financial Stability Board. And this, dear friends, was the goal from the

If we are going to be realists, we must acknowledge that Greenspan—along with a few fellow monetary jihadists like
Paulson, Rubin, Summers and Geithner—planted the bomb in Basel I, lit the fuse by ensuring any meaningful
protection against it was removed, and then detonated it with Basel II. What followed the explosion was a global
financial coup, which was executed in April.

It took a while for the fuse to burn and the bomb to detonate, but when viewed as a well-constructed plan, the intentions
seem inescapable: this financial crisis was and is a Crisis by Design.

The story of how Basel II created the worldwide financial crisis and how the Financial Stability Board was created is
covered in detail in my earlier articles on this subject: “
The Financial Crisis: A Look Behind the Wizard’s Curtain” and
Hitler’s Bank Goes Global.

It is the second article that spells out what action to take, and what can and should be done.

The articles can be found at

A documentary film based on the articles is in pre-production. If you would like more information about the film, contact
me at the email address below.

Keep your powder dry.





Copyright © 2009 Bruce Wiseman

(Note from Carl the Poet: I happen to have a copy of
The Financial Crisis: A look behind the Wizard's Curtain and
Hitler's Bank goes Global on my site. Click to read.
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