Wednesday, 6 March 2013

How Shadow International Banking Became Shadow International Government.

How Shadow International Banking Became Shadow International Government.
New Zealand as a case study of a population kept in the dark.

Researched and highlighted by Iain Parker 27-3-2011. 

(Authors comments in italic.)
I compiled this document help racial, religious and political understanding of the impact of international high finance upon global social and economic development by presenting what appears incomprehensible then sadly irrefutably prove its true from the very mouths of the major players, but most importantly present tried and tested viable alternatives.
In many cases I include whole articles so as not to be accused of presenting things out of context but the sections I feel are most important are highlighted in bold .

To provoke thought:
Winston Churchill said:
“The farther back you can look, the farther forward you are likely to see.”
Samuel Johnson said:
“Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and dreadful”

- At the Mercy of Debt Merchants by Alfred Pearson 1969 -

It is one of the paradoxes of civilization that money is the one thing that is needed, and used, by more people than anything else, while it is at the same time, the least understood by them. There is no object more desperately sought for every minute of a person’s life. Man will labor until aching muscles prevent sleep, he will put his life at stake, and he will steal and commit murder in order to acquire it. How strange that he evinces such little interest in understanding what money is, how it is created, and who controls the amount in circulation……. History reveals a constant struggle by governments, and their citizens, to limit the power wielded by private bankers. So powerful have the bankers been, and so beholden have governments been to the bankers, that at no time has any major nation been successful in setting up an honest and adequate money system that was solely under the jurisdiction of the sovereign people.
Unfortunately, it has always been the ignorance of the people and the supine indifference of their representatives and government that have permitted a minority to usurp the issuance and control of money–a function that belongs exclusively and absolutely to the people through their government.”

1764 – Benjamin Franklin is asked by officials of the Bank of England to explain the prosperity of the colonies in America. He replies,

That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one.”
As a result of Franklin’s statement, the British Parliament hurriedly passed the Currency Act of 1764. This prohibited colonial officials from issuing their own money and ordered them to pay all future taxes in gold or silver coins. Referring to after this act was passed, Franklin would state the following in his autobiography, “In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the colonies were filled with the unemployed…The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money which created unemployment and dissatisfaction. The viability of the colonists to get power to issue their own money permanently out of the hands of King George III and the international bankers was the prime reason for the revolutionary war.

1809 Thomas Jefferson in the debate over the Re-charter of the Bank Bill (America);

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
1815 Nathan Mayer Rothschild of European private central banking imfamy makes his famous statement,
I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls Britain’s money supply controls the British Empire, and I control the British money supply.

1844 Robert Fitzroy, Third Governor of New Zealand recalled to London by the Colonial Office for issuing New Zealands own money supply.

The Encyclopedia of New Zealand 1966;
Fitzroy then turned his attention to the Government’s finances. When he arrived the total assets amounted to only £2,770, and the liabilities to about £24,000, while the revenue for 1844 was expected to fall short of the expenditure by about £8,000. He made attempts to borrow or to secure advances, but on these proving unsuccessful his only alternative to stopping payment was to issue paper money. In doing so he trusted that the current depression would pass and that the development of the country’s resources would in the end enable it to maintain itself unaided. The first issue of currency debentures was made in April 1844; by November 1845 debentures totalling £37,000 had been issued. Fitzroy took a serious risk in issuing such a large amount, but his confidence was justified – inflationary tendencies were not seriously noticeable and the most grave distress was averted.This did not prevent local grumbling, and in issuing the debentures FitzRoy was fully aware of the British Government’s inevitable disapproval, despite the fact that it had given him no practicable alternative.”…….. It goes on to say………… Already the Colonial Office had resolved to replace Fitzroy. This was due to a strong agitation in England led by the New Zealand Company, culminating in an attack on Colonial Office policy in the House of Commons in March 1845. The Government bowed to the storm and in May announced FitzRoy’s recall, giving as their reasons his failure to keep the Government fully informed of events, his neglect to raise a militia (which in fact he had done in March 1845), his contempt for instructions in issuing paper money, and his waiver of the Crown’s right of pre-emption. He was also charged with lack of judgment and firmness in handling the native question.”

The Truth About New Zealand by A.N. Field 1939;

Pg 2 -3 To this moneyed interest in his day Wakefield successfully appealed for the means to conduct his scheme. In 1838 a New Zealand Association was formed with Sir Francis Baring, M.P., a financier of the first water, as its chairman, and the next year the association blossomed out at a meeting in a Covent Garden banking-house into the New Zealand Company with a board representative of both finance and philanthropy. The first chairman was the Earl of Durham, a Radical peer, who was presently succeeded in the chair by Mr. Joseph Somes, the greatest ship- owner in the world at this date.
The company founded an enduring settlement which remains as its monument, and it also achieved its object of making money. It began by selling in London a hundred thousand acres of town lots and country estates in New Zealand at a time when it had not acquired a single acre of land there. Just ahead of its first shiploads of emigrants it sent out an expedition which succeeded in inducing a number of Maori chiefs in return for presents of trading truck to place their marks on a document allegedly selling the company a million acres of land. When the company finally surrendered its charter to the Crown in 1850 it had not given legal title to one solitary piece of land to even one individual among the twelve thousand it had emigrated to New Zealand.
Six years later (1856) the colonists in their first Parliament were obliged to raise a loan in London to extinguish the company’s claim on the colony for £200,000, which claim the Crown Commissioner on the company’s board had discribed as established “by gross frauds, concealments, and misrepresentations, practised chiefly on Earl Grey and Sir Charles Wood, Chancellor of the Exchequer.” Thus was the public debt of New Zealand born.

1861 President Abraham Lincoln (16th President of the United States from 1860 till his assassination in 1865) approaches the Rothschilds to try to obtain loans to support the ongoing American civil war.
The Rothschilds agree provided Lincoln allows them a Charter for another United States central bank and are prepared to pay 24% to 36% interest on all monies loaned.Lincoln was very angry about this high level of interest and so he printed his own debt free money and informed the public that this was now legal tender for both public and private debts.

1862 By April $449,338,902 worth of Lincoln’s debt free money had been printed and distributed. He went on to state, “We gave the people of this republic the greatest blessing they ever had, their own paper money to pay their own debts.”
That same year The Times of London publishes a story containing the following statement, If that mischievous financial policy, which had its origin in the North American Republic, should become indurated down to a fixture, then that government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce.
It will become prosperous beyond precedent in the history of civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

1863 Letter from Rothschilds to prospective US affilliates in New York

Letter to: Messieurs. Iklheimer, Morton and Vandergould, No. 3 Wall St., New York, U.S.A.:
Dear Sirs: A Mr. John Sherman has written us from a town in Ohio, U.S.A., as to the profits that may be made in the National Banking business under a recent act of your Congress (National Bank Act of 1863), a copy of which act accompanied his letter. Apparently this act has been drawn upon the plan formulated here last summer by the British Bankers Association and by that Association recommended to our American friends as one that if enacted into law, would prove highly profitable to the banking fraternity throughout the world.
Mr. Sherman declares that there has never before been such an opportunity for capitalists to accumulate money, as that presented by this act and that the old plan, of State Banks is so unpopular, that the new scheme will, by contrast, be most favorably regarded, notwithstanding the fact that it gives the National Banks an almost absolute control of the National finance. The few who can understand the system will either be so interested in its profits, or so dependent on its favors, that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages that capital derives from the system, will bear its burdens without complaint and perhaps without even suspecting that the system is inimical to their interests. Please advise us fully as to this matter and also state whether or not you will be of assistance to us, if we conclude to establish a National Bank in the City of New York… Awaiting your reply, we are.
Your respectful servants.
Rothschild Brothers.
London, June 25, 1863

The Truth About New Zealand by A.N. Field 1939;

In 186o two banks were doing business in New Zealand, the Union Bank of Australia which had opened up in the colony in 184o, and a more recent arrival, the Oriental Bank, managed in New Zealand at this time by Mr. Falconer Larkworthy. Among the customers of the Oriental Bank was Mr. Thomas Russell, solicitor, of Auckland. Mr. Russell, a young man of thirty, born in humble circumstances, had built up an extensive connection in Auckland, and in this year he induced Mr. Frederick Whitaker to go into partnership with him. This was an important happening for Mr. Russell and for New Zealand. Mr. Whitaker was an English barrister who had arrived in New Zealand via Sydney; He had been a member of the Governor’s Council from the foundation of the colony, and in 186o held the office of Attorney-General in the Ministry. Mr. Larkworthy in his memoirs (Ninety-One Years, Mills & Boon, 1924) says that Mr. Russell guaranteed his new partner no less than £5000 a year as his part-share of the profits. Law business was largely moneylending, and that one law firm should be able to make money at this rate speaks for itself as to the extent to which the handful of colonists were submerged in debt.
In the next year the Oriental Bank decided to retire from New Zealand, and the Bank of New South Wales entered the colony by buying its business. The new bank looked askance at Mr. Russell’s large and speculative account, and Mr. Russell, in high indignation, persuaded Mr. Larkworthy to join with him in establishing a local bank, the Bank of New Zealand. No……
Pg 8 …. sooner had the new bank opened its doors than rich goldfields were discovered in Otago, and by the simple process of printing notes and using them to buy gold from the diggers, the bank was soon in possession of the sinews of war. It got on its feet at once, and became a flourishing success.
The connection between the Bank of New Zealand and the Government of New Zealand was close and intimate from the start. The bank got the Government account almost immediately, and retained it until the establishment of the Reserve Bank in 1934. Mr. Whitaker (Sir Frederick after 1884) was solicitor to the bank from 1861 until 1889, and during the first thirty years of the bank’s existence he was twice Premier of the colony, five times Attorney-General in different Ministries to 1890, and once Postmaster-General, Mr. Russell himself was also in Parliament for six years from 1861, and during part of the Maori war period held the important post of Minister of Colonial Defence.
The Maori war broke out in 186o in Taranaki in consequence of the Government taking possession of land which the Maoris contended they had not sold to the Crown. The Government’s legal advisers, Mr. Whitaker being Attorney-General, held that the Crown had acquired title. Sir George Grey, hurriedly sent back to New Zealand as Governor on the outbreak of war, made inquiry into the matter after his arrival, and the documents and plans produced showed that the legal advice on which the Government had acted was definitely bad, and the Maori contentions in accord with fact. This discovery was made too late to quench the flames, and the blaze presently spread from Taranaki northwards to the Waikato and other parts of Auckland province. Ten thousand British troops were called in, and the campaigns extended over ten years,……
Pg 9 …. costing the colony between three and four million pounds. The Hon. John Fortescue in volume xiii of us monumental History of the British Army (Macmillan, 1930) records that many Imperial officers were of opinion that the military in these campaigns were being made use of for the purpose of effecting decidedly sordid land-grabbing operations.
Sir George Grey in his earlier first Governorship had been against a premature grant of representative government to the colony on the ground that the excessive claims of various colonists to Maori lands would lead to war between the two races; that to prevent the settlements from being wiped out, Imperial troops would have to be despatched: that the colonists had no means to pay the cost of any such campaign; “that, on the contrary, these expenses must be paid by Great Britain, whilst the minority [of colonists] to whom the new powers are to be entrusted will benefit largely from such expenditure, and will have a direct interest in rendering it as great as possible.” (Despatch of May 3, 1847).
In 1863 Mr. Russell became Minister of Defence in command of the channels through which the Maori war expenditure flowed. His partner, Mr. Whitaker, a few months later became Premier, and the two carried on in office until towards the end of 1864. Sir George Grey in a despatch of August 26, 1864, described his misgivings as to the position in which he found responsible government in New Zealand at this date. The inhabitants of the various scattered settlements knew no more of what was transpiring than Ministers thought fit to tell them. Of a Ministry of five members, one was absent in England, two others seldom at the seat of Government in Auckland, the remaining two being “two partners who comprise one of the leading legal firms in the town of Auckland”. On the advice tendered him by these two Ministers the Gov- ….
Pg 10 … ernor was supposed to act in “affairs involving largely the interests of Great Britain in the employment of her military and naval forces, and the expenditure of their funds.”
The Ministry thus composed floated New Zealand’s second loan—the first recourse to borrowing since 1856. The amount authorised by Parliament was three millions for Maori war purposes, and the first million of scrip was disposed of in London through the agency of Mr. Russell’s Bank of New Zealand, the Treasury netting £810,000 in cash, and flotation costs absorbing not far short of 4/- in the pound. The proceeds of this war loan appear to have passed through the Treasury so rapidly that there was no time to keep track of how the money went. The next Premier, Mr. Weld, is quoted in Saunders’ History of New Zealand as saying in a speech at Christchurch: “Under the Whitaker Ministry a million and a half was paid out without any details being recorded.”
One item in the war expenditure was a contract for the supply of hay to the Imperial troops. The contractor was a small farmer at Auckland. who was brother-in-law to Mr. Russell, Minister of Defence and ruler of the bank. The Weld Ministry cancelled the contract on the ground that the price was excessive. It was then discovered that the contractor had bought all the hay in the market (apparently having ample financial resources) and the Cyclopaedia of New Zealand relates that the Government was in the end obliged to buy from him at double the original price. Following on this transaction, Mr. Russell became sleeping partner with his relative in a property of about thirty thousand acres in the South Island, of which the relative, being a highly competent farmer, made a great success.
This incident is mentioned as, according to Mr. Larkworthy’s memoirs, it headed Mr. Russell on to…
Pg 11 … his colossal land speculations in the North Island–which speculations a benevolent Liberal-Labour Government at the turn of the century spent ten years in liquidating as a liability saddled by it on the backs of the taxpayers, there being no longer any prospect of Further profit for Mr. Russell or his bank in the ventures.
This heavy military expenditure in the adjacent portions of the North Island put the City of Auckland firmly on its feet as a banking and commercial centre. An additional lucrative branch of business not revealed in the official figures was the supply of arms and munitions necessary to enable rebellious Maoris to hold the field against the British military throughout this prolonged period. The profits on the other side of the account being so great, there was room for considerate treatment of the Maori in view of his more restricted financial resources. The veil over the terms of these transactions has never been lifted.
Pg 12
Relations between Sir George Grey and the Whitaker Ministry were never cordial. Breaking point came when Ministers asked the Governor to approve a plan to confiscate eight million acres of Maori lands, regardless of whether the local Natives had been in arms against the Crown or not. Sir George Grey flatly refused to agree, and the Ministry fell.
A large but greatly reduced area was eventually confiscated under the succeeding Weld Ministry. This Ministry in 1865 gave way to one under Mr. Stafford. Mr. John Bridges, acting-general manager of the National Bank, in 1875 deposed in evidence before a Parliamentary Committee that the Weld Government fell following a decision by five members of Parliament who were also directors of the Bank of New Zealand, that a remittance urgently needed to pay interest on the public debt would be given by the bank to a Stafford Government, but not to the Weld Government. Mr Bridges said he was Wellington manager of the Bank of New Zealand at the time, and he had personally conveyed the decision to Mr. Weld. (The seat of Government had been removed from Auckland to Wellington in 1865.)
A rising star in the political firmament at this time was Mr. Julius Vogel, a journalist who had formed one of the numerous company of Jews which flocked into New Zealand following on the discovery of gold in 1861. Establishing in Dunedin the colony’s first daily newspaper, Mr. Vogel presently entered politics, and by 1869 was Colonial Treasurer, succeeding to the…
Pg 13 …. Premiership in 1873 and holding office for three years. Friendly relations existed between Mr. Russell and Mr. Vogel, warm discussion taking place in Parliament in consequence of the Premier’s unannounced departure for England in company with Mr. Russell in 1874. Mr. Vogel was on the opposite side from Mr. Whitaker, and from 1869 to 1890 when one was out of Cabinet the other was commonly in.
Mr. Bridges, in his evidence in 1875 just referred to, said that for a period of years up to 1873 when he resigned the Wellington managership of the Bank of New Zealand, Mr. Vogel had had a private account with the hank there, with an overdraft limit of £200, and that “frequently”, “much more than five or six times a year” as far as he could remember, the limit would be reached, and the indebtedness thereupon wiped out by transfer to the head office of the bank at Auckland. The bank sent a letter to the Parliamentary Committee saying there was nothing improper in this as Mr. Vogel had another account at Auckland; but it presented no evidence, nor did the Committee re-examine Mr. Bridges, whose charges it affirmed to be “absolutely unwarranted and without foundation”—the usual termination of Parliamentary inquiries touching the Bank of New Zealand.
The law with respect to the sale of the confiscated Maori lands after the war laid it down that they must be offered at public auction at an upset price of 5s. per acre. In 1876 the Vogel Government in face of this law obligingly permitted Mr. Russell and some of his banking friends to purchase the Piako block of over 80,000 acres, privately and without competition, for 2s. 6d. per acre, the transaction taking place after the Government had decided to build a railway through the middle of the block. This property was presently floated off as the Waikato Land Association, nominal capital £600,000, of which £300,000 …
Pg 14 … was allotted to the vendors in fully-paid shares as payment for their valuable property.
The Patatere block of about 250,000 acres, south of the Piako, was presently acquired by Messrs. Whitaker and Russell on similarly inexpensive terms, and in 1882 floated off into the Auckland Agricultural Company, nominal capital £800,00. A South Island provincial newspaper proprietor who had the audacity to refer to this transaction in his journal as “another swindle”, was summoned to the bar of Parliament and also sued for libel by Mr. Whitaker, the jury unkindly returning a verdict for the defendant newspaper. “Either Mr. Jones ought to be placed in gaol or I should be turned out of Parliament,” said Mr. Whitaker. Neither event transpired.
Mr. Russell also floated another large block of 150,000 acres, east of the Piako, into the Thames Valley Land Company, nominal capital £500,000.
These ventures by no means exhausted the interests of the partners. Mr. Russell at the time of founding the bank had also played a leading part in the important New Zealand Insurance Company. He and Mr. Whitaker were interested in some 13,000 acres of coal-bearing land later floated off into the Waikato Coal Company. Extensive Whitaker interests in gold-bearing land at the Thames, and in timber properties, became the subject of acrid debate in Parliament.
Second only to the bank itself in importance was the great New Zealand Loan and Mercantile Company formed by Mr. Russell in 1864 with a share capital of half a million, and with about two millions more raised by selling 4% debentures to widows, spinsters, clergymen, etc., in England, the money so obtained being loaned to farmers in New Zealand at from 8 to 10%, according to statements in Parliament. The company was formed to take over the accounts of farmers who had got so deeply into the books of the…
Pg 15 … banks as to have small chance of ever getting off again.
These loan companies held security over their farmer-debtors’ possessions, sold their produce, and supplied their farm and household needs, paying over such cash balances as might remain from time to time after deduction of charges levied at their discretion and interest compounded as often as the law allowed. Farmers who got into the hands of such concerns were apt to find themselves there for life.
Within a few years of its establishment about half the banking in New Zealand was done by the Bank of New Zealand, and its offspring the loan company had Farmers and sheep-station owners in its debt from end to end of the colony. Criticism of the doings of the bank was heard from time to time in Parliament in the first thirty years of its existence, numerous inquiries were held, but invariably the result was the same—complete exoneration of the bank and the Government of the day. Now and then even the docile Government majority on a Parliamentary inquiry would timorously add a rider that although everything under inquiry was perfectly proper, it was highly desirable that the same thing should never be done again. Evidence was tendered at times showing the charges levied by the bank for operating the Government account as of an exorbitant character, and alleging that the other banks were never given opportunity to tender for the account on level terms.
When the Bank of New Zealand, potent dispenser to industry of the means of payment, desired a particular course of action to be followed, Parliament was Seldom prepared to say it nay. An early instance of its power was in the consolidation of the provincial loans in 1867. Floated at heavy discounts and almost unmarketable, it was felt that these loans were an injury to the credit of the colony. The Government had no responsibility for the loans, but decided to get…
Pg 16 … them out of the way by buying up the scrip at market price, finding the money for the purpose by sale of Government stock.
Pg 17Speaking in Parliament in 1883 during Mr. Whitaker’s second Premiership Sir George Grey said;
“I conscientiously believe that two or, three great’ establishments, all really under one directorate, do’ exercise in the Legislature of this country an undoubted and dangerous influence. I sincerely believe that I is existing Government is maintained in its place by those bodies… I say that even among the voters it will be a long time before that independence can come about which ought to prevail, because I fear many of them are in some manner entangled with engagements’ which will place them at the mercy of those persons who rule those different great bodies of which I speak.
I go further and say-and in saying this I know, of course, that I create, and must create, a great many enemies-I firmly believe that the same persons by monetary influence control a great portion of the press “One great central power in New Zealand oppresses it from end to end. That central power is moved by the Premier, and the Premier is the solicitor of these great moneyed corporations. Is it just? Does it give the people of New Zealand a fair chance? Is it not hard for a man to know that if he cries for justice some debt upon his estate may he made the cause of his ruin instantly? Is it right for us to feel degraded by knowing that such is the case here? … As long as this continues I see’ no hope for ourselves or our country.

Theodore ‘Teddy’ Roosevelt 26th President of the United States of America said in a speech titled – The Progressive Covenant With The People – August 1912;

Political parties exist to secure responsible government and to execute the will of the people. From these great tasks both of the old parties have turned aside. Instead of instruments to promote the general welfare they have become the tools of corrupt interests, which use them impartially to serve their selfish purposes. Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people. To destroy this invisible government, to dissolve the unholy alliance between corrupt business and corrupt politics, is the first task of the statesmanship of the day.”

Twice PrimeMinister of Canada – William Lyon Mackenzie King – spanning most of period 1921 – 1948 said in 1935;

Once a nation parts with the control of its currency and credit, it matters not who makes that nation’s laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.”

Michael Joseph Savages (First New Zealand Independent Labour Party PrimeMinister 1935-40) said in his 1920 maiden speech to Parliament;

The Government should create a state bank , and use the public credit for the public good as an alternative to borrowing overseas”

1920s Sir Josiah Stamp, President of the Bank of England, in an informal talk to 150 University of Texas students said “Banking was conceived in iniquity, and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen, they will create enough deposits, to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers, and pay the cost of your own slavery, let them continue to create deposits.

What were these esteemed leaders referring to at the same period of time yet oceans apart and what relevance it still has upon our society today?

Address by President of St Louis Federal Reserve Bank, Delos C Johns, Mississippi University July 28 1952:

I mentioned one road to financial independence of the executive as the power to issue money. At this point it is tremendously important to recognize that in this country money is created without actually issuing currency or coin. This fact is not widely enough understood. Money can be, and in this country usually is, created through the expansion of bank credit. And this bank deposit money, which circulates in the form of checks, is just as much money as currency. Indeed bank deposits constitute the great bulk of our money supply, and an over-expansion of check-book money may cause the value of the money unit to fall just as surely would an overissue of currency.”

Michael Moore past New Zealand Prime Minister 1990 and World Trade Organisation Governor-General 1999 – 2002 was known to sometimes be very contradictory. On page 68 of his 1998 book – A Brief History Of The Future – he wrote the two below lines following each other in the same paragraph ;

There has to be more transparency, openness and accountability. Diplomacy is frequently best done in secret”

What on earth did these international diplomats mean?

Present the incomprehensible and fast-forward a little:

Article by Financial Commentator Nikki Alexander 2009
The Systemic Usury Parasite
In 1913 our sovereign authority to create interest-free money was unconstitutionally transferred to a transnational private banking cartel that has systemically infected our economy with a staggering national debt in the tens of trillions of dollars. Eighty-five cents of every dollar is now consumed as “interest” by the systemic usury parasite, draining its host of vital resources and collapsing our economy in bankruptcy. Ours is not the only nation to succumb to systemic parasitism.
The Systemic Usury Parasite has infected 170 countries, feeding itself through the central bank syndicate, a shareholder-owned consortium of private banks. Each central bank parasite has an exclusive monopoly on its host government’s monetary system, with the power to create public debt and expand or contract the host’s economy at will. Coordinating their monetary policies with each other through the Bank for International Settlements, the central bankers meet behind closed doors, appoint their own governors and set their own rules. Their books are not subject to audit by the individual governments that host them. The Bank for International Settlements originated as a Nazi money laundering operation and serves today as the cashiers window for the global casino. The IMF and World Bank tentacles of this parasite, infect unsuspecting governments with insurmountable debt, forcing these nations through “structural adjustment” policies to rob their taxpayers, slash beneficial social programs, transfer public assets to private owners and sell the nation’s treasures to transnational predators at fire sale prices. Government treasuries are the parasite’s host. Why rob just one bank when you can rob the whole nation? And why rob just one country when you can rob them all? Flushing the global economy of this systemic parasite begins with understanding how its debilitating web of debt is manufactured.
Although governments have inherent authority to create their own money, they foolishly borrow it from central banks, with interest. A central bank fabricates fiat notes (paper money) and credit by “lending” them into existence, in return for treasury bonds of the host government ~ taxpayer IOUs. This “money” has no pre-existing substance in reality and is conjured up through accounting entries. It is literally created out of nothing. The central bank first lends these accounting entries to its private owners and then to its down-line commercial banks with interest. The commercial banks are permitted to lend nine times the amount of their borrowed accounting entries held “in reserve”. This nine-fold multiplication of borrowed accounting entries is described as “fractional reserve banking.” When borrowers accept these accounting entry loans they create massive inflation of the money supply which devalues the currency. These accounting entry loans must be “paid back” with compound interest that multiplies exponentially. More money must then be fabricated to pay this interest. Thus, all “money” that enters circulation is actually debt contrived by fictitious accounting entries. Every fiat dollar is an IOU from a borrower to a lender. A debt-based monetary system can never achieve equilibrium because compound interest always overwhelms the escalating money supply and eventually causes systemic collapse.

Now to sadly prove the above is irrefutably true:

Firstly, I will produce the irrefutable proof that the total repayment of debt is collectively impossible under the current international banking model. That there is always less currency of any form in circulation than what is owed to the financial sector as interest bearing loans. Thus a few insiders will win by design, a few more players will win by luck, but for most the the unaddressed compounding interest collectively marches them straight into debt peonage or debt enslavement. No different to a casino designed and owned by the house to favour the house by mathematical certainty. Only this is a casino that the populous have no choice but to play on a daily basis as it is decreed that its chips are the only thing accepted as payment of taxes.

In a January 18 2010 reply from New Zealand Minister of Finance Bill English’s office to some questions I put under the Official Information Act he signed off on some very enlightening admissions. In order to make this information understandable I have slightly changed the order of the questions and answers so the reader can first comprehend the monetisation of debt process at the international and domestic banking levels. Also that all but a tiny fraction of our money supply originates as debt owed to the financial sector as interest bearing loans but when a loan is drawn down only the principle enters circulation thus there is never enough money in circulation to collectively repay both pricipal and interest;

Office of Hon Bill English

Deputy Prime Minister Minister of Finance
Minister for Infrastructure
1 8 JAN 2010
Dear lain Parker
Thank you for your Official Information Act request, received on 27 November 2009. You asked a”number of questions about the nature of government bonds; as well as about the nature of money and the banking system.

1. Could you please tell me what a Government Bond is and what role it plays in our economy?
As you point out on page 7 of your submission, New Zealand government bonds are wholesale, New Zealand dollar denominated, fixed-term debt securities. They are secured by a charge upon and are payable out of the revenues of the Crown.
Cash received by government bond issuance is used to fund goods and services provided by the government, e.g. roading, hospitals and welfare payments. Government bond yields provide an indication of the “risk free” rate of return in an economy and provide companies and households a benchmark with which to compare returns against those of alternative investments.
2. Could you please tell me who in the world of high finance, as Primary Bond Dealers, has the right to buy or monetise government debt bonds before they decide if they do or don’t on sell them on the secondary bond market?
New Zealand does not have “Primary Bond Dealers.” The term “Primary Bond Dealers” refers to institutions that, for example, trade directly with the United States Federal Reserve, where they are required to participate when the Federal Reserve holds securities auctions. In New Zealand, the nearest equivalent institutions are called registered tender counterparties. The main difference between the US and New Zealand is that registered counterparties are eligible but not required to participate in government securities tenders.
To qualify for registration as a tender counterparty, an institution must have a minimum credit rating of A-/A3, or have their obligations guaranteed by a parent entity with a minimum credit rating of A-/A3, or be a Crown financial institution.
Tender counterparties are primarily either New Zealand or Australian incorporated banks.
3. Are the Primary Bond Dealers private or publically owned institutions? That is not those that buy bonds on the secondary bond market, but the Primary Bond Dealers?
Tender counterparties are primarily private sector banks.

4. Could you please tell me what they use to buy our government bonds and if that medium of exchange existed before we pledged to pay it back with attached interest out of the future taxes of the nation or was it an electronic debt book entry, not anyone’s existing savings, but an electronic book entry that brings into circulation new money?
People purchasing government bonds must do so with New Zealand dollars. Settlement of the transaction between the purchaser and the Crown is by electronic cash transfer rather than physical cash. All else being equal, bond purchases result in a reduction in settlement cash balances of the banking system (either at commercial banks, the Reserve Bank or both) as cash is transferred to the Crown.
An explanation for how this cash may originally be created is included in the answer to question 5 below.
5. Is it true that in excess of 90% of the money supply in circulation in New Zealand entered circulation as interest bearing debt owed to the banking network?
It is correct that most of the money supply in New Zealand has been created by the banking sector. This is done through the process of financial intermediation. Commercial banks, and other financial institutions, take deposits from members of the public and firms who wish to hold cash in the form of bank deposits. They then lend to individuals and firms who want to borrow — in the form of mortgages or business loans. This process serves to channel funds between savers and borrowers. It also shifts the risk of lending from individual savers to the banks, thereby reducing the risk of lending.
This process of intermediation involves the commercial banks lending a greater value of funds than the cash they reserve to meet expected deposit withdrawals. This is done because at any one time only a fraction of depositors will want to withdraw their funds. Banks therefore need to keep only a fraction of their deposits in reserve in order to meet those demands. Because the banks lend more than the total amount of cash held in reserve in the system, credit is created – thus increasing the money supply.
The exact proportion depends on the definition of the money supply. Using the most common definition of the money supply as M2 (i.e. currency held by the public + balances in cheque accounts + all other business or personal deposits that are available on demand), the October 2009 data show that the part not accounted for by currency held by the public is 95%.
Data on money aggregates can be found on the RBNZ website at: http://www.rbnz.govt. nzlstatistics/monfin/cl /data.html.

6. Prime Minister Key, could you please describe your activities as a member of the Advisory Board of the Foreign Exchange Committee of the US Federal Reserve between 1999-2001?
I refer you to the reply from the Office of the Prime Minister.
7. Could all please advise me if the US Federal Reserve and the Bank of England are privately owned institutions that sit within their respective governments or publicly owned institutions within their governments?
I refer you to the following pages on the websites of the Board of Governors of the Federal Reserve and the Bank of England respectively for this information: htm
8. Could you please explain to me the role and relationship of the American Financial institution — Northern Trust — in regard to it being appointed custodian of our own NZ Debt Management Office?
The New Zealand Debt Management Office (NZDMO) has appointed Northern Trust as global custodian for NZDMO fixed income assets. The appointment followed a competitive tender exercise which was completed in 2008. Custodian duties provided by Northern Trust for the NZDMO are standard for financial institutions and include: the provision of trade settlement services; safekeeping of assets; and other administrative functions.
9. Could you please tell me if in New Zealand, a “new” mortgage at issuance, before it becomes tradable, is loaned to a borrower by a registered bank, is that mortgage created as a debt book entry account, not anyone’s existing savings, but an electronic debt book entry creating “new money”?
The creation of a new residential mortgage will generally result in new money (bank deposits) being created. The bank grants a new loan to a purchaser, who uses the cash to buy property from a vendor. The vendor then may spend or save the proceeds boosting deposits in the financial system.
You also ask for a list of the names of the officials who contributed to this reply. I am withholding these names in full under s.9(2)(g)(i) of the Official Information Act — to maintain the effective conduct of public affairs through the free and frank expression of opinions.
You have the right to ask the Ombudsman to review my decision.
This fully covers the information you requested. I hope you find this information useful
Yours sincerely
Bill English
Minister of Finance

If we then combine the above information with that provided in a document supplied by the New Zealand Bankers Association – Banking in New Zealand Fourth Edition published 2006, we can quite clearly ascertain that the bankers representatives quite clearly admit to the fact that there is never enough money in any form of currency in circulation to repay credit loaned by the financial sector;

From Chapter 4 The Creation Of Money And Credit;

The Traditional View of the Process
The traditional view of the process of creating money and credit is based around cash(i.e. Notes and coins)as the most basic form of money in a modern economy. A deposit with a bank represents a claim on it for a specific amount of cash. By acting as financial intermediaries and by providing non-cash means of settling transactions, banks and other financial institutions create more deposits and more credit than there is cash.
The process by which money and credit are created begins with a cash injection, represented by the cash injection arrow in Figure 4. We discuss the sources of such cash injections later in this chapter.
Money and Credit Aggregates
The creation of money and credit is relevant to banks primarily because it is the process by which their assets and liabilities are created. The Reserve Bank and the government have a wider interest in the total amount of money and credit in the economy. This includes the money and credit created by non-bank financial institutions in addition to that created by banks…….
The level of domestic credit exceeds the total level of cash and deposits as measured by the M3 money supply. This is because financial institutions fund their lending both by borrowing overseas and from other non-deposit sources(e.g., capital) in addition to using deposits.

The cash injection refered to by the New Zealand Bankers Association is the very same monetised debt we receive in electronic form from the privately owned international tier 1 level universal bankers that is then introduced into our domestic system via government expenditure to become our primary monetary base which then goes on to be expanded as even more created credit issued as interest bearing loans by domestic institutions that the international institutions often also have majority shareholding interests in.

Alan Greenspan was Chairman of The US Federal Reserve 1987 – 2006

Bio From ABC
When Federal Reserve Board Chairman Alan Greenspan’s term expires on Tuesday, it will mark the end of the 18-year reign(Aug 1987-Jan 2006) of one of the country’s pre-eminent economists.
Greenspan became chairman of the nation’s central bank in August 1987, two months before the stock market crash known as Black Monday. He was credited with moving quickly to alleviate investors’ fears and was instrumental in ensuring the Federal Reserve made plenty of money available. Stocks quickly rebounded.
Greenspan continued to serve as Fed chairman under Presidents George H. W. Bush, Clinton and George W. Bush. He steered the U.S. economy through the economic boom in the 1990s and the brief recession after the turn of the century, guiding the Fed’s monetary policy to avoid long-term national inflation or recessions during his tenure.
Greenspan was much revered for his economic modeling skills and a keen ability to forecast how the economy might fluctuate in the future. During his tenure, the nation experienced the longest period of economic growth in its history.
AUGust 2007
A Symposium Sponsored By The Federal Reserve Bank of Kansas City.
Maintaining Financial Stability In A Global Economy
Opening Remarks
Alan Greenspan
I want first to thank Tom Hoenig* and his colleagues, once again, for organizing this conference.
There is a key policy issue that we must confront in the process of maintaining financial stability in a global economy That is the division of responsibilities for containing systemic risk between the public and private sectors. This division of responsibilities, in turn, rests on the scope of sovereign credit extension and the private hurdle rate for the cost of capital.
Let me begin with a nation’s sovereign credit rating. When there is confidence in the integrity of government, monetary authorities—the central bank and the finance ministry can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issues as they see fit. This power has profound implications for both good and ill for our economies.
Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.
That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation If it produces too few, the economy’s expansion also will presumably be constrained by a shortage of the necessary Lubricant for transactions Authorities must struggle continuously to find the proper balance.
It was not always thus for most of the period prior to the early 1930s, obligations of governments in major countries were payable in gold This meant the whole outstanding debt of government was subject to redemption in a medium, the quantity of which could not be altered at the will of government Hence, debt issuance and budget deficits were delimited by the potential market response to an inflated economy. It was even possible in such a monetary regime for a government to become insolvent. Indeed, the United States skirted on the edges of bankruptcy in 1895 when our government gold stock shrank ominously and was bailed out by a last-minute gold loan, underwritten by a Wall Street syndicate.
There is little doubt that under the gold standard the restraint on both public and private credit creation limited price inflation, but it was also increasingly perceived as too restrictive to government discretion. The abandonment of the domestic convertibility of gold effectively augmented the power of the monetary authorities to create claims. Possibly as a consequence, post-World War II fluctuations in gross domestic product have been somewhat less than those prior to the 1930s, and no major economic contraction of the dimensions experienced in earlier years has occurred in major industrial countries. On the other hand, peacetime inflation has been far more virulent.
Today, the widespread presumption is that, as a consequence of expectations of continuing inflation over the longer run, both nominal and real long-term interest rates are currently higher than they would otherwise be. Arguably, at root is the potential, however remote, of unconstrained issuance of claims unsupported by the production of goods and services and the accumulation of real assets.
Pressures for increased credit unrelated to the needs of markets emerge not only as a consequence of new government debt obligations, both direct and contingent, but also because of government regulations that induce private sector expenditure and borrowing. All of these government-derived demands on resources must be satisfied. Hence, when those demands increase, interest rates tend to rise to crowd out other types of spending.
Any employment of the sovereign credit rating for the issuance of government debt, the guaranteeing of the liabilities of depository institutions, or the liquification of assets of depository institutions through a discount or Lombard facility enables the preemption of real private resources by government fiat. Increased availability of a central bank credit facility, even if not drawn upon, can induce increased credit extension by banks and increased activity by their customers, since creditors of banks are more willing to finance banks’ activities with such a governmental backstop available. If that takes place in an environment of strained resource availability, expanded subsidies to depository institutions—that is, the “safety net”—can only augment the pressures. An accommodative monetary policy can ease the strain, but only temporarily and only at the risk of inflation at a later date unless interest rates are eventually allowed to rise This dilemma is most historically evident in its extreme form during times of war, when governments must choose whether to finance part of increased war outlays through increased central bank credit or depend wholly on taxes and borrowing from private sources.
Accordingly, central banks must remain especially vigilant in maintaining a proper balance between a safety net that fosters economic and financial stabilization and one that does not. It is in this context of competing demands for resources and the government’s unique position that we should consider the role of the central bank in interfacing with banks, and in some instances with other private financial institutions, as lenders of last resort, supervisors, and providers of financial services.
It is important to remember that many of the benefits banks provide modern societies derive from their willingness to take risks and from their use of a relatively high degree of financial leverage. Central bank provision of a mechanism for converting highly illiquid portfolios into liquid ones in extraordinary circumstances has led to a greater degree of leverage in banking than market forces alone would support.
Of course, this same leverage and risk taking also greatly increase the possibility of bank failures. Without leverage, losses from risk taking would be absorbed by a bank’s owners, virtually eliminating the chance that the bank would be unable to meet its obligations in the case of a “failure ” For the most part, these failures are a normal and important part of the market process and provide discipline and information to other participants regarding the level of business risks. However, because of the pervasive roles that banks and other financial intermediaries play in our financial systems, such failures could have large ripple effects that spread throughout business and financial markets at great cost.
Any use of sovereign credit–even its potential use—creates moral hazard, that is, a distortion of incentives that occurs when the party that determines the level of risk receives the gains from, but does not bear the full costs of, the risks taken At the extreme, monetary authorities could guarantee all private liabilities, which might assuage any immediate crisis but doubtless would leave a long-term legacy of distorted incentives and presumably thwarted growth potential. Thus, governments, including central banks, have to strive for a balanced use of the sovereign credit rating. It is a difficult tradeoff, but we are seeking a balance in which we can ensure the desired degree of intermediation even in times of financial stress without engendering an unacceptable degree of moral hazard
We should recognize that if we choose to have the advantages of a leveraged system of financial intermediaries, the burden of managing risk in the financial system will not lie with the private sector alone. With leveraging there will always exist a remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in financial implosion if it proceeds unchecked. Only a central bank, with its unlimited power to create money, can with a high probability thwart such a process before it becomes destructive. Hence, central banks have of necessity been drawn into becoming lenders of last resort. But implicit in the existence of such a role is that there will be some form of allocation between the public and private sectors of the burden of risk of extreme outcomes. Thus, central banks are led to provide what essentially amounts to catastrophic financial insurance coverage. Such a public subsidy should be reserved for only the rarest of disasters. If the owners or managers of private financial institutions were to anticipate being propped up frequently by government support, it would only encourage reckless and irresponsible practices.
In theory, the allocation of responsibility for risk bearing between the private sector and the central bank depends upon an evaluation of the private cost of capital. In order to attract, or at least retain, capital, a private financial institution must earn at minimum the overall economy’s rate of return, adjusted for risk. In competitive financial markets, the greater the leverage, the higher the rate of return, before adjustment for risk. If private financial institutions have to absorb all financial risk, then the degree to which they can leverage will be limited, the financial sector smaller, and its contribution to the economy more limited. On the other hand, if central banks effectively insulate private institutions from the largest potential losses, however incurred, increased laxity could threaten a major drain on taxpayers or produce inflationary instability as a consequence of excess money creation.
In practice, the policy choice of how much, if any, of the extreme market risk that government authorities should absorb is fraught with many complexities. Yet we central bankers make this decision every day, either explicitly or by default. Moreover, we can never know for sure whether the decisions we made were appropriate. The question is not whether our actions are seen to have been necessary in retrospect, the absence of a fire does not mean that we should not have paid for fire insurance. Rather, the question is whether, ex ante, the probability of a systemic collapse was sufficient to warrant intervention. Often, we cannot wait to,see whether, in hindsight, the problem will be judged to have been an isolated event and largely benign.
Thus, governments, including central banks, have been given certain responsibilities related to their banking and financial systems that must be balanced. We have the responsibility to prevent major financial market disruptions through development and enforcement of prudent regulatory standards and, if necessary in rare circumstances, through direct intervention in market events. But we also have the responsibility to ensure that private sector institutions have the capacity to take prudent and appropriate risks, even though such risks will sometimes result in unanticipated bank losses or even bank failures.
Risk taking is indeed a necessary condition for the creation of wealth The ultimate values of all assets rest on their ability to produce goods and services in the future. And the future as we all know is uncertain and hence all investments are risky.
The papers we will hear today and tomorrow examine this crucial nexus of risk and financial stability from various perspectives I look forward to the insights of our colleagues
We will never have a perfect model of risk
By Alan Greenspan 16 March 2008 Financial Times
“The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.
The problems, at least in the early stages of this crisis, were most pronounced among banks whose regulatory oversight has been elaborate for years. To be sure, the systems of setting bank capital requirements, both economic and regulatory, which have developed over the past two decades will be overhauled substantially in light of recent experience. Indeed, private investors are already demanding larger capital buffers and collateral, and the mavens convened under the auspices of the Bank for International Settlements will surely amend the newly minted Basel II international regulatory accord. Also being questioned, tangentially, are the mathematically elegant economic forecasting models that once again have been unable to anticipate a financial crisis or the onset of recession.”

Article from New York Post re Alan Greenspan 23 Oct 2008 appearance before Congressional Inquiry Into Financial Meltdown

In a surprise about-face that potentially wrecks his legacy, Alan Greenspan yesterday admitted his ideology when running the US central bank was “flawed” in encouraging the economy’s wild ride of booms and busts for 20 years.
The 82-year-old former head of the Federal Reserve reluctantly shot down his own philosophy, but only after being roughed up by angry members of a congressional panel probing the economic meltdown.
The panel’s head, Rep. Henry Waxman (D-Calif.), led the charge. You found that your view of the world, your ideology was not right, it was not working?”
Greenspan answered,Absolutely, precisely. You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
At one point Greenspan turned contrite. I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”
Pressed by Waxman on what Greenspan saw as his biggest mistake at the helm of the Fed, the former chairman said, I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”
As a result, he said, “Free markets did break down. And I think that, as I said, shocked me.
“I still do not fully understand why it happened. And obviously to the extent that I figure out where it happened, and why, I will change my views. And if the facts change, I will change,” he said.
Greenspan said the current crisis has turned out to be much broader than anything that I could have imagined.”
Other members of the House Committee on Oversight and Government Reform took issue with Greenspan’s long list of actions resisting regulatory crackdowns, dating back to Greenspan’s early days after taking charge of the Fed in 1987.
Most of the panel’s ridicule was for Greenspan’s refusal to support any firm regulation, based on his controversial comments in a 2006 sheet that “regulation generally has proved far better at constraining excessive risk-taking than has government regulation.”
Greenspan threw part of the blame on Wall Street investment banks, rating agencies and loan originators for pumping up the mortgage market to reap huge profits, particularly starting in 2005 with a rash of unqualified buyers.
“Without the excess demand from securitizers, subprime mortgage originations – undeniably the original source of crisis – would have been far smaller and defaults, accordingly, far fewer,” Greenspan said.
Some panel members weren’t satisfied.
“This is a nice dog-and-pony show and maybe it’s theater, but people want someone held accountable, they want someone to go to jail,” said Rep. John Mica (R-Fla.).
Following the hearings, a long line of pundits and market watchers chimed in with their I-told-you-so comments.
“Greenspan is finally taking some responsibility for his actions,” said former Fed official Paul Kasriel, director of economic research at Northern Trust Co.”

Sept 17 2007 Interview With CNBC Maria Bartiromo

MARIA BARTIROMO:All of these important economic events you are overseeing the most important institution, and leading things. And then not only are you dealing with these crises, but then you’ve got to convey what’s going on to people. That means Congress, the president, the media, the public. So what? You come up with Green speak.
ALAN GREENSPAN:Otherwise known as known as Fed speak.
ALAN GREENSPAN:It’s a– a language of purposeful obfuscation to avoid certain questions coming up, which you know you can’t answer, and saying– “I will not answer or basically no comment is, in fact, an answer.” So, you end up with when, say, a Congressman asks you a question, and don’t wanna say, “No comment,” or “I won’t answer,” or something like that. So, I proceed with four or five sentences which get increasingly obscure. The Congressman thinks I answered the question and goes onto the next one.


Mervyn King is Governor of the Bank of England and is Chairman of the Monetary Policy Committee. He was previously Deputy Governor from 1998 to 2003, and Chief Economist and Executive Director from 1991. Mervyn King was a non-executive director of the Bank from 1990 to 1991.
Monday 25 October 2010 Speech by
“Banking: From Bagehot to Basel, and Back Again”
The Second Bagehot Lecture
Buttonwood Gathering, New York City
There is no simple answer to the to important to fail nature of banks. Maturity transformation brings economic benefits but it creates real economic costs. The problem is that the costs do not fall on those who enjoy the benefits. The damaging externalities created by excessive maturity transformation and risk-taking must be internalized.
A market economy has proved to be the most reliable means for a society to expand its standard of living. But ever since the Industrial Revolution we have not cracked the problem of how to ensure a more stable banking system. We know that there will always be sharp and unpredictable movements in expectations, sentiment and hence valuations of financial assets. They represent our best guess as to what the future holds, and views about the future can change radically and unpredictably. It is a phenomenon that we must learn to live with. But changes in expectations can create havoc with the banking system because it relies so heavily on transforming short-term debt into long-term risky assets.
For a society to base its financial system on alchemy is a poor advertisement for its rationality.
Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis. This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too.”
Mervyn King interview: We prevented a Great Depression… but people have the right to be angry. 

Mervyn King, the Governor of the Bank of England, tells Charles Moore why he shares the public’s disquiet over the need to bail out failing banks.

By Charles Moore 10:00PM GMT 04 Mar 2011

(Main points in bold by Iain Parker, whole document supplied so as not to be accused of presenting out of context)
Before the war,” says Mervyn King, “my father worked on the railways. In the war, he was in the Royal Engineers and helped with the planning of D-Day. After it, he trained on a demobbed soldiers’ programme to become a teacher. He was also a Methodist local preacher. He died only a few weeks ago. At his funeral, I said that he was always a preacher and a teacher – some might say it runs in the family – I am proud of that.” A hint of deep emotion is visible behind the famous thick spectacles.
The Governor of the Bank of England is sitting in his large and elegant office, leaning forward in an austere upright chair that he says is better for his back. All around him are the trappings of his venerable institution. A butler in the Bank’s famous pink coat comes in with a silver coffee pot. But the small, round, soft-spoken man in the chair is not a City grandee, but a teacher, a preacher, an intellectual.
It is 20 years this week since Mr King walked into the Bank, hired as its chief economist. His previous experience had been wholly academic. But “I wanted to see policy-making from the inside”. The year after he arrived, Britain fell out of the Exchange Rate Mechanism, and Mr King’s ideas about inflation-targeting came to the fore. In 1997, on a Bank Holiday, Eddie George the then governor, called him into the office in which we are now sitting to tell him that Gordon Brown would announce Bank independence the following day. “So you can’t leave now, can you?” said Mr George. He couldn’t.
The next year, Mr King became deputy governor. In 2003, he succeeded George. He has seen more “policy-making from the inside” than he could ever have dreamed – “a period of immense historical significance”.
The young Mervyn “really wanted to read cosmology” but could not find the right undergraduate course, so he went up to King’s College, Cambridge, in 1966, as a mathematician, but switched immediately to economics.
He loved Cambridge, but economics was too much “harking back” to Keynes. It was in postgraduate work at Harvard that he “learnt that economics could be a serious discipline”. Being a bright young man, he gave “excessive weight” to economic models. “You feel, ‘My models will make a big difference.’ As I get older, I give more weight to history. Alfred Marshall [the founder of Cambridge economics] was absolutely right that you should do the mathematics but then burn the paper and write it down in words.” Maths and models should be “aids to thinking, not substitutes for it”. He thinks people should have remembered that during the financial crisis. Tell me, I say, what a layman should read to understand that great disaster in which we are still embroiled. There are two books, he says. One is Walter Bagehot’s 19th-century classic, Lombard Street, with its “wonderful description of the people who made the money markets work – they’re exactly the same now – and his popularisation of the idea of the lender of last resort”. The other, about the credit crunch itself, is The Big Short by Michael Lewis. It explains, says Mr King, why a few people did not believe that the lending in the US subprime market was going to work but “how difficult it was for them to make the bet they wanted to make and how the great banking machine was all geared to do the opposite”.
Now, the Governor is off on why all this has a moral dimension: “The more I’ve thought about how labour markets work, the more I’ve realised that there are hardly any jobs whose tasks you can describe exactly. Nowadays, most jobs have the property that employees can choose to do them well or badly, so employers need to think about the long-term welfare of the staff not just pay today.” It follows that moral attitude is vital. Industry often understands this well. Nissan in Sunderland asks all its workers for ideas to raise productivity, and, says Mr King, it benefits.
The Governor makes a point of visiting manufacturing and service industries all over the country. Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.”
He also thinks that there is “too much weight put on the importance and value of takeovers”. They make short-run profits but “it doesn’t make sense to destroy a company with a reputation”. Since the Big Bang in the late 1980s, Mr King goes on, too many in financial services have thought “if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”. Good businesses “keep a clear vision of who their customers are, and are run by people who don’t think they should simply maximise profits next week”. But in the past 25 years, banks have increasingly “taken bets with other people’s money”.
That is bad enough, but it gets much worse “if the rules of the game are that they get bailed out if it all goes wrong”. In this weird atmosphere, banks eventually stopped trusting one another. “Financial services don’t like the word ‘casino’, but instruments were created and traded only within the financial community. It was a zero sum game. No one knew which ones were winners when the crisis hit. Everyone became a suspect. Hence, no one would provide liquidity to any of those institutions.”
Northern Rock could have been avoided if Britain had not been “the only G7 country not to have had a statutory resolution process. We had been war-gaming one, but the legislation wasn’t ready”. In Mr King’s opinion: “If we had not stepped in for RBS and HBOS, all the British banks would have suffered runs. They didn’t understand the nature of the risks they were taking.” But was the Governor himself blameless? Has he ever given the Queen the answer to her famous question: “If these things were so big, why did no one see them coming?”
He says he did have a meeting with the Queen last year. I smile at the thought – King and Queen, as it were. What did they say to one another? I think the Governor would like to tell me more, but he reins himself in: after conversations with the Queen, he reminds me, “one must never breathe a word to another mortal”. He thinks her questions are good questions. His answer to Her Majesty is that “everyone did see it coming but no one knew when. It’s like an earthquake zone. You should be trying to build buildings in ways which are more robust”. But he does include himself in the criticism. “I wish I’d spoken out more forcefully about the build-up of leverage.”
He does believe, however, that the Bank’s remedies have been right. “Quantitative easing” is a new phrase, but “it is really very traditional monetary policy. For the first time in my life, the amount of money was growing too slowly”. What was done in 2008 and 2009 “prevented a repetition of the Great Depression”.
The Bank pushed out money and “bought private not public sector paper”, so that non-bank institutions could benefit. It stayed away from choosing which assets to favour. Some central banks, however, went further and were seen to “intervene in the credit allocation machine. It’s made life more difficult. It’s seen as quasi-political, quasi-fiscal, We deliberately stayed away from that”. But although Mr King thinks the worst of the crisis was handled correctly, he does not think we are out of the woods. “We allowed a [banking] system to build up which contained the seeds of its own destruction”, and this has still not been remedied: “We’ve not yet solved the ‘too big to fail’ or, as I prefer to call it, the ‘too important to fail’ problem. The concept of being too important to fail should have no place in a market economy.”
I quote to him the recent remarks of Stephen Hester, the chief executive of the largely publicly owned RBS, in which he seemed simultaneously to say that RBS should pay little tax because it had made little profit, but also that it should pay big bonuses because its investment arm had made big profits. Wasn’t there some sort of contradiction? Mr King nods. The remark illustrates, he says, the clash between the needs of high-street banking and the ambitions of investment banking. The key question, in his view, is not why an individual bank says it needs to pay bonuses (the reason cited is always the need to keep talent), but: “Why do banks in general want to pay bonuses? It’s because they live in a ‘too big to fail’ world in which the state will bail them out on the downside.” They are tempted to excessive risk and excessive payments: “It is very unproductive to single out individuals. Bankers were given incentives to behave the way they did. That’s what needs to change. We must resolve this problem.” He has high hopes that the independent banking commission will do so. In the Governor’s mind, this is not ultimately a technical but a moral question. It goes to the heart of whether people are ready to accept life in a free economy.
Over the past 30 years, he says: “We changed Britain away from a sclerotic economy with inefficiencies and problems in labour relations. Everyone got to the point where we no longer expected government to bail us out. Everyone bought in to market discipline. We were all better off. It was working very successfully.” But now, people have every right to be angry, because “out of what seems to them a clear blue sky”, the crisis comes, they find they do lose their jobs and there’s the sharpest fall in world trade since the 1930s. “But, surprise, surprise, the institutions bailed out were those at the heart of the crisis. Hedge funds were allowed to fail, 3,000 of them have gone, but banks weren’t.” Could there be a repeat? “Yes! The problem is still there. The ‘search for yield’ goes on. Imbalances are beginning to grow again.”
I want the Governor’s own estimation of how he is handling the hangover after the party. Is it true, as Ed Balls was reported to be alleging, that he is too political (which means, from Mr Balls’s mouth, too Tory)? Mr King tactfully refuses to accept that this is necessarily the shadow chancellor’s view: “He was reported by the Financial Times as saying that. I prefer to read what people actually say. I don’t take newspaper headlines at face value.” His general point, though, is simple: “It is inconceivable that the Governor has no view on the size of the deficit and the need to reduce it. It would be a dereliction of duty for me not to warn. You need a credible plan to reduce it, over the lifetime of a Parliament. But it is for ministers, not for me, to say how this should be done.”
He believes that the need to reduce the deficit is common ground between the parties and claims to have had “a good relationship with all three chancellors on his watch”. What about with the man who was one door up from Alistair Darling in Downing Street? Mr King smiles thinly: “That is for others to say … we worked well together during the recapitalisation.”
He feels strongly that the independence which Mr Brown established works well. WikiLeaks caught him out saying that David Cameron and George Osborne, in opposition, were too inexperienced. That is not his view now: “I think people learn very quickly on the job.”
Here we are though, I complain, with inflation 100 per cent higher, at four per cent, than the two per cent it is supposed to be. The mathematician in him laughs at that way of putting it: “If our target was zero per cent and we had an inflation rate of 0.1 per cent, we would be infinitely above target!”. Yes, but he was always an inflation “hawk”. Is he still? “Yes. It’s odd to read that I am terribly doveish. Before the crunch, there were 14 occasions where I was in a minority in voting for higher rates. Since then, there has been one occasion where I was in a minority the other way.” He is emphatic that he wishes to get back to the target, and that they will: “That is why I stayed at the Bank [for his second term].” After this, the worst financial crisis in living memory, “if people can look back and say that inflation came back in line, that would be a very significant achievement”.
He does not use the word, but he is clearly talking about his legacy after he leaves in 2013. He also feels very sorry for the victims of inflation, especially savers suffering “a sharp squeeze in living standards. It is deeply troubling for them. They were prudent before the crisis”. But if he were to put up interest rates too soon it would be, as he recently said, the “futile gesture” from the Battle of Britain sketch in Beyond the Fringe. The squeeze on living standards is “inevitable” because of overseas prices of oil and other commodities and deficit reduction, so surely, says the Governor, one cannot argue that “what Britain needs is a deeper recession”. Of course, rates will have to rise at some point and there is a “perfectly reasonable case for doing it now”, but it is a matter of looking ahead for 18 months to two years, a matter of calculating “the balance of risk”. He says the squeeze in living standards has been “sharp and prolonged” and they “will be squeezed a bit more this year” before “almost certainly” picking up after that.
We are moving towards the end, and I bring him back to the main message of the preacher. In a recent speech, Mervyn King quoted Tolstoy’s line that Happiness is less important than trying to live in the right way”. What is the right way? Mr King sees the task as one of getting back to where we were before all this. “Britain is well placed to be an international banking centre, but we can’t afford to be if, now and again, it depends on the UK taxpayer.”
We must get rid of the idea that “if something is growing rapidly, it must be good. Every supervisor should say: ‘The banks I should worry about are not only the ones that are losing money but the ones who are making a lot of money.’ ” He goes on: “What I’ve tried to do my whole time at the Bank is to set general rules. You can’t rely on the wisdom of individuals. Before I leave, I want to make sure that the right framework is in place for monetary policy, financial stability and banking supervision [a function the Coalition is now returning to the Bank].”
Does he enjoy it all? Wouldn’t this man of ideas be happier in his large library? His eyes gleam. “I’m looking forward to getting back to my books [current reading includes Niall Ferguson’s book on civilisation and Chinua Achebe’s Anthills of the Savannah] and to watching cricket and playing tennis. But I wouldn’t have missed this for the world. Enjoyment is the wrong word, because of the pressure. I never expected to see a crisis of this size, but it is fascinating and a privilege to be doing this job.”
Since he is so uncomfortable with the culture of banking, wouldn’t he rather have been an industrialist? “No, I admire people like John Rose at Rolls-Royce or John Parker at the National Grid”, but the job is “an intellectual challenge first and foremost, where I must see issues clearly and speak about them openly”. Sort of like being a professor, only much, much more exciting.
We discuss bank notes. Mr King has decided that the next £50 notes should depict the inventive and manufacturing partnership of Matthew Boulton and James Watt. But he is even prouder of having picked Adam Smith for the £20. Smith provides the model of the right way: his economic theory in The Wealth of Nations was wise and true, but Smith’s other book, The Theory of Moral Sentiments proves, says Mr King, that “there’s more to life than economics. The two must be taken together”.


Dr Alan Bollard was appointed as Governor of the Reserve Bank of New Zealand in September 2002.
Dr Bollard’s previous positions include:
Secretary to the Treasury 1998- 2002. The Treasury manages the Crown’s finances and is the Government’s principal economic adviser. Chairman of the New Zealand Commerce Commission 1994 – 1998. The Commission is the regulatory authority in charge of the Commerce and Fair Trading Acts, which governs competition between firms. Director of the New Zealand Institute of Economic Research 1987 – 1994 The Institute provides advice on applied economics and forecasting. Dr Bollard has also worked as an economist in a variety of positions in the United Kingdom and in the South Pacific.
Excerpts from a book he published 1 Sept 2010:
One Central Bank Governor and the Global Financial Collapse

Pg 19-20
Banking practices differ around the world, but we ensure ours meet international standards. These are set by a somewhat shadowy group called the Basel Committee on Banking Supervision. Comprised of representatives of large countries( not including New Zealand ), the group meets in Switzerland at the Bank of International Settlements (BIS). Over the decade they had been developing a new set of banking standards known as Basel 11.
Pg 96
The Bank of International Settlements is an important institution, acting as a sort of central bank for central banks. Set up in 1930, originally to facilitate German World War 1 reperations, it has a chequered history but today offers modern banking services and provides a forum for central bankers.
Pg 120-1
Meanwhile, on 6 March a senior team from the Wellington made its three-monthly trek across Bowen Street, along the walkway above the Cenotaph, through security checks in the Beehive and across to the ornate old Parliament Building to Committee meeting rooms. Here, committees of parliamentarians from across all parties routinely advise on upcoming legislation and examine public bodies on their use of public funds. We are used to appearing before them as they regularly examine our Monetary and Financial Stability Reports. But this session was different. As was their duty on behalf of the taxpayer, they wanted to talk about the crisis, the steps we were taking and the costs and risks for government. The 2008-intake Finance and Expenditure Committee under the chairmanship of Craig Foss was seriously focused and prepared to put aside political differences during the crisis.
I was worried about what might happen at the session. Proceedings are on the record with journalists sitting in the back, television cameras rolling, digital recorders running and even media blogging live from the room. Select Committees have strong powers – they can require people to attend and answer questions. I knew that I might be asked questions about exchange rates, foreign reserves, bank liquidity and a whole range of topics on which straight-forward answers could upset financial markets. The day before the hearing I rang the chairman and explained my concern. Craig Foss has a background in financial markets; he readily understood the dangers and assured me that he would guide the Committee away from dangerous questions in public.
They treated us deferentially. (they even started calling me `Sir:) I sat with Deputy Governor Grant Spencer and our head of financial Simon Tyler, at the front committee table, our desk almost beneath microphones and recorders. In carefully moderated terms, we told them about the crisis. We explained how, partly because of the new mortgage-backed security liquidity facility, the Reserve Bank ballance sheet had grown hugely to $36 billion; this had increased risk to the government, but by a very manageable amount. Then they inquired about a small company called Mascot Finance, which was in the news because it was making losses. Though a very small player, we were soon to be hearing more about it.
Pg 183
In self-interest, banks may encourage New Zealanders to take on more debt than is good for them individually or deliver more external liability than is good for the country.”
From RBNZ Press Conference Dec 10 2009 re Dec quarter monetary policy statement;
Question from Barry?
are we to expect a properous and happy new year”?
Answer from Allan Bollard;
Thankyou Barry for that point, finally on a more personal note, since this is the last press conference of the year, I would like to thank you very much for your help and co-operation through the year, it has been one amazing year as you all know, at the beginning of this year we were seriously worried about the financial system and the state of the economy, both in New Zealand and internationally, its with some relieve that we see much more secure conditions as we go into christmas time. I am aware that, um, at the beginning of the year when New Zealand was in such a vulnerable state, actually it would only have taken a, ah, one of the major media people looking for a fast headline, acting on rumour or passing on something irresponsibly to have sparked off some real problems in our system, that, we were concerned about that, that didn’t happen. You all, I felt, acted very responsibly through that and for that we would like to thank you. Finally its not a forecast but a wish, have a merry christmas, Barry and everyone else, thank you very much.”

Financial Reform: Post Crisis?

Thomas M. Hoenig President Federal Reserve Bank of Kansas City
Women in Housing and Finance
Washington, D.C.
Feb. 23, 2011
Thank you for inviting me here today to address this outstanding organization. It is my pleasure to do so. My remarks are entitled “Financial Reform: Post Crisis?” and will address financial regulatory reform and too big to fail. Like most Americans, I am a strong defender of free market capitalism and I’m here today to make an argument that our country should take the difficult steps required to move its financial industry back toward that system.
I acknowledge that there is more than one view on this topic. There are those who believe we have made great strides with Dodd-Frank and if we implement it well, all will be fine. Some believe that that the industry is over-regulated, which may be true, but we should not confuse over-regulated with well-regulated. And some of us are certain that in spite of all that’s been done and debated, the soundness of the largest financial institutions and the systemic risks they continue to pose is no better. In my view, it is even worse than before the crisis. As well-intentioned as the Dodd-Frank Act may be, it will not improve outcomes. Today I will describe why I believe that is the case and, more importantly, what must be done to give the United States a financial system that is healthy and competitive, and that supports rather than endangers the economy.
There are many villains in the story of the recent crisis and much written to name them, describe them and even curse them. If you want to know how it happened, read “Thirteen Bankers” and “All the Devils Are Here.” If you want to know how to fix the problem, I highly recommend “Regulating Wall Street,” from New York University’s Stern School of Business. If you want to understand why the American public refuses to ignore the injustices associated with executive compensation in bailed out companies versus budget cuts borne by the middle class, read Rolling Stone’s article “Why isn’t Wall Street in Jail?” If you wonder why “no one saw it coming” then I suggest you read up on Brooksley Born or, a decade later, Meredith Whitney.
Or, you might even read the remarks of an Iowa-educated bank regulator turned-policy maker in Kansas City. Fifteen years ago, I gave a speech entitled “Rethinking Financial Regulation,” which summarized the major threats facing our financial system. My suggestion then was to take steps to reduce interdependencies among large institutions and to limit them to relatively safe activities if they chose to provide essential banking and payments services and be protected by the federal safety net. I also argued that safety net protection and public assistance should not be extended to large organizations extensively engaged in nontraditional and high-risk activities. A final point of those remarks was that central banks must pursue policies that preserve financial stability. I am going to repeat those suggestions today, and as often as the opportunity allows. History is on my side.
Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place. We must make the largest institutions more manageable, more competitive, and more accountable. We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis.
The Recent Financial Crisis
The recent financial crisis was one of the world’s worst and most pervasive. Actions taken affecting an array of institutions during the crisis, like each crisis before it, set new precedent and invited new risks going forward.
First, during the crisis public safety nets and assistance were stretched far beyond anything that we had done in past crises. Deposit insurance coverage was substantially expanded and public authorities went well beyond this with guarantees of bank debt instruments, asset guarantees at selected institutions, and many other forms of market support. Discount window lending sharply departed from previous practices in terms of nonbanks and special lending programs. Substantial public capital injections were further provided through TARP to the largest financial organizations in the United States and to several hundred other banks on a scale not seen since the Reconstruction Finance Corporation in the 1930s. These steps were similar to those that many other major countries took.
Second, at the heart of the financial collapse were some of the largest commercial and investment banks in the country, as well as the markets in which these institutions were key players. The five largest investment banks failed, were forced into mergers, or had to convert to bank holding company ownership to gain the necessary support. Bank of America and CitiGroup both required extensive assistance to pull through this crisis. Special assistance was provided to AIG, the largest insurance company in the United States. In addition, Fannie Mae and Freddie Mac belong in this group because of the influence they exert over the U.S. mortgage market, their enormous losses, and public takeover.
It is no coincidence that two principal features of this crisis were heavily bloated safety nets and major financial institutions that were treated as being too big to fail. History shows that these two elements have become more intertwined – the growth of one is linked to growth of the other, in an increasingly pernicious cycle.
Andrew Haldane of the Bank of England termed this relationship “Banking on the State” in his excellent speech and paper of the same title. Over time we have experienced a ratcheting process in which public authorities are pressured to widen and deepen their state safety nets after every financial crisis brought on by excessive bank risk taking. This expansion in safety nets then sets the stage for the next crisis by providing even greater incentives for risk taking and further expanding moral hazard problems.
As a result, we have become trapped in a repeating game in which participants continue to seek ever higher and more risky returns while “banking” on the State to fund any losses in a crisis. Large organizations, moreover, are the key players in this process as States become more immersed in the perception during a crisis that they must protect any bank regarded as systemically important. We must stop this game if we are to create a more stable financial system and not condemn ourselves to an escalating series of crises with rapidly rising costs.
Over the decades of crisis and bailouts there is considerable evidence of increasing levels of banking risk, which includes the long-term declining trend in bank capital and liquidity ratios, higher and much more variable returns on bank equity in recent years, and a link between higher leverage and the expansion in trading assets among large organizations.
In the United States, we observe with each crisis and market collapse that policymakers consistently intervene to protect an ever broader group of creditors and investors from loss. This includes the LDC debt crisis, the failure of Continental Illinois, and the thrift industry and stock market collapses of the 1980s. These previous public interventions, though, pale in comparison to what was done recently. Market participants and large financial institutions have little reason to doubt that they will be bailed out again.
Let me offer just one staggering example. When Gramm-Leach-Bliley was passed in 1999, the five largest U.S. banking organizations controlled $2.3 trillion in assets, or about 38 percent of all banking industry assets. Currently, Bank of America by itself and in spite of its need for government support during the crisis has the same level of assets – $2.3 trillion – as the top five did in 1999 and the top five now have 52 percent of all banking industry assets. What clearer sign could we find that market discipline no longer exists?
Past actions and this growth have given our largest organizations significant competitive advantages over other financial institutions. For example, creditors and uninsured depositors at too-big-to-fail organizations believe that there is almost no chance that they will have to take a loss. This idea is formally acknowledged by the credit rating agencies when they give these organizations separate “support” and “standalone” ratings, which explicitly factor in the government support they likely will receive. The difference in these two ratings thus provides one measure of the funding advantages that too-big-to-fail organizations have over others.
Haldane estimated that this funding advantage amounted to about $250 billion in 2009 for 28 of the largest banks in the world. At the Federal Reserve Bank of Kansas City, we estimated the ratings and funding advantage for the five largest U.S. banking organizations during this crisis. In June 2009, these organizations had senior, long-term bank debt that was rated four notches higher on average than it would have been based on just the actual condition of the banks, with one bank given an eight notch upgrade for being too big to fail. Looking at the yield curve, this four-notch advantage translates into more than a 160 basis point savings for debt with two years to maturity and over 360 basis points at seven years to maturity.
In a competitive marketplace, where just a few basis points make a difference, these funding advantages are huge and represent a highly distorting influence within financial markets. I’ll name three. They don’t have to sell creditors on the strength of their condition. They have significant advantages in competing for funds. And, they have significant incentives to take on more risk, hold less capital, and book more assets.
We should also recognize that the perverse incentives associated with such a system not only can contribute to a crisis, but tend to impede our ability to recover from a crisis. Normally, market forces would steer funds away from institutions having trouble and toward those that are the strongest and most capable of fulfilling their roles as financial intermediaries. However, coming out of this crisis, much the opposite may have occurred. Too many dollars appear stuck in institutions that must restore capital and work through bad asset problems before they can think of pursuing new lending opportunities. One sign that this outcome may have happened is the significant holdings of excess reserves at large institutions and the various strategies they are adopting to use low-cost, short-term funds to go out on the yield curve for Treasuries and other instruments.
It is ironic that in the name of preserving free market capitalism in this country, we have undermined it so deeply.
The Road to a More Stable Financial System
How can we change this game in which some institutions are repeatedly doubling up after taking losses, while public authorities are forced to underwrite the losing streaks? There are a number of options that currently are in the works: more effective regulation and supervision, higher levels of capital, and a resolution policy for too-big-to-fail institutions. However, one additional option used after the Great Depression still needs to be introduced: Glass-Steagell type limitations on the activities of those organizations that are otherwise too big to fail and that so dramatically affect our national and global economies. Let me take a moment to explain my views on each of these options.
More effective supervision. The idea of more effective regulation and supervision is a major focus in the Dodd-Frank Act. This act mandates enhanced supervisory standards for all systemically important financial institutions. Such standards are to include provisions for risk-based capital, leverage, liquidity, overall risk management, exposure concentration limits, and resolution plans and living wills.
With my supervisory background, I certainly support such efforts. But we should also recognize that supervision alone is not sufficient to address the challenges we face.
As an example, two decades ago we were told that supervision based on “prompt corrective action” was the answer to the thrift and banking crisis of the 1980s. This system may have led to more timely supervisory enforcement steps and established a timeframe for the resolution of most institutions. But prompt corrective action, other previous supervisory reforms, and enhanced supervision under Dodd-Frank, still must rely on examiners unfailingly coming up with an accurate picture of a bank’s condition and then being able to act on those findings.
In large, complex organizations, this is an exceedingly difficult task and much more so than when I spoke about it 15 years ago. This crisis, in fact, confirms that even the senior management, boards, and financial experts at our largest banks failed to assess adequately the risks they were taking, even though they were involved with such issues on a constant basis and had their reputations at stake.
Also, as I previously stated, the substantial incentives that large organizations have to take on more risk, with the government expected to pick up the losses should they incur, unfailingly lead to undue risks throughout the balance sheet. In the hands of any banker, the combination of competitive pressures and perverse incentives are almost certain to result in noticeably higher risk exposures. Against these odds, we cannot expect examiners to have a 100 percent success rate. Factoring in the political power of the largest institutions, we cannot expect even a modest success rate during the upswing in the cycle.
Higher capital standards. I also support stronger capital standards, especially in the form of a maximum leverage ratio based on equity capital. Basel III and the Dodd-Frank counter cyclical capital provisions may provide some constraint on excess risk in firms if they are implemented successfully.
But again, we must be cautious in what we can expect from this step by itself. Basel I and II were supposed to provide a better means for linking a bank’s capital to the amount of risk it assumed. Along the way, we found that risk was very difficult to measure and that capital needs determined during normal circumstances were not enough for tail events or shocks that create financial crises. It is a fact that the largest financial firms easily met their risk based capital requirements just prior to this crisis.
In addition, too big to fail incentives have provided an irresistible motive for large banks to game any capital system, particularly since their uninsured creditors do not count on capital but on a bailout for protection. There were several notable signs of this “gaming” of capital standards leading up to the crisis, including the growth of off-balance sheet activities and the construction of subprime mortgage-backed instruments that marginally met the standards for AAA credit ratings. Even with firmer leverage standards, the incentive is for these organizations to increase balance sheet risks.
Resolution policy for too-big-to-fail institutions: A third option is to establish a framework for resolving systemically important institutions. I would add that this framework to be successful must convince all market participants that they are fully at risk when dealing with these entities.
Most important, this option offers the only direct means to address the incentive issues surrounding too big to fail and, as a result, provides the best opportunity to curtail the repeated game of expanded safety nets and escalating risk. Ending too big to fail in this manner would also bring market discipline back into play as a key force supporting supervision and capital standards.
The Dodd-Frank Act provides a framework for resolving systemically important organizations. While it adds to what we already have for closing commercial banks, there are important weaknesses with this framework. In particular, the final decision on solvency is not market driven but rests with different regulatory agencies and finally with the Secretary of the Treasury, which will bring political considerations into what should be a financial determination.
So long as we have systemic organizations operating under the government’s protection, we will face the matter of whether we have the will to allow the market and bankruptcy to resolve them. In a major crisis, there will always be an overwhelming impulse to avoid putting such institutions through receivership. Always, it is feared that public confidence will be shattered, creditors or depositors at other institutions will panic, and that there are too many connections that will bring down other institutions. In addition, important services will be lost and the international activities will be too complex to resolve.
Many of these fears are likely overstated. I maintain the view that the long-term consequences are much more severe if we fail to take action to end this cycle of repeated crises. In an environment where market participants are truly at risk, they will be much more likely to take steps to protect themselves, thus reducing the side effects of resolutions, and a failed institution’s essential activities can be continued through bridge banks and other means.
A recent Moody’s comment further voices a belief that the resolution regime, as outlined in the FDIC’s interim rules, “will not work as planned, posing a contagion risk and most likely forcing the government to provide support in order to avoid a systemic crisis.” Based on this belief, Moody’s intends to continue assuming government support for the eight largest banking organizations, thus helping to carry on the funding advantage these entities have over other market players.
Separate risk taking from the safety net. If too big to fail organizations cannot be effectively supervised, capitalized, or resolved – which is exactly where I contend things stand right now – what option remains?
For me, the answer is firm: they must be broken up. We must not allow organizations operating under the safety net to pursue high-risk activities and we cannot let large organizations put our financial system at risk. Protected institutions must be limited in their risk activities because there is no end to their appetite for risk and no perceived end to the public purse that protects them. As we have seen in this crisis, size and expanded activities have not led to better and more diversified firms as many once argued, but instead have created very large firms with very similar risk profiles that closely mirror the overall financial system and economy.
The serious problems that too-big-to-fail organizations encountered in this crisis provide clear evidence that some have reached a level of complexity and size that defies good management and operational efficiency. A number of financial analysts have even argued that the separate parts of most too-big-to-fail firms would add up to a value much larger than each firm in its entirety.
Some have suggested that we should limit the overall size of a banking or financial organization, much like we do now with the 10 percent nationwide deposit cap. There were some failed efforts to include a size or funding cap in Dodd-Frank, but I agree it would be difficult to figure out a good way to restrict size. Having said that, real opportunities were missed to deal with size issues during the crisis. In the heat of the moment, rather than break firms into smaller more manageable firms, even the weakest U.S. organizations were allowed to acquire major entities that failed or needed assistance during the crisis. This compounded the too big to fail problem in an already concentrated financial industry. Instead of taking important steps to restructure these firms or resolving them as failures, regulators were required to turn their attention to such side issues as executive bonuses and how troubled institutions could be forced to lend more.
To me the evidence is overwhelming, we should vigorously pursue the restructuring of these firms in a manner that mitigates risk and that would influence the size and complexity of these firms. That is, we must expand the Volcker Rule and carve out business lines that are not essential to the basic business of commercial banking or consistent with public safety nets and then require that these lines be spun off into separate firms.
In the excellent book, “Regulating Wall Street,” several of the studies indicate that there are few synergies among financial activities that could lead to economies of scope. The studies also demonstrate that multiple functions in large, complex firms can actually increase systemic risk. Moreover, they suggest that the spun-off activities could thrive without explicit or implied government support.

So after such high level evidence that the current global monetary, banking and credit systems are a fraud in dire need of regulatory reform what do we do in New Zealand? we put the foxes completely in charge of the hen house, that's what we did!

Rob Cameron – Investment Banker is chairing or on most every government task force appointed;

Big investment bankers form alliance

5:00AM Friday Jul 25, 2008
By Tamsyn Parker

Two of Australasia’s biggest investment banking names have joined forces.
New Zealand’s Cameron Partners and Rothschild Australia – the Australian arm of the global Rothschild empire – have formed an alliance to extend their global reaches.
Rothschild Australia executive chairman and head of investment banking Trevor Rowe said it began looking to establish a presence in New Zealand two years ago because of the high number of Australian private equity players interested in New Zealand companies.
Rowe ran into a partner of Cameron Partners at a private equity conference in Australia and was told how Cameron Partners was already trying to model itself on the Rothschild business.


Top banker sees new hope for SOE privatisation- Genesis bond sale a success

4:30PM Wednesday Dec 03, 2008
State owned enterprises’ need for capital in the coming downturn could be an opportunity for them to access capital markets directly, a leading investment banker says.
Capital Market Development Taskforce releases its interim response to the financial crisis.
Stephen Layburn, Senior Associate Bell Gully| Monday 1 December 2008
The Capital Market Development Taskforce interim report released on Friday contains a package of proposals designed to boost access to capital for New Zealand businesses and reduce the cost of raising capital.
While the taskforce is not due to report its findings until September next year, it decided to produce an interim report in response to the financial crisis, with taskforce chairman Rob Cameron noting that, in the current environment, access to capital will be a key issue in determining business survival. While there are a wide range of interventions that governments can take and are taking to reduce the impact of the crisis, capital markets are an important piece of the picture, he said.

Capital markets ‘could triple’
Last updated 11:11 26/05/2010
New Zealand’s capital market could triple in size within five years under reforms being pushed by the government and the financial sector.
Capital Markets Task Force chairman Rob Cameron made the prediction this morning as he updated market participants in Auckland.
He said “the signs are very good” that within five years the capital markets will be bigger and better, and deliver improved outcomes for New Zealand savers and businesses.
The task force last December made 60 recommendations on how to reform New Zealand’s capital market.
The major capital markets initiatives currently underway “will fill gaps and deepen our capital markets”, he said, citing the dairy futures market, energy derivatives market, Fonterra capital structure proposal and a local government bond bank.

Council bond-bank plan supported

Last updated 05:00 08/05/2009
Momentum is building behind the establishment of a Local Government Bond Bank to help councils finance $30 billion of planned infrastructure spending over the next 10 years.
Finance Minister Bill English on Tuesday confirmed that the Government is interested in a recommendation from the Financial Markets Development Task Force that New Zealand set up a bond bank in the wake of the severe tightening of global credit markets.

Local government debt forecast to double

Last updated 05:00 30/09/2009
Local government debt is likely to double to $11 billion during the next seven years as councils borrow to pay for core services.
By June 2019, total debt is forecast to be at $10.765 billion, a rise of 99 per cent over June this year.
Local Government NZ president Lawrence Yule said the introduction of compulsory asset management plans had forced many councils to deal with long-neglected infrastructure such as roads, water and sewerage systems, and they had no option but to borrow for the work.


Simon Allen work history
Written by Simon Power
9 February, 2011
Simon Allen to chair Financial Markets Authority
Cabinet has approved the appointment of Simon Allen as chair of the soon-to-be established Financial Markets Authority, Commerce Minister Simon Power announced today.
Mr Allen is the current chair of Crown Fibre Holdings, a former chair of NZX, and the founder and a former managing director of ABN AMRO New Zealand.
“I’m delighted Mr Allen has agreed to do this crucial job,” Mr Power said.
He is a highly regarded investment banker with more than 20 years’ experience in governance and financial markets and has exactly the credentials the new regulator needs.
“With his expertise in executive leadership, strategy development, and general commercial transactions I’m confident he will set the right culture for the FMA.
“This is something we must get right, and with Mr Allen at the helm, the FMA will be well-placed to deliver on its role of rebuilding public confidence to invest in our financial markets after the global financial crisis and the collapse of finance companies.
“I expect him to work alongside the Establishment Board and the Chief Executive designate, Sean Hughes, to ensure a smooth transition to the new regulator, which is scheduled to be up and running by May.”
Mr Allen will be appointed for a two-year term starting at the establishment of the FMA, with the role being on a part-time basis.
The foundation board of the FMA will play a crucial role in establishing and implementing the strategic direction for the FMA. Announcements on other board members will be made in coming weeks.
Mr Allen’s appointment is subject to the successful passage of the Financial Markets (Regulators and KiwiSaver) Bill and the consent of the Governor-General.
Simon Allen was the founder and former Managing Director of ABN AMRO New Zealand, which he formed as a greenfields operation in 1988. He has advised the Crown on the sale of Contact Energy, and has been involved in a wide range of activities involving the capital markets. He was chair of New Zealand Exchange Ltd (NZX) from 2001 until 2008. He currently chairs Crown Fibre Holdings, which was established to manage the Crown’s investment in ultra-fast broadband infrastructure.
The Financial Markets Authority is being established by the Financial Markets (Regulators and KiwiSaver) Bill, which is before Parliament. The FMA will act as the single market conduct regulator for New Zealand’s financial markets, introducing a culture of visible, proactive and timely enforcement. It will consolidate the functions fragmented across the Securities Commission, the Ministry of Economic Development, including the Government Actuary, and the NZX.
The FMA Establishment Board was set up in May 2010 with the task of advising on the creation and strategy of the FMA. It also advised on the appointment of Chief Executive designate Sean Hughes.

Further information about the Financial Markets (Regulators and KiwiSaver) Bill can be found here.

Simon Allen, Chairman, New Zealand Stock Exchange
Biographies of Speakers
Simon is a past director of Auckland Healthcare Services Limited (December 1992 to March 1996). He is the Chairman of the New Zealand Stock Exchange and a member of the New Zealand Society of Investment Analysts.
Simon has had broad experience in advising New Zealand companies on a variety of issues including takeovers, mergers and acquisitions. He also has a wide knowledge and active contact with major domestic and international investors. Selected transactions in which Simon has played a key role in recent years with ABN AMRO include:
  1. Team leader of the ABN AMRO Rothschild team advising the Crown in the NZ$2.3 billion sale of Contact Energy Limited;
  2. Team leader for the Scoping Study for the sale of Contact Energy Limited.
  3. Team leader for ABN AMRO Rothschild’s participation as International Co-lead Manager in the NZ$390 million initial public offering of Auckland International Airport Limited;
  4. Advisor to the Auckland Energy Consumers Trust on its investment in Mercury Energy Limited (now Vector);
  5. Adviser to Telecom Corporation of New Zealand Limited on its NZ$1.08 billion share buy-back, the largest buyback in New Zealand to date;
  6. Advising on the Independent Newspapers PLC takeover of Wilson & Horton Limited.
Joseph Healy, Head of Regional Investment Banking & Private Equity, ANZ Investment Bank
Joseph is Head of Regional Investment Banking & Private Equity at ANZ Bank based in Sydney. Before moving to Sydney in early 2001, he was Head of Corporate Finance & Private Equity for ANZ in New Zealand.
Prior to joining ANZ in 1998, Joseph was an Executive Director, Corporate Finance for a North American Investment Bank based in London. He has 20 years corporate and investment banking experience covering debt and equity capital markets, mainly in London, but including three years with Citibank in New Zealand in 1991 to 1994. Between 1987 and 1990, Joseph was Head of Risk Management & Compliance for Citicorp’s equity activities in Europe. He was actively involved in representing the bank with regulators in a number of European markets and in working with United States regulators.
Particular areas of expertise include valuations, corporate governance, shareholder value (EVA) and management buy-outs (MBOs). A passionate believer that all businesses should principally be run to maximise shareholder value.
Joseph has a LLB, MBA and MSc (Finance) degrees and is a regular speaker on shareholder value and has widely published on this subject. He is currently in the process of writing a book (published early 2002) on Shareholder Value & Corporate Governance: The Challenges facing New Zealand
Married to Sue, with three children, Jack (8), George (6) and Tom (3) with a New Zealand home at Waikanae (North of Wellington).

Part-timer takes FMA job seriously
By Tamsyn Parker
5:30 AM Thursday Feb 10, 2011
Simon Allen says he is prepared to commit whatever time it takes to get the job done in his new role as chairman of the new super regulator, the Financial Markets Authority.
Allen, a former chairman of stock market operator NZX and managing director of ABN Amro, was yesterday appointed to chair the FMA – but only on a part-time basis.
The part-time move is expected to disappoint some in the business community. Last year a Herald Mood of the Boardroom survey found 69 per cent of business leaders wanted a full-time chairman.
Allen, 52, will combine his FMA role with a position as chairman of Crown Fibre Holdings, an agency set up to manage the Government’s $1.5 billion investment in ultra-fast broadband, and chair of the new council-controlled organisation Auckland Council Investment.
Asked how much time he would be able to give to the new role given his other responsibilities Allen said he would do whatever was necessary.
“I envisage a lot of effort by all parties as is required when starting up things.”
Allen said his priority as chair would be to focus on building investor confidence in the capital markets.
He is Auckland based while chief executive designate Sean Hughes has opted to be Wellington based.
Allen said he expected the role to take him to Wellington frequently.
“But part of the challenge is to meet the needs of the market in the rest of New Zealand.”
The FMA is expected to be up and running by May and will incorporate a wide range of existing regulatory powers and functions including those of the Securities Commission and some currently performed by the Companies Office and its National Enforcement Unit.
Allen will be appointed for a two-year term. Announcements on the rest of the board are expected to be made soon.



Man to Man by Tom Skinner 1981 – Michael Savage explained the State housing scheme to Tom Skinner of the (New Zealand) Federation of Labour as such;

Pg 45 – “I was with Joe on one occasion when he began chatting about the ramifications of the Governments State Housing Scheme. He told me … how the construction of those houses created assets in a productive way. The Government created the money through the Reserve Bank at a moderate rate of interest to cover the contract price, which paid for materials, tradesmen’s wages, the purchase and development of the land and all the other essentials required to finish the house. On completion the house was transferred from the Housing Division of the public works department to the State Advances Corporation – in effect from one department to another. The corporation was the renting agency responsible for selecting the tenants, collecting rents and maintaining the house and the property. The philosophy……was that as the money was created for productive purposes no loss could occur if it were not repaid from one department to another. Meanwhile, during construction, tradesmen had been paid wages which had been spent and absorbed into the economy. But it was solid money backed by the creation of assets. People had been kept fully employed while the government built homes for the people.
Tom Skinner;While Joe spoke I began suddenly to grasp the Labour philosophy related to the creation of credit. It set me off thinking about money and what it meant to the economy. The Government, figuratively speaking, could rub a state house debt out of the books because a building stood in its place. But money created by the banks in order to gain profits in the form of interest was the other side of the coin. It was unproductive, inflationary creation of money if unmatched by equivalent goods and services…..”
I have read and believe that monetary mismanagement is the greatest evil of our time. It breeds injustice, increased costs and, as the root cause of inflation, it diminishes the value of our money. Governments should carry out their pre-election promises and take the necessary steps to reform the monetary system. It can be done only by making the State the sole authority for the issue of currency and credit….. unfortunately, in this area politicians seem to be abyssamally ignorant of elementary financial and economic truths.”

From -Simple On A Soapbox- by John A Lee 1963;

Pg 53 – During a budget debate in the depth of the depression Savage, Nash, Parry and McCombs had tabled a resolution in caucus. They wanted the Labour Opposition in Parliament to move that a certain sum of money be borrowed on the security of the unemployment fund and used to alleviate distress.
The time had arrived for a challenge. I became very active and lobbied every Labour M.P. I ensured a big caucus attendance.
We would move, as an alternative,that credits be advanced by the Government owned Reserve Bank so that we could invest our materials and idle man-power surplus in socially-owned construction. We could see no reason at that moment for borrowing at a rate of interest. Surely the time had arrived for an Issue of credit.
Australian Labour was talking `issue’; in Britain tracts on money reform were flowing from Labour pens. In a world of plenty the dispossessed had no money.
Even Roosevelt, later, talked our language. We thought the moment had come for the people to claim rights of issue for their own bank. The goods existed, why not create credits?
Caucus, when it met, divided in a bitter debate in which Savage organised the advocates of borrowing and I the faction in favour of the state issue of credit. Caucus was was adjourned four times. I think every member insisted on speaking. At the third meeting Harry Holland, then Leader of the Party, espoused our cause. I saw M.P.s taking their coats off to one another in that caucus, so bitter did the conflict become.
The Savage-Parry-Nash-Fraser-McCombs resolution went down to a humiliating defeat, only Fred Jones of Dunedin South supporting the resolution. Nearly thirty Labour M.P.s voted for credit issue including Harry Holland himself. We moved accordingly in Parliament.
Out of that debate had come a new finance policy in which, I am convinced , Nash never believed. In 1935 the Labour Party affirmed that the Government should have sole right over the issue and control of new credit. But in the meantime Holland had died. Savage, the oldest surviving private and deputy, had become Labour Leader and was on the road to the Prime Ministership.
He never forgave me the humiliating defeat I had organised. Prior to that caucus Savage used to tell everyone, both publically and privately, that I would be one of the first chosen in a Labour Cabinet. After the defeat I knew that only a caucus vote would compel Savage to accept me. He became unfriendly from that day on.
Pg 58 – Factory production had become unprofitable. I wanted to see money issued for essential works until production flowed once more. I did not want to take over factories. I did want us to take over banking and the issue of credit. I did want us to use our credit to finance work so long as unemployment existed. I objected to New Zealand being made bankrupt because prices had fallen overseas. We should maintain our own price level and with it solvency. This attitude to price was indeed the genisis to our guaranteed price scheme. Twenty other voices in caucus urged the same thing I did.
But alone, perhaps, I sensed that if we issued internal credits and did not establish exchange control and import selection our credits would create demand for imports in excess of our London funds and create a financial crisis which would bring the Labour Government to its knees when it set out to renew London loans. To me exchange control and import selections, so that we could control the flow of credits and imports and maintan a reserve, was absolutely essential to socialist financial policy.
Pg 68 – I am sure that much of Labour’s success is a consequence of good or bad times. Labour was good for business after Nationalist bad business. The average Labour MP did want to restore purchasing power to the masses and that was in itself a fruitful idea. But there were no ideas as to how to change or gradually transform the economic system so that increased production could spell expanding incomes and greater leisure and fewer depressions by breaking the cursed cycle of capitalist inflation-deflation. For half a century Labour in Britain, Australia, and New Zealand had talked of socialising ‘the system’ but when the moment came for modest doses of the socialism for which the electorate had granted a mandate Labour either did not know or where there was knowledge, did not have the courage to make changes.
Pg 77 – A few days later the PrimeMinister sent for me again. Nash had come up with a proposition.
We will make you the Under-Secretary in charge of housing.
You will handle housing business as though you were a Minister. You will present housing to Cabinet, you will deal with housing business in Parliament. Walter will be your Minister, but he will be going to England by the time you get started and it will be up to you. We will introduce legislation the moment Parliament settles down. No one will get in your way.”
Will money be available from the Reserve Bank?” I asked.
This was a contensious Party issue. With tens of thousands of men on relief work the Labour Party, Nash and Fraser apart, believed that the funds of the Reserve Bank should be used for essential capital works until available men, machinery and materials were being fully employed. We wanted to undo the politically enforced Banker’s deflation. Nash wanted to stabalize deflation.
We did not want to create money when men, materials and machinery were being fully engaged; at that point we believed the cost of works should be met out of revenue. But we were not prepared to create debt as long as goods, machinery and men were idle. That was the moment to use public credit.
Money will be made available from the Reserve Bank.” The Prime Minister made the promise.
Pg 90 – Although the power to underwrite and arrange fresh borrowings has been availed of rather than the power to make new issues, except where the issue is an overdraft, such as has been arranged for the dairy industry account, one definite issue has been arranged for. The Government has instructed the Reserve Bank to make five million pounds worth of credit available for housing purposes.
These funds will be drawn upon by the Housing Account of the State Advances Corporation. All the funds so advanced will be used to create new assets in the form of houses and a straight out issue of money for the creation of such assets was considered justifiable. The instruction to the Reserve Bank, according to the Hon. Mr. Nash’s statement to Parliament, specifically prohibits the Reserve Bank from negotiating the sale of any portion of this issue, so that the whole issue is to be new money upon which the interest earned will belong in its entirety to the State. And the houses, of course, will belong to the State.
Pg 91 – In the halfway house of socialism-capitalism the evils of both systems are likely to afflict us if we are not careful. Labour must stimulate the production of such quantities of goods as are necessary to New Zealand’s welfare at an even higher standard. Capitalism cares only that the transaction yeilds a cash profit. To use a money machine to only create capital works and leave consumption goods to private
finance is dangerous. Hence at some stage Labour must give effect to the Prime Ministers intention of making credit available to secondary industry. Production that may not be profitable at the overdraft rates of the trading banks may be so socially desirable as to necessitate freeing it from the profit system so that quantities can flow to the extent required by the nation.

From The Cradle To The Grave – A biography of Michael Joseph Savage (New Zealand Labour Party) by Barry Gustafson 1986; Pg 198-9
The National Opposition (1936) was astonished by the use of Reserve Bank credit for housing, which disregarded traditional principles of budget finance. Forbes (George Forbes ex Prime Minister 1930-5 Great Depression era) admitted confidentially to Stewart (William Downie Stewart Jnr – Finance Advisor), “This places them in a unique position, the houses after erection carry no interest on capital cost, and for instance a thousand pound house can be let for 5s per week and be a financial success. The millenium seems to have arrived and it makes one wonder why we had to struggle in the bog, when there was such an easy way out of our troubles, houses, after being built with the highest paid workers in the world, at the lowest cost heard of, makes our policy of orthodox finance seem almost prehistoric.”

From -Simple On A Soapbox- by John A Lee 1963

Pg 54 – In July 1962 the leader of the Labour Party, the Rt. Hon. W. Nash, made a lengthy statement in which he said : “Consistent with the needs of a sound economy, the State should create and use credit at the cost of issue for purposes of approved capital development. We are satisfied that the use of Reserve Bank Credit, within the limits set out is not only justified, but has already contributed much towards the Nation’s economic well-being.”
Thus, 27 years too late, Nash accepted the policy on which Labour was elected in 1935…

Reintroducing the current New Zealand Labour Party to its founding ideals of Monetary, Banking and Credit Systems even more needed today than ever for the very same reasons.

Public Credit entailing the return to the Reserve Bank of New Zealand the control of the issuance of New Zealand's primary monetary base at origination. It currently sits with the New Zealand Debt Management Office which is essentially a foreign designed and controlled institution hidden in the shadows behind the diplomatic curtain within our Public House of Representatives.
Public Credit is the issuing of our primary monetary base at the administrative cost of a modern computer entry money system only without interest attached. Public Credit then being used to mobilise labour to unlock the necessities of life resources and essential economic infrastructure freely supplied by nature and supply them as a public service as the basis of commerce of the nation.
This would massively reduce external interest demands on our internal economy. Allowing taxes and interest currently factored into pricing that had been collected to pay those external demands to be reduced in sync.
The domestic financial sector would be removed of its current ability to add to external impost of excess liquidity of computer entry money issued as interest bearing loans.
The internal financial sector would be put back in the box of brokering loans between savers and borrowers of Public Credit already in circulation at interest rates and margins determined by demand and competition.
The domestic financial sector would return to providing for a fee a secure storage and settlement system for customers no longer forced or wishing to seek risk taking investment to keep up with what was permanent systemic inflation caused by the interest trap of the previously dishonest privately issued primary liquidity base with interest attached at origination.
With the necessities of life and essential economic infrastructure as a launch pad and fall back position the private sector will then be left to what it wishes to do in the field of desirable's with reduced regulatory strangulation that had been brought about by the systemic risk of the previously dishonest privately issued primary liquidity base with interest attached at origination.
If contracts between the internal financial sector and the individuals they broker fail because the markets did not find their desirable's, desirable enough, the losses would impact only those parties concerned and never find their way back to be imposed upon the taxpayer of whom it was no fault what so ever. No privitising of profits and socialising the losses due to the threat of wider systemic risk being held to the head of governments like a gun.
No Public Credit would be gained without work test by anyone but those to disabled to do any reasonable task asked of them should they not be able to find work in the private sector or at times when the government finds it necessary to provide employment above whats available in the private sector.
The removal of the insurmountable private debt hurdle would give a fairer positive instant consequence for genuine enterprise. I feel work is a pillar of a healthy society leading to a sense of ownership, self-esteem and increased unity.
To avoid inflation and instability the population must be kept within the boundaries of sustainable resources. The money supply must not exceed the level of trade transactions needed to allow those sustainable resources to circulate within a sustainable population.
These are boundaries that both past public and privately controlled monetary systems have mostly neglected in the past, sadly, in many cases, at the demand of a financially illiterate citizenship making unsustainable demands upon resources and money balance. Demands that politicians have gifted to keep power or demands that governments captured by the financial sector have ramped up.
Either way the majority shareholding few of the financial quackery sector have profited the most from most past and present financial structures of unfettered capitalism or unfettered socialism. The basically decent majority of society have been sent from one end of the rainbow to the other only to find upon arrival the promised pot of gold still has not come to be.
My interpretation of a Fascist State is one in which the crooked few corrupt politicians, white collar criminals, tax avoiding self employed, welfare benefit abusers, organised crime gangs and petty criminals have become parasites of the non-crooked basically decent majority of employers and workers. These parasitic crooked few suck so much of the lifeblood out of there host that they threaten its very longevity.
The ideal balance is that of the purchasing power of the money supply equaling that of what is able to be sustainably produced leading to stable prices without inflationary or deflationary tendencies other than those caused by natural supply and demand.
An honest money system needs to be free of the impacts of permanent systemic inflation caused by the primary liquidity base at origination being issued with interest attached in excessive quantity then further exasperated by being channeled back into the hands of the private majority shareholding few who then use it to pay inflated prices for that of the real economy they wish to also monopolise causing another form of synthetic inflation, causing further disparities of wealth and opportunity between the owners and issuers of money and those without that power.
The level of money in circulation to achieve the above needs to be removed from human emotion as much as possible. I believe this can be achieved by an improved system of Consumer Price Index to the current methodology which has some flaws, such as not including the full impact of house prices, that would seem to far more support the current excesses of the financial sector than keep them prudent.
For the above to succeed as a durable and viable longterm solution it would first have to be accepted as best practice by a block of nations and at some point the global human population will have to have a rather large family planning meeting as to just what population we agree upon this planet being able to sustainably support and keeping it at that level with a balanced honest money system to match.
Nations that the current dishonnest monetary, banking and credit systems have encouraged an imbalance of population to available sustainable resources are going to have to be nurtured by their neighbours whilst rebalancing. Unfettered protectionism will only surely lead to famine induced instability.
In the process balancing and stabalising economies internally national monetary authorities, what ever they be named, could offer guaranteed prices to its producers and negotiate the swap or sale of any surplus production for surplus production of other nations producing what it needs but does not have the sustainable resources to produce itself. This would be conducted on a new international fair trading clearing house platform. Given that the goods are not encumbered with the private bankers interest take attached and have been produced in a balanced economy the trade would be far more based on actual needs alone being a good trade as one that recoups your debt obligation.
Any political party that gains a knowledge of the predatory financial quackery that New Zealand and the world has for to long been suffering and chooses to turn a blind eye or collaborate with it is committing treason against humanity. Public Credit has been used before in New Zealand and the below 1955 Royal Commission made official how it can be done again.

The 1956 report of the 1955 New Zealand Royal Commission Into Monetary, Banking, And Credit Systems gives a great insight into the history of international banking and its impact upon the peoples and economy of New Zealand. It clearly discloses that the gold standard has been nothing but a thing of ceremonial token gesture since the 1600s, and has been replaced by a “credit creation mechanism” at the core of banking. This mechanism is currently in the hands of the private interests who have used and abused it as a means with which to put societies into servitude via predatory lending practices. This report discloses their argument as to why they can remain entrusted with the credit creation mechanism, even after the many repeated cycles of boom, bust, bankruptcy that have occurred on the private watch, as opposed to it being returned to elected public representatives. It discloses that none of the benefits they claimed would eventuate, have eventuated, everything bad they warned of happening under a public credit systems has occurred under the private system, and most of the protections they claimed we had to prevent tyranny of the system have since been dismantled by the infiltration of the legislation process by vested private money interests);

Pg 5

Royal Commission to Inquire Into and Report Upon Matters Concerning the Monetary, Banking, and Credit System of New Zealand
Pg 21
38. It is about twenty-one years since the last general inquiry into monetary and banking systems in New Zealand. The report of the Parliamentary Committee reveiews events prior to 1934 and the operation of the banking system before that time. In 1934 the Reserve Bank of New Zealand, established by the Reserve Bank of New Zealand Act 1933, began business and the New Zealand banking system took its present general form. It seems appropriate, therefore, to confine this review to the period since 1934.
Pg 44
150. In appendix C we examine in detail the definition of “money” and how it is created and controlled, the causes of changes that have taken place in the money supply in recent years, and the structure and operation of the monetary, banking and credit systems in New Zealand, with particular reference to the period since 1934. In this section of our report we provide only a necessary outline.
Money and Credit
151. Money is anything which is immediately available and generally acceptable in payment for goods and services or in settlement of debt. In New Zealand, there are three things which appear to us to satisfy these criteria of immediate availability and general acceptability:
(a) The coin and notes in circulation:
(b) The deposits on current account standing to the credit of the customers of the trading banks, or to the credit of the government and variuos marketing authorities at the Reserve Bank:
( c ) The unexercised portion of overdraft authorities granted to customers by the trading banks.
152. The two latter types of money are entries in the books of the banks, recording the obligation of the banker to his customers, but the banker, when he is directed to do so by cheque, will immediately transfer to other people a sum up to the amount which stands to each customers credit or upto the amount by which he has authorised each customer to overdraw his account. Nowadays a very large proportion of payments is made by cheques drawn against demand deposits or against overdraft limits.
Pg 50
The Government and the Creation and Destruction of Money
177. It can be seen from above that the Government, working through the Reserve Bank, has far reaching powers to curb unwanted bank lending. Through its ownership of The Bank of New Zealand, which in 1954 handled about 40 per cent of the advances and deposit business of the trading banks in New Zealand, it can also, if it so desires, reinforce its general policy as regards bank lending, and influence bank charges by specific instructions to the Bank of New Zealand. Bank overdraft rates have been fixed by the agreement between the Government and the Associated Banks since 1941.
178. If the Government thinks anytime that the supply of money is inadequate, and the trading banks cannot or will not increase their lending, it may itself borrow from the Reserve Bank, and no doubt, in practice, set its own terms as to interest charges and repayment. Indeed, if it wished, it could ensure, with its existing powers, that the trading banks did not initiate any expansion of the money supply required in the future, and that all new money was advanced by the Reserve Bank to the Government. As we point out elsewhere in this report, we consider that this would be most undesirable. However, the above remarks indicate the extent of the Governments power to control the supply of money and the terms on which it is issued.
Pg 105-6;
Creation of Money and the Public Interest
434. Apart from the historical and legal aspects outlined above, the next question to be considered is whether it is in the public interest that the power to create and destroy money or credit should be withdrawn from the trading banks and reserved to the state or to institutions owned by the state.
435. The burden of the contentions of those who sought to deprive the trading banks of the power to create or destroy money was that the trading banks for their own profit sometimes expanded the money supply to an undesirable extent and so cause inflation, and in other circumstances, such as in times of economic depression, cause an undesirable reduction in the money supply by reducing advances.
438. There is, of course the possibility of bringing about necessary expansion of the money supply entirely by financing government expenditure from Reserve Bank credit, and by at the same time preventing trading banks from expanding their lending through a rigid application of the reserve ratio. We consider that the needs of industry and commerce for additional credit can be more conveniently and efficiently met by expansions of trading bank credit than by expansions of Reserve Bank credit. The trading banks in close touch with the multitude of industrial, commercial, farming, and other businesses and they are in a position to give attention to the needs of individual businesses.
Pg 107-8 Conclusion
445. The essence of the nature of the matter is that insufficient or excessive credit creation can have important repercussions on the whole economy and, for that reason, control should be exercised by the government through the Reserve Bank and, if necessary through the Bank Of New Zealand. Such control can be issued under existing legislation. Furthermore, the government has itself adequate powers to create money through the Reserve Bank or through the ownership of the Bank Of New Zealand.
446. To concentrate the whole of the trading-bank activities or the whole business of credit creation in a government monopoly of banking would, in the opinion of the Commission, lead to an undue and unnecessary aggregation of power in the hands of the Government. It would remove the highly desirable element of competition and it could not be expected to provide as good a banking service as the commercial community now enjoys.
(b) The Principles of Commercial Banking
20. The fact that a large proportion of our money supply comes into existance as a result of the operations of the trading banks obviously disturbed many witnesses who appeared before us. A number seemed to think that this “ creation of credit “ by banks was a relatively recent phenomenon. In fact, the fundamental principles of our banking system have remained much the same since atleast the seventeenth century. The pricipal functions of a trading or commercial bank today are similar to those which certain Goldsmiths began to undertake in England at about the time, in that;
(1) They receive and take custody of money on behalf of customers, who thus avoid the risk of loss or theft involved in keeping notes and coin on their premises or person.
(2) They exchange overseas money for domestic money and, vice versa, for customers who engage in business or travel overseas.
(3) They provide their customers with a convinient means of payment, by undertaking to transfer sums standing to the customers credit at the bank to other people, when directed to do so by cheque. ( In times past the trading bank could also issue notes to their customers in exchange for coin deposited with them, but the provision of notes is now, nearly everywhere, the monopoly of a central bank.)
(4) Within limits and subject to various controls, they make loans to people or firms deemed credit worthy, and lend to the Government or local bodies by buying their securities.
21. The main reason why a bank is able to make the latter loans is that, although its depositors can at anytime withdraw their deposits in legal tender money or require the bank to transfer their money to customers of other banks, the banker, in practice, is called upon to pay out very little legal tender money in normal circumstances. This is so for several reasons;
(1) A few customers will never use the sums which they have deposited and some will let them lie idle for considerable periods. Evidence given by the Chairman of the Associated Banks and the Governor of the Reserve Bank indicated that, early in 1955, there were deposits of between 60 million and 85 million pounds which had remained inactive in the accounts of customers of New Zealand trading banks for a considerable period of time.
(2) Especially in a community where there are only a few banks, many of the cheques drawn by customers will be paid to other customers of the same bank. In these cases the bank will not have to transfer legal tender money to other banks, but merely debit one custmomer’s account and credit another’s.
(3) Even though customers are constantly withdrawing notes and coin or making payments to customers of other banks, they are also constantly making further deposits of notes, coin, or cheques drawn on other banks, which more or less offset the withdrawals.
22. Thus, a banker can normally be certain that, on balance, he will only have to convert a very small proportion of his customer’s deposits into notes and coin at any one time. He has no need, then, to keep a reserve of coins and notes equal to the total of deposits standing to the credit of his customer’s; he can obviously lend some money out at interest for short periods without any danger of his being unable to meet his customer’s demands for notes and coin required.
Pg 246
41. But the creation of the Reserve Bank and its subsequent complete nationalisation in 1936 left no doubt not only that the Government could issue additional money through the Reserve Bank, but also the amount of money put into circulation could be controlled by the State authorities in the public interest.
Pg 285
180. To sum up; our credit and debt system performs the following useful functions:
( a ) It provides without excessive inflation of the money supply, a means of calling forth the funds required for modern production and of apportioning the available supply of loan money without undue intervention by the State.
( b ) It enables those who wish to save money for various reasons to earn an income from their savings without investing them in property or business.
Page 286
( c ) The specialist financial intermediaries in the credit market aggregate small savings into amounts large enough to be of use in production; they develop experience in accessing the credit worthiness of applicants for loans; and they reduce the cost of marketing credit below that which would rule if people had to find outlets for their own funds.
( d ) The system allows private firms and individuals to obtain control of the expensive fixed and working capital necessary for efficient production; it allows families to obtain houses, home utilities, and ancillary services ( through their local Governments ) earlier in life than if they had to provide them completely from their own resources.
181. A society without debt and interest would be inconsistent with the institutions of private ownership and enterprise, for the funds for capital expenditure would inevitably have to be collected and allocated by the State.

The above is an historical account of the dishonnest monetary, banking and credit system we have suffered. It contains past successful solutions used to combat private originated created credit issued with interest attached ponzi pyramid scams. Below is the most comprehensive solution I have yet seen taking into account modern advancements.

Moving Forward with Practical Reform – from Positive Money

By Ben Dyson, on 14 December 10
Positive Money is a growing campaign for ‘Honest Money’, although I suspect that some readers on this blog may challenge our definition of honest money. I wanted to outline our position, and show why we’re taking a particular route towards reforming the money system.
We make a separation between the academic debate – which could go on indefinitely, with no chance of a consensus – and the politically feasible steps that could make a real improvement to the existing system. The academic debate is good, as it helps to refine our arguments and figure out how money should work in an ideal world. But if we wait to come to a consensus before moving forward with practical steps to reform the system, then we might find that Rome has already burnt to the ground while we’ve been locked in the debating chamber!
The economic situation is deteriorating, and we need to find the fastest way of stopping the entire system collapsing. While many proposals from the Austrian school would have been a better foundation for the economy over the last couple of centuries, some of them are politically impossible to reach from this starting point, so we have to look at what is politically possible and move towards that as quickly as possible. We’ve outlined our own proposals at the end of this article.
Nationalised vs Denationalised Currencies
The mindset of ‘managing’ the economy is so ingrained that quite simply, there is no possibility of any government in the next decade choosing to give up its power over the country’s currency. No chance, regardless of how strong an academic argument is put forward. Without a pretty advanced understanding of money, the proposal for denationalisation, when filtered through the press, will sound like “Let’s abolish pound sterling and give the banks that caused the crisis a license to print money”. You and I know that this is inaccurate, but it is the way that the proposal will be interpreted.
This means we’re looking at a state-issued currency for the foreseeable future.
Full Reserves versus Free Banking
The free banking argument suggests that we should allow banks to engage in fractional reserve banking, but let them live and die by the sword. This means that they could promise instant access to demand deposits (as they do now) even though they can only repay a fraction of those depositors at the same time. Deposit insurance would be removed, and any bank that was subject to a run and became insolvent would be allowed to fail.
In the context of a state-issued national currency, this proposal is an absolute non-starter. When the average bank can only repay £71 for every £1000 in a customer’s bank account, removing deposit insurance today would almost certainly trigger a run on the banks, with customers withdrawing as much physical cash (notes) as possible. With the risk of the UK returning to a cash-only economy in a matter of days, deposit insurance would be immediately re-instated.
Consequently, with a state-issued currency, fractional reserve banking can only exist with deposit insurance in place. In other words, there is no way of removing deposit insurance and keeping fractional reserve banking, as long as we have a state-issued currency.
This then means that full-reserve banking is the only realistic option with a state-issued currency. As denationalisation is a political impossibility – at least for the next decade or two – this means that if you want deposit insurance removing, full-reserve banking is the only option.
Return to a Gold Standard?
A gold standard with state-issued currencies creates problems of its own, and shifting back to a gold standard now is not considered as a credible solution to the crisis among the people who would make such a decision. One advantage of a gold standard was to limit the growth in the money supply, but there are legal and practical ways that we can limit that growth with a fiat currency system.
So let’s assume that there’s no political chance of returning to a gold standard.
Fixed Money Supply?
With full-reserve banking, it’s entirely possible to have a state-issued fiat currency, in the form of coins, paper notes and digital ‘tokens’ in computer systems, and fix the supply of money at a specific number (when looking at money that can be accessed on demand). A fixed money supply would remove inflationary pressures, and likely lead to deflation (assuming that our productivity grows). It would also make manipulation of money impossible – there would be a set quantity, and that would never change. In a sense, this would be a more secure currency than gold!
So at this point, do we start to argue the case that deflation is not always a bad thing? No. The inflation debate is another one that will never be resolved. The dominant position seems to be that ‘low and stable’ inflation is the ideal target. In addition, central banks and governments are attached to the idea of ‘managing’ the economy, and would be unwilling to give up their tools to do so.
So, let’s accept that we won’t have a fixed money supply, and that there will still be some manipulation of the money supply. In this case, let’s get that manipulation out in the open.
Our Proposals
Bearing all that in mind, I think the proposal put forward in Positive Money’s submission to the Independent Commission on Banking is the best politically possible ‘next step’. This is what it does:
  1. Implement full-reserve banking so that deposit insurance and state guarantees can be withdrawn and banks can be allowed to fail
  2. Ties investment to real savings again
  3. Provides the economy with a stable money supply
  4. Keep the power to create money away from both profit-seeking bankers AND vote-seeking politicians
  5. Put the power to create money with an independent MPC, who are tasked with keeping inflation at zero (or whatever target they set, say 2%).
  6. We tie the creation of money into inflation, so that if inflation starts rising (beyond the target) then no new money can be created
  7. For the first time in history, there will be complete transparency and accountability over the creation of money, and we’ll be able to see exactly how much the money supply has been increased, and why. (There will of course need to be mechanisms to ensure the accountability of the Monetary Policy Committee).
  8. Note that under this framework, if the actions of the MPC correlate to instability in the economy, then you know exactly where to point the finger of blame, and can start arguing towards a fixed money supply.
It’s not perfect, but at the moment we genuinely think it’s politically the best solution that has a chance of being implemented. The academic debate over the best money system for the long term can continue, but right now the system is collapsing around us, so we need to call for a reform that is politically feasible.
Our Campaign
If these proposals do start to get attention then the lobbyists will swing into action. The only way to get around that is to make it something that masses of ordinary people will campaign on.
Understanding the denationalisation of money requires a fair bit of an understanding of money and also a bit of a mindset shift, so it’s not something that can be used to start a mass movement. So, here’s the angle that we’ll be taking:
  1. Everyone knows that only crooks and criminals print their own £5 or £10 notes
  2. The laws that make it illegal to print your own money have never been updated to take account of the fact that almost all money now is digital
  3. Because there’s no law against creating digital money, banks have been able to get away with creating up to ¬£200bn of this digital money each year
  4. In fact, we’ve now reached the situation where very nearly every pound in the economy was created by the banks, for their own benefit
  5. As a result, banks now have a complete monopoly on supplying money to the economy/society
  6. If we want money in order to live or do business, then we have to borrow it from the banks
  7. They benefit from this monopoly to the tune of tens of billions a year at our cost, and we all end up in ever-growing debt
People have an intuitive idea that counterfeiting is a criminal activity designed to somehow rip people off. I suspect they also have an intuitive sense that they’re being ripped off by the banks, particularly considering the bailouts, the tax rises, spending cuts and rising national debt. By tying the two together we can grow a massive public campaign to get control of the creation of pound sterling completely out of the hands of the banks and into a transparent process, where we know exactly who is creating money, and who to blame if things go wrong.
Getting to full reserve banking with a state-issued currency is a massive battle, but once we’ve got that far, the economy and the system generally should be stable enough to allow a more relaxed debate about how money should work.

Read the proposal at: [ ]

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