The confidential memo at the heart of the Global Financial Crisis

[merithyn]

http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo

This is floating around Facebook, which means that there's probably a lot more to this than the article suggests. Can one of you banking guru types spell out the unslanted version of what happened?

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn't believe it.

The Memo confirmed every conspiracy freak's fantasy: that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet. When you see 26.3 percent unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears.

The Treasury official playing the bankers' secret End Game was Larry Summers. Today, Summers is Barack Obama's leading choice for Chairman of the US Federal Reserve, the world's central bank. If the confidential memo is authentic, then Summers shouldn't be serving on the Fed, he should be serving hard time in some dungeon reserved for the criminally insane of the finance world.

The memo is authentic.

I had to fly to Geneva to get confirmation and wangle a meeting with the Secretary General of the World Trade Organisation, Pascal Lamy. Lamy, the Generalissimo of Globalisation, told me,

"The WTO was not created as some dark cabal of multinationals secretly cooking plots against the people... We don't have cigar-smoking, rich, crazy bankers negotiating."

Then I showed him the memo.

It begins with Larry Summers' flunky, Timothy Geithner, reminding his boss to call the Bank bigshots to order their lobbyist armies to march:

"As we enter the end-game of the WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs..."

To avoid Summers having to call his office to get the phone numbers (which, under US law, would have to appear on public logs), Geithner listed the private lines of what were then the five most powerful CEOs on the planet. And here they are:

Goldman Sachs: John Corzine (212)902-8281

Merrill Lynch: David Kamanski (212)449-6868

Bank of America: David Coulter (415)622-2255

Citibank: John Reed (212)559-2732

Chase Manhattan: Walter Shipley (212)270-1380

Lamy was right: They don't smoke cigars. Go ahead and dial them. I did, and sure enough, got a cheery personal hello from Reed – cheery until I revealed I wasn't Larry Summers. (Note: The other numbers were swiftly disconnected. And Corzine can't be reached while he faces criminal charges.)

It's not the little cabal of confabs held by Summers and the banksters that's so troubling. The horror is in the purpose of the "end game" itself.

Let me explain:

The year was 1997. US Treasury Secretary Robert Rubin was pushing hard to de-regulate banks. That required, first, repeal of the Glass-Steagall Act to dismantle the barrier between commercial banks and investment banks. It was like replacing bank vaults with roulette wheels.

Second, the banks wanted the right to play a new high-risk game: "derivatives trading". JP Morgan alone would soon carry $88 trillion of these pseudo-securities on its books as "assets".

Deputy Treasury Secretary Summers (soon to replace Rubin as Secretary) body-blocked any attempt to control derivatives.

But what was the use of turning US banks into derivatives casinos if money would flee to nations with safer banking laws?

The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet -- in one single move. It was as brilliant as it was insanely dangerous.

How could they pull off this mad caper? The bankers' and Summers' game was to use the Financial Services Agreement (or FSA), an abstruse and benign addendum to the international trade agreements policed by the World Trade Organisation.

Until the bankers began their play, the WTO agreements dealt simply with trade in goods – that is, my cars for your bananas. The new rules devised by Summers and the banks would force all nations to accept trade in "bads" – toxic assets like financial derivatives.

Until the bankers' re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives "products".

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers' battering ram was given to Geithner, who was named Ambassador to the World Trade Organisation.


Bankers Go Bananas

Why in the world would any nation agree to let its banking system be boarded and seized by financial pirates like JP Morgan?

The answer, in the case of Ecuador, was bananas. Ecuador was truly a banana republic. The yellow fruit was that nation's life-and-death source of hard currency. If it refused to sign the new FSA, Ecuador could feed its bananas to the monkeys and go back into bankruptcy. Ecuador signed.

And so on – with every single nation bullied into signing.

Every nation but one, I should say. Brazil's new President, Inacio Lula da Silva, refused. In retaliation, Brazil was threatened with a virtual embargo of its products by the European Union's Trade Commissioner, one Peter Mandelson, according to another confidential memo I got my hands on. But Lula's refusenik stance paid off for Brazil which, alone among Western nations, survived and thrived during the 2007-9 bank crisis.

China signed – but got its pound of flesh in return. It opened its banking sector a crack in return for access and control of the US auto parts and other markets. (Swiftly, two million US jobs shifted to China.)

The new FSA pulled the lid off the Pandora's box of worldwide derivatives trade. Among the notorious transactions legalised: Goldman Sachs (where Treasury Secretary Rubin had been co-chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation. Ecuador, its own banking sector de-regulated and demolished, exploded into riots. Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans. Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim – and the continent is now being sold off in tiny, cheap pieces to Germany.

Of course, it was not just threats that sold the FSA, but temptation as well. After all, every evil starts with one bite of an apple offered by a snake. The apple: the gleaming piles of lucre hidden in the FSA for local elites. The snake was named Larry.

Does all this evil and pain flow from a single memo? Of course not: the evil was The Game itself, as played by the banker clique. The memo only revealed their game-plan for checkmate.

And the memo reveals a lot about Summers and Obama.

While billions of sorry souls are still hurting from worldwide banker-made disaster, Rubin and Summers didn't do too badly. Rubin's deregulation of banks had permitted the creation of a financial monstrosity called "Citigroup". Within weeks of leaving office, Rubin was named director, then Chairman of Citigroup – which went bankrupt while managing to pay Rubin a total of $126 million.

Then Rubin took on another post: as key campaign benefactor to a young State Senator, Barack Obama. Only days after his election as President, Obama, at Rubin's insistence, gave Summers the odd post of US "Economics Tsar" and made Geithner his Tsarina (that is, Secretary of Treasury). In 2010, Summers gave up his royalist robes to return to "consulting" for Citibank and other creatures of bank deregulation whose payments have raised Summers' net worth by $31 million since the "end-game" memo.

That Obama would, at Robert Rubin's demand, now choose Summers to run the Federal Reserve Board means that, unfortunately, we are far from the end of the game.

[jimmy olsen]

If it's "floating around Facebook" with a dramatic title like that, there's a 99%+ chance its crap.

[Admiral Yi]

It's an extraordinary essay.

[CountDeMoney]

Meri, don't buy into the hype.  The Global Financial Crisis worked like it was supposed to.

[Admiral Yi]

Yeah Meri, whatever you do, don't buy into the hype.

[CountDeMoney]

Mad money was made, Yi.  What else could you have asked for?

[Admiral Yi]

An attempt to answer your question Meri.  Executive summary, it's total crap.

I've not read much about the FSA, but what I imagine it does is allow financial firms to operate in other countries that are members of the WTO.  The WTO is after all a trade organization.  This is conjecture, but I doubt that it requires members to allow trade in derivatives; only that domestic and foreign firms be treated the same.  Which is not to say that trade in derivatives is the death sentence this extraordinary author makes it out to be.

He then tries to draw a connection between the FSA and defaults in Greece and Argentina and a banking crisis in Ecuador.  This is bunkum.  Greece and Argentina didn't default because they were coerced by the FSA to buy derivatives, they defaulted because they issued too many plain vanilla sovereign bonds and couldn't pay them back.  Ecuador had a plain vanilla banking crisis after its banks lent out money that wasn't repaid.

The extraordinary author of this extraordinary essay appears to be trying to string together a couple words that he knows will strike a powerful chord with his target audience (Glass-Steagal, derivatives, toxic assets, bankers, etc.,).  It's not an explanation of anything.  It's a jazz riff.  It's performance art.

[garbon]

Is the wikipedia page on this guy accurate?

Notably, he has claimed to have uncovered evidence that Florida Governor Jeb Bush, Florida Secretary of State Katherine Harris, and Florida Elections Unit Chief Clay Roberts, along with the ChoicePoint corporation, rigged the ballots during the US Presidential Election of 2000 and again in 2004 when, he argued, the problems and machinations from 2000 continued, and that challenger John Kerry actually would have won if not for disproportional "spoilage" of Democratic votes

After Palast was invited by Robert F. Kennedy, Jr. to appear on his Air America talk show to discuss, among other things, election fraud, the pair teamed up to find out if democracy was in a better state in 2008. In their report, which was published in October 2008 in Rolling Stone, they concluded that the 2008 election had already been stolen. "If Democrats are to win the 2008 election, they must not simply beat John McCain at the polls -- they must beat him by a margin that exceeds the level of GOP vote tampering", Palast and Kennedy summarized

[merithyn]

If it's "floating around Facebook" with a dramatic title like that, there's a 99%+ chance its crap.

No shit, Tim. Why do you think I said what I said about it? 

[merithyn]

An attempt to answer your question Meri.  Executive summary, it's total crap.

The extraordinary author of this extraordinary essay appears to be trying to string together a couple words that he knows will strike a powerful chord with his target audience (Glass-Steagal, derivatives, toxic assets, bankers, etc.,).  It's not an explanation of anything.  It's a jazz riff.  It's performance art.

Yeah, it seemed like a lot of smoke and mirrors. I tend to side with Seedy on a lot of the Evol Banks!! stuff, but this one seemed kind of ridiculous. Thanks, Yi.

[merithyn]

Is the wikipedia page on this guy accurate?

Notably, he has claimed to have uncovered evidence that Florida Governor Jeb Bush, Florida Secretary of State Katherine Harris, and Florida Elections Unit Chief Clay Roberts, along with the ChoicePoint corporation, rigged the ballots during the US Presidential Election of 2000 and again in 2004 when, he argued, the problems and machinations from 2000 continued, and that challenger John Kerry actually would have won if not for disproportional "spoilage" of Democratic votes

After Palast was invited by Robert F. Kennedy, Jr. to appear on his Air America talk show to discuss, among other things, election fraud, the pair teamed up to find out if democracy was in a better state in 2008. In their report, which was published in October 2008 in Rolling Stone, they concluded that the 2008 election had already been stolen. "If Democrats are to win the 2008 election, they must not simply beat John McCain at the polls -- they must beat him by a margin that exceeds the level of GOP vote tampering", Palast and Kennedy summarized

Note to self: Wiki journalists BEFORE reading their crap.

[The Minsky Moment]

Geithner gave Larry Summers John Corzine's phone number?   It's a capital offense!

Meri - I'd bet if you got this guy aside and asked him in plain English what the FSA actually did and how it works, he would have no clue.

[MadImmortalMan]

The thing rests on the premise that they did this to prevent money from fleeing to countries with more restrictive banking regulations?

[derspiess]

If it's "floating around Facebook" with a dramatic title like that, there's a 99%+ chance its crap.

No shit, Tim. Why do you think I said what I said about it? 

I'm not Tim (thank God) but I took what you said to mean that there's probably more substance to it.

[merithyn]

If it's "floating around Facebook" with a dramatic title like that, there's a 99%+ chance its crap.

No shit, Tim. Why do you think I said what I said about it? 

I'm not Tim (thank God) but I took what you said to mean that there's probably more substance to it.

Given my distrust of all things banking, the fact that even I found it an unlikely scenario meant that it had to be mostly crap. I just wondered which bits weren't. It seems there were no bits that weren't.