Bankers Arithmetic
$430- $658 ($326 + $332) = $882 – – – – This is called “banker’s arithmetic”!
You must be from the old school of thought where 2 + 2= 4, because many people will get a strange idea of arithmetic, from the way bankers do it. It is a real question. How in the world can you start owing $171, pay off $82, and still end up owing $397?
Obviously, there is some process going on here, through more and more debt is being piled up on you, no matter how fast you pay it off. The more you pay, the more you owe. There is something rigged about the game.
If we look at other examples of banker’s arithmetic, the case of Latin America: They owed $259 billion in 1980, and by 1996 they paid off $488 billion in interest payments alone – and not amortization of principle. That was additional. And yet, the debt grew from $259 to $657 billion! How in the world can this be? How can you owe a certain amount, pay it off one and a half times over, and when it’s all over, you owe more? 259-488 = 657 = Banker’s Arithmetic!!
The answer is simple. The two families are cheating on countries. They cheat in three main ways; First, by forced devaluation of their currencies; secondly, through a deteriorating terms of trade, and lastly, through the gimmick of floating interest rates.
Currency Devaluations
Let us say you are the nation of Mexico, and you have an exchange rate of 5 pesos to the dollar. Now, if you owe $100, you have to sell enough of your goods to earn 500 pesos. Then you go to the bank and exchange the 500 pesos for $100, and you pay your $100, because the exchange rate is 5:1.
But, let’s say the IMF comes along, and forces a devaluation of your currency, as had happened in a pile of countries. All of a sudden they tell you: “You know what, Mr. Gomez? The peso is nor worth 5 to the dollar anymore; the peso is now worth 10 to the dollar”. Why? “Because we say so”.
Wait a minute! That means to pay $100 in debt, you now have to sell, not 500 pesos of goods, but 1,000 pesos worth. You have to sell, or export, or hand over from your country, twice the physical amount you did the day before. Why? Because your currency was just devalued. You protest: “Wait a minute. That’s not fair!” And the bankers and IMF say:” What do you mean it’s not fair? That’s neo-liberal economics. Didn’t you study at Harvard?”
That is one of the ways they cheat, but there’s another. They have back-ups, in case one doesn’t quite work, they use the other, or the two work better.
Terms of Trade
What does this mean? Again, say you are a Mexican, and you are selling whatever you export from Mexico – in this case oil. The terms of trade means that the price of your oil exports drop, and the prices of your imports – machinery, consumer goods – increase. Let’s say that when you first borrowed money, in order to import one machine tool, you had to sell 10 barrels of oil. Let us say that was the price equivalent. What happens if the price of oil goes down, and the price of the machine tool rises? That is called deteriorating terms of trade. And you say, “Hey, wait a minute, that’s not fair!” And they say, “What’s the matter? Didn’t you study at Harvard?”
So, the deteriorating terms of trade means that the price the Third World gets for what it sells, is falling. And, so they have to run faster, just to stay in the same place. And the price for what they are buying is rising, so they have to run twice as fast just to stay in the same place. There are other tricks they use, but devaluation and the terms of trade are the two main ones – you have to export more, and more physical wealth, not just to stay even, but you fall further and further behind. You owe more and more, no matter how much you pay. And, there’s no way you can win, because the game is rigged.
Here’s another example. Say that you want to buy a Mexican company for 500 million pesos; at an exchange rate of 5:1 to the dollar, it will cost you $100 million. Now, the country goes through a financial crisis. The local economy gets devastated, and the exchange rate doubles. The local Mexican company has reduced its selling price to 400 million pesos. Instead of an exchange rate of 5:1, the new exchange rate is 10:1. So, you would now need just $40 million to purchase the Mexican company.
The point of the banker’s arithmetic is that the unit of measurement changes, because the IMF and the bankers run the casino. It’s a fixed game and they cheat on you. And they say if you don’t like it, you are obviously a dummy, you didn’t study economics at Harvard.
Floating Interest rates
When a country takes out a foreign loan, its interest is tied to LIBOR. After the loan is taken out, and the country goes through a financial crisis, the old loans are rescheduled, at a cost of course. The LIBOR rate becomes much higher than the old loan. And if you don’t perform, then the ratings agencies of the two families will downgrade your debt, citing “high risk”. In order to avert capital from fleeing the country, the “risk premium” in holding your debt goes up. This means the premium over the LIBOR rate shoots up. Interest payments on your debt go up, the amount in local currency of your debt goes up, and there’s no way the country can win.
Brazil is a good case study of banker’s arithmetic. In 1984, Brazil’s foreign debt was $72 billion. Over the course of the next 18 years, to 1998, Brazil paid $146 billion in interest payments. In other words, Brazil paid almost twice the original principal amount. And yet, at the end of that period, they owed $231 billion – 3 times as much as the original debt. So, in banker’s arithmetic, 72-146 = 231. That’s how it works.
In the period from 1980 to 1999, the Third World debt, the REAL debt, climbed to $4.3 trillion. The debt started out at $645 back in 1980, and over this 19-year period, these countries paid more than $1.6 trillion in interest payments alone. In other words, the original debt was paid back two and a half times over. And yet the total debt is now 7 times larger than it was initially; $645 – $1613 = $ 4137
Along with this process of Third World debt is a political drive to convince the victims of this debt, that the way to solve their problems, is to privatize and deregulate. They assured the Third World countries: “It’s going to work. It’s important to do this. Globalization is with us to stay. You’ve got to open up your economies, and allow all that capital to come flooding in and help you out”.
And, of course, they opened up their economies, and all the capital went flooding OUT. The Third World privatized about $400 billion in assets between 1987 and 2000. National assets such as oil companies, water and electricity companies, mines, etc., were sold for a song on the market. They got dollars for it, but the money did not stay in the economies for more than a split second. It went out immediately in the payment of foreign debt.
To add insult to injury, the newly-privatized state companies involved in water and electricity, hike up the prices to the public by two or three times more, than when it was state-run.
The US – Deregulation & the “Free Market”
The policy of “controlled disintegration was working wonderfully in the Third World. The 2 families did not leave the US and Britain out either. Six months after Thatcher took office, Ronald Reagan became the next US President. One of his first acts was to use his powers to dissolve the trade union of the airline traffic controllers, PATCO. This served to signal other unions not to attempt to seek relief from the soaring interest rates. Similar moves were also made in the UK, to eliminate trade unions. The aim was to curtail the power of organised labor, and reduce wage rates.
During the 1980s, powerful multinationals in Britain and the US followed the banks to set up child labor sweatshops in places along the Mexican-US border, and with other such places as Indonesia, Bangladesh and the Philippines. These “maquiladoras”, as the low-skilled assembly plants are called, employed young desperate Mexican kids for $0.50 per hour wages. The Mexican government allowed them, because they “earned “dollars needed to service foreign debt.
In the West, high interest rates collapsed long-term investment. To make matters worse, high inflation rates (12-17%) dictated the conditions of investment returns. A fast and huge gain was needed. When billions from Third World countries brought a huge windfall of financial liquidity to the American banking system, Wall Street had the White House remove the “shackles” off financial markets, resulting in the greatest extravaganza in world financial history. When the dust settled by the end of that decade, Reagan’s “free market” had destroyed an entire economy. It happened to be the world’s largest economy and the base of monetary stability as well.
Based on the simple-minded and quite mistaken argument that removing the tax burden on the individual or company would allow them to release “stifled creative energies”, Reagan signed the largest tax-reduction bill in history. Restrictions on corporate takeovers were also removed, and Washington gave the clear signal that “anything goes”, as long as it stimulated the Dow Jones Industrial stock market index.
Between June and December 1982, interest rates fell. The financial markets began to go wild. Instead of money going into long-term infrastructure and productive investment, money went into speculation in real estate, stocks, into oil-wells – all of these under so-called “tax shelters”. As interest rates went even lower, the fever grew hotter. People reasoned it was cheaper to borrow today, and repay tomorrow at lower rates. It didn’t quite work. American cities continued their 20-year long decline; bridges fell in, and roads cracked for lack of maintenance.
The Reagan “recovery” was turning young stock traders into millionaires, apparently only by pushing a computer key. The theme, “Greed is Good”, became common. It was also reducing the skilled blue-collar workforce of the population into lower standards of living. Real standards for the majority of Americans steadily decreased. Incomes of a minority rose as never before. Society was becoming polarized around income differentials.
The new dogma of a “post-industrial society” was preached. No longer was America’s economic prosperity linked to investment into the most modern industrial capacities. Steel was declared a “rust-belt” industry. Shopping centers, glittery new Atlantic City gambling casinos, and luxury resort hotels was “where the money” was. Money flowed in from abroad to finance this wild spree.
No one seemed to mind that, in the process, within 5 short years, by 1985/6, the US had passed from being the world’s largest creditor, to becoming a net debtor nation for the first time since 1914. “Debt” was cheap, and it grew geometrically. Families incurred record levels of debt for buying houses, cars and VCRs. Government incurred debt to finance the huge loss of tax revenue and the expanded Reagan military budget. The American economy was sick.
By 1983, annual US government deficits began to climb to $200 billion. The national debt expanded along with record deficits, all paying Wall Street bond dealers’ record sums in interest income. Interest payments on the total debt of the US government doubled in 6 years, in 1986, to $142 billion, equal to 20% of government revenue. But, despite such warning signs, money flowed in from Germany, Britain, Holland and Japan, to take advantage of the high dollar and the speculative gains in real estate and stock markets.
When storm clouds began to gather during 1985 on the US economic horizon, it was oil, once again, which came to the rescue. But this time in a very different way. The Rockefellers apparently reasoned. “If we can run up the price of oil, why can’t we run it down when it’s convenient to our priorities”.
Saudi Arabia was convinced to run a “reverse oil shock” and flood the depressed world oil market with abundant oil. The price of oil dropped like a stone from $26 to below $10 per barrel by March 1986. Wall Street proclaimed the final victory over inflation. Then when the further fall in oil prices threatened to destabilize the vital interests of the Rockefeller oil companies, George Bush made a quiet trip to Riyadh in March 1986, where he told King Fahd that he should stop the price war. Saudi Oil Minister Zaki Yamani became the convenient scapegoat for a policy authored in New York, and oil prices stabilized at a low level of $14-16/barrel.
A secondary target of this fall in oil prices was Iran and the Soviet Union. Both relied heavily on the income, as well as the dollars their oil exports would bring. In both cases, the fall in prices crippled their economies, and brought the Soviet Union crashing down 4 years later. In Iran, the loss of income forced them to surrender in its 8-year long war with Iraq.
Speculation took off in real estate in the US at a record pace. The stock market began a renewed climb to record highs. The oil price collapse added impetus in the American speculative bubble. Interest rates dropped even more dramatically. Money flowed in to make a killing on the stock markets. A new financial perversion became fashionable on Wall Street, the Leveraged Buy Out, or LBO. With the cost of money falling, and stock prices soaring, everything was allowed.
A sound 100-year old industrial company, which had been conservatively managed, producing tyres, or machines, or textiles, became a target for the new corporate “raiders”, as the Wall Street scavengers were called. Many became billionaires on paper, as front men for the financial interests of the two families.
During the decade of the 1980s, more than $1.5 trillion was diverted into corporate takeovers and LBOs. Of this amount, more than $60 billion went directly into the pockets of investment bankers, the “dealmakers (i.e., the traders), and their attorneys.
In a typical LBO raid, a raider would line up the promise of borrowed money to buy control of a company many times his worth. His purchase of stock in the victim company drove the share price up. If he succeeded, he took over a huge company, almost entirely with borrowed money, which debt was then repaid, if all went well, by “below investment grade” bonds issued by the new debt-laden company, appropriately known as “junk bonds”. If the company went bankrupt, the bonds were just so much “junk” paper.
But in the 1980s, the stock market and real estate prices were rising, so no one paid much attention to this risk. The Reagan tax reforms made it more profitable for a company to be saddled with huge debts than to issue stock equity. Interest paid on debt is deductible, while dividends received are not. The tax laws favor those who take over firms through generating huge debts, while penalizing those who act to increase profits through investments, which increase productivity. Huge tax liabilities were thus evaded through the debt-backed takeovers financed through junk bonds. Interest rates paid by junk bonds were very high to attract buyers.
The “sharks”, as these raiders were called, moved quickly to “strip” the assets of the new company, sell off the pieces for a quick profit, and run to the next victim company. During the last half of the 1980s, such actions consumed Wall Street, pushed the Dow Jones upwards, and drove corporations into the highest levels of debt since the 1930s.
Jacob Rothschild & Mike Milken
Mike Milken worked for a Wall Street brokerage firm called Drexel Burnham Lambert (DBL). The Lambert in the name is connected to the Lambert family of Belgium, that country’s most powerful and wealthiest family. They are the representatives of the Rothschild family in Belgium, as well as being maternal cousins to the French Rothschilds.
Deregulation and the free-market of the 1980s paved the way for the “narco-dollar” invasions of the 1980s. The problem for the two families, who had total control over the international narcotics trade, or Dope Inc, was the need to launder the cash derived from this trade. The banking system played a major role in facilitating this need. The aim was to acquire a legitimate cash business, add the narco dollars into that cash flow, and deposit the funds into the banking system. The mission was now to acquire such businesses, at the least of cost to the two families.
And it was Mike Milken and his domination over the junk bond market, which provided the mechanism by which the funds would be laundered. From his promotion of junk bonds in the 1970s, Milken built up a network of “corporate raiders” around him, many of whom had organized crime connections. They had excess dollars, money which they used to initially buy real estate, restaurants, casinos, and other cash-based businesses ideally suited for laundering money. However, as the drug trade flourished, these traditional means of laundering money became inadequate. They need bigger, more expensive targets.
Again, it was Milken who provided these targets. Milken won over the head of Drexel Burnham Lambert, Fred Joseph, to the idea of using junk bonds to fund corporate takeovers. The same raiders who had been purchasing junk bonds could use their money to take over large corporations, especially those with a large cash flow, such as food, beverage, tobacco and sports-betting companies. Milken would sell his junk bonds to his network of raiders, who would use narco-money (provided by the Rothschild’s Dope Inc apparatus), to purchase junk bonds. The money raised from the sale of junk bonds would provide the funds for another raider to buy the company. Then the new owner could mix in (i.e. launder) further drug incomes with the cash flow of his newly purchased company.
Henry Kravis, one of the leading deal makers of the 1980s, exploited his close ties to the Anti-Defamation League (ADL) – a Rothschild entity which was weaponised against anti-Jewish and anti-Zionist forces. Kravis used this connection to raise money for the takeover antics of his firm Kohlberg, Kravis and Roberts (KKR). Once DBL decided to use junk bonds to finance takeovers, the Kravis-Milken connection was a natural.
Milken and his raider networks provided billions to help finance KKR’s takeovers. KKR was formed in in the 1970s with a capital of $120,000. By 1990, it had borrowings of $58 billion from banks, pension funds and Savings and Loan (S&L) institutions, to take over more than 35 companies. To pay this debt, the firms were asset stripped, and forced to close down factories, throwing hundreds of thousands of people out of work. Many of these deals resulted in bankruptcies, forcing the federal government to cover the losses when the bankrupt firm was taken over by borrowing from a government-insured bank, or pension fund. The raiders came away with huge profits. Milken alone received a bonus of $550 million from Drexel in 1986, and he doled out another $350 million to his team.
Working hand in hand with Milken in the looting of America were a collection of figures with close links to both organized crime and the ADL –a Rothschild entity. Most of the raiders around Milken were Jewish. This was only a small part of the overall Rothschild Network in North America. But, this was the “dirty face” of this network within the US. And all of them were patrons of Ariel Sharon and the extremist elements in Israel.
Most of these raiders, nicknamed “Rothschild’s Monsters”, after their ultimate boss – Jacob Rothschild, are household names in the US. They are Carl Lindner (insurance and banking), Saul Steinberg (insurance and banking), Meshulam Riklis (movies and conglomerates), Lawrence Tisch ( Loews Corp), Ronald Perelman (Revlon and Panty Pride), Nelson Petz (Triangle Industries) and Victor Posner (Miami Beach financier). Most of these men learnt the game from their teacher and master , Meyer Lansky , the “Minister of Finance” for the US Mafia from 1920-1975. Meyer Lansky was the key man controlling the American Mafia, on behalf of the Rothschilds. The Italians were just the front figures for the organized crime network in the US.
The 1987 Stock Market Crash
Over the decade of the 1980s, almost $1 trillion flowed into speculative real estate investment, a record sum. Banks, desiring to secure their balance sheets against troubles in Latin America, went directly into real estate lending for the first time, rather than traditional corporate lending.
Savings and Loan banks (building societies) were established in the 1930s to provide a secure source of long-term mortgage credit to family home buyers were “deregulated” in October 1982. This act allowed S&Ls to invest in any scheme they desired, with full US government insurance of $100,000 per account guaranteeing the risk in case of failure. This was the beginning of the collapse of the $1.3 trillion Savings and Loan banking system.
The new law opened the doors of the S&Ls to wholesale financial abuses and wild speculative risks as never before. It also made S&Ls an ideal vehicle for organized crime to launder billions from the growing business of cocaine and narcotics during the 1980s. Banks laundered funds for covert operations of the CIA, as well as covert operations of organized crime – it was all the same thing.
It would eventually cost the federal government in Washington the sum of $500 billion in taxpayers’ money to clean up the S&L mess.
In order to compete with the newly deregulated banks and S&Ls, the most conservative of all financial sectors began to go into speculative real estate in a major way during the 1980s. By 1989, insurance companies were holding an estimated $262 billion of real estate on their books, an increase from some $100 billion in 1980, but by then, real estate was collapsing, forcing failures of insurance companies, as panicked policy-holders demanded their money back.
The simple reality was that New York financial interests so overwhelmed all other national interests since the oil shocks of the 1970s, that almost no other voice was heard in Washington since the Mexico crisis of 1982. Debt grew by astonishing amounts. In 1980, the total private and public debt of the US stood at $3.9 trillion. By the end of the decade, it touched $10 trillion.
With the debt burden carried by the productive sector rising, and US industrial plant and labor force deteriorating, the cumulative effects of two decades of neglect began to become manifest in the wholesale collapse of vital public infrastructure of the nation. By 1989, it was estimated that a net investment of $3.3 trillion was urgently needed merely to rebuild America’s crumbling infrastructure up to modern standards. Washington was in a budget crisis. The rich had grown richer, while the number of poor families increased. Health levels in large American cities resembled that of a Third World country.
Thatcher’s 11 – year rule in Britain produced equally disastrous results. By the end of the 1980s, everything was unravelling. Interest rates climbed to double digits, industry went into a deep slump and later, into a severe depression, while inflation rose.
On its own terms, Thatcher economics had failed, as had its twin sister, Reagan economics. But the powerful oil and financial interests of London (the Rothschilds) and New York (the Rockefellers) were not the least deterred. Their domain in the “post-industrial” imperium was global, not local. They demanded financial deregulation everywhere- Frankfurt, Tokyo, Paris, Mexico City, Milan and Sao Paolo.
On 19 October, 1987, the bubble burst. On that day, the stock market collapsed more than in any single day in history, by 508 points. The bottom had fallen out of the Reagan “recovery”. Losses to investors on the American stock markets totaled $1 trillion, while an additional $1 trillion was lost by investors on global stock markets, as these followed the Dow’s fall.
To make sure that sufficient liquidity kept the bubble afloat until Bush was elected as the next president, David Rockefeller persuaded Japanese Prime Minister Nakasone to instruct the Bank of Japan to be accommodating. Japanese interest rates declined, making US stocks, bonds and real estate more attractive. In January 1989, Bush became the nest US President. His mandate from the Rockefellers was to steer the American Century through its most dangerous waters since 1919.
The Collapse of the Soviet Union
There were several factors behind the collapse of the Soviet Union. First was the war in Afghanistan, in which it was losing. The war was bleeding its economy at a time when it could not afford it. Secondly, the country had not kept up with investing in its physical infrastructure, and so it faced similar problems that America and Britain had. Thirdly, the collapse of the world oil prices in the mid-80s was the final blow to Moscow’s illusions that reform within the rotted communist bureaucracy would work.
Soviet export earnings from its oil sales to the West, a major source of its hard currency earnings since the early 1970s, collapsed after 1986, just when popular demand for change prompted Gorbachev to promise far more than he was to deliver. The economic chaos that ensued was the major factor motivating the Kremlin to cut ties with its Eastern European satellites of the Warsaw Pact. Moscow was hoping that a unified Germany could provide a suitable partner to help rebuild the collapsing Soviet system.
Then, in November 1989, the old order was swept aside, and the Berlin Wall came down. Moscow realized that its efforts to maintain a costly and inefficient empire through force were doomed to collapse and cause its own destruction.
A Unified Germany & Its Power Equation
A unified Germany was the nightmare of the Rothschilds and its two client states of Britain and France. A unified Germany had the potential to become the largest economy in Europe; this would reduce the geopolitical, economic, and financial clout of Britain and France. The long-term implications and potential to modernize the under-developed economic potentials of Eastern Europe and Russia around the unified Germany terrified policy strategists in London and New York. German advanced technology, joining forces with a resource-rich Russia was a nightmare for both families. Germany had to put on a leash.
In January 1990, David Hale, in a weekly report to his investors, warned of the strategic dangers for Wall Street, in the wake of German unity: “Wall Street has a complacency about the potential consequences of eastern European economic developments for the global financial equilibrium, which permitted America to borrow over a trillion dollars externally during the 1980s. This could ultimately divert hundreds of billions in capital towards a region that had only been a minor factor in global credit markets for 6 decades. Nor, should Americans take comfort from the fact that Germany itself has been only a modest investor in the US in recent years. The biggest investor in the US in recent years has been Britain (over $100 billion of takeover bids), and the British could not have undertaken such large investments without access to surplus German savings”.
Alfred Herrhausen was a key advisor to German leader Kohl, and head of Europe’s largest bank, Germany’s Deutsche Bank. He made it known that his bank had written off all its Third World loans from its books, and was now prepared to invest in a big way in eastern Europe and Russia. The aim was to merge German technology with Russia’s natural resources. This plan was completely opposed by the two families, as they had other plans in place for Russia. Also, they could not have a situation where German savings were directed eastwards, when they should be focused on New York and London. Days later, assassins blew up his car and killed him. The beneficiaries in this murder were Wall Street and the City of London.
A few days after this, Kohl gave in to the two families. Germany agreed to form a new monetary and financial union – in return for a unified German state. What followed was the Maastricht Treaty, wherein all European nations would form a common currency system, the Euro.
