The truth about the financial crisis

A bit of a scandal has erupted in Ireland over tapes that have revealed what was really going on in the middle of the financial crisis over at Anglo Irish Bank…not to be confused with AIB (Allied Irish Bank, as we often joked at the time, AIB had been screwing its customers over for so long that it could take a hit of a few billion in its stride :DD). The Irish Independent article on this is available here along with a link to some of the tapes.

One could summarise Ireland’s economic problems with but one word – Anglo. In effect, Anglo were running what turned out to be a thinly disguised ponzi scheme. They were giving out ever and ever larger loans to property developers, using the collateral to borrow more money and stay in operation. Now while other Irish banks certainly weren’t angels, Anglo were by far the worst of a bad lot, if not one of the worst of all the banks behaving badly around the world.

Now when it all collapsed the Anglo Irish board invoked the aw shucks” defence, much like Fred Godwin (due to his super-injunction I don’t mention him by name in a number of other articles, prefering to use the acrynom Scottish Holder of Indebted Titles ;D) or Dick Fuld of Lehman Brother and numerous others of those behind the financial scandal. They claimed that oh, we don’t understand all these big words and numbers, why how could we be expect to know what was going on…..ah! cos you’re being paid salaries of tens of millions to be able to understand these things! Many would argue that if what they said was true then they were at the least criminally incompetent.

However the Anglo leaks hint at the truth. We hear the board members laughing and joking about it as the bank and the entire Irish economy collapsed around them. The head of capital John Bowe is heard claiming that he pulled figures “out of his ass” relating to Anglo’s losses, which were then entered into testimony to the Irish parliament. Those figures were largely the reason behind the Irish government’s foolish decision to bailout Anglo (Morgan Kelly‘s analysis of the crisis sums up the situation we then faced). If we knew now what we now know, it’s likely the Irish government would not have bailed Anglo out, but instead begun its orderly disillusion. However instead, it was the bailout of anglo that blew a +30 billion Euro hole in the Irish government budget, more or less forcing us to go looking for a bailout from the ECB (and all the problems that this has brought since then).

Naturally one is forced to wonder, given the revelations about Anglo, what was going on in Wall Street and London board rooms. Indeed Rolling Stone have an expose on the practices of the Rating Agencies in the lead up to the crisis, which alleges that they knew damn well that the sub-prime bonds they were rating AAA were nothing of the sort….and the banks knew it! This sort of suggests that this was no bolt from the blue.

Inside Job

Like ENRON the bosses at the top knew the ship was sinking, but rather than go down with the ship, they actively sought to profit from the collapse. As revealed in Chris Fergeuson’s academy award winning documentary Film “Inside Job” (review of it here) many of the major finiancial firms began betting against each others share price falling, i.e. they started to bet that their own bank would fail. This is sort of like taking out insurance on you’re house and then burning it down…which is sort of illegal for a reason!

In short it is increasingly difficult to escape the conclusion that the financial crisis was no accident. The executives in charge of these companies may play dumb (same as Murdoch did over phone hacking, but recent leaked tapes suggest otherwise) but the reality is they knew exactly what they were doing, they just didn’t care. They knew their fortunes would be safe. Casing point, the head of Anglo’s British operations for example is living the life of Reilly on a country estate. While Dick Fuld the Lehman’s boss is also leading the high life (still worth $160 million although he’s been stripped of his trading licence recently…it took them 5 years after the bankruptcy to realise it should loose it! :no:) and that “the little people” who pay taxes would dig the world out of the resulting train wreck.

And that perhaps is the real scandal. These guys, who committed some of the most grievous injuries against Western economies and democracy since Adolf Hitler, have escaped without any attempt to punish them. And as the LIBOR scandal reveals, they clearly have not learnt their lesson, and thus one is forced to concluded they’ll create another massive crisis to profit off of (as trader Alessio Rastani let slip sometime ago on BBC, they may be engineering such a crisis as we speak) but this time the governments may not be able to afford a bailout, possibly leading to the collapse and bankruptcy of many Western countries.

It is therefore imperative that there is some sort of investigation set up with the expressed purpose of putting the key culprits in the financial crisis on trial. In short, much as the allies made an example of the leading Nazi’s at Nuremberg we need to do the same to Wall Street….maybe not stringing them up, but at the very least giving them a lengthy spell in prison and make them poor…or force them to work in Poundland for one of IDS welfare chain gangs ;D. It is also essential that the sort of strict regulation with harsh penalties for violators, is now brought in to prevent another financial crisis.

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