If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Thursday, 11 April 2013

Greg Pytel: Here we are again


After introduction about the Parliamentary Commission on Banking Standards report on the couses of the collapse of HBoS in October 2008, Tuesday's Newsnight continued with discussion between Paul Moore, Fraser Nelson and John Mann MP moderated by Jeremy Paxman. Paul Moore said: "The terrible tragedy of this banking crisis is we never dealt with it properly in the first place. We should have done this kind of level of forensic inquiry right at the beginning, then we could get into the bottom of it and moved on."

John Mann MP and Fraser Nelson seemed to have concurred with Paul Moore opinion.

Paul Moore was slightly wrong however as the House of Commons Treasury Committee published a framework for a forensic report "The largest heist in history" back in April 2009. The readers of this blog may also remember an article "The Economist exonerate the bankers" published on 12 October 2009, three and half years ago: "However in old Economist tradition it [The Economist] should advocate a thorough forensic examination of the causes and mechanics of this crisis which is too big for half a page broad brush editorial judgment."

Then as the Newsnight discussion moved onto the psychology of bankers, Paul Moore added: "There is plenty of academic evidence that demonstrates that it is not the cream that rises to the surface in these [financial] business but is actually the very opposite. [...] The average psychopathic attribute of top executive leaders is three times the national average. [...] They have lack of empathy, they have narcissism: this is real academic research, I am not joking."

John Mann MP and Fraser Nelson seemed to have concurred with Paul Moore views again.

The readers of this blog may also remember an article "Curbing City pay will give it competitive advantage" published on 14 August 2009: : "Indeed it looks that big pay packets in finance attract the top talent: but not the one that banking really needs. It is a talent to use greed, skills in company politics, arrogance, posturing to cover monumental incompetence in climbing a corporate ladder. This ilk of people has hijacked the financial industry."

Indeed after many years the mainstream media starts "discovering" glaringly obvious issues directly related to the current financial crisis. It is very worrying that it is so late. It may be argued that one of the reasons why we are in this mess for so long with no light at the end of the tunnel is because it takes mainstream media, decision and policy makers and politicians many years to understand obvious but critical causes behind the current crisis. It is a different but even more worrying matter that they do not appear to act appropriately in response to their findings.

At some point during the Newsnight discussion Jeremy Paxman said: "It's five years on". "It's a long time on" John Mann MP agreed. And you can say it again.

However it is even more serious point, and more worrying, that no one of the taking part in the Newsnight discussion appeared to understand, in clear forensic terms, the difference between reckless risk taking and what the calculated risk is that businesses - including financial ones - have to take. And without that no serious banking reform is possible as the financiers will be calling reckless and indeed criminal risk taking as a necessary and reasonable business risk. This issue, from financial industry perspective, had been discussed in "Loans to deposit ratio and banks liquidity".

3 comments:

  1. Hi Greg,

    I hope that you are well.

    Was there a particular point at which banks and financial institutions started operating with LTD ratios greater than 100%? Further was there a particular piece or act of financial de regulation which allowed the finacial sector to operate in this way?

    Best, as always,

    Manny

    ReplyDelete
    Replies
    1. Hi Manny

      1. This is something that must be forensically investigated and examined by law enforcement agencies (e.g. Serious Fraud Office, etc.) I have my inklings, and received some tip-offs, but this is actually quite tricky to find a particular point in time. This does not change the fact we know for certain (i.e. in forensic terms) that the law was broken.

      2. Pyramid schemes are strictly forbidden: on forensic, technical level there is no difference between Madoff's business model and what many financial instituions were doing. It was simply highly illegal fraud and multi trillion scale. It just takes some maths understanding (which for non mathematicians can be a bit of a challenge).

      Best, Greg

      Delete
  2. Morning Greg,

    More of the same:

    http://www.guardian.co.uk/politics/2013/apr/21/george-osborne-bank-england-lending-scheme?INTCMP=SRCH

    ReplyDelete