My Tower of Basel "Oh Crap" Moment

The following article was written in 2009. I predicted the new housing bubble many years ago! 

I know you have heard of the Tower of Babel but perhaps none of you have heard about the Tower of Basel. The Tower is a building occupied by the Bank of Settlements in Basel, Switzerland. I am going to try to make this simple regarding the functioning of the Bank of Settlements. Essentially the Bank is the home bank of all central banks in the Western World. That of course includes the United States Federal Reserve Bank, one of a number of private banks who control the money supplies of various nations.
The Bank of Settlements hosts banking conferences. Out of the Basel 2, 1998 conference, came the ponzi housing scheme. Off balance sheet banking was permitted, and this allowed risky loan making with the blessing of the Bank of Settlements. Liar loans, option arms and the rest of the culprits of the Real Estate Bubble were essentially permitted at Basel 2. We know that the Federal Reserve Bank did nothing to protect the citizens or try to stop this housing bubble. The Bank of International Settlements warned against this lack of oversight and appears to take on the role of the good guy.
But is the Bank of Settlements the good guy? Well, we know that they allowed off balance sheet banking on their watch. How can they be trusted? And we know that out of Basel 2  came a revised plan to allow Mark to Market, or M2M accounting which was  set up in 2004. As it turned out, M2M accounting was not implemented until the bubble had run its course, in 2007, and the credit crisis meltdown occurred.
Had the central bank of the central banks warned with a loud shout about the real estate bubble and possible crash in 2004, investors would have seen house prices falling in 2005- 2006, stopping the bubble in its tracks. How much effect this would have had is difficult to measure.  I leave it to your own judgement whether the Bank of Settlements, central bank of the central banks, was, in fact, the good guy. After all, remember, they allowed off balance sheet banking. They gave a bunch of kindergartners a bazooka with which they used to blow up the entire system of responsible underwriting!!

The accounting regulator in the United States is FASB. FASB implemented Mark to Market, then took it away as it appeared we were headed toward a depression.FASB is talking about implementing M2M again. This would have the effect of putting many small banks under, and would have the effect of possibly putting a large bank under as well. Citibank comes to mind but there may be others at risk. And certainly, the shareholders of all these banks could be at risk even if the banks survive.

[Update: Basel 3 aims to increase capital requirements for banks but I would not hold my breath. With the laxity of Basel 3 one wonders if FASB, part of the financial cabal, will ever decide to mark to market!]

Of course, we now know that this M2M was never implemented, and banks are in zombie mode, unable or fearful to lend, while accumulating massive excess reserve capability. So, if the hedge funds restock their war chests, we could see more ponzi lending in the future, as the TBTF banks will be able to perpetually hide bad assets on and off balance, with no M2M. [Update: there is more Ponzi lending years after this article was written. See this article.]

So, my, Oh Crap! moment was the realization that the New Financial World Order can throw countries around, that America could be in for more pain just like a banana republic, and that there may be conspiracy to impose a one world currency that could come out of all this. While I don't know that a North American currency or a world currency will come out of this, the Tower of Basel may well come to be known everywhere and the reason could be their quest for an economic system that is out of the control of sovereign nations. We are really there now as to framework.

That concentration of power will not be good, and even if it doesn't happen, the pain facing the USA just to enrich central banks and the owners of those banks is going to be harsh and unwanted.

Basel 3 had started out with the hope of higher capital requirements than Basel 2. We know Basel 2 also started out with the hope of higher capital requirements, but of course we know that low capital requirements were founded upon loan guarantees and then private mbs lending rated AAA. This allowed the banks to maintain lower reserves. And while Basel 3 raises reserves some, when push comes to shove, the banks are seeking guarantees of all mortgages, not just subprime for the next bubble. So, they will likely get away with lower capital requirements in the future as well.



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