The Largest Heist in History - Building the Great Pyramid: The Global Financial Crisis Explained

Monday, Oct 18 2010 by
3
The Largest Heist in History  Building the Great Pyramid The Global Financial Crisis Explained

This article was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

When the financial crisis erupted at the end of September 2008, there was an unusual sense of incredible panic among banking executives and government officials. These two establishment groups are known for their conservative, understated approach and, above all, their stiff upper lip. Yet at the time they appeared to the public running about like headless chickens. It was chaos. A state of complete chaos. Within a few weeks, however, decisions were made and everything seemed to returned to normal and back under control. The British Prime Minister Gordon Brown even famously remarked that the government “saved the world.”

But what really caused such an incredible panic in the establishment well known for its resilience? Maybe there are root causes that were not examined publicly and the government actions are nothing more than a temporary reprieve and a cover-up? Throwing good money after bad money, maybe?

Money Making Machine

In order to answer these questions we have to examine the basic principles on which the banking system operates and the mechanisms that caused the current crisis. Students at the A-level are taught about “multiple deposit creation,” It is the most rudimentary money creation mechanism for banks, which if administered properly serves the economy and public at-large very well. In the deposit creation process a bank accepts deposits and lends them out. But almost every lending returns soon to the bank as a deposit and is lent again. In essence, when people borrow money they do not keep it at home as cash, but spend it, so this money finds its way back to a bank quite quickly. It is not necessarily the same bank, but as the number of banks is limited (indeed very small) and there is — or was — a very active interbank lending. In terms of deposit creation the system works like one large bank.

Therefore, the same money is re-lent over and over again. If all depositors of all banks turned up at the same time there would not be enough cash to pay them out. However, such a situation is highly unlikely. Every borrower repays his loan and pays interest on it. In principle, the difference between a loan and a deposit interest rate is a source of…

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1 Comment on this Article show/hide all

EnglishDragon 11th Dec '10 1 of 1
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Where does the $2 quadrillion figure come from? I am wondering if it is a gross derivatives figure. If so things would not be nearly as bad as you suggest. E.g. if two banks do an interest rate swap derivative (fixed against LIBOR) on $1 billion that would create I think two $1 billion derivatives so a gross $2 billion whereas all they are swopping is actually the net difference between fixed and LIBOR interest rates. I don't know how much that would come to but much less than $2 billion.

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About Greg Pytel

Greg Pytel

Greg Pytel is a quantitative risk expert & international business development consultant. He has extensive international experience advising governments and companies within the area of hydrocarbons exploration and international telecommunication licensing. He started his career with Shell Exploration in 1990 and continued with Petroleum Geo-Services in Norway. From 2000 he has been involved with private consulting practice that also covered fraud risk assessment and investigations. more »


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