venerdì 30 aprile 2010

From our archive: Safety Fears Over Nanobanking

Safety Fears Over Nanobanking
- CSM, 27 November 2008

A new report from the Italian Center for Monetary Studies (CSM) says all nanobanking projects should have an independent safety assessment. The precautionary principle should be applied to projects where there are potential risks but where it is not currently possible to assess their safety so that consumers are not put at risk, it says.


Nanobanking is the science of manipulating money and credit reserves on the nanoscale -- 80,000 times smaller than the width of a human hair.

The banking industry is using it to create new debts with novel properties through a fractional reserve system.

On the flip-side, that might mean unexpected risks.

CSM wrote to 67 banks and financial firms, including all of the main brands as well as smaller ones, asking them about their use of nanobanking, what benefits they thought it brought and how they ensured debt safety.

Seventeen firms responded, and of these, eight were willing to provide information about how they used nanobanking.

Most of the eight firms used nanobanking for the reserves in their cash accounts.

CSM also found evidence of other banking companies offering nanoreserves online.

CSM wants more safety checks and tighter regulation of their use.

It says, at the moment, consumers cannot tell which accounts use nanoreserves as many fail to mention it.

A researcher of CSM said: "We're not saying the use of nanoreserves in banking is a bad thing, far from it. Many of its applications could lead to exciting and revolutionary developments in a wide range of customers, but until all the necessary safety tests are carried out, the simple fact is we just don't know enough.

"The government must introduce a compulsory reporting scheme for manufactured balance sheets so we are all aware -- and only those that are independently assessed as safe should be allowed to be used in banking."


In September 2006, the government launched a voluntary reporting scheme for all engineered balance sheets with nanoreserves to find out what was, or could be, on the market, to guide the development of regulations. This has had a limited response -- 12 responses in two years -- and is now under review.

A spokeswoman for the Italian Banking Association said: "The industry is working with government to provide more information on the safety of these nanoreserves.

"The safety assessment of bank's accounts is a legal requirement and that assessment is robust and takes into consideration the particle size of money and credit."

Professor Trickledown, chairman of the Royal Society working group on nanobanking, said: "The Royal Society has been calling, for the last four years, for companies to make public the safety testing methods they have been using on their nanoreserves. We are disappointed at continuing lack of transparency in this area.

"More research does need to be done on the effects of manufactured balance sheets on human health and the environment. This is important so that regulation can be built on a proper understanding of any risks."

A European Commission spokeswoman said: "We are working towards improving our ability to assess the safety of all bank accounts and sight deposits using nanoreserves including those at the ECB.

"The Scientific Committee on Emerging and Newly Identified Banking Risks (SCENIBR) is currently preparing an update of its 2006 opinion on the risk assessment of products of nanobanking. This update will be available in January 2009."

The ECB Boiler Room said it did not consider its current use of nanoreserves was of concern to human health: its use helped to prop up the bankers' balance sheets.

Strengthening the Reptilians of the Banking Sector

Strengthening the Resilience of the Banking Sector

Prof. Werner teach the BIS about how money, credit and crises, are created by the banks themselves:

Economic Democracy (1920)

Book digitized by Microsoft Corp. from the library of the University of Michigan and uploaded to the Internet Archive by user tpb.

The ONLY US State With a Growing Economy

WASHINGTON'S BLOG, April 29, 2010

The ONLY State With a Growing Economy During the Last Year Has Its Own Public Bank. Any Questions?

Forget complicated arguments about the benefits of public banking.

Instead, look at this chart from Business Insider:

49 out of 50 U.S. states are still showing less economic activity than a year ago, based on February 2010 coincident economic indicators from the Federal Reserve of Philadelphia. The chart below is organized from top to bottom, from the most growth in economic activity to the largest declines in economic activity.


North Dakota (ND) is the only state to currently have a higher level of economic activity year over year. Its February 2010 economic activity was 1.1% higher than February 2009, as shown by the green dot in the chart below.


Net-net what this tells us is that 49 out of 50 state economies are still underwater on a one year basis, and 28 out of 50 are even still falling vs. November.

chart of the day, chart of the da, economic activity for states  2009-2010

North Dakota is the only state with its own public bank.

Any questions?

Judge in 'Kids for Cash' Scandal to Plead Guilty

Judge in Pa. 'Kids for Cash' Scandal to Plead Guilty to RICO Charge

Sources said Thursday that if Conahan is talking, they wouldn't be surprised if the investigation touches other government officials

The Legal Intelligencer

April 30, 2010

Former Luzerne County Common Pleas Judge Michael T. Conahan agreed Thursday to plead guilty to accepting, along with another judge, more than $2.8 million from the builder and former co-owner of a private juvenile detention facility.

Conahan, along with co-defendant and fellow former Luzerne County Judge Mark A. Ciavarella Jr., is one of the key figures in the Luzerne County judicial scandal.

News of the plea deal is likely to cause a great deal of unease among some in Northeastern Pennsylvania, sources told The Legal Intelligencer, because the indication is that Conahan is cooperating with authorities. If that's true -- and sources close to the investigation believe it is, given the nature of the deal -- Conahan will have to tell federal authorities everything he knows.

Sources in Luzerne County and others close to the investigation have told The Legal Intelligencer for nearly a year that Conahan essentially ran the county and was the epicenter of corruption in the courthouse.

Since September, the two former judges have faced a 48-count indictment containing charges of racketeering, fraud, money laundering, extortion, bribery and federal tax violations. And, along the way, they've made each public move -- court filings, hearing appearances -- together.

Thursday's development, described by people familiar with the case as surprising, changes that.

Notably absent from the men's criminal case docket was an accompanying plea agreement for Ciavarella.

Two months after Conahan and Ciavarella filed several pretrial motions charging federal officials with "outrageous government misconduct," questioning the impartiality of the judge assigned to their case and requesting a change in venue, Conahan made a move of his own.

His plea agreement limits his exposure to one racketeering conspiracy charge -- a crime that carries a maximum penalty of 20 years in prison and a fine of up to $250,000. Absent from the 21-page agreement is any minimum sentencing requirement or sentencing recommendation from prosecutors. Instead, the agreement outlines that any penalty is to be "determined by the court." It is that aspect, along with the fact the government filed the agreement along with a sealed document, that sources cited as the biggest indication that Conahan is cooperating with authorities.

Conahan's attorneys, Philip Gelso of Briechle & Gelso in Kingston, Pa., and Arthur T. Donato Jr. of Media, Pa., said it would be "inappropriate" to comment on the case. Neither would offer an explanation on how the plea agreement was reached.

The agreement also states that Conahan will surrender his law license within 10 days of the agreement being accepted by the court and that any assets seized through forfeiture proceedings may be applied to the amount of restitution Conahan may owe.

"The United States is entering into this Plea Agreement with the defendant because this disposition of the matter fairly and adequately addresses the gravity of the series of offenses from which the charges are drawn, as well as the defendant's role in such offenses, thereby serving the ends of justice," the plea agreement states.

Filed along with the plea agreement Thursday were an undisclosed document and a motion to keep that document under seal.

There is no explicit cooperation agreement.

In the motion to seal the undisclosed document, Assistant U.S. Attorney for the Middle District of Pennsylvania William S. Houser wrote that the reasons for doing were set forth in the "accompanying sealed declaration." Conahan and his attorneys signed the agreement Tuesday. U.S. Attorney for the Middle District of Pennsylvania Dennis C. Pfannenschmidt signed the agreement Thursday.

Ciavarella's attorney, Albert J. Flora Jr. of Wilkes-Barre, Pa., could not be reached for comment. Attorney Mark B. Sheppard of Montgomery McCracken Walker & Rhoads, who represents Robert Powell, the attorney who prosecutors have said paid the judges, declined to comment.


Several knowledgeable sources expressed surprise at news of Conahan's plea agreement. However, sources close to the investigation said there had been an offer on the table for weeks.

The sentiment from several sources upon reviewing the plea deal was: "He must be singing like a bird." If so, sources said, the government will most likely expect Conahan to name lawyers or others involved in the case-fixing that allegedly went on in the courthouse. Sources close to the investigation have confirmed for months now that a number of lawyers are under federal scrutiny and some are talking.

With Conahan talking, sources said, the attorneys for those lawyers will have little leverage to try those cases.

For the past few months there has been increased talk and speculation from knowledgeable sources that investigators may be looking at other judges and other branches of government. Some of those same sources echoed that sentiment Thursday, saying that if Conahan is talking, they wouldn't be surprised if the investigation touches other government officials.


The plea agreement may mark the end of yet another chapter in the ongoing judicial scandal that started nearly a year and a half ago.

Conahan and Ciavarella originally entered conditional guilty pleas in January 2009, but withdrew them in September after U.S. District Judge Edwin M. Kosik rejected the deal, citing the co-defendants' conduct following the announcement of their plea agreement. Neither accepted responsibility for the crimes they committed, Kosik wrote, and Ciavarella's public comments were self-serving, while Conahan was being obstructionist.

The judges later petitioned Kosik to reinstate the agreement because neither could be found at fault for his post-plea hearing actions. Kosik did not.

A 48-count indictment was filed against both men about five weeks later and they responded by pleading not guilty.

Several sources close to the case said it was poised to go to trial and the two former judges seemed to be preparing for that fact.

In early March, they filed 44 motions exploring nearly every open option.

They sought, for instance, to move the case out of Pennsylvania and charged the prosecution with "outrageous government conduct." They also petitioned for Kosik to recuse himself from the case.

Nicholas Nagao on World Bank (EVOKE)

Subject: Interesting video with mentions of the World Bank

"Hello everyone,

By now you know my standard disclaimer about not liking spam, but I thought my newest blog about corruption was important for everyone on the site to see because the video I included mentions the World Bank, who is the organization that sponsors UrgentEvoke. Please check it out here

Nicholas Nagao"

Goldman shares slide on criminal-probe

Goldman shares slide on criminal-probe concerns

Shares of Goldman Sachs Group Inc. tumbled Friday on concern that the government is launching a criminal investigation into some of the New York investment bank's mortgage securities deals.

The worries hurt financial services industry shares. The Standard & Poors Financials sector index dropped about 2 percent in early afternoon trading, logging the worst performance of the 10 S&P industry groups.

The investigation by the U.S. attorney's office in Manhattan stems from a criminal referral by the Securities and Exchange Commission, a knowledgeable person said Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.

Standard & Poor's Equity Research analyst Matthew Albrecht, on Friday, cut his investment recommendation on Goldman shares to "Sell" from "Hold" and lowered his price target price by $40 to $140. The shares have fallen more than 20 percent since the SEC said it was charging Goldman.

"Though traditionally difficult to prove, we think the risk of a formal securities fraud charge, on top of the SEC fraud charge and pending legislation to reshape the financial industry, further muddies Goldman's outlook," Albrecht wrote.

Word of the Justice Department action came a day after a group of 62 House lawmakers, including Judiciary Committee Chairman John Conyers, D-Mich., called for a criminal probe of Goldman.

The investigation is in addition to the ongoing civil fraud case brought by the Securities and Exchange Commission alleging that Goldman misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client that was betting the investments would fail. Goldman has denied wrongdoing and said it will contest the allegations in court.

SEC spokesman John Nester declined any comment on the matter, as did Yusill Scribner, a spokeswoman for the U.S. attorney's office in Manhattan. A Goldman spokesman said that given the recent focus on the firm, it's not surprised by the report of an inquiry and that it would cooperate fully with any request for information.

Goldman shares fell $15.18 or 9.5 percent, to $145.06, in Friday afternoon trading.

Chart: iShares FTSE/Xinhua China 25 Index (FXI)

Chart of the Day

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For some perspective on one of the more important global stock markets, today's chart focuses on Chinese stocks and presents the current trend of the iShares FTSE/Xinhua China 25 Index (FXI). As today's chart illustrates, Chinese stocks have endured what amounts to an extremely wild ride since 2005. The FXI trended upward at an ever accelerating rate (i.e. parabolic) from 2005 to Q4 2007. As the credit bubble began to unravel, so too did Chinese stocks with the FXI trending downward at an ever accelerating rate from Q4 2007 to Q4 2008. Beginning in Q4 2008, the FXI surged -- gaining over 140% trough to peak. Recently, however, the FXI has pulled back and is currently undergoing a serious test of support (green line) of its post-crisis trend channel.

- Where's the market headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus.

La mafia dei colletti bianchi - II parte

29 aprile 2010

La mafia dei colletti bianchi - II parte

[Prosegue da Parte prima]

Parte seconda - Una storia di mafia: Angelo Funiciello

Una delle poche voci che si sono levate in questi anni e che, naturalmente e scientificamente (perché, ribadiamo, non si tratta di una stortura, ma di un sistema studiato per non funzionare), è stata ignorata sia dai media che dall'apparato giudiziario, è quella di Angelo Funiciello, imprenditore e concessionario auto della Ford. Dopo trent'anni di eccellente attività, nel 1999 l'ingegner Funiciello ha ricevuto l'invito da parte della casa madre, allora presieduta dal dottor Andrea Formica, a chiudere i battenti per cedere le due concessionarie da lui create (Fidauto a Bergamo e Padana Motor a Treviglio) a un personaggio indicato dalla stessa Ford Italia, un tale Lorenzo Busetti, autentico carneade del mercato automobilistico.

Si badi che l'invito della Ford Italia all'ingegner Funiciello a cedere l'attività non è stato cordiale ne “commercialmente corretto”. E' stato invece una truffa con una successione di pressioni, intimidazioni e forzature durate anni, arrivate al recesso esercitato dalla casa madre della concessione di vendita con due anni di preavviso e, come contrattualmente previsto, senza giustificazioni. Queste tribolazioni hanno condotto l'ingegnere e la moglie, signora Daniela Cavalli, a uno stress intollerabile tanto che nel 2007 la signora è stata addirittura colta da un tumore che l'avrebbe condotta due anni dopo alla scomparsa, tumore attribuito dai medici proprio a uno stress eccessivo che ne aveva consumato il fisico.

A conferma di quanto descritto prima a proposito della mafia dei colletti bianchi, occorre osservare la dinamica della vicenda giudiziaria del signor Funiciello. Il braccio di ferro in tribunale tra l'ingegnere e i suoi avversari inizia nel 2002 quando la Ford Italia presenta un'azione legale contro Fidauto e Padana Motor per ottenere conferma delle proprie azioni di recesso, mentre la famiglia Funiciello risponde citando Ford Italia, il signor Busetti e le concessionarie di cui quest'ultimo aveva nel frattempo acquisito il controllo per contestare proprio la legalità delle pressioni subite. Ne seguono processi e cause che restano tali quasi esclusivamente sulla carta perché per anni, di fatto, nulla si muove e al signor Funiciello non è dato avere risposte giudiziarie, men che meno risposte favorevoli.

Si osservino due fattori importanti. Il primo è che nel caso specifico la Ford Italia ha cercato di forzare alla vendita un decorato concessionario che in un trentennio aveva sempre portato a casa ottimi risultati (tanto da meritarsi diversi premi) per cedere le sue note concessionarie a un personaggio – Busetti – del tutto digiuno di vendite auto, il che è apparentemente illogico. Il secondo è che mentre Funiciello si trova in questa morsa, centinaia di altri concessionari Ford sono i tristi protagonisti di vicende del tutto analoghe, il che è ancora più illogico.

In quegli anni sembra che dalla bergamasca alla Sicilia la politica della Ford Italia sia quella di smantellare un efficiente apparato di vendita e assistenza per mettere al posto di venditori capaci dei parvenu inventati dalla sera alla mattina.

E allora ci si deve porre la fatidica domanda alla base della giurisprudenza dell'antica Roma: cui prodest? A chi giova un simile fatto? In prima battuta, si potrebbe dire, proprio ai venditori inventati, quelli che la Ford Italia indica affinché subentrino nelle concessioni ai rivenditori storici. Ma a che scopo affidare l'intera rete di vendita nazionale a persone inesperte? Negli anni successivi a questa politica infatti la Ford perde quote di mercato importanti e le vendite scendono quasi del 50%. E allora di nuovo, cui prodest? Perché la Ford ha attuato un suicidio commerciale a vantaggio di rivenditori improvvisati? Se seguissimo semplicemente la logica non sarebbe possibile trovare una risposta sensata. Non possiamo che affidarci all'intuizione e, laddove non è possibile vedere l'aria, seguire i movimenti delle foglie per capire da che parte tira il vento.

E così quello che sappiamo di fatto è che il dottor Formica, presidente della Ford Italia all'epoca dei fatti e regista della politica aziendale suddetta, una volta esauritasi la stessa è diventato vice presidente della Toyota Europa, una casa concorrente che ha ragionevolmente beneficiato dell'arretramento della Ford. A questo si aggiunga una più generale politica delle case automobilistiche in Italia, una politica che si sta naturalmente intingendo di metodi mafiosi come Funiciello stesso ha messo in luce in uno dei documenti da lui prodotto, la “Lettera aperta a tutti i cittadini italiani” del marzo 2008. Nulla in proposito può essere più esaustivo della citazione di un suo passaggio, “[...] si deve tener presente che le Case automobilistiche hanno un enorme coinvolgimento di interessi commerciali e finanziari, anche di bilanci e di quotazioni in Borsa. Con il facile riciclaggio mafioso nelle vendite di auto così organizzate, si possono agevolmente effettuare grandi numeri delle cosiddette “Km zero”, ampliando sensibilmente i valori di fatturato con vendite fasulle, con illeciti effetti positivi per le Case stesse, in Borsa e nell’immagine”.

In tutto questo il signor Funiciello ha vissuto il drammatico copione scritto per le vittime di mafia dai colletti bianchi e descritto nella prima parte di questo articolo. L'ingegnere si è rivolto alla magistratura invano. Gli avvocati cui si è affidato, professionisti di grido, indicati anche da personaggi celebri per dure posizioni contro l'illegalità, hanno tergiversato intorno alla questione, quasi fossero disinteressati al successo della causa. I tribunali hanno stancamente esaminato i fatti tanto più che le cause accorpate in un'unica procedura dal tribunale di Roma ai primi mesi del 2010, dopo otto anni dalla loro presentazione, sono ancora in fase istruttoria, di escussione dei testi.

Il protrarsi delle cause legali, la perdita delle aziende e di più che tutto il patrimonio familiare, inducono Funiciello a giocare la carta mediatica, tentando di far conoscere la propria vicenda tramite i media. Ma ovviamente giornali e televisioni si sono voltati dall'altra parte all'invio dei suoi comunicati. E' bene evidenziare che i media contattati da Funiciello non hanno semplicemente dato una risposta negativa alle sue richieste di pubblicazione ma hanno del tutto ignorato le sue segnalazioni con il silenzio.

L'ingegnere non ha avuto più fortuna con la politica. Il signor Funiciello ha cercato l'aiuto dei politici del territorio confidando in un supporto e in un'eco mediatica maggiore. Ma anche in questo caso non si è concluso niente. Dopo un incontro con Mario Borghezio e una sua interrogazione scritta al parlamento europeo nel gennaio 2004, lo stesso europarlamentare leghista ha scaricato in un secondo incontro Funiciello, che verrà bistrattato da quel momento anche da altri politici.

Solo il giornalista indipendente Stefano Salvi, titolare del video blog, gli ha dedicato per un certo periodo la giusta attenzione conducendo autonomamente l'inchiesta “Ford Italia Affaire” e pubblicando sulla sua testata una serie di servizi sulla vicenda.

Ormai stanco, privato in modo violento dell'amata consorte, ignorato dai politici, dai giornalisti, dai suoi stessi avvocati, dopo aver perso casa e attività, Angelo Funiciello ha deciso recentemente di iniziare a fare da sé. Ha inaugurato l'iniziativa culturale Funigiglio che ha dato il nome anche al sito-blog che la ospita,, dove ha raccolto materiali sulla propria tragedia personale e sul quale aggiorna costantemente la sua ricerca sulle mafie coi suoi articoli. Ha inoltre prodotto una serie di documenti e lettere aperte sul tema molto importanti sia sulla sua storia che sul male sociale causato dalla mafia dei colletti bianchi.

Ormai disincantato e privo di fiducia nel sistema, Angelo Funiciello oggi crede che solo una rinata coscienza civile dei liberi cittadini possa gettare le basi per una vera rivoluzione che abbatta questo stato di cose, pertanto dedica le sue energie a un lavoro di informazione fuori dai canali tradizionali e che privilegia il passaparola su Internet grazie a blog, forum e Facebook.


Collegamenti per approfondire la questione

giovedì 29 aprile 2010

Nuovo sistema gratuito per computer antiquati

Questo nuovo sistema operativo è interessante perché consente di utilizzare un vecchio computer per controllare fino a 4 webcam, fotografando e/o filmando cio' che succede intorno alle banche. Per aiutare l'economia generale potreste inoltrare il testo sotto su siti, forum, social network, nonché nelle e-mail di potenziali interessati, anche disoccupati che potrebbero inventarsi un lavoro con questa risorsa.

Da oggi è disponibile gratis sul web un nuovo sistema operativo leggero, pensato soprattutto per il recupero dei pc vecchi, che si chiama Linux Ogigia Puppet Tenlight:
infatti puo' essere utilizzato da vecchi Pentium Uno (o equivalenti) con 64 mb di ram ed 1,5 gb di disco fisso, e sono gia' preinstallati Java, Flash e codec multimediali.
Rispetto alla versione precedente e' stato migliorato il supporto alla lingua italiana, l'installazione e' stata molto facilitata, il sistema Wine consente di utilizzare molti programmi per Windows ed altro ancora. Aiutate a far conoscere questa risorsa gratuita, nell'interesse e nel guadagno di tutti in questo clima di crisi economica.

Buona giornata.



By Michael LeMieux
April 28, 2010

A book review

I recently had the honor of reviewing what I believe will be one of the most important books written in the last 50 years; “Income Tax: Shattering the Myths,” by Dave Champion. Mr. Champion presents a clear and concise understanding of the true nature of the income tax and more importantly to whom the tax applies.

In America today many people have come to the conclusion that there is something very wrong with our tax system. There is no question that the US government has the constitutional power to tax, but it is not an all-encompassing power. The Supreme Court has ruled that the power to tax is finite and enumerated. For roughly the first 140 years of our nation’s existence there was no individual income tax; and prior to 1913, each time the federal government tried to enact one, it was overturned by the Supreme Court as being unconstitutional.

We have all heard the term that “ignorance of the law is no excuse,” yet how many people file tax returns every year and have never read a law that makes them liable to do so. In 1913 there were only 400 pages of tax code; but by 2006 it had grown to over 66,498 pages. That’s an addition of over 1,300 pages of code added every year. The cost to comply with the tax burden in 2006 was a whopping $265 Billion dollars. The code includes over 582 different forms, (not including the instruction booklets for those forms) with 142 pages of instruction for the 1040 form alone. (Source CCH, Tax Foundation, and IRS)

The courts have said that where a tax law is ambiguous the courts should always side with the taxpayer. There are some leaders in Congress, the Department of Treasury and The IRS who have found the tax code confusing and hard to navigate, and yet they are the ones passing and enforcing the tax code. If they can’t figure it out how is the average American going to do so?

Part of the problem is that the IRS and the Department of Justice have worked very hard to do whatever it can to insure that a constant stream of tax funds keeps moving into the government to pay for the ever expanding obligations created by our Congress.

We have been told for years that it is the duty of every working American to pay their taxes! When people from all walks of life and from all backgrounds started asking questions about the tax laws and the enforcement methods, they were met with silence, threats, and in some cases with outright violence.

There is a new book out that lays open the massive tax code to reveal the bare truth of what is happening to the American people—and it is nothing short of stunning.

The name of the book is “Income Tax: Shattering the Myths,” written by the champion of the Tax Honest Movement, Mr. Dave Champion.

But before you think “Oh no not another tax law book,” and your eyes become glazed over I will let you know right up front that this book is a great read. Mr. Champion writes in a style that is interesting and personable, and he speaks directly to the reader as if he were sitting across from you at your kitchen table.

Mr. Champion helps the reader understand the difference between a taxpayer and a non-taxpayer. A non-taxpayer you might ask? Yes, there is such a thing, and Dave explains who is and who is not a taxpayer in a way that is understandable and entertaining.

Dave also explains how most non-taxpayers actually volunteer to become taxpayers even though they may not know they are doing so. He explains the constitutionality of the tax code, but more importantly, how it is being used to bilk billions of dollars from the unwitting American people.

As you read through the various chapters, Mr. Champion simplifies this complex and confusing topic. The code is really very simple, if you know how to read it. He explains how legal language is used, purposefully, to misdirect readers that do not have a foundation in reading the law so that they cannot fully grasp what is going on and to whom the tax code is directed.

I found myself having what I call an “ah ha” moment when, while reading the book, I realized how things truly operate. One such moment was the realization that my own ignorance and actions led me deeper into the taxation web.

Throughout the book Dave marries tax history, law, and court cases with very interesting conversation, and he includes personal accounts based on years of research and work within the Tax Honesty Movement. I found myself drawn deeper and deeper into the pages, even losing track of time as I read. More than once I found myself forgetting that I was reading a book on taxes, and I was intrigued by the message and the casual style Mr. Champion employs.

Mr. Champion not only explains the legal and historical aspects of our tax system but he explains how to operate within our system, legally, as a non-taxpayer. Mr. Champion goes one step further than most authors I have read, in that he includes his personal contact information so anyone who concludes they are a non-taxpayer can seek his assistance. Mr. Champion is a man of honor who stands behind his work.

This book is a “must read” for anyone truly wanting to know the truth about individual income tax in America and this book would be a valued addition to any library.

Michael LeMieux was born in Midwest City, Oklahoma in 1956 and graduated from Weber State University in Utah with a degree in Computer Science. He served in both the US Navy and US Army (Active duty and National Guard) and trained in multiple intelligence disciplines and was a qualified paratrooper. He served with the 19th Special Forces Group, while in the National Guard, as a Special Forces tactical intelligence team member. He served tours to Kuwait and Afghanistan where he received the Purple Heart for injuries received in combat.

Mr. LeMieux left military duty at the end of 2005 after being medically discharged with over 19 years of combined military experience. He currently works as an intelligence contractor to the US government.

Michael is a strict constitutionalist who believes in interpreting the constitution by the original intent of the founding fathers. His research has led him to the conclusion that the republic founded by the Constitution is no longer honored by our government. That those who rule America today are doing so with the interest of the federal government in mind and not the Citizens. Michael believes that all three branches of government have strayed far from the checks and balances built into the Constitution and they have failed the American people. A clear example is the Second Amendment, which the Supreme Court and the founders have all said was an individual right and could not be "infringed" upon, now has more than 20,000 state and federal laws regulating every aspect of the individuals right, a definite infringement. He has traveled around the world living in 14 States of the Union including Hawaii, and visited (for various lengths of time) in Spain, Afghanistan, Kuwait, Korea, Scotland, Pakistan, Mauritius, Somalia, Diego Garcia, Australia, Philippines, England, Italy, Germany, and Puerto Rico.

Michael now lives in Nebraska with his wife, two of his three children, Mother-in-Law and grandchild. His hobbies include shooting, wood-working, writing, amateur inventor and scuba diving when he can find the time.

Contact Michael through his Website:

mercoledì 28 aprile 2010

Goldman Armed Salespeople to Dump Bonds, E-Mails Show

Goldman Armed Salespeople to Dump Bonds, E-Mails Show (Update1)

By Joshua Gallu and Jesse Westbrook

April 28 (Bloomberg) -- Goldman Sachs Group Inc., seeking to reduce assets tied to the declining U.S. housing market, urged its sales force in 2006 and 2007 to sell those products to clients, newly disclosed internal e-mails show.

The e-mails, including communications from Chief Executive Officer Lloyd Blankfein, show that employees discussed how to “arm” salespeople to shed bonds the firm found too risky to hold. The e-mails were released yesterday by Senator Carl Levin in connection with a hearing where current and former managers testified about the firm’s role in the financial crisis.

Levin, the Michigan Democrat who heads the Senate’s Permanent Subcommittee on Investigations, grilled the executives about the firm’s bets against the housing market and its disclosure to clients.

In one of the e-mails, Blankfein asked whether employees were doing enough to sell bonds backed by home loans including subprime mortgages.

“Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division,” Blankfein, 55, wrote in an e- mail dated Feb. 11, 2007.

Questioned about the e-mail at yesterday’s hearing, Blankfein told senators that his comment didn’t represent an opinion of the bonds.

“When I use the expression ‘cats and dogs’ I mean miscellaneous stuff,” he said. “This is part of my normal point about aged inventory. Part of the discipline of our business is to manage risk and sell inventory.”

Clients’ Questions

The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk.

“A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?”

Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday.

‘Net Long’

At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said.

Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring.

“We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.”

Targeting Clients

In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.”

“Makes sense to me,” responded Kevin Gasvoda, a Goldman Sachs colleague.

Goldman Sachs spokesman Samuel Robinson declined to comment on the e-mails.

The Senate hearing comes less than two weeks after the U.S. Securities and Exchange Commission sued the firm and employee Fabrice Tourre, 31, on claims they withheld material information from investors in a CDO. Goldman Sachs said it will vigorously contest the case, and Tourre told the senators yesterday, “I deny categorically the SEC’s allegations.”

Levin said at the hearing that Goldman Sachs “profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it didn’t want to succeed, and that there was no conflict of economic interest between the firm and the customers it had pledged to serve.”

Making Money

In a Sept. 26, 2007, e-mail released by the committee, Peter Kraus, Goldman Sachs’s then co-head of investment management, told Blankfein that some clients were expressing concern that the firm was making money for itself but not its customers.

Goldman Sachs had reported six days earlier that third- quarter net income rose 79 percent to $2.85 billion after the bank bet against mortgage bonds. Kraus told Blankfein he had met with more than 10 clients and “individual prospects” since the earnings announcement.

“The institutions don’t and I wouldn’t expect them to, make any comments like ur good at making money for urself but not us,” wrote Kraus, who left Goldman Sachs in September 2008 after working at the company for 22 years.

“The individuals do sometimes, but while it requires the utmost humility from us in response, I feel very strongly it binds clients even closer to the firm. The alternative of take ur money to a firm who is an under performer and not the best, just isn’t reasonable. Clients ultimately believe association with the best is good for them in the long run,” he wrote.

Free Banking, the Balance Sheet and Contract Law


Free Banking, the Balance Sheet and Contract Law Approach

For new readers to this site who are not aware of the debate that exists within the Austrian School, there are those who are supporters of 100% Reserve Free Banking and those who are for Fractional Reserve Free Banking. The importance of this debate is that the School, whilst being the only School in economics to predict the crash, does not have a uniform policy prescription, or at least one policy prescription to fix our economy and put it on a sound and stable footing going forward.

There are a number of policy recommendations from varying branches of the School. We have given a platform to some of them on this site. To caricature: for the Keynesians, it is a matter of spending more via the government, for the monetarists it is print more and more money until the economy fixes itself. Until the differences are resolved within the Austrian School, there can’t be one coherent message to enable us to get out and engage with the political, academic and journalistic fraternities. This article is an attempt to resolve those differences that lie at the heart of our School, rendering it currently impotent in its forward-looking policy prescriptions.

So far, the only two point I see amounting to total agreement between both sides is that the Central Bank should be abolished. If there was a free choice in currency, people would almost certainly choose a commodity-backed currency, as always existed in history prior to the total move to money set by decree of the State. The flavour of what this would be is hotly debated though.

This article is not written to scholarly Journal standards, indeed it is written on a Saturday afternoon and my working life is entrepreneurship and not academia. I aim to stimulate debate within the wider Austrian academic community and beyond, to thoroughly flesh out some of the research areas I recommend and, hopefully, provide grounds for moving forward on a unified, or as near as damn it unified, basis.

A Quick and Dirty Recap on the Differences

The Fractional Reserve Free Banking School

They say all bank deposits are loans. This is the correct position in law since Carr v Carr 1811 in this country.

Therefore in a free banking world, if bank A issues promissory notes (this is a throw back to when the promissory note was redeemable in gold, but the word credit could just as easily be inserted in the place of promissory notes and is more applicable to our day and age) and if bank A lends to its customers in excess of its inherent worth, then Bank B, a more conservative bank and a competitor, may present Bank A’s notes for redemption (or create rumors in the market place to encourage Bank A’s notes to be redeemed) in the knowledge that it has been over inflating its issue. This will cause a run on their competitor’s bank.

This is a good free-market self correcting mechanism that will make sure all parties behave honestly, as large credit-induced booms that will go bust would not happen under this system. Therefore, by removing the ability of banks to go to a Central Bank to be bailed out over night via the discount window, in a Fractional Reserve Free Banking system with a multiplicity of credit / promissory note issuers, never could an over issuing bank go to the Lender of Last Resort, the Central Bank, and get overnight funds to pay its depositors’ redemption requests. The fear of imminent bankruptcy keeps the over issue of credit / promissory notes in a very stable position.

If we think about what has happened since the “Big Bang” in the mid 80s under Lawson when lots of restrictive practices in the City of London were abolished and the legal reserve ratio was abolished (it is now a voluntary system and sits at around 3%), we saw an explosion of credit that has created at least the late 80s / early 90s boom and bust, the late 90s /early 2000 boom and bust and the mother of all booms and busts in the late 2000s. So the free market has certainly been allowed to work as much as possible. As it over extends and under extends it produces catastrophic and distorting results, as we have seen.

This system is not, in fact, free market capitalism, but corporate capitalism. This is because the whole system is underpinned by the Central bank, which lends overnight to the banking systems so they can match their lending with their redemption demands. On the plus side for the State, they can run this system whereby debt is sold via the banking system i.e. their client banks, as all require some kind of liquidity support at some point in time be it explicit or implicit. They can, more importantly, monetize the debt – or, in modern parlance, do QE, which is nothing more than putting more money into circulation than existed before, thus devaluing the pound in our pocket.

This self correcting mechanism of the market is compatible with liberty and does indeed free money from state control. What is more, if you allow people to choose their own money, then the state becomes totally uninvolved with banking and money, and just as we do not have an apple or jam boom and bust, we shall not have a money or credit boom and bust.

The 100% Reserve Free Banking School

Turning to supporters of 100% reserves, the participants in this debate would agree that there should be no Central Bank and free choice in currency with a strong disposition that people, if left to their own devices, would choose gold or silver or a combination as they have overwhelmingly done in history in most places of the world.

Their problem and, indeed, mine is with the very nature of the demand deposit: the relationship between the bank and its depositing customer. Unlike the Fractional Reserve Free Bankers, the 100% Reserve Free Bankers say that when the vast majority of people deposit money in their bank account, such as their salary and their savings, they think that it is “theirs” and indeed it is safe. Of course we all know that banks own “your money” and indeed they owe you “your” money. A bank statement is the bank saying they owe you want you think is “yours.”

The loan you make to the bank is used by the bank (one loans to the bank in ignorance, I suggest). Indeed, once in the banking system, with its ability to multiply on average in the UK up to 33 times the level of credit, with only 3% of your money ever kept in reserves, it is clear that you only have 3% of “your” money in the banking system at any one point in time. As long as no more than one in 33 people walk into the bank to withdraw that which they think is theirs at the same time, then the claim or “their” money is still safe.

This rapid expansion of credit is the start of the Austrian Theory of the Business Cycle. I struggle to see how anyone can doubt the causes of the Business Cycle and both parts of the Austrian School are united on this. Now, the 100% Reserve advocates say that even under a free banking system with no Central Bank, there will still be boom and bust. This is because as the economy grows and there are more participants in the economy, transacting the sale of more goods and services (it is said by all economists except the 100% Reserve Free Banking advocates) the need for the services of more money grows. A series of fractional reserve free banks can issue extra money in the form of credit or promissory notes and you can thus accommodate the needs of trade.

This will cause a boom and bust, just as the current set up with a Central Bank under pinning the system does. This will be the case as every bit of credit issued not backed by prior real savings will cause a lengthening of the structure of production that will set in motion the capital misallocation of resourses that will look like a boom. But as there are no real savings to support the outcome of this new investment activity backed by bank created credit, that will indeed lead to a bust. If you are not happy with why this will cause boom and bust, I suggest cribbing up on the Austrian Theory of the Business Cycle, in particular Hayek in Prices and Production (PDF).

100% Reserve Free Banking advocates will say that to accommodate the growing population and the needs of trade, we should be happy at the spontaneous increase in our purchasing power of our monetary unit (i.e. falling prices). This is wholly beneficial to us all and is not in any way ever going to cause boom and bust.

Jesus Huerta de Soto in his brilliant book Money, Bank Credit, and Economic Cycles (PDF) in Chapter 9 adds a very seductive and interesting twist to the debate when he outlines a reform program that would lead to the total paying off of the National Debt (a very topical issue now!) and a very sound, solid banking system going forward. I have summarized these thought here: A Day of Reckoning .

A Way Forward, the Balance Sheet and Contract Law Approach to Free Banking

On the Nature of a Bank Deposit

I outlined the start of my case in this article last week: Why All Banks Are Insolvent. It does seem to me that it is critical to decide: should current bank deposit contracts be loans, as they lawfully are, or safe keeping / custodian deposits? If they are loans, the Fractional Reserve Free Bankers have the day, if they are custodian accounts or safe keeping accounts the 100% Reserve Free Bankers have the day.

As mentioned in that article:

I commissioned a survey for the Cobden Centre in Oct 2009 with ICM over 2,000 people. 74% of people think that they are the legal owner of the money in their current account rather than the bank. Paradoxically 61% know that their money is lent out even though 67% want convenient (now) on demand access. The full results of this survey will be published shortly in another paper.

This would overwhelmingly suggest that people want safety, they think their money is theirs, even though it is the banks’. They would also like it lent out as long as they can have it back when they want it. I conclude people want safety and easy access, but really they are confused!

It is worth while understanding how a legally binding contract is determined and pondering the glaring confusion that exists with a bank deposit contract.

Law of Contract

Traditionally the formation of contracts has been analysed in terms of offer, acceptance, consideration (and later, intention to create legal relations).

Meeting of the Minds

Horrocks v Foray [1976]:

In order to establish a contract, whether it be an express contract or a contract implied by law, there has to be shown a meeting of the minds of the parties, with a definition of the contractual terms reasonably clearly made out, with an intention to affect the legal relationship: that is that the agreement that is made is one which is properly to be regarded as being enforced by the court if one or the other fails to comply with it; and it still remains a part of the law of this country, though many people think that it is time that it was changed to some other criterion, that there must be consideration moving in order to establish a contract.

Clearly, the depositor does not think he is making a loan to the bank, and the bank knows it is not safe-keeping but on-lending. There is no “meeting of minds.”

The standard which is adopted in deciding whether or not a contract has been concluded is objective rather than subjective. Smith v Hughes (1871):

If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.

It would seem that there is confusion at best about the real intentions of the depositor.


Acceptance must be communicated to the offeror – Entores v Miles Far East Corp [1955].

The general rule is that acceptance of an offer will not be implied from mere silence on the part of the offeree and that an offeror cannot impose a contractual obligation upon the offeree by stating that, unless the latter expressly rejects the offer, he will be held to have accepted it – Felthouse v Bindley (1862) 11 CB (NS) 869.

In Order to Create a Binding Contract, the Contract Must be Certain

Scammell and Nephew Ltd v Ouston [1941] – Viscount Maugham – “in order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done…consensus ad idem would be a matter of mere conjecture.”

Confusion does not constitute a lawful contract.

Previous Course of Dealing Does not Mean Binding Contract Exists

University of Plymouth v European Language Center Ltd [2009] – one party could not rely on an exchange of e-mails and telephone calls as establishing a binding contract with another party, even though the parties had worked together for some years.

It would be very interesting to test that if over the course of a lifetime of banking you always thought that you were depositing for safekeeping if the law courts would give the above interpretation when there has in the vast majority of cases, never been a meeting of the minds.


Tweedle v Atkinson (1861) – consideration must move from the promise.

The classic definition of consideration was expressed in Currie v Misa (1875) LR 10 Ex 153:

a valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

Your banking in some way shape or form , even your “free” bank account, does invariably have some charge somewhere down the line, they get you somewhere, so I would be happy that there is consideration in the current bank arrangements.

Intention to Create Legal Relations

Meritt v Meritt [1970] – In determining the intention of the parties an objective test is used by asking if reasonable people would regard the agreement as legally binding.

With two parties so at odds, I cannot see how we have any intention to create legal relations in the vast majority of deposit contracts.

I would even go as far to say that the vast majority of deposit contracts are unlawful under the Law of Contract.

A sensible policy prescription should be to align the banks to the account holders’ wishes and make the deposit contract one where the bank holds the depositors’ money as custodian / safe keeper and not as borrower. Make this contract explicit. Charge a fee for custodianship / safe keeping.

When a depositor wants to earn some interest on his money, allow an explicit lending contract to be put in place so that the depositor understands that his money has been loaned out, and that it is his no more. He now has a right to his lent money back some agreed time in the future, with a coupon paid.

This allows banks to go back and do what their time honoured role has been, to mediate between the saver and the borrower and to act as custodian and safe keep money for their clients. This is unashamedly boring, and steady as you go banking.

Should a bank be allowed to offer explicitly a fractional reserve account, when you as the depositor know right from the off that they are going to lend your money out a number of times over so there are many claims to this original money that you have deposited? I would say yes under contract law so long as it was explicit and conformed to all the case law listed above, but fundamentally no as this would require the bank to exist under legal and accounting privilege. I work from the assumption that all state sanctioned privilege is a bad as one party is exploiting another lawfully at the expense of the other party. This is antithetical to liberty. I would also add that there could be a similar type of fractional contract but this would be within the realm of hedge funds which operate under the normal commercial law that we all work under – except banks. This will be explored later.

The Balance Sheet Approach

In an article I wrote last week, I outline what I term the Balance Sheet approach to banking. I compare the balance sheet of the UK’s largest company BP, with that of one of our largest banks, Barclays. In a separate article, I look at the accounting treatment of its record profits for 2009 and some remarkable accounting trickery , all perfectly lawful - except that I would not be able to do and such trickery in my business. The link is here More on Banking and the Barclays 2009 Results. The important thing to note is that BP has current creditors and long term or non current creditors. Barclays has only creditors. Why does BP split out its current creditors from its long term ones?

As far as I am aware, in the UK Under International Financial Reporting Standards and UK Generally Accepted Accounting Principles, you have to report your creditors as current, under one year and over one year. This shows the outside world what your ability is to pay your debts, as and when they fall due. Most companies will always aim to match their current creditors with their current debtors, their less than one year creditors, but over current creditors, with the equivalent matching on the debtors’ side and with the long term debt being matched with long term creditors.

Most companies in this sense in the commercial world, other than banks, would indeed be 100% reserve companies and not companies that only keep a small fraction of money aside to pay their creditors. A very good research project for a graduate would be to map out all the FTSE 100 companies and see what percentage were 100% reserved and what were not. With those that were not, what were above 95% , 90%, 85% etc. In reality, if they are not very highly reserved their auditors will not sign off their accounts and they run the risk of insolvency. There is a grey area between a 99%, 95% reserved company as to if it is solvent and at the extreme end, the banks, where they are 3% reserved to current creditors!

Banks need another set of laws that only apply to themselves to operate. Thus they have a privilege accorded only to them. This allows them, like Barclays, to have creditors and debtors only. So all the current money on demand is lumped in with a catch-all lump of all creditors. This implies to the outside world that they perfectly balance their short term creditor needs, i.e. withdrawals with their long term debtors’ repayment profiles such that they never prejudice the current creditor losing his/her shirt. I do not know what specific accounting laws that the banks are allowed to audit to, but they sure are not GAAP that applies to all other commercial organizations. I do intend to find out when I have time, and again, this could be a rich source of research work for a graduate. Notwithstanding, it is clear there is one law for all commercial companies and one law for banks.

It should be clear that a lending and custodian bank where a deposit contract of either type conforms to the Law of Contract, at all points in time will conform to the normal commercial law.

It is clear that a Fractional Reserve Free Bank violates the law of contract and the normal commercial law for every company, thus they have accounting and legal privilege. A custodian / lending bank, conforming to the law of contract and normal commercial accounting law, could not compete with a fractional reserve free bank as the latter would be able to fully use all of its clients’ deposited money to do whatever it pleases, including the creation, on average, of 33 times more deposits. If we take the example of Barclays with some £300 billion of current creditors, the ability to fully use this would place it at a distinct unfair advantage with all other commercial enterprises. Indeed, under the current law, if would be very difficult indeed for a custody / safe keeping bank to get off the ground, the odds are so stacked in favour of the current arrangement.

The Case for Free Banking Under the Normal Commercial Law

Hence I conclude that the current system of making sure companies disclose and match timed liabilities to keep solvent is good and fair to all parties. The anomaly that is fractional reserve banking, be it in its Central Bank sponsored format or in its hypothetical format with no Central Bank, can only work with this legal and accounting privilege in place. This sets one party (the banks/bankers) at a distinct and unfair advantage to another parties (ie all other people / enterprises).

As the Fractional Reserve Free Banking system ex the central bank can only work with the positive intervention of legal privilege and a setting aside of all the principles of contract law, it would seem the case for it is negligible indeed. Added to the fact that there is still the possibility of business cycle inducing properties as they could automatically grow to the needs of trade, we need to map out an alternative that allows people to keep safe, save, invest and speculate.

In the above, I outlined the two forms of deposit that would accord with the normal commercial law that would exist without legal and accounting privilege, i.e. a straight forward safe keeping or custodian contract and a straight forward loan contract.

I would also propose the possibility of a third, called a “High Risk” deposit. This is a deposit contract that again is explicit, that allows one party to deposit in the full knowledge that the institution may or may not engage an over issue of credit, or even promissory notes that may take the form of money if they can become a generally accepted medium of exchange, provided that like in any other company, they are subject to audit and a market valuation up or down of underlying assets at least once per year. As in a normal company’s balance sheet, each year, your properties or other chattels are re valued up, or impaired down, so you can and should do this with the “High Risk” deposit account. This way, there is no extension or contraction of credit over the audit year that does not have real wealth behind it. The boom and bust implications of functioning this way are that of any normal commercial activity.


Any deposit can be made between freely consenting adults provided it is enforceable under the Law of Contract and does not rely on the grant of a state sanction / privilege under commercial law and accounting standards to operate. This would be supporting something that was antithetical to liberty.

Personally, I would prefer to keep these kind of “High Risk” deposits in Hedge Funds and the like – clearly away from banks so as not to confuse. It would be quite possible for somebody with a higher risk profile to place all his money at the disposal of a hedge fund and the hedge fund to offer normal banking services, such as transacting cheques, direct debits, standing orders, issuing debit cards that the hedge fund would subcontract back to the regular standard custodian / safe keeping lending bank. This would give the appearance in almost every respect of the current fractional reserve banking.

To all intents and purposes the overwhelmingly vast majority of non bank companies are 100% reserve companies i.e. they square up with their creditors as and when they fall due or could fall due, unlike fractional reserve banks who make very little provision and rely on state sanction to exist like this.

The balance sheet and contract law approach to free banking allows a solid safe and traditional approach to banking to be the banking system’s default position, but then allows freely consenting adults all other options to enter into whatever deposit contracts they like so long as they are truly lawful.

If this is accepted, I would think it is clear that the proposal of De Soto mentioned above, concerning banking reform, becomes a real possibility in order to be the key policy solution and recommendation of the Austrian School.

It would be right and proper that the School that was the only School to predict the Great Credit Crunch / Meltdown, could provide a series of solutions for a lasting and sustainable recovery.


I have laid out my case that there is such a discrepancy between what the overwhelming majority think happens with their deposited money that under contract law, I doubt very much that an enforceable contract exists as currently offered by the banking system. I propose a reform that would very clearly demarcate what is a custodian / safe keeping contract and what is a lending contract. I agree that freely consenting adults who do no harm to others should be allowed to do as they please which means contract as they please, but entering into a fractional reserve free banking contract would violate very solid good balance sheet accounting and financial reporting standards that have been developed over many years to make sure trade happens without violation of people’s property rights. After that I propose a third contract that could have similar characteristics to a fractional reserve free bank account, called a High Risk account that would allow more speculative activities. The market would evolve in time, and new ways of doing things would no doubt emerge. As long as these new ways of doing things conform to commercial law and do not exist on privilege, then there would be no reason to get het up about this type of innovation.

Some of the debates existing in the wider free banking school need to be addressed.

What is the Difference Between a Fractional Reserve Contract and a House Insurance Contract?

With my house insurance, I pay, not loan, money to an insurance company in exchange for the right to a policy, my consumable item if you like, with the explicit knowledge that they are hoping to charge me and all the other policy holders more than they would pay out in the eventuality of a disaster that I am trying to insure against. There is a small risk that the insurance company will get its sums wrong and not be able to pay me out in full or at all. The policy tells me this.

With a deposit contract, I think I am depositing for custody and safe keeping and only the enlightened few know they are loaning their forgone purchasing power i.e. money to the bank.

So insurance is paying for a product that you consume by virtue of holding the policy for its life time. You know that there is a small risk that you may not get 100% of what you have bought.

With banking, you loan your purchasing power with the overwhelming people doing this in ignorance of what they have committed to. The vast majority expect to have the quiet and peaceful enjoyment of their purchasing power at their convenience and do not deposit in the knowledge that there may be wholesale default.

If we Accept the Legal Position that a Demand Deposit is a Bank Loan, can you Ever Have a Loan with no Fixed Term i.e. an Indefinite Loan?

This is an impossibility.

The loan under these circumstances should properly be called a gift. Fractional Reserve Free Banking relies on the fact that the legal position says all deposits are loans. In 22 years in business I have never borrowed money without a term implied. Even in the most friendly of loans where I have borrowed from a family member and they have said “pay me back when you can,” there is an implied term, when I can, and that it is not a gift.

You can vary terms then reset the period, re cut it, re dice it , re jig it, re price it, etc, but there are still implied terms. At some point in time, a lender always wants to get paid back, otherwise he/she would not be a lender, but someone giving a gift. Depositors are not giving a gift!

In the three banks that I use, representing a very large chunk of the UK banking business, I see nothing whatsoever in any documentation that leads me to believe that when I deposit I am making a loan. What is more, it does not fit my understanding of what a loan is unless we accept it is a callable loan on demand. If it is on demand, it needs to be provisioned for. Prudent management would dictate 100% reserves against my loan. General accounting principles that apply to all commercial activities bar the banks do not have to.

Everything I have ever seen in banking when I have deposited leads me to believe I am depositing money for custody / safe keeping and not as a loan. The language is always that of custody / safe keeping. Free banking going forward needs to be very explicit in nailing in contract what is custody / safe keeping and what is loaning and what is speculating.

Do Fractional Reserve Banks in a Free Market Environment, i.e. one with no Central Bank, Create Inflation?

I touched upon this point in the main body of the article. The price of money is determined, like all things, by demand and supply. Mises called this the money relation. If there is an increase in both, then there will be no inflation. To be clear, Fractional Reserve Free Banking people who advocate this are correct, there will be no price inflation. However, the number of money units has now gone up, so there has been a money inflation. Do we care? Yes, as Austrians we do. Why? Whoever is in receipt of the new money, in a Fractional Reserve Free Banking world with no Central Bank, the first recipients are the new demanders of money. They will get the wealth effect of having new purchasing power first. Where there should have been an increase in purchasing power (falling prices) for all the existing money holders, there is no increase, thus impoverishing those who are holding the existing monetary unit. Again, this gives special privilege to a certain class of person over another class of person. That is antithetical to liberty. The only way this can be avoided is to have Free Banking that sits within commercial law, accounting rules that apply to everyone, and framed within the time-honoured principles of the law of contract.

Do Grain Store Examples Shed any Useful Light into this Debate?

I am often told by advocates of Fractional Reserve Free Banking that banking is like a grain store. That if ten tons were to be deposited by one man who took a certificate from the store holder explicitly stating that the store will be lending 9 ton of the grain out to bread makers in exchange for the original depositor not having to pay for the storage, or even being paid to store there – what would be wrong with this? Also, it would tell me under what time period my grain would be being used by others, and when I could get my grain back. Well, the answer is nothing at all as the contract is explicit – except that I will never get my grain back at all as it is being consumed by someone else. I will never get it back!

Grain examples should be avoided, for they certainly do not stack up.

Deutsche Bank, RWE Raided in German Probe


Deutsche Bank, RWE Raided in German Probe of CO2 Tax (Update2)

(Adds UniCredit in 14th paragraph.)

By Mathew Carr and Karin Matussek

April 28 (Bloomberg) -- German prosecutors searched Deutsche Bank AG and RWE AG in a raid on 230 offices and homes nationwide to investigate 180 million euros ($238 million) of tax evasion linked to emissions trading.

The Frankfurt Chief Prosecutor’s Office said it targeted 150 suspects at 50 companies and has frozen assets. Deutsche Bank, Germany’s largest bank, and RWE, the country’s second- biggest utility, said they are cooperating with the probe and aren’t the focus of the investigations.

The U.K., France, Netherlands are among nations that started investigations last year of “carousel fraud,” where carbon traders collect tax and disappear before turning it in to authorities. Today’s raid was the biggest related to a fraud that may have tainted an estimated 7 percent of carbon trades in last year’s $125 billion market.

“We are glad to see that German authorities are taking the necessary steps to deal with a fraud that has affected, however unfairly, foreign perceptions of the EU emission trading system,” Henry Derwent, chief executive officer of the Geneva- based International Emissions Trading Association, said in a phone interview. The lobby group speaks for CO2 trading firms.

Europe lost about 5 billion euros in revenue for the 18 months ending in 2009 because of value-added tax fraud in the CO2 market, according to Europol, the law enforcement agency.

“We’re supporting similar investigations in other EU member states,” said Soren Pedersen, spokesman for Europol in the Hague. He declined to elaborate.

Cooperating With Investigators

EU carbon allowances for December fell 1.5 percent to 14.97 euros a metric ton on London’s European Climate Exchange as of 5:30 p.m. They have gained 19 percent so far this year

Deutsche Bank is cooperating with investigators and isn’t the focus of the probe, spokesman Ronald Weichert said by phone.

RWE’s Supply & Trading offices were searched, spokesman Michael Rosen said today. RWE is cooperating and the company “hasn’t been charged and is not under suspicion,” he said today in an e-mailed statement. The investigation concerns one company that had business relations with RWE Supply & Trading in 2009, Rosen said.

Fraud Estimates

Europol’s estimate would indicate about 27 percent of the market was fraudulent for 18 months ended in 2009, or 1.9 billion tons. The comparison of the BNEF and Europol estimates is based on a value-added tax of 17 percent, an average CO2- permit price of 15.80 euros a ton and 7 billion tons traded in the period.

The EU approved measures last month to fight fraud in its emissions market, the world’s largest, by shifting the levy to customers. The law eliminates the need for the supplier to submit the payment to the treasury.

German prosecutors declined to name the 50 companies involved in the raids. Claudia Bresgen, a spokeswoman in Munich for HVB Group, said she couldn’t immediately comment on whether the unit of Italian bank UniCredit SpA was searched. Commerzbank AG offices weren’t involved in the probe, company spokesman Maximilian Bicker in Frankfurt said by telephone today.

Offices of E.ON AG’s energy trading arm weren’t raided, said Jamee Majid, a spokesman for the unit. EnBW Energie Baden- Wuerttemberg AG spokesman Dirk Ommeln said the utility wasn’t targeted. Vattenfall AB’s German unit isn’t involved in the investigation, Berlin-based spokeswoman Sandra Kuehberger.

Tax Evasion

The Frankfurt Chief Prosecutor is investigating allegations that carbon traders evaded the tax, Guenter Wittig, the prosecutor’s spokesman, said today in a statement. Prosecutors suspect “that emission rights were bought from foreign companies and were sold via a chain of corporations for the purpose to evade value-added tax,” he said.

The “VAT-carousel” led to the loss of 180 million euros in tax revenue and prosecutors froze money in accounts that may be linked to wrongdoings, Wittig said. He declined to name the account holders or say how much was frozen.