Reaction to Flash Crash Article Exposes Roots of Real Crisis
By Staff News & Analysis - April 02, 2013

Three days that saved the world financial system … The BlackBerrys all started buzzing, just before dinner was to begin at the Palacio da Bacalhoa, a 15th-century estate outside Lisbon. The 21 men and one woman charged with charting the course of Europe's economy looked down to find startling news that evening of May 6, 2010. – Washington Post/ Adapted from "The Alchemists: Three Central Bankers and a World on Fire," by Neil Irwin (The Penguin Press, available April 4).

Dominant Social Theme: These bankers are supermen.

Free-Market Analysis: Another day, another fulsome narrative about how paunchy middle-aged men (and some plump or fashionably emaciated women) save the world.

The only trouble with these endless books is that there are so many crises because the same superheroes we learn are saving the world are also busy ruining it.

It is easier to save the world if one knows exactly how it has been damaged and by whom. Additionally, the solution is not a very subtle one. Those saving the world are asked to make a decision to print more money – endless amounts of it.

It is easier to save the world if one knows exactly how it has been damaged and by whom. Additionally, the solution is not a very subtle one. Those saving the world are asked to make a decision to print more money – endless amounts of it.

This is not such a hard to solution to discover or implement.

Men, mostly – and mostly Caucasoid – are called into an immensely luxurious conference room filled with sumptuous viands. It is then proposed, as they dine discriminately while sipping purified water, that they print trillions to avert this, that or the other financial crisis.

There is much to-ing and fro-ing and hemming and hawing. Somehow we are to believe there is suspense in all of this. Somehow we are to believe this is a difficult decision and those taking it are tortured by the responsibility.

We are not the only ones to see that this particular meme has been repeated so many times it has been hammered into the ground. Feedback to this article, a condensation of a book that is shortly to appear, makes some of the same points.

Yet another riveting, hair raising account of how the 1% protected the assets of the 1% in a crisis created by the 1%. They would need a car chase/crash scene and Jennifer Lawrence to make this even mildly interesting at the movies. Liam Hemsworth would be nice as a hacker/fact finder secondary.


Three blind mice.

See how they run.


First there was the book … then there was the movie…

… and coming soon to a theater near you … three days of the con tour…

… starring mervyn king as robert redford, jean-claude trichet as faye dunaway…

… and introducing ben.bernanke as spartacus…

On and on it goes, so many feedbacks to this article that are dismissive or outright derisive. Like fateful footsteps they issue one by one, allowing us to track the fraught collapse of the central banking meme. People just don't believe it anymore.

We've been predicting this nearly since the beginning of the financial crisis some five years ago. We've reported over and over again that the idea of monopoly central banking has come and gone. Memes exist when they are transparent and people don't feel manipulated. But the anger about the current system is palpable now. And the justifications for it – never convincing – ring increasingly hollow.

There are several ways that the supporters of central banking deal with dismaying evolution. For one thing they ignore it. But they are also launching various gambits to defuse it. From what we can tell, they have, for instance, launched a last-ditch effort to promote the idea that "private" central banking is at fault and that "public" monopoly central banking is preferable. That's because those in a position to manipulate central banking don't care whether the facility is private or public so long as it exists.

But we don't believe this is going to salvage the process. The idea that a small group of men should be responsible for the value and price of money is increasingly at risk. Paeans to the skill and virtue of such men worked a good deal better in the 20th century than the 21st, when people actually understand the mechanisms of control and are not so impressed by them.

Are you still under the spell of high finance? Read the end to this fulsome article and find out. Here is how it concludes:

Shortly after the Governing Council meeting Sunday evening, [Axel A.] Weber [head of the German Bundesbank] convened a conference call of the Bundesbank Executive Board. He and colleague Andreas Dombret were still in Basel, the other board members in various locations in Germany. Officially Weber wasn't supposed to tell anyone what the Governing Council had decided, but this was so momentous that he posed a serious question to the board members: Should we do it? Should the Bundesbank follow its marching orders from the ECB and buy billions of euros' worth of Greek and Portuguese bonds, violating its long-cherished principle of not using the printing press to fund governments?

If they had answered "nein," it's nearly certain that the euro would have unraveled within days, the ECB would have lost all credibility and Germany would have been forced to reinstitute the mark as its currency. The global financial markets would have entered a tailspin more dramatic than what followed the bankruptcy of the Lehman Brothers financial firm in 2008. Staring at that precipice, the Bundesbank leaders decided it was better to hold their nose and violate orthodoxy than to unleash such dangerous consequences.

That night, the world came closer to financial catastrophe than all but a few insiders knew at the time. But by the time people around the globe lumbered to work Monday morning, there were billions of euros devoted to maintaining a united Europe, a new coalition was coming together to lead Britain committed to bringing down its budget deficits, and the U.S. Federal Reserve had again served its role as lender of last resort to the world.

While the world slept, the central bankers in Basel, London, Washington and beyond had done their work, and the global flow of commerce trudged forward yet again.

After Thoughts

Do you feel better now? Are you properly impressed? Neither are we. And that's the REAL problem. Such financial "crises" can be resolved, but not the loss of faith in central banking. Changes are coming …

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