My Tower of Basel Oh Crap! Moment.
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 oversite 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 M2M been implemented in 2004, investors would have seen house prices falling in 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 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. As you can see from the Basel 2 links to the left, 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.
I believe that implimentation of M2M again will cause the economy to take another dive. How long that dive will take is anyone's guess. But if M2M is implemented you can count on another stock market crash. I don't know how long it would be for, and I am not an expert on stock picking. But we can see that Basel 1 imposed greater bank reserves on the Japanese banks at their most vulnerable point. This resulted in deflation lasting for about 20 years in Japan.
We know that China is going to reduce lending towards the end of 2009, and try to stop their stock market bubble. After all, China doesn't want to end up like Japan and maybe the United States, with deflation being the persistent large gorrilla in the room.
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.