We trust the big banks caught fiddling… but not the people?

By Simon Barrow
September 13, 2014

One of the big last-ditch Scottish referendum pitches by the three dominant Westminster parties and their friends in the City of London is to appeal to voters to reject self-government and instead accept the opinion and sway of the giant transnational banks – the likes of Goldman Sachs, J P Morgan and Deutsche Bank.

The idea that institutions which helped create a massive global financial crash through speculation are to be trusted implicitly in their view that Scotland – one of the most resource-rich countries in Europe – would face some kind of cataclysm if it was allowed to elect a parliament it voted for and make decisions for itself is truly extraordinary. But as the BBC and other media outlets faithfully reproduce scare stories from financiers, there appears to be no scrutiny of the affairs of these banks or questioning of their reliability.

Take Deutsche Bank, for example. Former Prime Minister Gordon Brown (he of "no more boom and bust", who sold off 60 per cent of the UK’s gold reserves during a 20-year record price slump, failed to regulate the City, launched disastrous PFIs, raided pension funds, helped cause a telecoms recession in Europe by auctioning the airwaves, and twice cut corporation tax) persuaded pals of his in Germany’s biggest bank to make the frankly preposterous claim that an independent Scotland could precipitate the biggest recession since the 1930s.

As respected Herald commentator Iain McWhirter noted: this extraordinary intervention “confirms that the banks still don’t understand how they caused the last [recession] in the first place.” Quite. It was done on the back of reckless speculation which makes any market uncertainties about Scotland (a country with 60 per cent of Europe’s oil and 25 per cent of its offshore renewable energy resources, just for starters) look paltry.

Take the aforementioned Deutsche Bank. It recently had to settle for $1.9 billion to ward off a US lawsuit over mortgages. The Federal Housing Finance Agency case concerned mortgage-backed securities sold to Fannie Mae and Freddie Mac. Remember them? They were central to the 2008 collapse.

In 2012 the bank, faced with a major problem with its capital requirements, managed, through three sleights of hand, to miraculously adjust its balance sheets to the tune of 55 billion euros. Of this, a full 26 billion euros resulted from simply redefining its risk assessment models to kid the market and boost its shares. A standardised method of assessment, such as the one used by all before the Basel II agreement, would lead to a 52 per cent increase in Deutsche Bank’s “risk weighted assets”, analysts suggest (http://corporateeurope.org/news/deutsche-bank-blindfolded-regulator-and-...).

Since it preaches about risk, it is also worth noting that DB likes a good old mega-gamble itself. It holds 55 trillion euros in derivatives (around 20 times the size of the German economy), with this highly volatile exposure backed by just 522 billion euros in deposits, or a little over 100 times less (http://www.zerohedge.com/news/2014-04-28/elephant-room-deutsche-banks-75...).

‘Derivatives’ include futures, forwards, swaps, options and variations with exotic names like caps, floors, collars and credit default swaps. They are traded over the counter or through exchanges. It’s a kind of sophisticated bookmaker system based on chain betting. Once something goes wrong, the follow-on is disaster. As we have seen.

So, in 2013, DB, despite claims that the European Central Bank was happy, shocked investors with a 10 per cent equity dilution and was forced to undergo a gigantic balance sheet deleveraging campaign over the ensuing year.

Of course none of this was reported or discussed on the BBC today, or in the numerous outlets reporting the Brown-DB ‘shock, horror’ story aimed at persuading referendum voters to say ‘No’ to gaining control over major levers of their own economy.

At present, nothing serious can be done with regard to financial regulation impacting international exposure in Scotland. The fact that this could change is one of the reasons banks like DB want to stir up antipathy. In Iceland, they bailed out the people and jailed the bankers. In the UK, people are being forced to swallow austerity on a huge scale while not one financier is behind bars. The Scottish referendum provides an opportunity to say ‘yes’ to making power more accountable to the people, and creates the opportunity for a small, northern European nation to head in a different direction. That’s why the UK state is so worried.

Oh, and by the way... Deutsche Bank have been accused of participating in the rigging of gold and silver markets and only last month their London branch was fined £4.7 million ($7.8 million) by the Financial Conduct Authority (FCA) for putting the wrong buy and sell markers on millions of transactions in regulatory reports (http://online.wsj.com/articles/deutsche-bank-fined-by-u-k-s-fca-1409219296). Now they seem to be switching to helping fiddle a referendum.


© Simon Barrow is co-director of Ekklesia. He lives and works in Edinburgh. Follow him on Twitter: @simonbarrow More on the Scottish independence referendum here: http://www.ekklesia.co.uk/scottishindependence

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