Tuesday, April 21, 2009

Pieces of a Grand Puzzle?

I am not quite sure what is going on here, but if conspiracy theorists want to have a field day, they should focus on the financial sector. I have never seen anything quite like recent developments.

First on a global scale, you have the sudden rebirth of the International Monetary Fund in a new role as global financial regulator and global money printer. How sudden? Here's WaPo with the answer:
The IMF's mission is expanding so broadly that its managing director, Dominique Strauss-Kahn, said in an interview that the organization -- which underwent deep cuts last year before the financial crisis swept the globe -- may boost staffing in coming months, potentially creating dozens of high-paying jobs in the District.
In part, the actions appear similar to what penny stock operators do when taking over a shell company. By using a company that is already in existence, they eliminate much of the regulatory hassles. It appears this is the reason for the sudden new life for the IMF. Instead of creating a new organization for global financial domination and all the attendant debates as to what structure such an organization should take, the decision has been made to treat the IMF as a shell company that can be re-shaped in the manner the power elite desire.

These international maneuverings are occurring at a time that some rather unusual domestic developments are appearing. For one, not all banks that want to payback TARP money may be allowed to. FT reports:
Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.

“Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.”
Here's WSJ reportng the story:
In an interview, Mr. Geithner laid out some broad principles, including the need to consider the overall health of the financial system and the flow of credit in judging whether banks can repay their government investment. Among large banks, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. have both said they want to repay the government.

"We want to make sure that the financial system is not just stable, but also not inducing a deeper contraction in economic activity. We want to have enough capital that it's going to be able to support a recovery," Mr. Geithner said.

Of course, any bank that won't be allowed to payback the funds will remain under stronger control by the government.

Which leads us to an even more unusual development that seemingly has no true financial objective, the conversion by the government of some bank preferred stock it holds into common.

Bob Murphy highlights the confusion by financial commentators about this move:

...our top economic thinkers in this country are baffled (here and here)
But Murphy then comes up with the only reason that makes any sense as to why the government has chosen to convert:

...pretend for a moment that the politicians and bureaucrats in DC care about power.
Indeed, it does appear that is about control and power. How co-ordinated all these power grabs are remains an open question. But looked at as a grand puzzle, the pieces do appear to fit a plan to control global finance.

UPDATE: Larry Kudlow is reaching the same conclusion that Bob Murphy has regarding the conversions of preferred stock into common:

A big New York Times story this morning strongly suggests that Team Obama is about to up the ante in an effort to control the banking system for as long as the eye can see.

White House and Treasury officials are now talking about turning government TARP loans into common stock for the 19 biggest banks. It’s clearly a backdoor path to nationalization, as Uncle Sam would be the largest shareholder in these institutions. What’s more, it’s not at all clear that the administration will even let certain banks pay down their TARP loans.

This is government intervention into the private sector on a grand scale. It is financial/industrial policy. Banks will be kept on a very short leash regarding compensation, loans, credit-card issuance, mergers, acquisitions, and all the rest.


  1. Reading Kudlow's report, you wouldn't realize he was an enthusiastic cheerleader for the TARP, explaining that silly taxpayers didn't realize how much money they were going to make on the deal.

  2. Hi -

    Yes. Just start from the premise that this is all a huge power grab and the pieces always fall into place.

    By the way, thanks for the light on the IMF. That fits nicely with two pieces I noticed in The Atlantic -


    the second one is by an ex IMF official and it's pushing nationalization...

  3. The conversion of gov't preferred shares to common does have a possible financial connection if, as IRA reports, the Chinese and others have indeed threatened the US that if they take any more losses on their bank bonds, they'll boycott US Treasury auctions. Thus, back door nationalization by acquiring voting stock is the next best alternative to outright nationalization, which would demand bondholder haircuts.


    Reference is in 3rd paragraph from bottom. Link will likely change soon.

  4. @ No Axe

    The point still remains that it is about nationalization and about a power grab. Maintaining the stock as preferred wouldn't have damaged any Chinese position. It was done for a power control purpose.

  5. I'm not disputing those points, only pointing out that there could be a financial incentive that lends to back door nationalization rather than outright nationalization.