International Bank Scams

The rise of NeoSoros

Ironically, it was George Soros, a former central European and a brilliant but unscrupulous hedge fund manager, who provided the inspiration for the attacks that were to destroy Europe.

Soros, who had made his home in the US, had already created a personal myth of invincibility so strong that his prophecies had actually become self-fulfilling. If the world saw, for instance, that Soros was betting on weaker Asian currencies, then it would deduce that the old man must know something it didn’t, and it would sell off the discredited currencies so that their prices would fall. This meant, in effect, that Soros could clean up every time he expressed an opinion.

International Bank Scams - Hong Kong

Soros’s 1997 gambit against the Hong Kong dollar had been a clear lesson in how these things were done. By setting up a complex forward position intending to ‘short’ the Hong Kong dollar (i.e. to set up promises to sell the currency in the future, in the expectation that it would soon be forced to fall), and by leveraging massively in the futures markets, Soros started such a stampede that he very nearly succeeded in splitting it from its historic linkage to the US dollar. Soros’s earlier sortie against the UK currency in 1992 had made more than $2bn by successfully shorting sterling against the dollar.

So it wasn’t very surprising that, by the middle of 2001, Soros had acquired many unofficial emulators and admirers - most notably a small clique of super-rich individuals who formed an independent consortium to take the great man’s ideas further than even he had dared.

International Bank Scams - The Plan

Acting in concert, the NeoSoros consortium (as it boldly styled itself) made a concerted bid to attack the euro itself. What would happen, they asked, if somebody succeeded in breaking off some small portion of the EMU group and divorcing it from the euro altogether? Nobody knew the answer for certain, but the potential for a quick cash-grab into dollars seemed to be pretty clear.

It didn’t take long for NeoSoros to identify its target within the euro group. Italy, the fourth biggest member of EMU, had been making enemies among its northern European neighbours for some time. Its regional development costs were so enormous that they strained the budget coffers in Brussels. Its backward industrial reform process was the joke of Europe, and its net cost to the community was high. Its financial institutions were antiquated, and its government borrowings were so high that they only just met the tight EMU guidelines.

International Bank Scams - Italian Factor

But, worst of all, Italy had just elected a strongly right-wing government with heavy nationalist and separatist leanings, led by the populist industrial magnate Silvio Berlusconi.

Berlusconi’s unscrupulous business behaviour had already got him into trouble on many occasions, and there were many who felt certain that the old fox would not hesitate now to exploit the EMU system for all it was worth. What could possibly stop him from busting the EMU government borrowing rules if he felt that a quick spell of ‘illegal’ spending-and-borrowing would enhance his domestic popularity in Rome and Milan?

What could the stuffy Germans possibly do to restrain such fiscal irresponsibility from Italy? Pull out of EMU? Unthinkable. It was a perfect set-up for a hit-and-run attack which, with luck, could break the whole EMU system and destroy the upstart euro forever.

History doesn’t record what the great Soros himself thought of NeoSoros’s gambit, but we can safely assume that he stayed well out of it and watched with interest as the attack unfolded. Over the next few months the NeoSoros group built up a formidable position on the Italian government’s bond market - which was just about the only area of the Italian fiscal system where it knew that the European Central Bank had no control whatsoever.

Better still, because the bond markets were so secretive and so poorly reported, NeoSoros was able to do this without attracting any attention at all. Besides, being a hedge fund, NeoSoros was virtually exempt from all awkward financial reporting regulations. All the important developments were being masterminded from the Cayman Islands.

International Bank Scams - Bond Prices

It had to be said that NeoSoros showed a fine sense of humour. On 15th August, the day when much of Europe was closed for the Assumption Day holiday, the renegades let it be known that they were dumping their entire stock of Italian bonds because they feared an imminent fiscal secession led by Milan. Instantly, Italian bond prices plummeted. Caught off-balance, the dealers and the bankers staggered back to their desks to deal with the angry phone calls that were coming in from Brussels and Frankfurt. Currency specialists on both sides of the Atlantic wondered publicly how long the collective European currency could cope with such an outflow of confidence.

At first, the ECB was the image of calm. Don’t worry, came the message from Frankfurt, we have the situation under control. If necessary we will underwrite all of Italy’s public-sector debts. We’ll reschedule them over a longer period if necessary. Remember, we are very large and very cash-rich. Just stay calm. Please.

Offshore Banking Scams

But by nightfall the outflow of bond money to the States had become unstoppable. First Portugal, then Greece, then Spain succumbed to the pressure on their national bond markets, and even though some of them tried to suspend trading in an effort to contain the growing panic they were stymied by the fact that so much global bond dealing was online and off-the-record. The problem, you see, was that the ECB was not just empowered to pour all its cash resources into any breach that might emerge in the European wall of confidence: it was legally required to do so.

By the next morning the ECB had almost run out of support money, the European bond market had lost 55 per cent of its value and the euro had dropped by 45 per cent. The industrial structure was in a state of paralysis, the European stock markets had been closed, and a kind of political war was breaking out between the EU heads of state who’d been summoned back from their villas in Kenya, Phuket or Tuscany to exact their revenge on each other over great jugs of strong black coffee.

All of which must have delighted the NeoSoros group. For months the group had been shorting every kind of euro-related contract it could get its hands on, and going long on dollar-based paper. Now it was going to clean up in fine style at the expense of the European upstarts. Profits of $200 billion, $300 billion, maybe half a trillion dollars tripped through the consortium’s excited mind.

That was, until it realised that it had succeeded only too well in its gambit. By knocking out the European markets, NeoSoros had also demolished one of the most important legs of the global banking scene, without which there would be no hope of cashing in their winnings. European banks were now immobilised, not just because they were faced with colossal corporate defaults but also because the sharp drop in the euro had literally blown away the capital bases which they were required to maintain in order to function as lenders.

Meanwhile things weren’t much better in the States. As Europe sank below the waves, American institutions realised that they too were exposed in ways that had simply not been anticipated. US banks were left facing huge defaults from Europe. US companies with large corporate bond debts issued in euros (and that meant most of them) were slightly better off, because their euro debts were now virtually unenforceable, but otherwise the loss of the great European export market was a serious setback to everyone.

Offshore Banking Scams

What finally killed the American economy was the bolt from across the blue. The paralysis of European finance deprived the US of its most important import - foreign cash - and that in turn spelt the end of the Wall Street valuation system. Once the panic had started, there was no way of stopping US private investors from selling every stock they owned, and even an eight-year suspension of all official US equity markets didn’t resolve the problem. When the markets eventually reopened in late 2009, price/earnings ratios had dropped from around 30 to just 4, and the US had settled back into a pattern of slow, organic growth and self-sufficiency that left it vulnerable to China’s unsullied and home-grown model of economic growth.

The rest is history. The reason the euro crashed was not that it was weak, but rather that it had been built too strongly to resist an outside raid. When the saboteurs attacked, they were forced to use so much dynamite that they accidentally brought down the whole edifice. The euro group’s self-repairing structure had been so cunningly devised that it unthinkingly poured every drop of its remaining resources into the wounded limb when it might have been better to apply a tourniquet.

Fortunately, comrades, this is not a problem that has afflicted our beloved Greater China. Our historic elimination of consistently loss-making regions such as Tibet, or our timely closing down of the obsolete Japan province in 2250, have proved beyond doubt that the mistakes of the euro enthusiasts are neither inevitable nor necessary.