Similarly, many insurance companies have suffered massive losses through real estate speculation and through extensive investment in junk bonds. However, accounting conventions in the insurance industry have allowed the losses to go largely unnoticed and unreported. Consequently the significance of losses incurred by this industry have not received the media attention that they so justly deserve. No doubt the insurance industry lobbyists have assisted in preventing the information from being publicized too widely mainly because (unlike the S&L thrift industry) the insurance industry is not backed up by government guarantees!! In addition, clever accountants in this industry too have found methods of bypassing legislation put in place to ensure there is always enough capital surplus to pay out claims as they come due. {B77} The industry's deteriorating capital base is being disguised in part through reinsuring part of their liabilities with offshore insurers in places like the Bahamas which do not require the same level of controls or safeguards. {B78} Since eight out of ten Americans own life insurance, a recession causing junk bond defaults or widespread business and bank bankruptcies would almost certainly cause a related general collapse of insurance corporations on a scale that is perhaps under present circumstances difficult to imagine. {B79}

Bank Losses From 3rd World Loans

While the savings and loan thrifts were going broke as a result of making too many millionaires wealthier, the big major banks were even more seriously going broke due to defaulting foreign loans. It's no secret that the major U.S. banks have loaned vast sums of money to 2nd and 3rd World countries. Most of the underprivileged debtor countries holding "floating interest rate" loans were virtually bankrupted by the developed nations when the major Western banks pushed their interest rates into the 15-20% range. Debtor nations faced the situation where their interest payments to the developed nations exceeded their national revenues.

Not surprisingly they were left with little alternative but to default on their loan repayments unless they received additional loans to be able to repay even the interest portion of the debt. Just be aware that the 3rd World debt is now over $1,200,000,000 and the repayments have almost stopped. {B80}

The country has yet to suffer a national run on the banks like what happened in 1929, but the writing is on the wall. Many have gone bankrupt already and the government has arranged for hundreds of billions of taxpayer dollars in bailout money. But that's only the tip of the iceberg; there are hundreds of banks waiting in the wings. In 1986, the FDIC listed over 1,500 U.S. banks on its problem list, up from a little over 600 three years earlier. Their losses are very conservatively estimated to be well above $200 billion dollars. Those closest to the facts put the figure over $300 billion.

To put it mildly, debtor nations can barely repay the interest, much less their loan principal. Logically, these facts should spell big trouble to the shareholders of the major banks (many of whom belong to the economic elite). That might ordinarily be the case if they were not the ones who pull government strings, ...but they are.

Getting the Taxpayer to Buy the 3rd World Debt

Initially, David Rockefeller, using the power of the Trilateral Commission lobbied for taxpayer money to be given to the International Monetary Fund and the World Bank so that potential defaulters could be loaned at least enough money to make interest payments on the money they owed. This prevented a coordinated revolt of international loan defaulters. Subsequent to that, the BIG BANKS successfully lobbied for and obtained various other ways of transferring their losses directly back to the taxpayer.

Taken together, the various methods provided what amounted to free banking insurance for the bankers.

To begin with, a piece of legislation was passed through Congress in 1980 that the public didn't even really get to hear about. It was called the Depository Institution Deregulation And Monetary Control Act and it gave the Federal Reserve the right to purchase any bad debt. The sentence doesn't sound all that menacing, until you realize how that power can be used to perpetrate one of the great superscams.

The government has already indicated that there are certain major banks that it would not allow to go bankrupt, in the national interest. How might the Fed prevent the bankruptcy of major banks who have literally hundreds of billions of dollars of foreign bad debt that they would otherwise be forced to write off? ...simply by buying or "guaranteeing" the foreign bad debts from the banks.

What is currently happening?
America's Treasury Secretary, Nicholas Brady, is encouraging the major banks to give new loans to the debtor nations in order to keep the interest payments flowing. How could the banks possibly be enticed to supposedly throw more good money after bad? Well, when the original loans come up for renewal, the government is offering to "federally guarantee" the new loans (with your hard earned tax dollars), provided they are channeled through the International Monetary Fund. The government's excuse is that it can afford to risk taxpayer money because of the stipulations and provisions (imposed by the International Monetary Fund) that a debtor nation must agree to, as a requirement for getting the new money. Interest on these bonds is now guaranteed by the US Treasury, and the principal is covered by zero-coupon Treasury bonds. {B81}

The reality of the matter is that one by one, the shaky defaulting loans, which the banks are liable for, are slowly being replaced by new loans in the form of bonds which the taxpayer is now indirectly liable for. Increasingly, YOU own "the pieces of paper" from the 3rd world country that says that it owes you 100 million dollars.

In other words, taxpayers are being covertly and periodically fleeced of billions of dollars instantly, and without a consultation!! The banks and their shareholders who incurred the original debt will end up with crisp new bills to start off another exciting and lucrative round of real estate inflation, just for a change of pace. Although there is now slightly more chance of the principal being repaid, the likelihood of this happening is still remote.

On the other hand, the economic elite are, through the IMF and World Bank, able to maintain and exercise political and economic influence, if not domination, over the 2nd and 3rd world debtor nations by making the loans conditional to their agreeing to all sorts of fiscal policies such as "privatization of national resources" which consolidates political and economic power into the hands of a wealthy few who are eager to make future deals with the Western elite to increase their wealth and power. By accepting these conditions, the 3rd World economies are kept vulnerable to exploitation by the Western superpowers. (i.e. ...political and economic slavery, as opposed to physical slavery)

For example, in exchange for a recent $500 million loan, the World Bank bargained with Brazil to allow American banks like Citicorp to engage in buying Brazilian real estate. Just as America's manufacturing base left America for cheaper labor abroad, American banks are eyeing the virgin lands of the 2nd and 3rd World as the next real estate speculation arenas!! Brazil got the loan all right, but has so far reneged on the new banking arrangements. Lucky Brazil! The vultures are circling. {B82}

So far, the government has "guaranteed" more than $30 billion of the World Bank's 3rd World debt, but IMF board members have begun lobbying to have the IMF funds increased by 80%. Chances are they will be successful. Additional debt for America's unborn. {B83}

But that's not all.

Besides the new loan "guarantees", there are the additional billions written off by the banks as bad debts. These "write-downs" are business expenses which reduce their profits and hence their taxable income. In 1988, Latin debt was written down by about $17 billion.

The above-mentioned measures, and others, were used to insure that the interest payments kept flowing. This after all is primarily what the bankers are interested in. Interest payments are the source of their profits. Most bankers couldn't give a damn about the security of the money in their banks. Mind you, even though only 3% or 4% of the banks' assets belong to the bankers themselves, they are still not eager to see a national run on the banks because bankrupting the banks would ultimately cut off the source of their income. Consequently bankers have lobbied to have the bottom 90% encouraged to save, and thus get workers to inject some equity into the banks to help keep some of them from going bankrupt due to their gambling losses.

Not surprisingly, the Bush administration is about to launch an extensive campaign to get the working class to start placing more of their money into banks. Why? Like the corporations who are trying to sell corporate debt through ESOPs, bankers want to bail out the banks by selling their 3rd World debt to unsuspecting depositors. In addition, the banks want a fresh injection of money to gamble with. Don't forget that bankers had little or no qualms about using depositors' hard earned cash, in addition to workers' pension fund money to finance leveraged buyouts. To them, the money is there to gamble and invest with.

Note well that much of the corporate debt owed by the "leveraged to the hilt" corporations is currently held by banks, and it is the bank depositors who will stand to lose their money if the corporations collapse en masse in a depression.

Fleecing the Social Security and Pension Funds

The only difference between squirrels who rely on the nuts they have stored away to see them through the winter, and workers who rely on their pension funds and Social Security to see them through their retirement years, is that the nuts will be there, but the Social
{B77} "Surplus loophole" Forbes (Sep 4 1989): p44
{B78} "Liabilities dangereuses" Forbes (Sep 18 1989): p106
{B79} "You bet your life" Forbes (Jul 10 1989): p38
{B80} "Jockeying for power at the IMF" BusinessWeek (Oct 3 1988): p109
{B81} "Brady's Mexican hat trick" The Economist (Jul 29 1989): p61
{B82} "Shutters down" The Economist (May 27 1989): p80
{B83} "Will the U.S. be left holding the bag on third World debt?" BusinessWeek (Oct 16 1989): p24