The Global Power of the Basel Moneylenders

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The Bank for International Settlements (BIS) is a supranational parasitic organization, one of the main in the chain of global banking structures that have entangled the planet. It is these outwardly respectable people who, with the help of banking mechanisms, drink the blood of millions of people from different countries.

Ten times a year - every month except August and October - a small group of well-dressed men travels to the Swiss city of Basel. With small suitcases and attaché cases in hand, they go to the Euler Hotel, which is opposite the train station. They come to this sleepy town from completely different places, such as Tokyo, London and Washington DC, for regular meetings of the most exclusive, secret and influential supranational club in the world.

Each of the dozen participants in the meetings has a separate office in the club with secure telephone lines to the homeland. The club members have a permanent staff of approximately 300 people, including drivers, cooks, security guards, messengers, translators, stenographers, secretaries and assistants. They also have an excellent science laboratory and state-of-the-art computer system, as well as an indoor country club with tennis courts and a swimming pool a few kilometers from Basel.

The members of this club are several influential people who daily set interest rates, credit availability, and the monetary base of banks in their country. These include the heads of the Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank and the German Bundesbank.

The club operates a bank with a fund of $ 40 billion in cash, government securities and gold, accounting for about one-tenth of the world's available precious metals. The profits from renting this gold (second only to the reserves of Fort Knox) are more than enough to cover the costs of maintaining the entire organization. And the unequivocal goal of these monthly meetings for a select few is coordinationand, if possible, controlover all the monetary transactions of the developed world. The club's meeting place in Basel is a unique financial institution called Bank for International Settlements, or BIS.

The BIS was founded in May 1930 by European and American bankers and diplomats to collect post-World War I German reparations payments (hence its name). It was truly an extraordinary agreement. Although the BIS was established as a commercial public bank, its immunity from government interference and even taxation, both in peacetime and in wartime, was guaranteed by an international treaty signed in The Hague in 1930. Despite the fact that its depositors are central banks, the BIS makes money on all operations. And since his operations are very profitable, he does not need any government subsidies or assistance.

Since it also provided the European central banks in Basel with a secure and convenient vault for their gold reserves, it quickly became bank for central banks … With the deepening global depression in the 1930s and financial panic in Austria, Hungary, Yugoslavia and Germany, governors of key central banks feared that without a comprehensively coordinated rescue response, the entire global financial system would collapse. The obvious meeting place for this desperately needed coordination was the BIS, where they traveled regularly anyway to arrange gold swaps and sign agreements to pay war damages.

Even though the isolationist Congress did not officially allow the US Federal Reserve to participate in or property in the BIS (the BIS shares were held by the First National City Bank), the Fed chairman secretly traveled to Basel for important meetings. World monetary policy was clearly too important an issue to be left to public policymakers.

During World War II, when countries, if not their central banks, took part in it, the BIS continued its activities in Basel, although monthly meetings temporarily ceased. In 1944, following accusations by the Czech Republic of laundering Nazi gold stolen from Europe, the US government backed a resolution at the Bretton Woods conference calling for the elimination of the BIS. It was naively believed that the functions of settlement and monetary settlement performed by him could be taken over by the new International Monetary Fund.

However, it was impossible to replace what existed under the guise of an international clearing house: a supranational organization for the creation and implementation of a global monetary strategy, which could not be done by a democratic international organization like the UN. Central bankers who did not intend to give their club to anyone, secretly suppressed the American resolution.

After World War II, the BIS became the main clearing house for European currencies, and behind the scenes, a favorite meeting place for heads of central banks. When the dollar came under attack in the 1960s, the BIS came to the rescue of the US currency by organizing large cash and gold swaps. There was undoubtedly some irony in the fact that, as the president of the bank noted, "the United States, which wanted to liquidate the BIS, unexpectedly needs it." Either way, the Fed became a core member of the club, and either chairman Paul Volcker or manager Henry Wallich attended every Basel weekend.

In the beginning, central bankers sought complete anonymity for their operations. Their headquarters were in an abandoned six-story hotel, the Grandet Savoy Hotel Universe, with an annex above the adjoining Frey Chocolate Shop. They deliberately did not place the BIS sign on the door, so the bankers and dealers used the cafe as a convenient reference point.

It was in the wood-paneled rooms above the store and hotel that decisions were made to devalue or protect currencies, fix the price of gold, regulate offshore banking, and raise short-term interest rates. And although by their actions they created a "new world economic order", in the words of Guido Carli, governor of the Italian Central Bank, society, even in Basel, remained completely unaware of the club and its activities.

However, in May 1977, the BIS abandoned its anonymity, in line with the sober reckoning of some of its members, in exchange for a more efficient headquarters. The new building - an eighteen-story cylinder-shaped skyscraper that towers over the medieval city like some kind of inappropriate nuclear reactor, the so-called "Tower", quickly began to attract the attention of tourists.

“It was the last thing we wanted,” its president, Dr. Fritz Leutwiler, told me in a 1983 interview. "If everything depended on me, it would never have been built."

Throughout the conversation, he closely watched the Reuters screen, which depicted fluctuations in currencies around the world. Despite its dull exterior, the new headquarters has all the advantages of luxury space and Swiss efficiency. The building is fully equipped with air conditioning and autonomous power supply, has its own bomb shelter in the lower basement floor, a three times duplicated fire extinguishing system (so that you never have to call firefighters outside), a private hospital and about two hundred miles of underground archives.

“We tried to create a full-fledged clubhouse for central bankers … a home away from home,” said Gunther Schleiminger, the super-competent general manager who arranged for me to tour the building. On the top floor, with panoramic views of three countries - Germany, France and Switzerland - is a chic restaurant used to host cocktail receptions for club members who come on Saturday nights for Basel Weekends. The rest of the time, except for these ten cases, the floor is empty.

On the floor below, Schleiminger and several of his staff sit in spacious offices, overseeing the daily tasks of the BIS and overseeing activities on the remaining floors, as if running a hotel in the off-season. The next three lower floors are the apartments reserved for bankers. All of them are decorated in three colors - beige, brown and reddish brown - and in each of them there is a lithograph in the same colors above the table.

Each office is equipped with pre-programmed speed dial telephones, with the help of which club members can directly contact their offices in the central banks at home by pressing one button. Completely deserted corridors and empty offices with name plates, sharpened pencils in cups and neat piles of incoming mail on the tables resemble a ghost town.

When the members of the club come to the next meeting in November, the situation, according to Schleiminger, will be completely different: at each table there will be multilingual administrators and secretaries, meetings and sessions will constantly take place.

On the lower floors is the BIS computer network, which is directly connected to the systems of the central banks-participants and provides instant access to data on the world monetary position and the bank itself, where eighteen traders, mainly from England and Switzerland, constantly roll over short-term loans on the international Eurodollar market and prevent foreign exchange losses (while selling the currency in which the loan payable is denominated).

On another floor, gold traders are constantly on the phone, arranging loans in the bank's gold for international arbitrageurs, thus giving central banks the opportunity to receive interest on gold deposits. Sometimes there is an emergency, for example, the sale of gold from the Soviet Union, requiring a decision by the "bosses", as the BIS employees call the heads of central banks. But most of the operations are standard, computerized and risk-free.

In fact, the BIS charter prohibits transactions other than short-term loans. Most are issued for thirty days or less, guaranteed by the government, or backed by gold deposited with the BIS. In fact, last year, the BIS earned $ 162 million from the turnover of billions of dollars placed by central banks.

As experienced in this area as the BIS, the central banks themselves maintain extremely competent staff to invest in their deposits. For example, the German Bundesbank has an excellent international operations division and 15,000 employees - at least twenty times the size of the BIS staff. Why, then, are the Bundesbank and other central banks transferring deposits of about $ 40 billion to the BIS and thus allowing it to earn such amounts?

One of the answers - of course, secrecy … By mixing a fraction of their reserves into what constitutes a giant short-term mutual fund, central banks have created a convenient screen behind which they can hide their own deposits and their withdrawals in financial centers around the world. And central banks are clearly willing to pay a high price for the ability to operate under the cover of the BIS.

However, there is another reason, according to which the Central Bank regularly invests in the BIS: they want to provide him with sufficient profit to provide the rest of his services. Despite its name, the BIS is much more than just a bank. From the outside, it looks like a small technical organization. Only 86 of its 298 employees are professionals. But the BIS is not a monolithic organization: under the shell of an international bank, like Chinese boxes that fit one into the other, there are real groups and services that are needed and paid for by the central banks.

First box inside the bank is Board of Directorscomposed of the heads of eight European central banks (England, Switzerland, Germany, Italy, France, Belgium, Sweden and the Netherlands), which meets on Tuesday mornings every Basel weekend. Twice a year, the council also meets with representatives of the central banks of other countries. Thus, it provides a formal mechanism for interaction with European governments and international bureaucratic organizations such as the IMF or the European Economic Community (Common Market).

Advice defines the rules and spheres of influence of central banks to prevent governments from interfering in processes. For example, a few years ago, when the Organization for Economic Co-operation and Development in Paris appointed a low-level commission to investigate the adequacy of bank reserves, central bankers perceived this as an invasion of their sphere of influence and turned to the BIS council for help. The Council created a higher-level commission, administered by the Banking Supervisor at the Bank of England, to stay ahead of the OECD. The OECD took the hint and stopped trying.

For relations with the whole world as a whole, there is another Chinese box called Group of ten, or simply " G-10". In fact, it has 11 members representing eight European central banks, the American Fed, the Bank of Canada and the Bank of Japan, and one unofficial member, the head of the Saudi Arabian Treasury. This powerful group, which controls most of the world's capital turnover, holds long meetings on Mondays during Basel Weekend. This is where broader issues are discussed - if not always addressed - such as interest rates, monetary growth, economic stimulus (or suppression), and exchange rates.

Directly subordinate to the Group of Ten, and to serve its special needs, there is a small unit - the Monetary and Economic Development Department - which is essentially its private think tank. Head of this unit, Belgian economist Alexander Larnfalussy (Alexandre Larnfalussy), attends all G-10 meetings, and then assigns relevant research and analysis to six staff economists.

The unit also periodically issues "economic memoranda" providing guidance along the party's convenient course to central bank leaders from Singapore to Rio de Janeiro, although they are not members of the BIS.

For example, a recent memo, entitled Laws and Freedom of Action: An Essay on Monetary Policy in an Inflationary Environment, politely defused Milton Friedman's dogma and proposed a more pragmatic form of monetarism.

And last May, just before the Williamsburg summit conference, the unit released a blue book on foreign exchange intervention by central banks, setting boundaries and circumstances for each action. When internal disagreements arise, these blue books may express positions that are completely opposite to those of the BIS members, but in general they reflect G-10 opinion.

Over lunch on the top floor of the Bundesbank, which is housed in a huge concrete building (called the "bunker") in Frankfurt, its president and senior BIS board member Karl Otto Pohl complained to me about the monotony of Basel weekends in 1983 year.

“First there is a meeting about the International Gold Pool, then, after lunch, the same people appear at the G10 summit, and the next day the Board of Directors gathers - without the USA, Japan and Canada - and a meeting of the European Economic Community is held, in which they do not participate Sweden and Switzerland. He noted: "It takes a lot of time and effort, and has nothing to do with real business." As Paul explained during our leisurely lunch, this is another level of the BIS, a certain "Secret club".

The secret club consists of about half a dozen influential leaders of the Central Bank, who are in approximately the same position: in addition to Paul, it includes Volker and Wallich from Fed, Leutwiler from the Swiss National Bank, Lamberto Dini (Lamberto Dini) from the Bank of Italy, Haruo Maekawa (Haruo Mayekawa) of the Bank of Japan and retired Governor of the Bank of England, Lord Gordon Richardson (Gordon Richardson), who has chaired all G-10 meetings over the past ten years.

They all speak fluent English; in fact, Paul recalled how he once discovered that he was speaking to Leutwiler in English, even though German was their mother tongue. They all speak the same language with government officials. Paul and Volcker both reported to their finance ministers; they worked closely with each other and with Lord Richardson, trying in vain to defend the dollar and pound in the 1960s.

Dini at the IMF in Washington has dealt with many of these problems. Paul worked closely with Leutwiler in neighboring Switzerland for ten years. “Some of us are old friends,” Paul said. More importantly, all of these people adhere to a clearly articulated scale of monetary values.

The main value, apparently, separating secret club from the rest of the BIS, is the conviction that central banks must act independently of domestic governments. It is easy for Leutwiler to adhere to this belief, since the Swiss National Bank is privately owned (the only central bank not owned by the government) and is completely autonomous.

(“I don’t think many people know the name of the president of Switzerland, including the Swiss themselves,” Paul joked, “but all Europeans have heard of Leutwiler.”)

The Bundesbank is almost as independent; how its president, Paul, is not required to consult with government officials or report to Parliament - even on critical issues such as interest rate hikes. He even refused to fly to Basel on a government plane, preferring his own Mercedes limousine.

The Fed is slightly less independent than the Bundesbank: Volcker is supposed to appear periodically in Congress and at least take calls from the White House, but he is not obliged to follow their recommendations. While in theory the Bank of Italy is subordinate to the government, in practice it is an elite organization that operates independently and often opposes the government. (In 1979, his then manager, Paolo Baffi, was threatened with arrest, but a secret club came to his rescue using anonymous channels.)

Despite the fact that the clear relationship between the Bank of Japan and the government of the country is deliberately kept secret even for the members of the BIS, its chairman, Maekawa, at least adheres to the principle of autonomy. Finally, although the Bank of England is under the thumb of the British government, Lord Richardson was admitted to the secret club because of his personal commitment to this defining principle. But his successor, Robin Lee-Pemberton (Robin Leigh-Pemberton) will probably not be admitted to this circle due to a lack of appropriate business and personal contacts.

In any case, everything is clear with the Bank of England. The Bank of France is considered a puppet of the French government; to a lesser extent, but nevertheless, the secret club also perceives the remaining European banks as an extension of the respective governments, thus leaving them aside.

A second and closely related belief among members of the inner club is that politicians cannot be trusted to decide the fate of the international monetary system. When Leutwiler became president of the BIS in 1982, he insisted on keeping any government officials out of Basel Weekends.

He recalled how, in 1968, the U. S. Under Secretary of the Treasury Fred Deming (Fred Deming) was in Basel and stopped at a bank. “When it became known that an official from the US Treasury arrived at the BIS,” he said, “traders in the gold market, thinking that the US was going to sell their gold, created a panic in the market.”

With the exception of the annual meeting in June (called the "revelry" by the staff), when the first floor of the BIS headquarters is open for official visits, Leutwiler has tried to stick to this rule. “To be honest,” he admitted, “I don’t need politicians at all. They lack the common sense of bankers. " This, in fact, sums up the inherent dislike of members of the secret club for “messing with governments,” as Paul put it.

Inner club members also tend to favor pragmatism and flexibility over any ideology, be it Lord Keynes (Keynes) or Milton Friedman (Milton Friedman). Instead of rhetoric or appeals, the club seeks to resolve the crisis by any means possible. For example, earlier this year, when Brazil was unable to repay a loan guaranteed by central banks to the BIS on time, a secret club, instead of collecting money from guarantors, secretly decided to extend the repayment period. “We walk the tightrope all the time without belay,” Leutwiler explained.

The last and, at the moment, the most important dogma secret club is the belief that when the bell rings any central bank, it rings them all. When Mexico was threatened with bankruptcy in the early 80s, the club worried not so much about the welfare of this country, but rather, as Dini put it, "the stability of the banking system."

For several months, Mexico borrowed from a fund for short-term loans in the interbank market in New York - which was allowed for all banks recognized by the Fed - to pay interest on its $ 80 billion in external debt. Every night, the country had to borrow more and more. to pay interest on last night's transactions, and Dini said that by August, Mexican borrowings accounted for nearly a quarter of all "Federal funds"as these one-day loans were called in the banking environment.

The Fed is in a dilemma: if it suddenly intervenes and forbids Mexico from using the interbank market in the future, the next day that country will not be able to pay off its huge debt, and 25% of all funds in the banking system will be frozen.

But if the Fed allows Mexico to borrow more from New York, it will suck in most of the interbank fund within months, forcing the Fed to substantially expand its monetary base. Obviously, this situation was the occasion for an emergency meeting of the secret club.

After talking with Miguel Manseroy (Miguel Mancera), director of the Bank of Mexico, Volcker immediately called Leutwiler, who was vacationing in the Swiss mountain village of Grisona. Leutwiler understood that the entire system was threatened with a financial time bomb: even though the IMF was willing to provide Mexico with $ 4.5 billion to ease pressure on short-term loans, it would have taken months of bureaucratic delays to approve the loan. And Mexico needed an urgent loan of $ 1.85 billion to get out of the one-day loan market, to which Mansera agreed. But less than forty-eight hours later, Leutwiler contacted members of the secret club and provided a temporary bridging loan.

While there was information in the financial press that $ 1.85 billion came from the BIS, almost all of the funds were provided by club members. Half was given by the United States - $ 600 million was transferred from the Ministry of Finance's stabilization fund, another $ 325 million was given by the Fed; the remaining $ 925 million, which came from the deposits of the Bundesbank, the Swiss National Bank, the Bank of England, the Bank of Italy and the Bank of Japan, deposits guaranteed by these central banks, nominally came from the BIS (the BIS itself lent a token amount against the security of Mexican gold).

In this operation, the BIS practically did not risk anything; he simply provided a convenient cover for the inner club. Otherwise, all of its members, and especially Volcker, would have to undergo political pressure to save a developing country. In fact, they stayed true to their core values: saving the banking system itself.

In public, members of the inner club rant about the ideal of preserving the character of the BIS, so as not to turn it into the world's lender of last resort. However, behind the scenes, they will undoubtedly continue their manipulations in defense of the banking system, wherever in the world its maximum vulnerability does not appear.

After all, it is primarily central bank money, not the BIS, that is at risk. And the secret club will also continue to operate under its guise and pay an appropriate price for this cover.