Insider Investment Guide

Insid
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Inves
tment
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INSIDER INVESTMENT REPORT
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PAGE 2 OF 273
TABLE OF CONTENTS
LOW RISK CAPITAL ACCUMULATION BY BANK DEBENTURE

TRADING............................................................................................. 4
BACKGROUND OF TRADING PROGRAMS.........................................11
TRADING OF BANK CREDIT INSTRUMENTS (DEBENTURES)...........17
BANK DEBENTURE INSTRUMENTS & INVESTMENT PROGRAMS RE
THE PURCHASE AND RESALE OF SAME..........................................23
BANK SECURED PRIVATE PLACEMENTS..........................................28
THE ROLE OF THE FEDERAL RESERVE BANK AND PRIVATE
PLACEMENT PROGRAMS..................................................................32
THE MECHANICS OF PRIME BANK SLCS AND GUARANTEES..........36
ICC 500 PUBLICATION - BANK DEBENTURE TRADING PROGRAMS -
CAPITAL EMPOWERMENT RESEARCH.............................................44
RISK FREE CAPITAL ACCUMULATION BY MEANS OF PARTICIPATION
IN A BANK DEBENTURE FORFAITING PROGRAM OR PROFIT
FUNDING (DEPOSIT) LOAN TRANSACTION......................................55
TRADE PROJECTS AND HOW THEY WORK......................................65
SAMPLE DEBENTURE TRADING PROGRAMS AVAILABLE.................90
DEBENTURE TRADING PROGRAM SOURCES..................................98
BANKS - MONEY FROM NOTHING...................................................101
CENTRAL BANKS, GOLD, & DECLINE OF THE DOLLAR...................111
MONEY, MONEY, MONEY.................................................................119
THE SPIRITUALITY OF MONEY: INVESTING IMPLICATIONS...........123
A COMPARATIVE CHRONOLOGY OF MONEY FROM ANCIENT TIMES
TO THE PRESENT DAY....................................................................125
THE HISTORY OF BANKS................................................................174
THE MONEY LAUNDRY....................................................................210
THE INVESTOR'S BILL OF RIGHTS..................................................222
WHAT EVERY INVESTOR SHOULD KNOW.......................................227
INVESTMENT SWINDLES: HOW THEY WORK AND HOW TO AVOID
THEM .............................................................................................. 247
TERMINOLOGY ............................................................................... 262
PAGE 3 OF 273
LOW RISK CAPITAL ACCUMULATION BY BANK

DEBENTURE TRADING
Introduction
The trading in "bank debenture instruments" is a multi trillion dollar industry
worldwide. Top world hanks (Money Center Banks) are authorized to issue
blocks of debt instruments like Bank Purchase Orders (BPOs), Promissory Bank
Notes or Mid-Term Notes (MTNs), Zero Coupon Bonds (Zeros), Documentary
Letters of Credit (DLCs), Stand By Letters of Credit (SLCs), or Bank Debenture
Instruments (BDls) under International Chamber of Commerce guidelines (ICC
-400 & 500).
The prices of these instruments are quoted as a percentage of the face
amount of the instrument, with the initial market price being established when
first issued. Thereafter, as they are resold to other banks, they are sold at
escalating higher prices, thus realizing a profit on each transaction, which can
take as little as one day to complete.
As these debt instruments are bought and sold within the banking
community, the trading cycles generally move from the higher level banks to
lower level (smaller) banks. Often they move through as many as seven or tight
trading cycles, until they eventually are sold to an already contracted retail
customer or "exit buyer" such as a pension fund trust fund, foundation, insurance
company, security dealer, etc. that is seeking a conservative, reasonable yield
investment that is suitable for 8 figure amounts.
By the time the bank debentures ultimately reach the "retail" or secondary
market level, they are of course selling at substantially higher prices than when
originally issued. For example, while the original issuing bank might sell a
"MTW" at 80% of it's face value, by the time it finally reaches the "retail/exit"
buyer it can sell for 91% to 93% of it's face value. Since these transactions are
intended for large financial institutions, they are denominated in face amounts
commonly ranging from US $10 million.
The key to safety and profits

The key to successful trading in Bank Instruments lies in having the
contacts, initial cash resources, and wherewithal to purchase them at the
maximum discount while also having the necessary resources and contacts to
sell the Instruments in the higher priced secondary markets. The real secret of
successful participation lies not in knowing the how, why and wherefore of these
transactions, but far more importantly, in knowing and developing a strong
working relationship with the "Insiders": the Principals, Providers, Bankers,
Lawyers, Brokers, and other specialized professionals who can combine their
skills and connections to turn these resources into lawful, secure, and
responsible programs with the maximum potential for safe gain.
PAGE 4 OF 273
There has been a lot of interest expressed by persons seeking to learn

more about risk free capital accumulation by participating in Forfaiting (Trading)
Programs. Essentially, we are discussing a Money Center Bank Instrument or
Bank Debenture Purchase and Resale Program in which these monetary
securities are bought at a beneficially lower price and then sold in the money
markets at a higher price.
Before a trader commits to any transaction, they must always ensure that
they have a guaranteed Exit Sale, (another party willing to purchase the bank
debentures at an agreed to higher price, at the conclusion of a number of trading
cycles). If no end customer is available before the transaction commences, then
no trade will take place, as the trader must always protect his positions; This is,
of course, vital for the maintaining of the profitability of the program.
Questions and answers

If this is such a good investment, why have we not heard about it?
The internal trading of bank debentures is a privileged and highly lucrative
profit source for participating banks, and as a result, these opportunities are not
made known to the public (bank customers). It would be difficult, at best, to
entice clients to purchase Certificates of Deposit, yielding 2.5% to 6%, if they
were aware that other, equally secure investment accounts yielded more than
ten times higher rates of return. The banks and traders always employ the
strictest non-disclosure and non-circumvention clauses in trading contacts to
ensure the confidentiality of the transactions. The contracts usually contain
explicit language forbidding the contracted parties to disclose any aspect of the
transaction for a period of five years. As a result, it is difficult to locate
experienced individuals who are knowledgeable and willing to candidly discuss
these opportunities and the high profitability associated with them, since in so
doing, they would severely jeopardize their opportunity to participate in further
transactions.
There are no smoke and mirrors involved; all of the trading programs are
conducted under the specific guidelines set up by the International Chamber of
Commerce (I.C.C.)., generally known as I.C.C. 500 & 600. The I.C.C. is the
regulatory body for the World's Great Money Center Banks and is based in Paris,
France. It has existed for more than 100 years, and exert strict control on world
banking procedures.
The U.S. Federal Reserve is a very important member, but unlike most
other central banks, operates independently of the LC.C., and as a result, the
vast majority of U.S. citizens have not been made aware of the money making
opportunities already available for forty-five years to qualified European
Investors through LC.C. affiliated banks. A few major U.S. banks do participate
from within their banking operations based in Switzerland and the Cayman
Islands, but they do not normally make their programs available to Americans
living in the USA, and the chances are very great that your local bank manager
has absolutely no knowledge of them, and may even deny their existence.
PAGE 5 OF 273
How are the investor's funds protected?

As the funds are deposited into a transaction they are secured by a Bank
Guarantee issued by a Top Money Center Bank, until the completion of the
transaction and return of the proceeds to the Investor. This feature makes the
investment as secure as buying a CD in a major world bank, at least for the
investor with sufficient funds to get his own contract. The return on the
investment is normally not guaranteed by the bank, except for a small portion (up
to 12% per year). Oftentimes the return is guaranteed by the trader, who has to
perform according to the contract to stay in business.
What is a bank guarantee?
A Bank Guarantee is a bank debenture instrument (or Certificate of
Deposit), usually issued by a Top Money Center Bank. Bank Guarantees in the
form of Bank Debentures are not available to the general public. They are used
to secure the safekeeping of clients' funds while they are committed to a
forfaiting (trading) transaction
Can I participate through my U.S. bank or brokerage firm?
There is no advantage to the U.S. Federal Reserve in making Forfaiting
transactions available in the United States. Under the Glass-Steagal Act of I933,
U.S. Banks and Brokerage Houses are prohibited by law from offering such
programs in the domestic markets. In addition, as a result of the 1929 collapse,
American bankers are severely inhibited by various regulatory procedures and
other requirements which make it impossible for them to offer these transactions
to their U.S. clients. Chances art that your attorney, banker and broker have
absolutely no knowledge of these programs since they are only conducted by
Top Money Center Banks located in Western Europe.
Can I go directly to a European bank to participate?
This type of trading contract is not offered as over-thc-counter transactions.
Forfaiting (Trading) transactions re highly privileged "insider" opportunities which
are only made available to those who have qualified for participation by first
completing all of the necessary documents, including bank certified proof of
funds, and have followed the established protocol before they are allowed to
proceed. Any attempt to circumvent the established procedures results in
automatic blacklisting of the offending party, by the applicable provider, and
possible penalties with no possibility of further participation in other programs.
Can the profits be compounded?
Under I.C.C. regulations, all transactions close to new business on
December 15th of the year and are not repeated in the following year. Those
transactions already in place will continue through to the completion of the
agreed period. Many programs become fully subscribed in a relatively short time,
and once closed to new business will not reopen. During the trading year an
Investor may, subject to continuing availability, step up to another program or
reinvest at the same or higher levels in the currently available program and thus
maximize his returns.
PAGE 6 OF 273
Can I use U.S. Treasury Bonds, Bills or other U.S. Government Securities in a
Forfaiting Program?
It is possible to use the above types of securities to participate in specific
"Blocked Funds" forfaiting (trading) programs, subject to the following
requirements:
a) That the securities intended for participation can be authenticated by a
Top 25 West European Money Center Bank; that they carry a registered, current
C.U.S.I.P. number, and that ownership in the name of the intended participant
can be verified to the satisfaction of the bank.
b) That the intended participant provide, from the West European Money
Center Bank, under an approved format, Bank Certified Proof of Funds and other
required documentation.
The securities can, of course, be hypothecated to the bank for a cash loan;
the cash can then be used for participation in a trading program as usual This is
the preferred procedure.
What part does the I.C.C. play?
Regulation of the international banking industry is under the authority of the
International Chamber of Commerce. The I.C.C. is based in Paris, France, and
has been in existence for more than 100 years. The I.C.C. is the world's
monetary policeman and exerts tremendous power in establishing the policies
and procedures under which all international banking transactions take place.
Some indication of this can be seen when one realizes that the U.S. Federal
Reserve came into being and gained acceptance in the international banking
community only after it's approval was granted by the I.C.C.
I.C.C 500 and 600 regulations are the controlling authority for all European
and international banking transactions. These regulations are not available for
public scrutiny any more than are those of the Federal Reserve in the USA.
What role is the Federal Reserve playing?
The U. S. Federal Reserve is a member of the International Chamber of
Commerce. As such, it represents the U.S. Dollar, which has been used as the
International Reserve Currency since the days the Bretton Woods Agreement
came into effect. The Bretton Woods Agreement was signed in 1944 between
the major Western Powers, and became fully effective in 1951.
The Federal Reserve regulates the supply of dollars in circulation, and as
dollar credits are shipped offshore they are placed with London Bankers for entry
into the worlds money markets. The London Banks have been the international
monetary clearing house for hundreds of years. The vast majority of nations,
large and small, entrust their funds to these bankers which have been the major
managers of Eurodollars (offshore dollars) ever since the Dollar became the
"pegged" currency, replacing the English Pound
The U.S. Dollar is the sole currency used in Forfaiting (Trading)
Transactions, primarily because it is the accepted reserve currency, but also
because of the huge amount of Eurodollars which are in circulation worldwide.
PAGE 7 OF 273
The supply of Eurodollars continues to increase on a daily basis as the U.S.

Government continues to pay its international trade deficit (which amounted to
$166 billion in the 1994 trading year) and national debt interest payments (which
now amount to approximately US$350 billion each year) with fiat currency.
It is important to recognize that the European nations in which the Forfaiting
transactions take place are financially powerful sovereign nations, with their own
well regulated stable banking systems which have proven their worth and stood
the test of time. These bankers report to the Federal Reserve, not in a
subservient capacity, but as the managing agents for the Eurodollars engaged in
transactions and general banking activity throughout the world.
It follows that the Federal Reserve, to some extent, regulates the amount of
dollars available for use by the European Banks, and as Forfaiting transactions
take place, they are reported to the Federal Reserve. These reports are normally
not made on an individual basis, but on the overall volumes of dollars engaged in
value building Forfaiting transactions, in support of the U.S. Dollar.
What is the reason for the existence of this market?
The legal and regulatory environment created by the Bretton Woods
Agreement which authorized the issuance of fiat paper currencies, provides the
necessary mechanism that enables the forfait trading of U.S. dollars in
international markets. The vast majority of currencies in use around the world
today are fiat currencies, i.e., unbacked by real assets. For example, at the time
of creation (printing) by the Federal Reserve, Federal Reserve Notes are literally
worth the price of the paper, ink and labor. No more and no less.
Dollar bills are non-redeemable, which means that the Federal Reserve has
no obligation to make their notes good or even to hold their value stable at home
or abroad. We use Federal Reserve Notes inside the USA as the accepted
vehicle of exchange, and they are given value solely by our productivity, labor
and taxes. However, when we ask foreign nations to accept this paper to pay for
debt service and/or trade deficit purchases of their oil cars, VCR's, machine
tools, wine, food clothing etc., there has to be a process to build value for this
otherwise: unsecured and non-redeemable fiat currency. This is what creates the
market.
How does the process work?
This is where the European bankers come into the picture. They establish
Forfaiting trades in Money Center Bank Debentures which are first issued in U.S.
dollar denominations at a discounted price to the Commitment Holders of about
75 to 80 cents on the dollar. The debentures art then placed at the disposal of
major European Money Center Banks and first go into trade at about 82 cents on
the dollar.
Thereafter, through a series of trading transactions which build value in
increments of 1, 2 or even 3 cents on the dollar, the U.S. dollar eventually
reaches parity with its perceived street value on any given day. The importance
of this value building process can be seen when it is understood that these
PAGE 8 OF 273
trades are taking place in multiples of hundreds of millions of dollars on a daily

basis, year in and year out.
Incidentally, the reason that the value of the U.S. dollar continues to decline
in world markets is because the Federal Reserve has dramatically escalated the
amount of Eurodollars in circulation over the past ten years; then are many
trillions in circulation around the world. It is not a matter of the Yen or Deutche
Mark "increasing" in value, as the Fed and the U.S. politicians would have you
believe; it is the old rule of supply and demand. As more and more U.S. paper is
put into play, the less its perceived value becomes in world markets; and the
world's bankers are unwilling to exchange less of their more stable currencies for
it.
Are IMF and the World Bank involved?
All fiat currencies are debt instruments, which are issued against a value
building transaction. When we accept dollar loans from a U.S. bank they literally
created that loan on paper, funded it with paper, and we then redeem the debt
with our labor and goods, creating value for the borrowed currency in the
process. The International Monetary Fund and the World Bank work to place
EurodoIlar into value building projects the world over. The funds used by these
organizations originate from Debenture Forfait Trading, and is yet another
method to establish value for the U.S. dollar in world markets.
Where are the Money Center banks located?
Major Money Center Banks engaged in Forfaiting (Trading) transactions are
primarily located in the financial centers of Paris, London, Brussels, Amsterdam,
Vienna Zurich Geneva, Liechtenstein and Luxembourg. Specific banks are not
disclosed to potential clients outside the parameters of an approved transaction.
How long will these programs be available?
Trading Programs have been available ever since the Bretton Woods
Agreement came into full force in 1951. The Capital Accumulation industry,
based upon U.S. dollars, probably has a finite life. There is a real possibility that
the time will come when the U.S. dollar falls from grace. The trillions of dollars
that were invested in the U.S. economy and in U.S. Treasury Notes by foreigners
were made at a time when the U.S. dollar was worth at least twice what it is
today (as recently as 1987), in foreign markets.
Those foreign Investors that invested in U.S. Government and private
American investments are seeing their capital lost value on a daily basis as the
dollar continues its steady decline against their native currencies. They are
steadily pulling their investments out of the U.S. markets in an attempt to cut
their losses and regain liquidity; and unless the U.S. Government and the
Federal Reserve can reverse this trend, the dollar will be placed in jeopardy of
becoming dethroned as the international reserve currency.
NOTE: Forfaiting (Bank Debenture Trading) Programs should not be

confused with Derivatives, which are risky and highly speculative, and consist of
PAGE 9 OF 273
a pyramid of borrowed collateral (debt), built upon or "derived from" the

Investor's underlying investment. Any deviation from the hoped for market
conditions can bring the pyramid crashing down, instantly burying the speculator
in a mountain of debt.
PAGE 10 OF 273
BACKGROUND OF TRADING PROGRAMS
In recent years there has been a blossoming of many Trading Programs,

also known as Asset Enhancement Programs, for the continuous purchase and
resale of bank-issued debenture instruments. These programs offer superior
returns for investors able to provide hundreds of thousands to millions in cash as
working capital.
As a backdrop for this essay, a short review of the world of credit and
banking may be helpful. Due primarily to the significant increase in international
trading since WW2, a ready market has developed for discounting, without
recourse, the Letters of Credit and other Bank Debenture Instruments that had
been received or accepted by shippers of goods and services overseas. A
shipper became the "holder in due course" of the bank paper, and usually sought
an immediate source of cash for the paper he was holding, issued by the foreign
buyer's bank, rather than wanting to hold the credit to maturity. This type of
negotiation of credits due in the future, at least as it applies to Bank Debenture
Instruments, is referred to as "forfeiting", and is defined as the negotiation of a
credit instrument, due at some midterm point in the future, without recourse to
the prior holder.
Quickly, sophisticated bankers and their closest clients realized there was
an opportunity to make considerable profits from handling this paper, and that,
indeed, there was no real need to begin with the underlying "international trade
transaction" to obtain the paper. If you were an insider in European banking, you
could obtain the paper from the Issuing banks without a trade transaction to
finance - the paper could be bought outright. As the vigorous growth in world
trade zoomed, a broader secondary market evolved for such instruments as
relatively high yielding, safe investment vehicles for institutional investment. The
insiders began devising Trading Programs to attract capital for taking advantage
of the wide spreads. Due apparently to the more sophisticated and asset-based
nature of the European banking industry, it has been primarily a very small group
of wealthy individuals, working with an even smaller number of top executives in
the largest European banks, that had been leading the way into the development
of Trading Programs. Now the US Banks, along with the major securities firms,
but only at the highest levels in their executive suites, have entered the
business. As a justification to themselves and to the bank regulators, many
banks have directed the issuance of new paper towards transactions that involve
the financing of socially desirable development or construction projects, and
participate in the fashioning of "self-liquidating loans", where the spread between
the low issue price, and the eventual collection of the principal and interest is
used by the project being financed. Today, all or nearly all Trading Programs
have a project attached, which gets part of the profits, or you are asked to supply
a project.
PAGE 11 OF 273
In short this is very much an insider's game, thoroughly known and

understood by a privileged few. It is safe to say that 99.9% of the investing public
in the US has never heard of Trading Programs of this sort, and if one walks into
any US Bank or brokerage firm to make inquiry, everyone there will tell you that
such things don't exist, that there is no such thing as a "'Prime Bank Note" or a
"Prime Bank Guarantee", and that Letters of Credit are used only for trade
transactions, and on and on. Meanwhile, at the top of the bank or brokerage firm
hierarchy, the executives are active in pursuing what the lower ranks are not
aware even exist. The author has interviewed numerous bankers and brokers on
this subject, to be met with a variety of disbelief expressions from blank stares to
accusations of outright lying.
In the US, the supply of money or credit is regulated by the Federal
Reserve ("The Fed"), in part through the authorization of certain top world banks
to issue the following instruments:
Bank Debenture Instruments in various forms, known as "PBMs" or
Promissory Bank notes or Prime Bank Notes "PBGs" or Prime Bank Guarantees
("Medium Term Bank Notes" in Europe) "Os" or Zero Coupon Bonds and Bank
Credit Instruments, in various forms of Letters of Credit, known as "DL/Cs" or
Documentary Letters of Credit "SL/Cs" or Standard Letters of Credit.
The LCs most widely used have a one year term, whereas the Os, PBNs
and PBGs range in term from one year to twenty years, with ten years the most
widely used (aside from "special cuts", that are custom issued paper for a
specific purpose). PBNs and PBGs usually bare annual interest at 7.5%, by
separate interest instruments, whereas LCs are mostly non-interest barring.
(Interestingly, there have been many brokers touting plans to trade PBGs and
using those terms. It's best to say "Medium Term Bank Notes" and be accepted
by the bankers. Also the term "Prime Banks" is a worn, hackneyed phrase to
European Bankers. They say "International Banks" to express the same thing.
(Prime doesn't have an exact definition.)
The world's banks all abide by the terms, conditions of issuance, delivery
and collection of these instruments as defined by the International Chamber of
Commerce (ICC), Paris, France. The I.C.C. publishes a broad range of books
and pamphlets giving the rules and regulations pertaining to these instruments,
and the publications pertinent to this course are found in the suggested reading
list below. The I.C.C. maintains an office in New York City, from which these
publications may be obtained by mail at modest prices.
It has been described to me that the worlds top "'International Banks"
receive a quarterly or annually allotment of authority from the Federal Reserve to
issue these bank instruments, over and above those regularly issued as an
accommodation to customers engaged in international trade, after quarterly or
annual review of each banks protfolio and condition. "International Banks" are
generally defined as the top 250 world banks ranked by the net assets, but more
often reduced to the top 100 or fewer. "A buyer of bank Instruments generally
specifies a "menu" selection of groups of banks acceptable to him as issuers, by
such phrases as the "Top 50 International Banks" or the "Top 25 Western
PAGE 12 OF 273
European Banks", etc. The involvement of the Fed in this market is unknown to
the writer, but different stories circulate, and different theories are put forth,
depending on to whom you are listening.
The prices of these instruments are quoted as percentage of the face
amount of the Instrument, with "Issue Price" being the price collected by the
issuing bank, and subsequent market prices being established in the resale of
the instrument. Usually instruments will be resold from the "primary" market, or
first buyer, to the "secondary" market, which has several levels of increasing
prices. As the instruments pass from trader to trader, and bank to bank, with
each party taking a profit along the way There is a fluid "pecking order", where
the most influential and best connected parties seem only to be able to buy at
higher prices. The "End-buyer" of the instruments is usually a retail customer
such as a pension plan, foundation, trust fund, insurance company, etc., that is
looking for a very safe, reasonable yield instrument in which they can "park"
money, or Invest for a certain period of time, the very large sums of cash that
they regularly hold.
By the time the instruments reach the "retail level of the secondary market,
they are selling at substantially higher prices than when originally issued. For
example, while an issuing bank may sell an LC at 75% of its face amount, when
it finally gets to the "retail" buyer, it can sell for 91-93% of the face amount. The
instruments are intended for use by large financial institutions, and so they are
normally denominated in face amounts of $10 Million to $100 Million.
Obviously, the trading of these instruments is another of the many ways that
banks make money. Therefore, it is something they generally would rather not
share with outsiders. It would be difficult indeed to interest most investors in a
CD yielding 4% today, if they knew that there was other paper available from the
same bank yielding five times or more that rate. This is why bankers won't talk
about this business, and why the transactions they engage in are hidden in their
financial reports, through an overseas subsidiary, or done in a parent holding
company name. Top bankers and brokerage executives dare not tell their
employees who are engaged in selling CDs to clients. There is another reason
why so few experienced people talk about these transactions: virtually every
contract involving the use of these high yield instruments contain very explicit
Non-Circumvention and Non-Disclosure clauses forbidding the contracting
parties from discussing any aspect of the transaction for a period of years.
Hence, the greater difficulty in locating experienced contacts who are both
knowledgeable and willing to talk openly regarding this type of instrument and
the profitability of the transactions in which they are involved. This is a highly
private business, not advertised anywhere, not covered in the press, and not
open to anyone but the best connected, wealthy entities that can come forward
with substantial cash funds. From original issue of the instruments, all the way
up to the "retail" level, the business is private.
As is readily evident from the foregoing, one of the principal keys to the
profitability of any transaction utilizing these instruments is having the resources
and contacts to purchase at a level closest to the issuing bank (at the biggest
PAGE 13 OF 273
discount), while also having the resources to sell the instruments into the highest
price levels at "retail", or near it, in the secondary market. As anyone may
imagine, these contacts are most jealously guarded.
So the real secret of successful investment, then, lies not in knowing just
the how, why, arid the where of these transactions, but most importantly, in
knowing the bankers, lawyers, and other professionals who can weave these
opportunities and the necessary resources into safe, clean, responsible
investment programs with next to zero downside risk. Ideally, an investor will look
to invest with a Program Manager who has the following characteristics, all of
which are difficult to obtain and maintain:
Through many years in banking and associated fields, has
developed sources which can provide Current, reliable information
regarding the constantly changing availability of Bank instruments
from the original issuers.
Has developed sources which can provide timely, reliable
information regarding the ever-changing customers in the retail
market.
Has a well established, solid relationship with a transacting bank or
brokerage firm to execute the transactions with the highest degree
of competency.
Such a Program Manager has the opportunity to bypass a large number of"
'intermediaries" and profit from the wide "spread" for which these instruments
can be bought and sold, going from issuers directly to retail. The term of various
Trading Programs vary considerably. All Program managers will have a means of
protecting the investors working capital funds invested for the term of the trading
program, either through a bank instrument (LC), a pledge of Treasury securities,
a bank guarantee of return of the funds, or joint signatory accounts with the
investor, to name those means most often used.
Returns vary widely as well. Some Programs pay a fixed daily, weekly,
monthly, quarterly or annual return. Others pay a percent of the trading profits
generated, over the same time intervals. Some Programs offer the possibility of
leverage from 2 to i, out to 10 to I plus, on the funds invested.
There have been a number of seams that have surfaced in this business.
An investor must first of all be extremely careful that the method of protecting his
funds is solid, sound and bulletproof He should meet with the Program Manager
and at least some of his staff and get to know the details thoroughly. He should
ask to check banking references of at least one international Bank. It is important
to make sure that the program actually trades, and get at least monthly reports of
such trading to monitor progress.
Now, having taken due note of the warnings and cautions above, an
investor can take considerable comfort in the knowledge that, when his funds are
employed in a Trading Program by a reputable and honest Program Manager, he
is in the "hogs' heaven" of Investing. Nowhere else in business is there such a
high reward for such a low risk. A capable Trading Program can, with
PAGE 14 OF 273
compounding of invested funds, make the investor a profit in one year of 1,000%
or more, with near zero risk.
The dominant reason that the business is nearly completely without risk to
the Investor and to the Trading Program Manager is that knowledgeable players
in this private business never buy an instrument before it is pre-sold. Contracts
are established both for the purchase and for the sale of a series of instruments,
prior to any actual trading taking place. A capable trader will, for instance, have
available to him a "supply" contract, whereby he signs up for the purchase of $i
bullion or more in new issue instruments over a specified time period from a
"collateral supplier", such instruments to be taken down by the Manager on a
regular scheduled basis - so much per trading day, so many days per week, etc.
With such a supply of contracts at hand, the Manager will then seek buyers
who will buy from him so much per trading day, so many days per week, etc., at
a higher price. With bank-to-bank transactions agreed upon in advance, the
Manager and his Trading Program become an almost automatic pass-through
mechanism for moving instruments from collateral suppliers to buyers further up
the chain, and the risk exposure is slim to none, particularly with hank-endorsed
or brokerage house-endorsed contract executions that are usually set up. Banks
and brokerage houses performing the trades for the traders love the business
because they get a fee or commission on each trade that is way out of proportion
to the actual work performed -ranging from a 32nd of a point up to 3/8th of a
point on each transaction, depending on the negotiated situation. Brokerage
houses that help the Manager find end-buyers, often can make much more.
The "disbelief factor has restricted the acceptance of Trading Programs in
the US, as has the fact that under the Glass-Steagle Act of 1922, which
separated the banking business from the brokerage business, banks cannot
conduct Trading Programs in the US. The author has found that many
investment professionals have the ingrained belief that they already know
everything significant that is going on in the world financially, and when advised
of this business they automatically assume it is a seam, or ask for confirmation
from a bank or a recognizable client who is achieving these levels of profit in
such a program. Then when told that the banks and clients have signed non-
disclosure agreements, and therefore can't act as references, the professionals
are turned off altogether. Many times I have heard the old saying, "'when I hear
something that sounds too good to be true, it usually turns Out not to be true." It
is just so hard for the uninitiated to believe that such huge returns are possible.
After all, the typical Pension Manager struggles each year to beat the Standard
& Poor's average of 9% per year - 900% plus is light years way outside of his
realm of experience, ergo, is impossible in his eyes. what the disbelievers fail to
recognize is that until the instruments surface at the "'retail" level, where they are
competitive in price to other forms of financial paper, the instruments are traded
in a private market that is unrelated to anything in the public domain.
The regulators of the worlds' banks and the financial relationships between
the western nations and their banks is a highly complex and mostly private
business. Add to that the interaction of various international agencies under the
PAGE 15 OF 273
auspices of the United Nations, and the pressures on the National Treasury
Officials of each nation to deal with the flows of their own currencies in relation to
others, and you have a totally indecipherable situation for anyone who is not an
insider. One has to deal in this world without the full understanding of what is
really going on, and the lack of such understanding usually prevents
conservative investors from participating in Trading Programs.
It is difficult to find out the exact truth of the matter. One has to know first
that a casual call to a top European Bank will meet with the response, "We don't
know what you're talking about." These banks will not openly discuss this
business, because it is their private business, The only way to get a bank to
open up to you is to show the bank that you have the money to become a
member of the private club. Even then, you need a proper introduction. You can't
just walk into a branch of Barclays, Credit Agricole or Credit Suisse in London
and ask to get into a Trading Program. As earlier discussed, these banks don't
let their employees who have contact with the public, know anything about this
business. Barclays doesn't even do this business in London, they do it in
Plymouth.
You have to be introduced to the right officer at Credit Suisse, in the right
office, or you will have wasted your time in Switzerland.
One needs to apply, with a letter of intent and evidence of funds through a
knowledgeable party, in order to get the facts from a Program Manager and its
bank. (Note: Managers will only make appointments with you after you have
provided them with a bank letter confirming that you have good, clean, clear,
immediately available funds of non-criminal origin. Tire-kickers go away.)
Becoming knowledgeable in this business is difficult. One of the most
frustrating features of gaining and maintaining knowledge, is that a good
Program Manager will soon fill up his capacity, and then stop taking new money,
which is effectively closing down, as far as the inquiring newcomer goes.
The author has spent some significant time in the past three years
establishing, on separate occasions, a relationship with each of three capable
Program Managers, only to find, just as clients were getting ready to invest,
these Managers had taken all of the money that they could handle, and closed
the doors to new investors. When a good program appears, time is of the
essence to act and get positioned.
PAGE 16 OF 273
TRADING OF BANK CREDIT INSTRUMENTS

(DEBENTURES)
BY STEVE GLANZ
Introduction
There is little known but lucrative international investment. This investment
involves the trading (forfaiting) of bank credit instruments (debentures), also
known as known as deferred payment, delayed payment, or stand-by
credits. * Until recently, trades were only available in minimum blocks of $100
million, but certain developments have allowed small investors to qualify.
Profits range from 400% to 2,000% or more per year. What follows is a
history of this investment, the reasons for its obscurity, the mechanics, safety
and risks.
History
As far back as 4,000 years ago, letters of credit were being utilized in
international commerce. An ancient businessman could not safely cross national
borders carrying silver or gold. Instead, the businessman would carry a letter of
credit which gave him license to conduct business abroad. The safety,
acceptability, and perceived value of the letter of credit was dependent upon the
performance and reputation of the issuer. Today, the perceived value of these
credit instruments is based on the same thing - the reputation and performance
history of the issuing bank.
In modern times, forfait transactions became available when flat paper
currencies (not backed by real assets such as silver or gold) were issued, as a
result of the Bretton Woods agreement. In the 1940s, U.S. Banks began issuing
Stand-by Letters of Credit to compete with foreign banks, which unlike U.S.
Banks, were allowed to offer primary obligation guarantees. (The Stand-by
Letter of Credit is not a primary obligation guarantee.)
Because these credit instruments are non-performance based, they are a
contingent liability of the bank, and are accounted for off-balance-sheet. This
allows the bank to increase profits by leveraging the funds at the time of issue
over the term of maturity. Not only do these instruments enhance the banks
credit, and guarantee the banks customer, but they are being used by investors
as safe, high yield investments. They are also popular with borrowers who can
arrange a self liquidating loan using the stand-by credit instrument as collateral.
PAGE 17 OF 273
Creation of the Market

Flat currencies such as Federal Reserve Notes are non-redeemable. The
Federal Reserve is not obligated to make their notes good, or to hold their value
stable at home or abroad. At home, value is created by labor and taxes.
Abroad, the value of the currency has to be built before a foreign nation will
accept this paper to pay for debt service, or trade deficit purchases of their oil,
cars, electronics, food, clothing, etc. This is what creates the market.
Mechanics of the Transaction

The trades begin with approximately 25 top banks in the world, rated by
size of assets, safety and reputation. Most of these banks are in Europe. They
are known as Prime Banks or Money Center Banks.
The Prime Bank issues a debenture at the request of an intermediary party
(by law), to another bank at about 75 to 80 cents on the dollar. This bank sells
the instrument to a third bank at about 82 cents. A series of 7 or 8 similar
trading cycles continues, building value in increments of 1, 2 or 3 cents on the
dollar for each trade. Eventually, the value reaches near parity with the dollars
perceived street value on any given day. At this point, the instrument is sold to
an exit buyer such as a pension fund, trust fund, foundation, insurance
company, security dealer, etc. that is seeking a conservative, reasonable yield
investment.
Trades can be quite diverse. At each level of the trading cycle, there are
several banks involved:
- Issuing Bank, Confirming Bank, Advising Bank, Sellers Bank, Buyers
Bank, and Fiduciary Bank.
The types of bank instruments include:
- Bank Purchase Orders (BPOs); Promissory Bank Notes or Mid-Term
Notes (MTNs); Zero Coupon Bonds (Zeros); Documentary Letters of Credit
(DLCs), Stand By Letters of Credit (SLCs), and Bank Debenture
Instruments (BDIs).
These instruments can be:
- Fresh Cut, Aged, Special Cut, Wrapped, or Master Collateral
Commitments.
Roll programs can be:
- Self Operated, Outside Operated, Buy-Sell, or Table-Top.
Loan transactions can be:
- Arbitrage, Self-Liquidating, Forfeiture or Non-Recourse
Though somewhat complex, the trading cycles can take place in

less than a day. An investor who interfaces at any one of these cycles
earns 1-3% per day on the transaction. By re-investing the principle and
PAGE 18 OF 273
profit immediately, the effect is a very rapid compounding of interest on

a large sum of money.
Laws
The bank credit instruments described are irrevocable obligations of the
issuing bank. They are issued subject to the International Chamber of
Commerce (ICC), Uniform Customs and Practice (UCP) for Documentary
Credits, latest revision. They fall in the group of bank credit instruments referred
to by the ICC Banking Commission in 1983 as being deferred payment,
delayed payment or standby credits.
All of the trading programs are conducted under specific guidelines set up
by the International Chamber of Commerce (ICC), generally known as ICC 500 &
600. The ICC is the regulatory body for the Worlds Great Money Center Banks
and is based in Paris, France. It has existed for more than 100 years, and exerts
strict control on world banking procedures.
Role of the Federal Reserve, IMF and World Bank

The Federal Reserve is an important member of the ICC, but unlike most
other central banks, it operates independently of the ICC. The Federal Reserve
is very actively involved in these trades.
Funds originating from forfait trading transactions must, by law, be
placed into value building, humanitarian projects throughout the world.
These funds and projects are channeled through and regulated by the
International Monetary Fund and the World Bank.
Why Is This Investment Not More Widely Known?

There are many reasons why international bank debenture forfait trades are
not advertised to the general public.
Because of their extremely high yields, if banks were to openly advertise
these transactions, they would be hard pressed to sell their bread-and-butter
products, such as Certificates of Deposit yielding a mere 2-6% per year.
Under the Glass-Steagal Act of 1933, U.S. Banks and Brokerage Houses
are prohibited from offering such programs in domestic markets. Additionally, as
a result of the 1929 stock market collapse, American bankers are severely
restricted by regulatory procedures which make it impossible for them to offer
these transactions to their U.S. clients.
Even the top European banks do not offer these trades over-the-counter.
They are only made available to highly qualified insiders who have established
their credentials, and are familiar with the documentation and protocol.
Participants are prohibited from circumventing established procedures. A certain
level of secrecy is maintained to protect agents from un-qualified investors, and
to keep the general public and regulatory agencies out of the banks unregulated
business.
PAGE 19 OF 273
The very fact that this is an un-regulated business means that there is little
documentation available on rules, regulations and procedures. Bank officers will
truthfully deny any knowledge of these transactions, especially since the credit
instruments are very specialized and are only offered by certain departments in
the bank.
Because the Federal Reserve operates independently of other ICC, U.S.
and Canadian citizens have not been made aware of the money making
opportunities available for forty-five years to European Investors. The Federal
Reserve does not advertise these opportunities because to do so would bring a
slew of private investors competing with the Federal Reserve itself. This would
defeat the Feds efforts to maintain strict control of the dollars value abroad. All
banks must cooperate with the Fed, so they are reluctant to admit any
knowledge of these transactions.
Since these transactions are off-balance-sheet, they are not Securities, and
the SEC and other regulatory agencies in the U.S. have no jurisdiction over
them. They find this threatening and have been known to mistakenly challenge
these transactions.
To be fair, there have been complaints filed about fraudulent trades. As a
result, Federal Agencies are wary of these investments. Bank officers and
investors who have been burned by fraudulent trades believe that there are no
legitimate transactions. This is a false assumption, but another reason why the
investments are not better known. It also explains why they are advertised by
traders and brokers primarily by word-of-mouth. Legitimate professionals do not
want to attract the wrong kinds of intermediaries or investors, nor attract the
attention of Federal Agencies who mistakenly believe that these transactions are
within their jurisdiction.
Finally, government officials can only be trusted to do what is in their best
interest. Therefore, they do not always tell the truth.
Why is This a Safe Investment?

In order to evaluate a trading program, one must be aware of some of the
pitfalls that could arise, and be able to ask the right questions. This takes
experience. I have already done this work for you.
In spite of the problems, bank debenture trades are a very safe investment
if you steer clear of bogus transactions. This not hard to do. If you screen the
program carefully, or go through a broker who has pre-screened the
program, problems are non-existent. In fact, one might argue that there
is more risk involved in stock, bond, commodities and futures investing.
To be sure, forfait transactions are the most lucrative investment vehicle
in the market today.
The Investors funds can be protected in a number of ways:
- Bank Guarantee from a Top Money Center Bank (Debenture or CD
yielding 6%, 7% or 8% per year)
- 110% Treasury Bill held in escrow against principle
PAGE 20 OF 273
- Surety Bonds
- A top rated Bank Insurance Company insures the funds
- Various other protections
How Can the Small Investor Participate?

The minimum unit for a trade is usually $10 million, which is beyond the
scope of the small investor. There are four ways in which the small investor can
participate. The first is through leverage, which means a smaller amount of
cash is used to control a larger amount. For example, $300,000 can be used to
leverage $10 million. The percentage of profit is the same on the smaller
amount as it would have been on the larger. Leveraging does not work like the
futures market. There is not any loss of capital if the market swings the wrong
way. Either the trade happens or it doesnt.
The second method is conceptually similar to the first, but operates
differently. In this scenario, a small fee is paid which secures a large credit line.
The fee normally consists of a retainer, which covers the creditors risk in
evaluating the program, and a facility fee of about 3-4% which secures the actual
credit line. One shortcoming of this method is that some banks will not
recognize the credit line or leased funds if it is not under the absolute control of
the investor. If the credit line can be un-encumbered, it has a greater likelihood
of qualifying for the given program.
The third method is through the pooling of funds. An intermediary will
package or aggregate funds from smaller investors. If the minimum trading unit
is $10 million, he can pool together ten investors at $1 million each. If even
smaller investors are to be considered, an intermediary lower in the chain may
aggregate $100,000 investments to make $1 million, and so on. A problem
associated with this approach is that if an aggregator is dishonest-honest, he can
mis-appropriate funds and never channel them into the trade. Or if a trade goes
sour, the aggregator may use the money to cover his expenses.
Finally, in certain cases, an investor may be able to piggy-back a small
sum onto a larger one. For example, if the unit is $100,000, but the investor only
has $5,000, he can add his $5,000 to the $100,000 unit, and earn the same
returns as the larger investor. Piggy-backing is most likely to be available when
the unit is part of a pooled fund. It is not an option when the larger unit must be
a discrete sum.
What Kinds of Programs are Offered?

Through the magic of leveraging, pooling, and the leasing of credit lines,
forfait transactions can be offered in denominations ranging from a minimum of
$50 to a maximum of $5 billion or more. Several types of guarantees can be
offered. Term and profit depends on the number of trading cycles, fees taken
out by intermediaries, and the manner in which trades can be combined with
other investment vehicles, such as:
- Self liquidating loans
PAGE 21 OF 273
- Traditional stock, commodity, futures and currency transactions -

executed skillfully for very high yields
- Private placements
- Credit cards and credit line offerings
- Asset protection vehicles such as layered IBCs, UBOs, LLCs, and
Trusts
- Blocked funds programs
- Short Term Investment Programs
- Discounted trading programs that allow early withdrawal of funds at a
discounted profit
- Bond offerings and underwriting
- Joint ventures
- Import/export financing
- Asset based lending, backed up by safekeeping receipts
- Fiduciary services
Brokers and program designers have found numerous ways to combine
these elements into creative offerings for their clients. Although complex from
the providers standpoint, the execution is very simple from the
investors standpoint. These are passive investments which require no
effort or understanding of details.
The Broker's Job

A broker specializes in screening out the best programs from the
best brokers in the business. They make broker-broker, broker-trader, and
broker-investor introductions. They circulate their current list of offerings
without revealing names, addresses or phone numbers of the investors, program
directors and brokers they work with.
* Throughout this paper, I will not define most technical terms, because that
would make for a very lengthy paper. If the reader wants an education, I am
available for consultation, or I recommend the following book: A Guide to
Legitimate Bank Issued Stand-by Credit Instruments, Buy-Sell and Loan
Transactions, T.W. Coggins, 3519 Celeste Avenue, Moss Point, MS, 39563. The
cost is $57.00.
PAGE 22 OF 273
BANK DEBENTURE INSTRUMENTS &

INVESTMENT PROGRAMS RE THE PURCHASE
AND RESALE OF SAME
The three questions most frequently asked by prospective investors

considering an investment in a program of purchase and resale of bank
debenture instruments ("Trading Program") are as follows:
1. Why do a majority of the largest banks of the world issue bank

debenture instruments at a discount?
2. Why is there a "secondary market" for these discounted debenture

instruments? and
3. Why is it so difficult to confirm that these instruments are available?
In addressing the above questions it has been our policy to provide

prospective investors with a copy of Marshall Petit's " Maynard Keynes, Bretton
Woods and The Prime Bank Debenture Issuance Program" - (A Brief History Of
Their Interrelationship And Importance In The International Economic System).
While we will continue to provide Mr. Petit's article upon request, we are of the
opinion that the following excerpt from a letter written in August of 1993 by the
former Chief Financial Officer and Senior Vice President of the administrative
companies that comprise one of North America's most significant mutual fund
families addresses the above questions admirably.
QUOTE
'As you know I spent six years as the Chief Financial Officer and Senior
Vice President of the administrative companies that comprise the
________________ Mutual Fund Family and as either the Treasurer or Assistant
Treasurer of the actual Mutual Funds. It was during my days at the
_______________ Funds that I became familiar with these types of bank
instruments and the vast size of the markets these instruments are traded in. In
the mid-1980's I purchased my first instrument, a $100 million ten year
Promissory Bank Note for the portfolio of the Underwriter, ______________
Fund Distributors, Inc.. The Underwriter purchased said note, which was issued
by Swiss Bank Corp. and which paid 7.5% interest annually, at the price of 73%
of the face value (remember that interest rates in the mid 1980's were extremely
higher than today's interest rate environment, necessitating a deeper discount
PAGE 23 OF 273
offer by the issuer in order to be competitive with the other, more well known
capital money markets). Since leaving the ___________ Funds and
forming___________ and Associates, inc. we have successfully arranged bank
debenture purchases for our clients on numerous occasions. In addition, we
currently have three transactions ready to begin; one is a purchase of a letter of
Credit to be issued by Chemical Bank, London, with the other two transactions
being the purchase and immediate resale on the secondary market of ten year
Prime Bank Guarantees ("PBG's"). For one of these transactions we have
received a written commitment from a British Bank in Norway to purchase a fixed
amount of the PBG's at a price of 91% of their face value, allowing a
considerable profit to our Client who will be purchasing the instruments on the
primary market.
Now let's turn our attentions to your above questions.
A. "Portfolio Risk Balancing" of the off balance sheet side of the bank;
B. Forfaiting;
C. Leverage;
D. The "shifting" of U.S. Dollars to different world financial markets;
E. Privacy; and, most of all
F. Profitability.
Before getting into the details of the above six subjects, it is important that
the reader of this document understand that the vast majority of the banks that
buy and sell bank debenture instruments record these transactions "off balance
sheet". By treating these transactions in this manner the banks are able to buy
and sell these instruments without concern for reserve requirements placed on
them by the regulators of the countries in which they function. Raising cash for
the bank without having to reserve against same is, in essence "leveraging of a
sort". The volume of off balance sheet transactions done by the top world banks
is staggering! Citicorp, for instance, had $1.4 TRILLION in off balance sheet
liabilities and $1.375 TRILLION in off balance sheet assets as of the end of the
Bank's 1990 accounting cycle. In addition to discounted bank debenture
instruments, other off balance sheet type transactions are interest rate swaps,
currency swaps and many different forms of what has become known as
"Derivative Securities". As you can see by the above numbers for just one of the
PAGE 24 OF 273
top banks of the world, the off balance sheet side of the banking business is an
enormous financial marketplace!
PORTFOLIO RISK BALANCING
As you know, one of the precepts of banking is the balancing of risk. Hence,
banks offset off balance sheet liabilities with off balance sheet assets, thus
spreading the risk involved. Depending on accounting cycle timing and the mix of
the off balance sheet portfolio, banks will use discounted bank debenture
instruments as "portfolio balancing" transactions. Each individual bank's portfolio
mix determines whether the bank is a buyer or seller of discounted bank
debenture instruments.
FORFAITING
Debt instruments now forfaited include bills of exchange, promissory notes,

book receivables, letters of credit and bank guarantees. Both bills of exchange
and promissory notes are forms of obligations that are well known to traders and
bankers because of their long use throughout the world Therefore they are easily
transferable.
Although the discounting of merchants' acceptances and receivables has

been going on for hundreds of years, the origins of forfaiting stem back to the
period after World War II. The Zurich banking community pioneered forfaiting to
finance grain sales by the United States to East European countries. Forfaiting,
therefore, originated in commodity-based transactions. By the late 1950's and
1960's, forfaiting expanded into the emerging international business in capital
goods. This market for forfaiting developed as West European exporters found it
increasingly difficult to provide credit from their own resources at the same time
as they were funding heavy internal investment in order to take advantage of
new markets in developing African, Asian and Latin American countries. Since its
establishment in Switzerland, forfaiting has become established in other financial
centers.
The forfaiting market has seen three principal developments in recent

years. The first development is the emergence of a secondary market in forfaited
assets. The market consists of primarily forfaiters who seek an opportunity to
resell their investment to someone for a profit. This secondary market in forfaited
paper is now quite active. The growth of this market now consists of those who
seek the forfait as an end investment, those who simply try to make money
buying and selling the paper and other individuals who seek forfaited paper for
private investment purposes where the yields on particular debt instruments in
PAGE 25 OF 273
the secondary forfait market are higher than they can obtain with similar risk
elsewhere.
The second recent development in forfaiting is the syndication of individual

purchases of debt instruments. Because of the large sum of money and large
commitments on a guarantee from any bank involved, syndication is an obvious
move to spread the risks involved. Syndications are arranged by a forfaiter
contacting others and arriving at an agreement whereby each party involved will
purchase different tranches of the forfaited obligation. The phenomenon of
different parties being involved in the same tranches is not generally favored by
the forfaiting market because they may involve side agreements between parties
that restrict the transferability of the instruments involved.
The financial instruments frequently, but not always, involved in forfait

transactions are items such as standby letters of credit, bank notes and bank
guarantees, all of which are issued by banks. These forms of so-called bank
paper when used in forfait transactions are typically limited to banks that fall
within the top 100 in terms of size or other financial criteria on a worldwide basis.
This is intended to give the parties buying and selling such assets some further
level of comfort about the financial integrity and stability of the underlying bank
that has issued the instruments in question. Over the past several decades there
has been a tremendous amount of growth in these forms of bank financial
instruments which fall loosely into the category of off-balance-sheet banking.
Historically, these instruments have derived this label by virtue of the bank's not
being required to reflect these transactions on the bank's balance sheet.
Accounting practice does provide for the treatment of such items on a footnote
basis.
The following has been excerpted from Note 21 to the 1990 financial
statements of Chase Manhattan Corporation; Note 21 is titled "Financial
Instruments with Off-Balance-Sheet Risk".
"In the normal course of meeting the financing needs of its customers and
managing its own trading and asset-liability management exposures to
fluctuations in interest rates and foreign exchange rates; the Corporation is a
party to various financial instruments with off-balance-sheet risk. These
instruments involve, to varying degrees, elements of credit and market risk in
excess of the amounts recognized in the Statement of Condition..."
Credit risk is the possibility that loss may occur from counter party failure to
perform according to the terms of the contract. Market risk arises due to market
price, interest rate and foreign exchange rate fluctuations that may result in a
decrease in the market value of the financial instrument and/or an increase in its
PAGE 26 OF 273
funding cost. Exposure to market risk is managed through position limits and
other controls and by entering into counterbalancing positions..."
In the year-end 1990 Chase financial statements, Note 21 indicated

approximately $17 billion of standby letters of credit, foreign office guarantees or
other letters of credit outstanding that have not been "counterbalanced" by
another off-balance-sheet item. Historically, large banks have been active in this
area because it allows them to service substantial customer credit needs
without, in many instances, funding these credit instruments themselves by, in
essence, selling the credit to a third party. This is a principle component in the
substantial growth of these instruments.
PAGE 27 OF 273
BANK SECURED PRIVATE PLACEMENTS
Background And Nature Of The Instruments Being Traded

The driving force behind the financial instruments under discussion in this
paper is the U. S. government through its monetary agency, the Federal Reserve
Board ("the Fed"). The U.S. dollar is the basis of the world's liquidity system
since all other currencies base their exchange rate on it. Quite simply this means
that the U.S. is the world's central banker. As the world's central banker, the U.S.
as the most powerful nation, has an enormous responsibility to maintain stability
in the world's monetary system. As well, the U.S. as the most powerful nation,
has accepted the role as the champion and promoter of democracy in all of it
endeavors. While the U.S., has many tools to do this, one in particular is relevant
for the purposes of this discussion.
The Fed uses two financial instruments to control and utilize the amount of
U.S. dollars in circulation internationally: Stand-by Letters of Credit (SLC's) and
Bank Guarantees ('BG's). Both these terms are short hand or trade jargon and
are more properly known as bank debentures or bank obligations (e.g., Medium
Term Notes).
The Fed's domestic tools to control credit creation are interest rate policy,
open market operations, reserve ratio policy, and moral suasion. In the domestic
context, these tools are not always as effective as the Fed would like them to be.
Part of the reason for the less than perfect effectiveness is due to the substantial
stock of U.S. dollars in foreign jurisdictions. Several of the Fed's domestic tools
cannot be used by it in other countries. For example, the Fed cannot change
foreign reserve ratios. Furthermore, a significant amount of credit creation occurs
in U.S. dollars in foreign countries, particularly in the Eurodollar market. The Fed
cannot control credit creation in foreign markets through its use of domestic
policy instruments.
Internationally, the currency of choice is the U.S. dollar as it is considered
the safest currency, especially in times of political crisis. Consequently, those
holding the dollar do so for reasons which are less sensitive to economic stimuli.
Because foreign banks readily accept U.S. dollar deposits, those funds, which in
the domestic context are the basis of Ml money supply, and in the foreign context
act more like the near money features of M3. This means they are infinitely more
difficult to control.
The "offshore market" has grown substantially in the last two decades for a
number of reasons. First, huge quantities of U.S. dollars associated with the drug
trade slosh around the international monetary system, and second, wealthy
individuals concerned about high taxes and preserving their wealth opt to keep
their assets in offshore tax havens. This significant stock of U. S. dollars cannot
be effectively controlled by the U.S. with its normal domestic policy tools.
PAGE 28 OF 273
Finally, currency futures markets can be another difficult area to control

because of the substantial amount of leverage that is available. For example, for
as little as $1,500 dollars, it is possible to short or go long for over $150,000 US
dollars versus the Deutsche mark (DM). All other major currencies have a similar
leverage on the dollar. This means that someone with $1,500 USD can take the
other side in a Fed move to stabilize the currency. Since the currency does not
have to be delivered, but the contracts are rolled near the expiry date, it is
possible to create substantial pressure on the dollar in either direction. The
Hunts learned this the hard way when they tried to corner the world silver
market. To control U.S. dollars outside the U.S. the Fed resorts to Stand-by
Letters of Credit or, as they are popularly known, SLC's. In its more familiar
domestic form, the SLC is a financial guarantee or performance bond issued by
a bank for a fee on behalf of a customer that wishes to borrow funds but is
unable to do so cheaply in credit market. A bank guarantees the borrower's
financial performance to the lender by issuing the SLC. Since the bank is in a
better position to assess credit risk and demand collateral, the issuance of this
form of guarantee is a natural service that a bank provides.
In the international markets the use of SLC's is somewhat different. It simply
is a money-raising device. Banks issue these SLC's on behalf of the Fed. In
other words, the Fed is the customer of the bank. The bank issues a guarantee
against its own assets to pay the face amount due on the date given. The funds
raised are wired immediately to the Fed. The Fed is committed to paying the
bank back an amount sufficient to allow it to meet its obligations under the SLC
which it issued to the funds provider. Obviously there is no credit risk to the funds
provider or the issuing bank who acts as a guarantor for its customer the Fed.
Using this method, the Fed can reduce the U.S. dollar in circulation in foreign
jurisdictions - as long as the return is attractive enough to the funds provider and
the security of capital is absolute.
Using a different method, the large stock of expatriated dollars is employed
by the Fed to promote U.S. foreign policy. For example, during the G7 meeting in
Tokyo in April 993, the U.S. committed financial aid to Boris Yeltzin to the tune of
$6 billion. These funds do not come from the U.S. Treasury, nor is the merit of
the loan debated in the U.S. Congress. Instead, the U.S. taps the international
pool of U.S. dollars through another instrument issued by banks called a bank
guarantee (BG) or medium term note (MTN). Essentially this instrument is a
bank obligation like the SLC but it is longer dated on average with 10 to 20 year
maturities. Unlike SLC's which sell at a discount to face value and bear no
interest, BG's and MTN's bear a coupon payable annually in arrears. Like the
SLC, these instruments are a form of guarantee (i.e., debt obligation of the
issuing bank) ensuring the funds provider (lender) will receive interest as is due
and be repaid the principal upon maturity.
It is important that the U.S. has these tools to control the dollars that
increasingly grow off its borders. The Fed operates its currency stabilization so
effectively through the use of SLC's that it seldom resorts to intervening in the
foreign exchange markets. Rather than the U.S. government tapping the
domestic savings pool to assist foreign governments, it is able to tap the
PAGE 29 OF 273
international pool of expatriated U.S. dollars that leak away from its shores in
hundreds of millions daily.
The Institutional Structure Of The Trading System
A number of problems must be overcome to make the structure work
Inevitably, the offshore U.S. dollars find their way into the international banking
system by way of deposits. Therefore, banks must be the main buyers of any
financial instruments that the Fed causes to be issued. However, the rules of the
Bank of International Settlement (BIS) prohibit banks from buying the newly
issued debt instruments from each other directly. This prohibition exists for
obvious reasons. If banks were allowed to fund one another, the probability of
system-wide bank failure would be increased. This system of funding is not
intended to support weak banks, in fact, the opposite objective is the goal.
Therefore, a methodology has been constructed that allows banks to buy each
other's newly issued paper.
BIS rules do not prohibit banks from owning other bank's financial
obligations as long as they are not purchased from another bank directly, but
instead are purchased in the secondary market.
The Fed "licenses" a small number of commitment holders to participate in
a quiet international monetary policy. These commitment holders are identified
by confidential, Fed-issued registration numbers. These numbers are revealed
under extremely controlled circumstances because once revealed, a
knowledgeable individual could cause paper to be issued. The commitment
holders are few in number, however they are essential to the smooth functioning
of the process. Commitment holders often forge relationships with other sources
of funds. These relationships are called subcommitments.
The Fed also identifies a tier of high quality banks, usually in the top 100,
which it authorizes 10 deal in the paper. criteria for being on the Fed's list would
include strength in the normal banking ratios as well as banks being located in
countries in which the Fed desires to be active. It is evident that the largest
supply of international U.S. dollars is in Europe, which explains the dominance of
European banks on the Fed list.
Another aspect of this fund raising process is the fact that it is conducted
entirely off the balance sheets of issuing banks. Both types of instruments are
guarantees and as such, represent contingent liabilities. As contingent liabilities,
they are not posted to the balance sheet. However, they do require a risk
adjustment of capital reserve as prescribed by BIS rules. By keeping the funding
instruments off balance sheets, there is little, if any, disruption of normal
financing activities of the banks.
Issuing Paper
The Fed decides which banks will issue paper, what kind, and how much at
any point in time. The United Nations and the World Bank have similar authority
with BG's and MTN's, but they too must coordinate with the Fed.
A commitment holder and a bank work together to operate a trading
program. The commitment holder is the source of funds. It establishes lists of
PAGE 30 OF 273
banks from which it will accept paper. The lists reflect the preferences of the
owners of the funds. Obviously, the strongest banks will appear on the lists with
the highest frequency. This causes them to benefit the most from this activity.
The strongest banks attract the commitment holders to operate the trading
programs within their establishments
Banks do the actual trading. They inquire through the Fed to determine who
is issuing instruments. They are also informed about the banks that wish to
acquire paper. They arrange the trades, verify' and confirm the securities, and
clear the trades. The commitment holder is an integral part of the process
although it does not have to be present to make it function, The commitment
holder simply must leave the required amount of funds at the trading bank in a
custody account after all the procedures have been properly executed.
The commitment bolder provides the source of funds which is used to
purchase the initial issue of paper and immediately resells it to another bank
which has previously committed to the purchase at an agreed price generating a
guaranteed profit for the commitment holder before the transaction begins. There
is no room in the system for anyone without funds. This is a principal to principal
bank to bank) business only. The trading bank executes the trades and finds
buyers for paper often before the paper is issued. Outsiders can access the
system only by finding a commitment holder and lodging funds with it or with one
of it sub-licensees.
Entry Into A Trading Program
This is one of the most difficult areas to invest in that exists. There are
plenty of people around who know something of this marketplace, but very, very
few know how it truly works. Because enough people know something, and the
fact that there is significant money to be made, this market attracts many
dubious players. Banks routinely deny the' existence of these programs, even
the one operating them. Most bank officers know nothing in any event. The only
way into the system is to be able to certify substantial assets to a commitment
holder or one of its sub-licences. Finding either is no trivial task because there
are more pretenders around than there are legitimate commitment holders.
There are very few actual commitment holders in the world. One must be
fortunate enough to meet an individual who has access to a commitment holder
or a sub-licensee. This is usually done on a referral only basis and under strict
confidentiality.
All transactions between an investor and a commitment holder are
considered private business transactions and completed on a "principal to
principal" basis. While some specifics will vary from transaction to transaction
(e.g., expected profit), there are many components which are constant.
PAGE 31 OF 273
THE ROLE OF THE FEDERAL RESERVE BANK

AND PRIVATE PLACEMENT PROGRAMS
This document is the intellectual property of OWR, and is found on the

"Bank Debenture & Private Placement Message Board" on "Inside the Web",
under archived articles option #2.
A Perspective for Understanding

As truth is a compilation of confirmed fact, the following facts relative to the
Federal Reserve may be of interest. In respect to the author, I have chosen to
omit his/her/their name. The information, however, remains the same.
Even though the Federal Reserve System was created by an act of
Congress in 1913, it is owned by stockholders of its National Banks which
subscribe to the FRS. The Federal Reserve functions as the central bank for the
U.S. with ownership in private, non-government hands, therefore, the Federal
government does not own one share of its stock. The only involvement of the
U.S. government is with the appointment by the U.S. Senate. As a result, the
Federal Reserve Board and its Chairman which must be confirmed by the U.S.
Senate. As a result, the Federal Reserve has no legal authority outside of the
U.S. and acts officially in the best interest of the U.S. financial community.
The above stated structure requires an explanation regarding authority
relative to the Feds influence beyond its borders. This international influence is
exerted through the Bank for International Settlements (BIS), Basel, Switzerland
in which the Federal Reserve System is its largest shareholder along with the
Bank of England, bank of France, The Central Bank of Germany, Central Bank of
Japan, J.P. Morgan, The National Bank of New York, First National Bank of
Chicago, the central banks of Sweden, Romania, Poland the Netherlands and
Switzerland to name a few. Approximately 16% of BIS is owned by private
shareholders with the BIS functioning as the central bank of all the worlds central
banks. As the largest shareholder in the central bank to the worlds central banks,
the Feds influence is factually evident and offers an explanation of its
involvement with private placement, off-ledger trading. As with the World Bank
Organization and the International Monetary Fund and the Fed has no legal
authority but exerts considerable influence.
The events leading to the creation of the off ledger trading began in 1978
when the Federal Government was effectively bankrupt and subject to control by
the New York banking community in which it was indebted in excess of one-half-
trillion dollars. This debt required servicing at a cost of one billion dollars of
additional borrowing each week to keep the government operational. This in turn
created the additional problem in that the banks were starting to run out of hard
currency. It was concluded that the printing of additional money through the
Federal Reserve would lead to runaway inflation in the U.S. with substantial
PAGE 32 OF 273
effect on the world economy. The alternative solution to tap a new source of
existing dollar currency savings on a large scale was available in the Middle East
as a result of the oil crisis of the 70's which we can all substantiate as a factual
occurrence. At that time the oil producing countries controlled US dollar notes in
excess of one-half trillion U.S. dollars. To put this into perspective this almost
represented an amount equal to the entire value of all shares issued by all
corporations listed on the New York Stock Exchange at the end of 1978.
Adding to this dilemma was the fact that in early 1979, of the twenty largest
banks in the world, only three were U.S. registered. Germany had six, Japan,
five, France four and Great Britain, two. The three U.S. banks were Citicorp,
bank of America and Chase Manhattan. Citicorp was one of the largest banks
relative to world standing and the largest player in the "Eurodollar" (jargon for
U.S. dollar currency in circulation outside of the U.S.) interbank market. Factual
data supports the statement that there was $1.5 Trillion (1,500 billion) in
Eurodollars in circulation outside U.S. borders during this time period.
As a result, it was further determined that a number of monetary
mechanisms were necessary to attract investment and control of these dollars
under contract at free market rates above normal bank rates into the system.
This in turn led to the development of both the "Shell Branch Bank" and the
"Multinational Consortium Bank". A shell branch is not a physical bank but a
device used to get around U.S. government regulations.
Shell branches are actually run out of New York and London for purposes of
eurodollar way stations.
You may have wondered why Citibank would have a branch office in the
Bahamas, Cayman Islands, Panama and other obscure islands where local
populace deposits are not the main attraction. Other dollars are controlled and
brought under the U.S. roof by Multinational bank consortiums such as the
marriage of Manufacturers Hanover and N.M. Rothschild to form Manufacturers
Hanover Ltd.
To attract and control eurodollar currency a facility was required to process
off balance sheet underwriting commitments by banks resulting in the creation of
Note Issuance Facilities (NIF’s) in 1984. Under this arrangement the
banks simply act as a marketing agent for their own issue of Medium Term Notes
(MTN’s) which are mainly "eurodollar" denominated and constitute a
legally binding commitment.
MTN instruments are issued in face values of 10, 25, 50, 100 million USD in
essentially three types of guarantee as (1) ten year term with coupon of seven
and one half percent per annum, payable in arrears, (2) one year term with an
eight percent annual coupon payable in arrears, and (3) zero-coupon one year
instruments.
The European banks who issue the MTN’s guarantees are pre-
approved by the Federal Reserve and BIS and are rotated into and out of the
system as the market dictates. The instruments are brought into existence as
"fresh cut"which indicates that the instruments do not yet have an I.S.I.N or cusip
number and are therefore not screenable. These instruments are commonly
PAGE 33 OF 273
referred and defined as "collateral" in the vernacular. The only authorized buyers
for fresh cut paper are persons entitled "master commitment holders" who are
granted this authority by the Federal Reserve on an annual basis. The granting
and or renewal of master commitments are based on acceptable performance
subject to fulfillment of an annual quota by the master commitment holder. As of
1995, there were ten master commitments issued in the United States under
control of three entities. There were ten master commitments issued in Great
Britain in that same year. Master Commitment Holders have the right to
purchase the instruments from the MCH at favorable discounted prices.
Below this level are entities who are granted "Fed Numbers" (commonly
referred to as a license) which provide them with priority rights of purchase as
issued by the collateral commitment holder.
The collateral commitment holder or Fed number holders may sell the
instruments onward as live, seasoned instruments. Once sold, the MTN
instrument is assigned an I.S.I.N. or CUSIP identification number making the
instrument suitable for screening on either Bloomberg or Reuters. These
instruments have an active secondary market which is dominated by institutional
buyers who wish to buy and hold the instruments until maturity while collecting
their annual coupon interest.
With respect to the private investor market, all participants in private
placement investment programs CANNOT trade for profit only. A substantial
percentage of the earnings derived from trading must be applied to project
financing under this scenario. All elements of these transactions are
accomplished by arm’s length transaction and not directly involving the
Federal Reserve which prefers to remain as an advisor. Additionally, the
minimum entry for private placement begins at $100 MM dollars with all other
amounts beginning at $10 MM placed under syndication to make up the $100
MM minimum.
At $100 MM deposit supported by humanitarian project funding will gross
40.5% per day and net 30.5% per day to the account after invoicing and clearing.
If this allowed to ramp up each day (no drawdown of profit) the compounding
effect over a 10 day contract would yield a net of $6,364,676,332.00 with a
transaction fee cost of $2,121,559,777. In reality, the Fed limits or caps the
amount of profit allowed to be earned by the investor on any one occurrence
subject to a number of factors. The above limit may be allowed in the case of
project funding for a government hydro-electric dam costing $4 billion along with
a water filtration system, hospitals, etc. You should also note that the Fed
requires an accounting by the entity. The approval for a private investor to
receive those level of funds as profit would never be granted.
The need for private capital investment is justified on the basis that under
BIS regulation, banks cannot sell their authorized issues to each other. Certain
institutional investors such as U.S. pension funds are prohibited under ERISA
from purchasing other than live MTN’s or registered securities which are
screenable. A fresh cut note can only become live or seasoned after its title
changes and it is registered. The only catalyst available to trigger the purchase
PAGE 34 OF 273
of fresh-cut collateral is private investor funds in which the sale of fresh cut
collateral at 58% of face is electronically invoiced and resold as live notes at
98.5% of face and as a function of title change.
Considering the 10 MM investor whose funds are placed under a
syndicated contract, if 8 other investors make up the 100 MM minimum, the 30%
net earnings per day would allocate a percentage for project financing and a
percentage share to each investor. This would depend on the projects being
funded under the program.
Assuming a 50% allocation for project, each investor would be pro-rated
and may receive an average yield of from 0.74% to 1.66% per day as a
simplified example. This yield may be stated as a minimum but is usually based
on a best efforts basis. The investor is rewarded handsomely for participation
with the majority of profits going to non-recourse project funding.
PAGE 35 OF 273
THE MECHANICS OF PRIME BANK SLCS AND

GUARANTEES
THE FOLLOWING DOCUMENT WAS WRITTEN BY AN

UNKNOWN ECONOMIST / ACCOUNTANT OF A MAJOR
US CORPORATION UNDER DIRECTION OF IT'S BOARD
OF DIRECTORS.
Please note Prime Bank Guarantees or SLCs are short hand terms and are
trade jargon, the proper name for such is BANK DEBENTURES.
The driving force behind the financial instruments under discussion in this
paper is the U.S. government through its monetary agency, the Federal Reserve
Board. The U.S. dollar is the basis of the world's liquidity system since all other
currencies base their exchange rate on it. Quite simply this means that the U.S.
is the world's central banker. As the world's central banker, the U.S. has an
enormous responsibility to maintain stability in the world's monetary system. As
well, the U.S. as the most powerful nation has accepted the role as the
champion and promoter of democracy in all of its endeavors. While the U.S. has
many tools to do this, one in particular is relevant for the purposes of this
discussion.
The Federal Reserve Board (Fed) uses two financial instruments to control
and utilize the amount of U.S. dollars in circulation internationally: Standby
Letters of Credit (SLC) and Prime Bank Guarantees (PBG).
The Fed's domestic tools to control credit creation are interest rate policy,
open market operations, reserve ratio policy and moral persuasion. In the
domestic context, these tools are not always as effective as the Fed would like
them to be. Part of the reason for the less than perfect effectiveness is due to the
substantial stock of U.S. dollars in foreign jurisdictions. Several of the Fed's
domestic tools cannot be used by it in other countries. For examples, the Fed
cannot change foreign reserve ratios. Furthermore, a significant amount of credit
creation occurs in U.S. dollars in foreign countries, particularly in the Eurodollar
market. The Fed cannot control the credit creation in foreign markets through its
use of domestic policy instruments. Internationally the currency of choice is the
U.S. dollar as it is considered the safest currency, especially in times of political
crisis. Consequently those holding the dollar do so for reasons which are less
sensitive to economic stimuli. Because foreign banks readily accept U.S. dollar
deposits, those funds, which in the domestic context are the basis of M1 money
supply, in the foreign context, they act more like the near money features of M3.
This means they are infinitely more difficult to control. The offshore market has
grown substantially in the last two decades for a number of reasons. First, huge
quantities of U.S. dollars associated with the drug trade slosh around the
PAGE 36 OF 273
international monetary system, and second, wealthy individuals concerned about

high taxes and preserving their wealth opt to keep their assets in offshore tax
havens. This significant stock of U.S. dollars cannot be effectively controlled by
the U.S. with its normal domestic policy tools.
Finally, currency futures markets can be another difficult area to control
because of the substantial amount of leverage that is available. For example, for
as little as $1500 dollars, it is possible to short or go long for over $150,000 U.S.
dollars versus the D Mark. All other major currencies have a similar leverage on
the dollar. This means that someone with $1500 U.S. dollars can take the other
side in a Fed move to stabilize the currency. Since the currency does not have to
be delivered, but the contracts are rolled near the expiry date, it is possible to
create substantial pressure on the dollar in either direction. (The Hunts learned
this the hard way when they tried to corner the world silver market.) To control
U.S. dollars outside the U.S., the Fed resorts to Standby Letters of Credit or, as
they are popularly known, SLCs. In its more familiar domestic form, the SLC is a
financial guarantee or performance bond issued by a bank for a fee on behalf of
a customer that wishes to borrow funds but in unable to do so cheaply in credit
markets. A bank guarantees the borrower's financial performance to the lender
by issuing the SLC. Since the bank is in a better position to assess credit risk
and demand collateral, the issuance of this form of guarantee is a natural service
that a bank provides.
In the international markets the use of SLCs is somewhat different. It simply
is a money-raising device where the financial guarantee is almost meaningless.
Banks issue these SLCs on behalf of the Fed; in other words, the Fed is the
customer of the bank. Obviously there is no credit risk here. The net proceeds
from the funds raised are immediately wired to the Fed. Using this method, the
Fed can reduce the U.S. dollars in circulation in foreign jurisdictions.
Using a different method, the large stock of expatriated dollars is employed
by the Fed to promote U.S. foreign policy. For xample, during the G7 meeting in
Tokyo in April of 1993, the U.S. committed financial aid to Boris Yeltzin to the
tune of $6 billion. These funds do not come form the U.S. Treasury, nor is the
merit of the loan debated in the U.S. Congress. Instead, the U.S. taps the
international pool of U.S. dollars through an instrument called a Prime Bank
Guarantee (PBG). Essentially the instrument has the features of an SLC except
it is longer dated with 10 and 20 year maturities. Unlike SLCs which sell at a
discount and bear no interest, PBGs bear a coupon payable annually in arrears.
Like the SLC, it is a form of guarantee ensuring the lender will receive interest as
is due and be repaid the principal upon maturity.
It is important that the U.S. has these tools to control the dollars that
increasingly grow off its borders. The Fed operates its currency stabilization so
effectively through the use of SLCs that it seldom resorts to intervening in the
foreign exchange markets. Rather than the U.S. government tapping the
domestic savings pool to assist foreign governments, it is able to tap
theinternational pool of expatriated U.S. dollars that leak away from its shores in
hundreds of millions daily.
PAGE 37 OF 273
2. THE INSTITUTIONAL STRUCTURE OF THE SYSTEM

A number of problems must be overcome to make the structure work.
Inevitably, the offshore U.S. dollars find their way into the international banking
system by way of deposits. Therefore, banks must be the main buyers of any
financial instruments that the Fed causes to be issued. However, the rules of the
Bank of International Settlement (BIS) prohibit banks from buying the newly
issued debt instruments from each other directly. This prohibition exists for
obvious reasons. If banks were allowed to fund one another, the probability of
system-wide bank failure would be increased. This system of funding is not
intended to support weak banks; in fact, the opposite objective is the goal.
Therefore, a methodology has been constructed that allows banksto buy each
other's newly issued paper.
BIS rules do not prohibit banks from owning other banks' financial
obligations as long as they are not purchased from another bank directly, but
instead are purchased in the secondary market. The Fed supports a group of
intermediaries that have substantial available cash reserves. These
intermediaries purchase paper from issuing banks and almost always
immediately resell it to other banks. These intermediaries are called commitment
holders.
The Federal Reserve board licenses a small number of commitment holders
to participate in a quiet international monetary policy. These commitment holders
are identified by confidential, Fed-issued, registration numbers. These numbers
are revealed under extremely controlled circumstances, because once revealed,
a knowledgeable individual could cause paper to be issued. The commitment
holders are few in number, however they are essential to the smooth functioning
of the process.
Commitment holders often forge relationships with other sources of funds.
These relationships are called sub-commitments.
Holding a commitment entails a number of conditions which are extremely
important to maintain. First and foremost, there is a demand for utter secrecy.
Second, the commitment holder must be able to quickly produce large sums of
U.S. dollars, generally in the billions. This explains why commitment holders are
prepared to take on sub-licensees to ensure a large supply of readily available
funds. Finally, this is a "funds first" business. No one can buy issued Paper on
credit. To ensure this happens and not waste time, a commitment holder will not
initiate a discussion with anyone unless they can prove cash funds of high
quality security of at least 100 million U.S. dollars.
The Fed, as well, identifies a tier of high quality banks, usually in the top
100, which it authorizes to deal in the paper. Criteria for being on the Fed's list
would include strength in the normal banking ratios as well as countries in which
the Fed desires to be active. It is evident that the largest supply of international
U.S. dollars is in Europe, which explains the dominance of European banks on
the Fed list.
PAGE 38 OF 273
Another aspect of this fund raising process is the fact that it is conducted
entirely off the balance sheets of issuing banks. Both instruments are guarantees
and as such, represent contingent liabilities. As contingent liabilities, they are not
posted to the balance sheet. However, they do require a risk-adjusted amount
ofcapital reserve as prescribed by BIS rules. By keeping the funding instruments
off balance sheets, there is little, if any, disruption of normal financing activities of
the banks.
3. ISSUING PAPER
The Federal Reserve decides which banks will issue paper, what kind and
how much at any point in time. The United Nations and the World Bank have
similar authority with PBGs, but they too must coordinate with the Fed.
A commitment holder and a bank work together to operate a trading
program. The commitment holder is the source of funds. It establishes lists of
banks from which it will accept paper. The lists reflect the references of the
owners of the funds. Obviously, the strongest banks will appear on the lists with
the highest frequency. This causes them to benefit the most from this activity,
The strongest banks attract the commitment holders to operate the trading
programs within their establishments.
Banks do the actual trading. They inquire through the Fed to determine who
is issuing instruments. They are also informed about the banks that wish to
acquire paper. They arrange the trades, verify and confirm the securities and
clear the trades. The commitment holder is an integral part of the process
although it does not have to be present to make it function. The commitment
holder simply must leave the required amount of funds at the trading bank in a
custody account after all the procedures have been properly executed.
The commitment holder provides the source of funds which is used to
purchase the initial issue of paper and immediately resells it to another bank.
There is no room in the system for anyone without funds. This is a principal to
principal (bank to bank) business only. The trading bank executes the trades and
finds buyers for issued paper. Outsiders can access the system only by finding a
commitment holder and lodging funds with it or with one of its sub-licenses. The
commitment holder spends most of its time finding investors.
4. WHY THE YIELDS ARE SO HIGH

As of the writing of this paper, SLCs were yielding approximately 13.7% and
10 year PBGs 11.7%. One year U.S. T-bills were yielding 8.49% and 10 year
Treasuries were yielding 5.78%. How are these extraordinary yields accounted
for in an investment that does not appear to be intrinsically risky?
There are several factors contributing to this market phenomenon. The
international market for U.S. funds is extremely competitive. For example, there
are several countries whose desire for U.S. dollars is so high that they will pay
annual yields of 20% to 25%, make monthly interest payments in U.S. dollars
PAGE 39 OF 273
and issue debentures whose terms do not exceed one year. These are countries
whose risk profile is high even though there is no record of default on their
obligations. These borrowers set the benchmark at the high end of the yield
spectrum.
At the other end of the spectrum are very low risk sovereign issuers which
are able to attract funds at rates competitive wit U.S. treasuries.
Earlier it was explained how the institutional side of this process functions. It
was pointed out that when an SLC is issued by a foreign bank on behalf of the
Fed, it had to establish a capital reserve. Recent changes to BIS rules require off
balance sheet entries to be included in the computation of bank assets and
capital adequacy ratios. Furthermore, these assets and all other assets must be
weighted to reflect their overall risk. Capital adequacy ratios are now all risk
adjusted.
SLCs fall into the 100% credit conversion factor rating to convert the off
balance sheet item to an on balance sheet equivalent. For there the converted
SLC is risk-rated. SLCs, which are the subject of this paper, fall into the 0% risk
weight category. Consequently, every dollar of SLC exposure has no risk-
weighted asset equivalent. If banking guidelines require the ration of total risk
weighted assets not to fall below 8%, then at the margin, the bank would have to
reserve capital of 8 cents for every dollar of SLC exposure. If an SLC of $100
million is issued, $8 million of capital must be set aside.
In reality, the capital requirements are not so onerous because there are a
number of other factors at work that lower the marginal cost of capital utilization.
For purposes of discussion, let us assume this marginal cost of capital utilization
is 4%. This is what the issuing bank would demand from the Fed to issue SLCs
on its behalf. Therefore, if the purchasing bank is paying 92% of face value for
an SLC, the selling bank will retain 4 points for itself to cover its reserve
requirements by remitting 88% of face value to the Fed. The issuing bank will
also load in a charge for providing the service which could be up to 2 points. As
we shall see, the banks are paid their fee at maturity or redemption.
Next there needs to be a yield spread which will motivate large sums of
capital to sit in a custody account in U.S. dollars. The spread earned by the
owners of capital and the commitment holder could equal another 4 points. This
4 point spread would reflect the costs of fund raising and the economic rent on
the apital.
The following table summarizes this discussion.
% of Face Value Yield Spread Earned Allocation
Issue Price by Selling Bank 84.00 18.0% 6 points 4 pts. to capital
2 pts. to fee
Purchase Price by
Commitment Holder 90.00 11.1% 4 points 2 pts. to holder
2 pts. to investor
Purchase Price by
PAGE 40 OF 273
Buying Bank 94.00 6.4%

Market Price Equivalent
U.S. Treasury 96.60 3.5%
The figures in the tale are not precise, but they are close enough to give a
general idea of how the yields work. The issue price yield is a whopping 19%
which is what most observers focus on. However, no one earns this maximum
yield. When the bank sells the SLC to the commitment holder, it receives 90% of
face. If the face value were $100 million, it would receive $90 million. It sends
$86 million to the Fed. At this point the yield is 11.1%. The commitment holder
sells the note to the purchasing bank for $4 million. At this point the yield has
fallen to 6.4% for the purchasing bank. The equivalent U.S. treasury yield is
3.5%. Enough excess yield remains so that the purchasing bank could profitably
sell the note which would cause the yield to almost match market yield.
When the note matures, the Fed repays the issuing bank $98 million.
Because the issuing bank needed $4 million for capital, it retained $4 million
from the amount it sold the note for before sending the rest to the Fed. Since it is
charging $2 million for the service, the Fed sends it back $98 million instead of
$102 million. Remember, when the note is repaid, the $4 million in capital is
released back to the Fed.
The next question is why would the Fed be interested in paying these
yields. First, it is not as expensive as it might appear. As noted, when the SLC
matures, the capital reserve is released. In other words, the Fed gets $4 million
back. More importantly, the value of the process to the Fed should be clearly
nderstood.
Any country which is attempting to stabilize its currency implements one or
both of the following policies. The first line of attack is to manipulate interest
rates to increase rates to increase or decrease the flow of its currency by altering
final demand. If speculation becomes too powerful, which it often does, the next
line of attack is to intervene in the currency market by supplying the excess
demand or by removing the excess supply. Changing interest rates can be
disruptive enough but once the speculators smell a weakening or strengthening
currency, it becomes very expensive to smooth a rapid adjustment in values.
The U.S. dollar is the base currency of global commerce. Speculation could
occur at a rate that would be mind boggling. The cost to the global economy
would be significant, let alone the cost to the Fed of intervention. From this
perspective, the manner in which the Fed conducts its activities probably is not
expensive. There are countless examples where a central bank has announced
it will defend its currency and $15 billion later it gives up as Britain did when it
pulled out of the ERM in 1993. That $15 billion goes straight into the pockets of
the speculators.
The only perhaps negative aspect of this system is that the Fed is reliant on
a group of fund raisers called commitment holders who grow very rich from the
PAGE 41 OF 273
service they provide. But this is the only way the Fed can keep the process very
confidential and highly selective.
There is an analog in the public markets. NYSE market makers or
specialists are a very select club which is extremely difficult to join. Market
makers are charged with the responsibility of making a market in their particular
stock to maintain the balance between its demand and supply. They are given a
monopoly on market order flow information upon which there is no infringement.
Market makers bear risk but it is one which most of the time is easily managed.
Market making firms have the highest return on capital of any firms involved in
the market.
Commitment holders are market makers as well, though of a slightly
different sort. They do not bear much risk in making a market. Their risk lies in
their ability to gather huge amounts of U.S. dollars because unlike equity market
makers, they cannot leverage their capital.
The final question is, why does the Fed not issue securities directly to these
banks to attract their dollar holdings? first the Fed is not empowered to issue
securities; only the U.S. treasury Department and other agencies guaranteed by
the U.S. government can do that. Secondly, selling bonds would be negatively
perceived since they are generally used for deficit financing. This process works
as well as it does because it is entirely out of sight.
It should be evident how monetary policy (exchange policy) can be
conducted. Only the issuance of an SLC has been discussed so far. The
issuance of an SLC is a fiscal move that bids up the price of the dollar. If the Fed
were interested, however, in injecting liquidity into the system, it simply
repurchases outstanding SLCs in the countries where it desires to lower the
exchange value of the dollar. We could call it a "closed"; market operation. The
domestic analog of this foreign monetary policy is an open market operation.
Prime Bank Guarantees (PBG) are also used in similar ways. They
represent a financial guarantee and therefore a contingent liability. Unlike SLCs,
PBGs are not used for currency operations. These instruments support loans to
countries and to development agencies which fund projects in LDCs. When a
bank issues a PBG, the net proceeds go to the source of the funding
commitment.
While PBGs are issued at a deeper discount than SLCs, they in fact have a
lower annual yield. The apparent deeper discount is caused by the fact the PBGs
bear interest and are longer dated securities. For example, 1 point of discount on
an SLC equals 1.3 points of annual yield, while 1 point of discount on a PBG
equals .6 points of annual yield. In other words, it takes a larger change in the
discount of a PBG to have the same effect on yield as an SLC.
The economic consequences with a PBG are quite different than those
associated with an SLC. Dollars are not removed from the economic system.
They instead flow to areas where there is a perceived need to be philanthropic,
which is no doubt motivated by political considerations. Once a project has been
initiated, the recipient of funds begins to import materials and finished products
which increases the amount of trade taking place which in turn expands
PAGE 42 OF 273
production. Inevitably, a large share of these dollars is spent in the U.S. The
PBG then is a method whereby the U.S. can direct the use of its currency
without explicitly saying that it is doing so. The alternative would be to make it a
budgetary expenditure which would be debated in Congress. If it passed
successfully through that process, it would add to the deficit of the country. Such
an expenditure would most likely be funded by issuing new government bonds.
Therefore, the issuance of PBGs is a most expedient way of accomplishing the
same thing with the vast pools of U.S. dollars deposited in European banks
instead of using domestic dollars.
The PBG does not appear to have an overt credit creation action. The stock
of dollars utilized already exists in the economic system. However, to the extent
that a country defaulted on repaying the PBG, the Fed would be called to honor
its guarantee to the issuing bank which then would cause credit to be created.
Again the high yields are motivated by the same reasons explained
previously. The discount charges will be larger to have the similar effect on the
yield as an SLC which also results in the market makers making even more profit
on PBG issues.
5. ENTRY INTO A TRADING PROGRAM

This is one of the most difficult areas to invest in that exist. There are plenty
of people around who know something about this marketplace, but very, very few
know how it truly works. Because enough people know something and the fact
that there is significant money to be made, this market attracts many bad
players.
Two features distinguish these pretenders -- they lack financial and
investment acumen and they ask for up front fees. From time to time these
pretenders attempt to pull off a major fraud with a significant investor. This
prompts warnings issued by the Board of Governors of the Federal Reserve
System or the Comptroller of the Currency.
These pretenders almost always attempt to setup their fund raising efforts in
the U.S. The Fed, of course, will not have any part of that since the process is
designed to control and utilize expatriate dollars, not domestic dollars.
Banks routinely deny the existence of these programs, even the ones
operating them. Most bank officers know nothing in any event. The only way into
the system is to be able to certify substantial assets to a commitment holder or
one of its sub-licensees. Finding either is not trivial task because there are more
pretenders around than legitimate commitment holders. There are very few
actual commitment holders. If an investor cannot certify at least $100 million and
more likely $500 million, the chances of getting anyone's attention who is
genuine are indeed remote. This is why, quite frankly speaking, these offices feel
no presumption whatever in jointing for the joint venture, in as much as the funds
provided would find it virtually impossible to locate a collateral commitment
holder which this program provides on the very highest level.
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ICC 500 PUBLICATION - BANK DEBENTURE

TRADING PROGRAMS - CAPITAL
EMPOWERMENT RESEARCH
INTRODUCTION TO BANK DEBENTURE TRADING

PROGRAMS
WHAT IS A BANK DEBENTURE TRADING PROGRAM?

Also referred to as a secure asset management program, this is an
investment vehicle commonly used by the very wealthy where the principal
investment is fully secured by a Endorsed Guarantee. The principal is managed
and invested to give a guaranteed high return to the investor on a periodic basis.
There is no risk of losing the investor s principal investment.
This investment opportunity involves the purchase and sale of Bank
Debentures within the International Market in controlled trading programs. The
program allows for the investor to place his funds through an established
Program Management firm working directly with a major Trading Bank.
The investment funds are secured by a Bank-Endorsed Guarantee by the
Banking Institution at the time the funds are deposited. The Investor is
designated as the Beneficiary of the Guarantee unless otherwise instructed by
the Investor. The guarantee is issued to secure the Investor s principal for the
contract period. This guarantee will be Bank Endorsed with the Bank Seal, two
authorized senior Officers signature, and will guarantee that the funds will be on
deposit in the Bank during the contract period and will be returned fully to the
Investor at the end of the contract term.
The Investor is also guaranteed by the Program Directors, by contract, that
they will receive what is, in effect, a percentage of each trade made by the Trade
Bank. This can be in the form of a guaranteed profit/yield paid on a periodic
basis upon terms as set forth in the contract.
The Instruments to be transacted under the Buy/Sell Program are fully
negotiable Bank Instruments, delivered unencumbered, free and clear of any
and all lien, claims or restrictions. The Instruments are debt obligation of the Top
One Hundred (100) World Bank in the form of Medium Term Bank Debenture of
10 years in length, usually offering 7 % interest or, "Standby Letter of Credit"
of one year in length with no interest, but at discounted from face value. These
Bank Instruments confirm in all respects with the Uniform Custom and Practice
for Documentary Credit as set forth by the International Chamber of Commerce,
Paris, France (ICC) in the latest edition of the ICC Publication Number 400 (1983
Revision) and newest implemented ICC Publication 500 (1995 Revision).
PAGE 44 OF 273
WHAT IS THE INVESTOR'S RISK IN THIS

PROGRAM?
As stated, the Investment funds principal is fully secured by a BANK
ENDORSED GUARANTEE (or, safekeeping receipt) which is issued by the
Trading Bank at the time the funds are deposited. The Investor is designated as
the Beneficiary of the Guarantee which is issued to secure the principal for the
contract period.
All elements of risk have been addressed. It must be stressed that, before
an instrument is purchased, a contract is already in place for the resale of the
Bank Debenture Instrument. Consequently, the Investor fund are never put at
risk. The trust account will always contain either funds or Bank Instrument of
equal or greater value. After each transaction period the profits are distributed
according to the agreement, and the process repeats for the duration of the
contract.
HOW OFTEN DOES THE PROGRAM DO

TRANSACTION?
Operations will take place approximately forty (40) International Banking
Weeks per year, with specific transactions taking place approximately one or
more times per weeks depending on the circumstances. Although there are 52
weeks in a year, there are only 40 International banking weeks during which
transactions take place. An International Banking week is a full week which does
not include an officially recognized holiday. However, this does not preclude that
transactions may occur on short weeks that have a holiday.
WHY ARE THESE "HIGH RETURN WITH SAFETY"

PROGRAMS NOT GENERALLY PUBLICIZED?
The answer is that these programs have been available, though not widely
know, for years. However, because of the extremely high minimum requirement
to enter them, only a few could qualify. The minimum have been 10 to 100 million
dollars previously. Only recently have the smaller minimums been available so
that more can qualify and yet have opportunity to earn exceptionally high and
safe profit yields. Also, the Investor must be "invited in" to participate in these
very limited enrollment programs.
Individual programs can quickly become filled and then closed to further
Investor participation.
The information contained in this document is for informational purposes
only and is not intended as a solicitation nor an offer to sell any form of
securities.
PAGE 45 OF 273
LEVERAGED TRADING PROGRAMS

By leasing assets, usually in the form of United States Government
Treasury Bills, for a fraction of their face value, the ability to purchase and
subsequently resell bank instruments in large quantities is possible. This is the
principal on which leveraged trading-programs revolve. The leased assets
provide the collateral against which the instruments are purchased and resold,
with the entire process taking only one or two days to accomplish.
The large profits produced by trading programs is created by the difference
between the purchase cost and resale price of the instruments. Even with a net
profit of four (4) per cent per transaction, the process of buying and selling can
be performed several times each week, providing for profit which make the
return on other investments pale by comparison. A four (4) per cent profit
produced just one weekly for forty weeks would total 160%.
By leasing assets, the profit is generated on a much larger amount of
instrument, greatly increasing the total dollar profit. For example, if a four (4) per
cent profit were generated on $100 million, the net profit would be $4 million.
Leasing asset typically requires the payment of three percent of the face amount
per month in advance, to lease $100 million in asset would require the payment
of $3 million. However, by using the leased assets, profit can be generated on
$100 million worth of instrument ($4 million), not just $3 million ($120,000). Even
if just one transaction occurred during the month, the profit created would
exceed the cost of leasing the assets.
A BRIEF HISTORY OF THE DEVELOPMENT AND

INTERRELATIONSHIP OF BANK INSTRUMENTS
Picture the world at war in 1944. All of Europe, except for Switzerland is
pounding its infrastructure, manufacturing base and population into rubble and
death. Asia is locked into a monumental struggle which is destroying Japan,
China, and the Pacific Rim countries. North Africa, the Baltic, and Mediterranean
countries are clutched in a life and death struggle in the fight to throw off the
yoke of occupation. A world gone mad! Economic destruction, ruin, human
misery and dislocation exists on a scale never before experienced in human
history. What went wrong? How could the world rebuild and recover from such
devastation? How could another war be avoided?
KEYNES, HARRY WHITE AND BRETTON WOODS

This was the world as it existed in July 1944, when a relative small group of
730 of western world s most accomplished economic, social and political minds
met in upstate New Hampshire at a small vacation town called Bretton Woods.
John Maynard Keynes, the man who had predicted the current catastrophe in his
book, The Economic Consequences of the Peace, written in 1920, was about to
become the principal architect of the post -World War II reconstruction. Keynes
PAGE 46 OF 273
presented a rather radical plan to rebuild the world s economy, and hopefully
avoid a third world war. This time the world listened, for Keynes and his
supporters were the only ones who had a plan that in any way seemed grand
enough in foresight and scope to have a chance at being successful. Yet Keynes
had to fight hard to convince those rooted in conventional economic theories and
partisan political doctrines to adopt his proposal. In the end, Keynes was able to
sell about two-third of his proposals through sheer force of will and the support of
the United State Secretary of Treasury, Harry Dexter White.
At the heart of Keynes proposals were two basic principles: first the Allies
must rebuild the Axis Countries not exploit them as has been done after WW I;
second, a new international monetary system must be established headed by a
strong international banking system and a common world currency not tied to a
gold standard.
Keynes went on to reason that Europe and Asia were in complete economic
devastation with their means of production seriously crippled, their trade
economies destroyed and their treasuries in deep dept. If the world economy
was to emerge from its current state, it obviously needed to expand. This
expansion would be limited if paper currency were still anchored to gold.
The United States, Canada, Switzerland and Australia were the only
industrialized western countries to have their economies, banking systems and
treasuries intact and fully operable. The enormous issue at the Bretton Woods
Convention in 1944 was how to completely rebuild the European and Asia
economies on a sufficiently solid basis to foster the establishment of stable,
prosperous, pro-democratic governments.
At the time, the majority of the world s gold supply, hence its wealth, was
concentrated in the hands of the United States, Switzerland and Canada. A
system had to be established to democratize trade and wealth, and redistribute
or recycle currency from strong trade surplus countries back into countries with
weak or negative trade surpluses. Otherwise, the majority of the world s wealth
would remain concentrated in the hands of a few nations while the rest of the
world would remain in poverty.
Keynes and White proposed that the United States supported by Canada
and Switzerland would become the banker to the world, and the U.S. Dollar
would replace pound sterling as the medium of international trade. He also
suggested that the dollar s value be tied to the good faith and credit of U.S.
Government, not to gold or silver, as had traditionally been the support for a
nation s currency. Keynes concept of how accomplish all of the this was radical
for its time, but was based upon the centuries old framework of import/export
finance. This form of finance was used to support certain sectors of international
commerce which did not use gold as collateral, but rather their own good faith
and credit backed by letters of credit, avals (a form of guarantee under
Napoleonic law), or guarantees.
Keynes reasoned that even if his plans to rebuild the world s economy were
adopted at the Bretton Woods Convention, remaining on a gold standard would
seriously restrict the flexibility of governments to increase the money supply. The
PAGE 47 OF 273
rate of increase of currency would not be sufficient to insure the countries

successful expansion of international commerce over the long term. This
condition could lead to a severe economic crisis, which, in turn, could even lead
to another world war. However, the economic ministers and politicians present at
the convention feared loss a control over their own national economies, as well
as run away inflation, unless a "hard currency" standard were adopted.
The Convention accepted Keynes basic economic plan, but opted for a
gold-backed currency as standard of exchange. The "official" price of gold was
set at its pre-WWII level of $35.00 per ounce. One U.S. Dollar would purchase
1/35 an ounce of gold. The U.S. dollar would become the standard world
currency, and the value of all other currencies in the western world would be tied
to the U.S. dollar as the medium of exchange.
MARSHALL PLAN, IMF, WORLD BANK, AND BANK

OF INTERNATIONAL SETTLEMENTS (BIS)
The Bretton Woods Convention produced the Marshall Plan, the Bank for
Reconstruction and Development known as the World Bank, the International
Monetary Fund (IMF) and the Bank of International Settlements (BIS). These
four would reestablish and revitalize the economies of the western nations. The
World Bank would borrow from rich nations and lend to poorer nations. The IMF,
working closely with the World Bank, with a pool of funds controlled by a board of
governors, would initiate currency adjustments and maintain the exchange rates
among national currencies within defined limits. The Bank of International
Settlements would then function as "central bank" to the world.
The International Monetary Fund was to be a lender to the central bank of
countries which were experiencing a deficit in the balance of payment. By
lending money to that country s central bank, the IMF provided currency,
allowing the underdeveloped country to continue in business, building up its
export base until it achieved a positive balance of payments. Then, that nation s
central bank could repay the money borrowed from the IMF, with a small amount
of interest, and continue on its own as an economically viable nation. If the
country experienced an economic contraction, the IMF would be standing ready
to make another loan to carry it through.
The directors of both banks are controlled by the ministers from each of the
G-10 countries: Belgium, Canada, France, Germany, Italy, Japan, the
Netherlands, Canada, Sweden, Switzerland, the United Kingdom and
Luxembourg.
securities.
PAGE 48 OF 273
BANK OF INTERNATIONAL SETTLEMENTS

The Bank of International Settlements (BIS) was created as a "central bank"
to the central banks of each nation. It was organized along the line of the U.S.
Federal Reserve System and it is principally responsible for the orderly
settlement of transaction among the central banks of individual countries. In
addition, it sets standards for capital adequacy among the central banks and
coordinates the orderly distribution of a sufficient supply of currency in circulation
necessary to support international trade and commerce.
The Bank of International Settlements is controlled by the Basel Committee
which, in turn, is comprised of ministers sent from each of the G-10 nation's
central banks. It has been traditional for the individual ministers appointed to the
Basel Committee to be the equivalent of the New York "Fed s" chairperson
controlling the open market desk.
WORLD BANK
The World Bank organized along more traditional commercial banking lines
was formed to be "lender to the world", initially to rebuild the infrastructure,
manufacturing and service sectors of the European and Asian Economies, and
ultimately to support the development of Third World Nations and their
economies.
The depositors to the World Bank are nations rather than individuals.
However, the Bank s economic "ripple system" used the same general banking
principles that have proven effective over centuries.
THE TIE THAT BINDS: THE BANK OF

INTERNATIONAL
SETTLEMENTS AND THE WORLD BANK

The directors of both banks are controlled by the ministers from each of the
G-10 countries: Belgium, Canada, France, Germany, Italy, Japan, the
Netherlands, Canada, Sweden, Switzerland, the United Kingdom and
Luxembourg.
BRETTON WOODS UNDER PRESSURE

By 1951, the plans adopted at Bretton Woods Convention of 1947 were
succeeding beyond anyone s expectation, proving that Keynes was right in his
prediction of a world monetary crisis. It was brought on by a lack of sufficient
currency (U.S. dollars) in world circulation to support rapidly expanding
international commerce. The solution to this crisis lay in the hand of the Kennedy
Administration, the U.S. Federal Reserve Bank and the Bank of International
PAGE 49 OF 273
Settlements. The world needed additional dollars to facilitate trade. The U.S. was
faced with a dwindling gold supply to back such additional dollars. Printing more
dollars would violate the gold standard established by the Bretton Woods
Agreement. To break the treaty would potentially destroy the stable core at the
center of the world s economy, leading to international discord, trade wars, lack
of trust and possibly to outright war. The crisis was further aggravated by the fact
that the majority of dollars then in circulation was not concentrated in the coffers
of sovereign governments, but, rather in the vaults or treasuries of private banks,
multinational corporations, private businesses and individual personal bank
accounts. A mere agreement or directive issued by governments among
themselves would not prevent the looming crisis. Some mechanism was needed
to encourage the private sector to willingly exchange their U.S. Dollar currency
holdings for some other form of money.
The problem was solved by using the framework of forfait finance; a method
used to underwrite certain import/export transactions which relied upon the
guarantee or aval (a form of guarantee under Napoleonic law) issued by a major
bank in the form of either documentary or standby letters of credit or bills of
exchange which are then used to assure exporter of future payment for goods or
service provided to an importer. The system was well established and
understood by private banks, governments and the business community world
wide. The documents used in such financing were standardized and controlled
by international accord, administered by the members of the International
Chamber of Commerce (ICC) headquartered in Paris. There would be no need
to create another world agency to monitor the system if already approved and
readily available documentation, laws and procedure provided by ICC were
adopted. The International Chamber of Commerce is a private, non-
governmental, worldwide organization, that has evolved over time into a well
recognized, organized, respected and, most of all, trusted association. Its
member include the world s major banks, importers, merchants, and resellers
who subscribe to well-defined conventions, bylaws, and code of conduct. Over
time, the ICC has hammered out pre-approved documentation and procedures
to promote and settle international commercial transactions.
In the ICC and forfeit systems lay the seeds of a resolution to the looming
crisis. Recycling the current number of dollars back into world commerce would
solve the problem by avoiding the printing of more U.S. dollars and would leave
the Bretton Woods Agreement intact. In currency, dollars, could be drawn by into
circulation through the private international banking system and redistributed
through the well know "bank ripple effect", no new dollars would need to be
printed, and the world would have an adequate currency supply. The private
international banking system required an investment vehicle which could be
used to access dollar accounts, thereby recycling substantial dollar deposits.
This vehicle would have to be viewed by the private market to be so secure and
safe that it would be comparable with U.S. Treasuries which had a reputation for
instant liquidity and safety. Given the "newness" of whatever instrument might be
created, the private sector would prefer to exchange their dollars for a "proven"
instrument (United State Treasuries) but selling new Treasury issued to them
PAGE 50 OF 273
would not solve the problem. In fact, it would exacerbate the looming crisis by
taking more dollars out of circulation. The World needed more dollars in
circulation.
The answer was to encourage the most respected and creditworthy of the
world s private bank to issue a financial instrument, guaranteed by the full faith
and credit of the issuing bank, with the support from the central bank, IMF and
Bank of International Settlements. The world s private investment and business
sectors would view new investments issued in this manner as "safe". To
encourage their purchase over Treasuries, the investor yield on the new issues
would have to be superior to the yield on Treasuries. If the instrument could be
viewed both safe and providing superior yields over Treasuries, the private
sector would purchase these instrument without hesitation.
The crisis was prevented by encouraging the international private banking
sector to issue letters of credit and bank guarantees, in large denomination, at
yield superior to U.S. Treasuries. To offset the increased "cost" to the issuing
bank due to the higher yields accompanying these bank instruments, banking
regulations within the countries involved were modified in such a way as to
encourage and allow the following:
I. Reduced reserve requirements via off-shore transactions.
II. Support of the program by central banks, World Bank, IMF and Bank of
International Settlements.
III. Off-balance sheet accounting by the banks involved.
IV. Instruments to be legally ranked "parar passu" (on the same level) with
depositors funds.
V. The bank obtaining these depositor funds would be allowed to leverage
these fund with the applicable central bank of the country of domicile in such a
way as to obtain the equivalent of federal fund at a much lower cost. When these
"leveraged funds" are blended with all other accessed fund, the overall blended
rate cost of funds to the issuing bank is substantial diminished, thus offsetting the
high yield given to attract the investor with substantial funds to deposit.
The bank instrument offered to investors were sold in large denomination
often $100 million through a well-established and very efficient market
mechanism, substantially reducing the cost of accessing the fund. The reduced
costs offset the high yields paid by the issuing banks.
securities.
MULTI-USE INSTRUMENT
Major commercial banks soon came to realize that these instrument could
serve as more than a "funds recycling and redistribution tool", as originally
envisioned. For issuing bank, they could provide a means of resolving two of the
bankers major problem: interest rate risk over the term of the loan, and
PAGE 51 OF 273
disintermediation of depositor fund. Banker, now for the first time, had available a
reliable method of accessing large amount of money in a very cost efficient
manner. These funds could be held as deposits at a predetermined cost over a
specific period of time. This new system to promote currency redistribution had
also given private banks a way to pass on to third parties the interest rate and
disintermediation risks formerly borne by the bank.
The use of these instruments providing instant liquidity and safety has
worked amazingly well since 1961. It is one of the principal factors which has
served to prevent another financial crisis in the world economies.
In recent years, smaller banks not ranked among the top 100 have been
issuing their own instruments. Considering the dollar volume and the number of
instruments issued daily, the system has worked extremely well. There been few
instances where a major bank has financial problems. In all cases, the central
bank of the G-10 country concerned and the Bank of International Settlements
have moved quickly to financially stabilized the bank, insuring its ability to honor
its commitments. Funds invested in these instruments rank para passu with
depositors accounts, and as such, their integrity and protection are considered
by all the instruments involved as fundamental to a sound international banking
system.
The bank instrument program designed under the Kennedy Administration
is still used very effectively to assist in recycling and redistributing currency to
meet the world s demand for commerce.
INSUFFICIENT GOLD SUPPLY

Another significant test of the Bretton Woods Agreement came in 1971,
when the volume of world trade using U.S. dollars as the medium of exchange,
finally exceeded the ability of the United States to support its currency with gold.
The restraints of the gold standard at $35 per ounce established under the
Bretton Woods Agreement placed the Untied States in a very precarious
position. As Keynes had predicted there was not enough gold in the U.S.
Treasury to back the actual number of U.S. dollars then in circulation. In fact, the
treasury was not really sure how many paper dollars actually were in circulation.
What they did know, however, was that there was not enough gold in Fort Knox
to back them. The problem was that the U.S. Treasury was not the only
institution aware of this fact. All G-10 counties were aware of this. If demand
were place upon the U.S. Treasury at any one time to exchange all the
Eurodollars for gold, the U.S. Treasury would have had to default, thereby
effectively bankrupting the United States Government.
France, the United Kingdom, Germany, and Japan were concerned about
their substantial holding in U.S. dollars. If just one of theses countries demanded
gold for dollars, a run on the U.S. dollar could occur with devastating results. The
United Kingdom quietly initiated such a demand at a meeting between its
ambassador to the U.S. with John Connolly who was then the Secretary of the
PAGE 52 OF 273
U.S. Treasury, and Undersecretary of the Treasury, Paul Volker. Connolly

listened to the ambassador and said, "I will answer you tomorrow".
Nixon, Connolly, and Volker, in an ultra-secret weekend meeting with the
brightest of the nation s bankers and economists gathered to ponder "tomorrow
s" answer. Honoring the demand meant certain death to the U.S. as an
economic super power. Not meeting the demand would have catastrophic
results. Was there a way out? What if the U.S. unilaterally abandoned the gold
standard and let its currency float in the market? Nixon and his advisors viewed
the dilemma in terms of two mutually-exclusive alternatives: increasing the value
of U.S. gold reserves and maintaining a gold-back economy, or considering the
repercussion to the world s economies if the U.S. dollar were no longer backed
by gold.
To resolve the crisis, the U.S. needed to unilaterally abandon efforts to
maintain the official price of gold at an artificial level of $35 per ounce, the same
price that existed in 1933. Gold in 1971 had a market value of approximately
$350 to $400 per ounce in the commercial world market, or about 10 times the
official price. By letting gold seek its market price in the commercial world market
price, the U.S. Treasury s gold would automatically become worth approximately
10 time its value at the official price. Under these circumstances, any
government, bank or private investor would have to exchange $350 to $400 U.
S. dollars for one ounce of gold at the market price rather than one U. S. dollar to
acquire 1/35th ounce of gold at the old official price. An ounce of gold would rise
in exchange value by a factor of ten and the U. S. Treasury s gold supply would
increase correspondingly.
In addition once the gold standard established at Bretton Woods at $35 per
ounce was abandoned why reestablish it at $350 an ounce? The same problem
would eventually arise again, and Keynes would be right again. Why not adopt
Keynes s original idea of a currency, being backed by the good faith and credit of
it government, its people its national resources and its production capacity? The
United States needed to let its currency "float" in value against all other world
currencies and not tie it to gold. Market forces would set the dollar s value
through its exchange rate with other foreign currencies. Nixon and his advisors
also realized that business world-wide had long ceased conducting international
trade through gold and silver exchanges. Therefore, taking the dollar off the gold
standard and allowing its value to float in relation to other world currencies would
create currency risks for international trade transactions, but it would not
preclude or stall international commerce. The world of international business had
already abandoned the gold standard years before, considering it cumbersome
and unworkable. Moreover, the other Western nations had neither the economic
nor military power to force the U. S. to honor its commitment to the gold standard
and therefore would not prevent it from abandoning the standard.
Based upon a clear understanding of these two interrelated realities, Nixon
and his advisors determined to abandon the gold standard and allow the U. S.
dollar to "float" in relation to other nation s currency. The exchange rate would no
PAGE 53 OF 273
longer be determined by an artificially-maintained gold standard, but rather by

the value placed on each currency in the foreign exchange market.
NIXON AND KENNEDY:

The system for controlling currency supply, established by the Kennedy
Administration, became and indispensable tool to the Nixon administration. The
IMF and the Bank of International Settlements insured that the U. S. dollar would
hold its value in the international market and was recycled from counties with a
positive balance of payments back into the world economy. The illusion of U. S.
dollar backed by gold was gone.
The preceding information explain the use of bank instruments as an
alternative investment vehicle to United States Government notes and how and
why the process of issuing bank instruments used in trading programs began
and continues today.
PAGE 54 OF 273
RISK FREE CAPITAL ACCUMULATION BY MEANS

OF PARTICIPATION IN A BANK DEBENTURE
FORFAITING PROGRAM OR PROFIT FUNDING
(DEPOSIT) LOAN TRANSACTION
In the United States of America, the supply of money or credit is regulated

by the Federal Reserve, an independent body which came in to existence by an
act of Congress in 1913, and in part by means of the recognition and
authorization granted by the International Chamber of Commerce and certain
key International Money Center Banks. Money Center Banks comprise the top
250 banks worldwide, as ranked by net assets, long term stability, and sound
management. The Money Center Banks are also referred to as the top 100 or
fewer: (as, for example, the Fortune 500 or Fortune 100); and are authorized to
issue blocks (aggregate amounts) of Bank Debenture Instruments such as Bank
Purchase Orders (BPO's), Medium Term Debentures (MTD's) such as
Promissory Bank Notes (PBN's), Zero Coupon Bonds (Zero's), Documentary
Letters of Credit (DLC's), and Stand By Letters of Credit (SLC's). Bank
Debenture Instruments (BDI's) are issued under the International Chamber of
Commerce (not to be confused with your local Chamber of Commerce), the
worldwide regulatory body for the International banking community which sets
the policies which govern the activities and procedures of all banks conducting
business at international levels.
CAPITAL ACCUMULATION BY MEANS OF BANK

DEBENTURE TRADING (FORFAITING) PROGRAMS:
(Reference ICC No. 500 revised 1995)
Authority to issue a given allotment of the above described banking
instruments: over and above those regularly employed as an accommodation to
customers regularly engaged in international trade: is issued quarterly for each
issuing bank, according to the Federal Reserve's or Central Bank's review of
each bank's portfolio. The prices of these instruments are quoted as a
percentage of the face amount of the instrument, with the initial market price
being established when first issued. Thereafter, as they are resold to other banks
they are sold at escalating higher prices, thus realizing a profit on each
transaction, which can take as little as one day to complete.
As these instruments are bought and sold within the banking community the
trading cycles generally move from the higher level banks to the lower (smaller)
banks. Often they move through as many as seven or eight trading cycles, until
they are eventually sold to a previously contracted retail customer or "Exit Buyer"
such as a pension fund, trust fund, foundation, insurance company, etc. that is
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marketing a conservative, reasonable yield instrument in which they "park" or

invest, for a certain period of time, the larger sums of cash they regularly hold.
By the time these instruments ultimately reach the "retail" or secondary
market level, they are of course selling at substantially higher prices than when
originally issued. For example, while the original issuing bank might sell a "Zero"
at 82 1/2% of its face value, by the time the "Zero" finally reaches the "retail/exit"
buyer, it can sell for 93% of its face value. Since these transactions are intended
for use by large financial institutions, they are denominated in face amounts
commonly ranging from US$10 million and up. For currencies other than US
Dollars, usually Swiss Francs or German Marks, the Central Bank or other
regulatory authority corresponding to the Federal Reserve of the country issuing
the currency, uses similar procedures to control the availability of cash and credit
in their own particular currencies.
There has been a lot of interest expressed by persons seeking to learn
more about risk from Capital Accumulation, by participating in a FORFAITING
PROGRAM. Essentially, we are discussion a Money Center Bank Instrument or
Bank Debenture Purchase and Resale Program, in which these monetary
securities are bought at a beneficial lower price and then sold in the money
markets, at a higher price. Before a transaction is committed by the traders, they
always ensure that they have a guaranteed EXIT SALE (another party willing to
purchase the bank debentures at an agreed higher price, at the conclusion of the
trading cycles.) If no Exit Sale is available and agreed to before the transaction
starts, then no program will take place as the trader will always protect his
position, and that of his clients. This is of course, the ultimate safety factor for the
client.
This type of transaction is known as a FORFAITING PROGRAM, and is
often referred to by insiders as a "trading program", because once a program is
started it will normally move through several cycles, accumulating profits at each
trading cycle.
The process is made possible because the trader commits to the purchase
of many millions of dollars in either Bank Purchase Orders (BPO's), or Medium
Term Notes (MAN's), at a substantial discount off the face value of the securities.
Sight Draft Letters of Credit are pledged to secure the transaction, and the
discounted price of the bank instruments or bank debentures made available to
the trader by the Issuing Money Center Bank might, for example, be as low as
eighty cents on the dollar or less, depending upon market rates at any given
time.
The first transaction might have some other trader willing to pay eighty three
cents for the short term use of the funds, which revert back to the first trader
often in a matter of hours. Each trading cycle earns profits at a few cents on the
dollar, but the transactions are in the millions of dollars, and when one considers
the probability of four, five, or more trading cycles per week, then it is not difficult
to realize the profitability o this type of transaction.
The internal trading of these banking instruments is a privileged and highly
lucrative profit source for participating banks, and as a result, these opportunities
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are not generally shared with even their very best clients. It would be difficult, at
best, to entice investors to purchase Certificates of Deposit yielding 2.5% to 6%
if they were aware of the availability of other profit opportunities from the same
institution which are yielding much higher rates of return. The banks always
employ the strictest Non-Disclosure and Non-Circumvention clause in trading
contracts to ensure the confidentiality of the transactions. They are rigidly
enforced, and this further accounts for the concealment of these transactions
from the general public. Participation is an insider privilege.
As a result, virtually every contract involving the use of these high-yield
Bank Instruments contain explicit language forbidding the contractual parties
from disclosing any aspect of the transactions for a period of five years. As a
result there is difficulty in locating experienced individuals who are
knowledgeableand willing to candidly discuss these opportunities and the high
profitability associated with them, without enitrely jeopardizing their ability to
participate in further transactions.
One needs to have the appropriate banking connections and relationships
to control the transactions from beginning to end. For this purpose it is not
uncommon to have:
1)A purchasing bank which represents the buyer (trader) on the purchasing
side of the transaction and which is also acting as the "holding bank"
2)A Fiduciary, or "Pass Through Bank"
3)An Issuing or "Selling Bank"
In this manner each bank is knowledgeable only with regards to its portion
of the overall transaction, and receives a nominal and reasonable fee for its
services from its respective clients. Further complicating the structuring of profit-
oriented programs involving the instruments is the different tax and banking rules
and regulations in various jurisdictions around the world. For example, in those
jurisdictions where regulations may not permit banks to directly purchase these
instruments from other institutions, or conversely where profitability may be
actually enhanced through tax incentives, "Profit Funding (Deposit Loan)
Programs" collateralized by bank instruments have been developed to structure
these transactions as loans, rather than simple "Buy and Sell" transactions. For
example, in Germany, where progressive tax rates mitigate against high interest
rates, the concept of an Emission Rate (issuing price) lower than the face value
of the loan has been widely used to further enhace a lenders profits. Suffice it to
say that a wide range of methods have been developed to maximize the net
after-tax profits for all parties involved in such yields.
THE KEY TO SAFETY AND PROFITS

As is quite evident from the forgoing, the key to profitability of these Bank
Instruments lies in having the contacts, initial resources, and wherewithal to
purchase them at the level comparable to the issuing bank and thus receive the
maximum discount while also having the necessary resources and contacts to
negociate the instruments to the most profitable levels of the retail or secondary
PAGE 57 OF 273
markets. As one might imagine, these contacts are most zealously guarded by
those traders regularly and commercially involved with these instruments. As a
result, the real secret of successful participation lies in not the how, why, and
wherefore of these transactions, but far more importantly, in knowing and
developing a strong working relationship with the "Insiders", the principals,
bankers, lawyers, brokers, and other specialized professionals who can combine
their skills and turn these resources into lawful, secure and responsible
programs with the maximum potential for safe gain.
As the result of years of successful associated business, our principles
have established personal contacts and sources of information which can
provide current relable information regarding:
1)The constantly changing availability of Money Center Bank Instruments
from the original issuers.
2)The sources of information which can provide timely, and reliable
information regarding the ever changing consumers in the "retail or secondary
markets".
3)The ability to ensure the all-important exit sales.
Armed with this information and the financial capacity to control a purchase
and resale of these instruments, a window of opportunity is thus made available
to circumvent needless intermediaries, and to profit from the enhanced "spread"
between the issuing price and the final retail price.
TOO GOOD TO BE TRUE

From time to time, a potential American or Canadian Investor, when first
presented with the opportunity to participate in a West European Capital
Accumulation Program or Loan Deposit Transaction may be very skeptical about
the existence and authenticity of such programs. This is quite understandable,
but it invariable means that the potential investor is:
1) Not familiar with the profit opportunities that qualified European Investors
have enjoyed for the past 50 years.
2) Not at all familiar with the type of program proposed and not able to ask
the right questions.
3) Thinking he is being offered something for nothing, which as we all know
is absolutely impossible.
4) Saying to himself, "If this is such a good deal why don't the Europeans
keep it to themselves, why do they invite me to participate?"
5) Not really understanding the procedures involved, and the important
safeguards which are in place to protect his invested capital at all times against
loss.
AND LAST, BUT NOT LEAST, THE POTENTIAL INVESTOR HAS ALL TOO
OFTEN NOT TAKEN THE TIME TO READ AND UNDERSTAND THE VERY
COMPREHENSIVE LITERATURE PROVIDED AND AS A RESULT MAY RUSH
TO THE WRONG CONCLUSION AND LOSE AN IMPORTANT OPPORTUNITY.
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The truth is that there are no smoke and mirrors involved. All of the
programs are conducted under the specific guidelines set up by the International
Chamber of Commerce (ICC, and your local Chamber of Commerce is not
affiliated) under its rules and regulations generally known as ICC 500. The ICC is
the regulatory body for the world's top Money Center Banks in Paris, France. It
has existed for more than 100 years, and exerts control on world banking
procedures.
The U.S. Federal Reserve, is a very important member, but unlike most
other central banks, operates independently of the ICC and as a result, the vast
majority of U.S. citizens have not been made aware of the money making
opportunities already available for fifty years to qualified European Investors
through ICC affiliated banks. However, it should be pointed out that a few major
U.S. banks do participate from within their banking operations based in
Switzerland and the Cayman Islands, but they do not normally make their
programs available to Americans living in the United States, and the chances are
very great that your local branch manager has absolutely no knowledge of them,
and may even deny their existence.
Only the world's most powerful and stable Money Center Banks take part in
these programs. At the end of each year, commencing on December 15th, the
West European Money Center Banks engaged in FORFAITING and Deposit-
Loan transactions close their counters to new transactions and make
commitments as to the types of programs and the amount of money that they will
commit to those programs for the coming year. The first consideration for any
participating bank is always:
1) The preservation of the investor's capital as the primary and overriding
responsibility.
2) Well secured and managed investment programs, with the potential for
high returns to the participating investor.
3) The constant maintenance of the client's confidentiality and trust against
any and all unwarranted intrusion from any unwelcome source.
4) The ongoing fiscal stability and ethical integrity of the European banking
structure. No runaway speculation in stocks or real estate, no inflationary flat
paper money supplier printed by an irresponsible debt-ridden government, and
no politically inspired tinkering leading to savings and loan and banking
collapses, or economic crashes, so as to endanger the overall investment and
business environment and the life savings of private investors.
Once the banks have defined the programs for the coming year, they are
made available to qualified individuals through principals or as they are also
known, "Providers". The banks themselves are NOT allowed to take part in the
management of the programs for this would lead to a massive cartel generating
huge unregulated profits. The banks do, however, manage to make substantial
profits from the program in the form of fees. Program management is the job of
Providers, and there are only six of them in all the worldwide banking industry.
PAGE 59 OF 273
The Providers themselves are also NOT allowed to trade or do business on

their own behalf, so this presents an opportunity for qualified investors to take
part, and to profit as the initiators of the various transactions. Until recently those
privileged opportunities were not offered outside of the Western European
markets, but as the world economy has continued to grow, and more real money
pours into the safety of West European Banks, they need to put this capital to
work earning profits.
This has allowed for the door to be opened for the first time to American and
Canadian Investors and provide them with a unique opportunity to accumulate
capital in a confidential manner and to decide for themselves how and where
that capital will be disbursed. In the course of a calendar year a number of
programs are introduced by Money Center Banks in London, Antwerp,
Amsterdam, Frankfurt, Vienna, Zurich, and other major West European banking
centers.
These programs are open only for as long as it takes them to become fully
subscribed. Once the committed funds are exhausted, then the program closes
and will not be reopened that year. Each program comes with its own
parameters and requirements and will not be changed nor subject to alternate
proposals by potential investors. In every transaction your funds are secured by
Money Center Bank Guarantees. A Money Centered Bank Guarantee is a
collateral document, issued by the major West European Bank that is
underwriting the transaction. This document absolutely and irrevocable promises
the saftey of your capital while it is taking part in a capital accumulation program,
be it a Deposit-Loan, or FORFAITING transaction.
In many cases first time investors will, after complying with required
procedures, and after providing the necessary documentation and proof of funds,
be invited to travel to meet with the principle at the transacting bank and assure
him/herself of the validity of the proposed transaction. This is before any money
is placed in a commitment to a program.
However, a fair word of warning: frivolous inquires of those seeking to
circumvent the system and not follow procedure will not be allowed to
participate. These programs are only for sophisticated and serious investors
seeking to increase their wealth in a substantial manner.
COMMONLY ASKED QUESTIONS

Why is the program set up as a joint venture?
Even though bank instruments are exempt from registration under the
Securities Act of 1933, solicitation remains subject to the general anti-fraud
provisions of the SEC. The sale of 'passive' investments requires registration. By
structuring the transaction as a joint venture, potential conflicts are avoided.
What exactly are bank credit instruments?
Bank credit instruments are conditional bank obligations. In these
issuances, they are general obligations of the issuing institution without reserves
for repayment being set aside.
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Stipulation is not as direct liability in the balance sheet but in the Notes to
the financial statement as contingent liabilities. While not secured obligations,
the implications would be quite serious for the banking industry if a major
institution defaulted on any payment due, secured or unsecured.
GLOSSARY OF TERMS
The definition of terms used in the industry is presented below.
Best Efforts: A designation that a certain financial result is not guaranteed,
but that a good faith effort will be made to provide the result that is represented.
Bond: Any interest-bearing or discounted government or corporate security
that obligates the issuer to pay the holder of the bond a specified sum of money,
usually at specific intervals, and to repay the principal amount of the loan at
maturity. A secured bond is backed by collateral, whereas as an unsecured bond
or debenture, is backed by the full faith and credit of the issuer, but not by any
specified collateral.
Collateral Provider: An entity which has the contractual ability to purchase
bank instruments directly from the issuer. Also known as Master Collateral
Commitment Holders.
Conditional S. W. I. F. T.: A method which uses the Society for Worldwide
Interbank Financial Telecommunications to transfer funds conditionally between
bank subject to the performance of another party.
Contract Exit for Non-performance: A conditions in a financial agreement
that enables the investor to take back his funds if the result represented is not
achieved.
Debenture: A general debt obligation backed only by the integrity of the
borrower, not by collateral.
Depository Trust Corporation (DTC): A domestic custodial clearing facility
owned by all of the major banks and securities firms which is monitored by
various banking regulatory agencies and the Securities and Exchange
commission.
Draft: A signed written order by which one party (the drawer) instructs
another party (drawee), to pay a specified sum to a third party (payee).
FORFAITING: The process of purchasing at a discount registered bank
"paper" which will mature in the future without recourse to any previous holder of
the debt-generated bank paper.
Glass-Steagal Act: A portion of the Banking Act of 1933 which prohibits
banks from entering into the securities business and prohibits securities firms
from accepting deposits. However, any security which is issued or guaranteed by
any bank is not subject to the Securities Act of 1933. Therefore, bank
instruments, by virtue of being issued by a bank are not considered a form of
securities.
International Chamber of Commerce (ICC): An international body which
governs the terms and conditions of various financial transactions worldwide. It is
PAGE 61 OF 273
headquartered in France and has no affiliation with the local Chamber of

Commerce offices.
Key Tested Telex (KTT): An older form of transferring funds between banks
using a telex machine on which the messages are verified by use of key code
numbers.
Leveraged Programs: Programs which use leased assets (such as United
State government obligations) to increase the amount of instruments purchased
and resold for a profit. The benefit of leased assets is that such programs
generate substantially larger profits.
Medium Term Note (MTN): When discussing bank trading programs, a
standard from of debenture with a term of ten years and an annual interest rate
of 7.5%. Also known as Medium Term Debenture (MTD).
Off-Balance Sheet Financing: The process where the liability is contingent
(dependent on certain events). It is not listed as a liability, but typically appears in
the Notes to the financial statement of the party.
108% Bank Guarantee: A written guarantee issued and payable by a bank
which provides for the return of the principal amount and eight percent interest.
One-Year Zeros: An obligation of a bank due in one year and sold at a
discount from face value in lieu of an interest coupon.
Par: Equal to the nominal of face value of a security. A bond selling at par is
worth the same dollar amount as it was issued for or at which it will be redeemed
at maturity.
Parallel Account: A separate account established at the transactional bank.
Pay Order: Document which instructs a bank to pay a certain sum to a third
party. Such orders are normally acknowledged by the bank which provides a
guarantee that the payment will be made.
Safekeeping Receipt: A document issued by a bank which obligates the
bank to unconditionally hold certain funds separate from other bank assets and
return them when requested by the depositor. In the way the funds are not an
asset of the bank nor are they directly or indirectly subject to any of the bank s
other obligations or debts.
Sub Account (Segregated account): Where an entity has established a
relationship with a bank that includes that bank acting on the entity s behalf, a
sub account is opened to hold funds in the name of the entity s client. The funds
can only be used according to the terms of a written agreement that is given to
and approved by the bank. The funds are not considered an asset of the entity or
the bank and are not subject to the debts of either the entity or the bank if a
safekeeping receipt is issued by the bank.
Tranche: A specified part of a larger transaction. Each purchase and resale
of a separate block of bank instruments in a trading group in known as a tranche.
For example, a contract may be signed to buy 10 billion dollars worth of bank
paper with an initial tranche (or purchase) of 500 million dollars.
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Terminology
PBG
This is an "industry jargon term" which stands for "Prime Bank Guarantee".
In this context the word "Prime" is an adjective not a noun, meaning that the
bank issuing the "Bank Guarantee" is of "Prime" status, or one of the TOP banks
in the world. In other words there is NO SUCH THING as a "PBG", there are
Bank Guarantees issued by "PRIME" Banks.
BROKER
This is an individual or organization that has contacts with people or
organizations that have CASH. This "BROKER" then knows someone that knows
somone that hopes to make a contact with someone that knows a "TRADER".
This chain of "BROKERS" is known in the business as a "DAISY CHAIN". There
are thousands of these "wanttobes", "hopetobes" and "wishtheyweres" in this
business that ruin it for those, such as ourselves, that are legitimate and really
do have the contacts that "brokers" wish they had.
TRADE PROGRAM
This an BROKER term for the particapation in the buying and selling of
Bank Debantures.
ROLL PROGRAM
This again is a broker term that describes what they think is a Trade
Program. These DO NOT EXIST and anyone that uses that term should be
avoided.
Letter of Intent
This is a legal document describing the conditions under which the principal
will place his/her funds. A generic document is in the Documentation section of
this site
Limited Power of Attorney
This is a simple but powerful legal document that empowers the "TRADE
MANAGER" to deal with the parties within the business on behalf of the
principal. The transactions WILL NOT HAPPEN without this instrument. None of
the trade banks or the traders will allow any outsiders inside the system. As
stated in the Explainations section of this site, these transactions are VERY
PRIVATE and are considered "OFF LEDGER TRANSACTIONS" and private. A
generic document is in the Documentation section of this site.
Confirmation of Funds
This is the document by which the principal's bank LEGALLY states that the
principal does have the "cash" stated and will comply with the principal's
instructions to transfer them. A generic document is in the Documentationsection
of this site
Principal
This is the party that has the "cash" and wants to make an above average
and sometimes obscene profit.
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PAGE 64 OF 273
TRADE PROJECTS AND HOW THEY WORK
A Thorough Explanation Of How High Yield Trades Function - Most

People Don't Believe Trade Projects Exist
Many people believe that trade projects do not exist, which is the intended
result. These non-traditional investment vehicles remove money from traditional
investments such as stocks and bonds. It is estimated that around 10% of the
United States Gross Domestic Product every year is moved offshore to avoid
taxes and perform offshore financial activities.
In order to stem this flow of money out of the US taxation system and out of
traditional investment vehicles, the official position of the United States
Government is that trades do not exist even though the United States Federal
Reserve runs all United States based programs.
Another common reason why many people do not believe trade projects
exist is because there are very few people who are successful. The opportunity
for fraud is too high: there are many brokers and traders that are more interested
in stealing the funds for trade than actually locating a trade to earn investment
income. Many brokers have no real trade connections and others falsely believe
that the failure to place unplaceable assets implies anything about the trade
industry. If 95% of all pool companies are not real, at least 98% of all brokers or
traders are either fraudulent or they are honestly trying to work placements but
have no legitimate trader connections.
A final main reason why many people do not believe that trade programs
exist is because the potential earnings are much more favorable than traditional
investment vehicles. Most people are use to a specific earning level, which is
artificially low in many cases and not a useful judge of what is too good to be
true.
All of these reasons work together to make most people skeptical about
trades. They pay much more than traditional financial vehicles, there are a great
number of failures due to incapable or unscrupulous participants, and the US
Government official statement is that trades do not exist in order to increase the
participation in traditional investments and reduce the flight of capital from the
United States.
Regardless of these issues, there are many types of trade projects, some of
which are not really trades. True trades are based on the sale of bank or
government paper to artificially increase the money supply, but other financial
investments such as FOREX currency trading have become associated with high
yield investments lately.
The trade industry started approximately fifty years ago as a by-product of
World War Two. Before WW2, the British Pound was the basis of international
commerce.
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If two countries needed to trade merchandise, the monetary exchanges

were in Pounds more often than not. However, due to the damage of WW2, the
British Empire no longer had the reach and strength to fund all international
commerce and the international monetary community decided to switch to the
United States Dollar instead.
Unfortunately, the volume of United States Dollars in circulation was too
small to support the level needed to facilitate the ever increasing levels of
international commerce. To get around this limitation, trades were invented to
artificially inflate the money supply. With this inflation, the money can be created
as needed without artificial constraints imposed by the level of actual money in
circulation.
Today, there is an assortment of quasi-trade plus two real trade methods:
The real trade projects are either a European bank buy/sell of bank notes in the
top fifty financial institutions.... or...... in the United States, the Federal Reserve.
Fed trades can be bank trades but more commonly are based on the
buy/sell of US government securities.
In order to go into either type of trade, the investor must have at least US
$1,000,000 cash for placement. It is not legally possible for a trader to speak
with any potential investor who has less than US $1,000,000 for trade.
This is an international standard for all trades, and in the United States it is
required to be an Accredited Investor by the SEC. As long as a potential investor
has US $1M (US $10,000,000 dollars), states he or she understands the risks
inherent in a non-traditional trade process, and is familiar with trade projects in
general, then it is normally acceptable for that person to be to introduced to a
trader.
All trade projects follow the same basic process, starting with a proper
introduction. The trader can not solicit participation, so an intermediary must
bridge the trader and investor together. In exchange for this introduction, a few
percentage points of the earnings are normally paid to the intermediaries out of
the trade earnings.
The intermediary will discuss a general trade project overview with the
investor and collect the basic investment application documents. These
documents are fairly simple and comprise a Proof of Funds along with different
personal information and a statement of non-solicitation.
The proof of funds must represent actual cash or a cash equivalent. Many
players in the high yield field believe that nearly anything is tradable, which is
one of the reasons why there are so many placement failures.
For example, popular items which are not tradable but which many brokers
and fake traders play with for placement include:
1. Old Federal Reserve Notes from the 1930s: The Department of Treasury
in the United States routinely destroys old money from the last year or two and
replaces the destroyed notes with fresher currency. Old money, regardless of
age, is just old money unless there is some kind of collectable value.
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2. Gold Backed Historical Bonds: Sometimes these are from old railroad
bonds and other times these are from governments that no longer exist. The
theory is sound, they are suppose to be backed by gold bullion and worth billions
after a hundred years of annual interest. However, if the government which
issued the bond no longer exists, such as in pre-war Germany, there is no
liability imposed by those bonds.
3. Foreign currency: In many cases, odd currency types can be the
mistaken basis of a potential trade project. For example, Mexico devalued their
currency a few years ago by dropping the last three digits in their currency
values. A 5,000 peso note today would be worth around 5,000,000 pesos under
the old numbering system even though both peso notes are the same value. All
trades are based in United States Dollars anyway.
4. Bank Guarantees and Letters of Credit: These are the two main financial
instruments which uninformed intermediaries and potential investors try to place.
Neither instrument represents money, they are insurance policies which are
redeemable only in limited situations for limited periods of time. It is not possible
to trade any of these insurance policies, because they have no cash value
regardless of the millions or billions of dollars of insurance in the Bank
Guarantee or a Letter of Credit.
5. Another common type of placement is based on the value of tangible
assets such as rugs, paintings, and oil reserves are the most common. In order
to place these into trade, the investor must personally obtain a cash credit line
which can be housed into the trade bank. These items are tradable, only
because the investor is easily able to obtain a credit line himself or herself and
use that cash for placement. In nearly all cases, investors are unwilling to make
this effort, which means that no trade is possible in those cases.
Once a Proof of Funds representing real money is obtained, the trader can
speak to the investor about the trade project parameters. However, before this
happens, many potential investors will try to get as much information as possible
in order to better decide about moving forward. Normally, this means the investor
will question the intermediaries for a while before deciding to move forward and
speak with the trader.
It is rare for an intermediary to know very much about the trade project
details. Many potential investors judge a trade program based on broker
comments or broker knowledge, which is flawed because intermediaries actually
know very little about the trade. Legally, only the investor can obtain a trade
contract, for his or her eyes only. In other words, the intermediary is only
responsible for resolving trader solicitation issues, he or she is not suppose to
sell the trade project or be a personal source of credibility for the trade project.
Most of the trade projects that members have been exposed to are pool
investments. In this case, many small people come together to meet the minimal
placement amount. This can work well, but there are many problems that can
occur. The investor in trade is accountable for the funds placed into a project by
the trader and trade bank. When the trader and the trade bank pay him, they
must be sure of where the profits are going. For example, if a portion of the
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funds are used to launder drug money or purchase weapons for terrorists, the
trader and the trade bank can have some serious legal consequences for paying
that person trade profits.
Because trades will only pay investors that are completely accountable,
pool placements sometimes have troubles if the pool participants do not properly
behave. For example, if one of the potential participants tries to discuss the pool
venture with the trader or the trade bank, then obviously the trader and the trade
bank will know that they do not have complete information on hand as far as the
eventual distribution.
Several problems are common in pool placements when small participants
get out of hand. First, traders are only able to place money from individuals or
companies that are placing at least the minimum amount into trade; which
means that the person trying to verify the safety of the trade is not a valid trade
participant. Second, none of the smaller people have been cleared to receive
trade profits and it is not worth the effort to clear an unknown number of people
placing a small level of funds into the pool. In some cases, the cost to clear a
participant may be more than the participant deposits into the pool. Third, without
the legal ability by the trader and trade bank to contract with all of the sub-
participants and ensure that all funds disbursed are to approved destinations, the
trader and the trade bank may not pay the sub-participants.
Many pool programs are able to resolve these problems because they do
not provide any details on the trade and they use disbursement and collection
bank or electronic currency accounts which have no direct linkage to the trade
and trade bank. In other words, they remove the ability of the small level
participants to cause problems which would be fairly common otherwise.
Most trade placements are ruined as a result of intermediary problems and
in most of these cases a potential investor never even learns about the lost trade
opportunity.
Most of these conflicts result from arguments over the fee split, which is
zero to all parties when nothing happens.
Other placements are fouled up because the investor does not have real
money or that money is not placeable. Another common problem is that brokers
have no real trade connections so a placement could not happen no matter how
smoothly everything else fits into place. The final reason is that potential
investors feel they are much more important then they actually are and are
undesirable to the trader due to personality conflicts.
Many potential investors are not successful because they have a greatly
inflated sense of their own self worth. The investor needs the trader much more
than the trader needs the investor. In other words, the trader is already earning
money whether the investor goes into the project or not.
In many cases, potential investors feel they can change the trade
procedures or can expect some kind of special concession for going into the
trade. There is very little interest in working with potential investors that cause
unnecessary problems or animosity.
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It is also possible that the individual investor is not tradable for many
different reasons. It may be that the investor has been associated with criminal
activity or is a nationality which is viewed unfavorably for one reason or another.
The money for placement is also important, a three year history must be
provided to prove the money is of non-criminal origin and is free and clear
without any liens or encumbrances. If there are past problems or a hint of future
problems, the investor is not tradable. Assuming the trader is real, the potential
investor behaves, and the investor is tradable; the trader will provide the details
of the trade and directly answer any questions.
The main factors that the potential investor is normally concerned with are
the safety of the invested funds and the potential earning rates.
There are many ways to participate in a project, all of which are based on
money and offer different safety levels. The main buzzword is a sole signatory
bank account, which means that the investor can keep the money in his or her
own bank account under his or her sole control. This is reasonably safe
depending on the wording of the investment contract and the actions of the
trader. In order to perform a trade buy/sell of anything, the trader must either
have the money itself or the value of the money instead. In a sole signatory bank
account, the value of the money is assigned to the trade at the discretion of the
trader, which is roughly the same as giving the trader the money directly. Some
sole signatory bank accounts are safe and secure, but this is basically a buzz
word tossed around by amateurs without much of a real measure of safety or
security.
Other safety factors can be an insurance policy or bank guarantee,
depending on if the trade is through a bank or securities brokerage house, or the
ability to redeem the funds on deposit with a demand guarantee. In the past,
another buzzword many potential investors looked for was pay orders issued in
advance. This is not very common today and was rarely associated with real
trades in the past.
Most European trades are through a trade bank while US Fed trades is split
fairly evenly between trade banks and securities brokerage houses. In some
cases, high volume trade banks will split the transactions among several
brokerage houses so it may be a bank trade but conducted through a securities
brokerage firm.
There are many ways to deposit funds into a trade, with the most popular
being a sole signatory bank account. This is possible only for high level potential
investors due to the overhead setting up account scanning and performing
account scanning. It is extremely rare to find account scanning below the US
$1,000,000 level. Besides a sole signatory bank account, the investor can
normally purchase a US Government security or bank Certificate of Deposit. In
other cases, a brokerage account can also be the basis of a trade.
According to the international laws which govern high yield placements,
only United States Dollars may be the basis for trade. Many pool participation
companies use E-Gold or similar to collect and disburse funds, which is a good
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idea, but E-Gold and similar electronic currency monetary equivalent may not be
directly traded.
After an investor has signed the participation agreement, and has funds
ready for participation, the trade may begin. There are several possible trade
routes. FOREX currency trading is a not a real trade project but is very profitable
and is almost a traditional investment. Basically, one type of money is purchased
while another is sold in the hopes that the exchange rates will favorably change
over the course of an hour or a day.
A currency trade rarely earns extremely high profits but leveraging is
possible and buy/sell trades can be as quick as 15 minutes. When the invested
funds are leveraged, the trade bank or brokerage house allows the money to be
multiplied five or ten times greater than the actual investment amount. This
would be similar to purchasing stocks or commodities on margin.
Leveraging the invested money is the secret to the very high earning
potential. A point spread may actually be only a penny on the dollar. However, if
the money is leveraged ten times, that penny becomes ten cents instead. All of
the other buy/sell trades are similar, it only depends on the type of security or
financial instrument which is traded. In the United States, US Government
securities are traded and many top banks can also sell bank notes in a limited
way while in Europe mostly bank notes are bought and sold. The easiest way to
understand this process is to look at how US banks provide so many loans for so
many different purposes.
The American dollar is considered fiat money, which basically means it is a
national currency which has no inherent value. It is money because the
government says it is money and made a law stating it must be used, but there is
no inherent value beyond the good faith and credit of the United States
Government. This is true for the Euro and most other national currencies as well,
due to the limitations which a gold backed system imposes. In a value backed
monetary system, you can only have as much money as you have assets on
hand, which limits the amount of money which can be exchanged in that
economy.
In other words, if you need to have $100,000,000 in your economy for
salaries to be paid, for citizens to purchase goods and services, and to allow for
international commerce, that government would need to obtain $100,000,000
worth of precious metals first. Since it is easier and simpler to just print sheets of
paper that contain ink marks writing out $100,000,000 and skip the actual
purchasing of all that real value, most governments stick with the printed paper
and make it a law forcing people to accept this as money.
The process for a European bank trade or a US Fed trade are very similar,
but different financial instruments are bought and sold. On a much smaller level,
US banks perform the same function.
Bank debentures, which is a common name for bank instruments that are
bought and sold, can be several different things. They are essentially like a
Certificate of Deposit but created and sold instead of being sold and created. To
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purchase a CD from a bank, you have to pay the money first and than the bank
will create and sell you a CD based on the amount of money you gave the bank.
Conversely, in a debenture sale, the bank creates it first and then sells it
afterward. Insurance companies and other cash based businesses buy trillions of
dollars of this paper to productively employ the cash which people use to pay
their monthly premiums. Other debentures are for specific purposes such as a
loan in the millions or billions to a major company performing an expansion or
similar.
A debenture is profitable in a trade sense because there is a great
difference in price between the sales price of the bank and the sales price of the
end consumer. For example, in the US, a treasury sells for around 93 cents on
the dollar to a consumer but actually passes through many intermediaries who
get a few pennies each. Most treasuries start around 50 cents to 75 cents if you
are an insider, but it is not possible to purchase them from the government
directly at that level.
The trade system is the reason why private investors or institutional buyers
can not purchase US treasuries directly from the US Government. All treasuries
must be purchased through a brokerage house through the trade process.
Trades are the private part of the transaction which drives up the price between
what the government sells the instruments and the 93 cents most end users pay.
The banks in Europe do the same thing, but with a slightly different process.
With fractional banking, they create a debenture most commonly called a
Medium Term Note for US $100M which is sold for around US $50M. From an
accounting standpoint, they have an obligation now for US $100M and a credit of
US $50M in new earnings. The new earnings can be leveraged into US $500M
of lending power and normally a maximum of US $450M is placed back into the
economy.
With US $450M on the books as incoming obligations, they have no trouble
repaying US $100M to the debenture note holder. The note holder can pay up to
face value for the note and earns the difference plus interest income over the
three or four months before the note is redeemed.
Between the end purchaser and the bank, a lot of intermediaries split the 45
to 50 cents between what the bank sold the note for and what the end user paid.
This 48%, give or take, is split between the trader and an assortment of investors
and brokers.
In most cases, a large percentage of these earnings must be paid to some
kind of humanitarian project, which lowers the US $48M in earnings down to
around US $10M in profits from that single trade which is split among the
investor, the trader, the trade bank, and the intermediaries.
Assuming some of the bank loans default, the bank can still expect most of
them to come back. If 10% of the loans default, out of US $450M they can
expect to get back US $405M plus the interest. If the interest is 10%, they can
plan on getting back an extra US $45M in earnings from the loans which do not
default. With the loan interest and only 10% of the loans defaulting, the bank can
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expect to earn around US $450M over the life of the loans. With the US $50M
from the sale of the original debenture, this comes to US $500M. Minus the US
$100M debt from the debenture itself, the bank will earn approximately US
$400M for each US $100M bank note sold at a 50% discount over the period of
the loan repayments.
This is not how all debentures work: there are many types of bank paper
and special circumstances. However, this is the most common situation and
fairly easy to understand.
US banks can do this as well on a much smaller scale. Basically it is a tool
to artificially inflate the money supply. This is not a trade procedure: instead, they
are performed solely to increase the volume of money in circulation. Instead of
selling a debenture, they leverage the money obtained from new CD sales and
client deposits. As long as there is a net increase, they can leverage the
difference ten times to make house loans, college loans, car loans, emergency
signature loans, personal loans, extend credit card credit, and everything else.
Without the ability to inflate the money supply, these loans would not be
possible. This is the main reason why a gold backed currency is not possible,
most Americans would not be able to attend college or purchase an automobile.
Most people never consider how a bank earns money and just assume this is the
difference between the interest rate on CD sales and the interest rate on loans
along with a smattering of fees, which is not very much money to build a marble
building, hire three dozen employees, purchase nice furniture and equipment,
hire a security staff, purchase television advertisements, and give out millions of
dollars in loans.
Although many banks are dropping their service charges to be competitive,
even a dollar a month is not going to go very far. Other fees are not very high
either such as selling a CD for 5% and loaning the money out for 10%. I suppose
most people think there are just as many people buying a one year CD as there
are getting a five year car loan. On top of that, most people live paycheck to
paycheck and their bank account is cleaned out before the end of the pay period.
The difference here we will call US $1M in new money, which means
$1,000,000 more United States Dollars are on deposit in the bank this
accounting period than the last accounting period. Of this money, they leverage
the US $1M into US $9M in lending power. They can actually loan out US $10M
in loans, but if a CD or deposit is withdrawn untimely, that can create liquidity
problems so the full leveraging potential is never used incase that buffer is
needed to cover a liquidity shortfall.
Of the US $9M in loans that are made, US $1M can be expected to default
leaving only around US $8M in profit over the life of the loans. Some of these
loans are short term and others are long term but the bank can expect to receive
US $8,000,000 in profit when all of them are paid back plus interest. With these
inbound obligations, there is no trouble paying the expenses incurred by the US
$1M from the original Certificates of Deposit when the bank repays that money
plus an additional US $50,000 interest income paid to the CD owner.
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The left over money (around US $6,950,000 over the life of the loans) is
used to pay for the building, pay employee salaries, purchase nice office
equipment and furniture, hire some security guards, make other loans, and pay
bank profit. This is one of the main reasons why there are more financial
institutions than churches in most towns.
Because we are working with fiat money, which has no inherent value, the
banks are able to create any money they want digitally and lend it out. This
artificially inflates the money supply and allows for many people to purchase
something they ordinarily would not be able to afford. There is no real limit to the
amount of money which can be artificially created.
The money which is created is not invented out of nothing. Technically, this
money is borrowed from the Fed at the interest rate which is raised or lowered
when the US debt based economy needs tweaking. The leveraging through
fractional banking is the level of money which the bank can loan out based on
money from the Fed. The Fed does not invent the money either, it creates
whatever is needed digitally and it becomes real money as a debt of the United
States Government.
The two systems are the same, except that European financial institutions
are able to perform this on a larger scale in advance. They can print debentures
now for sale later while American banks can only sell Certifications of Deposit
after the sale. Either way, these transactions allow for a great level of earnings
through fractional banking. In the United States, many different securities can be
bought and sold but the most common are US treasuries. These are printed by
the government and sold through brokerage houses. It is not possible to
purchase a Treasury directly from the US Government: they must be purchased
only through a brokerage house.
While this process is fairly complex, it is essentially the same as European
bank debentures. The US government prints a Treasury note and sells it after
printing. The notes are drastically marked down and passed through a series of
intermediaries before a brokerage house sells it to a cash based business like a
utility company, an insurance company, or retirement fund managers for around
93 cents on the dollar.
Many other securities can be bought and sold, but are not a real trade
project. Instead, these are traditional investments which rely on the skill and
physic ability of the trader, such as earning money in stocks on Wall Street or in
Commodities. In most cases, your stock broker who performs these trades for
you are called brokers, which is a good example of the differences in these
investment vehicles.
A trade project is special because there is a built in profit that will always
happen. This is in virtue of the special intermediary process between the creator
of the item being sold and the end holder who will purchase and keep the note
until maturity. When purchasing something on Wall Street, you are basically
performing a currency exchange and hoping to catch a favorable exchange rate,
there is no built in profit. Stocks on Wall Street are not fiat money like in currency
exchanging. In currency exchanging, the money being bought and sold has
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value based on the good faith and credit of the issuing governments. Any gains
or losses are gains and losses of real money.
Another example of stocks versus fiat money is that stock profits are not
considered real money until after the stock is sold. Your loan officer will be happy
to explain to you why stock values drop around 70% when used for collateral. It
is possible to earn money doing Forex and Wall Street trades, but they are not
real projects because these buy/sell trades do not factor in a profit at the outset.
A profit is likely, but based more on luck or physic ability than the pre-coordinated
plan of the trade project. Only in a trade can the potential for earnings happen in
a reasonably safe and secure way because only in a trade project is the potential
profit included as part of the trade project parameters.
Because stocks are a foolish investment considering these other financial
vehicles, the US Government has a vested interest in ensuring that trade
projects are not common knowledge or available to common investors.
The other part of the placement process, besides keeping many people out,
is to resolve solicitation issues. After the intermediary confirms the potential
investor is a legal participant in that he or she confirms non-solicitation and
possesses the required participation amount, then the trader will discuss the
trade project and maybe a trade placement will happen.
When a trade placement happens, regardless if this is through a sole
signatory bank account, a brokerage account, or another method, the trader has
access to the money placed into trade by the investor.
The money is very important because it is the basis of the buy/sell for the
trader. The money itself is not involved in the buy/sell, but it allows for the trader
to move the instruments from the creator to the end user.
In other words, if the investor places US $10,000,000 into trade, the trader
can use this money to hold US $100,000,000 worth of bank debentures or US
Treasuries but not actually purchase them as the sale has already been
coordinated with an end purchaser before the trader obtained the debentures or
treasuries.
Only the end user will actually purchase the debenture or treasury and hold
it until maturity. The money submitted by the investor to bankroll the trade is not
actually used to purchase the debenture or treasury, instead it only serves to
provide the margin for the trader to pass the debenture or treasury from the
maker to the pre-coordinated end user.
The international laws which govern these trade projects place several
limits on this process, which is why traders are always interested in fresh
investors.
Because of these laws, it is not possible for a trader or a trade bank to
bankroll the transfers personally, only outside investors can provide the money to
hold the financial instruments during the buy/sell. Also, investor money is only
good for specific projects and can not be recycled over and over again into fresh
projects. Ongoing trades will always require a fresh source of capital.
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In many cases, there is a need for a humanitarian project to be associated

with a trade project. This is not a large concern for the investor, the trader or
trade bank will normally supply whatever reason is the basis of the trade.
However, in these cases, most of the trade earnings are legally required to go to
the humanitarian project which forms the basis of the trade. This does not mean
the trade is not profitable, just that some of the profit is diverted to a worthy
cause.
In many cases, a trader will coordinate a specific project based on a specific
trading velocity and the bank ability to print debentures or other factors. For a
popular trade, the number of potential investors may exceed the amount of
money needed to perform the pre-coordinated buy/sell tranches. In this case, the
trade project is ongoing but can be considered closed because no new investors
may participate.
Based on the trade parameters, some investors may be able to participate
in a trade project for many years. These projects are attached to long term
buy/sell contracts and tend to earn a lower amount. Other projects are very quick
but pay a great deal more because of the short time frame for participation. A
shorter project might last for only part of a year, but will pay much more than an
ongoing open ended placement.
Earnings from trade are generated each trade day, which is normally three
or four times weekly. However, it is rare for quick payment account periods of a
week or less because longer time frames allow for compounding and less
overhead performing and tracking daily or weekly payments.
In some cases, trades at the US $100M level will pay daily, but even then
that is not desirable due to the lost compounding.
CONCLUSION
This article did not discuss a variety of different ways to perform the buy/sell
process, but this is not a complete list of financial instruments that may be
bought and sold. This discussion is fairly complete in terms of trade projects as
whole with all of the different factors which make trade projects successful.
Hopefully, you have a better understanding of how trade projects work, who
can get into them, the basic process of participation, what is acceptable to trade
and what is not, and how the money is earned.
If you take it upon yourself to understand this process in greater detail, you
should be able to make more informed participation decisions and you should
have a much better understanding about what it means when we discuss going
trader direct.
BACKGROUND: SUMMARY OF PLATFORM PARTICIPATION
The following is information we have compiled from multiple sources.
Please note that there are basically two programs: one that involves the US
Federal Reserve, and one that is conducted through the International system.
The procedures are similar.
For entering Investment Programs, there are following requirements:*
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1. Minimum USD 10M, guaranteed returns of 300% or more per annum

(has to be reconfirmed with the bank) and weekly payout;
2. Principal's investment stays in his account as blocked funds (bank-to-
bank basis) during the time contracted, which is mostly for one year.
(* There are time limited Special Programs, which we will note here
accordingly; the requirements need to be reconfirmed with the bank and
provider.)
1. Letter of Intent (LOI) from the principal, also CIS and passport copy,
Proof of full Authority; from companies Corporate Resolution and Profile, Power
of Attorney;
2. Proof of Fund (POF, account statement on bank noted paper not older
than 3 days,) from principal's bank, its coordinates, names and signature of the
two bank officers;
After receiving qualified documentation, further instructions will follow.

INVESTOR RISK
When investors hear about the opportunity to earn high profits, the first
reaction is almost inevitably to assume that the risks must be high. Otherwise,
one assumes that every investor would place funds in such programs. In fact,
the risk to the investor's capital in a properly structured Bank Credit Instrument
trading program is almost nil. The means employed to eliminate risk vary with the
type of program and include:
1. Investor's funds are deposited in investor's own name and own account
in the trade bank and cannot be removed without investor's instruction or
encumbered in any way. The investor is the sole signatory on the account.
Investor does not place his/her funds with the Program Manager or Introducing
Broker. The bank holds the funds throughout the investment.
2. Investor gives the bank or the Program Manager a very limited power of
attorney, which authorizes the purchase and resale of specific types of bank
instruments from a specific category of banks, (e.g. A-AAA rated, top 100 World
or top 25 European). The Program Manager can have no further influence over
the funds.
3. The bank will typically offer a CD, U.S. Treasuries or a Bank Guarantee it
holds in custodial safekeeping. These instruments pay a modest money market
rate of interest to the investor at maturity (usually one year and one day from
deposit) in addition to any profits derived from the trading program. The investor
holds the safekeeping receipt.
In instances where the investor actually purchases and owns the credit
instrument (direct programs)" ownership is limited to a matter of hours, or at
most a few days, before the instrument is resold. The price of these credit
instruments is not known to fluctuate significantly even with sizable changes in
interest rates or bond prices.
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Given these very secure procedures, why then isn't everyone investing in
these programs? There are several reasons: Most programs operate with $100
million or more and are meant for large investors. Relatively few programs have
been structured to accept small investments of $1 million or less. The banks bind
Program Managers and Investors to very strict confidentiality agreements and it
is very difficult to find the Program Managers or Investors willing to disclose their
activities. Most programs are operated in the top European banks or domestic
branches of top European banks and are therefore harder for U.S. citizens to
access, research and invest in with confidence.
Investor behavior depends on "perceived" risk rather than actual risk. While
the actual risk may be very low, the "perceived" risk of a little known and
somewhat obscure sounding business does dissuade many investors from
getting involved. This is especially true because only specialized back room
departments of the bank are involved with these transactions. Most bank officials
have no knowledge of them, particularly in the United States. Knowledgeable
banking officials are sworn to secrecy and would never divulge the existence of
this market for fear of disturbing large depositors who would clamor for higher
deposit yields.
There have also been several highly publicized instances of fraud, which
has prompted the SEC and Federal Reserve to issue warnings. Although to our
knowledge no fraudulent programs have been discovered that utilize the secure
investment procedures outlined in this technical report. The fraudulent activities
usually arise when investors give up control of their funds to phony trade
managers who use Ponzi scheme type pay outs.
While the risk to principal can be completely eliminated, there may be no
guarantee that the profits will actually be fully earned, i.e., best efforts trading. In
some programs this presents a potential interest or dividend earnings loss from
the time when funds are placed in the program until the date of first payout.
Typically this period is only two to three weeks. In programs for small investors, it
can be as long as eight weeks. For large investors, this potential earnings loss
presents a real risk. Often, a minimum return secured by a bank guarantee is
used to offset this risk factor.
Good trading programs are difficult to find, costly and time consuming to
verify, quickly oversubscribed and frequently closed before interested investors
can arrange the necessary funds. Literally dozens, perhaps hundreds of
programs are offered annually.
Many are non-existent repackaging of the same programs by different
people or first time efforts that never get off the ground. The fundamental
question to be asked by a potential investor when reviewing program procedures
is, "How does this program protect my principal from loss?" If complete
protection of principal is provided for in the procedures, the potential investor has
established a sound basis for moving forward.
LETTERS OF CREDIT: TYPES AND USAGE
The issuance of bank credit instruments dates back to the early days of
banking when private, wealthy individuals used their capital to support various
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trade ventures. Promissory Notes, Bills of Exchange, Bankers Acceptances and

Letters of Credit have all been part of daily bank business for many years. There
are three types of Letters of Credit that are issued daily; 1) Documentary Letters
of Credit 2) Standby Letters of Credit and 3) Unconditional Letters of Credit or
Surety Guarantees.
The issuance of a Letter of Credit usually takes place when a bank
customer (Buyer) wishes to buy or acquire goods or services from a third party
(Seller). The Buyer will cause his bank to issue a Letter of Credit, which
"guarantees" payment to the Seller via the Seller's bank conditional against
certain documentary requirements. When the Seller, via his bank, presents
certain documents to the Buyer's bank, the payment will be made. These
documentary requirements vary from transaction to transaction, however the
normal type of documents are usually comprised of the following:
Invoice from Seller (usually in triplicate) Bill of Lading (from the shipper)
Certificate of Origin (from the Seller) Insurance documents (to cover goods
in transit)
Export certificates (if goods are for export) Transfer of Ownership (from the
Seller)
These documents effectively "guarantee" that the goods were "sold" and
are "en route" to the Buyer. The Buyer is secure in the fact that he has "bought"
the items or services and the Seller is secure that the Letter of Credit, which was
delivered to him prior to the loading or release of the goods, will "guarantee"
payment if he complies with the terms of the Letter of Credit. This type of
transaction takes place every day throughout the world, in every jurisdiction and
without any fear that the issuing bank will "honor" its obligation, providing that the
bank is of an acceptable stature, usually A to AAA credit rated (Standard &
Poor's).
The Letter of Credit is issued in a way that has been recognized by the
Bank for International Settlements (BIS) and the International Chamber of
Commerce (ICC) and is subject to the Uniform Rules of Collection for
Documentary Credits (ICC 400/500). This type of instrument is normally called a
Documentary Letter of Credit (DLC) and is always trade transaction related, with
an underlying sale of goods or services between the applicant (Buyer) and the
beneficiary (Seller).
During the evolution of the trade related Letters of Credit, a number of
institutions began to issue Standby Letters of Credit (SLC). A conventional
Standby Letter of Credit, like a conventional Letter of Credit, is an irrevocable
obligation in the form of a Letter of Credit issued by a bank on behalf of its
customer. These credit instruments were effectively a surety or guarantee that if
the applicant (Buyer) failed to pay or perform under the terms of a transaction,
the bank would take over the liability and pay the beneficiary (Seller). They did
not have to be issued for a particular transaction (although they could be), but
rather they were usually used to "standby" after issuance, waiting to secure the
transaction when it took place. In the United States, banks are prohibited by
regulation from providing formal guarantees and instead offer these instruments
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as a functional equivalent of a guarantee. An SLC can be primary (direct draw on

the bank) or secondary (available in the event of default by the customer to pay
the underlying obligation).
As these Standby Letters of Credit were effectively contingent liabilities
based upon the potential formal default or technical default of the applicant, they
are held "off-balance sheet" in respect to the bank's accounting practices. During
the period when SLC's were being evolved and used, the banks and their
customers began to see the profitable situation created by the "off-balance
sheet" positioning of the instruments.
In real terms, the holding of the Standby Letters of Credit was also
considered a "contingent" liability and, as such, was held off-balance sheet, a
less regulated accounting treatment. Due to constraints being imposed on the
banks by government regulatory bodies, the use of these "off-balance sheet"
items as a financial tool to effectively adjust the capital/asset ratios of the banks
was seen to be a prudent and profitable method of staying within the regulations
and yet achieving the desired capital ratios.
At the request of the central bank Governors of the Group of Ten countries
a Study Group was established in early 1985 to examine innovations in, or
affecting, the conduct of international banking. The Study Group carried out
extensive discussions with international commercial and investment banks that
were the most active in the market for the main new financial instruments. The
purposes were both to improve central bank knowledge of those instruments and
their markets as the situation existed in the second half of 1985. Further, the
discussions provided a foundation for considering the financial instruments
implications for the stability and functioning of the international financial
institutions and markets, for monetary policy, and for banks' financial reporting
and statistical reporting of international financial development projects.
Alongside this work, the Basle Supervisors' Committee has undertaken a
study of the prudential aspects of banking innovations and a report on the
management of banks' off-balance sheet exposures and their supervisory
implications was published by that Committee and the Bank for International
Settlements in March 1986.
The growth of these instruments can be attributed generally to the same
factors affecting the trend towards securitization, with two additional influences.
Firstly, bankers have been attracted to off-balance sheet business because of
constraints imposed on their balance sheets, notably regulatory pressure to
improve capital ratios, and because they offer a way to improve the rate of return
earned on assets. Secondly, for similar reasons, banks have sought ways to
hedge interest rate exposure without inflating balance sheets, as would occur
with the use of the inter-bank market.
TYPES OF TRADING PROGRAMS
Several types of arrangements are available for investors to place their
funds in trading programs. Returns vary from program to program, but most offer
a contractual minimum return to the investor or a fixed yield per trade and
minimum number of trades per year.
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1. Direct Programs: In most cases, the investor's funds are directly

employed for the trading program. The trading is actually done in an investor
transaction account while granting the program's trading manager limited power
of attorney to conduct the trades. These programs offer high return and high
"perceived risk".
2. Indirect Programs: In this case, the investor's funds are utilized by the
program's trading manager to obtain a line of credit or loan. The proceeds are
utilized by him to conduct a trading program in his own name. Through an
arrangement between the program's trading manager and the bank in which the
funds are deposited, the investor's funds are not encumbered by the loan and
are therefore not placed at risk. The investment may be secured by a bank
guarantee or CD that guarantees repayment of principal and often at least a
minimum return to the investor. These programs offer medium to high returns
and full security.
TYPES OF FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS USED IN BANK CREDIT
INSTRUMENTS MARKETS
The Federal Reserve uses two financial instruments to control and utilize
the amount of USD in circulation internationally. These are Medium Term Bank
Debentures, also known as Medium Term Notes (MTN) and Standby Letters of
Credit (SLC). The Debenture is normally a medium-term note ranging between
five to ten years, carrying a coupon paid annually in arrears. Today's interest
rates are in the 7.5% interest range and twenty-year instruments are also
sometimes issued. The SLC is usually a one-year term, zero coupon instrument
and is used by the Fed to bring USD back into the Treasury. It is a monetary tool
that bids up the price of the USD. When the Fed buys back an SLC, it bids the
USD price down. Medium Term Bank Debentures are normally used to raise
capital for loans and to assist the development of the world infrastructure
projects. The SLC used in the international banking markets is a very different
instrument than the typical three-party SLC in the Import/Export market. These
SLC's are two party instruments similar to a one-year corporate note, used
primarily to raise funds.
Banks issue SLC's on behalf of the Fed and the Fed is the customer on the
issuing bank. The Bank operates through the Commitment Holder (defined later
in this report) and issues the SLC from the Commitment Holders Contract with
the Fed. Once an issue is determined, usually by contract and proof of funds, the
issuing bank will exchange the SLC for the funds. Normally, a purchase must be
initiated with a pledge of $500,000,000 in tranches of no less than $100,000,000
face value. Under the BIS rules, the issuing bank is then required to convert the
"off-balance sheet" item to an "on-balance sheet" equivalent. This is done by
writing on-balance sheet the "risk" in the transaction and setting aside the capital
reserved against the risk exposed, based on capital requirements. As the risk is
very low, and 97-98% of the face value is paid by the Fed to the issuing bank
upon maturity, the capital needed to be reserved is also very low, usually 4-5%.
As an example, the issuing bank will issue the MTN at 78% of face value, and
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sell it to the Commitment Holder at 84%. The issuing bank will reserve 5% for
margin cost of capitalization and transfer 79% back to the Fed.
The Commitment Holder will sell the MTN to the Investor for 86% of face
value. The Investor will sell the MTN to the secondary market for 92.5% where
the retail market equivalent is 93.5% for U.S. Treasuries at that time. In this way,
each transaction is attractive to the next holder in due course and all parties
profit. Upon maturity, the Fed under its Commitment Holder Contract will remit
95% of face value plus a 2% fee to the issuing bank and in addition a $5 Million
USD reserve is released by the issuing bank back to the Fed. The Fed provides
these margins to be competitive against other governments for large deposits of
USD, and to attract the USD exactly when they require it. Against these margins,
the Fed utilizes the funds against another bank's guarantee for the term and they
are able to maintain the benefits as outlined below. The issuing banks for their
small cost, but large fee, receive the benefits as listed below inclusively. Benefits
for both that by far outweigh the costs.
BANK CREDIT INSTRUMENT HISTORY
The closing years of World War II, most of Europe, the U.K., northern Africa,
Baltics, Russia, and Asia were devastated. Millions of people were without
homes and the basic needs of life. How can the world repair the damage caused
by the most destructive war ever in history? Where was the money to rebuild on
such a vast scale?
Inaugurated in July 1944, at a conference of 130 western world economists
and politicians, held in Bretton Woods, New Hampshire, "the Bretton Woods
Convention", proposals were put forward by the principal architect, John
Maynard Keynes, author of "The Economic Consequences of the Peace", written
in 1920. Keynes and his proposals were supported and endorsed by Harry
Dexter White, United States Secretary of the Treasury. The heart of Keynes
proposals were two basic principals: First, the Allies must rebuild the Axis
countries, not exploit them as had been done after World War I. Second, a new
international monetary system must be established, headed by a strong
international banking system and a common world currency not tied to the gold
standard.
The principal agreements reached by 1947 by the Bretton Woods
Convention were: 1. The United States Dollar replaced the Pound Sterling as the
medium of international trade and the world reserve currency, however: 2. The
USD was still tied to the gold standard and backed by Gold at $35 per ounce, the
pre WWII level. 3. The Bretton Woods convention produced the Marshall Plan,
the Bank for Reconstruction and Development (World Bank) the International
Monetary Fund (IMF) and the Bank of International Settlements (BIS).
By 1961, the plans adopted by the Bretton Woods Convention of 1947 were
succeeding beyond expectation, however U.S. dollars were in short supply as
the U.S. was faced with a dwindling gold supply to back additional dollars. The
solution was to recycle the current number of dollars back into the world
commerce, which would solve the problem by avoiding the printing of more USD.
A system was needed to draw the USD back into circulation through the private
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banking sector. The system was found in the centuries-old framework of

Import/Export finance. This system hinged on having the world's top banks
extend the use of forfeit finance, not backed by gold, but by their own good faith
and credit. This extension of credit would be backed by banking debentures of all
kinds including Letters of Credit, bankers' acceptances, bills of exchange and
guarantees.
Laws, rules and procedures provided by the International chamber of
Commerce, Paris, France, as already established and recognized by
international accord for forfait financing, were adopted for these Bank
Debentures and their use. The international banking sector was encouraged to
issue Letters of Credit, Bank Guarantees and Bank Debentures in large
denominations, at yields superior to U.S. Treasuries. This was to offset the
increased costs to issuing banks due to the high yields accompanying the Bank
debentures. Banking regulations within the countries involved were modified in
such a way to encourage and/or allow the following: a. Reduced reserve
requirements via offshore transactions. b. Support by the Central Banks, World
Bank, International Monetary Fund and the Bank for International Settlements. c.
Off-balance sheet accounting by the banks involved. d. Instruments to be legally
ranked "pari passu" (on the same level) with depositor's funds. e. The banks
obtaining their depositor funds would be allowed to leverage these funds with the
applicable central bank of the country of domicile in such a way as to obtain the
equivalent of federal funds at a much lower cost. f. When these leveraged funds
are blended with all other accessed funds, the overall blend rate cost of funds to
the issuing bank is substantially diminished, thus offsetting the high yield given to
attract the investor with substantial funds for deposit.
The bank for International Settlements (BIS) rules prohibits banks from
buying the newly issued instruments from each other directly in the primary
market. However, it does allow banks to buy and own other bank's financial
obligations as long as they are purchased from the secondary market. Therefore,
the issuing banks must have third party Clients to process this business through.
This ruling has created the investment opportunities we now enjoy in Bank Credit
Instruments.
The Federal Reserve Board recognizes a tier of high quality banks, usually
in the world's top 100, which are authorized to deal in these instruments and
these are called the Applicant Banks. The criteria for being on the Fed list
includes the strength in normal banking ratios as well as countries in which the
Fed desires to be active. It is clear that the largest supply of international USD is
in Europe and this explains the dominance of European Banks on the Fed list.
Major issuing banks then realized other benefits, other than funds recycling and
redistribution. The Bank Credit Instruments provided bankers with a means to
resolve other major banking problems, such as interest rate risks and meeting
capital reserve requirements. In 1971, the volume of world trading finally
exceeded the volume of USD as the medium of exchange and exceeded the
ability of the U.S. to support its currency with gold. The Nixon administration let
the dollar float in the world markets, not tied to gold, but tied to the full faith and
credit of the assets of the United States. The value of the dollar was now in the
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currency markets hands. Nixon deeded the Bank Credit Instruments as put in
place by the Kennedy administration, in conjunction with the International
Monetary Fund and the Bank for International Settlements to work hand in hand
with the central banks of the Western countries to avoid a collapse of the dollar's
value. The principals of this system realized the following effects:
a. Issuing Bank Debentures would pull USD out of the private sector and
exchange them for guarantees.
b. Once the USD had been accessed, then the issuing banks could recycle
them back into the world economy as loans. This process increased money
supply.
c. Alternately, the issuing banks could purchase the U.S. Treasuries from
the Fed, thereby retiring the supply of dollars in the world market back into U.S.
hands or selling the Treasuries to the Fed to increase the money supply.
Bank Debentures became the tool for the U.S. Government to control the
amount of USD floating against other currencies and to help maintain the value
of the dollar. Therefore, the fear of "run-away" inflation can be limited by
controlling the number of USD available to the world market at any given time. At
the present the Fed targets USD held in off shore and foreign banks, not resident
in the USA for this "recycling".
Today, the Bank Credit Instrument Trading Programs are increasingly used
to support not only the enormous demand for USD, in particular, through the IMF
and World Bank, but also the various nations that the Clinton administration has
pledged to assist. These include the U.S. policies to "westernize the former
USSR" and support other countries like Haiti, Bosnia, Somalia and Kuwait.
These Bank Credit Instrument programs designed under the Kennedy
administration are still very effective to assist in recycling and redistributing USD
to meet the world's demand for commerce. Most importantly, through the Federal
Reserve Bank, the U.S. Government uses these programs to control the dollar
and its value in the world market. In summary, the use of these Bank Credit
Instruments provides instant liquidity and safety. They are a principal factor,
which has served to prevent another financial crisis in the world economies.
BANK CREDIT INSTRUMENT DISTRIBUTION
The globalization and deregulation of the banking industry and financial
markets have intensified competition from securities firms, insurance companies
and pension funds. In response, banks have diversified and expanded the
spectrum of banking activities. The increasing use of certain Bank Credit
Instruments is one of the most important of these because of the enormous
expansion in capital that it enables major banks to achieve without encumbering
their balance sheet.
This business is one of the most confidential activities of major international
banks today. The reasons for this secrecy are not difficult to understand. The
banks are issuing private bonds to large investors (typically in the $100 million to
$500 million range) at higher than market rates to augment their working capital.
The banks refuse to disclose the existence of this "wholesale money market" for
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fear that their larger retail customers will try to negotiate higher deposit rates. In
addition, the issuance of these notes represents a real liability to the banks, but
one that is not reflected in its balance sheet i.e., "off-balance sheet", accounting.
Therefore, the banks are concerned that disclosure of this extent of these
borrowings could reflect negatively on public perception of their financial
soundness, credit worthiness and overall fairness to depositors.
The buying and selling of Bank Credit Instruments involves a chain of
producers, wholesalers, retailers and customers, as mentioned before;
analogous to that of many manufactured products. The "producer" in this case is
the bank that issues the fresh paper. The wholesaler is a "cutting house" that
holds an "option" to buy fresh paper from the bank at steeply discounted rates.
This option is normally obtained in return for a commitment by the option holder
to purchase a fixed amount of fresh paper during a specified time period. A
typical commitment, as mentioned previously, would be $100 to $500 million per
week.
Obviously, the option holder cannot continue to make purchases of this type
without substantial working capital and a resale-ready market for the paper it
buys. One way the option holder can increase available working capital is by
accepting investments from large investors in a bank credit instrument trading
program. The investor gives the option holder (now called a trade manager) a
limited power of attorney to utilize the investor's funds as collateral solely for the
purchase and sale of fresh paper. The process involves the issuance of a
purchase order from the investor's account to the issuing bank, in response to
which the issuing bank issues an invoice for a fresh cut credit instrument at a
particular price. After the investor's bank authenticates and accepts the invoice,
the credit instrument is exchanged for funds and is deposited into the investor's
account. This transaction is done entirely on a bank-to-bank basis without any
involvement on the part of the investor. In many cases the same bank is used for
the issuance of paper as for the deposit of investor's funds.
Once the fresh paper has been issued, it must be quickly resold in volume.
This is accomplished by pre-selling the notes to large investors looking for a
long-term fixed return; especially insurance companies, pension funds, major
corporations, trusts, notional governments and wealthy private parties. These
investors may hold the paper until maturity or resell it in the secondary market
once it is "seasoned". Usually the trade manager enters into contractual
arrangements with large securities firms to market the paper to these retail
customers. This pre-selling of the notes is what virtually eliminates any market
risk to these transactions.
The steps in the chain of distribution (investment) can be depicted as
follows:
1. The investor proves availability of funds for purchase of bank credit
instruments (proof of funds).
2. Bank issues fresh paper.
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3. Option/Commitment Holder buys the paper with own funds or Trade

Manager purchases paper with Investor's funds through a Trading Program
Account.
4. Securities firm contracts to buy the paper for resale or arrange for its
direct sale to large retail (institutional) investors in the secondary market.
The distribution system works because it is financially attractive to each
member of the chain. This requires that the sale price of the paper at each
subsequent level be higher than the previous one and still attractive to each
buyer relative to comparable competing investments. The following is an
illustrative example:
Fresh cut paper is sold by issuing bank to the option holders for 80% of face
value. The Option Holder resells the paper to an institutional investor at 94-95%
of the face value. The margin of 14-15 points is shared by the option holder, the
bank facilitating the transaction and the investor. The institutional investor then
holds the note to maturity and receives the spread between purchase price and
face value as well as annual interest payment of 7.5%.
In this example, the bank issuing the paper receives a rapid cash inflow for
higher leverage lending at a very low cost. Since it "buys" the funds in very large
blocks, the overhead costs are extremely low in comparison with the cost of
accepting retail deposits and the bank has ability to augment its capital on short
notice in order to support specific high profit margin business opportunities.
BANK CREDIT INSTRUMENT ISSUANCE
WHY SHOULD SUCH INSTRUMENTS BE ISSUED? To understand the
logic behind the actual mechanics of the operation it is necessary to look at the
ways in which a bank usually operates. The banks credit rating and status within
society is judged by the "size" of the bank and its capital/asset ratio. The bank
lists its real assets and its cash position, including deposits, securities etc.,
against its loans, debits and other liabilities showing a ratio of liquidity. Each
jurisdiction of the world banking system has different minimum capital adequacy
requirements and depending on the status of the individual bank, the ratio over
assets that the bank can effectively trade can be as high as 20 times the
minimum capital requirement. For every $100 held in capital the bank can
frequently lend or obligate up to $1,000 to other clients or institutions against the
cash on hand thanks to the multiplier ratio available from their central bank.
Further, if the bank disposes of an asset, the resultant capital is able to be
"leveraged" using the bank's multiplier ratio, based on the minimum capital
adequacy requirements.
THE ISSUANCE OF A BANK CREDIT INSTRUMENT (STANDBY
LOC)
A bank receives an indication from a client that the client is willing to "buy
from the bank a one year obligation, zero coupon, and effectively unsecured by
any of the physical assets of the bank. The credit instrument is based solely on
the "full faith and credit worthiness of the bank".
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Obviously the format of the credit instrument must be one that is acceptable
in any jurisdiction and freely transferable, able to be settled at maturity in simple
terms and is without restrictions other than its maturity conditions. The
instrument that immediately comes to mind is the Documentary Letter of Credit
or Standby Letter of Credit. However, as the issue is not trade or transaction
related most of the terms and conditions do not apply. The simple "London Short
Form" version of the Standby Letter of Credit is often utilized for this simple one-
year "corporate debt" type obligation. The test is specific and does not contain
any restrictions except the time when the credit is valid and can be presented for
payment. It is in real terms a time payment instrument due on or after one year
and one day from the date of issue, usually valid for a period of fifteen days from
date of maturity.
Standby Letters of Credit also serve as substitutes for the simple or first
demand guarantee. In practice, the Standby Letter of Credit functions almost
identically to the first demand guarantee. Under both, the beneficiary's claim is
made payable on demand and without independent evidence of its validity. The
two devices are both security devices issued in transactions not directly involving
the sale of goods and they create the same type of problems.
STRUCTURE OF BANK PROFITABILITY
The blank piece of bank paper, which is technically an asset of the bank is
now "issued" and the text added to say "one hundred million US Dollar face
value", signed and sealed by the authorized bank officers. The question now is
"what is the piece of paper worth?"
Bear in mind that it is completely unsecured by any tangible or real asset. In
reality it has a "perceived value" of US $100 million in 366 days time based upon
the "full faith and credit of the bank", for our purposes always an A to AAA rated
institution.
To arrive at a sales price one has to determine the accounting ramifications
of the sale. The liability is US$100 million payable "next year", and it is important
to note that the reason for the one year and one day period is to take the liability
into the next financial year, no matter when the credit is issued. The liability is
held "off-balance sheet" and is technically a contingent liability, as it is not based
upon any asset. On the other side of the model, the bank is to receive cash from
the "sale of an asset", i.e. the issued paper, and this cash is classified as capital
assets that in turn are subject to the central bank borrowing multiplier of say, 10
times.
So in real terms the issuing bank is to receive say 80% of the face value
upon sale, which is US$80 million cash on hand against a forward liability of
US$100 million in one year and one day's time. The cash received, US$80
million, allows the bank to lend 10 times this amount under the bank's multiplier
ratio, so US$800 million is borrowed from the central bank at say, 3% discount
rate interest, and this in turn is able to be lent "on balance sheet" against normal
assets such as real estate, businesses, etc. If the interest rate is, for instance,
8% simple and the loans are short term (one year) to coincide with the liability,
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the income and return (without taking into account the principal sums loaned)
from interest alone is equal to US$64 million.
At the end of the year the credit is due for payment against the cash on
hand and the interest received, in other words, US$80 million plus US64 million
which totals US$144 million income to the bank, less the US$100 million owed
on the issued paper and the US$24 million interest owed to the central bank
shows a gross profit of US$20 million or 20% yield on the original US$100M
bank debenture paper issued.
BANK CREDIT INSTRUMENTS MARKETPLACE
By trading specifically selected, standard financial Bank Credit Instruments,
an entity may obtain profit margins not normally heard of in the stock, bond and
futures markets without incurring the risk to invested capital normally associated
with investing in these markets. The financial instruments to be selected for
trading programs are standard Bank Credit Instruments issued by the top 100
rated world banks in accordance with International Chamber of Commerce rules.
These Bank Credit Instruments may be bought from issuers at a discount, and
then resold at a profit on the secondary market.
Since American Banks are prohibited by law (the Glass-Steagal Act) to sell
these instruments for underwriting in the domestic markets and because
regulatory procedures and requirements inhibit these transactions in the
American securities markets these transactions are usually conducted in the
Eurodollar Market, such as London, Zurich, Geneva, Luxembourg, Brussels, etc.
However, the institutional market in America does trade these instruments, and
for all practical purposes, these transactions may be negotiated and arranged in
the United States for subsequent completion and closing in the Eurodollar
Market through foreign branches of domestic money center banks.
These instruments are traded in very large amounts and therefore, the
trading opportunities in this investment field are restricted to Governments,
Trusts, Mutual Funds, Pension Plans, Large Corporations, Merchant Banks and
high net worth individuals. It is for these reasons that only a few investment
professionals and knowledgeable, sophisticated parties are aware of this
lucrative and very safe investment opportunity. The key to arranging a successful
and profitable trading program is the guarantee of a steady supply of moderately
priced Bank Credit Instruments. It is therefore most important that a purchase
contract for the collateral supply is arranged with a supplier.
Trading facilities must also be arranged with financial institutions for
fiduciary services and access to the Eurodollar market, or through securities
houses or institutional investment bankers in the United States and in Europe.
Since the trading activity involves Bank Credit Instruments at prices below
the face value of the instruments, the purchase arrangements may be effected
without the actual cash payment. Proof of funds for the purchase could be
arranged through a line of credit at a major bank via issuance of a SWIFT Wire
document or a Letter of Credit.
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To collect payment, the supplier must provide and present his bank invoice
showing the identity of the instruments, such as CUSIP numbers for 10 year
Medium Term Notes, or bank registration numbers and safekeeping receipts for
one year Standby Letters of Credit. When provided with this information, the
financial institution is then able to arrange for the sale of the instruments in the
Eurodollar market within hours.
With the use of the SWIFT Wire system, the transfer of funds is then
arranged for same-day settlement so that the use of the original SWIFT Wire
document of Letter of Credit is not necessary, leaving it free for re-use in the next
transaction. Because of today's banking telecommunications - Key Tested
Telexes (or KTT'S) SWIFT Wire, etc., it is possible to arrange for more than one
of these transactions per week. These programs usually continue for a period of
twelve months, with typically a forty-week trading year, i.e., the actual period in
which the paper trades.
BANK CREDIT INSTRUMENTS IN CONCLUSION
The use of Bank Credit Instruments as a medium or short-term investment
is obvious. If one takes the differential between the "face" rice and the "present
value" and moves a client's funds into and out of the instruments on an active,
regular basis the effective yield is substantial. The downside from trading in
these instruments is nearly nil, if one retains strict protocol over the program
structure and documentation.
A worst-case market risk scenario would be that a client would either not
transact and therefore not be at risk or hold the instrument to maturity. If an
instrument had been purchased and for whatever reason could not be onward
"sold or discounted" the client who "held to maturity would automatically achieve
a substantial yield (compared to other A-AAA rated paper) based on the maturity
value against the discounted face value.
As can be readily seen from this report Bank Credit Instruments when
handled by expert, ethical Program Managers and Traders are a safe and
prudent investment. In the final analysis, it behooves prudent investors, in an
effort to diversify the range of their holdings, to include investment in these
instruments to offset other, higher risk portions of their portfolios. These
instruments truly embody the best risk/reward ratio in today's investment
marketplace!
BANKING PRACTICE Off-Balance Sheet Activities
The issue of bank credit and bank guarantee instruments has been a part of
daily banking practice for many decades. The best known of these instruments is
the commercial letter of credit, which is widely used, in foreign trade. The
commercial letter of credit is a guarantee issued by the buyer's bank to the
seller's bank. It ensures that if the buyer fails to pay or perform under the terms
of the transaction, the buyer's bank will assume the liability and pay the seller.
Because these instruments are considered contingent liabilities of the bank
(based on the potential default of the applicant), they are accounted for "off-
balance sheet".
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A glimpse at the current magnitude of off-balance sheet banking was given

in a recent press statement in which Deutsche Bank reported its off-balance
sheet business at US$800 Billion in 1993 or roughly 2.4 times its on-balance
sheet business. For Swiss and American banks, off-balance sheet operations are
7 to 30 times larger than on balance sheet activities.
Since the 1930's and with dramatically increasing frequency during the last
fifteen years, the largest western European banks (top European 25) have
extended the use of off-balance sheet transactions to include issue and sale of
various guaranteed senior bank obligations or credit instruments. These include
Medium Term Notes (MTN) and one-year, zero coupon, standby letters of credit
or (SLC). The medium term debentures are usually ten year notes carrying a
7.5%+ - coupon. These instruments are backed by the full faith and credit of the
issuing bank.
Several factors have promoted the growth of off-balance sheet banking
activities. First they provide a substantial source of additional capital for the
banks. The banks augment their capital by issuing notes and are then able to
borrow several times (5 to 10 times depending on the multiplier ratio of the
country of domicile) from their central bank at lower interest rates. The higher
interest paid on the notes is offset by the low interest rate on the much larger
central bank borrowing. Second, fee-based issuance of debentures for third
parties provides an increasing source of profits to the banks. In 1993, top
German and Swiss banks reported record profits from off-balance sheet
business, including fee-based trading which now represents their largest source
of earnings.
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SAMPLE DEBENTURE TRADING PROGRAMS

AVAILABLE
This document is for informational purposes only, and is not a solicitation for
funds or securities of any kind. The programs, schedules, and prospective
profits listed are estimates only, and subject to change.
Programs are listed in ascending order by minimum dollar amount required
to enter program. (In some cases, it may be possible to enter a larger program
with a smaller amount by piggybacking onto another investors larger unit.)
In some programs, deadlines for entry are listed. In other programs,
deadlines are unknown. If a program is ongoing, it is so stated.
$2,500 yields 30% per month if submitted before 7-1, 25% before 8-1, and
20% before 9-1. This is not a debenture trading program. Funds are backed by
hard assets. No compounding.
$5,000 minimum, yields 20% per month, compounded. Proven
performance, but closed for the time being. May re-open later.
$5K yields 10:1 per year minus 25% fees, principal and profit secured by T-
Bonds.
$5,000 minimum, pays 8:1 in approximately 6 months. $20K pays 8.5:1.
$25K pays 9:1. $30K pays 10:1. Aggregator guarantees profits with Promissory
Note, and the aggregated funds are protected by a Bank Guarantee. Available
on an ongoing basis. Compounding is permitted.
$5K yields 30% gross, 15% net. Unlimited re-entries. Ongoing. Paying
out.
$10,000 minimum. Returns 7% per week, compounded. Principal and
profit can be rolled over or withdrawn (all or part) every 30 days. No delay.
Ongoing. Very reliable. Joint Venture. Broker works directly with trader.
$10K yields 20:1 per year to investor, paid monthly in increasing increments
with balloon at end. Intermediaries receive approx. 30% above what investor
earns. Has been paying out for last 6 months.
$15,000 - $100,000 earns 50% per month for 6 months, no compounding.
10% goes to intermediaries. Guaranteed by 106 CD. Must commit funds for 6
months. Re-entry possible. Program may close soon.
$20K - $5,000 minimum, pays 8:1 in approximately 6 months. $20K pays
8.5:1. $25K pays 9:1. $30K pays 10:1. Aggregator guarantees profits with
Promissory Note, and the aggregated funds are protected by a Bank Guarantee.
Available on an ongoing basis. Compounding is permitted.
$20,000 minimum, pays 25% - 30% per month, compounded. Blocked
funds. Corporate 106 Guaranteed.
PAGE 90 OF 273
$20K T-Bill program, pays 30% every 30 days, after a 50 day waiting
period. Ongoing.
$25,000 minimum, returns 3% a week. Allows investor to be available for
trades done by group listed below.
$25K yields 90% per month for 10 months, discountable, paying out.
25K yields 100% per month for 10 months. Blocked funds joint venture.
$25K yields 20:1 in 85 banking days. Holding period of 4-6 weeks for
aggregation. Funds are returned if no start within 30-45 days. Has paid out
twice. H-3.
$25K - 99K yields 50% gross, 30% net per month for 10 months. Protected
by 106 at the top, and SKR for the small investor. Up to 45 day waiting period
for aggregation. Paying out.
$25K yields 100% gross, 90% net per month. (Pay orders may be
discounted by 8%). Re-entries permissable. New funds added monthly for
continued trading, no waiting on aggregation. Automated phone updates. Has
been paying out. (May be closed)
$35,000 minimum, returns $200,000 per month to investor. Thats a return
of approx. 6:1 per month. Profits are distributed every 15 days. Ongoing, but
waiting for first payout.
$50,000 to $100,000 minimum, direct clients only: A group of 4 attorneys
carefully scrutinize programs that are presented to them from 3 reliable traders.
Traders work directly at banks, and large trust funds are available to back up
pooled arrangements. Communication is excellent, and funds are safe and
liquid. All programs guaranteed. Sample trades are 250% earnings over 5
weeks, 100% in 4 days.
$50K min. (and any amount above. $50K increments not nec.). Pooled to
$1M, traded in a major bank in Belgium. Yields 250% every 5 weeks, with re-
entries. Funds are deposited directly at trading bank by investor. Principal
secured by Promissory Note payable in 40 days.
$100,000 minimum. Program earns approximately 15%-20% minimum per
trade to investor, can be compounded for up to 40 trades per year. Ongoing.
$100,000 minimum, returns 75% per month to investor, 25% to
intermediaries. Can re-enter for 40 weeks.
PAGE 91 OF 273
$100,000 - $500,000 yields 70% per month. 10% goes to intermediaries.

Guaranteed by 106 CD. Must commit funds for 6 months. Re-entry possible.
Program may close soon.
$100K yields 400% per year. Blocked funds joint venture.
$100K - 499K yields 60% gross, 36% net per month for 10 months.
Protected by 106 at the top, and SKR for the small investor. Up to 45 day
waiting period for aggregation. Paying out.
$100K pays 2:1 within 100 days, 32:1 after 475 days, (with varying returns
in between.)
$100,000 minimum, pays 40% per month, not compounded. Must keep
principle in for 1 year.
Money Leasing Program: A minimum of $5 Million can be leased from a
private lender. A retainer fee of $10-25,000 is required to scrutinize the trading
program. ($12-$15,000 for Asset Based Lending). If the program does not
meet requirements, the retainer is returned. If it does meet criteria, a facility fee
of approximately 3% will secure and move the funds. For example, a minimum
$150,000 facility fee will secure $5 million. The leased money will appear in the
borrowers account, documented by telex (not bank statement). After the trading
program is complete, total profits are distributed as follows: 75% goes to the
trader and investor, 25% goes to facilitator, who will then split his commission
with the referring party.
$250K yields 30% per month for 10 months, compounding available.
$250K yields 50% in 60 days, minus 10% intermediary fees. Ongoing.
$250K to $10M, yields 560% to investor, 240% to intermediaries (4 +) every
35 bank days, blocked funds in investors account. At end of May, this was
backlogged 2 weeks. Need LOI before presenting to co-facilitator.
$250K yields 80% gross per month (75:25 split with intermediaries). Re-
entries permitted. Blocked funds in US. Funds are never moved, liened,
encumbered or hypothecated.
$400K yields 600% in 15 weeks, joint venture, IBC required.
$400K yields 11:1 gross per month. Meet with Trader in London. Investor
maintains control of funds.
$500K yields 30:1 in 3 weeks, blocked funds.
$500,000 - $5M, yields 50% per month, 10% goes to intermediaries.
$500K yields 10:1 per month, blocked funds, leveraged, re-enterable. (T-3)
$500K yields 100% per month for 11 months. Blocked funds.
$500K yields 10:1 per month, with disbursement within 1-3 days after
program submission. Blocked funds in Trading Banks sub-account. Trading
Trust is in US. Has been paying out since beginning of May.
PAGE 92 OF 273
$500K - 999K yields 80% gross, 48% net per month for 10 months.
Protected by 106 at the top, and SKR for the small investor. Up to 45 day
waiting period for aggregation. Paying out.
$500K yields 10:1 in 90 days, blocked funds, paying out.
$500K yields $4M per month, protected by 106 CD. Re-entry may be
possible. Provider pays intermediaries. Swiss Bank. Will not stay open very
long.
$550K yields 300% - 400% in 45 days. Successful track record, 2 years.
$650,000 minimum, pays 10% per month, compounded.
$750K - $1.25M yields 40% gross, 30% net per month. T-Bill and two other
forms of security on principal. Paying out since September, 1997.
$1 million minimum, yields 40% gross profit, every 2 weeks for 40 weeks.
With re-entries, the yield is approximately $20 million. 75:25 split with
intermediaries. Investors funds are blocked and non-callable (i.e. - controlled by
investor in investors account). Guaranteed, good track record. Broker has
numerous other programs, mostly short term.
$1 million minimum. Yields 40% per month. Re-entries allowed. Good
track record. Guaranteed. Has been paying out for last 2 years. Broker is direct
with trading group. Ongoing.
$1 million minimum, blocked funds, yields 100% in 15 days. Compounded
for an indefinite number of cycles. Secured by Treasuries.
$1 million minimum. 80% per trade, approx. 3 trades/month.
$1M, yields 450% in 10 weeks, principle guaranteed by Insurance Co. for
170%. (May be closed).
$1 million minimum, returns 210% per week to investor. Investors funds are
un-encumbered, secured by Pay Order. Intermediaries receive 90% per week.
$1 million minimum, returns 100% gross, 70% net per week for 40 weeks.
Bank leveraged and blocked in Luxembourg.
$1M, 420% net return (600% gross) in 16 banking days (3 weeks), bank
guarantee for your funds, two bank pay orders for returns.
$1 million minimum. Returns 50% per month, re-entry/compounding
permitted, ongoing. New York Bank - blocked funds. Investor works directly with
Trader. Broker is very highly regarded.
$1 million minimum. Returns 200% in 60 days. (4 installments of 50%
every 15 days). Investor deals directly with Trader and Banker.
$1M yields 270% in 15 days, Bank to bank, 6 re-entries possible.
$1M yields 750% per month, blocked funds with leverage.
$1M yields 455% in 40 weeks, blocked funds, investors own bank.
$1M yields approx. 18:1 in 6 months, payments every 5 days.
$1M yields 20:1 in 40 weeks. Leveraged at 1:10. Disbursements are 100%
gross, 70% net per week. Secured by Attorney Escrow Trust. Has been paying
out for 1 year.
PAGE 93 OF 273
$1M yields 100% gross, 70% net in 6 days. Then 500% gross, 350% net in
next 10 days. Total is 420% net. Secured by Bank Pay Orders. No need to
travel. New program with experienced Traders.
$1M tabletop yields 100% in 6 days, 500% in 12 days. Reliable Trading
Group with track record. Broker is direct to Program Manager. Will probably
close by end of June.
$1M yields 300% gross, 210% net per month. 106 CD from major
Canadian Bank. 5 re-entries allowed.
$1M yields 30% per month. Must keep funds in program for 1 year. No
compounding. Blocked in investors own account.
$1M yields 12-15% gross per week. London based, blocked funds.
$1M yields 6.5% per week gross, 5% net. funds remain in investors
account for 1 year. Paying out.
$1M yields 60% gross, 45% net per month. Secured by UK Solicitors
Indemnity Fund. Re-entries allowed. Paying out.
$1.25M yields 35% gross per trade, can immediately discount each trade
90%, and do 3-8 trades per monthly cycle. Can re-enter 2 more cycles.
Principle is protected by 106 CD.
$1.25M - $2M yields 50% gross, 37.5% net per month. T-Bill and two other
$2 Million min. yields 50% net to investor in 60 days, 25% to intermediaries.
Can compound up to 1 year. Program has been in operation for 3 years. Funds
are placed into Attorneys account, and principle is insured by attorney (with
Bank Official as a trustee).
$2M - $10M yields 60% gross, 45% net per month. T-Bill and two other
$2M yields 500% gross in 4 months. Traders bank is in Germany. Investor
can block funds in his own bank, provided it is one of the major banks. Excellent
Trading Group.
$3.5M yields 125% in 20 days, blocked funds, US T-Bonds blocked 380
days.
$4 million minimum, pays 600% every two weeks, two additional rolls
(cycles of compounding) available. Managed by one of the top banking families
of Europe, with assistance of one of the top 5 Traders.
$5M leases $100M for 5 years, available for trading programs.
$5 million blocks, returns 800% - 1,100% in 40 weeks.
$5M to $10M, yields 75% per month, 10% goes to intermediaries.
$10 million minimum, returns 200% in 10 days.
$10 million minimum. Earns 20-30% per week. Ongoing.
PAGE 94 OF 273
$10 million minimum. Program pays 300% per week, compounded. 200%
to intermediaries. 10 re-entries permitted. Opens in July.
$10 million minimum, returns 150% in two weeks. Can be re-entered
(compounded) two more times
$10M, blocked or 106, 15:1 net per year, discountable within 10 banking
days, bank-guaranteed pay orders.
$10M yields 320% in 10 days, discountable pay orders, 106 CD, re-
enterable.
$10M yields 225% in 5 days, bank to bank, blocked funds if $15M and up.
$10M yields 800% in 10 months, Swiss Table Top, discountable 106 CD and
POs.
10M yields 20:1 gross, 15:1 net per year, or per 10 days discountable.
Blocked funds in clients own bank, or 106 CD. Four re-entries allowed. Bank
Guaranteed Pay Orders. Must travel to Europe.
$10M yields $674M in three 3-day cycles. Secured by 106.
$10M min., $1M increments, yields 500% net to investor every other day,
through 90% discounting. 8-10 re-entries, then may continue to re-enter under a
different entity. Principles only. 10% to intermediaries, 10% to Trading Group,
10 % to Facilitator. May close shortly.
$10M yields $63M gross profit in 45 calendar days. (This is a 10 month
program yielding 700% which is discounted 90% in 45 days to give the above
yield.)
$10M yields 200% per week for 20 weeks at Citibank, or 40 weeks at
Barclays. No compounding. Blocked funds. 80:20 split on intermediary fees.
No project required.
$10M tabletop yields 32:1 net in 3 weeks. 80:20 split with intermediaries.
Secured by 106. Strong program.
$10M yields 100% net per month, 10 re-entries. 106CD at Swiss Bank.
$10M yields 80% gross, 68% net per month. Paying out.
$10M yields 50% gross, 40% net per month. Paying out.
$10M yields 250% gross in 3 months. europe or US Banks. Paying out.
$10M yields 70% per week, compounded up to 23 Trades.
$10M yields 250%x3 trades, then 750% x1 trade. Blocked funds.
$10M yields 500% per week, compounded for 3 weeks. Blocked Funds or
Bank Guarantees.
$10.5M yields 70% gross per trade, can immediately discount each trade
Principle is protected by 106.
$12.5M can be blocked and discounted 90% to enter a program yielding
70% gross per trade. Can immediately discount each trade 90%, and do 3-8
trades per monthly cycle. Can re-enter 2 more cycles. Principle is protected by
106.
PAGE 95 OF 273
$20 million minimum, returns 10:1 in 90 days, or 18:1 in 40 weeks.

$50 Million, funds are protected by 110 CD. $50 Million trade earns 150%
per month. Additional Guarantees - Surety Bond on principle, and International
FDIC on principle and interest.
$80M program available. Details with LOI and POF.
$100 million min., leases $1B. Yield on $1B is 800%-1,400% per month.
On original investment, yield is 80:1 - 140:1 per month! Broker works directly
with Facilitator.
$100M leverages $100B to net $4.5B in 90 days.
$100M yields 45:1 in 12 weeks, reserve funds 96 hours, no project required.
$100M yields $330M in 4 days. $33M to intermediaries.
$100M yields 100% gross per trade, can immediately discount each trade
Principle is protected by 106 CD.
$100M yields 200% per week for 40 weeks if funds are blocked at Barclays
or Midland. For 6 weeks only if at another bank.
$100M yields 50% every 3 months, compounded. Approx. 5% to
intermediaries. Exclusive program, can be custom tailored to investor. Project
required. Investor can choose to have an equity interest in the project. Deal
directly with program director, who is very accomplished, and has a track record.
(29)
$100M yields at least 720% per year. Paying out.
$500M yields $3B - $5B in 2-10 days. Two re-entries, for total yield of $9-
$15B. Funds remain in investors account, and are checked bank-to-bank.
Conducted by Master Trader at the Fed. Trader will be on vacation during month
of July.
$10B programs available directly at Federal Reserve, conducted by Fed.
Licensed Trader. Must have project. Trader will be on vacation during month of
June.
Miscellaneous Services
Other services: import/export financing, purchase or loan against bank
guarantees, loans against gold/gold concentrates and other acceptable
collateral, Master Funding Commitments, Funds First Transactions, bond
underwriting for third-world countries, offshore incorporating and trust formation,
currency and commodity transactions, fiduciary services.
Loans against Historical Bonds are available. Historical Bonds must be
redeemed before the end of 1998, according to the G-7. Investor can either buy
the bonds, or if he has the bonds, can place them into the program. The bonds,
(available on an intermittent basis) are purchased at a small price (collectors
value) by investor, valued at a much larger price by an authenticator, and a Safe
Keeping Receipt is issued at 25-90% of the bonds authenticated value. The
PAGE 96 OF 273
lender/banker uses the SKR as collateral, and places the funds into a trading
program. Programs are variable. This is a very highly leveraged and lucrative
type of trade. Everything is guaranteed. In one sample trade, a $5,000 bond is
valued at $5 million. Earnings are $4 million per three-week cycle, with 2
additional compounded cycles. Total return would be $64 million.
Asset Based lending available. Safekeeping Receipt services for $50,000,
loans at 50-60% of SKR. Funds can be placed into other trading programs.
Asset Based lending available. Safekeeping Receipt services, loans at 50-
60% of SKR value. Funds can be placed into other trading programs. 45-90
days for processing and trading of first proceeds.
Educational Materials available on bank credit instruments, tax laws, asset
protection, etc.
Broker has numerous high yield program, by request only. Also offers
Medium Term Notes, Historical Bonds, Project Financing, Currency Exchange,
Trade Finance, and Asset Based programs.
Trading of Bank Instruments at 60% - 100% LTV, and 25%-40% per week
compounded.
Includes Standby Letters of Credit, Treasuries, notes, T-Bills, Cds, time
deposits, Eurodollar certificates, Eurobonds, Corporate bonds, preferred
securities/bank bonds.
PAGE 97 OF 273
DEBENTURE TRADING PROGRAM SOURCES
The following brokers offer various Debenture Trading programs. Please

remember that with any industry, especially investments, there is fraud, so
please review each broker and program carefully, including an inspection of the
brokers track record by talking to their clients.
Internet Boards
Swiss Gnome Board

http://p212.ezboard.com/ftheswissgnomesboardsalternativefinancebanking
High Yield Finance

http://p207.ezboard.com/bhighyieldfinanceforums
Contacts
Steve Glanz
Phone: 650.349.2651 Fax: 650.349.2651
Email: sglanz@rcn.com
George Lark
Phone: 410.388.0312 Fax: 301.604.7405
A Tawil
Email: hyips@hotmail.com
Simon Da Costa
Email: simon.dacosta@lineone.net or sian@zoo.co.uk
Clayton L. Parker
Email: redthum@yahoo.com
Website: www.thesamgroup.net
Phone: 616-802-4477
PAGE 98 OF 273
Don Bowers
Email : 4money@concentric.net
Debra Aragon
Email: trades@pacbell.net
Edward
Email: proteus@zoo.co.uk
Emre Deniz
Email: hyi_100@hotmail.com or deniz_emre@yahoo.com
Excelsior Worldwide Corp.

Email: InterTimes@aol.com
Jeff Alexander
Phone : 707-224-6555
Secured, non-depletion programs from $100,000 or above, yielding over
10% per month.
John L Hill
Phone : 901-925-0070
Fax : 603-687-9731
Email : Global@centurytel.net
Murray Burfitt
Burfitt group
Phone 61+ 407 338 990
Fax 61+8-9307 3332
Email : murray@burfitt.com.au
Internet : WWW.BURFITT.COM.AU
PAGE 99 OF 273
Mikael Silvennoinen
Attorney at Law, Finance & Leasing Citigroup, Inc.
Email : eurobank@icenet.fi
Addr. Anink. 5A #14, 20100 Turku FINLAND
Tel. + 358.40.586.6815 or + 358.50.562.1569
Fax (413)473-2931 (in USA)
Robert Hartung
Email : bobhartung2000@yahoo.com
Steve Cummins
Email : ifsfin@yahoo.com
Leon Christian
Email : MtnaJones@aol.com
PAGE 100 OF 273

BANKS - MONEY FROM NOTHING
BY PAUL MCLEAN AND JAMES RENTON
TAKEN FROM THE BOOK BANKERS AND BASTARDS

"Bankers own the earth...if you want to continue to be slaves...then let
bankers continue to create money and control credit." (Sir Josiah Stamp, one-
time Governor of the Bank of England).
There was a time when the Church was the most powerful institution in
Western Society and few questioned its right to be so. In some countries
governments are still all powerful. In our society today, however, by far the most
powerful institutions are banks, supported by a web of financial structures which
reinforce this power. It is time we questioned their right to be so mighty and to
ask whose interests they serve.
The media beguile us with the impression that politicians hold and wield the
power, and we believe them It is virtually impossible to escape hourly political
and current affairs reports which reinforce this misconception. So vast and
cleverly contrived is this mass of information that it is difficult to keep in touch
with reality. Young people describe things that bury impress them as "unreal".
How right they frequently are.
While we are thus preoccupied, bankers and financiers go about their
business.
Most of us make extensive use of banks - they inevitably play an important
part in our individual and collective lives. Like so many other things, we take our
banking for granted, giving it little thought and scant examination We seldom
stop to consider its real nature or its cost to us individually or to the community at
large. Many of us do not even examine our bank statements to make sure there
are no errors on them. Few of us would have any knowledge of the nature and
justification of charges we regularly meet but we assume that it is all in order. We
trust that interest is being charged at the right rates. Above all, we do not check
our statement for deliberate fraud.
It would be foolish to argue that banking has no place in society. Quite
obviously it is the powerhouse of modem commerce and must remain so. The
real point is, however, that banking has two faces one socially creative, the other
devastatingly destructive. That of course gives rise to a number of challenges.
The first and most demanding is to put in place that model of banking which
serves the best interest of Australia. One which is socially creative and not
destructive. This is the responsibility of government and only courageous
governments will do it We do not have courageous government in Australia and
there is none in sight The second is that, having built the best banking system
PAGE 101 OF 273

possible, we should ensure that no one destroys it, either deliberately or by

neglect. Both have happened in Australia in our lifetimes.
The third challenge is to expose and remove people, be they bankers,
treasurers, business people, politicians or whoever. who abuse the system for
their own ends or neglect their responsibilities to it. I have given evidence that
such abuse and neglect is rampant in Australia today, indeed throughout banking
around the world, and that there is little will to reduce this.
It is abundantly dear that banking can help us create a truly free and
prosperous society, but it is not doing so. It is equally clear that abuse of banking
practice is a major factor in the degeneration of our nation.
How great a hold do banks have over us? To answer this question and to
appreciate the potency of the answer, let's start from absolute basics.
Let's consider this. When banks lend us money, (give us credit), we go into
their debt. Of course, you say. The bank argues that since it is taking the risk of
lending us money, (extending us credit), they require some security. So we put
an asset on the line such as our home, our business or our farm. The bank then
says it deserves a regular fee for its risk taking and for providing credit. That fee
is interest, although other fees, such as establishment and management fees are
also charged. Finally, the bank requires that if we cannot meet the agreement
then they are entitled to any home, business, farm or other real asset that we
may have put up as collateral.
This is a simplified but reasonable accurate description of a bank's money-
lending function and of how it goes about it. Let's look at it in detail under three
headings: credit, collateral and interest.
Credit
When banks give us a loan, does it actually cost them anything? Curiously,
it costs them virtually nothing. This is the special privilege of the banker - the
privilege of creating credit.
Many years ago, a report commissioned by the British Government
summarised it like this:
It is not unusual to think of the deposits of a bank as being created by the
public, through the deposit of cash representing savings or amounts which are
not for the time being required to meet expenditure. But the bulk of the deposits
arise out of the actions of the banks themselves, for by granting loans, allowing
money to be drawn on an overdraft, or purchasing securities, a bank creates a
credit in its books which is the equivalent of a deposit. (The Macmillan Report,
1929-31, Inquiry into Banking and Finance and Credit, p.34, pars. 74)
Here is the crunch concept - the one we must grasp if we are to truly
comprehend the power of banks. Most of us imagine that, when we borrow from
a bank, somewhere out in a back room, someone is pairing off our need for an
overdraft with somebody else's deposit. We are not so naive as to think that they
are counting real, touchable money, and moving it from one persons pile to
another. But at least we think that the bank must borrow before it lends.
PAGE 102 OF 273

But no. The money does not need to exist either in a real, touchable sense
or in any other sense. After our interview with the credit manager we walk away
and begin to write cheques or use our credit card. All that happens in the back
room is that entries are made in books. Nothing more than ink on paper. Even
simpler these days - nothing more than the click of computer keys.
John Kenneth Galbraith, one of the most eminent and respected modern
economists, wrote a book with the simple title, Money. In it he writes:
The process by which bank, create money is so simple that the mind is
repelled. Where something so important is involved, a deeper mystery seems
only decent.
Graham Towers, the Governor of the Central Bank of Canada put it bluntly
when asked how banks create money and credit: "The ... process consists of
making a written or typed entry on a card. That is all" (Testimony to the Canadian
Committee on Banking and Commerce, Inquiry of 1939) That was 1939. Clicking
today's computer keys makes it easier still.
Is there any limit on the amount they can create? In July 1991. the Joint
National Secretary of the Finance Sector Union of Australia wrote this:
On the basis of advice received from the research department of the
Reserve Bank of Australia Bulletin ... we are able to inform you that in Australia
the creation of money is achieved by the following equation: M3 divided by Base
Money. The result of the equation is a figure close to 14. All bank in Australia
create money in this way with creation based on the level of demand. The
Reserve Bank has some authority over this process, but not complete authority.
Extract from a letter from L.N. Hinalev, Joint National Secretary Finance Sector
Union or Australia, to L.F. Hoins, 22 July 1991)
If the 'equation' doesn't make much sense, don't worry. We'll come to that
next. The crucial words are the ones in italics. Banks create money with creation
bared on the level of demand. If they want more, they just create more.
The only limitations are those of prudence and statutory rules. In March
1988, a General Manager of the National Australia Bank wrote this clear
summary of the limitation in Australia today: The process...is called 'create
creation' and is the basic process by which deposits and lending are connected
in all lending systems.
There are 2 factors that influence the ability of a lending body to create
credit:
1. A gearing limitation - that is the statutory (in most countries) or the
prudential limit to which the financial intermediary can gear its capital. Expressed
another way this is the amount of capital that must back up each loan.
At present Australian banks have a gearing imposed of 6.0% which in
simple terms means that for every $100 of loans the Bank must have $6 of
capital. With finance companies gearing levels are usually set In their trust
deeds. In the past gearing ratios of 8 to 1 were common (ie $8 of loan for each
$1 of capital but over time that has moved out to be closer to 15 to 1)
PAGE 103 OF 273

This is the equation: M3 over base money Mr Hingley was talking about.
The summary goes on:
2. A liquidity limitation - for example, Australian banks must keep 7% of their
deposits in Statutory Reserve Deposit account with the Reserve Bank and also
maintain a Prime Asset Ratio of 12%. The latter means that each Bank must
have cash, Bonds, Treasury Notes, etc which represent 12% of their assets. On
top of these constraints the Bank mud also have enough liquid assets to meet
any movements in the ebb and flow of money - naturally those sums can't be lent
to customers. There are varying such requirements in countries around the
world. (Extract from a letter from D.M. Cowper, General Manager National
Australia Bank, to O.K. Fauser, 21 March 1988).
That is the most lucid statement of the current Australian situation that I
have ever seen. And all this is enshrined in law. The Treasurer of Australia wrote
to me in 1991, saying:
Various rights and duties have been conferred on banks by legislation, the
most important of which is the exclusive operation of the payments system and
the unique ability to create credit. (Document 4A)
It might seem, then, that there should be no doubt about the fact that credit
creation exists and how it is limited. Yet there an people who deny it.
Mr. Alan Cullen, Executive Officer of the Australian Bankers Association and
spokesman for Australia's largest banks. made this statement as recently as
November 1991:
Credit creation is a sort of old fashioned religious idea. (Statement made
during an ABC (SA Regional) debate with Paul McLean conceming the Report of
the Martin Committee, 27 Nov 1991).
Deny it as he might, there can be no doubt that credit is no restricted by the
amount the banks have in their vaults.
But back to the day you get your loan. The bank attends to these enemies
in its double entry books of accounts. Its accounts are in balance. You are in
debt to the bank and the bank has given you the green light to go out and do
some spending. You can draw it out in cash, but the vast majority of transactions
will probably occur on paper (for example, cheques) or via electronic transfer
(credit cards, EFTPOS and so on).
But says the bank, you are forgetting the question of liquidity. It will be our
money you draw out as you have not yet paid any in. True. But what happens to
it next? You write some cheques, use the credit card, and spend the cash. All of
this goes into the tills of the people you pay it to. And where do they put it at the
end of the day? Back in the bank, of course. Not necessarily your bank, but
back into the banking system.
If the banks have issued a total of a million dollars in new credits one day,
they will have a million dollars in extra deposits the next And unless something
very odd is happening, your own bark will have roughly equivalent shares of both
the new credits and the extra deposits. Thus they have only had to use their own
money for a few hours, and back it comes. In other words, under normal
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circumstances, bank liquidity corrects itself just as surely as their balance sheets
do.
This is why the total amount of credit advanced by all the banks to all their
customers can go up and down from day to day, why we can have credit
squeezes and credit expansions, all without the banks losing liquidity or
unbalancing their balance sheets.
But there is a very big difference between the bank's circumstances and
yours. When you got your overdraft what the bank gave you it created with the
stroke of a pen, a click of computer keys, ink on paper, what you give back to the
bank you earn by your talent, labour, sweat of your brow and risk of your assets.
Even though the purchasing power you now have was created by the bank
out of thin air, you as sun as hell an in their debt, and the bank may well have
control of a real asset of yours which you wen required to offer as collateral.
So banks have this great privilege - that of creating money and credit By the
exercise of that power banks determine who sinks and who swims, who eats and
who starves, who lives in luxury and who in poverty.
Collateral
When it lends us money, does the bank put itself at risk? If it has lent
prudently, (that is to someone who will be able to repay and honest enough not
to abscond), there is every chance they will pay the loan back. Does the bank
then actually need to have our home, business or farm as collateral? Only if it
does not trust its own judgement. Demanding collateral is a wonderful way of
avoiding the need to be prudent and wise, so they demand it all the time.
This represents a real risk to the borrower. Just as banks can create credit
by the click of computer keys, so also they can contract or destroy credit by
calling in loans. Experience indicates that there are cycles of credit expansion
and credit contraction. Ordinary people and their debts are caught in these
cycles irrespective of anything they may have done or not done, and for them the
consequences can be great. There are very few people or businesses which
could immediately find the money to pay off all their debts and mortgages. They
could not find the money immediately even in the best of times, and if times are
tough it is still more difficult. So the bank may move in, sell their collateral assets
for fin-sale prices, and leave them destitute.
Of course, this does not mean that every bank foreclosure is unreasonable.
But unreasonable foreclosure is the most common malpractice reported to me as
a bank-watcher.
Often, the foreclosure is not part of a general credit squeeze, but is imposed
by a bank on a single business. This, too, is not necessarily unreasonable. If
they have good reason to believe that a business is going bad, banks have to by
to get their money out like anyone else. However, thanks to having demanded
guarantees, mortgages, floating charges and other forms of collateral, banks an
the least likely to lose in any normal business failure. More often, they walk off
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with all the assets, leaving hundreds of small trade creditors with nothing, so all
sorts of innocent third parties are caught in the net.
Despite all these privileges, however, banks have managed to run up
mountains of bad debts. How? It is very easy if you are stupid enough, and
lending large sums to irresponsible entrepreneurs is a very good start.
All the honest depositors and borrowers of Australia are suffering today
because our banks have been in the hands of people who were incapable of
recognising a shonky deal when they saw one. These bankers, greedy for a
bigger share of the financial market, gave credit to people who were simply
corporate raiders, people who were not building genuine businesses or doing
anything for the well-being of the community. Bank financed takeover bids did
immeasurable harm to many of our greatest companies, while the subsequent
corporate collapses left the banks with bad debts which they then claimed as tax
deductions, making the taxpayer pick up the bill for 39% of the cost of their folly.
They then charged the rest to their surviving customers in increased charges
and continuing exorbitant interest rates.
All these bad debts were supposed to have collateral backing. but when the
chips were down the collateral was insufficient How this happened is an object
lesson for anyone who believes either in market-values or the acumen of the
banks. Let us suppose that Fred wanted to buy a television station for $1.2
billion. He went to a bank for a loan. They asked for collateral, whereupon he
offered the TV station he was buying. They checked the market and found that
he had offered $1.2 billion. To the market value addicts, this was the latest price
and hence what the TV station was 'worth' as collateral. So Fred got the loan.
What price the Clever Country when people of such paralysed intellect are
holding the reinsl
These were the people who were determining the economic future of the
country. It was the bankers, not the government who decided that the corporate
raiders should be bank-rolled and productive industry starved. It was the bankers
who created a climate where Australian inventions and innovations of real
commercial value have had to be sold to overseas manufacturers for
exploitation. "Too risky", they chanted, and rushed off to their appointments with
Christopher Skase.
What is worse, these people have not had the decency to crawl away under
a stone and die. Look at the names of the people who were running the banks in
the late eighties, when the mountains of debt were piled up. They are still in their
boardrooms, blaming everyone but themselves for the results of their
incompetence. Perhaps they aren't just bastards after all, but stupid bastards.
The enormity of this power of credit creation and collateralisation of assets
is itself stunning, but when one realises how and why it can be used then the
situation becomes even more Frightening.
Just think about this. Almost all real property in our society is coilateralised
to banks. In other words it is in 'hock'. When you next look out of your window
across our great cities and terms and rolling hills, realise that the vast majority of
everything you look at is in hock to banks-homes, farms, factories, businesses,
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cars, boats, TVs -almost everything. And all in exchange for what banks create
out of thin air.
When next you walk the streets of a major city note how many bank
buildings there are. Comer after comer is occupied by huge high-rises bearing
the names of our masters. Note also the buildings of their subsidiary finance and
insurance companies. Then remember that almost all other buildings that do not
bear their names are also collateralised to them by their owners.
Several important question arise at this point.
First, is credit so bad? Of course not It gives rise to actual purchasing power
and much of it is exchanged for real goods and services. Without it, it would be
very difficult for anyone without capital to establish a business, so the rich would
remain in charge and the poor would remain poor. Credit is one of the agents of
social moblity. But delivering the power to create and distribute it into the hands
of private banks is fraught with danger.
It was the awesomness and potential abuse of this power that caused
Thomas Jefferson to say, two centuries ago:
I believe that banking institutions are more dangerous to our liberties than
standing armies.
Not only is it dangerous. It also means abandoning one of the most
powerful tools of a nation's control over its own destiny. Little wonder that Mayer
Amschel Rothschild, the founding father of one of the greatest and wealthiest
banking families in history said this:
Permit me to issue and control the money of a nation and I care not who
makes its laws.
Abraham Lincoln thought he had the answer:
The government should create, issue and circulate all the currency and
credit needed to satisfy the spending power of the government and the buying
power of consumers. The privilege of creating and Issuing money is not only the
supreme prerogative of government, but it is the government's greatest creative
opportunity.
And it was this realisation that caused the founding fathers of the
Commonwealth of Australia to create a banking designed to match Lincoln's
dream.
What then, will history say of those who, in the name of deregulation,
systematically and deliberately weakened public control and supervision?
The implications of what has been described are that most real property
and resources of the world are now in the control of banks. As financiers have
increased the availability of credit to individuals, businesses, institutions and
governments, so in turn they have increased their control and power.
Because they are inextricably linked, the explosion of credit in recent
decades has also been an explosion of debt. Much of the world's productive
effort and resources are consumed in servicing the interest and other costs of
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this deliberately created debt and much of our productive effort is to avoid
foreclosure and the loss of collateralised assets.
Moreover, as banking has become global the web of debt now spans
oceans and continents. With growing intemationalism have come the challenges
inherent in the uneven distribution of the world's resources and wealth and the
vastly complicated question of international lending. exploitation and
indebtedness. Bankruptcy allows an 'out' for individuals and corporations so they
may escape permanent debt if they are prepared to part with their assets, but
sovereign debt, (the debts of states and nations), is much more difficult to throw
off.
In the complex world of international currency dealings, countries which
have entered into debt in their own currencies have been able to reduce the
damage of their debt by deliberate devaluation of their domestic currencies.
However, where debt is in other denominations, as is the case with the greater
part of our own national debt, this cannot be readily done.
Furthermore, the international banking community is more willing to
accommodate those counties whose monetary policies are judged to be prudent
or responsible. This sounds fine. But what is prudence and responsibility?
International bankers know the answer: deregulation and free market economics.
Such policies are of unquestioned advantage to the bankers themselves but less
obviously so the workers of Venezuela, Brazil or, God help us, Australia.
If this is so with business, commercial and sovereign debt it is much the
same for the private individual. Just as all credit is not destructive nor therefore is
all debt Where we can comfortably service debt it works for us in expanding
purchasing power and access to resources for a wide variety of uses. Both the
degree and nature of indebtedness are therefore important considerations. How
we cope with our debt is what is most important Moderate debt under control is
socially creative; debt out of control is socially destructive.
Although individuals may escape unmanageable debt by opting for
bankruptcy, this means that the collateralised assets change hands.
Governments therefore, have an obligation to create constructive coping
mechanisms in the form of compassionate and just bankruptcy laws.
Austrian governments have been weak in this law-making role, just as they
have been weak in monitoring the system at large, and so Australians, both
individually and collectively, are frequently at the mercy of creditors. In efforts to
avoid bankruptcy and to retain their assets they frequently commit themselves
and their families to virtual permanent indebtedness. For the more fortunate debt
may be transient and short lived, but for many it has become permanent It is
their slavery.
Interest
The final question in this chapter is that of interest rates. It is this area
probably more than any other which concerns ordinary Australians. This is for
Two reasons; interest is what they have to meet month by month, and it is
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interest charges that determine whether they sink or swim - whether they save
their assets or go under to the bank. Of course, those who have money to invest
welcome high interest rates, but overall, the prosperity both of individual
Australians and of our business enterprises is promoted by lower interest rates.
In its simplest terms, interest is the price of hiring money. Just as you pay a
charge for the use of a rented car, so you pay a charge for the use of rented
money. And it has been mighty expensive in Austrlia in recent times. Australians,
from the mid '80s through until mid '91, were paying between 13-18% for home
mortgages, 18-24% for overdraft funds, 20-25% for rural short term finance, 20-
25% on credit card finance and 18-25% on lease and hire purchase finance.
Additionally, a range of management charges applied in many cases. Often rates
were subject to variation without notice or agreement and borrowers were
frequently not clear as to what rates they were paying or what charges applied
until they were levied. By world standards these levels were exorbitant What
then, is fair?
It is generally reckoned that in a 'free' money market the base rate of
interest will be between 2 and 3% above inflation It never works quite like this,
however, because the market may take a longer view. There was a period, in
fact, when Australian interest rates were actually less than inflation, but this was
because the market expected (rightly) that inflation would soon come down.As it
did so, the rates dropped, but not as fast as inflation. This, too is to be expected.
At the time I write, however, inflation has been at a rate of 3-4% per annum
for two years This should be long enough for interest rates to come dorm to
match, and would make a 'reasonable' base rate of 5-7%. But they are standing
at 8-9% and show no indication of coming down.
When, Congressman Henry Gonzales, Chairman of the US Congressional
Committee on Banking, learned of the level of charging by Australian banks he
commented, "Any country which tolerates usury cannot prosper". (Comment
made to Paul McLean at a breakfast meeting in Washington DC, on July 19th
1991).
Usury originally meant lending money at exorbitant interest', and this is
what Congressman Gonzales meant How right he ' was. Australia has tolerated
usury and has not prospered because of it.
The next reason for variation in interest rates is the variation in the risk to
the lender. Thus the base rate applies to loans when then is assumed to be no
risk at all. The extra percentage is then like an insurance premium which you pay
for to insure that bank against the risk of not getting their money back. This
sounds fair enough, but it results in a Catch 22 situation: if your capacity to repay
is in doubt, you are charged extra interest to cover the risk. But if you are a bad
risk, the higher interest rate will make you a worse one.
This is the source of one of the most blatant bank malpractice. Say you go
to them for a housing loan - normally one of the safest and hence cheapest
loans a bank offers. They know that their money is safe with you, but they want
to get a higher interest rate. So they refuse the housing loan, but instead offer
you an overdraft or a personal loan, with a lien on your assets as collateral You
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are then paying overdraft or personal loan interest rates on a loan which is as
safe for them as the housing loan they refused to give you.
Moral: make sure you get a loan whose interest rate matches your
trustworthiness and capacity to repay. If you are a longstanding customer with a
secure income, do not allow them to persuade you that the only type of loan they
can give you is a high-interest personal loan.
Remember: they are not giving you independent advice, like a solicitor
might. They are just loan salesmen. Like any other salesmen, they won't show
you straight to the best value car in the yard; they will first try to sell you the one
giving them the biggest profit margin. Caveat Emptor.
The rate of inflation and risk are two reasonably justifiable reasons for
interest rates to vary. However, in contemporary Australia interest rates have
served two more purposes which do not sit comfortably together. Banks have
used high interest rates as one way of covering the bad debts from their
debauches of the late 1980's, while governments have used them as an
instrument of monetary policy - a means of constraining consumer expenditure
and then on inflation and encouraging a flow of funds from overseas to finance
our foreign debt Each has conveniently blamed the other for exorbitant interest
rates. Meanwhile the rates have inhibited business investment and caused
financial hardship and misery on a massive scale.
We have seen that the banks' power comes from their unique ability to
create credit and destroy credit to collateralize assets and dictate interest rates.
The impact of all this was neatly summarised by an eminent Chancellor of the
Exchequer in England, Mr. Richard McKenna, who said this:
I am afraid that ordinary citizens will not like to be told that the banks can
and do create and destroy money. And they who control the credit of the nation
direct the policy of the governments and hold in the hollow of their hands the
destiny of the people.
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CENTRAL BANKS, GOLD, & DECLINE OF THE

DOLLAR
BY ROBERT BATEMARCO
Dr. Batemarco is a marketing research manager in New York City and
leaches economics at Marymount College in Tarrytown, New York.
Are business cycles, inflation and currency depreciation inevitable facts of
life? Are they part of the very laws of nature? Or do their origins stem from the
actions of man? If so, are they discoverable by economic science? And, if
economics can teach us their--origins, can it also teach how to avoid them?
The particular need which all money, even fiat money which we now use,
serves is to facilitate exchange. People accept money, even if it is not backed by
a single grain of precious metal, because they know other people will accept it in
exchange for goods and services.
But people accept the U.S. dollar today in exchange for much less than they
used to. Since 1933, the U.S. dollar has lost 92 percent of its domestic
purchasing power.(1) Even at its "moderate" 1994 inflation rate of 2.7 percent,
the dollar will lose another half of its purchasing power by 2022. In international
markets, the dollar has, since 1969, depreciated 65 percent against the
Deutsche Mark, 74 percent against the Swiss franc, and 76 percent against the
yen.(2)
Many economists claim that this is the price we pay for "full employment." If
so, I'd like to ask who among you thinks we've gotten our money's worth? We've
experienced eleven recessions' since the advent of inflation as the normal state
of affairs in 1933, with the unemployment rate reaching 10.8 percent as recently
as 1982. Clearly, the "demise of the business cycle" -- a forecast made during
every boom since the 1920s -- is a mirage.
Other things being equal, if the quantity of anything is increased, the value
per unit in the eyes of its users will go down. The quantity of U.S, money has
increased year in and year out every year since 1933. The narrow M1 measure
of the quantity of U.S. money (basically currency in circulation and balances in
checking accounts) stood at $19.9 billion in 1933. By 1940, it had doubled to
$39.7 billion. It surpassed $100 billion in 1946, $200 billion in 1969 (and 1946-
1969 was considered a non-inflationary period), $400 billion in 1980, $800 billion
in 1990, and today it stands at almost $1.2 trillion. That is over 60 times what it
was in 1933.
For all practical purposes, the quantity of money is determined by the
Federal Reserve System, our central bank. Its increase should come as no
surprise. The Federal Reserve was created to make the quantity of money
"flexible." The theory was that the quantity of money should be able to go up and
down with the "needs of business."
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Under the Fed, "the demands of government funding and refunding ...
unequivocally have set the pattern for American money management." (4) Right
from the start, the Fed's supposed "independence" was compromised whenever
the Treasury asserted its need for funds. In World War I, this was done indirectly
as the Fed loaned reserves to banks at a lower discount rate to buy war bonds.
In 1933, President Roosevelt ordered the Fed to buy up to $1 billion of Treasury
bills and to maintain them in its portfolio in order to keep bond prices from falling.
From 1936 to 1951, the Fed was required to maintain the yields on Treasury bills
at 0.375 percent and bonds at 2.5 percent. Thereafter, the Fed was required to
maintain "an orderly market" for Treasury issues. (5) Today, the Federal Reserve
System owns nearly 8 percent of all U.S. Treasury debt outstanding. (6)
The Fed granted access to unprecedented resources to the federal

government by creating money to "finance" (i.e., to monetize) government's debt.
It also served as a cartellization device, making it unnecessary for banks to
compete with each other by restricting their expansion of credit. Before the
emergence of the Fed, a bank which expanded credit more rapidly than other
banks would soon find those other banks presenting their notes or deposits for
redemption. It would have to redeem these liabilities from its reserves. To
safeguard their reserve holdings was one of the foremost problems which
occupied the mind of bankers. The Fed, by serving as the member banks'
banker, a central source of reserves and lender of last resort, made this task
much easier. When the Fed created new reserves, all banks could expand
together.
And expand they did. Before the Fed opened its doors in November 1914.
the average reserve requirement of banks was 21.1 percent. (7) This meant that
at most, the private banking system could create $3.74 of new money through
loans for every $1 of gold reserves it held. Under the Fed, banks could count
deposits with the Fed as reserves. The Fed, in turn, needed 35 percent gold
backing against those deposits. This increased the available reserve base
almost three-fold. In addition, the Fed reduced member bank reserve
requirements to 11.6 percent in 1914 and to 9.8 percent in 1917. (8) At that point,
$1 in gold reserves had the potential of supporting an additional $28 of loans.
Note that at this time, gold still played a role in our monetary system. Gold
coins circulated, albeit rarely, and banknotes (now almost all issued by the
Federal Reserve) and deposits were redeemable in gold. Gold set a limit on the
extent of credit expansion, and once that limit was reached, further expansion
had to cease, at least in theory. But limits were never what central banking was
about. In practice, whenever gold threatened to limit credit expansion, the
government changed the rules.
Cutting off the last vestige of gold convertibility in 1971 rendered the dollar a
pure fiat currency. The fate of the new paper money was determined by the whim
of the people running the Fed.
The average person looks to central banks to maintain full employment and
the value of the dollar. However, the historical record makes clear that a sound
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dollar was never the Fed's intention. Nor has the goal of full employment done
more than provide them with a plausible excuse to inflate the currency. The Fed
has certainly not covered itself with glory in achieving either goal. Should this
leave us in despair? Only if there is no alternative to central banking with fiat
money and fractional reserves. History, however, does provide us with an
alternative which has worked in the past and can work in the future. That
alternative is gold.
There is nothing about money that makes it so unique that the market could
not provide it just as it provides other goods. Historically, the market did provide
money. An economy without money, a barter economy, is grossly inefficient
because of the difficulty of finding a trading partner who will accept what you
have and who also has exactly what you want. There must be what economists
call a "double coincidence of wants." The difficulty of finding suitable partners led
traders to seek oat commodities for which they could trade which were more
marketable in the sense that more people were willing to accept them. Clearly,
perishable, bulky items of uneven quality would never do. Precious metals,
however, combined durability, homogeneity, and high value in small quantity.
These qualities led to wide acceptance. Once people became aware of the
extreme marketability of the precious metals, they could take care of the rest
without any government help. Gold and silver went from being "highly
marketable" to being universally "accepted in exchange" -- i.e., they became
"money."
If we desire a money that will maintain its value, we must have a money that
cannot be created at will. This is the real key to the suitability of gold as money.
Since 1492 there has never been a year in which the growth of the world gold
stock increased by more than five percent in a single year. In this century, the
average has been about two percent. Thus with gold money, the degrees of
inflation that have plagued us in the twentieth century would not have occurred.
Under the classic gold standard, even when only a fractional reserve was held
by the banks, prices in the United States were as low in 1933 as they had been
100 years earlier. In Great Britain, which remained on the gold standard until the
outbreak of World War I, prices in 1914 on the average were less than half of
what they were a century earlier. (10)
Traditionally, the gold standard was not limited to one or two countries; it
was an international system. With gold as money, one need not constantly be
concerned with exchange rate fluctuations. Indeed, the very notion of an
exchange rate is different under a gold standard than under a fiat money regime.
Under fiat money, exchange rates are prices of the different national currencies
in terms of one another. Under a gold standard, exchange rates ale not prices at
all. They are more akin to conversion units, like 12 inches per foot, since under
an international gold standard, every national currency unit would represent a
specific weight of the same substance, i.e., gold. As such, their relationships
would be immutable. This constancy of exchange rates eliminates exchange rate
risk and the Reed to employ real resources to hedge such risk. Under such a
system, trade between people in different countries should be no more difficult
than trade among people of the several states of the United States today. It is no
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accident that the closest the world has come to the ideal of international "free
trade" occurred during the heyday of the international gold standard.
It is common to speak of the "collapse" of the gold standard, with the
implication that it did not work. In fact, governments abandoned the gold
standard because it worked precisely as it was supposed to: it prevented
governments and their central banks from surreptitiously diverting wealth from its
rightful owners I, themselves. The commitment to maintain gold convertibility
restrains credit creation, which leads to gold outflows and threatens convertibility.
If government were unable to issue fiat money created by their central banks,
they would not have had the means to embark on the welfare state, and it is
even possible that the citizens of the United States and Europe might have been
spared the horrors of the first World War. If those same governments and central
banks had stood by their promises to maintain convertibility of their currencies
into gold, the catastrophic post-World War I inflations would not have ensued.
In recent years, some countries have suffered so much from central banks
run amok, that they have decided to dispense with those legalized counterfeiters.
Yet they have not returned to the gold standard. The expedient they are using is
the currency board. Argentina, Estonia, and Lithuania have all recently instituted
currency boards after suffering hyper-inflations. A currency board issues notes
and coins backed 100 percent by some foreign currency. The board guarantees
full convertibility between its currency and the foreign currency it uses as its
reserves. Unlike central banks, currency boards cannot act as lenders of last
resort nor can they create inflation, although they can import the inflation of the
currency they hold in reserve. Typically, this is well below the level of inflation
which caused countries to resort to a cumncy board in the first place. In over 150
years of experience with currency boards in over 70 countries, not a single
currency board has failed to maintain full convertibility. (11)
While currency boards may be a step in the right direction for countries in
the threes of central-bank-induced monetary chaos, what keeps such countries
from returning to gold? For one thing, they have been taught by at least two
generations of economists that the gold standard is impractical. Let's examine
three of the most common objections in turn:
1. Gold is too costly. Those who allude to the high cost of gold have in
mind the resource costs of mining it. They an certainly correct in saying that
more resources are expended to produce a dollar's worth of gold than to produce
a fiat (paper) dollar. The cost of the former at the margin is very close to a dollar,
while the cost of the latter is under a cent. The flaw in this argument is that the
concept of cost they employ is too narrow.
The correct economic concept is that of "opportunity cost", defined as the
value of one's best sacrificed alternative. Viewed from this perspective. the cost
of fiat money is actually much greater than that of gold. The cost of fiat money is
not merely the expense of printing new dollar bills. It also includes the cost of
resources people use to protect themselves from the consequences of the
inevitable inflation which fiat money makes possible, as well as the wasted
capital entailed by the erroneous signals emitted under inflationary
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circumstances. The cost of digging gold out of the ground is comparatively

minuscule. (12)
2. Gold supplies will not increase at the rate necessary to meet the needs of
an expanding economy. With flexible prices and wages, any given amount of
money is enough to accomplish money's task of facilitating exchange. Having
the gold standard in place in the United States did not prevent industrial
production from rising 534 percent from 1878 to 1913." Thus it is a mistake to
think that an increase in the quantity of money must be increased to assure
economic development. Moreover, an increase in the quantity of money is not
tantamount to an increase in wealth. For instance, if new paper or fiat money is
introduced into the economy, prices will be affected as the new money reaches
individuals who use it to outbid others for the existing stocks of sport jackets,
groceries, houses, computers, automobiles, or whatever. But the monetary
increase itself does not bring more goods and services into existence.
3. A gold standard would be too deflationary to maintain full employment.
As for the relationship of a gold standard to full employment, the partisans of
gold have both theory and history on their side. The absolute "level" of prices
does not drive production and employment decisions. Rather the differences
between prices of specific inputs and outputs, better known as profit margins,
are keys to these decisions. It is central bank creation of fiat money which alters
these margins in ways that ultimately send workers to the unemployment line.
Historically, the gradual price declines which characterized the nineteenth
century made way for the biggest boom in job creation the world has ever seen.
The practical issues involved in I actually returning to a gold standard are
complex. But one of the most common objections, determining the proper
valuation of gold, is fairly minor. After all, the market values gold every day. Any
gold price other than that set by the market is by definition arbitrary. If we were to
repeal legal tender laws, laws which today require the public to accept paper
Federal Reserve Notes in payment of all debts, and permit banks to accept
deposits denominated in ounces of gold, a parallel gold-based monetary system
would soon arise and operate side-by-side with the Federal Reserve's fiat
money. (14) A more difficult problem than that would be how to get the gold the
government seized in 1934 back into the hands of the public. But even that
surely can't be more difficult than returning the businesses seized by the
Communists in Eastern Europe to their rightful owners. If the Czech Republic
can do that, we should be able to get government-held gold back into circulation.
In all likelihood, the biggest problem gold proponents face is that people
simply aren't ready to go back to gold. Most people aren't aware of the extent of
our monetary disarray and many of those who are don't understand its source.
Two generations of Americans have known nothing but unbacked paper as
money; few realize that there is an alternative. In contrast, when the United
States restored gold convertibility in 1879 and when Britain did so in 1821 and
1926, gold money was still seen as the norm. That is no longer the case.
It might take a hyperinflationary disaster to shake people's faith in fiat
money. Let's hope not. In addition to the horrendous costs of such a "learning
PAGE 115 OF 273

experience," it's not even a sure thing that it would lead us back to gold. Recent
hyper-inflations in places as disparate as Russia and Bolivia have not done so.
The desire to get something for nothing dies hard. Governments use central
banks with the unlimited power to issue fiat money as their way to get something
for nothing. By "sharing" some of that loot with us, those governments have
convinced us that we too are getting something for nothing. Until we either wise
up to the fact that governments can't give us something for nothing or, better yet,
when we realize the moral folly of taking government handouts when offered, we
will continue to get money as base as our desires.
This article first appeared in The Freeman, the monthly publication of The
Foundation for Economic Education, Inc., Irvingron-on-Hudson, NY 1053,and is
reprinted with their permission.
I doubt that 20th Century warfare is possible without a credit-based
monetary system. Historically, without credit, the only way a nation could
normally fund a foreign war of aggression would be based on whatever wealth
was accumulated in their government's treasury. To initiate a foreign war (with all
the attendant logistical costs of transport, feeding, arming, and paying the
soldiers, etc.) would require a government to have a huge treasury Bur how
would the government accumulate all that money except by taxing its own
people? If government rook enough money from its own people to fund a foreign
war two things would happen: 1) while the taxes were imposed and
accumulated, they nation 's own economy would be impoverished; and 2) the
overtaxed, impoverished people would be unwilling to Fight for their government
-- ie., their loyalty and morale would be so poor they'd probably retreat or
surrender rather than fight in the foreign war: The net result of overrating it's own
people would be a loss of the economic strength and public support that's
absolutely necessary to initiate and win a foreign war.
Further, while imposing a tax sufficient to fund a foreign war; a government
would necessarily accumulate a lot of gold in its treasury before the war was
actually declared. However all that money in the government treasury would
create a strong incentive for some other foreign government to initiate a war in
order to steal the accumulated gold as plunder.
Since the local populace would be demoralized by high taxes, the local
government could not count on their support to fend off an invasion. This public
discontent would provide another incentive for a brash foreigner (or perhaps a
domestic revolutionary or political rival) to attempt to overthrow the existing
government. Net result? By raising taxes, a government might precipitate its own
destruction. Therefore, war might be less likely in a gold-based monetary
system.
On the other hand, if government could fund foreign wars with credit, it
would not need to overtax and impoverish its people before the war and thereby
lose their loyalty and fighting spirit. Instead, leaders like Lyndon Johnson could
promote our ability to have "guns and butter" and lead most folks to assume the
proposed war would be economically painless. All government would have to do
is print more money, spread patriotic propaganda about "fighting for democracy",
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and march a bunch of trusting, foolish kids overseas to lose legs, ingest Agent
Orange, be left behind as POW's, or perhaps jeopardize their souls by killing
"enemy" soldiers for reasons as lame as the 1960's "Domino Theory". If our kids
were wounded, killed, or captured -- tough. The important thing was the war was
initiated, more money was borrowed, and the American People were further
indebted (some say "enslaved"). All this, through the modern miracle of credit-
based warfare -- fight now, pay later!
The truth is probably this: You could not have one "world war" (let alone
two) without first creating a credit-based money system. Korea, Viet Nam, Agent
Orange posttraumatic stress syndrome, POWs, Gulf War Illness -- without a
debt-based, unlimited credit money system none of these would be likely, and
the lives lost or shattered in those conflicts would've probably lived longer and
more fully.
And it's probably not only the United States that's guilty of credit-based
warfare; I'd bet that the post WWII global expansion of "Evil-Empire
Communism" was funded by a generous line of credit from one or more banking
systems. Without credit, how else could it have happened?
Why that credit may have been provided to the Soviet Union is debatable.
But if those reasons persist and the USSR is gone, how would the powers that
be create a new threat to the Western World? By providing enormous credit to a
potential adversary. What potential adversary remains besides Red China? Is
the international banking community providing credit to China?
1. Arsen J. Darnay, editor, Economic Indicator Hand-book (Detroit, London:
Gale Research Inc., 1992), p.232 and Survey of Current Business, vo1.75, Feb.
1995, p. C-5.
2. The Wall Street Journal, Apr. 7, 1995, & The Economic Report of the
President, 1995.
3. As measured by the National Bureau of Economic Research.
4. Robert Shapiro, "Politics and the Federal Reserve," The Public Interest,
winter 1982, p.123.
5. Shapiro, pp.126-127.
6. Federal Reserve Bullerin, February 1995,p. A30.
7, Murray N. Rothbard, "The Federal Reserve as a Cartellization Device:
The Early Years, 1913-1930," in Barry N. Siegel, editor, Money in Crisis
(Cambridge: Ballinger Publishing Company, 1984), p.107.
8. Rothbard, pp.105-106.
9. Richard M. Salsman, Gold and Liberty (Great Barrington, Mass.:
American Institute for Economic Research, 1995), p.26.
10. Michael David Bordo, "The Classical Gold standard: Some Lessons for
Today," Federal Reserve Bank of St. Louis Review, May 1981, pp. 8-9.
11. Steve H. Hanke, "Critics Err-Mexico Still Needs a Currency Board," The
Wall Street Journal, February 22, 1995.
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12. For a fuller treatment of this issue, see Roger Garrison, "The Cost of a
Gold Standard," in Llewellyn H. Rockwell, Jr.. editor, The Gold Standard: An
Austrian Perspective (Lexington Books, 1985), pp.61-79.
13. Alan Reynolds, "Gold and Economic Boom," in Siegel, p.256.
14. Hans Sennholz, Money and Freedom (Spring Mills, Pa.: Libeltarian
Press, 1985), pp.81-83.
PAGE 118 OF 273

MONEY, MONEY, MONEY
THINGS YOU AREN'T SUPPOSED TO THINK ABOUT
BY OAKLAND COUNTY TAXPAYERS ASSOCIATION

If you're not confused by the laws, theories and questions surrounding
income tag try making sense of the fundamental object behind the whole taxing
process: money.
To MUSE is to think; AMUSE is to not think. We are amused by ball games,

booze, pornography, preachers, and presidents which keep us from thinking
about things that we should think about such as the following:
Gold standard
Gold and economic freedom are inseparable,... the gold standard is an
instrument of laissez-faire and ... each implies and requires the other.
What medium of exchange will be acceptable to all participants in an
economy is not determined arbitrarily. Where store-of-value considerations are
important, as they are in richer, more civilized societies, the medium of exchange
must be a durable commodity, usually a metal. A metal is generally chosen
because it is homogeneous and divisible: every unit is the same as every other
and it can be blended or formed in any quantity. Precious jewels, for example,
are neither homogeneous nor divisible.
More important, the commodity chosen as a medium must be a luxury.
Human desires for luxuries are unlimited and, therefore, luxury goods are always
in demand and will always be acceptable. The term "luxury good" implies
scarcity and high unit value. Having a high unit value, such a good is easily
portable; for instance, an ounce of gold is worth a half-ton of pig iron ....
Under the gold standard, a free banking system stands as the protector on
an economy's stability and balanced growth. In the absence of the gold standard,
there is no way to protect savings from confiscation through inflation. There is no
safe store of value. If there were, the government would have to make its holding
illegal, as was done in the case of gold in 1933.
The financial policy of the welfare state requires that there be no way for the
owners of wealth to protect themselves. This is the shabby secret of the welfare
statists' tirades against gold. Deficit spending is simply a scheme for the
"hidden" confiscation of wealth. Gold stands in the way of this insidious process.
It stands as a protector of property rights. If one grasps this, one has no difficulty
in understanding the statists' antagonism toward the gold standard.
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The gold standard is incompatible with chronic deficit spending (the

hallmark of the welfare state). Stripped of its academic jargon, the welfare state
is nothing more than a mechanism by which governments confiscate the wealth
of the productive members of a society to support a wide variety of welfare
schemes...." Alan Greenspan, "Gold and Economic Freedom".
Intlation
"Inflation" is defined in the Random House Dictionary as "undue expansion
or increase of the currency of a country, esp. by the issuing of paper money not
redeemable in specie."
* Today, people are beginning to understand that the government's account
is overdrawn, that a piece of paper is not the equivalent of a gold coin, or an
automobile, or a loaf of bread -- and that if you attempt to falsify monetary
values, you do not achieve abundance, you merely debase the currency and go
bankrupt. --Moral Inflation ARL, 111, 12, 1.
* Inflation is not caused by the actions of private citizens, but by the
government: by an artificial expansion of the money supply required to support
deficit spending. No private embezzlers or bank robbers in history have ever
plundered people's savings on a scale comparable to the plunder perpetrated by
the fiscal policies of statist governments. -- "Who Will Protect Us From Our
Protectors.," TON, May 1962.
* The law of supply and demand is not to be conned. As the supply of
money (of claims) increases relative to the supply of tangible assets in the
economy, prices must eventually rise. Thus the earnings saved by the productive
members of society lose value in term of goods. When the economy's books are
finally balanced, one finds that this loss in value represents the goods purchased
by the government for welfare or other purposes with the money proceeds of the
government bonds financed by bank credit expansion. -- Alan Greenspan, "Gold
and Economic Freedom," CUI, 101.
* There is only one institution that can arrogate to itself the power legally to
trade by means of rubber checks: the government. And it is the only institution
that can mortgage your future without your knowledge or consent: government
securities (and paper money) are promisory notes on future tax receipts, i.e., on
your future production. --"Egalitarianism and Inflation," PWNI. 156; pb 128.
"High" finance, international

* Cuba announced that it planned to sell houses to the Cuban people who
had been renting those houses, "to bring in much-needed hard currency to the
Cuban government." WHAT money can the Cuban government collect from the
Cuban people that the Cuban government does not already print without
restraint?
* The Russians were said to have exchanged 250 tons of gold for "hard
currency." Just what IS the "hard currency" Russia obtained?
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* We are told that Russia and China borrow from U.S. banks and King
Solomon told us, "The borrower is servant to the lender." Were the newspapers
lying about the borrowing or did Solomon lie OR were both the newspapers and
Solomon telling the truth?
* Why would the Russians give up their valuable gold for Federal Reserve
credit if they are not in fact servants of the Federal Reserve?
* Why do people send their sons 10,000 miles "to fight communism " when
all ten planks of Mark's communist manifesto are in effect in America???
"High" finance, domestic

* Why does our government print bonds to get our paper money from us
when they can print all of the paper money that they want?
* If government does not print all of the money that they want, why don't
they? WHAT restrains them?
* If our government can print money, why can't ALL governments print
money?
* If ALL governments can print money, why do all governments borrow
money?
* Why would any government need taxes if all governments can print
(paper) money?
* Why don't states and cities print all of the (paper) money they need and
forget about taxes when the Constitution does not prohibit their printing money?
* How can the IRS get MONEY from us when the IRS has written that dollar
bills "are not dollars" and the Fed wrote that their system works "only with
credit?" If credit exists only in our minds, wouldn't they have to control minds to
work us with credit? DO THEY?
* Did paper dollar bills become "money" when the written promise to
redeem them in real money (silver) was deleted from the bills in 1963?
* Why does ONE Federal Reserve bank shred five tons of Fed notes daily
instead of giving the money to the starving people of the world who would not
care that the money was torn or soiled?
* What do the first users of money give for it and who do they give it to?
Wouldn't the recipient be the first user?
* When you offer a $5 bill for a $1 purchase and you receive four $1 bills as
change, do you receive four times as much money as you offered or four times
as much PAPER? Doesn't this question prove that paper "money" is not real
money?
* When government prints money, do they pay for the paper, ink, and labor
with the money that they print? If not, what do they pay for it with?
* If government can pay for the paper, ink, and labor with the money they
print, does it really cost them anything, or is it free?
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* Does government create 5 dollars when it prints a five dollar bill and ten
times as much if it adds a zero (0) after the five to create 50 dollars when it prints
a fifty dollar bill?
* Can government print any number it wants on the paper when printing
money?
* Who tells government what numbers to print on the paper?
* Why are we forced to pay interest on the national debt when government
could print one piece of paper with a number on it equal to the national debt and
pay it off?
* With the deficit so huge, why were IRA and Keough plans created that
reduce tax revenue and thereby increase the deficit? Is the deficit a phoney?
Perhaps more to the point -- is our paper money a phoney? As I begin to

understand the nature of money, I wonder if the real reason for the IRS is not to
cellect money so much as to "put on a show" so intimidating that Americans are
persuaded that the paper we carry in our pockets must be "real" money. All the
IRS's cost, regulation and judicial violence is an implicit "proof" that our paper
money has real value. After all, surely government wouldn't go to all that
expense of harassing, fining and jailing Americans for failing to pay income tax if
the only money we had was essentially worthless -- or would they?
In the final analysis, the IRS may be more of an intrinsic component of our
banking/money system than the collection agency of the Federal government.
And whatever is going on between banks, government, and the IRS is being
done with smoke, mirrors and lies that defy both common sense and common
law.
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THE SPIRITUALITY OF MONEY: INVESTING

IMPLICATIONS
BY R.E. MCMASTER, JR., EDITOR, THE REAPER
Go For the Gold

If we stop and think about it, there are two Golden Rules, one having to do
with a godly attitude toward man, the other having to do with money, reflecting
the spiritual and physical natures of man respectively. The biblical Golden Rule
is: Do unto others as you would have them do unto you." It is also restated as
Christ's Second Great Commandment, "Love thy neighbor as thy self." Then
there is the Golden Rule of Money: "Whoever has the gold makes the rules."
It's not that one or the other is true; it's that both Golden Rules are true,
simultaneously. Moreover, regarding our biblical heritage, if we really want to be
in good health and prosper in a way that we can enjoy our money, we have to
seek God first, or as Jesus put it, "Seek ye first the kingdom of God and His
righteousness and all these things will be added unto you."
Interesting. We seldom think about ranking it a priority to line up with God's
laws to achieve financial success in this day and age.
But I have found it instructive that in the age group in which most of you
successful folks fall, the 46-64 age group, Time magazine says 54% of you read
the Bible at least weekly, and 80% of you agree that the Bible is the "totally
accurate" word of God. For my younger successful readership, in the 24-45 age
bracket, Time stated that 43% of you read the Bible in the past week, and that
73% of you agree the Bible is the "Totally accurate" word of God.
That's certainly significantly differently from what the mass media and
Hollywood tell us is the case in America. But then again, holly-wood is the wood
used by witches for all their incantations and spells.
As a Man Thinks
If we stop and think about it, we know that the religious values which give
rise to our correct thinking and disciplined emotions are vital to our trading and
investing success. Investment psychologist Van K. Tharp and author Jack D
Schwager in The New Market Wizards make clear that a major key to successful
investing is the psychological make-up of the individual, particularly hard work
and emotional discipline.
Greed and Shortages

One more spiritual perspective on money before we get to the meat/money
of this article: We were taught growing up that the love of money (greed) is the
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root of all evil. Given this truth, therefore practically speaking--because greed
results in scarcity--the lack of money ends up in reality being the root of all evil
for most folks. Greed dominates socialism, communism, and debt capitalism.
This is of course necessary, as I have demonstrated in my books and The
Reaper time and time again. It is our closed system of debt money which results
in inescapable conflict, shortages, scarcity, cycles, poverty, and death. As I
wrote in the October 21, 1992 Reaper:
In summary, if 'we the people' are really ever going to come out of denial, if
we're going to truly get grounded economically as a people, we must scrap the
existing fiat currency, fractional reserve debt banking system.
It is a death-oriented system, a closed system, which is win-lose short term
and lose-lose long term. We must instead--which is possible as never before in
this computer age--transition to a free market in money, where any commodity
can be monetized, thus allowing a win-win open system both short term and long
term, providing the unity between energy and matter, and the harmonious
connection between Newtonian, Einsteinian, quantum, and chaos physics in an
open system.
It further means our financial system must be reorganized along the order of
the Islamic banking system and the bank in Mondragon, Spain. The former
allows profit-sharing by the community with individuals with whom the bank
invests, thus eliminating interest (usury), and putting an effective cap on how
long 'interest' can run, essentially no longer than the life of the project.
There is no such thing as the crushing exponential compounding of interest
under Islamic banking. There are only higher profits and losses for the
community at large, as well as the businessman, thus maintaining the balance
between the individual and the community, not allowing, as does Western debt
capitalism, an individual to become excessively rich at the expense of everyone
else [OPM], ala Donald Trump, David Rockefeller, Ross Perot, Michael Milken.
It is this balance between the one and the many, between the individual and
the community, that provides peace, harmony, prosperity and stability long term,
the bell-shaped curve, the Gaussian distribution in society so to speak,
economically. The less of the super successful bank in Mondragon in the
Basque region of Spain is that the key investment a bank makes is in people, no
in projects or in things.
Why? Because people are more important that things, because people
make, use, and consume things. So a sensitive, people-oriented banking
system to replace the insensitive, non-people oriented financial institutions which
exist today is vital. Under such a comprehensive open system, there is
inevitably always a shortage of labor. Unemployment ceases to exist.
The answers are here, folks. The question is just whether we have the will
to implement them. Isn't this what the spirituality of money is all about?
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A COMPARATIVE CHRONOLOGY OF MONEY

FROM ANCIENT TIMES TO THE PRESENT DAY
WHAT LESSONS DOES MONETARY HISTORY OFFER THAT ARE

RELEVANT TO TODAY'S ECONOMIC, POLITICAL AND
SOCIAL PROBLEMS?
Because of the difficulties of conducting experiments in the ordinary

business of economic life, at the centre of which is money, it is most fortunate
that history generously provides us with a proxy laboratory, a guidebook of more
or less relevant alternatives. Around the next corner there may be lying in wait
apparently quite novel monetary problems which in all probability bear a basic
similarity to those that have already been tackled with varying degrees of
success or failure in other times and places.
Yet despite the antiquity and ubiquity of money its proper management and
control have eluded the rulers of most modern states partly because they have
ignored the wide-ranging lessons of the past or have taken too blinkered and
narrow a view of money. Economists, and especially monetarists, tend to
overestimate the purely economic, narrow and technical functions of money and
have placed insufficient emphasis on its wider social, institutional and
psychological aspects.
There are therefore many advantages which can only be obtained by
tracing monetary and financial history with a broad brush over the whole period
of its long and convoluted development, where primitive and modern moneys
have overlapped for centuries and where the logical and chronological
progressions have rarely followed strictly parallel paths.
INFLATION AND THE PENDULUM METATHEORY OF MONEY -

QUANTITY VERSUS QUALITY OF MONEY
One of the author's main themes is the problem of simultaneously trying

to control the quality and quantity of money. He discusses many cases of
inflation over the past couple of thousand years and identifies several
(not necessarily mutually exclusive) causes.
Causes of Inflation
Conflict between the Interests of Debtors and Creditors
The history of money is one of "unceasing conflict between the

interests of debtors, who seek to enlarge the quantity of money
and who seek busily to find acceptable substitutes, and the
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interests of creditors, who seek to maintain or increase the value

of money by limiting its supply, by refusing substitutes or
accepting them with great reluctance, and generally trying in all
sorts of ways to safeguard the quality of money." (pages 29-30).
The government itself is often the most important debtor and at
times may be a major creditor.
"...it is of the utmost significance to realize that because the
monetary pendulum is rarely motionless at the point of perfect
balance between the conflicting interests of creditors and debtors,
so money itself is rarely `neutral' in its effects upon the real
economy and upon the fortunes of different sections of the
community..." (page 32)
"...the market gives no priority to posterity or the poor." (page
654)
"In the normal course of events money is rarely `passive' or
`neutral' while the safe haven of equilibrium on which so much
economists' ink has been spilled...is equally rarely attained."
(page 655)
The Fungibility of Money
"Money is so useful - in other words, it performs so many

functions - that it always attracts substitutes: and the narrower its
confining lines are drawn, the higher the premium there is on
developing passable substitutes." (page 25).
In a discussion of the invention of money the author says:
"Money has many origins - not just one - precisely because it can
perform many functions in similar ways and similar functions in
many ways. As an institution money is almost infinitely
adaptable." (page 27).
"Money is by its very nature dynamically unstable in volume and
velocity, in quantity and quality." (page 29).
Money's adaptability is chameleon-like. "Money designed for one
specific function will easily take on other jobs and come up
smiling. Old money very readily functions in new ways and new
money in old ways: money is eminently fungible." (page 29).
The Population Explosion
The author lays considerable stress on the effects of population

changes on attempts to control the quality and quantity of money,
pointing out that the population explosion of our times "has been
a virtually silent explosion as far as monetarist literature is
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concerned. Thus nowhere in Friedman's powerful, popular and

influential book Free to Choose is there any mention of the
population problem, nor the slightest hint that the inflation on
which he is acknowledged to be the world's greatest expert might
in any way be caused by the rapidly rising potential and real
demands of the thousands of millions born into the world since
he began his researches." (page 5).
Population pressures have had an effect on inflation in previous
ages too, e.g. the so-called "Price Revolution" in England in the
period 1540-1640, and the author also discusses the effect of the
reduction in population caused by the ravages of the Black Death.
The Military Ratchet
"The military ratchet was the most important single influence in

raising prices and reducing the value of money in the past 1,000
years, and for most of that time debasement was the most
common, but not the only, way of strengthening the `sinews of
war'." (page 643)
The financial consequences of Alexander the Great, the rise and
fall of the Roman Empire, the Viking assault on England, the
Norman Conquest, the Crusades, the Hundred Years War between
England and France, the Spanish conquest of Mexico and Peru,
the aftermath in Britain of the Napoleonic Wars, the U.S. Civil
War, and the financing of the two World Wars are all treated.
The importance of war as a cause of inflation increased with the
adoption of paper money in the west.
"When modern paper money release prices from their metallic
anchors, the military ratchet began to be seen at its most
powerful...The `Continentals' of the new USA fell in value by the
end of the Revolutionary War to one-thousandth of their nominal
value, a process repeated by the Confederate paper which
similarly became worthless by the end of the Civil War. The
assignats of the French Revolution and the hyper-inflation of the
German mark between 1918 and 1924 are simply among the best
known of hundreds of examples of war-induced inflation." (page
644)
The Developmental Money Ratchet
"Second only to war as an engine of inflation is the general

acceptance of the need for an ever-expanding supply of money in
order to facilitate economic development, a belief which in a
weaker and vaguer form long preceded the Keynesian revolution,
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though it was the Keynesian ratchet which acted as a strong

causative factor in the unusually high peacetime inflations of the
second half of the twentieth century." (page 644) Glyn Davies
cites Sir William Petty and John Law, "the Keynes of the early
eighteenth century", in this regard and discusses the fiasco of the
Mississippi Bubble to show that the policy temptations facing
politicians, governments and the public are not new.
However, he also points out that in certain circumstances this
ratchet can work and says "however much the Keynesian
revolution may be condemned for its long-run consequences of
high and stubborn inflation, Keynes's enormous success in
providing cheap finance for the Second World War and in being
largely responsible for the inestimable benefits of full
employment for the first post-war generation, i.e. for its short-
and medium-term benefits, should not be forgotten." (page 645).
Deflation
Sometimes the supply of money is insufficient to sustain economic

activity at the level that would be reached if its productive capacity was
fully utilized. Various instances are discussed in the book.
When Alexander the Great conquered the Persian empire he seized
enormous quantities of precious metals which were melted down and
used for making coins. Instead of causing inflation this gave a
considerable boost to economic activity in the ancient world indicating
the importance of coinage in revolutionising financial transactions.
Medieval England was much more successful than other major European
countries in avoiding inflation, but the author points out that it could be
argued that economic growth was sacrificed as a result though at this
distance in time it is impossible to determine whether or not its economy
was "crucified on a cross of silver" (to paraphrase the American
politician William Jennings Bryan who in the presidential election
campaign of 1896 made a famous speech about mankind being crucified
on a cross of gold).
The British colonies in North America suffered greatly from a lack of
official British coins and therefore adopted a variety of expedients
including wampum, tobacco and paper money.
The Great Depression of the 1930s. One reason for its severity was the
action of the FED in restricting the US money supply.
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Pendulum Theory
As a result of the above-mentioned factors the supply of money tends to

alternate in every age between too little and too much, with the
pendulum swinging from excessive concern with the quality of money to
the opposite extreme of an inflationary, excessive quantity of money.
This is the basis of the author's pendulum meta-theory of money, i.e. a
"general theory comprising sets of more limited, partial theories, which
spring out of the special circumstances of their time. The enveloping
pendulum or metatheory also explains why the usual theories of money,
despite being so confidently held at one time, tend to change so
drastically and diametrically (and therefore so puzzlingly to the
uninitiated) to an equally accepted but opposite theory within the time
span appropriate to historical investigation." (page 31).
In every age the supply of money tends to be either too generous or too
restrictive, whether by objective standards or by those of creditors or
debtors who have conflicting interests. According to the pendulum
metatheory monetary theories do not deal with eternal verities but are
prescriptions for courses of action that may be appropriate at particular
times and places. Even when successful, by altering circumstances they
ensure their own failure in the long term.
In support of these claims Glyn Davies ranges widely, both
chronologically, from the dawn of civilization about 3000 BC onwards,
and geographically from China to the New World, Denmark to Fiji. The
development of financial policy and institutions in Britain, the United
States, France, Germany and Japan is traced up to the present day. (The
treatment of Britain and the United States is particularly detailed). There
is also a chapter on the problems of the Third World.
Thus a huge range of evidence regarding the causes of changes in both
the quality and quantity of money is surveyed and the author concludes
with the words of the Russian novelist Dostoevsky that:
"Money is coined liberty."
ORIGINS OF MONEY AND OF BANKING
What is Money?
At first sight the answer to this question seems obvious; the man or
woman in the street would agree on coins and banknotes, but would they
accept them from any country? What about cheques? They would
probably be less willing to accept them than their own country's coins
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and notes but bank money (i.e. anything for which you can write a
cheque) actually accounts for by far the greatest proportion by value of
the total supply of money. What about I.O.U.s (I owe you), credit cards
and gold? The gold standard belongs to history but even today in many
rich people in different parts of the world would rather keep some of
their wealth in the form of gold than in official, inflation-prone
currencies. The attractiveness of gold, from an aesthetic point of view,
and its resistance to corrosion are two of the properties which led to its
use for monetary transactions for thousands of years. In complete
contrast, a form of money with virtually no tangible properties
whatsoever - electronic money - seems set to gain rapidly in popularity.
All sorts of things have been used as money at different times in different
places. The alphabetical list below, taken from page 27 of A History of
Money by Glyn Davies, includes but a minute proportion of the
enormous variety of primitive moneys, and none of the modern forms.
Amber, beads, cowries, drums, eggs, feathers, gongs, hoes, ivory, jade,
kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles,
umiacs, vodka, wampum, yarns, and zappozats (decorated axes).
It is almost impossible to define money in terms of its physical form or
properties since these are so diverse. Therefore any definition must be
based on its functions.
Functions of Money
Specific functions (mostly micro-economic)
1. Unit of account (abstract)
2. Common measure of value (abstract)
3. Medium of exchange (concrete)
4. Means of payment (concrete)
5. Standard for deferred payments (abstract)
6. Store of value (concrete)
General functions (mostly macro-economic and abstract)

7. Liquid asset
8. Framework of the market allocative system (prices)
9. A causative factor in the economy
10. Controller of the economy

The table above comes from page 27 of A History of Money.
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Not everything used as money as all the functions listed above.

Furthermore the functions of any particular form of money may change
over time. As Glyn Davies points out on page 28:
What is now the prime or main function in a particular community or
country may not have been the first or original function in time, while
what may well have been a secondary or derived function in one place
may have been in some other region the original which gave rise to a
related secondary function... The logical listing of functions in the table
therefore implies no priority in either time or importance, for those
which may be both first and foremost reflect only their particular time
and place.
He goes on to conclude from this that the best definition is as follows:
Money is anything that is widely used for making payments and accounting
for debts and credits.
Causes of the Development of Money
In his preface the author writes:

"Money originated very largely from non-economic causes: from tribute
as well as from trade, from blood-money and bride-money as well as
from barter, from ceremonial and religious rites as well as from
commerce, from ostentatious ornamentation as well as from acting as the
common drudge between economic men."
One of the most important improvements over the simplest forms of
early barter was the tendency to select one or two items in preference to
others so that the preferred items became partly accepted because of their
qualities in acting as media of exchange. Commodities were chosen as
preferred barter items for a number of reasons - some because they were
conveniently and easily stored, some because they had high value
densities and were easily portable, and some because they were durable.
These commodities, being widely desired, would be easy to exchange for
others and therefore they came to be accepted as money.
To the extent that the disadvantages of barter provided an impetus for the
development of money that impetus was purely economic but
archaeological, literary and linguistic evidence of the ancient world, and
the tangible evidence of actual types of primitive money from many
countries demonstrate that barter was not the main factor in the origins
and earliest development of money.
Many societies had laws requiring compensation in some form for
crimes of violence, instead of the Old Testament approach of "an eye for
an eye". The author notes that the word to "pay" is derived from the
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Latin "pacare" meaning originally to pacify, appease, or make peace

with - through the appropriate unit of value customarily acceptable to
both sides. A similarly widespread custom was payment for brides in
order to compensate the head of the family for the loss of a daughter's
services. Rulers have since very ancient times imposed taxes on or
exacted tribute from their subjects. Religious obligations might also
entail payment of tribute or sacrifices of some kind. Thus in many
societies there was a requirement for a means of payment for blood-
money, bride-money, tax or tribute and this gave a great impetus to the
spread of money.
Objects originally accepted for one purpose were often found to be
useful for other non-economic purposes and, because of their growing
acceptability began to be used for general trading also, supplementing or
replacing barter.
Thus the use of money evolved out of deeply rooted customs; the
clumsiness of barter provided an economic impulse but that was not the
primary factor.
Primitive Forms of Money
The use of primitive forms of money in the Third World and North
America is more recent and better documented than in Europe and its
study sheds light on the probable origins of modern money. Among the
topics treated are the use of wampum and the custom of the potlatch or
competitive gift exchange in North America, disc-shaped stones in Yap,
cowrie shells over much of Africa and Asia, cattle, manillas and whales
teeth.
Manillas were ornamental metallic objects worn as jewelry in west
Africa and used as money as recently as 1949. They were an ostentatious
form of ornamentation, their value in that role being a prime reason for
their acceptability as money. Wampum's use as money in north America
undoubtedly came about as an extension of its desirability for
ornamentation. Precious metals have had ornamental uses throughout
history and that could be one reason why they were adopted for use as
money in many ancient societies and civilizations.
In Fijian society gifts of whales teeth were (and in certain cases still are)
a significant feature of certain ceremonies. One of their uses was as
bride-money, with a symbolic meaning similar to that of the engagement
ring in Western society. Whales teeth were "tambua" (from which our
word "taboo" comes) meaning that they had religious significance, as did
the fei stones of Yap which were still being used as money as recently as
the mid 1960s.
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The potlatch ceremonies of Native Americans were a form of barter that

had social and ceremonial functions that were at least as important as its
economic functions. Consequently when the potlatch was outlawed in
Canada (by an act that was later repealed) some of the most powerful
work incentives were removed - to the detriment of the younger sections
of the Indian communities. This form of barter was not unique to North
America. Glyn Davies points out that the most celebrated example of
competitive gift exchange was the encounter, around 950 BC, of
Solomon and the Queen of Sheba. "Extravagant ostentation, the attempt
to outdo each other in the splendour of the exchanges, and above all, the
obligations of reciprocity, were just as typical in this celebrated
encounter, though at a fittingly princely level, as with the more mundane
types of barter in other parts of the world." (page 13).
Cattle are described by the author as mankind's "first working capital
asset" (page 41). The religious use of cattle for sacrifices probably
preceded their adoption for more general monetary purposes. For
sacrifice quality - "without spot or blemish" - was important but for
monetary purposes quantity was of more significance since cattle, like
coins, can be counted. Obviously there were very practical reasons for
the association between cattle and wealth but anthropological evidence
from Africa in very recent times shows that when cattle are regarded as a
form of money, not only health cattle but also scrawny ones will be
valued to the detriment of the environment supporting them and their
owners.
Glyn Davies quotes linguistic evidence to show how ancient and
widespread the association between cattle and money was. The English
words "capital", "chattels" and "cattle" have a common root. Similarly
"pecuniary" comes from the Latin word for cattle "pecus" while in Welsh
(the author's mother tongue) the word "da" used as an adjective means
"good" but used as a noun means both "cattle" and "goods".
The author also cautions that "one should not confuse the abstract
concept of an ox as a unit of account or standard of value, which is its
essential but not only monetary function, with its admittedly
cumbersome physical form. Once that is realized (a position quickly
reached by primitive man if not yet by all economists or
anthropologists), the inclusion of cattle as money is easily accepted, in
practice and logic." (Page 41). He also points out that until well into the
present century the Kirghiz of the Russian steppes used horses as their
main monetary unit with sheep as a subsidiary unit. Small change was
given in lambskins.
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The Invention of Banking and Coinage
The invention of banking preceded that of coinage. Banking originated

in Ancient Mesopotamia where the royal palaces and temples provided
secure places for the safe-keeping of grain and other commodities.
Receipts came to be used for transfers not only to the original depositors
but also to third parties. Eventually private houses in Mesopotamia also
got involved in these banking operations and laws regulating them were
included in the code of Hammurabi.
In Egypt too the centralization of harvests in state warehouses also led to
the development of a system of banking. Written orders for the
withdrawal of separate lots of grain by owners whose crops had been
deposited there for safety and convenience, or which had been
compulsorily deposited to the credit of the king, soon became used as a
more general method of payment of debts to other persons including tax
gatherers, priests and traders. Even after the introduction of coinage
these Egyptian grain banks served to reduce the need for precious metals
which tended to be reserved for foreign purchases, particularly in
connection with military activities.
Precious metals, in weighed quantities, were a common form of money
in ancient times. The transition to quantities that could be counted rather
than weighed came gradually. On page 29 of A History of Money Glyn
Davies points out that the words "spend", "expenditure", and "pound" (as
in the main British monetary unit) all come from the Latin "expendere"
meaning "to weigh". On page 74 the author points out that the basic unit
of weight in the Greek speaking world was the "drachma" or "handful"
of grain, but the precise weight taken to represent this varied
considerably, for example from less than 3 grams in Corinth to more than
6 grams in Aegina. Throughout much of the ancient world the basic unit
of money was the stater, meaning literally "balancer" or "weigher". The
talent is a monetary unit with which we are familiar with from the
Parable of the Talents in the Bible. The talent was also a Greek unit of
weight, about 60 pounds.
Many primitive forms of money were counted just like coins. Cowrie
shells, obtained from some islands in the Indian Ocean, were a very
widely used primitive form of money - in fact they were still in use in
some parts of the world (such as Nigeria) within living memory. "So
important a role did the cowrie play as money in ancient China that its
pictograph was adopted in their written language for 'money'." (page 36)
Thus it is not surprising that among the earliest countable metallic
money or "coins" were "cowries" made of bronze or copper, in China.
In addition to these metal "cowries" the Chinese also produced "coins" in
the form of other objects that had long been accepted in their society as
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money e.g. spades, hoes, and knives. Although there is some dispute over
exactly when these developments first took place, the Chinese tool
currencies were in general use at about the same time as the earliest
European coins and there have been claims that their origins may have
been much earlier, possibly as early as the end of the second millennium
BC. The use of tool coins developed (presumably independently) in the
West. The ancient Greeks used iron nails as coins, while Julius Caesar
regarded the fact that the ancient Britons used sword blades as coins as a
sign of their backwardness. (However the Britons did also mint true
coins before they were conquered by the Romans).
These quasi-coins were all easy to counterfeit and, being made of base
metals, of low intrinsic worth and thus not convenient for expensive
purchases. True coinage developed in Asia Minor as a result of the
practice of the Lydians, of stamping small round pieces of precious
metals as a guarantee of their purity. Later, when their metallurgical
skills improved and these pieces became more regular in form and
weight the seals served as a symbol of both purity and weight. The use of
coins spread quickly from Lydia to Ionia, mainland Greece, and Persia.
Greek Coinage
One of the smaller Greek coins was the silver obol. In the Attic standard
of weights and coinage six silver obols were worth one silver drachma. It
is interesting to note that before the development of coinage six of the
pointed spits or elongated nails used as tool currency constituted a
customary handful similar to that of the even earlier grain-based
methods. Therefore one of the early Greek coins, the obol, was simply a
continuation of a primitive form of money - the iron spit or pointed rod.
Inflation was a problem even in the early days of coin production. In 407
BC Sparta captured the Athenian silver mines at Laurion and released
around 20,000 slaves. As a result Athens was faced with a grave shortage
of coins and in 406 and 405 BC issued bronze coins with a thin plating
of silver. The result was that the shortage became even worse. Good
coins tended to disappear from circulation since people naturally kept
them and used the new coins instead in order to get rid of them.
This gave rise to what is probably the world's first statement of
Gresham's law, that bad money drives out good, in Aristophanes' play,
The Frogs, produced in 405 BC. Aristophanes wrote "the ancient coins
are excellent...yet we make no use of them and prefer those bad copper
pieces quite recently issued and so wretchedly struck." These base coins
were demonetized in 393 BC.
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Considerable rivalry developed between different currencies. "In coinage

as in other matters the Greek city-states strove desperately for
predominance, as did their arch-rivals the Persian emperors."
City-states with strong and widely accepted currencies would have
gained prestige. In the 1960s newly independent countries in the Third
World took pride in the trappings of nationhood - their own airlines,
national banks, and currency. The city states of ancient Greece took a
similar pride in their currencies - as is suggested by the beauty of their
coins. Glyn Davies quotes another author, J. Porteous, who wrote " the
fifth century saw the minting of the most beautiful coins ever made." He
also quotes two historians, Austin and Vidal-Naquet, who claimed that
"in the history of Greek cities coinage was always first and foremost a
civic emblem. To strike coins with the badge of the city was to proclaim
one's political independence."
Coercion played a role in establishing monetary uniformity. In 456 BC
Athens forced Aegina to take Athenian `owls' and to stop minting her
own `turtle' coinage and in 449 BC Athens issued an edict ordering all
`foreign' coins to be handed in to the Athenian mint and compelling all
her allies to use the Attic standard of weights, measures and money. The
conquests of Alexander the Great brought about a large degree of
monetary uniformity over much of the known world. His father, Philip,
had issued coins celebrating his triumph in the chariot race in Olympic
games of 356 BC - an example of the use of coins as propaganda.
The Roman emperors made even more extensive use of coins for
propaganda, one historian going so far as to claim that "the primary
function of the coins is to record the messages which the emperor and his
advisers desired to commend to the populations of the empire."
On pages 85-86, Glyn Davies points out that "coins were by far the best
propaganda weapon available for advertising Greek, Roman or any other
civilization in the days before mechanical printing was invented."
Money Exchange and Credit Transfer
The great variety of coinages originally in use in the Hellenic world

meant that money changing was the earliest and most common form of
Greek banking. Usually the money changers would carry out their
business in or around temples and other public buildings, setting up their
trapezium-shaped tables (which usually carried a series of lines and
squares for assisting calculations), from which the Greek bankers, the
trapezitai derived their name, much as our name for bank comes from
the Italian banca for bench or counter. The close association between
banking, money changing and temples is best known to us from the
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episode of Christ's overturning the tables in the Temple of Jerusalem

(Matthew 21.12).
Money changing was not the only form of banking. One of the most
important services was bottomry or lending to finance the carriage of
freight by ships. Other business enterprises supported by the Greek
bankers included mining and construction of public buildings. The most
famous and richest of all was Pasion who started his banking career in
394 BC as a slave in the service of two leading Athenian bankers and
rose to eclipse his masters, gaining in the process not only his freedom
but also Athenian citizenship. In addition to his banking business he
owned the largest shield factory in Greece and also conducted a hiring
business lending domestic articles such as clothes, blankets, silver bowls
etc. for a lucrative fee.
When Egypt fell under the rule of a Greek dynasty, the Ptolemies (323-
30 BC) the old system of warehouse banking reached a new level of
sophistication. The numerous scattered government granaries were
transformed into a network of grain banks with what amounted to a
central bank in Alexandria where the main accounts from all the state
granary banks were recorded. This banking network functioned as a giro
system in which payments were effected by transfer from one account to
another without money passing. As double entry booking had not been
invented credit transfers were recorded by varying the case endings of
the names involved, credit entries being in the genitive or possessive
case and debit entries in the dative case.
Credit transfer was also a characteristic feature of the services provided
in Delos which rose to prominence in banking during the late second and
third centuries BC. As a barren offshore island its inhabitants had to live
off their wits and make the most of their two great assets - the island's
magnificent natural harbour and the famous temple of Apollo - around
which their trading and financial activities developed. Whereas in Athens
banking, in its early days, had been carried on exclusively in cash, in
Delos cash transactions were replaced by real credit receipts and
payments made on simple instructions with accounts kept for each client.
The main commercial rivals of Delos, Carthage and Corinth, were both
destroyed by Rome and consequently it was natural that the Bank of
Delos should become the model most closely imitated by the banks of
Rome. However their importance was limited by the Roman preference
for cash transactions with coins. Whereas the Babylonians had developed
their banking to a sophisticated degree because their banks had to carry
out the monetary functions of coinage (since coins had not been
invented), and the Ptolemaic Egyptians segregated their limited coinage
system from their state banking system to economise on the use of
precious metals, the Romans preferred coins for many kinds of services
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which ancient (and modern) banks normally provided. After the fall of
the Roman Empire banking was forgotten and had to be re-invented
much later.
Banking re-emerged in Europe at about the time of the Crusades. In
Italian city states such as Rome, Venice and Genoa, and in the fairs of
medieval France, the need to transfer sums of money for trading
purposes led to the development of financial services including bills of
exchange. Although it is possible that such bills had been used by the
Arabs in the eighth century and the Jews in the tenth, the first for which
definite evidence exists was a contract issued in Genoa in 1156 to enable
two brothers who had borrowed 115 Genoese pounds to reimburse the
bank's agents in Constantinople by paying them 460 bezants one month
after their arrival.
The Crusades gave a great stimulus to banking because payments for
supplies, equipment, allies, ransoms etc. required safe and speedy means
of transferring vast resources of cash. Consequently the Knights of the
Temple and the Hospitallers began to provide some banking services
such as those already being developed in some of the Italian city states.
The Royal Monopoly of Minting
One of the reasons for the rapid spread of the use of coins was their
convenience. In situations where coins were generally acceptable at their
nominal value there was no need to weigh them and in everyday
transactions where relatively small numbers were involved counting was
quicker and far more convenient than weighing. By the Middle Ages
monarchs were able to use this convenience as a source of profit.
On page 168 Glyn Davies writes, "because of the convenience of royally
authenticated coinage as a means of payment, and with hardly any other
of the general means of payment available in the Middle Ages being
anything like as convenient, coins commonly carried a substantial
premium over the value of their metallic content, more than high enough
to cover the costs of minting. Kings could turn this premium into
personal profit; hence ... the wholesale regular recall of coinage... first at
six yearly, then at three-yearly intervals, and eventually about every two
years or so. In order to make a thorough job of this short recycling
process it was essential that all existing coins should be brought in so as
to maximize the profit and, in order to prevent competition from earlier
issues, the new issues had to be made clearly distinguishable by the
authorities yet readily acceptable to the general public."
These recoinage cycles were far more frequent than was justified by
wear and tear on the coins but the profits from minting, known as
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seigniorage, supplemented the revenue that English monarchs raised

from the efficient systems of taxation introduced by the Normans.
However, revenue from minting depended on public confidence in the
coinage and consequently an elaborate system of testing was introduced.
"Anyone who had occasion to handle coins of silver or gold in any
volume, whether merchants, traders, tax collectors, the King himself, the
royal treasury, or the sheriffs, required reliable devices for testing the
purity of what passed for currency." (Page 144). One of these methods
was rough and ready - the use of touchstones which involved an
examination of the colour trace left by the metal on the surface of a
schist or quartz stone. The other, the Trial of the Pyx, was a test held in
public before a jury. This Trial involved the use of 24 "touch needles",
one for each of the traditional gold carats, with similar test pieces for
silver.
Thus, despite the challenge of counterfeiters, governments controlled
coin production and hence the money supply. Not until the rise of
commercial banking and the widespread adoption of paper money was
this monopoly broken, with profound consequences for the growth of
democracy.
Noteworthy Points Regarding the Origins of Money
Some of the points stressed by Glyn Davies in his book are:-

Money did not have a single origin but developed independently in
many different parts of the world.
Many factors contributed to its development and if evidence of what

anthropologists have learned about primitive money is anything to go
by economic factors were not the most important.
Money performs a variety of functions and the functions performed by

the earliest types were probably fairly restricted initially and would
NOT necessarily have been the same in all societies.
Money is fungible: there is a tendency for older forms to take on new

roles and for new forms to be developed which take on old roles, e.g.
(this is my example) on English banknotes such as the 5 pound notes it
says "I promise to pay the bearer on demand the sum of five pounds"
and below that it carries the signature of the chief cashier of the Bank
of England. This is a reminder that originally banknotes were regarded
in Britain, and in many other countries, as a substitute for money and
only later did they come to be accepted as the real thing.
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Relevance of History
One of my father's main motives for writing the book was that, as he
writes in his preface around the next corner there may be lying in wait
apparently quite novel problems which in all probability bear a basic
similarity to those that have already been tackled with varying degrees
of success or failure in other times and other places. Furthermore he is
of the opinion that economists, especially monetarists, tend to
overestimate the purely economic, narrow and technical functions of
money and have placed insufficient emphasis on its wider social,
institutional and psychological aspects.
These issues aren't simply of academic interest. Economists still argue
about how to measure and control the money supply and numerous different
measures, corresponding to slightly different definitions have been proposed.
These disputes have implications for the material well-being of everyone,
especially now that thanks to the development of computer networks, new forms
of money are coming into existence. Hence the importance of learning from
history.
WARFARE AND FINANCIAL HISTORY
Warfare, with its appalling humanitarian consequences and vast

economic costs, has stimulated financial innovations from the
spread of coinage to the creation of the national debt.
Conversely, economic weakness and the inability to properly
utilize financial resources have been causes of military
defeats.
The relationship between economics and warfare is one of the themes
treated in some detail in a 700 page book on the history of money. For the
historical context of the conflicts listed below see also the annotated
chronology which includes references to the page numbers of the book.
Violence and the Origin of Money
Many societies had laws requiring compensation in some form for

crimes of violence, instead of the Old Testament approach of "an eye for
an eye". The author notes that the word to "pay" is derived from the
Latin "pacare" meaning originally to pacify, appease, or make peace
with - through the appropriate unit of value customarily acceptable to
both sides. Objects originally accepted for one purpose were often found
to be useful for others and, because of their growing acceptability began
to be used for general trading also. Thus the practice of paying
compensation for certain crimes was one of the factors that played a role
in the origins of money.
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Ever since the invention of coins monetary and military history have
been inter-related to a degree that is both depressing and surprising. Glyn
Davies goes so far as to paraphrase Clausewitz's famous dictum and refer
to war as the continuation of monetary policy by other means, and quotes
a remark by an eighteenth century writer (Davenant) that "nowadays that
prince who can best find money to pay his army is surest of success."
Wars between Ancient Greece and Persia
Among the earliest and most popular of the Persian coins was a series
known as archers because on the obverse they depicted the emperor
armed with spear, bow and arrows (page 66). The mainland route from
Asia to Greece lay through Thrace and Macedon, kingdoms of such
minor importance that they were simply bought off by the Persian
archers. Hence the boast of the Persian emperor "I will conquer Greece
with my archers" was something of a pun - intentional or otherwise.
The Persian boast was not fulfilled and part of the reason for this is that
around 490 BC a particularly rich seam of silver was struck in the
Laurion mines some 25 miles south of Athens and some of the proceeds
from this were saved by the Athenians, after powerful persuasion from
Themistocles, and used to build the fleet which destroyed the Persians
under Xerxes at the battle of Salamis in 480 BC. Thus Greek civilization
was saved from being strangled on the eve of its greatest triumphs.
Later the Macedonians opened up a number of new mines and began
minting coins on a large scale. Some of these commemorated the
triumphs of their king, Philip, in the Olympics (an example of how coins
were used in the ancient world as instruments of propaganda). The
quantity of coins minted by Philip was far in excess of the normal
requirements of the Greeks and Macedonians. Therefore, when
Alexander the Great inherited the throne he had a large financial reserve
to pay for the initial stages of his campaign against the Persians.
By the time Alexander's army was fully engaged in Asia the cost was
about 20 talents or half a ton of silver a day! This shows how important
his father's preparations were to the success of his campaign. Later on
Alexander captured immense quantities of Persian gold and silver, much
of which was then turned into coins by the mints he also captured, and so
his war became self-financing.
The Roman Empire
After discussing the financial aspects and consequences of Alexander's

conquests Glyn Davies goes on to discuss the role of economics in the
rise and fall of the Roman Empire. The Punic Wars between Rome and
Carthage proved to be very expensive and at one stage Rome seems to
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have run out of money altogether and been forced to rely on credit. The
expense of supporting the Roman army may be judged by the fact that
the cost of maintaining just one legion (after the last Punic War) was
about 1,500,000 denari a year. Therefore the main use of the annual
production of silver coins was simply to pay the army.
Because of this expense emperors were often tempted to try and make
savings by debasing the coinage - a technique used in many countries for
as long as coins were made from precious metals. (One typical method
of debasement was to use metal with a lower grade of purity). However,
debasement resulted in inflation which got steadily worse when in
addition to their army the Romans had to maintain a large bureaucracy
and also spent huge amounts on welfare payments.
Various emperors introduced financial reforms to try and halt inflation
but some of their attempts actually made matters worse.
Aurelian simply raised the nominal value of his coins by two and a half
times the value of similar ones with the result that the pace of inflation
was no longer constrained by the rate at which hand-struck coins could
be minted. Glyn Davies suggests that those who believe in the
disinflationary magic of a gold currency should note that Aurelian
proved conclusively that a "reformed" currency is perfectly compatible
with an increase rather than a decrease in inflation.
The most successful was Diocletian who introduced a whole series of
measures including reforms of the currency, a system of annual budgets,
and a prices and incomes policy. Thus there was a shift from a market
economy in the direction of a controlled one. Diocletian's successor
Constantine continued his reforms and also introduced new gold coins
and ensured that there was a plentiful supply for the influential sections
of Roman society. The measures undertaken by these two emperors did
not eradicate inflation but they did enable Rome to live with it, ensuring
the survival of the western empire until the 5th century and laying the
foundations of the eastern or Byzantine empire. The army and the
bureaucracy were kept happy while welfare payments helped to keep the
poorest sections of society from causing trouble. Nevertheless Rome was
seriously weakened by inflation before it fell to the Barbarians.
Anglo-Saxon and Viking Invasions of Britain
The effect of the fall of Rome was particularly marked in Britain where
money virtually disappeared from use for a couple of centuries, the
island reverting to barter. Later, after the Anglo-Saxon invaders started to
mint coins (originally by copying those made in France) they had in their
turn to face invaders from the east - the Vikings.
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This led to a immense increase in the minting of coins in England

because of the demand for Danegeld to pay the invaders to go home, or
heregeld, a tax to pay for the armies of those monarchs who chose to
fight the Vikings. Huge quantities of English coins from this period have
been found in Scandinavia. After Athelstan reconquered the Danelaw he
passed the Statute of Greatley in 928 which established a single national
currency for England and marked the start of the unbroken 1,000 year
history of the pound sterling. Later monarchs relied more on their mints
than their armies to defend the realm. Aethelred's 75 mints coined nearly
40 million silver pennies for the payment of Danegeld.
One linguistic legacy of the Viking era is the phrase "to pay through the
nose". This expression comes from the unfortunate habit of the Danes in
Ireland in the 9th century who slit the noses of those unwilling or unable
to pay the Danish poll tax.
The Norman Conquest
William the Conqueror financed the Norman invasion and conquest of

England partly by debasing Norman currency. However, he resisted the
temptation to do the same to the English coinage and instead raised
revenue through the introduction of new taxes. The very detailed survey
of the resources of his new kingdom, recorded in the Domesday Book,
facilitated the imposition of these taxes. Furthermore, the tax collectors
would naturally reject below-weight or impure coins and thus the system
of taxation not only provided an alternative to debasement but also gave
the rulers an incentive to maintain the quality of the coinage and so the
value of English money remained remarkably stable for several
centuries, in marked contrast to the situation on the Continent.
The Crusades and the Re-Emergence of Banking
Before the time of Henry II it was normal in England, as in other feudal

countries, for the the king's tenants-in-chief and their retainers to owe
him a period of military service, usually 40 days annually. Henry
replaced this obligation with cash payments known as scutage and used
the money to pay for a permanent professional army of mercenaries or
soldiers as they commonly became known after this time from the
solidus or king's shilling that they earned. England's participation in the
Crusades required additional expenditure which Henry II financed by
levying heavy taxes on all movable property and all incomes. But,
although huge sums accumulated in Henry's eastern account he refused
to let anyone spend them until after the disastrous battle of Hattin in
1187. Thus the loss of much of the Holy Land to Saladin was due to the
miserly restrictions placed by Henry on the use of his vast hoard of
money in a vain attempt to have his cake and eat it.
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Henry's successor, Richard I (the "Lion Heart") raised money for the 3rd
Crusade partly by the sale of as many publicly owned assets as possible
(a measure which the author compares to Margaret Thatcher's
"privatization" policy in the 1980s which has been copied by
governments around the world). On his return journey he was captured in
Vienna and imprisoned by Emperor Henry VI. The ransom demanded far
exceeded the average revenue of the Kingdom of England but
nevertheless a high proportion of it was raised quite quickly (through
special taxes and gifts) and he was released.
Payments for supplies, equipment, allies, ransoms etc. required safe and
speedy means of transferring vast resources of cash. Consequently the
Knights of the Temple and the Hospitallers began to provide some
banking services such as those already being developed in some of the
Italian city states where the need to transfer sums of money for trading
purposes led to the development of financial services including bills of
exchange. Banking had been invented in the Middle East long before the
invention of coins but was abandoned and forgotten after the collapse of
the Roman empire. The Crusades gave a great stimulus to its re-
emergence.
The Spanish Conquest of Mexico and Peru
The Spanish conquests in the New World were, like the Crusades, partly
motivated by missionary zeal but also by greed. The Europe of the
Middle Ages had often experienced shortages of bullion but with the
conquest of Mexico and Peru and the opening of the silver mines in
Potosi (now in Bolivia) the dearth gave way to abundance leading to
problems of inflation in Europe. The repercussions of the Spanish
conquests were felt as far away as China. Initially imports of silver from
the New World gave a boost to the Chinese economy but eventually the
country became dangerously dependent on that source for its basic
monetary supplies. The stage was reached when the total annual output
of China's own silver mines was less than that carried in a single Spanish
galleon sailing from Acapulco. As a result, when bullion imports started
to dry up after 1640 the Chinese economy, the world's largest, was
plunged into a terrible recession which undermined the stability of the
Ming Empire (1368-1644).
Francis Drake and the Spanish Armada
During Francis Drake's circumnavigation of the globe 1577-1580, booty

estimated at between 300,000 and 1,500,000 was seized from the
Spaniards. According to John Maynard Keynes:
The booty brought back by Drake in the Golden Hind may
fairly be considered the fountain and origin of British Foreign
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Investment. ... In view of this, the following calculation may

amuse the curious. At the present time (in round figures) our
foreign investments probably yield us about 6 per cent net
after allowing for losses, of which we reinvest abroad about
half - say 3 per cent. If this is, on average, a fair sample of
what has been going on since 1580, the 42,000 invested by
Elizabeth out of Drake's booty in 1580 would have
accumulated by 1930 to approximately the actual aggregate of
our present foreign investments, namely 4,200,000,000 - or
say 100,000 times greater than the original investment.
Several years after his epic voyage Drake and his fellow Sea Dogs were
in action against the Spanish Armada. The previous year, 1587, saw an
early example of economic warfare when one of Elizabeth I's principal
advisers, Thomas Gresham after whom Gresham's Law (bad money
drives out good) is named, cornered large numbers of bills drawn on
Genoan banks in order to delay the build up of resources to equip the
Spanish Armada.
The English Civil War 1642-1651
This war broke out because parliament disputed the king's right to levy
taxes without its consent. The use of goldsmith's safes as secure places
for people's jewels, bullion and coins increased after the seizure of the
mint by Charles I in 1640 and increased again with the outbreak of the
Civil War. Consequently some goldsmiths became bankers and
development of this aspect of their business continued after the Civil War
was over. Within a few years of the victory by the parliamentary forces,
written instructions to goldsmiths to pay money to another customer had
developed into the cheque (or check in American spelling). Goldsmiths'
receipts were used not only for withdrawing deposits but also as
evidence of ability to pay and by about 1660 these had developed into
the banknote.
War of the League of Augsburg and the War of the Spanish

Succession
In addition to taxation (and sometimes debasement of coinage) wars

were financed by borrowing. This was one of the motives behind the
establishment of the Bank of England in 1694. At that time the British
government was desperately short of cash for the war against Louis XIV,
the most powerful ruler in Europe. The lending resources of the
goldsmiths combined with taxation, including new forms of taxation
copied largely from the Dutch, could not supply the money needed. If the
British government could raise a perpetual loan at a rate of interest
acceptable to it, then instead of having to repay the capital only the
interest would ever be repaid and the additional taxation required at any
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time would be just a fraction of the total loan. The lenders agreed to
these terms because of various benefits to themselves that were attached
to the deal. This, and other official borrowings, formed the "national
debt" because it was not the personal debt of the monarch, which might
be repudiated as Charles II did with his infamous "Stop of the
Exchequer", but the debt of the government itself, guaranteed by
parliament.
The role of the Bank of England was not confined simply to enabling the
government to raise the money needed for the prosecution of the war.
Michael Godfrey, the Bank's deputy governor (who was killed by a
French cannonball during the siege of Namur in 1695) succeeded in
establishing a system whereby the army received its funds promptly, (in
marked contrast to the situation that prevailed during Henry II's
participation in the 2nd Crusade when failure to make the money
available in time was a major factor in the defeat by Saladin). After an
interval of 4 years of peace a fresh war against Louis XIV broke out, the
war of the Spanish Succession, and Britain and her allies were
completely victorious, thanks largely to the military genius of John
Churchill, Duke of Marlborough (an ancestor of Winston Churchill).
Anglo-French Wars in North America
In 1690 the first official state issue of paper money was made by the
Massachusetts Bay Colony. These notes, amounting to 40,000 and
promising eventual redemption in gold or silver, were issued to pay
soldiers returning from an expedition to Quebec. A chronic shortage of
official British coins caused other colonies to follow this example. Over-
issuing of notes caused inflation but attempts by the British government
to restrict the use of paper money caused considerable resentment.
Competition between the British colonies for Spanish silver coins pushed
up their market rate causing problems in obtaining military provisions.
Inflation was blamed for the lack of equipment and the delays which led
to the defeat of General Braddock at Fort Duquesne in 1755. General
Wolfe also complained of a lack of funds in his successful Quebec
campaign in 1759. These complaints stiffened the British government's
determination to increase taxation and revenue in America, so spurring
the Revolution.
The American Revolution
The importance of war as a cause of inflation increased with the adoption

of paper money in the west. Because of a general shortage of currency in
the British colonies in north America, many of the colonies started to
issue paper money. As these issues were often excessive, causing
inflation, the British government acted at first to restrict and then to
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forbid the issue of paper money and this was one of the many acts of
interference which caused the resentment which led, eventually, to the
American Revolution.
When the war broke out the monetary brakes were released completely
and the revolution was financed overwhelmingly with an expansionary
flood of paper money and so the American Congress financed its first
war with hyperinflation. By the end of the war the "Continentals" had
fallen to one-thousandth of their nominal value. Yet although the phrase
"not worth a Continental" has subsequently symbolized utter
worthlessness, in the perspective of economic history such notes should
be counted as invaluable as being the only major practical means then
available for financing the successful revolution.
The Napoleonic Wars
Britain was the first country to undergo the Industrial Revolution. It was
already well underway when the Napoleonic Wars broke out and was a
factor in Britain's economic strength. Much of the working capital
required by the new enterprises was supplied by the commercial banks
which had emerged to supply the needs of various regions and Glyn
Davies asserts that "without the banks the revolution would have been
strangled in its infancy." (page 291)
In addition to greatly increasing expenditure on Britain's own armed
forces, William Pitt, the prime minister, sent large subsidies to Britain's
allies, a total of more than 15 million Pounds between 1793 and 1801,
including a loan of 1,200,000 Pounds to Austria in July 1796. In 1797,
after a run on the Bank of England triggered off by an abortive French
landing in Pembrokeshire, the Bank's notes were made inconvertible.
Between 1783 and 1816 the National Debt rose from 273 million to 816
million Pounds. In addition to long term borrowing Pitt raised funds by
introducing income tax, at a rate of 10%, and widening indirect taxes as
far as possible. During the Napoleonic wars Britain experienced a certain
amount of inflation which, despite being of a rather modest degree, was
worrying to contemporary observers who were used to stable prices and
an official inquiry blamed the Bank of England for issuing too much
credit. As a result Britain adopted the gold standard for the Pound after
the wars were over in 1816.
The War of 1812
After the revolution one might have expected the newly independent
Americans to have welcomed with enthusiasm their freedom to set up
banks but in fact there was a great deal of opposition to banking in
general. The first true American bank, the Bank of North America had its
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congressional charter repealed in 1785. The first national bank, the Bank
of the United States, though a financial success, was forced to close
when its charter was not renewed. As a result, when the 1812 War broke
out there was no government bank to exert a restraining hand on the
commercial banks which issued far too many notes backed by far too
little specie and the American financial scene reverted to its familiar
inflationary pattern.
After the 1812 War the Second Bank of the United States was set up but
once one of the heroes of that war, General Jackson, became president it
was doomed to failure. Jackson admitted to Nicholas Biddle, the last
president of the Bank, "ever since I read the history of the South Sea
Bubble I have been afraid of banks." By killing the Second Bank Jackson
delayed the establishment of a sensibly regulated banking system for
eighty years.
The US Civil War
The war required a rapid transfer of resources from diffused and

decentralized civilian expenditure to concentrated and centrally
controlled military expenditure, by means of some combination of
taxing, borrowing and printing money. The mixture actually chosen
differed markedly between the Unionists and the Confederates.
The Union government levied two direct taxes; the first was on each of
the states in proportion to population rather than ability to pay and it was
therefore regarded as unfair by the poorer states. Rather better yields
were obtained by a general income tax but even so these two taxes
together yielded less than $200 million. Much more important were
indirect taxes which at their maximum rates yielded over a billion
dollars. Initial attempts at long term borrowing were not very successful
but after an Ohio banker, Jay Cooke, was put in charge of marketing
bonds an issue of $500 million was oversubscribed by the public. During
1863 and 1864 another $900 million were issued but the low interest rate
no longer appealed to the public and so the Union had to rely on the
assistance of the banks to ensure the sale of the debt instruments.
The North's record on inflation stands up well in comparison with the
experience of victorious countries in later wars, even though the
Greenbacks' (inconvertible notes issued by the Union government) worth
in gold fell to half their nominal value.
In the South the imposition of adequate taxes and their collection was a
case of too little too late. The Confederacy's borrowing policy was more
successful than its taxation policies but was still inadequate. The
Southern states relied on Europe's dependence on "King Cotton" to raise
loans of $15 million but because of the blockade only around a quarter of
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the expected supplies came from such sources. The one seemingly
unlimited resource was the printing press and hyperinflation resulted
from its use. The South could probably at best only have moderated
hyperinflation to a limited degree as the mix of fiscal and financial
policies available to the Union was just not possible for the Confederacy
to put into effect.
The Franco - Prussian War 1870-1871
In the same year as their victory over France the German states united to
form a single country and adopted the Mark as their common currency,
basing it on the gold standard which had already been in use by Britain
for decades. Other countries followed the German example leading to the
abandonment of bimetallism and the gold standard becoming an
international one. The demonetization of silver by European countries
was partly responsible for an increase in the amount of silver available in
world markets. Consequently countries which still depended on silver for
their currencies such as India, China and Japan suffered from inflation.
The victorious Germans forced France to pay a huge indemnity of 5
billion francs. The money was raised easily by a loan which was more
than 10 times oversubscribed. This experience partly explains French
reliance on borrowing in preference to taxation in the First World War
and French insistence on German reparations afterwards.
1st World War.
Lloyd George, as chancellor of the exchequer, was responsible for a

revolutionary series of budgets from 1909-1911, introducing far greater
progression into the financial system, tapping far more copiously the
wealth of the rich. The author writes: "although the purpose of Lloyd
George's fiscal policy was for financing social welfare benefits the fiscal
framework had thereby been fundamentally transformed on the eve of
the First World War into a much more buoyant source of revenue, ripe
for the insatiable demands of the military machine. What had been
introduced at the cost of a seething constitutional crisis, for welfare
became a timely godsend for warfare." (page 397)
Even so the scale of expenditure so alarmed Keynes that he warned of
the danger of Britain becoming bankrupt by the spring of 1916. This did
not happen. As in previous wars old taxes were increased and new ones
were introduced. Huge loans were also raised, including the first billion
pound loan in world history. However the British government failed to
use its monopsonistic power as the only purchaser of really large loans in
wartime to get such loans at a cheap rate. Britain also raised loans
abroad, borrowing 1,365 million Pounds chiefly from the USA but that
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was more than offset by Britain's loans to its allies, a total of 1,741
million Pounds.
After the war Germany has difficulty in making its agreed reparations
and experiences hyperinflation from 1922-1923. Later, in the 1930s the
social turmoil resulting from mass unemployment results in Hitler's
installation as Chancellor.
2nd World War
"By the beginning of the Second World War Keynes's ideas had already
so permeated Whitehall and Westminster that high interest rates were
rejected as unnecessary, costly and perverse." (page 389). Glyn Davies
describes the various ingenious methods adopted by the government to
raise money at low rates of interest. "With just a few unimportant
exceptions, 3 percent became in fact the maximum rate at which the
government borrowed within the United Kingdom. ... The most
grievously costly war in history, in real, human terms was thus financed
by incredibly cheap money. The financial lessons of all previous wars
had been `the more you borrow the higher the rate'. The revolution in
economic thought led by Keynes had helped the government to borrow
far more money than ever before at rates of interest far lower than ever
before in such circumstances." (page 391)
The US government also succeeded in keeping interest rates low with the
Fed strongly supporting the seven War Loans and the Victory Loan.
During the 1930s the New Deal had required a new banking system to
restore business confidence in order to revive industry and agriculture
and reduce America's appalling total of 13 million unemployed. The first
relief agency (which had already been set up by President Hoover in
1932) was the Reconstruction Finance Corporation which played an
important role not only in the recovery from the Depression but also
supplied vitally needed investment for military purposes during the War.
From $16 million in 1930 the national debt rose to $269 million in 1946.
This immense increase in borrowing was accomplished at very low
interest rates (2.5% or less). Direct controls on credit were introduced,
and physical controls and rationing, though nothing like as severe as in
Britain, suppressed most of the inflation until after the war ended.
After its defeat, For the second time in a generation Germany
experienced hyperinflation. In Hungary hyperinflation was the worst in
world history. Many European countries introduced new reformed
currencies in the years after the war.
Conclusion
As a result of his survey of the history of money the author concludes:
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"The military ratchet was the most important single influence in raising
prices and reducing the value of money in the past 1,000 years, and for
most of that time debasement was the most common, but not the only,
way of strengthening the `sinews of war'." (page 643)
However, despite its importance, military expenditure has not been the
only cause of inflation, nor has it been the most important in every case.
One of the author's main themes is the problem of simultaneously trying
to control the quality and quantity of money. He discusses many cases of
inflation over the past couple of thousand years and identifies several
(not necessarily mutually exclusive) causes. These are:
Conflict between the Interests of Debtors and Creditors.
The Fungibility of Money
The Population Explosion
The Military Ratchet
The Developmental Money Ratchet
As a result of the above-mentioned factors the supply of money tends to

alternate in every age between too little and too much, with the
pendulum swinging from excessive concern with the quality of money to
the opposite extreme of an inflationary, excessive quantity of money.
This is the basis of the author's Pendulum Meta-Theory of money, i.e. a
"general theory comprising sets of more limited, partial theories, which
spring out of the special circumstances of their time. The enveloping
pendulum or metatheory also explains why the usual theories of money,
despite being so confidently held at one time, tend to change so
drastically and diametrically (and therefore so puzzlingly to the
uninitiated) to an equally accepted but opposite theory within the time
span appropriate to historical investigation." (page 31).
In support of these claims Glyn Davies ranges widely, both
chronologically, from the dawn of civilization about 3000 BC onwards,
and geographically from China to the New World, Denmark to Fiji. Thus
a huge range of evidence regarding the causes of changes in both the
quality and quantity of money is surveyed and the author concludes with
the words of the Russian novelist Dostoevsky that:
"Money is coined liberty."
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THE SIGNIFICANCE OF CELTIC COINAGE
"Traditional historians have tended to overlook the role played by Celtic

coinage in the early history of British money." There is a paucity of
written evidence from the period before the Roman conquest but
"hundreds of thousands of Celtic coins have been found, mostly on the
Continent, where hordes of up to 40,000 coins have been discovered. In
a number of instances we have learned of the existence of certain rulers
only through their representation on coins (though some are spurious)."
The quotations are from page 113 of
Davies, Glyn. A history of money from ancient times to the present day,
rev.ed. Cardiff: University of Wales Press, 1996. 716 pages. ISBN 0
7083 1351 5 (paperback). The first, hardback, edition was published in 1994,
ISBN 0 7083 1246 2.
Celtic monetary development is seen in its most concentrated form in

Britain. Originally the Ancient Britons used sword blades as currency
before they started minting coins. The earliest Celtic coins found in
Britain "were of pure gold, being direct imitations of the gold stater of
Philip II of Macedon...the spread of knowledge of such coinage
is...generally held to be the result of migration and in particular the use
of Celtic mercenaries by Philip and Alexander." Britain was probably the
last of the major Celtic areas of northern Europe to begin to mint, and the
last to maintain independent minting before being overwhelmed by
Rome. The earliest known date for copies of Philip's stater in Britain is
125 BC. As their experience of minting grew the Celts' designs became
more original. As befitting a pastoral people the horse was a common
feature. The Celtic love of hunting was also illustrated by the boar
designs favoured by the Iceni of East Anglia, and as farmers they also
gave tribute to the fertility of East Anglia by prominently depicting ears
of wheat, similar to that on modern French coins.
In addition to gold and silver coins, the Celts on the continent and in
southern Britain also produced potin coins using various combinations of
copper and tin. These were small in size and were cast, not struck or
hammered as were the dearer gold and silver coins. Since their intrinsic
value was low it is probable that they circulated as tokens, accepted for
trade at a higher value than the value of the metal of which they were
composed. No great skill was required in their manufacture and therefore
it is quite possible that the ubiquitous Celtic smiths were able to supply
local demands to supplement the official issues.
The Romans, naturally, imposed the use of their own coinage in Britain.
Towards the end of their occupation of Britain and other Celtic lands the
small brass and copper minissimi coins produced by the Romans for low
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value purchases, served a somewhat similar purpose to the earlier potin

coins.
With the collapse of the Roman empire and the Anglo-Saxon invasion of
Britain, minting and the use of coins ceased for a couple of centuries, the
island reverting to barter and to using other standards of value. Nowhere
was the disruption accompanying the empire's decline and fall more
marked than in Britain which reverted, suddenly in some areas and fairly
quickly everywhere, to a more primitive, less urbanized, moneyless
economy.
In his concluding chapter where he sums up the lessons of history, Glyn
Davies describes how the quantity of money has repeatedly tended to
oscillate between periods of excess, causing inflation, and periods of
shortage restricting trade and economic activity. He notes that "after the
fall of Rome Britain showed the unique spectacle of being the only
former Roman province to withdraw completely from using coined
money for nearly 200 years...the absence of money reflected and
intensified the breakdown of civilized living and trading." (page 641).
In an earlier chapter he gives a detailed account of the re-emergence of
minting in Anglo-Saxon times. Although their first coins were copies of
French ones the English soon became masters of the art and English
coins became models to be copied in Scandinavia and eastern Europe.
The production and diffusion of Saxon coins was given an immense
boost by the Viking invasions. In order to buy off the invaders the
English mints produced huge quantities of silver coins for the payment
of Danegeld. In Ireland too Vikings exacted tribute from the native
inhabitants. On page 39 Glyn Davies explains the origin of the phrase "to
pay through the nose" as coming from the unfortunate habit of the Danes
in Ireland in the 9th Century who slit the noses of those unable or
unwilling to pay the Danish poll tax.
Wales lagged far behind England in the re-adoption of coinage, as shown
by the paucity of evidence for minting by native princes.
Other sources have pointed to the importance of cattle as a form of
money in medieval Wales.
Another Davies (no relation this time!), R.R. Davies in his book _The
age of conquest: Wales 1063-1415. Oxford: O.U.P.,1987_, points out that
English coins may have circulated in Wales to some extent before the
conquest, but even as late as the 14th century payment in cattle was still
very common.
The Welsh were by no means unique in using cattle as a form of money.
Glyn Davies in his History of money discusses what we can learn about
the origins of money from the study of primitive forms of money such as
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cattle, on which he has three pages (pages 41-44). He describes cattle as

mankind's "first working capital asset" (page 41). The origins of several
English words provide evidence for the importance of cattle in this
connection. The author points out that the words "capital", "chattels" and
"cattle" have a common root. Similarly "pecuniary" comes from the
Latin word for cattle "pecus". Glyn Davies also notes that in Welsh the
word "da" used as an adjective means "good" but used as a noun means
both "cattle" and "goods".
The use of cattle as money is not restricted to the remote past either.
Certain African tribes, e.g. the Kikuyu, have regarded cattle as money
until very recently and the author observes (page 43) that attachment to
cattle as a store of wealth has deleterious environmental consequences
making the development of monetary systems and institutions that
satisfy the needs of the rural African population particularly important.
Thus the transition that Welsh underwent (much later than the English) to
living and working in a society whose functioning depends on modern
forms of money, is one that has been repeated on a far vaster scale within
living memory in parts of the Third World.
Coins, Tokens and Notes in Wales
It seems that independent Welsh minting never amounted to very much.

Of course Norman and English rulers established mints in various parts
of Wales and since the English conquest the history of money in Wales
has been inextricably bound up with English history in general.
Nevertheless Wales did have an important part to play in the
development of token coinage and drovers banks in the early stages of
the Industrial Revolution.
Towards the end of the 18th century the coinage of Britain was in a
deplorable state and the shortage of silver and copper coins was of a
crippling severity. Although the production of counterfeit coins was
illegal, and punishable by death, it was not illegal to produce tokens with
other designs which could be used instead of coins.
The first great era of token production during the Industrial Revolution
began in 1787 with the issue by the Anglesey Copper Company, using
the high-quality ore from its local Parys mine, of a very attractive Druid
Penny which could be exchanged for official coin at full value, if so
desired, at any one of its shops or offices. Soon practically every town in
Britain was producing its own tokens. By the turn of the century the total
supply and velocity of circulation of tokens, foreign coins and other
substitutes very probably exceeded those of the official coin of the realm.
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The token manufacturers were not the only ones who supplied the
currency necessary for commercial activity. Numerous country banks
were created in different parts of Britain, including Wales. One such
example was the Black Ox Bank set up by David Jones of Llandovery in
1799 with its notes aptly depicting the Welsh Black breed of cattle. This
was one of a number of drovers' banks set up in mid-Wales. The drovers'
regular and growing trade with London's Smithfield market became a
convenient and relatively secure way of transmitting bills of exchange
readily discountable in London.
However the role played by the Welsh has been overshadowed by that
their fellow Celts - the Scots - have played in the development of
banking, as befits the homeland of Adam Smith. The significance of the
Scottish contributions to the development of banking during the period
1695-1789, e.g. the invention of the concept of the overdraft, is
discussed on pages 271-278 of Glyn Davies' History of Money.
Since the 1960s the Welsh capital, Cardiff, has grown in importance as a
financial centre and since the move of the Royal Mint to Llantrisant in 1968
Wales has produced coins not only for the whole of Britain but also for many
other countries. For example by the financial year 1981/2 the Royal Mint was
producing coins for no fewer than 57 overseas countries.
THE VIKINGS AND MONEY IN ENGLAND
Among the results of the Viking invasions of England was an enormous

increase in the production of coins. Many of them ended up in
Scandinavia. Indeed, far more English coins from that period have been
found in Scandinavia than in England! Furthermore, when Scandinavian
rulers started to mint their own coins they copied English designs. Today
coins are just small change but in those days they could buy much more.
Coins had been used in Britain when it was part of the Roman empire,
and even earlier, but after the departure of the Romans early in the 5th
century and the invasions of the Anglo-Saxons from across the southern
part of the North Sea, coins ceased to be used as money in England for
nearly 200 years. Then the Saxons started to produce coins. Most of
them were made of silver and they are called 'sceattas'. The word 'sceat'
originally meant 'treasure' like the word 'skat' in Danish or 'skatt' in
Norwegian and Swedish. Old English resembled the languages spoken in
Scandinavia much more closely than modern English does!
Where do pennies come from?
Just before the first of the Viking raids on England the Saxons began
minting a new type of silver coin with a much finer, more attractive
design. These coins were called 'pennies'. Some historians believe that
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the penny (or 'pennig' in Old English) was named after a minor Saxon
king called Penda. Others believe that the penny, like the Scandinavian
words for 'money', got its name from the pans into which the molten
metal for making coins was poured. In German money there are 100
Pfennigs in a Deutschemark and it is thought that 'Pfennig' might come
from 'Pfanne', the German for 'pan'. The Danish word for a pan is 'pande'
but in old Danish a small pan was called 'penninge', from which the word
for 'penge' meaning 'money' possibly comes.
Another theory is that 'penny', 'Pfennig', 'penge', the English word 'pawn'
(in the sense of a pledge), the German word 'Pfand' and the Scandinavian
word 'pant' all share a common origin. Which theory is correct? We will
probably never know for certain.
Paying for war or paying for peace?
&127Wars cost a great deal of money. Alfred the Great, who prevented
the Vikings from conquering all England, increased the number of mints
to at least 8 so that he would have enough coins to pay his soldiers and to
build forts and ships. The kings after Alfred needed more and more mints
to pay for defence. Athelstan had 30 and in order to keep control of them
all he passed a law in 928 stating that there was to be only one single
type of money or currency in England, and ever since there has been just
one. This was many centuries before other major European countries
such as France, Germany and Italy had their own national currency.
Instead of fighting the invaders, some English kings preferred to pay the
Vikings to leave them in peace. These payments were called 'Danegeld'
(meaning 'Dane debt' or Dane payment). The Vikings collected tribute in
other countries too. In Ireland in the 9th century they imposed a tax and
slit the noses of anyone unwilling or unable to pay, and that is the origin
of the English phrase 'to pay through the nose' meaning to pay an
excessive price.
The English king who paid the most Danegeld was Aethelred II. The
name 'Aethelred' meant the same as 'aedel raad' in modern Danish -
'noble advice'. However, he was very stubborn and was given the
nickname 'Unraed' which meant 'no advice', more or less the same as
'uden raad' in Danish. Languages change slowly over the years and when
the word 'unraed' was no longer used in English his nickname was
changed to 'Unready' which does not mean quite the same thing, though
he was unready to listen to advice!
Aethelred gave orders for the massacre of all Danes living in England on
St. Brice's day 13 November 1002. His orders were not obeyed
everywhere and they made the Vikings determined to conquer England
completely. Aethelred hoped they would be satisfied with money but
PAGE 156 OF 273

they kept coming back for more. During his reign 75 mints were active at
the same time and in order to pay Danegeld nearly 40 million pennies
were produced! Finally Aethelred decided to fight and he introduced a
new tax to pay for a larger army. This tax was called 'heregeld'. The
meaning of 'here' was 'army' like 'haer' in modern Danish. However
Aethelred was completely defeated and the Viking's leader, Cnut,
became king of England, and later king of Denmark and Norway as well.
Cnut paid his army 20 million pennies before sending the soldiers home
and therefore the mints were very busy again. They were busy in
peacetime too because England prospered under his reign. Many of
Cnut's coins have been found in Scandinavia, mostly in hoards consisting
of mixtures of coins of different types. If these coins had been tribute,
like Danegeld, they would have been mainly all of the same type. The
mixture of coins found in the hoards is thought to be a sign that trade
between England and Scandinavia flourished in that period of peace.
MONEY IN NORTH AMERICAN HISTORY - FROM WAMPUM

TO ELECTRONIC FUNDS TRANSFER
How did the United States develop into the world's richest and most
powerful nation from an inauspicious beginning as a
collection of colonies where currency was in such chronically
short supply that all sorts of substitutes, e.g. tobacco and
wampum, had to be used as money?
Apart from its intrinsic interest, history can often shed light on current
political controversies. Many political disputes revolve around questions of
economics and of all the matters that fall under the purview of economic
history there is one that has had, and still has, a profound impact on many
aspects of everyone's daily life, and that is money. This essay is based on a
book on monetary history by Glyn Davies which contains a considerable
amount of material on the financial development of the United States.
The reference is:
rev. ed. Cardiff: University of Wales Press, 1996. 716 pages. ISBN 0
ISBN 0 7083 1246 2.
The Potlatch, Gift Exchange and Barter
Money is often, mistakenly, thought to have been invented simply

because of the inconvenience of barter. In fact the development of money
PAGE 157 OF 273

was due to many causes and even barter itself often had important social
functions in addition to its purely economic purposes.
The potlatch ceremonies of Native Americans were a form of barter that
had social and ceremonial functions that were at least as important as its
economic functions. Consequently when the potlatch was outlawed in
Canada (by an act that was later repealed) some of the most powerful
work incentives were removed - to the detriment of the younger sections
of the Indian communities. This form of barter was not unique to North
America. Glyn Davies points out that the most celebrated example of
competitive gift exchange was the encounter, around 950 BC, of
Solomon and the Queen of Sheba. "Extravagant ostentation, the attempt
to outdo each other in the splendour of the exchanges, and above all, the
obligations of reciprocity, were just as typical in this celebrated
encounter, though at a fittingly princely level, as with the more mundane
types of barter in other parts of the world." (page 13).
Wampum - Monetary Uses by Native Americans and Settlers
Since the use of primitive forms of money in North America (as in the
Third World) is more recent and better documented than in Europe, the
American experience is discussed in the introductory chapter on the
origins of money. The best known form of money among the native
Americans was wampum, made out of the shells of a type of clam.
However its use was not confined to the coastal states but spread far
inland, e.g. the powerful Iroquois amassed large quantities by way of
tribute. Wampum's use as money undoubtedly came about as an
extension of its desirability for ornamentation. Beads of it were strung
together in short lengths of about 18 inches or much longer ones of about
6 feet.
Wampum came to be used extensively for trade by the colonists as well
as the natives, e.g. in 1664 Stuyvesant arranged a loan in wampum worth
over 5,000 guilders for paying the wages of workers constructing the
New York citadel (page 458). Like more modern forms of money,
wampum could be affected by inflation. Some tribes such as the
Narragansetts specialized in manufacturing wampum (by drilling holes
in the shells so that the beads could be strung together) but their original
craft skills were made redundant when the spread of steel drills enabled
unskilled workers, including the colonists themselves, to increase the
supply of wampum a hundredfold thus causing a massive decrease in its
value. A factory for drilling and assembling wampum was started by J.W.
Campbell in New Jersey in 1760 and remained in production for a
hundred years.
PAGE 158 OF 273

Forms of Money in use in the American Colonies
The British colonies in north America suffered a chronic shortage of

official coins with which to carry out their normal, everyday commercial
activities. An indication of the severity of this shortage and of the
resultant wide variety of substitutes is given by the fact that during 1775
in North Carolina alone as many as seventeen different forms of money
were declared to be legal tender. However, it should be remembered that
all these numerous forms of means of payment had a common
accounting basis in the pounds, shillings and pence of the imperial
system.
The main sources which provided the colonists with their essential
money supplies fall into five groups.
1. Traditional native currencies such as furs and wampum which were
essential for frontier trading with the indigenous population but
thereafter were widely adopted by the colonists themselves, e.g. in
1637 Massachusetts declared white wampum legal tender for sums up
to one shilling, a limit raised substantially in 1643.
2. The so-called "Country Pay" or "Country Money" such as tobacco, rice,

indigo, wheat, maize, etc. - "cash crops" in more than one sense. Like
the traditional Indian currencies these were mostly natural
commodities. Tobacco was used as money in and around Virginia for
nearly 200 years, so lasting about twice as long as the US gold
standard.
3. Unofficial coinages, mostly foreign, and especially Spanish and

Portuguese coins. These played an important role in distant as well as
local trade. Not all the unofficial coins were foreign. John Hall set up a
private mint in Massachusetts in 1652 and his popular "pine-tree"
shillings and other coins circulated widely until the mint was forced to
close down in 1684.
4. The scarce but official British coinage.
5. Paper currency of various kinds, particularly in the colonies' later years.
The first State issue of notes (in north America) was made in 1690 by the
Massachusetts Bay Colony. These notes, or "bills of credit". were issued
to pay soldiers returning from an expedition to Quebec. The notes
promised eventual redemption in gold or silver and could be used
immediately to pay taxes and were accepted as legal tender. The example
of Massachusetts was followed by other colonies who thought that by
printing money they could avoid the necessity to raise taxes.
Another early form of paper money used in north America was "tobacco
notes". These were certificates attesting to the quality and quantity of
tobacco deposited in public warehouses. These certificates circulated
PAGE 159 OF 273

much more conveniently than the actual leaf and were authorized as
legal tender in Virginia in 1727 and regularly accepted as such
throughout most of the eighteenth century.
In addition to the State issues, a number of public banks began issuing
loans in the form of paper money secured by mortgages on the property
of the borrowers. In these early cases the term "bank" meant simply the
collection or batch of bills of credit issued for a temporary period. If
successful, reissues would lead to a permanent institution or bank in the
more modern sense of the term. One of the best examples was the
Pennsylvania Land Bank which authorized three series of note issues
between 1723 and 1729. This bank received the enthusiastic support of
Benjamin Franklin who in 1729 published his Modest Enquiry into the
Nature and Necessity of a Paper Currency. His advocacy did not go
unrewarded as the Pennsylvania Land Bank awarded Franklin the
contract for printing its third issue of notes.
Gradually the British government began to restrict the rights of the
colonies to issue paper money. In 1740 a dispute arose involving a "Land
Bank or Manufactury Scheme" in Boston, and the following year the
British parliament ruled that the bank was illegal in that it transgressed
the provisions of the Bubble Act of 1720 (passed after the collapse of the
South Sea Bubble - one of the most notorious outbreaks of financial
speculation in history). Restrictions were subsequently tightened because
some colonies, including Massachusetts and especially Rhode Island,
issued excessive quantities of paper money thus causing inflation.
Finally, in 1764 a complete ban on paper money (except when needed for
military purposes) was extended to all the colonies.
The American Revolution and the War of 1812
When he was in London in 1766 Benjamin Franklin tried in vain to

convince Parliament of the need for a general issue of colonial paper
money, but to no avail. The constitutional struggle between Britain and
the colonies over the right to issue paper money was a significant factor
in provoking the American Revolution.
When the war broke out the monetary brakes were released completely
and the revolution was financed overwhelmingly with an expansionary
flood of paper money and so the American Congress financed its first
war with hyperinflation. By the end of the war the Continentals had
fallen to one-thousandth of their nominal value. Yet although the phrase
not worth a Continental has subsequently symbolized utter
worthlessness, in the perspective of economic history such notes should
be counted as invaluable as being the only major practical means then
available for financing the successful revolution.
PAGE 160 OF 273

During the Revolution the Bank of Pennsylvania was established (with

the support of Thomas Paine) in June 1780 but it was little more than a
temporary means of raising funds to pay for the desperate needs of a
practically starving army. The Bank of North America was a more
permanent institution, granted a charter by Congress (by a narrow margin
of votes) in 1781 and beginning its operations in Pennsylvania on 1
January 1782. It was followed after the war by the Bank of New York and
the Bank of Massachusetts, which both opened in 1784, and the Bank of
Maryland in 1790.
The financial chaos of the aftermath of the revolution and outbreaks of
violent conflict between debtors and creditors led to the establishment of
the dollar as the new national currency replacing those of individual
states. However, owing to shortages of gold and silver bullion and the
rapid disappearance of coins from circulation legal tender was restored to
Spanish dollars in 1797 and it was not until 1857 that the federal
government felt able to repeal all former acts authorizing the currency of
foreign gold or silver coins, but by then coins were merely the small
change of commerce.
After the revolution one might have expected the newly independent
Americans to have welcomed with enthusiasm their freedom to set up
banks but in fact there was a great deal of opposition to banking in
general. The first true American bank, the Bank of North America had its
congressional charter repealed in 1785. The first national bank, the Bank
of the United States, though a financial success, was forced to close
when its charter was not renewed. As a result, when the 1812 War broke
out there was no government bank to exert a restraining hand on the
commercial banks which issued far too many notes backed by far too
little specie and the American financial scene reverted to its familiar
inflationary pattern.
After the 1812 War the Second Bank of the United States was set up but
once one of the heroes of that war, General Jackson, became president it
was doomed to failure. Jackson admitted to Nicholas Biddle, the last
president of the Bank, "ever since I read the history of the South Sea
Bubble I have been afraid of banks." By killing the Second Bank Jackson
delayed the establishment of a sensibly regulated banking system for
eighty years. During this period the Treasury was left to carry out the
increasingly difficult task of being its own banker. There was a
divergence between the more settled areas of the country, such as New
England where opinion veered towards sounder money, and the frontier
states which tended to welcome easy credit but following the Californian
gold discoveries in 1848 even the sound-money men became
expansionist.
PAGE 161 OF 273

The US Civil War
The war required a rapid transfer of resources from diffused and

decentralized civilian expenditure to concentrated and centrally
controlled military expenditure, by means of some combination of
taxing, borrowing and printing money. The mixture actually chosen
differed markedly between the Unionists and the Confederates.
The Union government levied two direct taxes; the first was on each of
the states in proportion to population rather than ability to pay and it was
therefore regarded as unfair by the poorer states. Rather better yields
were obtained by a general income tax but even so these two taxes
together yielded less than $200 million. Much more important were
indirect taxes which at their maximum rates yielded over a billion
dollars. Initial attempts at long term borrowing were not very successful
but after an Ohio banker, Jay Cooke, was put in charge of marketing
bonds an issue of $500 million was oversubscribed by the public. During
1863 and 1864 another $900 million were issued but the low interest rate
no longer appealed to the public and so the Union had to rely on the
assistance of the banks to ensure the sale of the debt instruments.
In the South the imposition of adequate taxes and their collection was a
case of too little too late. The Confederacy's borrowing policy was more
successful than its taxation policies but was still inadequate. The
Southern states relied on Europe's dependence on "King Cotton" to raise
loans of $15 million but because of the blockade only around a quarter of
the expected supplies came from such sources. The one seemingly
unlimited resource was the printing press and hyperinflation resulted
from its use. The South could probably at best only have moderated
hyperinflation to a limited degree as the mix of fiscal and financial
policies available to the Union was just not possible for the Confederacy
to put into effect.
Greenbacks
The secession by the anti-federalists opened the way for monetary

reforms by the Union government, and "Greenbacks" came into
existence when the Treasury was given the right, in 1862, to issue notes
that were not convertible into specie but were authorized as legal tender
for most purposes. Although the North's record on inflation stands up
well in comparison with the experience of victorious countries in later
wars, the Greenbacks worth in gold fell to half their nominal value. Their
use had in any case only been intended as a temporary measure and the
government started reducing the number in circulation, but this coincided
with and reinforced a depression which led to the formation of a
Greenback Party in 1875 which campaigned for an increase in note
PAGE 162 OF 273

circulation and returned 14 members to Congress in 1878. As a

compromise it was agreed to fix the number of Greenbacks in circulation
at the then current amount.
The Gold Standard
In practice, if not in law, by 1873 when the silver dollar ceased to be the
standard of value America was virtually on the gold standard. Williams
Jennings Bryan campaigned vigorously but unsuccessfully against
crucifying mankind "on a cross of gold." His fears were not realized as
new discoveries in Alaska, Africa and Australia led to an enormous
increase in gold supplies, stimulating the world economy and in 1900
America officially accepted the gold standard. Meanwhile banking was
becoming increasingly important. Already by 1890 over 90 percent in
value terms of all transactions were carried out by cheque (or check, to
use the American spelling) and in 1913, after a series of bank failures in
New York and growing public unease about the concentration of
financial power in a few hands, the Federal Reserve System ("Fed") was
set up to provide a more effective supervision of banking.
The Great Depression
If the years 1914-1928 were the period in which the Fed found its feet
the next 5 years revealed it to have feet of clay. In 1928 the New York
Federal Reserve Bank cut its rediscount rate, partly to help Britain to
stay on the gold standard (a goal more easily achieved if US rates were
lower than those of Britain) and the Fed also expanded credit by
purchasing securities. These moves came at the worst possible time. The
speculatory fever that gripped America during the second half of the
1920s had just moved from land in Florida to the New York Stock
Exchange and the easing of credit helped feed the boom on to its
inevitable collapse.
On Black Thursday 24 October 1929 the collapse came. Having fed the
fever the monetary authorities now proceeded to starve the sick economy
by persisting in a contraction of credit which is probably the most severe
in American history. Net national product fell by 53 per cent. The Fed
which had been set up to provide an elastic currency strangled its patient.
Roosevelt's first action on becoming president was to declare a bank
holiday. The world's largest economy was left virtually bankless for at
least 10 days as a necessary prelude to the enforced reform of the whole
financial system.
PAGE 163 OF 273

From the New Deal to the Apogee of American Power
The New Deal required a new banking system to restore business

confidence in order to revive industry and agriculture and reduce the
country's appalling total of 13 million unemployed. The first relief
agency (which had already been set up by President Hoover in 1932) was
the Reconstruction Finance Corporation which played an important role
not only in the recovery from the Depression but also supplied vitally
needed investment for military purposes during the 2nd World War.
From $16 million in 1930 the national debt rose to $269 million in 1946.
This immense increase in borrowing was accomplished at very low
interest rates (2.5% or less) which showed the great strength of the
reformed financial system, as did the swift and gigantic change over that
the US economy made from war to peace afterwards. American strength
was also manifested in helping to rebuild war-shattered Europe, through
the Marshall plan, and in helping to ensure a generation of growth and
relative stability for the world economy, through the Bretton Woods
agreement.
Relative Decline of the US Financial System?
However in the last couple of decades certain signs of relative decline

have become apparent, in the financial sector as well as in American
industry. Losses estimated by the Brookings Institute as exceeding $100
billion, or $400 per US citizen, were incurred as a result of the numerous
failures of Savings and Loan Associations or thrifts in the late 80s. A
more insidious relative decline is demonstrated by the fact that in 1970
the ten largest banks in the world were all American but by June 1991
there were no American banks in the top 20.
It is still incredibly incongruous when millions of dollars can instantly be
transmitted across the globe by satellite that US banks, the main creators
of the country's money, may still not be allowed to open a branch even a
few miles away (especially in other States) without quite
disproportionate effort. The complexity of the American financial system
has provided a paradise for lawyers, while the Byzantine supervisory
structure has imposed heavy annual operating costs, currently of over a
billion dollars, which have to be carried by banks and their customers,
quite apart from the periodic massive reconstruction costs borne
impatiently by the US taxpayers.
Although America has officially enjoyed a single currency since 1790 it
has not yet achieved a single banking market. It is one of history's
exquisite ironies that Europe, or most of it, reached the goal of a single
PAGE 164 OF 273

market by 1992 even though it appears doubtful that it will achieve its
other goal of a single currency by the year 2000.
Nevertheless whatever the future of money, claims the author, an
optimally adjusted supply is the foundation both of capitalism and of
freedom. Therefore he concludes with a quotation from Dostoevsky:
"money is coined liberty."
BRITAIN AND EUROPEAN MONETARY UNION

What are the prospects for European Monetary Union and why, when
other countries were clamouring to be in at the start of the Euro, is Britain
so reluctant to participate? Perhaps the best way to judge is to study the
lessons of history and how the British experience differs from that of most
other countries in Europe since, for good or ill, a nation's past inevitably
influences its attitude to the present and the future.
THE LONG HISTORY OF THE POUND STERLING
Whereas France had a single national currency for a brief period during
the reigns of Pepin and Charlemagne, England has enjoyed a relatively
stable single national currency with an unbroken history of over 900
years, and the origins of the pound Sterling go back even further still.
The Viking invasions and the need to pay Danegeld or to pay for defence
caused an enormous increase in the production of coins in England.
Athelstan had no fewer than 30 mints in operation and in order to keep
control of them all the Statute of Greatley was passed in 928, stating that
there was to be only one single type of money or currency in England,
and ever since there has been just one. This was many centuries before
the history of the currencies now used in other major European countries
started.
"...England became the first of the major countries of Europe to attain a
single national currency in post-Roman times. However the renewed
incursions of the Danes postponed the uninterrupted establishment of
this principle until 1066. Even so the achievement of a uniform national
currency in England preceded that of France by more than 600 years, and
of Germany and Italy by nearly 900 years: a factor perhaps in Britain's
instinctive reluctance to embrace a single European currency today."
The quotation is from page 129 of the book used as the source of the
information in this essay.
PAGE 165 OF 273

ISBN 0 7083 1246 2.
As the author explains on page 442:

"Most European countries, large or small, have repeatedly had to carry
out changes which have drastically altered their internal currencies...
However, the pound as a unit of account has never had to be replaced by
a 'new pound' or any other designation in 1,300 years, in contrast to the
French franc or the various German currencies such as the Reichsmark,
Rentenmark, Ostmark and Deutschemark, to mention merely some of the
more modern changes."
The Pound Sterling as an International Currency
"A second basic difference between sterling and continental currencies

springs from the fact that the pound had been paramount in international
trade for two hundred years but remained (except for Scandinavia and
Portugal) relatively unimportant in intra-European trade."
On page 443 the author continues:
"Throughout the long era of sterling supremacy it was the other countries
that had in the main to adapt their currency arrangements to fit in with
sterling. From 1945 to 1972 Britain, like other countries, had to fit its
currency to the exigencies of the dollar. From the time that Britain
belatedly entered the EEC on 1 January 1973 she too had to undergo the
difficult transition involved in adapting sterling to the currency
arrangements of her EEC partners, a change in attitude greater than that
required from these other participants."
History of Previous European Currency Unions
"Continental Europeans have long been accustomed to currency unions:

for Britain before 1990 they have been either unnecessary or peripheral.
Thus in 1861, under French initiative, a Latin Monetary Union was
formed comprising France, Italy, Belgium, Switzerland and Greece. The
primary gold and silver coins of each country were made legal tender
and circulated throughout the Union, though subsidiary, token coins were
legal only within their own country. The Union lasted until the 1920s, by
which time the strains of wars and the widening differences between the
value of gold and silver caused its gradual demise. A rather similar
pattern was seen in the Scandinavian Monetary Union formed in the
1870s, until, under similar pressures it was effectively dissolved by
Sweden in 1924. By far the most successful of all such currency unions,
PAGE 166 OF 273

but embracing much more than just the currency, was the Zollverein of
1834, whereby the separate currencies, weights and measures of the
previously independent German states were gradually combined leading
to the unification of Germany in 1871, with the chief Prussian bank
becoming the Reichsbank."
Destruction and Reform of European Currencies
On pages 443 and 444 Glyn Davies writes:

"During and immediately after ... [the Second World War] almost every
country on the European continent experienced the destruction and
reform of their currencies. Germany reformed her currency in 1948 (on
which her subsequent success was based) after having suffered two
hyperinflations in a generation. The former German-occupied countries,
from France to Norway, got rid of their wartime inflation by means of
overnight currency reforms whereby their grossly inflated wartime
currencies were reduced by up to a hundredfold or more, thus not only
providing the basis for a sound new currency but also penalizing
collaborators, profiteers, tax-evaders and similar unworthy holders of
swollen money balances. At the same time, it provided the grandest and
most perfect example of the effectiveness of the quantity theory of
money administered at a stroke and, most unusually, in a price reducing
manner. Thus in glaring contrast to the British, most continental families
or their parents have personally experienced drastic currency reform,
followed by unprecedented growth in their living standards. For them
EMU was just another logical step, not the leap in the dark it seemed to a
considerable section of British opinion, especially among the older more
influential generation."
The Strength of the Deutschemark
The recent history of their country also explains why the Germans attach
such importance to maintaining a strong currency.
"Because Germans for two periods within living memory have suffered
the devastating economic, social and political effects that followed from
the complete breakdown of their monetary system, the people in general
have become highly sensitive to the dangers of inflation and have
therefore accepted, not with evasion or reluctance, but with ready co-
operation, the disciplines imposed by their central bank to ensure the
stability of the currency." (page 565).
PAGE 167 OF 273

Longer-Term Changes in Currencies
Glyn Davies describes in great detail the rise of the Pound Sterling
followed by the American Dollar as the world's dominant currencies and
then discusses the more hesitant banking progress of France, the
monetary development of Germany "from insignificance to the
cornerstone of the EMS", and the rise of Japan as a financial superpower.
There is also a chapter on the problems of the Third World in which the
author suggests that those developing nations that have been unable to
escape the ravages of inflation should consider re-anchoring their
currencies by aligning them with one of the strong European currencies,
or the U.S. Dollar or Japanese Yen.
In the final chapter Glyn Davies looks at the prospects for "free trade in
money in a global cashless society" and "independent multi-state central
banking." These are just a few of the subjects examined in detail in this
work which surveys the history of money from the dawn of civilization,
about 3000 BC, to the present day.
DEMOCRACY AND GOVERNMENT CONTROL OF THE MONEY

SUPPLY
Revolutions in the form of money inevitably have political consequences.
The development of modern banking and the concomitant erosion of the
government's monopoly of money creation played a significant role in the
development of democracy. As electronic money could also threaten
government control the lessons of history have great contemporary
relevance.
An article in the Economist (26 November 1994 pages 25-30) entitled
Electronic money: so much for the cashless society makes the claim that
"the transformation of the Internet from a huge virtual community into a
huge virtual economy may herald the age of electronic money - and with
it, headaches for traditional banks and regulators."
One of the points discussed in the Economist article is whether digital
cash should be a proxy for money or whether it should be acceptable as
money in its own right. The latter would, according to the article, be
unpopular with governments who have always regulated banking
activities carried out within their countries. "If people who log on to the
Internet are localised geographically and thus subject to a particular set
of national laws, the traffic that they create on the Internet is not very
obviously anywhere at all." Looking further ahead the article suggests
"ideally, the ultimate e-cash will be a currency without a country..."
The last time the state's monopoly over money creation was seriously
weakened was when paper money was introduced and quite apart from
PAGE 168 OF 273

the economic effects, that also helped to cause profound political

changes as the following quotations show. They are all taken from:
ISBN 0 7083 1246 2.
"Technical improvements in the media of exchange have been made for

more than a millennium. Mostly they have been of a minor nature, but
exceptionally there have been two major changes, the first at the end of
the Middle Ages when the printing of money began to supplement the
minting of coins, and the second in our own time when electronic money
transfer was invented... The first stimulated the rise of banking, while the
second is opening the way towards universal and instantaneous money
transfer in the global village of the twenty-first century."
"One of the most significant but insufficiently noted results of these two
major kinds of invention is the fundamental reduction they bring about in
the degree of governmental monopoly power over money. When coins
were the dominant form of money, monarchs were jealous of their
sovereign power over their royal mints. Paper money allowed banks to
become increasingly competitive sources of money, a development
which led not only to significant macro-economic changes but also
facilitated contemporary revolutionary constitutional changes. It was no
accident that the Whigs, who supported the limited constitutional
monarchy of William and Mary were prominent in promoting the Bank
of England." (page 646)
"Similarly in the era of electronic banking `national' moneys are
becoming increasingly anachronistic as millions of customers,
irrespective of their country of domicile, are eagerly offered a variety of
competing financial institutions in a variety of competing currencies.
They are spoiled for choice - and national money monopolies are thereby
also being `spoiled', in the sense of being reduced in effectiveness. The
monetary authorities always try to reassert their monopolistic power - in
economic jargon, to make sure that money is exogenously created - as
opposed to money supplies produced elsewhere by the working of
market forces - or `endogenously' as the economists describe the
process." (pages 646-7)
"The fact that more than half of the total money supply was now being
created, not by the mint under the dictate of the monarch, but rather by
the London money market and provincial bankers gave rise to the most
profound constitutional consequences. First, in order to carry out his
more burdensome civil and military duties, the monarch, after a painful
but vain struggle, had been forced to call parliaments annually. Secondly
because of the state's need to supplement taxes regularly and
PAGE 169 OF 273

substantially with various forms of short-, medium- and long-term

borrowing, the state had been forced to take into account the views and
interests of the moneyed classes and the nature of the institutions which
its borrowing had very largely brought into being. The national debt not
only created the Bank of England but also virtually created the London
money and capital markets in recognizably modern form long before an
equity market in industrial shares became of importance." (page 280).
"For the first time in history money was being substantially created, not
ostentatiously and visibly by the sovereign power, but mundanely by
market forces..." (page 281). Thus the constitutional reforms of the
Glorious Revolution were partly caused by a financial revolution. It it is
worth noting that in the following century the American Revolution was
also partly the result of a dispute over paper money and the British
government's control over the Colonies' money supply.
In the final chapter of the book the question of "free trade in money in a
global cashless society" is considered. The economist Friedrich Hayek
advocated the "de-nationalisation" of money i.e. the removal of all legal
obstacles preventing individuals using whatever form of money they
wanted. In that way, so he claimed, the market would produce the best
forms of currency. Although Hayek was an important influence on many
right wing politicians, including Margaret Thatcher, no government has
been willing to go that far in giving up the state's control of money.
However, the Economist article suggests that the advent of electronic
cash could lead to privately issued currencies competing with official
state currencies.
Paper money was originally simply a proxy for the real thing. British
banknotes still carry the phrase "I promise to pay the bearer on demand
the sum of x pounds" (where "x" is the denomination of the note) with
the signature of the chief cashier of the Bank of England underneath.
However, one unintended effect of the adoption of paper money was to
make hyperinflation possible (e.g. the Continentals of the American
Revolution, the Confederate banknotes of the US Civil War, and German
notes after World War I). China which invented paper money had
abandoned it, before its widespread adoption in the West, for that very
reason.
In general, the more regimented and "planned" that a society is, the
smaller is the role played by money. An example of this was the nations
of eastern Europe and the Soviet Union before the collapse of
communism. A much older, more extreme example was the Inca empire.
The Incas were unique in that they managed to achieve a high degree of
civilization without the use of money, though paradoxically they
possessed a superabundance of what has generally been regarded as by
far the best material for money - gold and silver.
PAGE 170 OF 273

Thus there is a close connection between money and liberty or, in the
words of Dostoevsky, "money is coined liberty." Consequently, if
experiments with digital cash prove successful the ramifications may
ultimately extend to all forms of economic activity and have profound
implications for the development of society in every country of the
globe, just as the development of paper money did.
THIRD WORLD MONEY AND DEBT IN THE TWENTIETH

CENTURY
WHY IS MUCH OF THE THIRD WORLD BEDEVILLED BY

WEAK CURRENCIES AND WRACKED BY INFLATION?
CAN ORTHODOX WESTERN ECONOMIC REMEDIES
WORK IN COUNTRIES UNDERGOING A POPULATION
EXPLOSION?
Monetarism and the Silent Explosion. Is inflation merely a matter of

printing too much money?
"There is an additional factor, 'real' as opposed to 'financial', which

helps to explain the sustained strength of worldwide inflationary
forces and yet remains unmentioned in most modern works on
money and inflation, viz the pressure of a rapidly expanding world
population on finite resources - virtually a silent explosion as far as
monetarist literature is concerned. Thus nowhere in Friedman's
powerful, popular and influential book Free to Choose is there any
mention of the population problem, nor the slightest hint that the
inflation on which he is acknowledged to be the world's greatest
expert might in any way be caused by the rapidly rising potential
and real demands of the thousands of millions born into the world
since he began his researches."
The quotation above is from page 5 of the book discussing the entire
time span of recorded monetary history:
rev.ed.
Cardiff: University of Wales Press, 1996. 716 pages. ISBN 0 7083 1351
5 (paperback).
The first, hardback, edition was published in 1994, ISBN 0 7083 1246 2.
Other causes of inflation affecting both developing and industrialized

countries are discussed in the document on the Pendulum Metatheory of
Money.
PAGE 171 OF 273

Bridging the Gap between Poverty and Wealth
The author describes the task of "enabling millions of the world's poorest
men and women to earn a decent living for themselves" as the greatest
problem facing mankind (page 596). Despite the magnitude of the
problem the gaps between rich and poor nations should not be
unbridgable since, as he points out "if all the countries of the world were
arranged in ascending order [of wealth] there would be a continuous
gradation from the poorest to the richest without any perceptible gap -
more like beads on a string rather than shaky stepping stones across a
stormy river. This important fact, plus the successful experience of a
number of quite different countries that have been able to achieve high
rates of growth over a considerable period, offers sound prospects for
sober optimism, even among economists." (page 596).
Nigeria, India, and South East Asia
In chapter 11, entitled Third World Money and Debt in the Twentieth
Century, developments in Nigeria receive particular attention because in
the author's opinion Nigeria affords one of the best examples of the
process whereby former colonies established and nurtured their own
central and commercial banking systems followed by their own money
and capital markets. By way of contrast India and South East Asia, where
several nations are in the process of leaving the ranks of the Third World,
also receive fairly detailed attention. (The experience of Japan in moving
from being a developing country to a financial superpower is described
in the previous chapter).
The International Debt Crisis and Currency Stabilization
The geographical focus of chapter 11 becomes more diverse when the

evolution of the Debt Crisis is discussed, ranging over many other parts
of the developing world too, e.g. Latin America where many of the worst
cases of hyperinflation in recent years are found. The author notes the
fears of some people that the problems of the former command
economies of eastern Europe and their need for restructuring will divert
investment by wealthy countries that would have gone to the LDCs and
says that althougth these worries may have some validity in the short
run, the assumption smacks too much of the `fixed sum of capital' fallacy
or the false assumption of a zero-sum game.
Although some LDCs, e.g. India, Indonesia and South Korea have
managed remarkably well in controlling inflation, in much of the Third
World hyperinflation has strongly distorted development. Consequently
Glyn Davies concludes this chapter by suggesting that "if the LDCs, in
an effort to swing the secular monetary pendulum away from its
PAGE 172 OF 273

inflationary extreme, were to anchor their currencies firmly once again to

one or other of the northern currency blocks - the US Dollar, the
Japanese Yen, or one of the strong European currencies, it would be an
act, not of neo-colonialism, but of plain commonsense, soundly based on
the hard-learned lessons of their own experience. Reanchoring their
runaway currencies is a prerequisite for development to reach its true,
more equitable, long-run potential." (page 638).
The Relevance of History
Countries that are today wealthy once faced problems that were similar
in certain respects to those of developing countries today (conversely
some countries in the Third World were once much wealthier than
northern Europe) and therefore there may be lessons to learn from their
experience. As the author points out in his preface "around the next
corner there may be lying in wait apparently quite novel problems which
in all probability bear a basic similarity to those that have already been
tackled with varying degrees of success or failure in other times and
places."
The contents of chapter 11 of A History of Money are listed below.
11 THIRD WORLD MONEY AND DEBT IN THE TWENTIETH CENTURY

593-638
Introduction: Third World poverty in perspective
593
Stages in the drive for financial independence
598
Stage 1: Laissez-faire and the Currency Board System,
c.1880-1931
600
Stage 2: The sterling area and the sterling balances,
1931-1951
604
Stage 3: Independence, planning euphoria and banking
mania, 1951-1973
607
Stage 4: Market realism and financial deepening, 1973-
1993 613
The Nigerian experience
613
Impact of the Shaw-McKinnon thesis
616
Contrasts in financial deepening
619
Third World debt and development: evolution of the crisis
629
Conclusion: reanchoring the runaway currencies
636
PAGE 173 OF 273

PAGE 174 OF 273

THE HISTORY OF BANKS
BY RICHARD KELLY HOSKINS
EXTRACTED FROM THE BOOK - WAR CYCLES, PEACE

CYCLES
Babylonian Economic System--2000 B.C.--The First Defaults
Archaeologists digging in the ruins of ancient temples, or ziggurats, in
Babylonia have discovered extensive evidence of the economic system
practiced by the priests of Baal. Instead of finding money (or coins) as we know
it, we mostly find clay tablets representing promises to pay--or IOUs. Along with
the clay tablets has been uncovered the secret of their economic system, a
system in some respects more efficient than our economic system today.
People only borrow when they are in need or if they are greedy and think
they are getting a bargain. In Babylonia after a bad crop year, the farmers would
be forced to go to the priests of Baal for a loan to buy seed for the following year.
Let us say a farmer named Seth was one of those who needed money for seed.
The temple priests were most accommodating and graciously allowed Seth to
borrow 10 talents under condition that he repay 11. His land, livestock, wife,
children and he himself served as collateral.
In that day there was little money in circulation. The sudden appearance of
10 talents in circulation allowed Seth and all the other farmers to buy seed and
plant great fields of grain. They also bought cattle and sheep and many other
necessary things. Here we have a situation of a debt of 11 talents coming due
while there are only 10 talents in circulation with which to pay.
We can imagine that Seth was panic-stricken after having paid back 10
talents and finding that he still owed one more, and that there was no way to pay
because there was no more money in circulation. He could offer the priest
thousands of bushels of grain in payment, but the contract he signed was due to
be paid in TALENTS--not grain. Cattle? Seth had herds of cattle, pigs, and flocks
of sheep-these were also turned down The contract was to pay in TALENTS--not
sheep and pigs. Seth had gathered up the only 10 talents in circulation to pay
down on his 11 talent debt and now there was no money to be had. Land, corn,
cattle, sheep and pigs had no value as payment against his debt. The contract
he had signed stated that he was to pay "talents" only, and there were no talents
in circulation.
Default & Prohibition Of Usury

Now arrives the moment of truth-default-bankruptcy. Since Seth could not
pay his debt of 11 talents when there were only 10 talents in circulation, he must
PAGE 175 OF 273

forfeit his collateral. His livestock went first, his lands next, then his children were
sold into slavery as well as his wife, and then he himself became a slave. This is
where most slaves came from-debt. Besides Seth and his family, there were tens
of thousands of Babylonians who could not pay debts of 11 talents when only 10
talents were in circulation. By the thousands they were herded into captivity. The
priests of Baal reduced a large part of their fellow countrymen to slaves and the
'system of interest' spread wherever Babylonian armies marched or Baal priests
practised their religion.
Early Banks And Bankers

Since the earliest times there have been banks and bankers. The type of
bank which was approved of, operated simply to bring a person with money
together with a person who needed money, and together they became partners
in a joint venture business enterprise. For this service, banks charged fees. The
other kind of bank which was disapproved of, operated on the Babylonian
principle of lending 10 and collecting 11. The first one was necessary, natural,
and orderly; the other unnatural and disorderly. The reasons the disorderly
'interest system' has been forbidden to faithful Christians (and Muslims) are
obvious. If you borrow 10 and are forced to pay back 11, sooner or later the
lender, or usurer, will take your property.
Ancient Money Contracts

The example used earlier of Seth borrowing 10 talents and having to repay
11 talents is straightforward and easily understood. But to elaborate just a little:
Suppose Seth goes again to the lender and borrows 10 gold talents and
agrees to repay interest each year of 3-1/3 talents, and also agrees to repay the
10 gold talents whenever the Baal priest asks for it. Each year for three years
Seth pays 3-1/3 talents. At the end of three years there is no more gold in
circulation and Seth must ask for a loan in order to pay the interest he had
agreed to pay (or forfeit his farms, children, etc.).
The lender then has a choice: he can lend Seth gold talents with which to
pay interest or he can give him a clay tablet which the lender says is worth 3-1/3
talents and keep his gold. Understanding money is just common sense. Which
would you do? You would give Seth a clay tablet and keep the gold. This is the
reason for the clay tablet mentioned earlier. It was a loan substitute for gold. The
citizens of Babylon treasured their clay tablets. They are found in great quantities
today wherever excavating is being done in the ruins of Babylon.
We have mentioned the temple banks -- they were big ones. There were
also government banks, and private banks such as the Igibi Bank which
flourished in 575 BC. These banks offered almost every service offered by
banks today, including the use of cheques, savings, letters of credit, and the
Babylonian form of paper money -- the clay tablet. The banks kept the
gold...naturally.
PAGE 176 OF 273

In ancient Egypt a canal had been dug from the Nile all the way to the Red
Sea. Boats coming from India could stop by barges tied up by the side of the
canal and get a loan-day or night. At night these loan-boats were well lit so that
they could be seen from a long way off. They are the ancestors of the drive-in
window in today's banks.
Persia Conquers Babylon

The relationship between nations follows almost exactly the relationship
followed between individuals. If one nation desires something another nation has
and doesn't have the required payment the money can be borrowed. If interest is
required, as it usually is, trouble is just a matter of time.
Babylon had a neighbor to the north--Persia. In the course of trade Babylon
graciously made loans which enabled Persia to buy things she ordinarily would
not be able to buy. The loans were made at standard interest rates for the time,
33-1/3%, payable in gold. Persia kept her part of the bargain as best she could.
She borrowed extensively and was required to repay double the amount in three
years. After paying back the original loan, Persia, like Seth earlier, found that
there was no more money left in circulation and that she still owed Babylon's
bankers the interest on the loans.
The king of Persia had other problems resulting from this Babylonian loan.
Interest on the loan drained Persia of money. Commerce came to a virtual halt
except for barter. There was no gold for taxes so the king could not pay his
retainers. King Cyrus of Persia needed gold. Babylon had the gold Persia
needed. Persia went to war against her creditor and conquered Babylon in 536
BC-and confiscated Babylon's gold She also adopted Babylon's usury system.
Usury between nations inevitably leads to war.
Greece Conquers Persia

As Persia spent the confiscated Babylonian gold there was an instant flash
of economic activity. New cities were built, industries were financed armies
outfitted, and palaces were built. The flood of wealth sent Persian merchants to
Greece. The Greeks needed Persian wares so they borrowed with the promise
of returning the loans plus interest.
A case in point: in 412 BC Sparta borrowed 5,000 talents from Persia to
build warships. This loan, like all the others, was at standard rates. Seven years
later, in 405 BC, Lysander of Sparta used these ships to destroy the whole
Athenian fleet which was attacked while they were drawn up on a beach. This
event made Sparta 'number one' in Greece-all on borrowed money.
Let's look at this transaction in a little more detail. If the Spartans repaid the
Persians' loan monthly, the payments would have come to 153.19 talents
monthly for 7 years. At 33-1/3%, the total repaid would have come to 12,857.96.
A tidy profit--if that much money could actually have been found in circulation to
meet the payments.
PAGE 177 OF 273

Chances are the Spartans needed the entire 5,000, and everything else
they could get together, to prepare for the coming war. If this is what happened
the debt would have looked like this:
Spartan Debt To The Persians @ 33-1/3%

5,000.00 borrowed
6,666.65 owed at end of 1st year
8,888.84 owed at end of 2nd year
11,851.79 owed at end of 3rd year
15,802.39 owed at end of 4th year
In that day 1 talent was a substantial sum. Five thousand talents was
enough to buy an entire navy. Thirty seven thousand talents was an impossible
figure. "The borrower is servant to the lender." Sparta was forced to use the navy
she had borrowed the money to buy--she couldn't allow the unpaid debt to
continue to mount. When she won the war, she transferred the payments of this
horrendous debt to Athens--and Athens instead became the servant of Persia.
The Persians certainly felt themselves the real winners. Greeks were killing
Greeks-and their 5,000 talent loan had brought home wonderful riches. It was
these loans that drained Greece of money and paved the way for unending war.
336 BC--Alexander The Great

Philip II of Macedonia died. Philip had conquered Greece and placed her
under his rule. His son, Alexander, inherited the throne. Quickly putting down
army discontent, he inspected the treasury. It contained the equivalent of a
measly $120,000, not even enough to pay his army. In addition, he owed $1.5
million.
Alexander had no choice. He had to have money to pay his army and to pay
his debts. Greece was bare of money. Persia was rich. She had the money she
had taken from Babylon and from her interest charges to Athens and other
Greek cities over the years. The pressing need for money forced Alexander to
invade Persia. Leading his matchless Grecian phalanx against the Persians, he
won magnificent victories and gained an empire--and $440 million in gold from
Darius' banks and temples.
Rome Conquers Greece

The Grecian empire encompassed most of the known world. A model Greek
city was built in each conquered country to demonstrate the superiority of the
Greek culture. Each city contained a temple. Each temple was also an interest
PAGE 178 OF 273

bank which made loans. Gradually the gold in the form of interest payments
returned from the people to the Greek temples scattered all over the empire and
gradually depression also set in.
Greek traders established cities in the southern and northern parts of Italy.
In the middle was the young vigorous Roman federation. The Greek traders
traded extensively with their Roman neighbors--much of it on credit--lending 10
gold coins under condition that 11 be repaid. The Romans were hard put to pay
their ballooning obligations to the Greeks and at the same time maintain their
armies which were needed for their incessant wars. Choosing to gain by war
what she could not gain by peace, Rome turned on Greece, conquered her, and
confiscated her wealth concentrated in the Greek temples and the municipal and
the private banks.
No man or nation wishes to be a servant or slave. When it is discovered
that the interest loan is a trick and there is no way to repay the debt, both men
and nations will turn on their lenders.
A loan must be accompanied with bribes to keep the rulers of the stronger
nation friendly. Babylon was active in the internal affairs of her neighbors. Persia
was always active in the internal affairs of Greece.
In spite of bribes, in time the 'system' itself generates a 'desperation level'
that bribe money will not fix.
Taxes-To Start Money Moving

"Interest requires a heavy tar so that money will not be hoarded bur
circulated to pay interest" --Hoskins' 4th Law of Interest (2)
Taxes! This was one of the most brilliant inventions of the classical age.
This is where 'share the wealth' taxes started. While there have always been
taxes, the specific reason for these heavy taxes was to milk the rich and start
money circulating again Everyone paid them.* The rich in Athens groaned, but
they paid. The rulers spent it as fast as they could get it. It worked. Commerce
and trade broke out of stagnation, then blossomed. It required rigidly enforced
collections to break loose the tightly held money. No holdouts were allowed since
the holdouts plus interest could in time result in owning all the money again
through use of The System
This universal taxation, whose benefits were discovered long ago in
Greece, is essential to the usury system. Through the years men have spoken
against taxation. Everyone who has paid taxes has wanted to do away with
them, but what happens when taxation is abolished? The usury-bankers end up
with all the money, and none is left in circulation. The only thing that has kept the
usury system operating through the ages is taxation In spite of its beneficial
effects, the biggest and most modem buildings in the blighted debt-ridden
downtowns of the world are still banks and insurance companies. Both are active
in usury in slightly different ways and have cornered the larger part of the wealth
of the world.
PAGE 179 OF 273

People who talk against taxation haven't thought the matter through. The
only time heavy taxation is not needed is when there is no usury system.
(* Note: Today, special taxes such as the 'inheritance tax' are used to force
owners to sell their businesses and land to corporations owned by the
international usurers. A businessman may have bought his business for $50,000.
He dies and it is valued at a million. The son is often forced to borrow heavily to
pay the inheritance tax. When he cannot meet payments, he is foreclosed. This
is the only way the usurers could ever hope to capture most family-held property
passed down from generation to generation.)
Rome's Debt Solution-Conquest!

The first war with Carthage gave Rome 3,200 talents in tribute and the
second war returned 10,000 talents. This money was spent on her debts. In a
short time Rome was hard up again and was forced to conquer Greece. The
Greek wealth lasted Rome for a while and then, like Greece, Persia and Babylon
before, Rome was forced to conquer and conquer and conquer. After Greece
came Syria, and then Carthage again. By 14 AD she had conquered what would
be modem-day northern and southern Italy, Sicily, Greece, the immense
coastline of North Africa, Turkey, Algeria, Spain, Egypt and France.
By 98 AD Rome had added Morocco, England, and most of Scotland, and
by 98-116 AD Arabia, Mesopotamia and Armenia. It was becoming expensive to
conquer and the returns were scant. As long as there were nations to conquer
and gold to be won, Rome was a vigorous expanding empire. When the Roman
legions were at last reduced to wandering over the hot barren sands of Arabia
and the equally barren steppes of Russia, Rome had reached the end of the line.
There is never enough gold to satisfy the ' demands of usury.
Roman Cold Substitute--War Borrowing

Men seldom go into debt freely. We have seen how The System demands
that new money be borrowed into existence in order to pay 11 for 10 when only
10 exist. This will work for mat class of citizen who is always in debt, but it will
not do for that solid type of citizen who for business or religious reasons will not
borrow or go into debt. This type of individual must be forced to borrow new
money into existence for the good of society as a whole. This is most easily done
in wartime. It then becomes a 'patriotic' measure.
The ideal war is the kind that results in conquests with light casualties. If
such wars are not available, one must make do with what one has. Spain was
such a case. Rome waged a long continuing war with her which lasted for
generations. Whenever money got scarce as interest payments took money out
of circulation, the Spanish War would be taken off the back burner and heated
up. This provided the excuse to levy new taxes, the payment of which required
private Roman citizens to borrow new money into existence from their friendly
bankers.
PAGE 180 OF 273

Problem Wars
A problem occurred in 54 BC when Crassus, the great Roman financier,
took an army into Syria to see if he could expand Roman holdings. In that day a
leader had to pay for the privilege of conquering a province. If he were victorious
he had a lease on his conquests for five years. That is, after the expenses of
using the Roman army were met. Everything above the military expenses that
could be milked from the conquered land belonged to the general. After five
years of such exploitation the province reverted to reverted to Rome. A man
could get rich or he could become poor depending on how well his campaign
went before the conquest, and how successful the tax collections were
afterwards.
Crassus was a good general, but he ran into a nation he couldn't handle.
He and his army were destroyed by the Parthians. This involved Rome in never-
ending wars with this nation. It was a running wound which helped bleed Rome
of her manhood, but offered a perpetual excuse to borrow continuously more and
more money into existence.
Thus, the Romans' debts grew larger and larger while more and more
Roman bays marched away forever.
Herman--16 BC - 21 AD
The second of the problems was that of the Germans led by Herman.
Herman was a German serving in the Roman army when he learned of the
coming Roman invasion of his native German lands. Using the cloak of official
business to travel extensively beyond the Rhine, he aroused the scattered
German peoples who formed a confederation to fight the coming invasion.
When Roman preparations were complete, the Roman legions wound their
way across the Rhine into the forests of Germany.
It was in the Teutoberg Forest that Herman and his warriors waited. When
the time was right, the attack was made. The bat'1Pe lasted three days. When it
was over, the Roman legions had been annihilated. The monument to Herman
commemorating this great victory still stands at the site of this battle. The victory
stiffened the Germans and from that time onward they pressed against the
Empire whenever an opportunity arose.
The Roman Peace--25 BC -175 AD

Rome found herself at war in Spain, Syria, and Germany. This was too
much even for Rome. The attempt to wind down the military adventures ushered
in the period called the Roman Peace. This "Peace" was not completely free
from war, but it was quieter than the years preceding it. It also turned out to be
the villain in the destruction of the Roman Empire.
Peace or no peace the Roman armies still must be fed housed and armed.
To do this, taxes were fanned out to the various provinces. The provinces in turn
fanned them out to the various cities. The cities farmed them out to the individual
citizens, industries and farms which surrounded them. This meant that a certain
PAGE 181 OF 273

tax was due on a certain date based on the amount of money needed by the
Empire-and it must he paid. There was no way out of it.
The central government did not borrow money as a rule. This left the
individual Roman citizen holding the bag. The average Roman had very little
money, and so in order to pay these taxes, he was forced to borrow from private
bankers. Borrowing 10 pieces of silver and having to repay 20 over a period of
time became an impossibility, and so the farmers threw their hands up and
abandoned their farms to their creditors. They weren't making enough to pay the
interest on their debts which they had incurred to pay taxes, and so they came to
town and became part of the Roman mob. This was the origin of the Roman mob
-- debtridden and bankrupt Roman farmers. His farm was sold to a new debt-
free immigrant for the remainder of the money owned on it.
Roman Welfare State

Welfare in a usury society is always designed to aid the welfare of The
System and, only incidentally, the welfare of the individual. Rome was no
exception. The bankrupt Roman farmer arriving in town found three possible
avenues open to him:
1. He could join the Roman army--a relatively carefree life. There was
freedom from responsibility, and certainly there was freedom from taxes. Of
course, the soldier would be called on to build the Roman roads and fortifications
and help with the maintenance of the walled cities. Too, there was always the
never-ending training and actual fighting required periodically in the life of a
soldier.
2. He could go as a colonist to the new lands in Africa, Spain, or France
which were open to settlement. Unfortunately the tax followed him to the new
land and often this made the new land unprofitable to work even before the
plough had been put into the ground.
3. He could stay in Rome and go on the welfare lists. This allowed him to
eat, and also served the needs of the state.
As mentioned before, the overriding need of Rome in the 'peace phase' was
to increase the money supply. New conquests had stopped. There was no
captured gold arriving to pay interest on debts. Most native Romans were deeply
in debt and couldn't borrow new money into existence. New debt-free immigrants
had taken over the borrowing function from the native Romans.
A bankrupt man is a debt-free man, so the bankrupt Roman mob was
placed on the welfare lists--the dole. With this government handout the recipients
could buy goods on credit worth many times the amount of the 'dole'. As long as
merchants received payments, both debtors and creditors were happy and the
money credit supply expanded--benefiting everyone.
Roman Taxes
The dole helped the mob to increase the money supply. This was good, but
the dole money had to come from somewhere, since the central government did
PAGE 182 OF 273

not borrow. It came from increased taxes fanned out to 'the provinces'. This
made the taxes on surviving merchants and farmers heavier than before. At this
stage a number of things started happening.
First, it was so difficult to make money and pay taxes that men quit their
businesses and joined the mob in Rome. Consequently, laws were passed
prohibiting men from leaving their occupations.
Declining Birth Rate

Next, since money was so hard to came by and expenses were so high,
there was a great reluctance among the people to have children.By 65 AD, the
usury contract had swept the heartland of Rome clear of Romans. Tombstones
show that 909b of the population bore non-Roman names or had names that had
been 'Romanised'. Due also to voluntary childlessness, of 400 families of
senators under Nero all trace is lost a generation later.(3)
There were more Romans in Gaul and North Africa than there were in Italy.
Lack of money caused Rome to resort to force to collect tax levies. The imperial
cities were assessed taxes and the shortfall was made up by "Curiales"-
officehoIders in charge. In former days this office was much sought after. After
the imperial tax quota was filled, whatever was left over could be kept by these
tax collectors. Now it was impossible to collect the needed tax quotas, much less
hope for 'surplus' taxes. Because of usury there were 25 pieces of silver owed
for each piece of silver in existence. To make good the shortfall of government
taxes in these conditions was to seek ruin. If the Curiales didn't have the
required tax on due date, they had to borrow the needed tax money into
existence themselves. Men refused to serve. Curiales had to be appointed. A
commentator on this period, in a complete quandary over how the I0-for-ll
system works, made the following comment: "Yet there was still plenty of money
about, and thanks to a highly developed banking system, loans were available at
a rate of interest which rarely exceeded 69b. The writer obviously did not
understand that at this time the Romans were so heavily in debt that it made
absolutely no difference whether rates were 1009b or 19b. The borrower would
have equal difficulty in qualifying for a loan or having any chance whatsoever of
repaying the loan if once obtained.
The rich bought up land to form estates. As early as 367 BC laws had to be
passed limiting the acreage owned by the wealthy to 1,250 acres.(4) It had
gotten so that there none available for the small farmer. The "Licinian Law" was
passed requiring interest paid to be deducted from capital.(5)
This was the same as doing away with interest. None of these reform laws
lasted long. In 326 BC, slavery and the death penalty for non-payment of debts
was abolished--everyone was becoming a slave.
The remaining Roman and Greek farmers deserted the land en masse and
moved to the cities. In 135 BC Tiberius Gracchus, crossing the formerly rich and
productive province of Etruria, had the impression that the land was empty. In
124 BC he tried to distribute land in order to get the Roman mob back to their
farms. He was killed in a riot. In 121 BC his brother Gaius did the same and was
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assassinated. By 100 BC there were only 2,000 landed proprietors in all of Italy.
(6)
Abolition Of Slavery
In the process of conquering the world Rome brought in millions of slaves.
Many were Greek. Many were slaves sold to the Romans by their masters in
other lands in payment for goods and taxes. These slaves living throughout
Rome were, because of their slavery, denied the opportunity to become
consumers and borrow money like the rest of the Roman population. As the
decline of native population continued, the authorities were forced to free these
slaves so that they could in turn borrow new money into existence. Slavery can
never exist over a long period in a usurious society. The slaves are always freed
to borrow money.
Eleven free men can borrow more money than a master with ten slaves.
The system of usury itself decrees that slaves be freed, so that they can do their
part in borrowing money into existence. It was along about 200 AD that slavery
started to disappear.(7)
I have never encountered a case in history where slaves were freed en
masse for humanitarian reasons. First, usury causes high prices (inflation), then
heavy debts, a landless people, lower birth rates and declining population, and
finally immigration of new peoples needed to borrow money into existence and
pay taxes, or slaves are emancipated to achieve the same object.
Thus we have newly freed slaves in many cases receiving treatment and
privileges which in former days would have been reserved to Roman citizens
only. It is always so. A debt-free potential borrower is of far more value than a
heavily indebted native citizen. The Roman financial community welcomed these
freed men with open arms and treated the debt-ridden native Roman with scorn.
As an added source of revenue, "Roman Citizenship" could be purchased for a
reasonable sum. Nothing was denied them. Everything could be bought--if you
had the money.
References
1. Encyclopaedia Britannica, 14 ed., Banks, p.67.
2. See Appendix I, "Hoskins' 7 Laws Of Interest.
3. Tenney Frank, An Economic History of Rome, New York, 1962, p.206.
4. Jean-Philippe Levy, The Economic Life Of The Ancient World, Chicago,
1964, p.54.
5. Levy, p.55.
6. Levy, p.70.
7. Rostovtzett, The Decline Of Rome -- 3rd Century, p. 24.
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Tallies, Templar Wealth & T-Bills

When the crusaders first left their homelands in Europe for the crusade to
the Holy Land, they took with them almost the entire circulating supply of gold
and silver coins. This left Western nations, England in particular, with no money.
In the year 1100 AD Henry I, fourth son of William the Conqueror, ascended
the throne of England. Finding the treasury empty and his needs great, he cast
about for a source of income. Having wise advisors he soon hit on a plan. His
plan, with a few refinements, remained in effect for the next 726 years--and can
be reinstated tomorrow. He issued 'tallies'.
A tally was a stick about nine inches or so long with each of the four sides
about 1/2 inch wide. On two of the sides, the value of the 'tally' was carved into
the wood. On the other two sides, the amount was printed in ink.
The tally was then split in half lengthwise. One half remained in the treasury
and the other half was given to soldiers for their pay, to farmers for wheat, to
armourers for armour, and to labourers for their labour.
At tax time, taxpayers were required to bring in one half of a tally to pay
their taxes. Woe unto the man who did not have the required number of tally
sticks. As a consequence, these intrinsically worthless sticks of wood were in
great demand. Gold and silver coins were fine if you travelled abroad for a
crusade or something, but at home if you did not have your tax tally at tax time--
you were done.
Upon receipt of a tally the treasurer would immediately match the presented
half with the half stored in the treasury. THEY HAD TO TALLY--which is what
gave it the name. Counterfeiters lost their heads! Actually, it was practically
impossible to counterfeit a tally. The wood grain had to match--the notches had
to match--and the ink inscriptions had to match. This could only come about if
both pieces came from the same split tally.
There you have it! An inexhaustible source of revenue for the goverunent.
The means were available to make tallies as long as there were trees. There
was a demand as long as the government required the tallies for taxes. The
system flourished as long as tax-evaders and counterfeiters were punished and
they always were. For 726 years the system flourished.
Interest In England
Government 'tally' money and 'usury' money cannot exist side by side. Tally
money makes usury money look bad because it stays constant, while usury
money expands and contracts. The advent of usury money spelled the death of
the tally.
The process started in 1694 when the Bank of England was chartered. This
new type of interest-bank was permitted because of a promise made by the
pretender to his financial backers before he became king, and before he had
access to the privilege of issuing the potentially inexhaustible supply of wooden
money. When the pretender became king, he kept his promise to his usurer
bankers. The days of tally money were numbered.
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At that time there were about 14 million pounds in tally money in circulation.
In 1697 when the capital of the Bank of England was increased, 160,000 pounds
of this new money was paid for with tally sticks. The irritation of having usury
money and tally money circulating at the same time ended when Parliament
abolished the use of tallies for taxes in 1783.
Circulation of tallies continued in the back country of England until 1826. In
1834 the treasury tallies were burned by allies of the Bank of England. The
furnaces which heated the House of Lords were used. The fire blazed up and
burned down both houses of Parliament.
The T-Bill
The government has the right to make money. It can do so whenever it
chooses. In the United States the government has authorised its Treasury to
create Treasury Bills. These bills are created out of thin air, but they are no less
real than the wooden tallies of our ancestors.
The government doesn't need to borrow money from the banks of the
Federal Reserve and have a debt of over a trillion dollars. It can make money
instead. All it has to do is MAKE IT--T-Bill tallies in denominations of $1, $5, $to,
$20, $50, $100, and $1,000. Then it can spend them for needed government
services, and tax them out of circulation again. Our ancestors did it for almost
three-fourths of a thousand years.
The reason it isn't done is that the trillion dollar debt pays interest. Tallies
don't. If the debt were paid off with T-Bill tallies, someone would be deprived of
over 100 billion dollars a year in interest! Where would bankers' profits and the
politicians' campaign funds come from if this were stopped?
T-Bills are modern-day tallies. They are created money. They are not usury
any more than a wooden tally was usury.
The tally sticks were a wonderful invention. They were freely accepted--in
England. The king of England, however, had to have gold or silver to do business
in France. A Frenchman or Italian wasn't thinking about taking an English
'wooden tally' in exchange for his goods. They required 'hard money', the very
thing that had left the country to pay for the crusades. The frugal Englishman
who owned precious coins kept them.
In an attempt to solve this problem King William (Rufus) in 1087 opened
the doors of England to the Jews under the condition that they lend at'interest', a
thing forbidden to native Christians, and that, further, the king get half the profit.
Every effort was to be made to obtain the needed gold and silver in payment for
loans instead of wooden tallies.
1096 Ad--First Crusade

The Jews became the king's valued unofficial tax collectors. As fast as their
usury brought a debtor into bankruptcy, the king got his share.
Other conditions found their way into the relationship between the king and
the Jews. Whenever a Jew was converted or died, his estate escheated to the
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king. The Jews could only live in the town which contained an Archai, an office in
which every transaction with the Christians was recorded by government agents
to make sure the king got his cut. In practice this worked the same way as it had
in every other country. Ten pounds lent at 20% would require repayment of 20
pounds in a little more than four years.
10 pounds borrowed
12 owed at end of 1st year at 20%
14.4 owed at end of 2nd year
17.28 owed at end of 3rd year
20.74 owed at end of 4th year
If the loan were due in 'tallies', there was some slight chance that it would
be paid. If it were due in gold or silver, there was virtually no chance that the loan
would be paid since almost all gold and silver had vanished from England. The
debtor lost all. The king chuckled with glee as he got half. The debtor's choice
was then to rot in debtors' prison or put himself into indentured slavery for seven
years to work off his debt. The Jews were estimated to have owned one-fourth of
England, a never-ending source of wealth to the king who made money on every
transaction or whenever a Jew was 'converted' or died, in which case his entire
estate went to the crown.
In England the main irritant with the Jew was usury, the thing that caused
problems from the first. It was the system he practised. The people learned to
hate the Jew because the Jew meant slavery--economic slavery.
The feeling against Jews had risen so high that in 1218 Stephen Langton,
Archbishop of Canterbury, required them to wear an oblong white badge so that
Englishmen would know who they were and what they did.
In 1269 they were prohibited from hiring Christian helpers while working as
artisans, merchants, or farmers since the Law states:
"Thou mayest not set a stranger (zuwr) over thee, which is not thy brother."
(Deuteronomy, 17:15.)
The Church added its own prohibitions forbidding Christians to work for
Jews, and, with promptings from the pope in Pome, the Jews were also
prohibited from taking interest. If they could not take interest, their usefulness to
the king was destroyed.
On July 18, 1290, the Jews were deported from England; 16,000 left. This
handful was all there were. This deportation was forced on the king by a
combination of religious authorities and nobles, with the wholehearted support of
English freemen. Since the king was in debt to the lews, an agreement was
worked e out so that they were allowed to carry away portable property such as
British money and silver and gold art objects that they had accumulated. In
exchange, the king received houses, lands, and castles obtained by their usury
contracts. All these escheated to the king. Once more, England was snipped of
her floating supply of gold and silver.
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Templar Wealth
As mentioned before, many devout Christians left their estates to the
Templars in their wills. In every country in the West, from Denmark to Ireland,
from Spain to France, local Templar organisations over the years accumulated
wealth. Their skill at arms made them the natural traders of the day and their
honesty made them trusted bankers.
A merchant in England might ask the Templars to transfer a certain amount
in gold to Paris to cover a business deal. A Templar courier would take a 'gold
deposit receipt' to the Paris temple. This piece of paper allowed the merchant's
Paris business contact to collect the agreed upon amount of gold. Sometimes he
did collect--sometimes he only collected the paper 'gold deposit receipt'--which
was as good as gold. He could use this paper receipt as paper money if he
chose. Merchants anywhere would accept it. Any settling up by actual transfer of
gold between the London and Paris Templar temples could be done at a later
date. Interest-free loans were made to kings and merchants, and trade was
largely in their hands. The Templars were the wealthiest organisation in
existence in every country. This wealth was the reason for the Templars'
downfall.
Templars Destroyed
The people of France forced their king to expel the Jews in 1306, just 16
years after they had been expelled from England. As in England, the French king
was in debt to the Jews and was their 'servant'. Consequently, the same sort of
agreement was worked out as in England earlier. They were allowed to take
almost the entire floating supply of coins with them in exchange for their
extensive property holdings.
This made the king a gigantic property holder but left France with little
money with which to honour foreign commitments. What was left of the
remaining supply of gold and silver money was in the hands of the Templars.
To get the Templars' gold, the Templars in 1307 were charged with heresy
by Pope Clement V, a French pope. Templar leaders were seized and
imprisoned. Their property was confiscated. The cash went into the empty
coffers of King Philip of France. Their lands were seized by the Catholic Church.
In every Christian country the word went out to seize Templar wealth.
It was in this way--without being convicted or even heard-the noblest of the
Christian orders was extinguished. Noble knights bearing scars of a score of
battles with the infidel in the Holy Land begged bread or hid in the forest. Those
who gave to these unfortunate men were excommunicated. The Grand Master,
Jacques de Moley, was burned at the stake.
In recent years there have come certain detractors who accuse this
organisation of taking 'interest'. One of the best replies to this charge is found in
Thomas Parker's book Knight Templar In England, p. 71:
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"...had there been any grounds at all for a belief that the Templars engaged
in usurious activities, such a charge would surely have been included in the
indictment drawn up against them at the time of their arrest and trial.
The lesson to be gained from this tragic occurrence is that to survive, it is
not enough to have a noble cause and to be pure and righteous. If you are
wealthy while the government is poor, the government will find a way to take
your wealth. In the process of seizing your wealth, they may also liquidate you to
prevent future claims.
The problems associated with the violation of our common law descend to
the present day. The priestly tribe of Levi was to receive no land but was to live
on the tithe from the other tribes of Israel. Even though their motives were good,
the wealth accumulated by the Knights Templar priesthood was in violation of
this rule and aroused the jealousy of powerful enemies. The accumulation of
wealth by this priestly organisation caused their destruction.
The great wealth in land and gold accumulated by the Roman Catholic
Church through the centuries has constantly brought it also into conflict with
national governments, and has caused its destruction in many lands.
In England, the Queen is head of the Anglican Church. Much of her wealth
was confiscated from the Catholic Church. This has been a never-ending source
of irritation to her subjects. Her opponents maintain that if she is to be "of Levi",
she should obey the rules of Levi. If she is to be "of herself', she should abdicate
as head of the Anglican Church and be "of herself'. There is no grace' without
'repentance'. The 'Law' applies to everyone--especially 'the king'.
Canon Law On Usury

In early days all Christians belonged to the Catholic Church. The Catholic
Church had many rulings on the subject of usury. These rulings were
incorporated into canon law. The laws started with the Bible, were added to by
laws of ancient Rome, added to again by the Orthodox Church of the Eastern
Roman Empire at Constantinople, and were improved upon extensively during
the 1100s, 1200s, and 1300s, when some of the finest ecclesiastical thinking
took place.
At that time there were two types of courts. Civil courts tried civil cases.
Ecclesiastical courts tried offences against divine law such as crimes of heresy,
sacrilege, adultery, perjury, and usury. Usury was considered a violation of
scripture, against the natural law, and therefore against God Himself. It was
forbidden by both the divine and canon law.
Prohibitions against usury were not only directed against those who took
usury, but against their families, those who refused to denounce them, and those
who had any part in drawing up contracts whether or not they were lawyers,
notaries, or judges. Penalties were directed against those who rented houses to
usurers, which allowed them to pursue their trade. and the rulers who allowed
them to reside within their territories. This included priests who did not enforce
the Church's edicts against these offences. A priest was not allowed to receive
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their offerings. The old excuse that "the money has committed no sin" would not
stand in an ecclesiastical court. If a usurer brought offerings to a church and
disappeared, the church was required to restore the money to the victims from
whom the usurer had exacted the money.
In 1179, the Third Lateran Council laid down the three prime penalties for
manifest usurers:
1) They were deprived of Communion.
2) Their offerings were refused.
3) They were denied Christian burial.
This law was interpreted to mean that the offender was not even to set foot
in church during divine services. Pope Alexander m stated that if the usurer did
not cease his activities he was to be excommunicated and cut off from all
intercourse with other Christians.
In 1212, the Council of Paris decreed that the property of a usurer was to be
confiscated by the king upon the usurer's death and distributed to the poor. The
usurer was denied the right to will anything to his own family since the fruits of a
robbery were not to be the object of a gift. Once the charge of usury had been
established, the ecclesiastics must undertake to make restitution to those who
had been defrauded. Servants must leave the employ of a usurer or suffer the
same penalty as their master. This same council declared automatically
excommunicated any minister who granted Christian burial or accepted offerings
from these outcasts.
The Council of Lyon in 1274 stated that if a stranger who was a foreigner
was accused for one month and had not been removed from the territory, the
whole territory fell under an interdict.
A wife of a usurer had no right to anything that he might give her. It was
considered better that she leave him and beg bread than for her to receive
support from her husband. After being excommunicated for one month, the
sacraments were to be refused to his wife and family if they remained with him.
All the faithful must within a month denounce a creditor or face
excommunication. A cemetery where a usurer was buried was placed under an
interdict and no one was allowed to enter until the body of the offender was
removed and disposed of elsewhere.
Lawyers were not only forbidden to draw up usurious contracts, but they
were also forbidden to defend usurers. Clement V at the Council of Vienna in
1311 and 1312 declared that any public official, whoever he was and whatever
rank he held, was to be excommunicated if he had anything to do with drawing
up a law compelling debtors to pay usury, or denying them the right to recover
usury. Any such law drawn up was decreed to have no force since it was in
violation of the law of God.
The Council of Vienna affirmed the law that those who proclaimed that
usury was not sinful were to be punished as heretics. The decree was not only
against usurers, but against anyone who encouraged the practice of usury by
stating that it was not a sin against God.
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The basic Church teaching was that anyone who paid usury could seek
restitution. Borrowers could always demand the return of usury. Not only is the
usury not owed, but the usurer could not receive or keep it without committing
sin.
The most interesting thing about these opinions is that the Church forbade
usury simply because it was forbidden by the Bible.(2) So far as I have been
able to ascertain, there was no real understanding of the economic benefits that
accrue to a society that is free from the usury contract-such as the absence of
wild economic booms and devastating collapses, bankruptcies, and
unemployment It does show the spiritual maturity of our grandfathers who,
without knowing the reason for prohibition of usury, still enforced the divine law of
God and profited mightily in doing so. Usury almost completely disappeared from
the Christian West.
The Renaissance
The universal prohibition of interest unleashed the mighty Western
Renaissance. Usury had acted as a rope which had been strangling the West. As
soon as it was banned, the West broke forth into a flowering which could not
have been imagined earlier. Italian merchants became wealthy enough to travel
to China with their goods. Spanish and Portuguese explorers were financed and
uncovered continents with which to trade. Money for the development of
inventions became available. The Michelangelos, Rembrandts, Shakespeares,
and Newtons were supported by the growing wealth of the West, and they did
their thing--and made it profitable. This was an era free of interest!
Tallies were a very imponant part of the economic system of the Middle
Ages. Anyone who had the power could issue them. The Hanseatic League was
a confederation made up of scores of independent German cities. They had the
power to issue tallies and they did. So did virtually every county and large city in
Europe.
The hard pocket money was gold and silver coins. Many of these coins
were in poor condition, being worn, clipped, and some counterfeited. This
seemed to make as little difference then as it did in Roman days. People
cheerfully accepted them in payment for goods and services. Why not? The
government accepted a clipped coin as readily as a full-weight coin for taxes.
Not so the foreign merchants. When they made a transaction, they wanted
payment in full-weight gold coins. Thus we have two kinds of coins-discount
coins' for the citizens and 'trade coins' for the merchants.
Paper money of large denomination was simply a gold deposit receipt. A
bank had, in the manner of the Templars, taken in a store of gold and issued a
paper to that effect. The paper bore the stamp and guarantee of the bank. The
gold belonged to whoever presented the paper. Few people will carry around five
pounds of silver coins or two pounds of gold coins in their pocket when a O piece
of paper which is light and portable will serve the same purpose. Of course, the
peasants always wanted their one or two coins in hand instead of a piece of
paper. They still do. Since 'interest' was not present, there was no compelling
PAGE 191 OF 273

reason to issue more 'gold certificates' than there was gold reserve. It was to
everyone's advantage to keep the system honest
In addition to gold deposit receipts there were other kinds of large
denomination money. It might take the form of a deed to a house, a business, a
ship or some other son of debt-free equity which had an accepted value in the
market place. To make this 'paper money' more readily acceptable, it was often
guaranteed by a bank that had investigated and found that this boat or that
house was indeed worth so much money on a certain day and, in public
recognition of that fact, attached their seal for a small fee. This deed was used
as paper money and had worth. It was not a mere 'promise to pay'.
Buying Joint Venture

If a man wanted to buy a boat to go into the fishing business and didn't
have the necessary money but had a good deal of experience, chances are he
could work out a deal. He would go to a bank and ask for money, say 500
pounds. Upon establishing the fact that he had 20 years' experience, the
bankers might risk some of their investors' money with him. The bank would buy
the boat and hire him as captain with a salary. At the end of the first year he
could be given the option to buy 1096 of the business. If he took up the option he
would then own 10% of the business and get 1096 of the profits. The bank would
get 90% for their investors. The second year he might buy another 10%. He
would then own 20% of the business and get 2096 of the profits. If the bank
thought he was doing a poor job, they might fire him and hire another captain.
He would still get 209'0 of the profits since he owned 20% of the boat. If the boat
sank, insurance covered it. The bank got a fee for its services. That's all. Not a
large fee either.
Another way to handle the same boat contract was on a 'rental' basis. The
bank's investors would buy the boat and 'rent' it to the buyer. The buyer kept all
the profits and paid rent to investors. There might be an option to 'buy' the boat.
The type of contract which could be drawn was limited only by the
imagination. One thing--it had to be fair! No one will go into a contract which
doesn't seem fair to both sides--especially if the deal is being watched by the
Christian community.
In the way illustrated above, in ten years the buyer could own his own ship
without having to put up any money of his own. Of course, the ten-year contract
is given only as illustration. Practically there were no such contracts that went
past seven years.
"At the end of every seven years thou shall make a release (cancellation of
debts). And this is the manner of the release: Every creditor that lendeth ought
unto his neighbour shall release it (cancel the debt); he shall not exact it of his
neighbour, or of his brother, because it is called the Lord's release. Of a foreigner
(Heb.: zuwr--"racial alien") thou mayest exact it again but that which is thine with
thy brother thine hand shall release." (Deut.: 15:1-3.)
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The House Buyer

If a man wanted to buy a house, the same sort of business arrangement
could be made. He might have 10 pounds of his own for a down payment. He
would go to the bank and ask for a loan for the balance. The bank would send
out an appraiser to find out if the house was really worth the discussed purchase
price of perhaps 100 pounds. If it was, a deal could be struck. The man by
putting up his 10 pounds might own 10% of the house and the bank 90% by
putting up 90 pounds.
The buyer also paid rent. He received 10% of his own rent because he
owned 10% of the house and the bank received 90%. The next year he bought
another 10%, and owned 20%. He then received 20% of the rent. The bank
owned 80% and received 80% of the rent. Each year the bank allowed him to
buy more of the house. In time he owned it all. If he failed to pay the rent, he was
evicted and another renter/buyer installed. He still received 20% of the rent
because he owned 20% of the house. Being kicked out did not deprive him of
what was already his.
Of course, the contract might specify that any new buyer/renter could have
the option to buy his 20% share also. What is fair or not fair is much easier
determined when one does not have wild market swings brought about by
interest-caused inflation or deflation, i.e., the house being worth 100 pounds this
year, 200 the next year, and dropping to 50 the year after. In that day they had
nothing comparable to the booms and busts that are the rule today. It is said that
the price of bread remained the same for four centuries in the Hanseatic League.
In a no-interest contract there is always risk for both partners. If the risk
factor is all on one side, the Church determined whether it was a usury or non-
usury contract. The usury contract makes one side risk-free and eventually ruins
the borrower as it was designed to do. The no-interest contract shares the risk.
Both parties rise or fall together. This is one of the oldest rules of canon law in
determining whether or not a contract was a usury contract -- "equal risk".
References
1. The Jewish Encyclopaedia, England, p.165.
2.Medieval Studies, Vol. 1, 1939, Vol. II, 1940, Pontifical Institute of
Medieval Studies, Toronto, Canada.
For many years the private bankers did most of the business for merchants
and kings -- practically all of which was interest-free. Problems could and did
arise in a private banker's dealings with kings. If the king politely requested a
private banker to make a loan to him, the private banker did -- or came under his
displeasure. The problem was compounded if the king rode off to war and got
himself killed. In these cases the debt was seldom paid and the private banker
was mined. On other occasions the private bankers might allow good merchant
customers to borrow from him to cement their relationship. If the merchant wasn't
able to repay, the banker was in trouble. During one forty-two year period
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following the expulsion of the Jews from England and France, the following
Italian banks were ruined for lack of specie to honour their obligations:
1304 - Francosi
1312 - Macci
1315 - Frescobaldi
1320 - Cherchi Bianchi
1343 - Peruzzi
1345 - Acciaiuoli
1346 - Bardi
The banking houses of Bardi and Peruzzi of Florence failed when Richard
III of England went bankrupt following the 100 Years War with France. Wooden
tallies were fine at home, but gold was needed for foreign wars. Kings and their
governments could make wooden tallies, but they couldn't make gold. They
ruined many private bankers by their forced loans to obtain it.
The existence of the non-usurious (non-interest-charging) private banks
was further endangered by the arrival of Marano usury (interest-charging)
bankers from Spain starting in 1492. These people quickly made alliances with
local rulers desperate for cash. Soon the combined activities of ruler preference
and usurers siphoning off the floating money supply put most of the private
bankers and many of the merchants out of business. It also brought on
depression and unemployment.
The failure of a bank was a serious event. The repercussions went far
beyond the individuals involved. Trade treaties between cities and countries
could be jeopardised, and entire manufacturing industries shut down if the
financing of the operations ceased.
To prevent powerful merchants and princes and newly arrived usury
bankers from putting undue pressure on private banks, the cities of Europe took
over the banking business by establishing municipal banks.
The Municipal Bank of Amsterdam

The most famous of the city-run banks was the great Bank of Amsterdam.
This interest-free bank was established in 1609.Since half of Europe's commerce
was carried in Dutch ships, Amsterdam had need of such a bank. This was the
largest and wealthiest bank in the world.
Its main purpose was to facilitate and expedite trade. It did not make loans
for its own account. If a captain had a ship's cargo and no crew, he might come
to the Bank of Amsterdam. The Bank might locate investors who would be willing
to invest the needed money to hire a crew for 20% of the profits of the voyage.
If a captain needed a cargo, he might lease his ship to bank investors for
the length of his expected voyage and hire himself on as captain with a bonus of
15% of the profits. The bank got a moderate fee for arranging these deals. If the
ship was lost at sea--like the other such contracts-it was insured.
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Chests of gold would come in the front door of the bank in the morning and
leave by the rear door that evening. Gold was considered a commodity to be
traded. It could be stored for future use, or it could be used for the backing for
gold deposit receipts. Municipal banks were large, powerful, efficient operations.
Their advent pushed private banks into the background for a time.
The Middle Ages

The four centuries lasting from the 1200s through the 1500s is a most
misunderstood period. The 'establishment', with reason, wishes to portray the
period as being one of poverty, tyranny, dirt, and backwardness.
Such was hardly the case. The greatest display of a nation's wealth,
cathedrals, were built all over Germany, France and England during that period.
The 'skilled' labour was mostly volunteer. Thorold Rogers, Professor at Oxford
University in the middle of the last century wrote: "At that time a labourer could
provide all the necessities for his family for a year by working 14 weeks." The
rest of the time was his to do as he pleased. Many parts of Europe were so
prosperous during the 14th century that hundreds of communities averaged
between 160 to 180 holidays a year. Some laboured for themselves; some
studied; some fished; others volunteered their labour to build these massive
structures. Lord Leverhume, writing at the same time, said: "The men of the 15th
century were very well paid."
While today one may find a few score visitors at one of the great cathedrals,
Cobbett in his History Of The Reformation states that our ancestors had the
wealth and leisure for 100,000 pilgrims at a time to visit Canterbury and other
shrines. This from a land that contained 1/10 today's population.
This same William Cobbett recorded in his Rural Rides that when he viewed
Winchester Cathedral he said: "That building was made when there were no
poor rates; when every labouring man in England was clothed in good woollen
cloth; and when all had plenty of meat and bread..."
This was an age peopled mostly by those who had repented. Most neither
took usury nor gave it. There was no pressure of 'due bills'. As a consequence
the lands were with material and spiritual wealth. The municipal banks, the
creation of the people, fought usury banks tooth and nail. It was not until the
advent of Napoleon, the hatchet man of the usury bankers, that municipal banks
were shut down permanently.
Return Of Usury To The West
The Maranos
The Saracens conquered Spain as they had Sicily. They conquered the
Jews who lived there among the Christians. These Jewish captives easily
adopted the religion of their conquerors and became honoured and respected
members of the Mohammedan community and married freely into their ranks.
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The Arabs pushed on over the Pyrenees mountains into France where they
fought a large Christian army at Tours. They lost this hard-fought battle and were
forced back into Spain.
The Spanish Christians had not surrendered when the Mohammedans
swept through Spain, but waged a holy war against the infidels from strongholds
left to them in the mountains. These wars lasted for centuries.
Over the years the Spanish Christians gradually beat the Mohammedans
back and re-conquered the land of Spain. Again, as in the case of Sicily, many of
the Saracens and Jews remained. This again presented the Christian rulers with
the problem of the conquered aliens.
To keep their industries and estates provided with workers, efforts were
made to 'convert' these aliens into Samaritans and bring them into the Christian
community.
About 250,000 of these Jews who had lately been Mohammedans easily
switched their faith to Jesus. These new converts were called Maranos. In time
all restrictions were removed from these new converts and they were accepted
into the Christian congregation of God with open arms.
In spite of holy and canon law, some Maranos married into grandee
families, the highest families socially in Spain. The Catholic Church had long had
restrictions against such things. The 2nd Council of Orleans in 533 AD, Clermont
in 535 AD, and Orleans in 538 AD all prohibited intermarriage of Jews and
Christians. Violators were excommunicated (Concil. Aurel. ii, can. 19; Mansi, viii
838, can. 13; Mansi, ix 15).
Many of these new converts became priests. Some even became bishops
and archbishops. The law forbidding such things was forgotten.
From 1449 on the Maranos took over 'high society' and finance. Some were
confidants of the king. The Maranos became powerful and arrogant. They owned
and ran Spain. They also became indiscreet by letting it be known that they were
not really Christians. The King formed the Inquisition to investigate the matter.
Their findings came like a thunderbolt. The Maranos were holding Jewish
religious services while pretending to be Christians. This had been going on for
generations. The reports had been true.(1)
Based on the 'prohibition' of bastards (mixed-breeds) the Spanish at long
last attempted to right matters by instituting the limpieza de sangre test, or test
for 'purity of blood'.
The Jews were considered 'bastards' for two reasons. First, they: could not
pass the 'blush test' since they were kinsmen to the dark-skinned Turko-Finns
who had immigrated into Spain from southern Russia over the prior five
centuries. Next, they had interbred extensively with their former Mohammedan
rulers, another group closely affiliated with, and kin to, these same Turko-Finns.
The Spanish test limpieze de sangre to determine who was a mixed-breed
and who wasn't was easily administered. It was merely a form of 'blush test'. One
simply raised one's sleeve where there was no sunburn and if the blue veins
were visible it meant that one was a 'blue blood'. If you were a 'blue blood', you
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were neither a Marano, Moresco, nor other mixed breed. This was all there was
to the world-renowned test of 'blue blood'.
In 1492 the Maranos were expelled from Spain. Many went to Arab
countries and became violent anti-Christians. Some went to Spanish and
Portuguese possessions in the New World. Others went to Holland where,
according to the Universal Jewish Encyclopaedia, p. 433, "The return of the
Maranos to Judaism in a free Holland signified the casting off of the oppressive
shackles..." (meaning Christianity). Still others went to England where they
pretended to be Spanish-Christians, An Englishman didn't know the difference.
The history of the Mohammedans closely parallels that of the Jewish
Maranos. Presented with the option of conversion, expulsion or death, many
naturally chose conversion. The Jewish Maranos were expelled in 1492 and the
Mohammedan Morescos were expelled in 1502. By 1510 Spanish authorities
reported to the Pope that all 'strangers' had been expelled from Christian Spain.
This myth was exploded with the Moresco Revolts that devastated Granada
between 1568 and 1570.' Spanish landowners wanted to keep Mohammedan
labourers to work their lands. Consequently, it was only a question of time before
the mixed descendants of Christians and Mohammedans formed a 'Samaritan'
population that worked its way into the government and church. They changed
the outlook of the land, the church, and the complexion of Spain's population.
The 'Christians' of southern Spain 'did it their way'. As in the case of Sicily
and southern Italy, much of Spain was lost to her Christian conquerors and much
of the population resembled their kinsmen to the east--the Saracens.
Killing of the Kings

In 1647, Oliver Cromwell was fighting a civil war in England and needed
guns and supplies. To get them, he borrowed money at interest--and England
was right back into it again.
Cromwell contacted Jewish moneylenders in the Netherlands who were
willing to make loans. There were two conditions. The first was that Jews be
allowed into England. This was agreeable to Cromwell. The second condition
was more delicate. The loan must be guaranteed. If large loans were made to
Cromwell's government and King Charles II came back to the throne, the loans
would be repudiated in an instant. The lenders would lose their money. In other
words, as long as Charles lived, no loans could safely be made.
Copies of letters are in existence recommending that Charles be given a
chance to escape. His recapture would turn public opinion against him and
would provide an excuse for his vial and execution. (3) This is in fact what
happened. An opportunity was presented to Charles. He tried to escape, was
recaptured, tried, and beheaded--regicide, the killing of the king.
This is one of the earlier incidents in Western history of loan guarantees
being insured by the murder of a ruler, although the practice was common in the
ancient world. Regicide is an integral part of the usury contract and is found
wherever the contract itself is found. The list grows long as the years go by.
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Louis XVI of France was done away with in precisely the same manner 150
years later. Like Charles II of England, he had been deposed as ruler. The real
power lay in the revolutionary govenment which had borrowed from the
international bankers and was servant to them. In spite of this, however, no big
loans could be made to this government as long as the king was alive and could
possibly nullify them at a later date. Louis was given a chance to escape. He
was given a large conspicuous coach too heavy for his horses to pull rapidly,
which would attract attention. There were two elegantly dressed gentlemen riding
in advance, displaying gold coins to a hungry population. All this in time of
revolution. Louis almost reached the border before he was captured. It made
good copy for the newspapers. Returned under guard, he and his queen were
condemned to die. They died well. The loans to the new revolutionary
government were safe. Regicide!
Napoleon Bonaparte was defeated and sent into exile. While he was gone
from France, Jacob Rothschild negotiated large loans for the Bourbon (4) who
had replaced him as the ruler of France. Napoleon returned to France and was
defeated again at Waterloo.
A near thing for the safety of the loans. Once more he was exiled on a more
distant isle. He died. A great monument was built in Paris for his body. A few
hairs of his head were taken and analysed. (5) They contained traces of arsenic.
Napoleon had been poisoned so that he would never return and repudiate the
loans made to the new government.
During the War Between The States, France vied to get her foot in the
American door by sending Maximilian to Mexico as king. Mexico was the
economic territory of the American north-east banking cabal. This new king of
Mexico was very popular with the Mexicans. In spite of this, when he was
captured by the rebels he was not imprisoned or ransomed and sent home; he
was shot. He would never return to repudiate any of the loans made to Mexico's
new rebel rulers.
There was a hue and cry in the newspapers of the north-east banking
interests to execute the president of the vanquished Confederate States of
America. For two years he was kept in a dark, wet, cold cell in the side of an
earthen bank in Forvess Monroe. He was an ill, broken man when put there. He
should have died and was expected to die. When it was apparent that there was
no way the ravished and occupied South (which was ruled by blacks) could ever
revolt, he was released. As a precaution, laws were passed preventing him from
ever holding office. Other laws were passed preventing white men from voting in
the South. These laws were enforced by an occupying army. There was no way
that the ex-president or the citizens he had represented could return to power to
repudiate carpet-bagger loans. Jefferson Davis was one of the fortunate few.
He remained alive in spite of the nearly successful effort made to kill him.
Nicholas II was Tzar of Russia. The communists took over. The lenders in
New York made loans to the new communist government. To prevent him or any
of his family from regaining the throne and repudiating the loans, the entire
family was shot, even the little children. The loans were secure.
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Adolph Hitler was ruler of Germany. Germany lost the war. Hitler knew he
was earmarked for a 'showcase vial' and so he killed himself. Ex post facto vials
were held for all the rest of the members of his government who might be looked
on as his heirs. They were liquidated with few exceptions. Even the idealist,
Rudolph Hess, who tried to end the war between Christian nations by flying to
England, was locked away permanently in Spandau Prison by mutual consent of
the victorious lenders. Occupying armies keep watch over the sanctity of the
loans. The puppet government of today's Germany owes its existence to the
occupying armies and leaves Hess in prison without a word of protest. The post-
war German loans were guaranteed at Nuremberg. There is no one left alive
who can rock the usury boat. Mussolini, the Italian leader, was executed for the
same reason.
The real rulers of Japan were the military leaders. They were executed and
the army and navy banned to keep any other military figure from arising to
renounce the post-war loans.
Vietnam had a ruler. His name was Ngo Dinh Diem. American newspapers
say that the Americans had him executed. He will never return from the grave to
repudiate the loans made to the Vietnamese-North or South.
Loan guarantees to nations involve regicide. There is little doubt that the
recent assassinations and attempted assassinations of rulers here in America
and elsewhere are connected with loan guarantees. The evidence will come to
light in future years. It almost always does, Seldom do things happen by accident
where usury is involved.
Cromwell's Loans
Charles I was beheaded 9th January 1649. Cromwell held meetings to
discuss readmission of the Jews. Immediately a distinctly hostile spirit emerged
among the Christian merchants and clergy who united in opposition. To prevent
an adverse vote, Cromwell dismissed the Council.
To change public opinion, Manasseh ben Israel, a large book publisher and
a leader of the Holland Jewish community, published a book, Hope of lsrael, in
1650. This book was given wide publicity among the 'fundamentalists' of the
time--the Puritans.
This book advocated the entry of the Jews into England because it was said
the Messiah could not come until the Jews were in ALL lands. England, it was
maintained, was the only country which did not contain Jews. If the Jews were
admitted, the Messiah might be expected. (6)
The Puritans bought this story. Still, the larger part of the population of
England was still against the admittance of the Jews. Cromwell took it upon
himself to allow envy of the Jews quietly. He got his loans. By 1655 there were a
considerable number of Maranos in England, secret Jews posing as Spanish
Catholics.
In 1655 England went to war with Spain. The Jews posing as Spanish
Christians had to openly declare themselves Jews in order to avoid confiscation.
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This was also the year in which Charles II of England entered into negotiations
with these same Amsterdam Jews against Cromwell to secure financing for his
return. In 1655 and 1656 a horde of Jewish refugees from the Polish Ukraine
arrived in Holland, putting further pressure on Manasseh ben Israel to force
England open to immigration.
In 1660 Charles II came to the throne. In addition to the loans which he had
contracted with the Amsterdam Jews, he borrowed heavily from the local
goldsmiths. In 1672 he repudiated the loans to the local goldsmiths, causing a
general suspension of specie payment. Charles was disliked.
Some time about 1684, William 1II of Orange obtained a loan of two million
gulden from Antonio Lopez Suasso (7), an Amsterdam Jew. This aided the
Dutchman to capture the English throne in 1688. The Jews again had an English
ruler who was obligated to them. This was the third in a row.
Between 1700 and 1750 the Jews, working their usury system in England,
increased their capital from 1.5 million to over 5 million pounds.(8) In 1870 the
University Test Act allowed Jews to enter English universities. In 1890 complete
equality was granted to Jews in England. It had taken a long, long time.
References
1. "We have discovered thousands of 'underground Jews' in Portugal --
descendants of medieval Portuguese Jews who...converted to Roman
Catholicism in the 15th century while secretly believing and practising Orthodox
Judaism... In Majorca, a Spanish island to the east of the mainland, there are an
estimated 30,000 descendants of the medieval Spanish Jewry who have not
been assimilated into the general Catholic population, although the Majorcan
Maranos are formally Catholic." The Jewish Voice, Dec. 1983, p. 10, Phoenix AZ
85001.
2. Encyclopedia Britannica, 14th ed., Spain, p. 133.
3. "Will grant financial aid as soon as Charles removed...Charles should be
given an opportunity to escape. His recapture will then make trial an execution
possible. The support will be liberal but useless to discuss terms until trial
commences." Letter by E. Pratt to Oliver Cromwell, in David Astle, Babylonian
Woe, p. 118, Harmony Printing Ltd, Toronto, 1975
4. Encyclopedia Critannica, Rothschild, 14th ed., p. 574.
5. Ben Weider and David Hapgood, The Murder of Napoleon, Congdon &
Lattes, Inc., NY, 1982.
6. Jewish Encyclopaedia, England, P. 169
7. Ibid.
8. Ibid.
In the "1920s Turkey Shoot", over 16,000 banks folded or were merged out
of existence. This story begins more than 200 years ago. In 1780 the United
States had two interest banks. Prior to this time it had none. The people didn't
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believe in interest since it was forbidden by their Christian religion. By 1800

perhaps 20 of these banks had come into existence.
It was during this 20-year period that events occurred which shaped the
history of the country. These events caused the War Between the States, the
rapid settling of the West by bankrupt Easterners, and World War II. These two
decades made inevitable everything that has followed since.
1780 The forcible ejection of the British and their banking activities left a
vacuum in America. Immediately a rush was underway to fill that vacuum.
Alexander Hamilton presented three arguments for a central bank. He wanted to
do to the brand new United States what the Bank of England had done to
England, and he wanted it done by himself and his backers who were reputed to
be the Rothschilds and their Bank of England.
1781 The private Bank of Pennsylvania' in Philadelphia was replaced by
the Bank of North America. It was later absorbed into the Pennsylvania
Company for Insurance in 1923. Cornwallis surrendered the British Army at
Yorktown, Virginia. Events then moved fast.
1784 Bank of New York founded--a Hamilton creation. Oldest existing
commercial bank in the country. The Massachusetts Bank also formed. Virginia
settled her counties of Ohio, Indiana, Illinois, Michigan and Wisconsin, and spun
them off as states. Virginia, an unwilling slave-state, also saw that a law was
passed prohibiting slavery in these new states.
1786 First major economic depression brought on by these new banks
lending 10 and demanding 11 in payment. Banks foreclosed debtors, forcing
them into poverty and debtors' prison. The state of Massachusetts had heavy
debt and levied heavy taxes on its citizens to pay interest on this debt.This was
exactly the same thing England had been doing. It ruined many of her own
farmers.
Led by Captain Daniel Shay, 2,000 of these desperate men seized
Worcester, Massachusetts and other towns. This uprising threatened the
establishment of interest banking in North America. The Governor of
Massachusetts quickly took the field against the 'rebels'. "Shay's Rebellion" was
suppressed on 27 February 1787. The interest system had won its first victory.
1787 The Constitution was fittingly put together in Philadelphia, the home of
the Bank of North America. Next, New York City, the home of the Bank of New
York, was proclaimed the temporary capitol of the country.
1789 Washington was elected President. In a move toward conciliation he
appointed Alexander Hamilton Secretary of the Treasury. This put the fox in the
hen-house and it doomed Washington's beloved Virginia to be devastated by a
war of assimilation 71 years later.
1791 First Bank of the United States was chartered. This was a private
bank to which all the government's money was entrusted. Its charter was for 20
years and was also Hamilton's creation. Rep. James Madison of Virginia on 2
February opposed the bank because he said that it would:
1) banish precious metals through inflation of the money supply, and
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2) result in runs on banks and bank failures.

When its successor, the Second Bank of the US, went bankrupt 50-odd
years later, it was discovered that 64% of the bank's 25,000 shares were owned
by foreigners--mostly British. Friends of the Bank of England had been active in
America. Madison had been right.
1792 History books say that Hamilton's influence shortened the panic that
calling $11 in loans when there were only $10 in existence had caused. History
also says that the victors write the history books.
1794 Heavy taxes needed to pay interest on state debts caused farmers to
revolt in western Pennsylvania. George Washington did what his economic
advisor told him to do: he crushed the rebellion. Creditors called the uprising
"The Whiskey Rebellion" as a 'put-down'. It was a tragic time for the farmers of
America. Another victory for interest banking.
1824 "The Boston Revolt". In Boston, Massachusetts, a number of small
private banks had been hurriedly thrown together and were eager to 'sock it to
the public'. In addition to lending $10 for $11, they issued paper money. They
also threatened the big banks by underbidding them for business.
The big banks retaliated by having laws passed requiring gold to be given to
anyone presenting a paper bank note to an issuing bank. The big banks were too
big for retaliation. This effectively brought banking rebels to 'heel', and they have
continued to be obedient ever since. Today, the present policing organisation
keeping surveillance over the smaller banks is called The Federal Reserve
System. It is a power unto itself, refusing to allow itself to be audited since its
official creation in 1913.
The Boston Revolt was actually a civil war within the new banking system. It
was the third and last revolt against the big interest-banks in the North-East.
Shay's Rebellion, The Whiskey Rebellion and The Boston Revolt--two attempts
with force and one financial--all three defeated. This was how the North-East
was secured.
Conquest of the North, Central and South

For the next 61 years the energies of the new banking system were directed
into the North-Central part of the country, into the former Virginia counties of
Ohio, Indiana, Illinois, Michigan and Wisconsin. After this was accomplished, the
stone wall to interest expansion presented by the plantation system of the
mother state Virginia and the rest of the South was broken by armed force in
1861. The 'arrogant Southerners' were brought to heel in the same manner as
their brother farmers in Massachusetts and Pennsylvania earlier.
The Boom in Banks

1812 By the time the War of 1812 ended, there were more than 250 banks
in existence. In addition, there was one notable subtraction which was a first:
(Note: Big banks always encourage small banks to develop a following of
borrowers. When as many people have mortgaged their property as are likely to,
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the big banks pass regulations which are impossible for the little banks to comply
with. In 1824 it was 'gold backing'; in the 1920s it was 'reserves'. When the small
banks are not able to comply, they close or are bought out. Their assets
(mortgages) are taken over by the big banks. The small bank has been used as
a 'finder'.)
1809 The Farmers Exchange Bank of Gloucester, Rhode Island, went
broke. This was the first of the thousands which were to follow.
1834 You will note on the chart on page 33 that by this date the total
number of banks had grown to 506. The fight between President Jackson of the
US, and Biddle of the Second Bank of the US, has been omitted because the
issue was not 'interest bank' vs 'interest-free bank', but merely who was going to
control the country. Jackson won and delayed the complete bank takeover of the
country for years. Biddle's bank bankrupted in 1841.
1837 "Crisis of 1837". In May of this year, all banks suspended specie
payment. Six hundred banks broke down. New interest banks were forming so
rapidly that the decrease really doesn't show up on the history chart.
For the next 84 years--through depressions and booms--interest banks
grew like cancer cells. Even in the awful depression which bottomed in 1896, the
total number of banks increased almost yearly. Businessmen, farmers and
workers, caught in the meshes of the interest contract, bankrupted by the tens of
thousands pouring riches into the coffers of banks holding the contracts. This
was the time when starvation stalked the land--and banking tycoons and their
cronies were building mansions in every town.
Look at the dates on the big mansions in your town. You will find that most
were built between 1880-1910. It was also in this I period that the farmers began
to give up the impossible struggle with interest compounding debt, and started to
move to the cities, as happened in the identical same manner in Rome 2,000
years ago. The hills that used to be farmed in New England and the South have
gone into pasture and bush.
The Roman Parallel

At the peak of her might, Rome invaded the land of old Persia. She levied a
fine of 20 million. If the Persian cities did not pay, Rome would raze them as she
had Corinth. Persia had no money. Roman bankers generously lent 20 million. In
a few short years, principal plus interest made the debt grow to 40 million.
Interest payments to Rome annually were from 2 to 4 million. This compared with
the annual tribute of only 1.5 million to the Imperial Roman government. The
bankers were raking off more than the state.
Money is power. The borrower is servant to the lender. This 2 to 4 million
annual interest payment represented a lot of power to the banking class of
Rome. A dictator came to power in Rome and declared 2,000 of these wealthy
Roman banker/knights 'traitors' and confiscated their wealth (loans).This was
done in the name of the state. The dictator ran the state. Now he owned the
loans--and the interest. For a time he became a superbanker!
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This is the type of power play which was missed by the masses in Rome. It
was again missed by the masses during the "1920s Turkey Shoot" in America.
The Birth of the Giant Bank

1913 In America the business of 'guaranteed profits' whetted the appetites
of greedy people all over the nation to get into banking. The number of banks
grew to 27,285. Instead of stamping out these new banks, the North-East giants
encouraged their growth in spite of the fact that when a pie is cut too many ways,
no one gets a big slice. There were too many banks and most of them were not
making as much money as they could have if there were fewer banks. To reclaim
their advantage when the time was ripe, the big banks instructed the politicians
to create a central regulatory commission run by the same big banks.
The Federal Reserve was created. This new creation acted much in the
same manner as the Roman dictator had earlier. A lot of regulations governing
banks were issued. The act bringing the Federal Reserve System into existence
was co-authored by Senator Carter Glass.
1921 Seven years later the ballooning total of banks peaked at 31,076 and
the big banks snapped the trap shut on the small banks.
Bank failures, 'shotgun' mergers and consolidation of assets began under
the watchful eye of the Federal Reserve.
In assuming its place as the new banking 'dictator', the Federal Reserve
issued numerous regulations. The "Topside" Transition Year of 1920 put an end
to good times when commodity prices peaked and plunged, causing the
bankruptcy of tens of thousands of businesses. This hurt banks that held the
worthless loans. As planned, it caused them to violate rules and regulations of
the Federal Reserve. Banks failed by the thousands.
These massive failures had the happy effect of reducing the total number of
banks and increasing the assets of the survivors. There are few surviving banks
that did not profit tremendously by the closing down of their competition. There
are few hamlets in Virginia which do not contain an old boarded-up bank -- a
trophy of the "1920s Turkey Shoot".
1933 There were only 14,771 banks left; 16,305 had bitten the dust in 11
years. Feeling that enough banks had failed, the restrictions were lightened and
bank failures stopped almost on a dime. This could have been done earlier if
there had been a single good reason to do so. As it was, half the competition
was gone and their assets now belonged to the survivors. The borrower is still
servant to the lender. Half of America was in debt --and servant to the 14,000 or
so surviving banks. This was much better for the surviving banks who were
bigger and more powerful than anything seen before.
"1980s Turkey Shoot"

In Pome, the dictator gobbled up the bankers and became a superbanker
himself--for a time. In the "1920s Turkey Shoot", half the banks gobbled up the
other half. I predict that there will be a "1980s Turkey Shoot" where the banks will
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again gobble up each other leaving a few 'superbanks'. Commodities are

presently plummeting like the 1920s. Businesses are bankrupting in numbers
like the 1920s. It seems logical to assume that certain banks owning IOUs from
bankrupting businesses will in turn come under pressure. This will cause them to
become prey to their stronger bank competitors.
In the "1920s Turkey Shoot", 55% of the banks hit the dust. If 55% of
existing banks bite the dust again, it will leave approximately 6,300 banks. This
precedent can again be found in Pome where the dictator came back the second
time and took over the assets of 2,000 more banker/knights.
Perhaps the Cycle Theory will come into play. It took 73 years from a low of
715 banks in 1847 to the all-time high of 31,076 in 1920. If the 73-year
retracement principle holds true, there may be only 715 superbanks left 73 years
from 1920--or in 1993. Each will represent an average of 43 or mole other banks
whose assets it will have taken over. Its slice of the interest pie will be bigger
than anything we can imagine since there will be fewer banks to share.
Bank Trust Departments

In the 1920s most of the information in this book was common knowledge
among informed people. Since that time, an iron curtain of silence has
descended on the West. The way this censorship is managed is most interesting.
Almost 45% of the total stock of corporations in the United States is held in
trust at bank trust departments. The banks don't own these stocks. They don't
keep the income from these stocks. But the banks vote these stocks.
Without having to have a single dollar of their own money at risk, the banks
of the United States vote the stock that they hold in trust for others. The
traditional 'rule of thumb' says that if an individual votes as much as 10% of a
company's stock at a stockholders' meeting, he is usually considered to have
control, or near control, of that company. The trust departments of America vote
four times this amount. A full 30% of all the stock in the country is voted from the
trust departments of the banks of New York.
It is true that some trusts reserve voting rights to themselves, but most
leave this to the banks. The fact is, the New York banks control American
industry by voting the stock held in their trust. In this way the banks control
American industry and how America's industry spends its money. This allows
them to control the rest of America. This is why industry-endowed colleges
employ only liberal teachers, why only certain charities get money, why there is
no difference between the political parties, and why every word written by
newspaper chains or spoken by their TV media is filtered first (2)
In 1928 most corporations had no debt at all. Today, with the control of
corporations in the hands of lending institutions, corporate debt is predictably
large.
Banks are in the business of lending money. American banks control
American corporations. American corporations must borrow money when their
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masters tell them to. Human nature is self-serving. An investigation could quickly
show if the corporations borrow from the same banks that control them.
This is important. If corporations are forced into bankruptcy because of the
huge amounts of money controlling banks require them to borrow, a jury may
find those banks responsible. The responsible banks could then be found liable
for losses incurred.
America's corporations have been treated like cows. Once the halter has
been placed about their necks by bank trust departments, they have been
fattened to giant size by massive feedings of debt. Then the interest is milked
from them. As a result, a large part of America's industry is oversized,
overstaffed and over-mortgaged. This does not benefit the corporations or the
stockholders if it results in the corporation's bankruptcy. It does benefit the banks
that lent the money.
Corporations build incredibly expensive skyscraper offices in New York
costing hundreds of millions of dollars. It is assumed by many that these
business blunders were made so that the controlling bank could profit from the
loans.
The next Penn-Central type bankruptcy may force the answer to this
question in court.
The few independent family-owned newspapers, TV and radio stations stay
in business by advertising. Corporations do the advertising. The corporations
that do the advertising are controlled by bank trust departments. The media
please the banks or they don't get advertising. If they don't get advertising, they
go out of business. It's that simple.
This has led to the rapid growth of 'alternate media' newsletters, small
newspapers, books (such as this one) and periodicals. People are attempting to
gain news not present in today's media, since most of today's media carries
corporate advertising and has been 'bought' while trying to keep that advertising.
In a political contest, corporate donations and media coverage tend to go to
the candidate who pleases the New York banks. It is virtually impossible to reach
the top rungs of the political ladder without going by this rule. Frankly, the
banking industry would be foolish to support their enemies. For this reason it
must be assumed that any candidate endorsed by the media is also pleasing the
New York money interests.
The banks control the nation's corporations through their ability to vote
stock held in trust. The corporations controlled by the banks in turn control
politicians, colleges and media with their donations and advertising. These in
turn reflect the opinions of their masters.
Banks and Bank Stocks

The foregoing shows how usury banks have grown--through good times
and bad. It would seem that this is the one foolproof investment that will
guarantee a profit in the days ahead. It is easy to sit back and dream about
becoming one of the rulers of the West by buying into one of the stronger New
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York banks and hoping IT will emerge the grand winner in the 'bank-eat-bank'
period ahead.
Don't count on it. The odds may be worse than you think for the following
reasons:
1) A fog of uncertainty will fall over the entire banking industry in the days
ahead as farmers, corporations and countries default.
2) It is virtually impossible to know which bank owns strong loans and which
owns weak ones; therefore, it
is virtually impossible to guess
the survivors.
3) The greatest cloud over
the interest-banking industry
has just now begun to rise and
overshadow all else. Its name?
Reform
Solutions--Reform or
Conquest
In the past, to alleviate the
suffering of their nations
caused by interest banking,
rulers in Greece and Pome in
the ancient world, and Austria,
France, Portugal and many
other nations in the modern
world, have been forced to
nullify debt. This is the STATE acting in a financial crisis.
The traditional position of the Christian Church on the subject has been to
condemn usury banking. The recent position of Pastor Sheldon Emry is typical:
"And thou shall number...forty and nine years. Then shalt...the trumpet of
the Jubilee to sound...and ye shall return every man unto his possession."
(Leviticus; 25:8-10.)
"...this is a year of cancellation of all debts and the return of all foreclosed
properties to the rightful owner. This is what can, what must and what will be
done in America.
"Debts, such as mortgages on homes, farms, businesses, automobile
loans, the Federal debt, and all state and local bonded debts are all illegal under
God's law and since they have been obtained by the moneylenders through
violations of the law and Constitution of the United States, they must be
cancelled." (3)
Others quote Revelation 18:2-18:
"...Babylon the Great is fallen...she shall be utterly burned with fire...that
mighty city! For in one hour is thy judgment come... For in one hour so great
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riches is come to nought. And every shipmaster, and all the company in
ships...cried when they saw the smoke of her burning..."
Certain Christian leaders are calling New York--the centre of world usury--
the 'harlot', as if she were modern-day Babylon and the above scriptures were to
be fulfilled tomorrow! These words--these opinions--have not been spoken with
such fervour for generations.
Not caring whose toes they step on, more and more ministers are raising
the banner against interest. Worsening economic conditions could quickly
mushroom it into a tidal wave. This is a force transcending and sweeping away
economic theory. It has historical precedent.
The West outlawed
interest for over 1,000
years and instituted
interest-free banking in
obedience to their religious
teachings and to protect
unsophisticated debtors.
The present rising demand
to return to that form of
banking was triggered by
the resurrection of Arab
interest-free banks which
are presently in operation.
If neither the State nor
the Christian Church
causes the demise of
interest banks in the days
ahead, the time will
inevitably arrive when
there will be only two
superbanks left. One will take over the other. Since the borrower is servant to the
lender, whoever rules the surviving bank will also rule the world.
African Colonisation
In 1921 the unemployment rate reached 22%. Blacks had the highest rates.
Many were desolate and hungry. Word was received from their kinsmen in Africa,
who had been repatriated more than 100 years before, that there was plenty to
eat there. 'Back to Africa' movements sprang up overnlight.
The largest and best known was the Universal Negro Improvement
Association. This six million-member organisation was founded by a remarkable
black genius named Marcus Garvey.
Garvey's organisation spread over North, Central and South America. He
distrusted whites--with good reason. White liberals did everything in their power
PAGE 208 OF 273

to stop blacks from leaving America. Marcus Garvey despaired of getting help.
He decided to go it alone.
He sold shares of stock to buy ships for his all-negro Black Star Line. "An
'all white' court deemed Garvey's efforts visionary, impractical and partaking of
fraud. He was sentenced to five years in a federal prison." (4) When he was
released he was deported as an undesirable alien.
As soon as the Garvey movement was put down, another one arose--the
Peace Movement of Ethiopia. In 1933 a petition signed by two million blacks was
sent to President Roosevelt requesting that their relief money be put in a fund to
help them to return to Africa.
Roosevelt had been put into the White House by the North-East lending
interests. His job was to force Americans to borrow money into existence to get
the country out of the depression, and also turn a profit for the banks. He
couldn't allow millions of debt-free potential borrowers to leave. He refused to
see the black delegation with the petition.
In 1939 Senator Bilbo introduced the Greater Liberia Bill, supported with a
petition signed by two and one-half million blacks. The bill was quietly sent to
committee to die. Mrs Gordon, President of the Peace Movement of Ethiopia,
spoke strongly against the attempt to kill the bill. She was charged under the
sedition laws and jailed for two years in a federal prison.
In 1949 Senator Langer presented the Langer Bill to aid blacks who wished
to return to Africa. It was backed by many black organisations. It was referred to
the Committee on Foreign Relations and never heard from again.
As discussed earlier, in a usury society slaves are freed to borrow money
into existence and for no other reason. The ex-slave has freedom only to borrow
money into existence. He does not have the freedom to remove himself from the
society. (5)
1923 A total of 18,718 businesses failed. My father, Dr John H. Hoskins,
was a physician in Hazard, Kentucky. His patients were miners. Coal prices
peaked in 1920 and started down. He had plenty of patients, but the patients had
no money. Dad couldn't meet expenses and lost his hospital. There was a radical
change in the nation's economy between 1920 and 1923.
In the 1920s it was the banks that sold most of the stocks traded on the
exchanges, not the brokerage firms. They sold stocks on 10$ margin and lent
90$ at high rates of interest. Fantastic sums were borrowed for this purpose.
1925 Washington state municipal defaults started, including Tacoma and
Spokane. Two per cent of the banks failed. The stock market climbed.
1926 Mussolini regulated pimps, whores and usurers to a fixed place of
business. Fifty-five municipalities went into default in Washington state. Two per
cent more of the banks failed. The stock market was still strong.
1927 Four per cent of the banks failed. Stock market soared. Florida
defaults started again, joined by Arkansas municipal defaults.
PAGE 209 OF 273

References:
1. As in the case of Holland and England earlier, many of the new nation's
rulers were in the usurers' pockets. Among those who were permitted to get in on
the original subscription to this bank were Benjamin Franklin, Thomas Jefferson,
Alexander Hamilton, James Monroe, John Jay, John Paul Jones and
Commodore John Barry. Robea Morris, superintendent of finance for the
Continental Congress, was a leading force. The bank opened with capital assets
of $335,000 on 1 January 1782. In four years it had assets of $2,000,000--a
600% growth. This bank grew until it had 68 branches in its own trade area. In
1836 it included the Bank of St Thomas in the Virgin Islands. In 1935 it took over
the National Bank of the Danish West Indies, an international network based in
London. In its possession is the oldest cheque drawn on a bank in America,
dated 18 March 1782.
2. A rare UP article which appeared in the Arizona Republic, 7 January
1974, revealed that "Chase Manhattan Bank in 1972 held...stock...in 28
broadcasting firms (while) Morgen Guarantee used 13 'nominee names'...which
cloaked...the fact that Morgan Guarantee was among the top 10 stockholders of
41 different utility companies."
3. Sheldon Emry (PO Box 5334, Phoenix, AZ 85010, USA) is one of the
most outspoken Christian ministers in America on the subject of Bible Law. He
has an information newsletter and an excellent tape ministry available for a
modest donation.
4. Ernest Sevier Cox, Teuronic Unity, Richmond, Virginia, 1951. His White
America is in print and may be purchased from The Noontide Press, PO Box
76062, Los Angeles, CA 90005, USA.
5. Abraham Lincoln supported the African colonisation programme. This is
the other reason, in addition to his issuing 'greenbacks', which is given by some
for his being shot.
PAGE 210 OF 273

THE MONEY LAUNDRY
THE DIRTY SIDE OF HIGH FINANCE
BY DAVID G. GUYATT
Ever since the Nugan Hand Bank affair of the late 1970s, bank crashes
have followed a slick and familiar template. Narcotics trafficking, gun running,
CIA covert ops, money laundering and fraud on a massive scale are just some of
the ingredients that have sent bank after bank crashing to its knees. Once the
smoke clears, bank depositors and shareholders are left picking up the tab.
With a spate of billion-dollar financial scandals hitting the headlines, 1995
wasn't such a good year for harassed bank regulators and shareholders. Calls
for tougher regulation of the burgeoning financial markets in the wake of the
Daiwa, Earings and other debacles are little more than PR palliatives designed
to calm the nerves of a cynical public who still form the hard backbone of bank
depositors. With the best will in the world, regulators can't keep pace with an
evolving and sophisticated money machine that daily shuffles upwards of 24
billion E-bucks around the globe in the blink of an eye.(1)
Yet tough regulation, even when emplaced, is easily and regularly evaded.
Banking and crime are Cimmerian handmaidens for the simple reason that
banks are where the money is. Having access to the money and being
'connected' is the name of the game where the stakes are other people's money.
This is the dark side of the financial community, a hidden face that largely goes
unreported--until, that is, a major banking scandal hits the front pages. Squirming
under the glare of public attention, successive bank disclosures have revealed
the sinister connections that leading banks have with organised crime and the
intelligence community. The money-shufflers of 'Spooksville' need 'black funds'
to finance covert operations and appear happy to exchange guns and military
hardware for dope that is, in rum, peddled for dollars used to finance other black
operations. This happy-go-lucky 'Ferris wheel' approach to money-raising on the
part of the intelligence community reveals a long history of entanglements with
the Mafia.
Organised crime syndicates are now the single largest business sector on
the planet and are set to grow. They just love banking. Having accumulated a
staggering US$820 billion from investment interest over the last decade, the
Mafia is now estimated to earn US$250 billion a year from its legitimate
investments.(2) Dozens of nations who maintain strict bank secrecy laws are,
defacto, providing full banking services to these mandarins of dirty money. A
large number of banks are actually owned by Mafia syndicates.(3) Some of the
largest and most respectable appear content to turn a blind eye and earn
massive commissions from laundering dirty money.(4) The prudent image of
PAGE 211 OF 273

bankers is just that: an image. Banking survives purely on depositor confidence,

making it the biggest ongoing "confidence trick"(5) the world has ever witnessed.
That confidence has been dented by one scandal following on the heels of
another.
The Cia's Heroin Connection

One of the earliest scandals was the Nugan Hand Bank affair. Michael
Hand, an ex-CIA operative from the Bronx, joined up in 1973 with Frank Nugan,
an Australian playboy and inheritor of a Mafia fortune, and incorporated the
Nugan Hand Bank. The bank sported an interesting and exclusive board of
directors. President of the bank was (Retired) Rear Admiral Earl Yates, former
chief of the US Navy's strategic planning. Legal counsel was the CIA's William
Colby, and Waiter McDonald, former deputy director of the spook agency, was
listed as a consultant. An in-house commodity trader on the bank's payroll was
also a leading heroin importer, while Richard Secord, later to be implicated in the
Iran-Contra affair, was said to have a business connection.
Seven years later, the bank collapsed following the discovery of Frank
Nugan's body slumped in his Mercedes. Clutching a gun in one hand and
sporting a hole through the head, Nugan was also holding a bible that contained
an embarrassing list of names including William Colby, DCI of the CIA, and Bob
Wilson, the House Armed Services Committee's ranking Republican. Others
names listed had a variety of backgrounds, ranging from known narcotics
traffickers, politicians and businessmen to personalities from sport and the
media. Beside each name were listed amounts running into five and six
numbers. Following public outrage, the US Senate held an investigation into
Nugan Hand's operations. Amongst other things it discovered that the bank
operated a branch in Chiang Mai, Thailand--heart of Triad country. The branch
was dedicated to laundering the Golden Triangle's heroin revenue. Connected to
the bank's office by an interconnecting door was the DEA's (Drug Enforcement
Administration's) local office--premises that were also shared with the CIA.(6)
At about the same time that Frank Nugan's skull was developing powder-
burns, Michele Sindona, a free-wheeling financial whizkid and consigliere for the
Sicilian Mafia, had purchased New York's Franklin National Bank and driven it to
the wall with losses totalling US$40 million. Ranked the 29th largest bank in the
US, the Franklin crash became the biggest on record at that time. Establishing a
fictitious company, Fasco AG, in Liechtenstein, Sindona was able to obtain a
majority interest in the Italy-based Banca Privata Finanziera. BPA was an
excellent acquisition for Sindona, for not only did it have a close relationship with
Britain's blue-chip Hambros Bank but it also had a preferential partnership
arrangement with Continental Illinois Bank of Chicago, owned and presided over
by David Kennedy (later to become Finance Minister in the Nixon
administration). Continental Illinois was later to crash spectacularly in the
mid-'80s, only to be rescued with an estimated four billion US tax dollars.
PAGE 212 OF 273

Mobsters, Masons And The Italian Connection

Described by Time magazine as "the greatest Italian since Mussolini",
Sindona used his relationship with David Kennedy to get close to Bishop Paul
Marcinkus, head of the Vatican Bank (the Institute for Religious Works [IOR]),
and thereafter set in motion a tangled web of financial fraud that almost brought
the IOR to its knees. His empire rapidly grew, pulling a number of financial
institutions into his ownership, including, in addition to his BPA, the Banca
Unione, the Germany-based Wolf Bank, the Generale Immobiliare, Geneva's
Finance Bank, Edilcentro, a finance company set up in the Bahamas, New York's
Franklin National Bank plus 140 other companies spread throughout the globe.
Sindona's connection to the Mafia probably dates back to World War II
when he joined in the Mafia preparations for American landings in Sicily.
However, it was during the '70s that the Sicilian Mafia chose him as their money
man. Four years later, in 1974, Don Michele's world began collapsing around
him. It was later discovered he had been skimming off the mob's narcodollars
which he was charged with laundering. Incarcerated in prison for his part in the
Franklin Bank crash, Sindona was later found dead in his cell. A dose of
strychnine laced in his coffee brought a 25 year sentence to an abrupt end.(7) If
Sindona's death was anything, it was too late. His intimate involvement with
another bank that crashed with massive losses was to have calamitous and far-
reaching effects on Italy's ruling elite as well as the spooks of Langley.
Banco Ambrosiano was the largest private bank in Italy until it collapsed in
1982 with losses approaching a massive US$2 billion. At the centre of the
scandal was Roberto Calvi, Chairman of Ambrosiano and Lodge brother of Licio
Gelli, the shadowy Grand Master of the Italian P2 (Propaganda 2) Masonic
Lodge. Gelli, once an Oberleutnant in Himmler's SS, held the reins of power and
knew how to use them--for which he was dubbed "The Puppet Master". A
consummate blackmailer, he kept a secret record of wrongdoing of all those he
came into contact with, and wasn't shy in using it to his advantage. P2's
membership roll included highly placed politicians, cabinet members, heads of
the Italian armed forces and the intelligence services, together with leading
industrialists, media magnates, judges, Mafiosi, members of the Vatican Curia
and, of course, high-flying financiers-including Sindona. P2's 'elite' membership,
linked by their extreme right-wing political views, perfectly dovetailed with the
CIA's long-standing desire to eradicate Communism from the Italian political
scene.
The P2 and Banco Ambrosiano scandal broke when Calvi was found
'suicided' on 17th June 1982. With his hands tied behind his back and a rope
around his neck, he had been suspended from London's Blackfriars Bridge in
what some saw as a ritual killing. Calvi was P2's banker and had been involved
in embezzling massive sums of money out of his bank and into secretive
'offshore' companies in Liechtenstein and elsewhere. A number of these
companies were linked to the Vatican Bank. P2 was responsible for a number of
CIA-backed political atrocities at the time, including the bombing of Bologna
PAGE 213 OF 273

railway station in August 1980 where 85 innocents were slaughtered--and

mischievously attributed to left-wing terrorists.
It took 10 years before the real story came out. Francesco Mannino
Mannonia, a penitito (defector) from the Sicilian Mafia, confirmed in 1992 that
Calvi was strangled by Francesco di Carlo, the mob's heroin 'traffic manager', at
the instruction of Pippo Calo of the Corleone family. We now know that Calvi,
together with Gelli and Sindona, was embezzling the Mafia out of a fortune. Gelli
was 'handling' for the Corleonesi a large sum of money which he passed to Calvi
who promptly used it to shore up his failing bank. Smart to the last, Gelli helped
the mob recover "tens of billions of lire" before bolting out of sight. (8) Despite his
best efforts, he was eventually arrested in Switzerland to where he had travelled
to arrange the secret transfer of US$120 million of Ambrosiano's lost loot. Bribing
a guard with $20,000, he managed to escape. Once over the French border, he
climbed aboard a helicopter for the short trip to Monaco, home of P2's 'super-
Lodge'. From Monaco he travelled to Paraguay-a favourite bolt-hole of many of
his wartime Nazi comrades--and disappeared from sight. The missing billions
have never been recovered.
The Ambrosiano affair was significant for revealing the web of
interconnections that existed within Italy's ruling class. On the one hand, the CIA
was using P2's 'covered' (secret) Lodge and illicit funds to conduct covert
warfare on Italy's Communists. At the other extreme, it demonstrated the Mafia's
total infiltration of Italian business and politics--a feat achieved following their
induction into Masonry. Antonino Calderoni, a Mafia defector, revealed that,
during 1977, Mafia bosses were formally invited to join a covered Masonic
Lodge. They agreed to join on the understanding that they would learn the
secrets of Masonry but would not reveal Mafia secrets. "Men of Honour who get
to be bosses belong to the Masonry: this must not escape you," another Mafia
defector, Leonardo Messina, revealed. "Because it is in the Masonry that we can
have total contact with businessmen, with the institutions, with the men who
administer power..." Messina went on to add that the Mafia's secret association
with Masonry is "an obligatory passage for the Mafia on a world level".9 Masons,
like the intelligence community, bankers and the Mafia, share a common ~
interest in secrecy. Similarly, they all have a common interest in money,
especially other people's money.
History's Biggest-Ever Scam

The 'connections' that had been forged and which lay behind Italy's
greatest-yet banking debacle were to be re-enacted years later in America. The
Savings and Loan (S&L) seam--by far the greatest banking rip-off of all time--
sees the same cast of players at work. "Something very significant happened
during our country's savings-and-loan crisis, the greatest financial disaster since
the Great Depression. It happened quietly, secretly, without any fanfare and
attention. It happened before our very eyes and we knew it not. What we missed
was the massive transfer of wealth from the American taxpayer to a select group
of extremely rich, powerful people." These ominous words opened the
PAGE 214 OF 273

introduction to Pete Brewton's massively researched book, The Mafia, CIA &
George Bush--the untold story of America's greatest financial debacle . (10)
Brewton, an award-winning investigative journalist, spent years tracing the
subterranean web of interconnections that sat at the heart of this affair that
looted the American taxpayer of close to US$1 trillion. However, there was more
to the S&L affair than these words portrayed.
The "select group of extremely rich, powerful people" that Brewton fingers,
includes the CIA, President George Bush, Senator Lloyd Bentsen, a swag-sack
of other influential Texans and well-known members of the Mafia. For the CIA,
the group had access to a vast pool of 'black funds' that enabled it to engage in
illegal activities including Iran-Contra and Middle East weapons deals. Brewton's
all-too-realistic view is that this group of interconnected 'businessmen'
recognised that the S&L industry was perfectly structured for a mammoth seam.
Backed by government guarantees and regulators who would bow to the right
kind of pressure, the S&Ls were like ripe plums waiting to be plucked.
Back in his VP days, Bush intervened with federal regulators in a corrupt
Florida Savings and Loan that close friends, his sons Jeb and Neil, and a
handful of Mafia associates were systematically plundering. The thrift eventually
went belly-up to the tune of US$700 million. For a man who regularly keeps a
'plausible deniability' diary, whose hidden background includes his CIA
operational activities pre-dating his appointment to DCI by 15 years, and who,
moreover, had questionable links to the pock-faced Panamanian dictator,
Colombian cartel money-launderer and onetime CIA asset Col. Manuel Noriega,
the thought of his sons cherry-picking thousand-dollar bills off the S&L money
tree is all in a day's play.(11)
In any complex financial seam, the really important question is to discover
where the looted funds eventually come to rest. As with the Nugan Hand,
Franklin and Ambrosiano debacles, this question has never been satisfactorily
answered for the S&L seam. However, despite a perpetual smokescreen, some
interesting facts have emerged. In another Florida S&L bust that cost US$200
million in a shady land-deal, the cash disappeared down the sunset trail of Du
Pont's St Joe Paper Co. The trail went cold in Jersey, one of the Channel
Islands. The Channel Isles have long been offshore tax havens with strict
banking secrecy, and, as a consequence, a large contingent of foreign banks
have offices there. It is now believed that the looted funds were ultimately used
by CIA cut-outs to procure weapons for Iraq.(12)
A central figure in the S&L sale of the century was Waiter Mischer, a close
friend of Senator Lloyd Bentsen and a long-time 'acquaintance' of George Bush.
Mischer was closely 'connected' to the New Orleans Marcello family, one of the
most powerful Mafia families in the country. Never a 'one-family' man, he also did
business with Mafia associates from New York and Chicago. Mischer is
considered to be the most powerful man in Texas, and certainly one of the
richest. His "I'm just a country boy" demeanour belies a sharp, analytical
business mind and an icy streak of ruthlessness. With a finger in every pie, his
influence stretches wide to include business, crime, finance, the intelligence
PAGE 215 OF 273

community, and domestic and international politics. Brewton believes that

Mischer "is without peer in Texas and perhaps in the entire country". Regarded
as a pragmatist, he generally bets both ways in the political election stakes,
placing money on both the rear- and fore-legs of the horse we've come to know
as 'Demopublican' politics.
Another figure who weaved his crooked way through the S&L tale is
Herman K. Beebe, the so-called "Godfather" of the dirty Texas S&Ls and
associate of the Louisiana mob. Beebe and Mischer are long-term business
associates. Coincidentally, Beebe also has known connections to the Marcello
family. While both men were busy 'burning out'' (13) the odd couple of dozen
Savings & Loans, Beebe was transferring US$3 million in 'seed' money from his
bank, Bossier Bank & Trust, to Harvey McLean, Jr to establish the small
Washington, DC-based Palmer National Bank that boasted a board which at one
time or another largely featured in the White House telephone directory. The
board chairman, Stefan Halper, was a member of the Nixon White House. His
father-inlaw, Ray S. Cline, formerly Deputy Director of Intelligence at the CIA and
one of the old OSS 'China' veterans, was a top foreign policy and defense
adviser in the Bush presidential campaign. Other board members included John
Barnum (Deputy Secretary of the Department of Transportation, 1974-77),
Frederick V. Malek (Nixon's White House personnel chief and the Bush-Quayle
campaign manager), William Kilberg (Department of Labor, 1973-77, and
member of the Reagan-Bush transition team), and John A. Knebel (President
Ford's Secretary of Agriculture).
Palmer National was the bank of choice for the National Endowment for the
Preservation of I Liberty's fund-raising activities that provided US$I0 million to
Col. Oliver North's covert gun-running programme that saw weapons shipped
south to Nicaragua and east to Iran. This operation was essentially the brainchild
of former DCI William Casey who cunningly revived the old 'conduit' system of
money laundering that had been used with great success during the '50s to fund
secretly the Nazi war criminals recruited to spearhead the ex-SS 'freedom
fighters' scheduled for deployment behind enemy lines in the event that the
Soviets invaded Europe.'" Casey used North as his cut-out, thus kick-starting the
ongoing row between the Pentagon and the CIA about who should conduct
'covert ops'. North's superiors in the Pentagon have never forgiven him for being
the CIA's manikin. At the same time, Ray Cline, who had retired from the CIA
and formed a family-owned company called SIFT Inc., was 'advising' Major
General John Singlaub -- the principal operations officer in the Nicaraguan arms
affair.
While George Bush was wearing his S&L hat on his off-days, his all-singing,
all-dancing, gun, dope 'n' money-laundering operations were about to receive a
damaging blow as yet another massive financial scandal hit the front pages. Half
a dozen regional offices of the Italy-based Banca Nazionale del Lavoro were
raided by FBI agents following a tip-off from two junior officers of BNL Atlanta.
(15) The BNL affair seamlessly follows the well-oiled template with the
involvement of the CIA, Britain's SIS, US Presidents Reagan and Bush, British
Prime Minister Thatcher, and two of Italy's most corrupt senior politiIcians,
PAGE 216 OF 273

Bettino Craxi and the Mafialinked Giulio Andreotti. It was to reveal the
international covert network that was engaged in illegally shipping arms to Iraq's
dictator, Saddam Hussein. Even during the height of Operation Desert Storm,
CIA operatives were frantically attempting to put together an urgent assignment
of US-made SAM missiles destined for Iraq's bloody war machine. By a happy
coincidence, BNL, owned by the Italian Treasury, was run by a close friend and
Lodge brother of Andreotti. Alberto Ferrari, who reigned as BNL's Director-
General, was a notorious member of P2. Nor was he alone in his Masonic
affiliations. BNL, dubbed "the bank of the P2", "was quickly shown to have
among its upper echelons a veritable nest of P2 operatives..."(16) with intimate
connections to the most powerful figures in successive US administrations.
The Cocaine Connection

Weapons-dealing is a highly lucrative 'inter-government' business and
hundreds of billions of dollars are involved annually. Equally lucrative is the
narcotics trade which generates a staggering US$500 billion per annum.
As well as having a peripheral role in the Iraqi weapons affair, the Bank for
Credit and Commerce International (BCCI)--known as the "Bank for Crooks and
Criminals International "-became one of the major money-laundering operations
for the Colombian cartels. Many of the same old cast of players are found
picking the bones out of this bank that collapsed with estimated debts in excess
of $10 billion. "BCCI was operated as a corrupt and criminal organisation
throughout its entire 19-year history. It systematically falsified its records. It
knowingly allowed itself to be used to launder the illegal income of drug-sellers
and other criminals. And it paid bribes and kickbacks to public officials." (17)
Over a few short years, the BCCI affair would slowly swell to prodigious
proportions, bringing numerous casualties in its wake. One of these was Clark
Gifford, Chairman of First American Bancshares, friend of presidents and doyen
of Washington insiders. Disgraced, Clifford and his prestigious Washington law-
firm partner Robert Altman walked away with a cool US$18 million.l8 Few
individuals or institutions who were touched by the scandal would wholly escape
censure. BCCI's founder, Agha Hasan Abedi, assiduously courted power and
influence. A close friend was former US President Jimmy Carter.
BCCI aggressively set out to launder the Colombian cartels' massive drugs
money that would eventually see up to 40 other banks directly or peripherally
involved--many of them blue-blooded luminaries of the banking firmament.
Setting up a branch in Panama, BCCI soon cut a deal with Panama's Noriega,
opening an account for him in the name of "Zorro". Dirty funds were collected
and wired to Europe. From there, Certificates of Deposit (CDs) were issued that
could be used as collateral against loans issued. Another technique involved
cycling the money through an affiliated company, Capcom Financial Services,
whose huge futures and options business was an ideal laundering vehicle.
Discontented with just the narcotics industry, BCCI developed close ties to
the 'spook' community, maintaining accounts for Israel's Mossad, America's CIA,
Britain's SIS, France's DGSE, plus the security services of Pakistan and
PAGE 217 OF 273

Switzerland. The CIA's accounts with BCCI covered several years of covert
operations on the part of that agency. Principally, payments were made to
finance Afghan rebels and to bribe General Noriega. Almost unbelievably, BCCI's
customers also included the notorious Abu Nidal terrorist organisation and the
Iran-backed Hezbollah--long regarded as the arch enemies of the Western
intelligence community. Abu Nidal's Fatah Revolutionary Council had a US$60
million account at London's fashionable Sloane Street branch. At the same time,
the bank was responsible for financing deals in which Mossad provided weapons
to Arab terrorists. Peru, buckling under the burden of sovereign debt, used BCCI
to hide its cash reserves away from the grasping hands of creditor banks.
Outdoing the security services of many small nations, the BCCI also ran its
own global intelligence network, known as "the black network", employing an
estimated 1,500 trained operatives. Based in Karachi, this was a network "of
hand-picked individuals who underwent a one year training course in
psychological warfare, spying techniques and the use of firearms".(19)
When major banks aren't colluding with spooks and organised crime, they
appear to settle back and engage in dubious 'in-house' business. Most don't hit
the headlines, being swept away from the glare of the media by red-faced
executives.
One of those that wasn't so lucky was Daiwa Bank Ltd. Squirming with loss
of face, Daiwa executives announced to a round-mouthed media that Toshihide
Iguchi, a small-time Japanese trader working out of Daiwa's New York office, had
racked up a US$1.1 billion loss trading US Treasury bonds. Stretching credulity
beyond belief, Daiwa claimed that the 44-year-old Iguchi, following a modest
trading loss of $200,000, spent the next 11 years writing 30,000 "unauthorised"
tickets in an attempt to reverse his misfortune. This equates to a staggering
$400,000 per trading day, making Iguchi one of the unluckiest suckers the world
of high finance has ever encountered.
The Barings Cover-Up

Though for sheer bad luck we couldn't do much worse than Nick Leeson,
the young and inexperienced British trader at Barings, Singapore, who, with the
aid of a 'dump' account known as the "five eights"--signifying in Chinese
superstition "all the luck"--bumped up losses of US$1.6 billion over a three-year
period, sending Barings crashing to its knees. Until then, Barings sat at the top of
the British establishment tree as the oldest merchant bank in London. Dripping
with history and dark secrets, Barings dated back to the mid-17th century. By
modern standards it was a small bank with a net worth in the US$600 million
range but still managed to punch above its weight. That is, until it began
speculating its depositors' and shareholders' money in Singapore's futures
market, SIMEX.
All the signs are that the Barings affair is a straightforward case of 'bonus
fever' amongst the senior executives who benefited from excessive annual
bonuses. Nevertheless, there may be more to it than that. The fact that their
inexperienced young SIMEX trader, Nick Leeson, didn't contribute one dime to
PAGE 218 OF 273

the bank's bottom line throughout his three-year tenure as "the big swinging dick"
on the Singapore futures exchange is beside the point. Leeson contrived to
report profits by creating false accounting entries, and thus, year on year, was
able to conjure a host of ghost profits--carefully hiding his real month-on-month
losses that eventually grew to a teeth-grinding US$1.6 billion. His superiors, the
bank's senior executives, delighted with the performance of their star in the east,
awarded themselves bonuses of US$1.6 million-plus for the year ending 1993.
Despite crashing with massive losses, the directors walked to new jobs with the
Dutch financial group ING which galloped to the rescue. Snug in their new
sinecures, they negotiated US$152 million in back bonuses covering the tragic
year 1994-where reported earnings of US$320 million in reality concealed
accumulated losses of US$260 million, which were soon to increase sixfold.
It is now clear that Leeson didn't operate alone. Those tagged with assisting
and/or colluding with him include the CEO, Peter Norris, and the Director of
Finance, Geoffrey Broadhurst.(20) Discovering the degree of complicity involved
at senior levels, 23 directors and senior staff were forced to resign by their new
Dutch owners. This did not stop the Bank of England, Britain's banking regulator,
from publishing a caveat-ridden and poorly investigated report. The report
chronicles the Bank of England's less-than-zealous efforts to apportion blame to
anyone other than Leeson, but does catalogue a list of impediments to its
investigation. These include the accidental destruction of "significant classes" of
records within the offices of Barings, London, which are cited as being "missing",
"corrupted" or not "routinely retained". The sleuths of Threadneedle Street,
however, did not once venture inside the door of Barings' offices during their
entire investigation. Had they done so, it is not outside the realms of possibility
that they may have discovered "significant classes" of documents corrupting
away before their very eyes.
Importantly, nobody is saying which banks provided the immense funding
that the Barings operation consumed. Nor is anybody revealing why these banks
would so readily lend funds that amounted to a cool US$1.4 billion to a small
bank with an insignificant net worth. Seeking to clarify this point, I asked the
Bank of England to name which banks provided funds to the group and whether
they formed a formal or informal syndicate. I was politely told that "we don't have
this information, but if we do it's confidential and not available". A curious answer
indeed. Meanwhile, the only casualty besides, of course, the bank's
shareholders--who, with unspeakably poor grace, continue to grumble about
their missing US$160 million--is Leeson. Found guilty and given a six-and-a-half-
year sentence, he now resides in Singapore's Changi prison. Some believe he
joins Daiwa's Iguchi as a scapegoat, demonstrating that when the bucks go
down in the 'connected' world of high-finance, those who have most to gain, do
not."
More Money Spent On Dope Than Food

The sheer volume of money skating around the world's financial markets is
staggering, and a huge proportion of it is illegal. Of a massive US$6 trillion that
PAGE 219 OF 273

annually circulates the globe, one quarter-US$1.S trillion--is illicit, and a third of
this, US$500 billion, is narcodollars. US$200 billion worth of narcotics are
shipped to the US annually, roughly one third of the total annual import bill.
Random forensic testing throughout the US reveals that virtually every single
banknote contains microscopic traces of cocaine. Globally, more money is spent
on dope than on food.(22) With these sums at stake, banks and the financial
community are, de facto, laundering dirty money.
Operating within the CIA is a small team known as the "Fifth Column".
Staffed by experienced computer-hackers using a Cray supercomputer, this
group tracks dirty money accumulated in secret offshore bank accounts by
"scores of high-level US political figures". (23) Once the funds are tracked and
the secret authorisation code located, the money is electronically swept up and
deposited in the US Treasury. Intelligence sources estimate that in excess of
US$2 billion has been gathered in this manner, and none of the now-poorer high-
profile figures is contemplating lodging complaints. Illegal? You betcha it is, but
no more than any one of a dozen other operations that have previously come to
light.
A great many more bank scandals can be expected in the coming years.
Why this should be so is simple. It's not their money they're playing with. It's
yours and mine. If a bank goes belly-up, culpable bank executives slide into
other cushy jobs with other banks or disappear down the sunset trail toting a
swag-bag of 'lost' loot--sometimes both. Simply stated, high finance is a
'connected' world where presidents touch shoulders with mobsters, bankers
shake hands with Masons, regulators buckle under political pressure, law
enforcement protects crime, the CIA 'does its thing', and fortunes can be and are
won.
Bankers say of themselves that theirs is a "prudent" profession. In the last
analysis, this is true. Nothing can be more prudent than playing with and losing
other people's money.
Endnotes:
1. Following the Barings debacle, the Bank of England has told me that it
will resist tougher regulation--fearing that this will drive financial institutions to
less-regulated centres. (Phone conversation with this writer, December 1995)
2. Sterling, Claire, Crime Without Frontiers, Little Brown, London, 1994.
3. Sterling, Claire, Op. Cit., p. 23. See also p. 111, citing the Yakuza's near-
miss attempt to take control of Paribas, a leading French bank.
4. Kochan & Whittington, Banktupt: the BCCI Fraud, Victor Gollancz,
London, 1991, p. 96.
5. Sit Kit McMahon, former Chairman of Midland Bank Group Plc, stated
during a British TV programme, broadcast in Autumn 1995, that banking is a
"confidence trick".
6. Robinson, Jeffrey, The Laundrymen, Simon & Schuster, London, 1994, p.
266.
PAGE 220 OF 273

7. Op. Cit., p. 272.

8. Sterling, Claire, op. cit., p. 203
9. Op. cit., pp. 63-64.
10. Brewton, Pete, The Mafia, CIA & George Bush--the untold story of
America's greatest financial debacle , SPI Books, New York, 1992.
11. For a brief synopsis on Bush's secret background, see Mark Lane's
Plausible Denial (Plexus Publishing, London, 1992, pp. 330-333).
12. Chapter 21 of Pte Brewton's book deals with this case in some detail
(see Endnote 10).
13. "Burnout" is a mob scam where they acquire a failing company, boost its
borrowing, strip its assets and then place it into voluntary liquidation. Obviously
the creditors are left picking up the tab.
14. Loftus, John, The Belarus Secret, Paragon House, 1989. Casey, an old
OSS warrior, saw no shame in using Nazi war criminals--many of them guilty of
the most horrendous crimes against humanity--in hi fervent anti-Communism.
This view permeated the thinking of many of the old Cold Warriors in the CIA and
elsewhere. The story of former Nazis connected to the P2, Banco Ambrosiano
and BNL affairs remains largely untold.
15. The BNL affair is covered in Alan Friedman's spider's Web (Faber &
Faber, London, 1993).
16. Op. cit., p. 85.
17. Kochan & Whittington, op. cit., p. 14. See also Adams and Frantz, A Full
Servie Bank (Sim and Schuster, London, 1991), on the BCCI affair.
18. Kochan & Whittington, ibid.
19. Op. cit., p. 130.
20. A finding of the Singapore Report authored by Price Waterhouse,
Singapore, on behalf of the Minister of Finance.
21. Leeson and Iguchi are obviously culpable, but the point is that they did
not act alone. This is the view of the writer, based on many years' experience
working in international banking. In Leeson's case, the authors of the official
Singapore Report make it clear that they share this view.
22. Robison, Jeffrey, op. cit., p. 173.
23. "Fostergate", Unclassified, No. 34, Fall 1995, pp. 6-9.
About the Author:

David Guyatt was born and educated in Hampshire, England. His career in
the stockbroking, investment and banking industries has spanned 28 years, the
last 12 of which he spent as a director and treasurer of a major British bank.
There he gained insight into the world of international weapons financing and
was familiar with all aspects of international capital, foreign exchange and money
markets, with global trade finance his specialisation.
PAGE 221 OF 273

For the last five years, David has pursued a career as a freelance
writer/researcher, writing or contributing to a number of screenplays, novels,
documentaries and feature articles. He is currently researching high-tech, anti-
personnel, electromagnetic weapons systems and their focus within 'black' mind-
control/behaviour modification programmes in the military and intelligence
communities.
His other in-depth research project at present centres on the structure,
power and hidden influence of elitist groups and interlinking tax-exempt
foundations, including RIIA (Chatham House), Council on Fore Relations,
Trilateralists, Bilderbergers, shadowy "Le Cercle", the Rockefellers, Brothers
Fund, Ford, Carnegie, Hoover, IMF, World Bank (ad nauseum)...
PAGE 222 OF 273

THE INVESTOR'S BILL OF RIGHTS
COPYRIGHT 1987 BY NATIONAL FUTURES ASSOCIATION

In many important ways, an investor is not simply a consumer but a party to
a legal contract. Both the offeror and purchaser of an investment have rights and
responsibilities. This "bill of rights" is designed to assist you the investor in
making an informed decision before committing your funds. It is not intended to
be exhaustive in its descriptions.
Should you desire further information about a particular type of investment,
you are invited to contact the appropriate organization listed at the end of this
document.
Honesty In Advertising
Many individuals first learn of investment opportunities through advertising
-- in a newspaper or magazine, on radio or television, or by mail. Phone
solicitations are also regarded as a form of advertising. In practically every area
of investment activity, false or misleading advertising is against the law and
subject to civil, criminal or regulatory penalties. Bear in mind that advertising is
able to convey only limited information, and the most attractive features are likely
to be highlighted. Accordingly, it is never wise to invest solely on the basis of an
advertisement. The only bona fide purposes of investment advertising are to call
your attention to an offering and encourage you to obtain additional information.
Full And Accurate Information

Before you make any investment, you have the right to seek and obtain
information about the investment. This includes information that accurately
conveys all of the material facts about the investment, including the major factors
likely to affect its performance.
You also have the right to request information about the firm or the
individuals with whom you would be doing business and whether they have a
"track record." If so, you have the right to know what it has been and whether it is
real or "hypothetical." If they have been in trouble with regulatory authorities, you
have the right to know this. If a rate of return is advertised, you have the right to
know how it is calculated and any assumptions it is based on. You also have the
right to ask what financial interest the seller of the investment has in the sale.
Ask for all available literature about the investment. If there is a prospectus,
obtain it and read it. This is where the bad as well as the good about the
investment has to be discussed. If an investment involves a company whose
stock is publicly traded, get a copy of its latest annual report. It can also be
worthwhile to visit your public library to find out what may have been written
about the investment in recent business or financial periodicals.
PAGE 223 OF 273

Obtaining information isn't likely to tell you whether or not a given

investment will be profitable, but what you are able to find out--or unable to find
out--could help you decide if it's an appropriate investment for you at that time.
No investment is right for everyone.
Disclosure Of Risks
Every investment involves some risk. You have the right to find out what
these risks are prior to making an investment. Some, of course, are obvious:
shares of stock may decline in price. A business venture may fail. An oil well may
turn out to be a dry hole.
Others may be less obvious. Many people do not fully understand, for
example, that even a u.s. treasury bond may fluctuate in market value prior to
maturity. Or that with some investments it is possible to lose more than the
amount initially invested. The point is that different investments involve different
kinds of risk and these risks can differ in degree. A general rule of thumb is that
the greater the potential reward, the greater the potential risk.
In some areas of investment, there is a legal obligation to disclose the risks
in writing. If the investment doesn't require a prospectus or written risk disclosure
statement, you might nonetheless want to ask for a written explanation of the
risks. The bottom line: unless your understanding of the ways you can lose
money is equal to your understanding of the ways you can make money, don't
invest!
Explanation Of Obligations And Costs

You have the right to know, in advance, what obligations and costs are
involved in a given investment. For instance, does the investment involve a
requirement that you must take some specific action by a particular time? Or is
there a possibility that at some future time or under certain circumstances you
may be obligated to come up with additional money?
Similarly, you have the right to a full disclosure of the costs that will be or
may be incurred. In addition to commissions, sales charges or "loads" when you
buy and/or sell, this includes any other transaction expenses, maintenance or
service charges, profit sharing arrangements, redemption fees or penalties and
the like.
Time To Consider
You earned the money and you have the right to decide for yourself how
you want to invest it. That right includes sufficient time to make an informed and
well-considered decision. High pressure sales tactics violate the spirit of the law,
and most investment professionals will not push you into making uninformed
decisions. Thus, any such efforts should be grounds for suspicion. An investment
that "absolutely has to made right now" probably shouldn't be made at all.
PAGE 224 OF 273

Responsible Advice
Investors enjoy a wide range of different investments to choose from. Taking
into consideration your financial situation, needs and investment objectives,
some are likely to be suitable for you and others aren't--perhaps because of risks
involved and perhaps for other reasons.
If you rely on an investment professional for advice, you have the right to
responsible advice.
In the securities industry, for example, "suitability" rules require that
investment advice be appropriate for the particular customer. In the commodity
futures industry a "know your customer" rule requires that firms and brokers
obtain sufficient information to assure that investors are adequately informed of
the risks involved. Beware of someone who insists that a particular investment is
"right" for you although he or she knows nothing about you.
Best-Effort Management
Every firm and individual that accepts investment funds from the public has
the ethical and legal obligation to manage the money responsibly. As an investor,
you have the right to expect nothing less.
Unfortunately, in any area of investment, there are those few less-than-
ethical persons who may lose sight of their obligations, and of your rights: by
making investments you have not authorized, by making an excessive number of
investments for the purpose of creating additional commission income for
themselves or, at the extreme, appropriating your funds for their personal use. If
there is even a hint of such activities, insist on an immediate and full explanation.
Unless you are completely satisfied with the answer, ask the appropriate
regulatory or legal authorities to look into it. It's your right.
Complete And Truthful Accounting

Investing your money shouldn't mean losing touch with your money. It's
your right to know where your money is and the current status and value of your
account. If there have been profits or losses, you have the right to know the
amount and how and when they were realized or incurred. This right includes
knowing the amount and nature of any and all charges against your account.
Most firms prepare and mail periodic account statements, generally monthly. And
you can usually obtain interim information on request. Whatever the method of
accounting, you have both the right to obtain this information and the right to
expect that it be timely and accurate.
Access To Your Funds

Some investments include restrictions as to whether, when or how you can
have access to your funds. You have the right to be clearly informed of any such
restrictions in advance of making the investment. Similarly, if the investment may
be illiquid--difficult to quickly convert to cash--you have the right to know this
PAGE 225 OF 273

beforehand. In the absence of restrictions or limitations it's your money and you
should be able to have access to it within a reasonable period of time.
You should also have access to the person or firm that has your funds.
Investment scam artists are well versed in ways of finding you but, particularly
once they have your money in hand, they can make it difficult or impossible for
you to find them.
Recourse, If Necessary
Your rights as an investor include the right to seek an appropriate remedy if
you believe someone has dealt with you---or handled your investment--
dishonestly or unfairly. Indeed, even in the case of reasonable
misunderstandings, there should be some way to reconcile differences.
It is wise to determine before you invest what avenues of recourse are
available to you if they should be needed. One means of exercising your right of
recourse may be to file suit in a court of law. Or you may be able to initiate
arbitration, mediation or reparation proceedings through an exchange or a
regulatory organization. Additional information about filing complaints can be
obtained through various regulatory organizations.
This investors' bill of rights has been prepared as a service to the investing
public by:
National Futures Association

200 West Madison Street
Suite 1600
Chicago, Illinois 60606-3447
800.621-3570
800.572.9400 (In Illinois)
In association with the following organizations:
American Association Of Individual Investors

625 North Michigan Avenue
Chicago, Illinois 60611
312.280.0170
Commodity Futures Trading Commission

2033 K Street, N.W.
Washington, D.C. 20581
202.254.6387
PAGE 226 OF 273

Council Of Better Business Bureaus

4200 Wilson Boulevard, Suite 800
Arlington, Virginia 22203
703.276.0100
National Consumers League

815 15th Street, N.W.
Suite 516
202.639.8140
North American Securities Administrators Association

555 New Jersey Avenue, N.W. Suite 750
202.737.0900
United States Office Of Consumer Affairs

1620 L Street, N.W.
Suite 700
202.634.4329
United States Postal Service Chief Postal Inspector

Room 3021
Washington, D.C. 20260-2100
202.268.4267
If you suspect fraud or misrepresentation, contact the chief postal inspector

or your local postmaster or postal inspector. For any other mail service problems
contact your local postmaster, or:
The Consumer Advocate

United States Postal Service
Room 5910
202.268.2284
PAGE 227 OF 273

WHAT EVERY INVESTOR SHOULD KNOW
A HANDBOOK FROM THE U.S. SECURITIES AND EXCHANGE

COMMISSION
A PUBLICATION OF THE OFFICE OF PUBLIC AFFAIRS,

POLICY EVALUATION AND RESEARCH U.S. SECURITIES
AND EXCHANGE COMMISSION - JLY 1994
Section 1. The Securities Markets

The term "securities" encompasses a broad range of investment
instruments, including stocks and bonds, mutual funds, options, and municipal
bonds. Investment contracts, through which investors pool money into a
common enterprise managed for profit by a third party, are also securities.
Securities are bought and sold in a number of different markets. The best
known are the New York Stock Exchange and the American Stock Exchange,
both located in New York City. In addition, six regional exchanges are located in
cities throughout the country. Corporate securities may be traded on an
exchange after the issuing company has applied and met the exchange's listing
standards; these may include requirements on the company's assets, number of
shares publicly held, and number of stockholders. Organized markets for other
instruments, including standardized options, impose similar restrictions.
Many securities are not traded on an exchange but are said to be traded
over the counter (OTC) through a large network of securities brokers and
dealers. In the National Association of Securities Dealers' Automated Quotation
System (NASDAQ), operated by the National Association of Securities Dealers
(NASD), trading in OTC stocks is accomplished through on-line computer listings
of bid and asked prices and completed transactions. Like the exchanges,
NASDAQ has certain listing standards which must be met for securities to be
traded in that market.
Investors who buy or sell securities on an exchange or over the counter
usually will do so with the aid of a broker-dealer firm, where their direct contact
will be with a registered representative. This professional, often called an
account executive or financial consultant, must be registered with the NASD, a
self-regulatory organization (SRO) whose operations are overseen by the
Securities and Exchange Commission (SEC), and with the states in which he or
she is conducting business. The registered representative is the link between the
investor and the traders and dealers who actually buy and sell securities on the
floor of the exchange or elsewhere.
PAGE 228 OF 273

Market prices for stocks traded over the counter and for those traded on
exchanges are established in somewhat different ways. The exchanges
centralize trading in each security at one location--the floor of the exchange.
There, auction principles of trading establish the market price of a security
according to the current buying and selling interests. If such interests do not
balance, designated floor members known as specialists are expected to step in
to buy or sell for their own account, to a reasonable degree, as necessary to
maintain an orderly market. In the OTC market, brokers acting on behalf of their
customers (the investors) contact a brokerage firm which holds itself out as a
market-maker in the specific security, and negotiate the most favorable purchase
or sale price. Commissions received by brokers are then added to the purchase
price or deducted from the sale price to arrive at the net price to the customer. In
some cases, a customer's brokerage firm may itself act as a dealer, either selling
a security to a customer from its own inventory or buying it from the customer. In
such cases, the brokerage firm hopes to make a profit on the purchase and sale
of the security, but no commission is charged. Instead, a retail "mark up" is
added to the price charged by the firm when a customer buys securities and a
"mark down" deducted from the price paid by the firm when a customer sells
securities.
Section 2. How Investors Are Protected

Under the federal securities laws, the individuals and organizations
engaged in the business of buying and selling securities have a great deal of
responsibility for regulating their own behavior through SROs operating under
the oversight of the SEC. These SROs include all of the exchanges, the NASD,
the Municipal Securities Rulemaking Board (MSRB), which establishes rules that
govern the buying and selling of securities offered by state and local
governments, and other organizations concerned with somewhat less visible
activities such as the processing of transactions. The SROs are responsible for
establishing rules governing trading and other activities, setting qualifications for
securities industry professionals, regulating the conduct of their members, and
disciplining those who fail to abide by their rules.
In addition, the federal securities laws provide investors with certain
protections, including the ability to sue if they have been harmed as a result of
certain violations of those laws. However, many brokerage firms may require that
their customers sign an agreement that may contain an arbitration clause when
they open a brokerage account. If you sign an agreement with an arbitration
clause, you are agreeing to settle any future disputes with the broker through
binding arbitration, instead of through the courts. Arbitration proceedings are
administered by the SROs, and the rules that apply in arbitration proceedings
are specified by each SRO. Although the SEC oversees the arbitration process,
it cannot intervene on behalf of or directly represent individual investors, nor can
the SEC modify or vacate an arbitration decision. The grounds for judicial review
are very limited.
PAGE 229 OF 273

Further protection for investors is provided by state laws designed to

regulate the sale of securities within state boundaries.
The Role of the SEC
The SEC, an independent agency of the U.S. Government, was established
by Congress in 1934 to administer the federal securities laws. It is headed by
five Commissioners, appointed by the President, who direct a staff of lawyers,
accountants, financial analysts, and other professionals. The staff operates from
its headquarters in Washington, D.C. and from 5 regional offices and six district
offices in major financial centers throughout the country.
The SEC's principal objectives are to ensure that the securities markets
operate in a fair and orderly manner, that securities industry professionals deal
fairly with their customers, and that corporations make public all material
information about themselves so that investors can make informed investment
decisions. The SEC pursues these objectives by: mandating that companies
disclose material business and financial information; overseeing the operations
of the SROs; adopting rules with which those involved in the purchase and sale
of securities must comply; and filing lawsuits or taking other enforcement action
in cases where the law has been violated. Despite the many protections
provided by federal and state securities laws and SRO rules, it is important for
investors to remember that they have the ultimate responsibility for their own
protection. In particular, the SEC cannot guarantee the worth of any security.
Investors must make their own judgments about the merits of an investment.
Full Disclosure
Before any company offers its securities for sale to the general public (with
certain exceptions), it must file with the SEC a registration statement which
includes a "prospectus." In its registration statement, the company must provide
all material information on the nature of its business, the company's
management, the type of security being offered and its relation to other securities
the company may have on the market, and the company's financial statements
as audited by independent public accountants. A copy of a prospectus containing
information about the company and the securities offered must be provided to
investors upon or before their purchase. In addition, most companies must
continue to update, in filings made with the SEC, this disclosure information
quarterly and annually to ensure an informed trading market.
The SEC reviews registration statements and periodic reports for
completeness and accuracy of information disclosed, but the SEC does not
review every one of these, and verification of each statement of fact would be
impossible. However, the securities laws do authorize the SEC to seek injunctive
and other relief for registration statements containing materially false and
misleading statements. Persons who willfully violate the securities laws may also
be subject to criminal action brought by the Department of Justice leading to
imprisonment or criminal fines. The laws also provide that investors may be able
to sue to recover losses in the purchase of a registered security if materially false
or misleading statements were made in the prospectus or through oral
PAGE 230 OF 273

solicitation. Investors must seek such recovery through the appropriate courts,
since the SEC has no power to collect or award damages or to represent
individuals.
Regulation Of The Securities Industry: People, Firms and Markets
Another important part of the SEC's role is supervision of the securities
markets and the conduct of securities professionals. The SEC serves as a
watchdog to protect against fraud in the sale of securities, illegal sales practices,
market manipulation, and other violations of investors' trust by broker-dealers,
investment advisers, and other securities professionals.
In general, individuals who buy and sell securities professionally must
register with the appropriate SRO, meet certain qualification requirements, and
comply with rules of conduct adopted by that SRO. The broker-dealer firms for
which they work must, in turn, register with the SEC and comply with the
agency's rules relating to such matters as financial condition and supervision of
individual account executives. In addition, broker-dealer firms must also comply
with the rules of any exchange of which they are a member and, usually, with the
rules of the NASD.
The SEC can deny registration to securities firms and, in some cases, may
impose sanctions against a firm and/or individuals in a firm for violation of federal
securities laws (such as, manipulation of the market price of a stock,
misappropriation of customer funds or securities, or other violations). The SEC
polices the securities industry by conducting inspections and working in
conjunction with the securities exchanges, the NASD, and state securities
commissions.
Section 3. Types of Investments

There are two broad categories of securities available to investors--equity
securities (which represent ownership of a part of a company) and debt
securities (which represent a loan from the investor to a company or government
entity). Each type has distinct characteristics plus advantages and
disadvantages, depending on an investor's needs and investment objectives.
Investment Stocks
The type of equity securities with which most people are familiar is stock.
When investors buy stock, they become owners of a "share" of a company's
assets. If a company is successful, the price that investors are willing to pay for
its stock will often go up--shareholders who bought stock at a lower price then
stand to make a profit. If a company does not do well, however, its stock may
decrease in value and shareholders can lose money. Stock prices are also
subject to both general economic and industry-specific market factors. Many
profitable companies distribute part of their earnings to their shareholders in the
form of "dividend" payments, usually on a quarterly basis. As owners,
shareholders generally have the right to vote on electing the board of directors
and on certain other matters of particular significance to the company. Under the
federal securities laws, most companies must send to shareholders a proxy
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statement providing information on the business experience and compensation

of nominees to the board of directors and on any other matter submitted for
shareholder vote. This information is required so that shareholders can make an
informed decision on whether to elect the nominees or on how to vote on matters
submitted for their consideration.
Corporate Bonds
The most common form of corporate debt security is the bond, a certificate
promising to repay, no later than a specified date, a sum of money which the
investor or bondholder has loaned to the company. In return for the use of the
money, the company also agrees to pay bondholders a certain amount of
"interest" each year, which is usually a percentage of the amount loaned. Since
bondholders are not owners of the company, they do not share in dividend
payments or vote on company matters. The return on their investment is not
usually dependent upon how successful the company is in business.
Bondholders are entitled to receive the amount of interest originally agreed upon,
as well as a return of the principal amount of the bond, if they hold it for the time
period specified. Companies offering bonds to the public must file with the SEC a
registration statement, including a prospectus containing information about the
company and the security.
Municipal Bonds
Bonds issued by states, cities, or certain agencies of local governments
(such as school districts) are called municipal bonds. An important feature of
these bonds is that the interest which a bondholder receives is not subject to
federal income tax. In addition, the interest is also exempt from state and local
tax if the bondholder lives in the jurisdiction of the issuing authority. Because of
the tax advantages, however, the interest rate paid on municipal bonds is
generally lower than that paid on corporate bonds. Municipal bonds are exempt
from registration with the SEC; however, the MSRB establishes rules that govern
the buying and selling of these securities.
Stock Options
An option is the right to buy or sell something at some point in the future.
The type of options with which we are concerned here are standardized,
exchange-traded options to buy or sell corporate stock. They fall into two
categories--"calls" which give the investor the right to buy 100 shares of a
specified stock at a fixed price within a specified time period, and "puts" which
give the investor the right to sell 100 shares of a specified stock at a fixed price
within a specified time period.
Investment Companies
Companies or trusts that principally invest their capital in securities are
known as investment companies. Investment companies often diversify their
investments in different types of equity and debt securities in hope of obtaining
specific investment goals.
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Investment Contracts and Limited Partnerships

Investors sometimes pool money into a common enterprise managed for
profit by a third party. This is called an investment contract. Such enterprises
may involve anything from cattle breeding programs to movie productions. This
is often done through the establishment of a limited partnership in which
investors, as limited partners, own an interest in a venture but do not take an
active management role. Some of these securities are issued primarily for
purposes of reducing income tax liability.
Real Estate Investment Trust (REIT)
Real estate investment trusts are set up in a fashion similar to investment
companies. Instead of investing in stocks or bonds, however, REIT investors
pool their funds to buy and manage real estate or to finance real estate
construction or purchases. Real estate limited partnerships are also common.
Government Securities
The U.S. Government also issues a variety of debt securities, including
Treasury bills (commonly called T-bills), Treasury notes, and U.S. Government
agency bonds. T-bills are sold to selected securities dealers by the Treasury at
auctions. Investors can buy all three types, without paying a commission, directly
from a Federal Reserve Bank or the Bureau of the Public Debt. Government
securities can also be purchased from banks, government securities dealers,
and other broker-dealers.
Section 4. How To Choose An Investment

If you are thinking about investing your money in securities, it is important to
obtain reliable information about your potential investments. If you are unsure
about how to proceed, you may also want to seek advice from a qualified person
whom you trust. But always remember that the final decision is yours. After all,
it's your money!
One of the more basic relationships in investing is that between risk and
reward. Very often, investments that offer potentially high returns are
accompanied by relatively higher risk factors. It is up to you to decide how much
risk you can assume. Always keep in mind that your overall financial situation
includes both your current and future needs. In general, prospective investors
should avoid "risky" investments unless they have a steady income, adequate
insurance, and an emergency fund of readily accessible cash. If you need
assistance in making the most suitable choices, you might wish to consult books
on investing, a registered investment adviser, a broker-dealer, or, in certain
cases, an attorney, accountant, financial counselor, or banker.
Get Information
Among the many sources of information on securities are:
Corporations: Many public companies will send copies of their annual and
quarterly reports free of charge to prospective investors who write or call. The
annual report to shareholders contains a description of the company's business,
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its financial statements, and other updated and condensed financial and non-
financial information. For new issues of stock, the investor should obtain and
read a prospectus.
SEC: The SEC has public reference rooms at its headquarters in
Washington, D.C. and at its Northeast and Midwest Regional offices. Copies of
the text of documents filed in these reference rooms may be obtained by visiting
or writing the Public Reference Room (at a standard per page reproduction rate)
or through private contractors (who charge for research and/or reproduction).
Other sources on information filed with the SEC include public or law libraries,
securities firms, financial service bureaus, computerized on-line services, and
the companies themselves.
Most companies whose stock is traded over the counter or on a stock
exchange must file "full disclosure" reports on a regular basis with the SEC. The
annual report (Form 10-K) is the most comprehensive of these. It contains a
narrative description and statistical information on the company's business,
operations, properties, parents, and subsidiaries; its management, including their
compensation and ownership of company securities; and significant legal
proceedings which involve the company. Form 10-K also contains the audited
financial statements of the company (including a balance sheet, an income
statement, and a statement of cash flow) and provides management's discussion
of business operations and prospects for the future. Quarterly financial
information is also required to be filed on Form 10-Q, and current reports on
Form 8-K may be required as well.
Anyone may obtain copies (at a modest copying charge) of any corporate
report and most other documents filed with the Commission by visiting a public
reference room or by writing to: Public Reference Room, Mail Stop 1-2,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549-1002.
Publications: There are many business and financial publications which
provide news of current business conditions and profiles of individual companies
or industries. The business section of your daily newspaper contains economic
information and reports market prices, which will enable you to follow
movements in the value of different securities. The public library can be a
valuable resource to the investor, especially if it has a business librarian who can
identify specific reference material.
State Securities Commissions: In many cases, securities must be
registered with the securities commission of each state in which they are to be
sold. Your state securities administrator, usually located in the state capital, may
keep such documents on file and accessible to the public.
Other Sources: Additional sources of information include brokerage firms,
stock exchanges, and various financial advisory services.
Protect Yourself
You should be as careful about buying securities as you would be about any
other costly purchase. The vast majority of securities professionals are honest,
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but be aware that misrepresentation and fraud do take place. Observe the
following basic safeguards when "shopping" for investments:
1. Don't buy securities offered in unsolicited telephone calls or through "cold
calls"--ask for information in writing before you decide.
2. Beware of salespeople who try to pressure you into acting immediately.
3. Don't buy on tips or rumors. Not only is it safer to get the facts first, but
also it is illegal to buy or sell securities based on "inside information" which is not
generally available to other investors.
4. Get advice if you don't understand something in a prospectus or a piece
of sales literature.
5. Be skeptical of guarantees or promises of quick profits.
6. Check on the credentials of anyone who tries to sell you securities.
7. Remember that prior success is no guarantee of future success in an
investment arrangement.
8. Be especially careful with certain tax-sheltered investments, partnerships,
and other "illiquid" investments. Ask about the liquidity and understand that there
may not be a ready market when you want to sell.
9. Be sure you understand the risks involved in trading securities, especially
options and those purchased on margin.
10. Don't speculate. Speculation can be a useful investment tool for those
who can understand and manage the risks involved and those who can afford to
lose money. For the average investor, more conservative investment strategies
are generally appropriate.
Section 5. Getting Started

Once you have reviewed your personal financial circumstances and goals
and have decided that a securities investment is appropriate for you, you will be
ready to take steps to select a brokerage firm and open an account.
Securities broker-dealer firms come in many shapes and sizes. Firms that
do business with public investors generally must be registered with the SEC and
must abide by the securities laws (federal and state), SEC regulations and the
rules of the SROs to which they belong. All broker-dealers must adhere to
certain standards of timeliness, efficiency, and accuracy of record keeping. For
example, customers have the right to expect that trades will be promptly
executed whenever a market exists and that the broker will use all reasonable
means to secure the best price. Customers should expect to receive written
confirmation of trades executed, with information including the date of the
transaction, the identity of the security bought or sold, and the number of shares,
units, or principal amount of the security. They should expect to receive from the
broker-dealer disclosure as to the cost of the actual transaction, including
commissions charged, and the capacity in which the firm was operating (such as
agent, principal, market maker).
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Types of Brokers
Broker-dealers vary widely in terms of the services and products which they
offer their customers. Some have large staffs of professionals to research
various types of investments and provide advice to customers. Some specialize
in becoming expert with regard to companies located in a particular geographic
region or in a particular industry. Some offer a wide variety of investment
services and products in addition to corporate stocks and bonds. Investors
should decide what services are important to them and choose a firm that meets
their needs.
Commission Rates
The commission charged for a particular transaction may vary substantially
from firm to firm. Most firms maintain an established commission rate structure,
which they will apply to a given transaction; however, sometimes they will agree
to "discount" their regular rates on large orders or for active customers. In
addition, there are firms known as discount brokers that usually charge lower
rates, but do not provide extra services, such as research or investment advice.
These brokers, generally speaking, offer discounted rates to every customer on
every transaction.
Investors should shop for brokerage services as they would for any
professional service, keeping in mind that both the amount of service they can
expect and the amount of charges they will have to pay will vary from firm to firm.
Opening An Account
Don't be shy about talking with registered representatives (sometimes
known as account executives) at several firms to find the person with whom you
can establish a good working relationship and level of trust. He or she will have
primary responsibility for your account. You may wish to ask the NASD and your
state securities commission for information they may have about your registered
representative. You may also gain factual information about the firm itself by
ordering a copy of the firm's registration form (Form BD) from the SEC's Public
Reference Room in Washington, D.C. If you open an account with a "full service"
firm, you may select your registered representative yourself or ask the firm to
assign one to you. Once you have made a selection, the process of opening an
account with a broker is similar in many ways to opening a bank account or a
charge account with a department store. The brokerage firm will make certain
credit checks and should learn many details of your financial situation and
investment objectives. You will be asked to sign a customer agreement or new
account form. Be sure the brokerage firm sends you a copy of these and any
other forms that you sign.
Your account executive should ask you some questions about your
investment objectives, the amount of risk you are willing to take, and your overall
financial status. Any firm that offers you investment advice is obligated to obtain
this information in order to make recommendations that are suitable to your
financial situation. However, a discount broker may only need to establish that
you meet its credit requirements for ordering securities.
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Types of Accounts
Generally, there are two ways to purchase securities -- through a cash
account or through a margin account. With a cash account, the investor must
pay the purchase price in cash no later than the settlement date (usually within
five business days of the trade). In a margin account purchase, the investor pays
for part of the cost and the broker lends the remaining amount. An investor
opening a margin account signs a "margin agreement" which is basically a credit
or loan agreement. This document states the annual rate of interest, its method
of computation, and specific conditions under which interest rates can be
charged. Interest is usually computed daily on an annual percentage rate basis.
The Federal Reserve Board sets rules specifying the minimum percentage
of the purchase price which a margin customer must pay in cash. Currently, the
requirement is for at least 50 percent of the current market value of the security.
Some brokers require higher levels, and some securities may not be purchased
on margin.
Buying on margin can provide investors with a means to increase
"leverage" and therefore maximize profits. However, a decline in value of
securities purchased on margin could cause severe losses to the investor. The
margin account agreement specifies that if an investor does not maintain a
certain level of margin, generally called maintenance margin, the broker-dealer
may sell securities in the account to make up any shortfall. Moreover, it is not
unusual for an entire margin account to be liquidated at a substantial loss
because the securities in the account declined in value. Therefore, the investor
must carefully and continually monitor the value of securities purchased on
margin.
A discretionary account is one in which the investor gives the broker written
permission to buy and sell securities selected by the broker, at a price and at a
time the broker believes to be best. The broker is not obligated to consult with
the customer but uses discretion based on, among other things, knowledge of
the customer and market conditions. Accordingly, discretionary authority should
be granted with special care.
Protection For Your Account
Investors may be concerned with the safety of securities and funds which
are held in brokerage accounts. For instance, what would happen if the
brokerage firm were to go out of business? To help protect investors in this
situation, Congress passed the Securities Investor Protection Act of 1970 (SIPA).
This law is primarily administered by the Securities Investor Protection
Corporation (SIPC), a nonprofit membership corporation. Most securities broker-
dealers registered with the SEC are members of SIPC. Some brokerage firms
may carry insurance on accounts exceeding SIPC coverage.
SIPA provides financial protection for the securities and cash (or credit)
balances held in customer accounts with broker-dealers, should a firm be forced
to liquidate. In such cases, a court-appointed trustee or SIPC may arrange to
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have customer accounts transferred to another SIPC member firm. If this is not
feasible, SIPC protects customers in the following manner:
Customers receive securities which are in the possession of the firm, are
registered in the customers' names, and are not in negotiable form. Customers
then share in all remaining securities on a pro rata basis.
If the liquidating firm lacks funds or securities to settle all customer claims,
SIPC will satisfy remaining claims up to a maximum of $500,000 per customer,
not more than $100,000 of which may be for cash claims.
If there is a customer claim that is not satisfied by the pro rata distribution
of customer cash and securities and the $500,000 coverage, it may be satisfied
with any assets remaining after payment of liquidation expenses on a pro rata
basis with other creditors. The processing time for SIPC liquidation claims will
vary according to the size and nature of liquidations.
Keep in mind, however, that SIPC covers losses resulting from the
financial failure of the brokerage firm. It does not cover losses resulting from
fluctuations in the market value of your investments.
Section 6. Trading Stocks and Bonds

A transaction in which a stock or bond is sold from one owner to another is
often referred to as a "trade." Individual investment objectives dictate whether
investors engage in frequent trading activity or hold investments for longer
periods before selling.
Stocks
Stocks may be designated as common, the most widely known form, or as
preferred. The latter is so called because its holders have some priority over
owners of common stock regarding dividends (and also in the distribution of
assets if the company is liquidated or reorganized in bankruptcy). Preferred
stocks generally do not possess the voting rights that common shares do.
Generally, stocks are traded in blocks or multiples of 100 shares, which are
called round lots. An amount of stock consisting of fewer than 100 shares is said
to be an odd lot. On an exchange, an order that involves both a round lot and an
odd lot--say 175 shares--will be treated as two different trades and may be
executed at different prices. Your broker will charge you a different commission
on each trade, and will confirm each of them separately. These distinctions are
not generally involved in trades executed in the OTC market.
Some stocks are "restricted" or "unregistered," so designated because they
were originally issued in a private sale or other transaction where they were not
registered with the SEC. Restricted or unregistered securities may not be freely
resold unless a registration statement is filed with the SEC or unless an
exemption under the law permits resale.
Foreign Securities
Foreign corporations wishing to sell securities in the United States must
register those securities with the SEC. They are generally subject to the same
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rules and regulations that apply to securities of U.S. companies, although the
nature of information which foreign companies make available to investors may
be somewhat different. The SEC is working actively to remove regulatory
barriers to owning foreign stock, consistent with maintaining investor protection.
In addition, U.S. investors who are interested in foreign securities may purchase
American Depositary Receipts (ADRs). These are negotiable receipts, registered
in the name of a U.S. citizen, which represent a specific number of shares of a
foreign corporation.
Corporate Bonds
Corporate bonds generally are issued in denominations of $1,000. This is
the face value of the bond, and is the amount the company agrees to repay to
the bondholder when the bond matures. However, bonds may trade at a
discount--an amount less than their face value--depending upon current market
conditions, the movement of interest rates generally, and other factors. Some
bonds are callable, which means that the issuer can elect to buy them back from
holders--at the face amount--before the date of maturity. A bond may be in
bearer form, which means that it may be sold by any individual who is in
possession of the bond. Alternatively, a bond may be registered, in which case
the name of the holder is recorded with the company or issuer of the bond.
Some publicly held corporate bonds are rated by several private rating agencies.
Those agencies use a combination of letters A through D to estimate the risk for
prospective investors. For example, AAA (or Aaa) is the highest quality bond
while C or D rated bonds are in default of payment. The ratings are not meant to
measure the attractiveness of the bond as an investment, but rather how likely
the principal will be paid if held to maturity.
Municipal Bonds
Rating agencies also evaluate the bonds issued by state and local
governments and their agencies, taking into consideration such factors as the
tax base, population statistics, total debt outstanding, and the area's general
economic climate. There are different types of municipal bonds. Some are
general obligation bonds that are secured by the full faith and credit of a state or
local government, and are backed by its taxing power. Others are revenue bonds
that are issued to finance specified public works, such as bridges or tunnels, and
are directly backed by the income from the specific project.
Prices of most municipal bonds are not usually quoted in daily newspapers.
The investor interested in a particular bond issue should consult bond dealers for
their current prices. Your public library may also have copies of a municipal bond
guide or a "Blue List."
U.S. Government Securities
Like state and local governments, the U.S. Government also issues debt
securities to raise funds. Because these are backed by the federal government
itself, they are considered to have maximum safety characteristics. Government
debt securities include Treasury bills with maturities of up to one year, Treasury
notes with maturities between one and ten years, and Treasury bonds with
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maturities between ten and thirty years. Other U.S. Government agencies issue
bonds, notes, debentures, and participation certificates.
While government securities do not have to be registered with the SEC,
transactions involving them are subject to the antifraud provisions of the
securities laws and SEC rules.
Stock Options
Options are known as "derivative" investment instruments because their
value derives from the security on which they are based. Stock options are
contracts giving the purchaser the right to buy or sell, at a specific price and
within a certain period of time, 100 shares of corporate stock (known as the
underlying security). These options are traded on a number of stock exchanges
and on the Chicago Board Options Exchange.
When investors buy an option contract, they pay a premium--the price of the
option as well as a commission on the trade. If they buy a "call" option, they are
speculating that the price of the underlying security will rise before the option
period expires. If they buy a "put" option, they are speculating that the price will
fall.
While options trading can be very useful as part of an overall investment
strategy, it can also be very complicated and sometimes extremely risky. If you
plan to trade in options, you should make sure that you understand basic options
strategy and that your registered representative is qualified in this area.
Section 7. Investment Companies

The typical investment company, whether organized in the form of a trust,
partnership, organized group, or corporation, is engaged primarily in the
business of investing in securities. Of the various kinds of investment
companies, four of the most important are open-end investment companies,
closed-end investment companies, unit investment trusts, and issuers of variable
annuities.
Open-End Investment Companies
An open-end investment company--usually known as a mutual fund--is a
company with a' portfolio of securities managed in accordance with stated
investment objectives and policies that will buy back shares from investors
whenever the investor wishes to sell. The redemption price depends upon the
value of the company's portfolio at that time (the "net asset value"). There is no
secondary trading market for the shares of such companies. A "money market"
fund is an open-end investment company that seeks to pay a dividend daily and
to maintain a stable net asset value or price per share by investing in short-term
debt instruments. A "fund complex" consists of affiliate funds that have different
strategies.
When the selling price of the shares of an open-end company includes a
sales charge or "load," the company is known as a front-end load fund. Some
funds have sales charges that are imposed only upon a redemption of shares.
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The amount of the charge may depend upon the length of time the shares have
been held, in which case the charge is referred to as a contingent deferred sales
load. Other funds may levy a sales charge against a shareholder's account for a
number of years. Shares of all these companies may be purchased through
broker-dealers who receive part of the sales charge. An open-end investment
company is known as a no-load fund if no sales charge is included in the selling
price of its shares, or deducted from the proceeds of a redemption of its shares.
Shares of a no-load fund usually may be purchased directly from the investment
company or its underwriter. Broker-dealers who sell shares of a no-load
company may charge only a nominal fee for their services. Currently, however,
both load and no-load funds may impose continuing charges (Rule 12b-1 fees)
to support share distribution through advertising, payments to broker-dealers,
etc. In addition, some funds may charge a redemption fee that may not exceed
2%. Newspaper listings of mutual fund share prices often indicate the presence
or absence of these various charges, and a mutual fund prospectus includes,
immediately after the cover page, a table showing fees and expenses charged
individual shareholders or to the fund itself.
The investor considering an open-end company should compare funds and
complexes of funds for various features, costs, and services. Some of the
companies that belong to a fund complex allow shareholders to switch readily
from one fund in the complex to another--at a minimal or nominal charge. For
example, a shareholder may be allowed to switch from a money market fund to a
fund specializing in equity investments.
Closed-End Investment Companies
Unlike a mutual fund, a closed-end investment company does not
continuously offer to buy back its shares at the option of its shareholders. In
addition, a closed-end company usually does not continuously offer to sell its
shares. After an initial sale by the company, the shares are traded in the
secondary market like the shares of any other public corporation. The price per
share may fluctuate in response to changes in the value of a company's portfolio
as well as the supply of and demand for its shares. There are also risks
associated with the purchase of closed-end fund shares in an initial public
offering because such shares frequently trade at a discount from their net asset
value. When shares of closed-end companies are traded through the services of
a broker, it is customary for a commission to be charged.
Unit Investment Trusts
The portfolio of securities of a unit investment trust is fixed and not actively
managed. However, as with mutual funds, interests in a unit investment trust are
redeemable at their net asset value at the option of their holders. In addition,
there often is a secondary trading market for the shares of unit investment trusts.
These trusts have a limited life and, although a few invest in equity
securities, most invest their assets in debt securities. Units in a trust are often
sold to the public at a price of at least $1,000. Distributions of interest may be
made on a monthly, quarterly, bi-annual, or annual basis. Some unit investment
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trusts may offer automatic reinvestment of distributions, either in the trust or in a

mutual fund run by the same sponsor.
Variable Annuities
Variable annuity contracts are sold by insurance companies. Purchasers
pay a premium of, for example, $10,000 for a single payment variable annuity or
$50 a month for a periodic payment variable annuity. The insurance company
deposits these premiums in an account which is invested in a portfolio of
securities. The value of the portfolio goes up or down as the prices of its
securities rise or fall. After a specified period of time, often coinciding with the
year the purchaser becomes age 65, the assets are converted into annuity
payments. These payments are variable since they depend on the periodic
performance of the underlying securities. Almost all variable annuity contracts
carry sales charges, administrative charges, and asset charges. The amounts
differ from one contract to another and from one insurance company to another.
Fixed annuity contracts are not considered securities and are not regulated by
the SEC.
Investment Company Prospectuses
If you are considering an investment in an open-end investment company,
unit investment trust, or variable annuity, or in a primary offering of a closed-end
investment company, you should obtain and read a current prospectus before
making a purchase. Do not hesitate to ask questions from your broker-dealer,
the investment company or the underwriter if there is anything in the prospectus
you do not understand. You may also request a Statement of Additional
Information from a mutual fund. This Statement provides information about the
investment company that is not included in the prospectus. If you do buy shares
in a company, save the prospectus to refer to in the future. Among other things,
the prospectus will tell you:
The company's investment objectives--in other words, whether the
investment strategy is designed to provide income, protect capital, minimize
taxes, etc.
The amount of any sales charges and other expenses and the procedures
for redeeming shares.
What risks may be involved in placing your money in that particular
company.
Section 8. Once You've Made Your Investment

Once your investment has been made, it is very important that you take all
the steps necessary to protect it. This will include safeguarding certificates,
keeping necessary records, and monitoring your brokerage account closely to
make sure your account is being handled appropriately.
Keeping Securities Safely
Today, many debt securities are in electronic book-entry form. Ownership is
transferred via computer rather than via actual transfer of paper certificates,
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reducing the possibility of loss, theft, or mutilation of the certificates. In the future,
more and more securities certificates will be in this electronic form.
There are still, however, many securities that are in certificate form.
Certificates representing your ownership of stocks or bonds are valuable
documents and should be kept in a safe place. If a certificate is lost or destroyed,
it may prove time-consuming and costly to obtain a replacement. Furthermore,
some securities certificates may not be replaceable at all.
Investors who purchase corporate stock through a brokerage firm usually
have several choices as to how their stock will be handled. If they wish, they may
receive a certificate, made out in their name, representing the number of shares
purchased. When the stock is resold, the certificate must be endorsed and
delivered to the selling broker.
Alternatively, investors may have certificates held in their names at the
brokerage firm, or it may be held by the broker in what is known as "street
name." In the latter instance, the brokerage firm is recorded on the list of
shareholders of the corporation even though the customer is the actual or
"beneficial" owner. Thus, any communication from the company to its
shareholders--such as annual reports and proxy materials--would be sent to the
broker, not to the customer. The broker then must forward the material to each
beneficial owner, unless shareholders have given permission for issuers of
shares to communicate with them directly.
There are advantages and disadvantages to allowing your broker to hold
your stock in a street name. On the one hand, if the broker takes responsibility
for safeguarding the certificate, your account is protected by SIPC, and the
transfer process is facilitated should the stock be sold. On the other hand, you
may not receive shareholder information as quickly because it is sent first to the
broker; in addition, if an account is not actively traded, the broker may impose a
custodial fee.
Monitor Your Account
Examine carefully and promptly any written confirmations of trades that you
receive from your broker, as well as all periodic account statements. Make sure
each trade was completed in accordance with your instructions. And check to
see how much commission you were charged, to make sure it is in line with what
you were led to believe you would pay.
Keep in mind that you have the right to expect your broker to charge you
only what you have been told to expect. If commission rates are to be increased,
or if charges such as custodial fees are to be imposed, you should be informed
in advance. If securities are held for you in street name, you may request that
dividends or interest payments be forwarded to you or put into an interest-
bearing account, if available, as soon as they are received, rather than at the
end of the month or after some other lengthy period of time.
A good idea is to set up a file where you can store information relating to
your investment activities, such as confirmation slips and monthly statements
sent by your broker. Keep notes of any specific instructions given to your
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account executive or brokerage firm. Good records regarding your investments

are important for tax purposes, and also in the event of a dispute about a specific
transaction.
Expectations Of Your Broker
If your broker-dealer makes investment recommendations, those
recommendations must be suitable to your financial situation and investment
objectives. This does not mean that you are protected against a decline in value
of securities purchased on a broker's recommendation, only that the
recommendation itself should not be out of line with the information you have
furnished the broker regarding your investment objectives or financial
circumstances.
You should be aware that broker-dealers' revenues largely depend on the
amount of commissions generated and the level of trading activity in your
account, not on whether the value of your investments increase or decrease.
Pressuring customers into trading securities simply to generate commissions,
regardless of the benefits to the customer, is known as "churning" and is
prohibited by SEC rules as well as by the codes of conduct of the various SROs.
If Problems Arise
As with any business relationship, in dealing with your brokerage firm, there
may be situations in which errors or operational problems occur. Your first step to
try to promptly resolve these kinds of situations should be to contact your
account executive or the branch manager of the firm, and then confirm your
complaint in writing. If you are unable to obtain a satisfactory response, you may
wish to contact an exchange of which the broker-dealer is a member or the local
district office of the NASD.
Most of the SROs sponsor an arbitration program to consider and decide
disputes between broker-dealers and their customers. If you signed an
agreement to arbitrate any disputes at the time you opened your account, you
gave up the right to take your broker to court. For claims up to $10,000, a
simplified arbitration procedure is available. In this procedure, for a modest filing
fee, a single impartial arbitrator reviews the dispute and determines a binding
settlement. The arbitration procedure is also available before a panel for large
claims.
It may be desirable to consult with an attorney knowledgeable about
securities laws before starting arbitration proceedings if you have some doubt
about the nature of your claim or in what forum you may want to pursue it. You
may elect to be represented by an attorney during the arbitration process, but
there is no requirement that you do so. Normally, broker-dealers have securities
attorneys representing them.
If you believe that there may have been fraudulent conduct or a possible
violation of securities laws or regulations, you may wish to bring your concerns to
the attention of the SEC or one of the SROs for regulatory review. The SEC
welcomes inquiries and complaints about questionable securities practices. Such
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information assists the SEC in identifying problem areas and targeting its
enforcement and regulatory activities.
While contacting the SEC or an SRO may help to resolve the matter,
investors should remember that the SEC cannot function as a collection agency
or directly represent them in a dispute; therefore, this action does not take the
place of private legal remedies.
Section 9. Glossary of Investment Terms

Ask - The lowest price a broker asks customers to pay for a security.
Beneficial Owner - The true owner of a security which may, for
convenience, be recorded under the name of a nominee.
Bid - The highest price a broker is willing to pay for a security.
Bond - A certificate which is evidence of a debt in which the issuer
promises to repay a specific amount of money to the bondholder, plus a certain
amount of interest, within a fixed period of time.
Broker-Dealer - An entity engaged in the business of buying and selling
securities.
Call - The right in options contracts to buy underlying securities at a
specified price at a specified time. Also refers to provisions in bond contracts that
allows issuers to buy back bonds prior to their stated maturity.
Cash Account - A type of account with a broker-dealer in which the
customer agrees to pay the full amount due for the purchase of securities within
a short period of time, usually five business days.
Closed-end Fund - A type of investment company whose securities are
traded on the open market rather than being redeemed by the issuing company.
Commission - The fee charged by a broker-dealer for services performed
in buying or selling securities on behalf of a customer.
Discretionary Account - A type of account with a broker-dealer in which the
investor authorizes the broker to buy and sell securities, selected by the broker,
at a price, amount, and time the broker believes to be best.
Dividend - A payment by a corporation to its stockholders, usually
representing a share in the company's earnings.
Equity Security - An ownership interest in a company, most often taking
the form of corporate stock.
Face Value - The amount of money which the issuer of a bond promises to
repay to the bondholder on or before the maturity date.
Form 8-K - A current report required to be filed with the SEC if a certain
specified event occurs, such as: a change in control of the registrant, acquisition
or disposition of assets, bankruptcy or receivership, or other material event.
Form 8-K is required to be filed within 15 days of the event.
Form 10-K - The designation of the official audited financial report and
narrative which publicly owned companies must file with the SEC. It shows
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assets, liabilities, equity revenues, expenses, and so forth. It is a reflection of the

corporation's condition at the close of the business year, and the results of
operations for that year.
Form 10-Q - Quarterly reports containing interim information that is
"material"--important for investors to know. These must be filed with the SEC.
Interest - The payment a corporate or governmental issuer makes to
bondholders in return for the loan of money.
Investment Company - A company engaged primarily in the business of
investing in securities.
Margin Account - A type of account with a broker-dealer, in which the
broker agrees to lend the customer part of the amount due for the purchase of
securities.
Money Market Fund - Generally, a mutual fund which typically invests in
short-term debt instruments such as government securities, commercial paper,
and large denomination certificates of deposit of banks.
Mutual Fund - A pool of stocks, bonds, or other securities purchased by a
group of investors and managed by a professional/registered investment
company. The investment company itself is also commonly referred to as a
mutual fund.
NASDAQ - National Association of Securities Dealers Automated
Quotation System is a system that provides broker-dealers with bid and ask
prices for some securities traded over the counter.
Net Asset Value - The dollar value of one share of a mutual fund at a given
point in time, which is calculated by adding up the value of all of the fund's
holdings and dividing by the number of outstanding shares.
No-load Fund - A type of mutual fund that offers its shares directly to the
public at their net asset value with no accompanying sales charge.
Odd Lot - Fewer than 100 shares of stock.
Open-end Fund - A type of investment company which continuously offers
shares to the public and stands ready to buy back such shares whenever an
investor wishes to sell.
Option - A contract providing the right to buy or sell something--often 100
shares of corporate stock--at a fixed price, within a specified period of time.
Over the Counter (OTC) - A market for buying and selling stock between
broker-dealers over the telephone rather than by going through a stock
exchange.
Prospectus - The document required to be furnished to purchasers of
newly registered securities, which provides detailed information about the
company issuing the securities and about that particular offering.
Proxy - A written authorization given by shareholders for someone else to
cast their votes on such corporate issues as election of directors.
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Proxy Statement - A document which the SEC requires a company to send

to its shareholders (owners of record) that provides material facts concerning
matters on which the shareholders will vote.
Put - The right, in an options contract, to sell underlying securities at a
specified price at a specified time.
Quotation (or Quote) - The price at which a security may be bought or sold
at any given time.
Registered Securities - Stocks or bonds or other securities for which a
registration statement has been filed with the SEC.
REIT - Real Estate Investment Trust, a type of company in which investors
pool their funds to buy and manage real estate or to finance construction or
purchases.
Restricted Securities - Stocks or bonds which were issued in a private sale
or other transaction not registered with the SEC.
Round Lot - Generally, one hundred shares of stock or multiples of 100.
Specialist - A member of a stock exchange who operates on the trading
floor buying and selling shares of particular securities as necessary to maintain a
fair and orderly market.
Stock - An ownership interest in a company, also known as "shares" in a
company.
Street Name - A name other than that of the beneficial owner (e.g., a
broker-dealer) in which stock may be recorded, usually to facilitate resale.
Unit Investment Trust - A type of investment company with a fixed
unmanaged portfolio, typically invested in bonds or other debt securities in which
the interests are redeemable.
Yield - Generally, the return on an investment in a stock or bond,
calculated as a percentage of the amount invested.
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INVESTMENT SWINDLES: HOW THEY WORK AND

HOW TO AVOID THEM
INCLUDING 16 QUESTIONS THAT CAN TURN OFF AN

INVESTMENT CROOK
While the vast majority of persons in the futures industry and other sectors
of the investment community serve the investing public conscientiously and
ethically, there are inevitably those few who seek to exploit the trust which others
have labored so hard to earn.
This booklet has been prepared as a part of NFA's continuing public
education efforts to assist you in recognizing and avoiding such individuals.
The Multi-Billion Dollar Business of Investment Fraud

Americans are investors. We purchase stocks and bonds, contribute to
savings programs, own real estate, participate in futures and options markets,
acquire collectibles, provide start-up capital for new business ventures, buy
franchises, and the list goes on. The strength of our economy is in large measure
the product of our combined investments.
Perhaps more so than any people in the world, we enjoy an ever-expanding
variety of investments to choose from, coupled with the freedom to make our
own investment decisions. It's our money and we can invest it as we wish.
Unfortunately, some unscrupulous promoters abuse our freedom to choose
by concocting investment schemes that have zero possibility of making money
for anyone other than themselves. Such persons promise investment rewards
they cannot possibly deliver and have no intention of delivering.
They are swindlers.
Many of them are very good at it. Their annual take through lying and deceit
is in the billions of dollars. If one estimate of $10 billion a year lost to investment
fraud is accurate, that's more money than the combined annual profits of the
nation's three major automakers! Some say even that estimate may be too low.
Successful investment swindlers use every trick in the book, and some that
aren't even recorded, to convince you that none of the descriptions and
precautions in the following pages apply to them. After all, they are offering you a
once-in-a-lifetime opportunity to make a lot of money quickly and you do trust
them, don't you? As will be seen, some of their methods of gaining your trust are
truly ingenious.
Who are the Investment Swindlers?

They are a faceless voice on a telephone. Or a friend of a friend. They may
perform surgery on their victims' savings from a dingy back office or boiler-room
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or from an opulent suite in the new bank building. They may wear three-piece
suits or they may wear hard hats. They may have no apparent connection to the
investment business or they may have an alphabet-soup of impressive letters
following their names. They may be glib and fast-talking or so seemingly shy and
soft-spoken that you feel almost compelled to force your money on them.
The first rule of protecting yourself from an investment swindle is thus to rid
yourself of any notions you might have as to what an investment swindler looks
like or sounds like. Indeed, some swindlers don't start out to be swindlers. There
are case histories in which individuals who held positions of trust and esteem-
accountants, attorneys, bona fide investment brokers and even doctors-have
sacrificed their ethics for the fast buck of running an investment scam.
In still other cases, investment programs that began with legitimate
intentions went sour through happenstance or poor management--leading the
promoter to mishandle or abscond with investors' capital. Whether an investment
is planned as a scam or simply becomes one, the result is the same.
This is why, as we will discuss, protecting your savings against fraud
involves at least three steps: Carefully check out the person and firm you would
be dealing with; take a close and cautious look at the investment offer itself; and
continue to monitor any investment that you decide to make. No one of these
precautions alone may be sufficient.
Who are the Victims of Investment Fraud?

If you are absolutely certain it could never be you, the investment swindler
starts with a big advantage. Investment fraud generally happens to people who
think it couldn't happen to them.
Just as there is no typical profile for swindlers, neither is there one for their
victims. While some scams target persons who are known or thought to have
deep pockets, most swindlers take the attitude that everyone's money spends
the same. It simply takes more small investors to fund a large fraud. In fact,
some swindlers deliberately seek out families that may have limited means or
financial difficulties--figuring such persons may be particularly receptive to a
proposal that offers fast and large profits. A favorite pitch is that small investors
can become rich only if they learn and employ the investment strategies used by
wealthy persons. Naturally, the swindler will teach them!
Although victims of investment fraud can differ from one another in many
ways, they do, unfortunately, have one trait in common: Greed that exceeds their
caution. Plus a willingness to believe what they want to believe. Movie actors
and athletes, professional persons and successful business executives, political
leaders and internationally famous economists have all fallen victim to
investment fraud. So have hundreds of thousands of others, including widows,
retirees and working people--people who made their money the hard way and
lost it the fast way.
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How Investment Swindlers Find (or Attract) Their Victims

Swindlers attempt to mimic the sales approaches of legitimate investment
firms and salespersons. Thus, the fact that someone may contact you in a
particular way--by phone, mail, or even through a referral--should not in itself be
viewed as an indication that the investment is or isn't shady. Many totally
reputable firms also use the same methods to effectively and economically
identify individuals who may have an interest in their investment products and
services.
Bearing in mind that investigate before you invest is good advice no matter
how you are approached, these are some of the methods con men commonly
employ to contact their victims-to-be.
Telephone
So-called telephone boiler-rooms remain a favorite way for swindlers and
their sales squads to quickly contact large numbers of potential investors. Even if
a swindler has to make 100 or 200 phone calls to find a mooch (one of the terms
swindlers use for their victims), he figures that the opportunity to pocket
thousands of dollars of someone's savings is still good pay for the time and cost
involved.
Mail
Some sellers of fraudulent investment deals buy bona fide mailing lists--
names and addresses of persons who, for example, subscribe to a particular
investment-related publication, who have responded to previous direct mail
offers, or who have other characteristics that swindlers look for. In the hope of
avoiding notice by postal authorities, mail order swindlers may not make a direct
or immediate pitch for your money. Rather, they often seek to entice you to write
or phone for more information. Then comes a call from the salesperson or the
person who closes the deal. Some may phone even if you didn't respond to the
mailing.
Advertisements
A newspaper or magazine ad may offer (or at least hint at)profit
opportunities far more attractive than available through conventional
investments. Once you've taken the bait, the swindler will then attempt to "set the
hook." Even though investment crooks know that regulatory agencies regularly
monitor ads in major publications, some nevertheless use such publications in
the hope of being able to hit-and-run before an investigator shows up. Others
advertise in narrowly circulated publications they think regulators may be less
likely to see.
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Referrals
One of the oldest schemes going involves paying fast, large profits to initial
investors (actually from their own or other peoples' investments) knowing that
they are likely to recommend the investment to their friends. And these friends
will tell their friends. Soon, the swindler no longer needs to find new victims; they
will find him. (See page 16.)
The "Reputable" Business

Some swindlers go first class. Using profits from previous swindles, they
rent plush offices, hire an interior decorator and professional-sounding
receptionist and open what has the appearance--but not the reality of a reputable
investment firm. You may even have to phone for an appointment, and once
there don't be surprised to be kept waiting (that's intended to make you all the
more eager). This kind of swindler's success depends on how long he can keep
his victims from knowing they are being cheated. Investors are assured that their
large profits are being reinvested to earn even larger profits. Such a swindler
may join local civic groups, contribute to charities, and generally play the role of
solid citizen.
Techniques Investment Swindlers Use

Their techniques are as varied as their methods of establishing contact. If
there is a common denominator, however, it is their ability to be convincing. The
skills that make them successful are essentially the same skills that enable any
good salesperson to be successful.
But swindlers have a decided advantage: They don't have to make good on
their promises. In the absence of this responsibility, they have no reluctance to
promise whatever it takes to persuade you to part with your money. These are
some of their techniques:
Expectation of Large Profits

The profits a swindler talks about are generally large enough to make you
interested and eager to invest--but not so large as to make you overly skeptical.
Or he may mention a profit figure he thinks you will consider believable and then,
as a further enticement, suggest that the potential profit is actually far greater
than that. The latter figure, of course, is the one he hopes you will focus on.
Generally speaking, if an investment proposal sounds too good to be true, it
probably is.
Low Risk
Some are so blatant as to suggest there's no risk--that the investment is a
sure money maker. Obviously, the last thing a swindler wants you to think about
is the possibility of losing your money. (If you ask how you can be certain your
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money is safe, you can count on a plausible-sounding answer. Besides, at this

point, he figures you will believe what you want to believe.)
To make his pitch more credible, a swindler may acknowledge that there
could be some risk--then quickly assure you it's minimal in relation to the profits
you will almost certainly make. A con man may become impatient or even
aggressive if the question of risk is raised--perhaps suggesting that he has better
things to do than waste time with people who lack the courage and foresight
needed to make money! With this kind of put down, he hopes you won't bring up
the subject again.
Urgency
There's usually some compelling reason why it's essential for you to invest
right now. Perhaps because the investment opportunity can "be offered to only a
limited number of people." Or because delaying the investment could mean
missing out on a large profit (after all, once the information he has confided to
you becomes generally known, the price is sure to go up, right?).
Urgency is important to a swindler. For one thing, he wants your money as
quickly as possible with a minimum of effort on his part. And he doesn't want you
to have time to think it over, discuss it with someone who might suggest you
become suspicious, or check him or his proposal out with a regulatory agency.
Besides, he may not plan on remaining in town very long.
Confidence
They don't call them con men for nothing! They sound confident about the
money you are going to make so that you will become confident enough to let go
of your savings. Their message is that they are doing you a favor by offering the
investment opportunity. A swindler may even threaten (pleasantly or otherwise)
to end the discussion by suggesting that if you are not really interested there are
many other people who will be. Once you protest that you are interested, he
figures your savings are practically in his pocket.
Although you can't necessarily spot a con man by the way he talks, most
are strong-willed, articulate individuals who will dominate the conversation-even
if they do it in a low-key, friendly sort of way. The more they talk, the less chance
you have to ask questions.
Several Investment Swindles and How They Worked

There's a saying among swindlers that it's not the scam that counts, it's the
sell. Judging from the number of arcane and often outlandish schemes that have
been employed to separate otherwise prudent people from their money, the
saying would seem to reflect reality. The evidence is that if people can be made
believers, they can be sold practically anything. Consider several of the ways in
which hustlers of phony investments have won the confidence of persons whom
they planned to victimize.
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The Old-Fashioned Ponzi Scheme

It's become one of the oldest and most often employed investment
schemes because it's proven to be one of the most lucrative. While there are
innumerable variations, here is how a person we will call Frank C. practiced it. At
the outset, Frank approached a relatively small number of influential persons in
the community and offered them the opportunity to invest--with a guaranteed
high return--in a computer-generated program of arbitrage in foreign currency
fluctuations. To be sure, it sounded high tech and sophisticated but Frank had his
eye on sophisticated and well-heeled victims.
Within a short period of time, he approached and sold the scheme to still
other investors--then promptly used a portion of the money invested by these
persons to pay large profits to the original group of investors. As word spread of
Frank's genius for making money and paying profits, even more would-be
investors anxiously put up even larger sums of money. Some of it was used to
recycle the fictitious profit payments and, like a pebble in the water, the word of
fast and fabulous rewards produced an ever-widening circle of eager investors.
And more money poured in.
And Frank C. left town a wealthy man.
The Infallible Forecaster

Jim L. (among his many aliases) had a full-time job in the daytime, but with
assets that consisted only of a phone, patience and an easy way of talking he
managed to parlay a nighttime sideline into an ill-gotten fortune. The routine went
like this.
Jim would phone someone we'll call Mrs. Smith and quickly assure her that,
"No," he didn't want her to invest a single cent. "Never invest with someone you
don't know," he preached. But he said he would like to demonstrate his firm's
"research skill" by sharing with her the forecast that so-and-so a commodity was
about to experience a significant price increase. Sure enough, the price soon
went up.
A second phone call didn't solicit an investment either. Jim simply wanted to
share with Mrs. Smith a prediction that the price of so-and-so a commodity was
about to go down. "Our forecasts will help you decide whether ours is the kind of
firm you might someday want to invest with," he added. As predicted, the price of
the commodity subsequently declined.
By the time Mrs. Smith received a third call, she was a believer. She not
only wanted to invest but insisted on it--with a big enough investment to make up
for the opportunities she had already missed out on.
What Mrs. Smith had no way of knowing was that Jim had begun with a
calling list of 200 persons. In the first call, he told 100 that the price of so-and-so
a commodity would go up and the other 100 were told it would go down. When it
went up, he made a second call to the 100 who had been given the "correct
forecast." Of these, 50 were told the next price move would be up and 50 were
told it would be down.
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The end result: Once the predicted price decline occurred, Jim had a list of
50 persons eager to invest. After all, how could they go wrong with someone so
obviously infallible in forecasting prices?
But go wrong they did, the moment they decided to send Jim a half million
dollars from their collective savings accounts.
All That Glitters

Not only did the two brothers have a fancy office building with their own
company name on it, but the investment offer seemed sound and
straightforward: "Instead of buying gold outright and holding it for appreciation,
make a small downpayment that the firm could use to secure financing that
would permit much larger quantities of gold to be bought and held for the
investor's account." That way, when the price of gold rose--as was "sure to
happen"--investors stood to realize highly leveraged profits.
The company provided storage vaults where investors could view the wall-
to-wall stacks of glittering bullion. By the time authorities caught wind of the
scheme's suspicious smell and looked for themselves, it turned out the only thing
gold was the color of the paint on the cardboard used to construct look-alike bars
of bullion.
The counterfeit gold, however, proved far easier to find than the millions of
dollars of investors' money. Most of that is still missing.
16 Questions That Can Turn Off an Investment Swindler

The first line of defense against investment fraud is your inalienable right to
ask questions and--until you get the right answers--to say "No." And mean no.
Not surprisingly, this is usually an investment swindler's first point of attack. To
keep you from asking questions, he asks them! Invariably, the questions have
"yes" answers, such as "You would at least be interested in hearing about such a
fantastic investment opportunity, wouldn't you?" or "You would like to make a
large amount of money in a short period of time with little or no risk, right?"
One difference between a reputable investment firm and a swindler is that
reputable firms encourage you to ask questions, to obtain as much information
as possible, to clearly understand the risks involved, and to be entirely
comfortable with any investment decision you make. The only thing a swindler
wants is your money These are some of the questions that swindlers don't like to
hear:
Where did you get my name?
If the response is that you were chosen from a "select list of intelligent and
prudent investors," that select list may be the telephone directory, or a purchased
list of persons who've bought certain types of books, subscribed to particular
magazines, or responded to newspaper ads. If you have made ill-advised
investments in the past, you can be pretty sure your name is on someone's
alumni list. It's the list swindlers prize most: Easy preys who are eager to recoup
(but are doomed to repeat) their earlier losses.
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2. What risks are involved in the proposed investment?

Except for obligations of the U.S. Treasury, which are considered risk-free,
all investments involve some degree of risk. And some investments, by their
nature, involve greater risks than others. Keep in mind that if the salesman had
knowledge of a sure-thing, big-profit investment opportunity, he wouldn't be on
the phone talking with you.
3. Can you send me a written explanation of your investment so I can
consider it at my leisure?
For someone peddling fraudulent investments, that can be a double turnoff.
For one thing, most crooks are reluctant to put anything in writing that might
cause them to run afoul of postal authorities or provide material that, at some
point, might become evidence in a fraud trial. Secondly, swindlers don't want you
to do anything at your leisure. They want your money now.
Accordingly, it's a good rule of thumb that any investment which "absolutely
has to be made immediately" shouldn't be made at all. You may not always be
right, but you are less likely to be sorry.
4. Would you mind explaining your investment proposal to some third party,
such as my attorney, accountant, investment advisor or banker?
If the answer goes something along the lines of "normally, I'd be glad to, but
there isn't time for that," or if the salesman snaps back by asking "can't you make
your own investment decisions." these are virtually certain clues that your final
answer should be an emphatic "No."
5. Can you give me the names of your firm's principals and officers?
Although some persons who establish and operate dishonest firms change
their own names as often as they change their firms' names, even the hint that
you are the kind of investor who checks into things like that can be a fast turn-off
for a swindler.
6. Can you provide references?
Not just another list of other investors who supposedly became fabulously
wealthy (the names you get may be the salesman's boss or someone sitting at
the next phone), but reputable and reliable recommendations such as a bank or
well-known brokerage firm that you can easily contact.
7. Do you have any documents such as a prospectus or risk disclosure
statement that you can provide?
This may not be available in connection with all types of investments but in
many investment areas--such as securities, futures and options trading--it's
required. And there can be requirements that you be provided with this
information and acknowledge in writing that you have read and understood it.
Obviously, it's not the sort of information a swindler is likely to distribute.
8. Are the investments you are offering traded on a regulated exchange,
such as a securities or futures exchange?
Some bona fide investments are and some aren't, but fraudulent
investments never are. Exchanges have strict rules designed to assure fair
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dealing and competitive price determination. There are also in-place

mechanisms to provide for rule enforcement and to impose severe sanctions
against those who fail to observe the rules.
9. What governmental or industry regulatory supervision is your firm subject
to?
If the salesman rattles off a list that ranges from the FBI to the Boy Scouts,
tell him you'd like to check the firm's good standing before making an important
investment decision. Then verify the response. Few things discourage a swindler
faster than the thought that his first visitor the next morning may be from a
regulatory agency.
If, on the other hand, you are told his particular area of investment isn't
subject to regulation (perhaps because everyone in his business is an ethical,
upstanding citizen), take that explanation for whatever you think it's worth. At the
very least, keep in mind that any ongoing supervision which isn't being provided
by a regulatory organization or agency will have to be provided by you.
10. How long has your company been in business?
In any kind of business activity, there can be advantages to dealing with a
known, established company. This isn't to say that new businesses aren't starting
up all the time or that the vast majority aren't perfectly reputable. But if you find
yourself talking with someone who doesn't seem to have a past, it can be
worthwhile to find out why. Many swindlers have been running scams for years
but understandably aren't anxious to talk about it.
11. What has your track record been?
Before you accept a salesman's assurance that he can make money for
you, you have the right to know what his performance has been in making
money for others. And ask to have the information (if there is any) in writing.
Boasting over the phone is one thing; putting it down on paper is quite another.
In any case, even if you are able to obtain a documented performance record,
don't lose sight of the fact that past performance in itself provides no assurance
of future performance.
12. When and where can I meet with you or with another representative of
your firm?
Chances are a crooked operator--particularly if he is operating out of a
telephone boiler-room--isn't going to take the time to visit with you and even
more certainly doesn't want you to see his place of business.
13. Where, exactly, will my money be? And what type of regular accounting
statements do you provide?
In many investment areas, such as futures trading, firms are required to
maintain their customers' funds in segregated accounts at all times. Any mingling
of investors' funds with those of the firm or its principals is prohibited. You might
also want to find out what, if any, routine outside audits the firm's account
records are subject to.
14. How much of my money would go for commissions, management fees
and the like?
PAGE 256 OF 273

And ask whether there will be other costs such as interest or storage
charges, or whether the investment agreement involves any type of profit sharing
arrangement in which the firms' principals participate. Insist on specific answers,
not glib and evasive responses such as "that's not important" or "what's really
important is how much money you are going to make." And, again, get it in
writing, just as you would any other type of contract.
15. How can I liquidate (i.e. sell the item I'd be investing in) if and when I
decide I want my money?
If you find that the investment is illiquid, or there would be substantial costs
if liquidated, or that you are unable to get straight and solid answers, these are
all things to consider in deciding whether you want to invest.
16. If disputes should arise, how can they be resolved?
Short of having to go to court to sue someone, does the company or
regulatory organization provide a mechanism for resolving disputes equitably
and inexpensively through arbitration, mediation, or a reparations procedure?
Aside from seeking important information, you may be able to detect whether the
salesperson is uncomfortable or impatient with this line of questioning. Swindlers
generally will be.
Before You Invest, Investigate

Asking some or even all of the questions just suggested isn't likely to
produce straight answers from a crooked investment promoter but, as indicated,
the very fact that you are asking such questions can be a turn-off. Bear in mind,
however, that no matter how persistently or skillfully you pose the questions,
experienced con men are at least equally skilled in evading them, in providing
downright dishonest answers, and in refocusing the conversation on your
"tremendous profit opportunity."
Bear in mind also that, while separating you from your money is the
swindler's primary goal, the very last thing he wants you to do is check him out.
That could cause you not to invest or, worse still, alert regulators that someone
they know well has set up shop in a new area or is running a new scam.
For this reason, most con men deliberately make themselves difficult to
investigate: By tailoring their schemes to operate in regulatory cracks where
federal or national regulatory organizations may lack clear-cut jurisdiction; by
operating in states or communities where authorities are known to be short-
staffed or occupied with more pressing criminal activities; by changing their
names or modus operandi, by stressing the urgency of the investment so you
won't have time to investigate; and by targeting victims who may not know how
or where to check them out.
Moreover, as described in swindle scenarios on pages 8, 9, and 10 of this
booklet, con men have numerous and ingenious ways of seeking to convince
you there is no need to investigate. For example, your friends, neighbors or
business associates invested and they made money, right? That, of course, is
why ever-popular Ponzi schemes (named after the first person to perfect the
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referral technique) are so prevalent--and why you should never make

investments based on tips, no matter how trustworthy the source.
While there is no way to know for certain whether a particular investment
will make money or lose money, there is one thing you can be certain of: Any
money you hand over to an investment swindler is lost the moment you part with
it. The question is, how do you check out someone who is offering what sounds
like an irresistible investment offer? Here are some of the ways:
Find out whether the local police department or Better Business Bureau has
complaints on file.
If so, you can make your investment decision accordingly. But be aware that
the absence of local complaints doesn't necessarily mean a firm or individual is
on the up-and-up. It may simply mean that investors haven't yet become aware
that they've been bilked. Or it may mean you will have the distinction of
becoming the first victim in town. It could also mean that other victims have been
too embarrassed to report their losses. Regrettably, that's not uncommon.
Make a phone call to the financial editor of your local newspaper.
Although newspapers don't give endorsements or make investment
recommendations, they may be aware of a swindler who is working a scam in
the area--and may even have published a warning article that you happened to
miss. Then too, if readers are being pitched with suspicious-sounding investment
offers, that's something an investigative reporter might want to look into.
If the investment offer isn't local, don't be reluctant to make a long distance
phone call or two.
It could be that the police, Better Business Bureau or newspaper in the
community where the offer is coming from will be able to provide information.
Again, however, even the absence of such complaints doesn't necessarily mean
the firm is legitimate. Some swindlers--particularly telephone boiler-room
operators--try to maintain a low profile in their local areas. That lessens the
likelihood of their coming to the attention of local authorities; it prevents
prospects from dropping by to see their operations; and it makes it more difficult
for out-of-towners to discover what they are up to.
Check to see if your city or state has a consumer protection agency.
Many do. If so, there may be information there about the person or firm
that's offering the investment you are interested in. In any case, the agency
should be able to provide names, addresses and phone numbers of other places
you can check.
Contact regulators.
The majority of individuals and companies offering investments to the public
are subject to some sort of regulation--and may be subject to multiple regulation.
Those which trade in futures contracts and options on futures contracts are
regulated by the Commodity Futures Trading Commission, a federal agency, and
by National Futures Association, an industry-wide self-regulatory organization
authorized by Congress. In the securities and securities options business, the
federal regulatory agency is the Securities and Exchange Commission. There is
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also an industry self-regulatory organization, the National Association of

Securities Dealers.
The Federal Trade Commission has jurisdiction over advertising, franchises
and business opportunities. Deals involving interstate promotion of land sales
are regulated by the federal Department of Housing and Urban Development.
By contacting the appropriate regulatory organization, you can generally
find out whether the firm or person is properly registered to engage in that type
of business and whether any public disciplinary actions have been taken against
them. A list of some of the regulators you can check with is provided on the
inside back cover of this booklet.
Write or phone law enforcement agencies.
Whether or not a person or firm is subject to the scrutiny of a regulatory
organization, the fact is that fraud is against the law in every state of the nation.
And if it involves interstate commerce--including the use of the mails or phone
lines--federal criminal statutes apply. If an investment sounds suspicious, check
with the appropriate agency. They may be able to furnish information or conduct
an investigation of their own. The following are some you could contact:
The office of the local public prosecutor, the state attorney general, and the
state securities administrator. Someone in the local courthouse should be able to
give you names, addresses and phone numbers.
If the mails are used in promoting or operating a phony investment scheme,
federal Postal Inspectors want to know about it. The postmaster in your
community can put you in touch with them. Fraud involving any form of interstate
commerce is also of interest to the Federal Bureau of Investigation. The nearest
office should be listed in your phone directory. The listing on the inside back
cover of this booklet includes headquarter addresses of the U.S. Postal
Inspector in Charge and the FBI.
Sure it can take some time, effort and possibly expense to thoroughly check
out an investment proposal, but if you have any doubt about whether it's worth
the trouble, talk with people who didn't and wish they had!
Finally, Don't Lose Touch with Your Money
The need to exercise good financial sense doesn't stop once you've
decided to invest. It's possible, all your precautions notwithstanding, that you
may have turned your money over to a swindler. It's also possible that what
didn't start out to be a swindle may turn into one if the promoter finds himself in
financial trouble or with too many poor investments on his hands. That can lead
to cover-up bookkeeping or, worse yet, a decision by the promoter to take flight
with what's left of his customers' money.
It's important to continuously monitor your investments and to be alert for
any telltale signs that things aren't quite the way they should be. The person who
sold you the investment, for example, may suddenly become inaccessible--
continuously tied up on the telephone or unwilling to return your calls, busy with
clients, or out-of-town on important business matters. Or various documents or
PAGE 259 OF 273

accounting statements you were promised don't arrive. Or information you do

receive is vague or at variance from what you had been led to expect. Or money
that was supposed to have been paid to you isn't received, and instead of
checks you get excuses.
If you become suspicious or overly uncomfortable with an investment
you've made--and if you are unable to totally resolve your concerns--the best
thing you can do is try to get out of it. And do so as quickly as possible. That
means demanding your money back, accompanied, if necessary, by threats to
contact authorities.
You might or might not get it. The best you can hope for, if indeed there's
fraud involved, is that the swindler may decide to refund your money rather than
risk having you blow the whistle while he is still on the prowl for new investors. If
that happens, consider yourself more fortunate than most.
Be aware, if you do decide to try and get a refund, that the person who was
smooth-talking enough to get your money in the first place will unleash all his
skills to persuade you to leave it with him. No doubt, he will have some answer
for all of your concerns. And some explanation for all apparent irregularities. And,
no doubt you will be told that backing out now would be anything from
contractually illegal to a terrible financial mistake. Swindlers figure that every
once in a while some of their more fidgety investors simply have to be
reconvinced. He may tell you that you are so close to making really big money,
or the investment now looks even more profitable than originally expected.
Believe him at your own peril.
If you do insist on a refund of your investment, insist on it immediately Ask
to pick it up yourself, or offer to pay the cost of having it sent by overnight mail or
wired directly to your bank. Don't settle for "it will take a week or two" or "the
check is in the mail." As everyone knows, checks seem to be lost more often
than any other type of mail!
If you don't get your investment back (and chances are you won't), or even
if you do and still suspect a swindle, report it promptly to the appropriate
authorities and regulatory officials. They may be able to conduct an investigation
and, if called for, seek legal action to impound whatever funds the firm still has.
Bottom line, the unfortunate reality is that very few victims of investment
fraud ever again see a cent of their money. It's also a reality that the business of
swindling will continue to flourish as long as unwary investors provide prey for
unscrupulous promoters. Hopefully, the information in this booklet--if heeded--will
help to assure that a swindler's next fortune won't be made at the expense of
your misfortune.
Below is a list of names, addresses and phone numbers of organizations
and agencies noted in this brochure:
Commodity Futures Trading Commission

2033 K St., N.W.
PAGE 260 OF 273

202.254.6387
Federal Bureau of Investigation

Justice Department
9th St. & Pennsylvania Ave., N.W.
202.234.3691
Federal Trade Commission

6th St. & Pennsylvania Ave., N.W.
202.326.3650
Housing and Urban Development Department Interstate Land Sales

Registration
HUD Building
451 7th St., S.W. Room 6262
202.755.0502
National Association of Securities Dealers 1735 K St., N.W.

202.728.8044
National Futures Association

200 W. Madison, Suite 1600
Chicago, IL 60606-3447
Toll Free: 800.621.3570
In IL: 800.572.9400
Securities and Exchange Commission

450 Fifth St., N.W.
202.728.8233
United States Postal Service

Chief Postal Inspector
Room 3021
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202.268.4267
PAGE 262 OF 273

TERMINOLOGY
Arbitrage - Buying securities in one country, currency or market and selling in

another to take advantage of price differentials.
Articles of Association - Are the regulations for governing the rights and duties
of the members of the company among themselves. Articles deal with internal
matters such as general meetings, appointment of directors, issue and transfer
of shares, dividends, accounts and audits.
Asset Protection Trust - A trust established offshore to protect settlor's assets

against those who may attempt to make claims against them - creditors, former
spouses and dependents on death. Some offshore jurisdictions provide
protection from creditor claims against persons who have guaranteed bank
loans.
Authorized Agent - A bank or trust company authorized by regulatory

authorities to deal in foreign currency securities.
Authorized Dealer Bank - Banks permitted by their regulating authority to deal

in precious metals and all foreign currencies.
Back to Back Loan - A loan structure when "A" deposits a sum of money with a
bank in country "X" on condition that a related branch, agency, Edge
corporation or bank located in country "Y" will lend an equivalent sum to "A"
or a designee in country "Y".
Bare Trusts - Also known as dry, formal, naked, passive or simple trusts. These
are trusts where the trustees have no duties to perform other than to convey the
trust property to the beneficiary(s) when called upon to do so.
Bear - An investor who has sold a security in the hope of buying it back at a
lower price.
Bearer Share Certificate - A negotiable share certificate filled out in the name of
"bearer" and not to a particular person or organization.
Bearer Stocks/Shares - Securities for which no register of ownership is kept by

the company. A bearer certificate has an intrinsic value. Dividends are not
received automatically from the company but must be claimed by removing and
returning 'coupons' attached to the certificate.
Beneficial Owner - The actual or economic owner of an offshore company as

distinct to the registered or nominal owner.
Blind Trust - A trust in which the trustees are enjoined from providing any
information to the beneficiaries about the administration of assets of the trust.
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Blue Chip - Term for the most prestigious industrial shares. Originally an
American term derived from the color of the highest value poker chip.
Capitalization Issue - The process whereby money from a company's reserves is

converted into issued capital and then distributed to shareholders as new shares,
in proportion to their original holdings, also known as bonus or scrip issue.
Caps - An option-like contract for which the buyer pays a fee or premium, to
obtain protection against a rise in a particular interest rate above a certain level.
For example, an interest rate cap may cover a specified principal amount of a
loan over a designated time period such as a calendar quarter. If the covered
interest rate rises above the rate ceiling, the seller of the rate cap pays the
purchaser an amount of money equal to the average rate differential times the
principal amount times one quarter.
Captive Insurance Company - A wholly owned or controlled subsidiary

company established by a noninsurance parent for the purpose of participation
in the insurance risks of the parent and its other affiliates or associates.
Clearing System - A mechanism for calculation of mutual positions within a

group of participants with a view to facilitating the settlement of their mutual
obligations on a net basis.
Collar - The simultaneous purchase of a cap and the sale of a floor with the aim
of maintaining interest rates within a defined range. The premium income from
the sale of the floor reduces or offsets the cost of buying the cap.
Commission - The fee that a broker may charge clients for dealing on their
behalf.
Company Limited by Guarantee - An incorporated entity without share capital.
Consideration - The money value of a transaction (number of shares multiplied

by the price) before adding commission, stamp duty, etc.
Contract Note - On the same day a bargain takes place, a member of the firm
must send the client a contract note detailing the transaction, including full title
of the stock, price, consideration and stamp duty (if applicable).
Cover - The total net profit a company has available for distribution as
dividend, divided by the amount paid, gives the number of times that the
dividend is covered.
Credit Equivalent - Value Amount representing the credit risk exposure in off-
balance sheet transactions. In the case of derivatives, credit equivalent value
represents the potential cost at current market prices of replacing the contract's
cash flows in the case of default by the counter-party.
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Credit Risk - The risk that a counter party to a transaction will fail to perform
according to the terms and conditions of the contract, thus causing the holder of
the claim to suffer a loss.
Cross-Currency - Interest Rate Swaps A transaction involving the exchange of

streams of interest rate payments (but not necessarily principal payments) in
different currencies and often on different interest bases e.g. fixed Deutsche
Mark against floating dollar, but also fixed Deutsche Mark against fixed dollar).
Cross-Currency Settlement Risk (or Herstatt risk) - Risk relating to the

settlement of foreign exchange contracts that arises when one of the
counterparties to a contract pays out one currency prior to receiving payment of
the other. Herstatt risk arises because the hours of operation of domestic
interbank fund transfer systems often do not overlap due to time zone
differences. In the interval between final settlements of each leg, counterparties
are exposed to credit risk and market risk.
Currency Swaps - A transaction involving the exchange of cash flows and

principal in one currency for those in another with an agreement to reverse the
principal swap at a future date.
Current Exposure Method - Term used in the Basle Capital Accord to denote a
method of assessing credit risk in off-balance sheet transactions, consisting of
adding the market to market replacement cost of all contracts with positive
value and an add-on amount for potential credit exposure arising from future
price or volatility changes.
Debenture - A loan raised by a company paying a fixed rate of interest and

secures on the assets of the company.
Discount - When the market price of a newly issued security is lower than the
issue price. If it is higher, the difference is called the premium.
Discount Swaps - Also called off-market swaps, in which the fixed payments
are low market rates. At the end of the swap, the shortfall is made up by one
large payment. The credit risk taken on by the fixed rate recipient (usually the
bank) increases with the discount applied to interest rates.
Discretionary Trust - The form of trust usually established offshore. The

"discretion's" are vested in the trustee who can usually decide which of the
beneficiaries is to benefit, when and to what extent. Discretion's are exercised
under advice of, or suggestions from the settlor or protector.
Dividend - The part of a company's post-tax profits distributed to shareholders,

usually expressed in pence per share.
Domicile - Under English common law, domicile is the place of your

permanent home and the means by which you are connected with a certain
PAGE 265 OF 273

system of law for certain legal purposes such as marriage, divorce, succession
of estate and taxation.
Double Exit - Use of two passports for the purpose of confusion or

convenience.
ECU - European Currency Unit.
EMS - European Monetary Unit.
End-User (swap market) - In contrast to a swap-trading institution, a

counterparty which engages in a swap to change its interest rate or currency
exposure. End-users may be non-financial corporations, financial institutions or
governments.
Equity - The risk-sharing part of a company's capital, usually referred to as

ordinary shares.
Equity Options - Encompass a class of options giving the purchaser the right
but not the obligation to buy or sell an individual share, a basket of shares, or an
equity index at a predetermined price on or before a fixed date.
Equity Swaps - A transaction that allows an investor to exchange the rate of

return (or a component thereof) on an equity investment (an individual share, a
basket or index) for the rate of return on another non-equity or equity
investment.
Eurobond - A bond issued in a currency other than that of the country or market
in which it is issued. Interest is paid without the deduction of tax.
Ex - Latin for 'without', the opposite of Cum. Used to indicate that the buyer is
not entitled to participate in whatever forthcoming event is specified, for
example, Ex Cap, Ex Dividend, Ex Rights.
Exchange - Control or Restrictions Limits on free dealings in foreign exchange

or on free transfers of funds into other currencies and other countries.
Exercise Price - The fixed price at which an option holder has the right to buy,
in the case of a call option, or to sell, in the case of a put option, the financial
instrument covered by the option.
Expatriation - The removal of ones legal residence or citizenship from one

country to another in anticipation of future restrictions on capital movements or
to avoid estate taxes.
FIBV - World Federation of Stock Exchanges.
FSC (Foreign Sales Corporations) - A corporation that provides US businesses

which export with tax benefit. Exporters can establish a Foreign Sales
Corporation ("FSC") in a specially designated foreign country, or one of several
PAGE 266 OF 273

designated US possessions. The statute providing for the establishment of FSCs

was part of the Deficit Reduction Act of 1984.
FT 30 - Index Owned and calculated by the Financial Times, this index is based
on the prices of 30 leading industrial and commercial shares and is calculated
hourly during the day with a closing index at 4.30pm.
FT-SE 100 - Share Index Popularly known as the 'Footsie', this is an index of
100 leading shares listed on the London Stock Exchange. It provides a minute
by minute picture of how share prices are moving and is the basis of futures and
traded options listed on the London International Financial Futures and Options
Exchange (LIFFE).
Fiduciary Account - An amount typically deposited with a Swiss Bank which

will redeposit the sum with a third party bank outside Switzerland in its own
name (to overcome Swiss withholding tax on interest).
Final Dividend - The dividend paid by a company at the end of its financial
year, recommended by the directors not authorized by the shareholders at the
Company's Annual General Meeting.
Fixed Interest Loans issued by a company, the government (gilts or gilt-edged)
or local authority, where the amount of interest to be paid each year is set on
issue. Usually the date of repayment is also included in the title.
Flight Capital - The movement of large sums of money from one country to
another to escape political or economic turmoil, aggressive taxation or to seek
higher rates of interest.
Floor - A contract whereby the seller agrees to pay to the purchaser in return for
the payment of a premium, the difference between current interest rates and an
agreed (strike) rate times the notional amount should interest rates fall below
the agreed rate. A floor contract is effectively a string of interest rate
guarantees.
Flotation - The occasion on which a company's shares are offered on a market

for the first time.
Foreign Currency Account - An account maintained in a foreign bank in the

currency of the country in which the bank is located. Foreign currency accounts
are also maintained for depositors by banks in the United States. Such accounts
usually represent that portion of the carrying bank's foreign currency account
the exceeds its contractual requirements.
Fully Paid - Applied to new issues when the total amount payable in relation to
the new shares has been paid to the company
Futures - Securities or goods bought or sold for future delivery. There may be
no intention to take them up but to rely upon price changes in order to sell at a
profit before delivery.
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GMBH (Ger. Gesellschaft mit Beschrankter Haftung) - In Germany,

Switzerland and Austria, a limited liability company in which the liability of the
members is limited to amounts of agreed contributions or as stipulated in the
Articles of Association.
Gearing - A company's debts expressed as a percentage of its equity capital.

High gearing means that debts are high in relation to assets.
Gilts or Gilt -Edged Securities Loans issued on behalf of the government to

fund its spending. 'Longs' have a redemption date greater than 15 years,
'mediums' between 7 - 15 years and 'shorts' within 7 years.
Grantor Trust - Under US tax law, income of the trust is taxed as the income of
the grantor.
Gross Before deduction of tax.
Grossing up - Calculating the amount that would be required in the case of an

investment subject to tax, to equal the income from that investment as if it were
not subject to tax.
Hard Currency - The term "hard currency" is a carry-over from the days when
sound currency was freely convertible into "hard" metal, i.e. gold. It is used
today to describe a currency which is sufficiently sound so that it is generally
accepted internationally at face value.
Hedge Funds - Speculative funds managing investments for private investors

(in the US, such funds are unregulated if the number of investors does not
exceed one hundred).
Hot Money - (1) Large quantities of money that move quickly in international
currency exchanges due to speculative activity. (2) Foreign funds temporarily
transferred to a financial center and subject to withdrawal at any moment.
Index Linked Gilt - A gilt, the interest and capital of which change in line with
the Retail Price index.
Insider Dealing - A criminal offense involving the purchase or sale of shares by

someone who possesses "inside" information about a company's performance
and prospects which is not yet available to the market as a whole, and which if
available might affect the share price.
Institutional Net Settlement (INS) - Service A central service for institutional

investors which enables them to make or receive one net payment each day to
the London Stock Exchange for settled transactions and other cash
distributions.
Interbank Rate of Exchange - The rate at which banks deal with each other in
the market.
Interest Rate Swap - A transaction in which two counterparties exchange
PAGE 268 OF 273

interest payment streams of differing character based on an underlying notional

principal amount. The three main types are coupon swaps (fixed rate to floating
rate in the same currency), basis swaps (one floating rate index to another
floating rate index in the same currency), and cross-currency interest rate swaps
(fixed rate in one currency to floating rate in another).
International Business Company ("IBC") - A term used to define a variety of

offshore corporate structures. Common to all IBC's are its dedication to
business use outside the incorporating jurisdiction, rapid formation, secrecy,
broad powers, low cost, low to zero taxation and minimal filing and reporting
requirements. An increasing number of offshore jurisdictions are permitting the
use of better shares, nominee shareholders, directors and officers.
Investment Trust - A company whose sole business consists of buying, selling

and holding shares.
Laundering - Laundering is the process of cleaning illicitly gained money so

that it appears to others to have come from, or to be going to a legitimate
source.
Letter of Renunciation - This applies to a rights issue and is the form attached
to an allotment letter which is completed should the original holder wish to pass
his entitlement to someone else, or to renounce his rights absolutely.
Letter of Wishes/Memorandum of Wishes - A document prepared by the settlor

or grantor of a trust providing guidance on how trustees should exercise their
discretion's.
Limit - In relation to dealing instructions, a restriction set on an order to buy or

sell, specifying the minimum selling or maximum buying price.
Listed Company - A company that has obtained permission for its shares to be
admitted to the London Stock Exchange's Official List.
Listing Particulars - The details a company must publish about itself and any
securities it issues before these can be listed on the Official List. Often called a
prospectus.
Loan Stock - Stock bearing a fixed interest rate. Unlike a debenture, loan stocks
may be unsecured.
London Market Information Link - A new digital information feed which goes
live in 1995. It provides the replacement for the Exchange's CRS services and is
intended to be the primary source of UK financial data for market professionals
and information vendors.
Man of Straw - Effectively a nominee settlor or grantor who creates an offshore

trust but often has no further connection with the trust once it is created.
Managed Bank - An offshore bank also known as a Class "B" or Cubicle Bank.
PAGE 269 OF 273

The Managed Bank is not required to maintain a physical presence in the

licensing jurisdiction. Its presence in the licensing jurisdiction is passive with
nominee directors and officers provided by a managing trust company with a
physical presence. The Managed Bank is not permitted to transact business
within the licensing jurisdiction buy may maintain its books, records, etc., to
assure secrecy of operations.
Merchant Bank - A European form of an investment bank.
Mini-Trust - A short (usually preprinted) form of trust, often used as a

confidentiality enhancer, to bridge the ownership and management of an
International Business Company.
The Mini-Trust - is intended only to pass assets on the death of the settlor, i.e. a
will substitute.
Mutual Legal Assistance Treaty - A treaty which provides for mutual legal
assistance, including the exchange of information, etc., in cases where criminal
offences have been committed.
Net Asset Value - The value of a company after all debts have been paid,
expressed in pence per share.
Nominee Company - A company formed for the express purpose of holding

securities and other assets in its name or to provide nominee directors and/or
officers on behalf of clients of its parent bank or trust company.
Nominee Director - A director whose function is passive in nature. The director

receives a fee for lending his or her name to the organization. Nominee
directors are subject to director responsibilities.
Nominee Name - Name in which security is registered and held in trust on

behalf of the beneficial owner.
Normal Market Size - The SEAQ classification system that replaced the old
alpha, beta, gamma system. NMS is a value expressed as a number of shares
used to calculate that minimum quote size for each security.
Offshore Banking - By popular usage, the establishment and operation of US or

foreign banks in such offshore "tax havens" as the Bahamas and the Cayman
Islands.
Offshore Banking Unit ("OBU") - A bank in Cyprus, or any other financial

center with similar organizations; not allowed to conduct business in the
domestic market, only with other OBUs or with foreign persons.
Offshore Booking Centers - An offshore financial center used by international

banks as a location for "shell branches" to book certain deposits and loans.
Such offshore bookings are often utilized to avoid regulatory restrictions and
taxes.
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Offshore Company - See International Business Company.
Offshore Dollars - Same as Eurodollars, but encompassing such deposits held

in banks and branches anywhere outside the United States, including Europe.
Offshore Financial Centers - A country or jurisdiction where an intentional

attempt has been made to attract foreign business by deliberate government
policy such as the enactment of secrecy laws and tax incentives.
Offshore Group of Banking Supervisors ("OGBS") - Established in October

1980 at the instigation of the Basel Committee on Banking Supervision with
which the Group maintains close contact. The primary objective of OGBS is to
promote the effective supervision of banks in their jurisdictions and to further
international cooperation in the supervision between the
Offshore Banking- Supervisors and between them and Basel Committee

member nations and other banking supervisors. Current OGBS members are:
Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, Cyprus,
Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta,
Mauritius, Netherlands Antilles, Panama, Singapore and Vanuatu.
Offshore Limited Partnership - A partnership, the general partner of which is an

offshore company, but the limited partners may be onshore entities.
Offshore Profit Centers - Branches of major international banks and

multinational corporations located in a low tax financial center which are
established for the purpose of lowering taxes.
Offshore Trust - The quality that differentiates an offshore trust from an

onshore trust is portability. The offshore trust can be transferred to additional
jurisdictions to maintain confidentiality and to advantage desirable facets of the
new jurisdictions laws.
Ordinary Shares - The most common form of share. Holders receive dividends
which vary in amount in accordance with the profitability of the company and
recommendations of the directors. The holders of the ordinary shares are the
owners of the company.
Portfolio - A collection of securities held by an investor.
Private Placement - An issue that is offered to a single or a few investors as

opposed to being publicly offered.
Private Trustee Company - A company incorporated in certain offshore

jurisdictions, such as Bermuda, to act as a trustee for a limited class or group of
trusts. Private trustee companies are not permitted to offer trustee services to
the public generally.
Privatization - Conversion of a state run company into a public company, often
PAGE 271 OF 273

accompanied by a sale of its shares to the general public.
Proper Law - The body of law which governs the validity and interpretation of
a contract or trust deed.
Protector - A person appointed by the settlor/grantor of a trust, who has limited

powers to control the trustee, and usually has the right to change trustees.
Public Bank License - The bank is permitted to carry on banking business with
members of the general public.
Public File - The file available at the Company Registry for inspection on
request.
Public Limited Company (Plc) - A public company limited by shares or by

guarantee and having share capital and which may offer shares for purchase by
the general public. Only plcs may qualify for listing on the London Stock
Exchange.
Purpose Trust - A trust created for an express purpose without any individually
ascertained or ascertainable beneficiaries. A purpose trust is typically used in
circumstances where the trust would not be exclusively charitable, but, wholly
philanthropic.
Renounceable Documents - Temporary evidence of ownership of where there

are four main types. When a company offered shares to the public, it sends an
Allotment Letter to its shareholders, or in the case of a capitalization issue, a
renounceable certificate. All of these are in effect bearer securities and are
valuable.
Resident Company - A bank, trust company or holding company permitted to

deal only in local currency. Foreign currency transactions must be approved by
the appropriate regulatory authority.
Restricted Bank and/or Trust License - Is one which permits the holder to carry
on business with certain specified persons whose names are usually listed in the
license.
Re-domiciliation Corporations - Some offshore jurisdictions allow corporations

incorporated in other jurisdictions to reincorporate in their own at will.
Rights Issue - An invitation to existing shareholders to acquire additional shares

in the company in proportion to the number of shares they already own -
usually at a preferential price.
Rolling Settlement - A modification to the Talisman system which brought to an

end the two-week account cycle. Instead, settlement takes place on any
business day 10 days after the trade date.
SRO Self Regulating Organization - an organization recognized by the SIB and
PAGE 272 OF 273

responsible for monitoring the conduct of business and capital adequacy of

investment firms.
Secret Trust - A UK trust where no evidence of the existence of the trust

appears in any public document. They invariably arise in connection with wills,
where the will is a public document.
Securities General name for all stocks and shares of all types. In common
usage, stocks are fixed interest securities and shares are the rest, though strictly
speaking the distinction is that stock is denominated in money terms.
Service Company - A company located in an offshore financial center to

provide management, invoicing and other services for client companies located
in other countries. Initially used to advantage double taxation treaties. Service
Companies are now frequently used to facilitate flight capital outflow and are
often involved in money laundering schemes.
Settlement Exchanging money or shares for shares.
Transfer - The form signed by the seller of a security authorizing the company
to remove his name from the register and substitute that of the buyer.
Transitional - A term used to describe any transactions which may encounter

laws of more than one country.
Trustee Status - Used with reference to ordinary shares of those companies

which meet the requirements of 'wider range' investments as defined by the
Trustee Investment Act 1961.
Underwriting - An arrangement by which a company is guaranteed that an issue

of shares will raise a given amount of cash because the underwriters for a
commission agree to subscribe for any of the issue not taken up by the public.
Unit Trusts - Are a form of collective investment vehicles. The beneficial rights
to the trust assets are divided into a number of units and these units are offered
for sale to the public. The unit trust vehicle can either be a trust or corporate
entity.
Warrant - A special kind of option given by the company to holders of a

particular security giving them the right to subscribe for future issues either of
the same kind or some other security.
White Knight - A company which rescues another which is in financial

difficulty, especially one which saves a company from an unwelcome takeover
bid.
Yield - The return earned on an investment taking into account the annual
income and its present capital value. There are a number of different types of
yield and in some cases different methods of calculating each type.
PAGE 273 OF 273

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COPYRIGHT AND DISCLAIMER

Top Secret Publishing

LOW RISK CAPITAL ACCUMULATION BY BANK DEBENTURE

LOW RISK CAPITAL ACCUMULATION BY BANK

The key to safety and profits

There has been a lot of interest expressed by persons seeking to learn

Questions and answers

How are the investor's funds protected?

The supply of Eurodollars continues to increase on a daily basis as the U.S.

trades are taking place in multiples of hundreds of millions of dollars on a daily

NOTE: Forfaiting (Bank Debenture Trading) Programs should not be

a pyramid of borrowed collateral (debt), built upon or "derived from" the

BACKGROUND OF TRADING PROGRAMS

In recent years there has been a blossoming of many Trading Programs,

In short this is very much an insider's game, thoroughly known and

TRADING OF BANK CREDIT INSTRUMENTS

Creation of the Market

Mechanics of the Transaction

Though somewhat complex, the trading cycles can take place in

profit immediately, the effect is a very rapid compounding of interest on

Role of the Federal Reserve, IMF and World Bank

Why Is This Investment Not More Widely Known?

Why is This a Safe Investment?

How Can the Small Investor Participate?

What Kinds of Programs are Offered?

- Traditional stock, commodity, futures and currency transactions -

The Broker's Job

BANK DEBENTURE INSTRUMENTS &

The three questions most frequently asked by prospective investors

1. Why do a majority of the largest banks of the world issue bank

2. Why is there a "secondary market" for these discounted debenture

3. Why is it so difficult to confirm that these instruments are available?

In addressing the above questions it has been our policy to provide

Now let's turn our attentions to your above questions.

D. The "shifting" of U.S. Dollars to different world financial markets;

E. Privacy; and, most of all

PORTFOLIO RISK BALANCING

Debt instruments now forfaited include bills of exchange, promissory notes,

Although the discounting of merchants' acceptances and receivables has

The forfaiting market has seen three principal developments in recent

The second recent development in forfaiting is the syndication of individual

The financial instruments frequently, but not always, involved in forfait

In the year-end 1990 Chase financial statements, Note 21 indicated

BANK SECURED PRIVATE PLACEMENTS

Background And Nature Of The Instruments Being Traded

Finally, currency futures markets can be another difficult area to control

THE ROLE OF THE FEDERAL RESERVE BANK

This document is the intellectual property of OWR, and is found on the

A Perspective for Understanding

THE MECHANICS OF PRIME BANK SLCS AND

THE FOLLOWING DOCUMENT WAS WRITTEN BY AN

international monetary system, and second, wealthy individuals concerned about

2. THE INSTITUTIONAL STRUCTURE OF THE SYSTEM

4. WHY THE YIELDS ARE SO HIGH

Buying Bank 94.00 6.4%

5. ENTRY INTO A TRADING PROGRAM

ICC 500 PUBLICATION - BANK DEBENTURE

INTRODUCTION TO BANK DEBENTURE TRADING

WHAT IS A BANK DEBENTURE TRADING PROGRAM?

WHAT IS THE INVESTOR'S RISK IN THIS

HOW OFTEN DOES THE PROGRAM DO

WHY ARE THESE "HIGH RETURN WITH SAFETY"

LEVERAGED TRADING PROGRAMS