The Ropespinner Conspiracy
Bob Hoye
Institutional Advisors
Sep 7, 2007
The Ropespinner
Conspiracy is a novel by Michael M. Thomas, a former investment
banker who writes enjoyable novels about high finance.
The title relates to Lenin's
observation the "Capitalism will sell us the rope with
which we hang it." Published in 1987 the story is about
a brilliant but insidious Soviet conspiracy to infiltrate the
U.S. banking system and corrupt it to its own destruction.
The attempt starts in the late
1930s with a brilliant young economist who fell for Keynes' persuasions
in more ways than one. Waldo Chamberlain becomes a Harvard economics
professor and rises to pre-eminence. He is also KGB controlled.
The plan is implemented through his bright and presentable nephew,
Mallory, whose successful career takes him to the top of a big
New York bank. Altogether, the trio introduce a number of "new"
concepts to banking.
The KGB controller is knowledgeable
and quotes Bagehot in describing the scheme -
"But error is far more
formidable than fraud: the mistakes of a sanguine manager are
far more to be dreaded than theft by a dishonest manager."
The young protege, Mallory,
rises with his bank until -
"There was no question
that he and CertBank had been the pathfinders. Man and institution
had combined to transform the face and nature of banking and,
with it, the face and nature of whole economies, of nations.
Mallory and CertBank had perceived markets and opportunities
. . . and had grasped the business of banking might be redirected,
its nature irrevocably, irresistibly altered."
The Ropespinner plan was to
take the banks, then set midway between Main Street and Wall
Street, and return them to Wall Street.
The Glass-Steagall Act of 1933
separated commercial banking from investment banking. Beyond
that, it was another example of post-bubble recriminatory legislation.
The anti-bubble act (England) with the South Sea disaster of
1720 was taken off the books just in time for the bubble that
blew out in 1772.
Glass-Steagall was passed in
1933 and repealed in 1999, which belatedly acknowledged that
commercial banking had already embraced Wall Street.
"The problems were
to legally find a way around the Fed's grip: How to "dehabituate"
the relationship between banks and their depositors: how to engineer
a massive increase in money supply (almost impossible to have
a financial cataclysm otherwise); how to destabilize exchange
rates, perhaps eliminate the gold standard; how to ignite a commodity-driven
inflation, each was so rich in possibility."
This was to be implemented
by Certbank's rising star, Mallory, who would -
"Then set the Cert's
shoulder to the shiny new wheel and proclaim and propagate the
new gospel from the podium of the bank's eminence, other banks
would follow the lead, frequently hasty, since reflection and
competitiveness were ill-matched bedfellows, and within weeks
the new gimmick would be as accepted and widespread in American
banking as if it had been proven over the years and certified
from heaven by Morgan himself."
Preston marveled, 'The lad's
the best talker of claptrap I ever heard, better than FDR!'"
The novelist develops the "new"
banking ideas in a readable manner. Starting with negotiable
CDs, EuroDollars, banks as a "growth" industry leading
to the struggle for "market share", and total commitment
to "total return", all the major changes in banking
are placed in perspective.
Waldo plants the idea of negotiable
CDs and, as the market for them developed, a traditional banker
wonders:
"If a short-term obligation
could successfully be renewed time after time, should it not
be viewed as truly long-term capital and as a legitimate source
for funding longer-term loans?
Waldo listened to these
arguments and nodded sagely, and smiled inwardly. If ever there
was a surefire recipe for banking disaster, it was to borrow
short and lend long."
A book reviewer at the New
York Times described "Ropespinner" as "a sophisticated
piece of work - the story generates plenty of tension, and it
is anchored in a series of well-documented and well-described
settings."
It is a parable of our era
and a more timely read now than in 1987. As far as plausibility
goes, it's not too far off the mark.
Innovative banking always seems
to go with experiments in currency. It's fascinating that there
are two different views on arbitrary expansion of currency. Orthodoxy
claims that it is an essential tool of policy making but military
intelligence has used it for destructive purposes.
The Brits have been masters
of "war by other than gentlemanly means". In order
to destabilize the colonial economy, the British, during the
American War of Independence, invidiously introduced huge amounts
of counterfeit colonial currency. American inflation was sufficient
to raise short interest rates to 10,000%.
At other times inordinate amounts
of currency were clandestinely introduced into an enemy's country
with hopes of destabilizing their economy and ability to fund
their war effort.
It was done during World War
II as well as to Argentina during the Falklands War in 1982.
In the post-bubble contraction
of the early 1980's two Wall Street economists, nicknamed by
the street as "Dr. Death" and "Dr. Doom",
were pleading that the Fed should "open the taps" or
something worse would happen.
Obviously the understanding
of credit/currency expansion by spooks in intelligence is vastly
different to that of academics and Wall Street economists.
The fictional Waldo, Mallory,
and the KGB controller would be pleased with today's "new"
banking practices.
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com
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