The World’s Greatest Scam

The Melting Euro

In the interview below, a prominent hedge fund manager in Norway speaks out about the current financial crisis. The article contains no real surprises, but it’s unusual for anyone in such a position to be so frank about what is happening. If such a high-ranking insider is willing to say these things, the situation must be dire indeed.

Many thanks to our Norwegian correspondent The Observer for translating this piece from

Probably the biggest scam ever

Hedge fund manager Peter Warren questions the celebrated rescue package given to European banks and governments. “The entire thing is a giant scam.”

This week the European Central Bank (ECB) handed out a staggering €530 billion in virtually free loans to 800 banks. The rescue package, called LTRO, is the second dose of a medicine which was first administered in December last year.

By giving the banks huge loans at a very low interest rate — in this case only one percent — one manages to strengthen the banks and indirectly boost the debt-burdened European countries as many of the banks use the money to buy government bonds in the heavily indebted countries of Italy and Spain. These bonds yield a much higher interest rate than the one percent the banks have to pay the ECB.

Analysts and the markets — and perhaps not surprisingly, the banks themselves — have welcomed the initiative with great enthusiasm. The general consensus is that this is the correct medicine to get Europe out of the negative debt spiral.


But not everyone joins in the excitement. Today in an entry on his own blog, finansblogg, the Norwegian hedge fund manager Peter Warren heavily criticizes the rescue package in a blog entry entitled “The greatest scam ever”. He writes that a “fraud is taking place today in the financial markets without anyone reacting”.

According to Warren, it is mostly the participants who have reason to be pleased with the rescue package, and the participants are the banks. Almost everyone else is being thoroughly deceived, he says

“The whole thing is a giant scam,” he tells

According to Warren the rescue package just adds more of what got Europe into trouble in the first place: debt.

“This money is nothing but a miniscule easing of the burden as it increases the money supply. Up until now it has been successful, but what they’re doing is pushing snow in front of them with a snow shovel. Eventually it will become impossible to push the shovel. The way they have chosen to solve the problem is to increase the debt.”

“To place more snow in front of the shovel?”

“What they are doing now is to throw another ton of wet snow in front of it. It is strange that more people haven’t realized what’s going on.”

“So it’s not simply just a case of you seeing ghosts in broad daylight? Most people praise the rescue package.”

“Yes, everyone lets out a big sigh of relief because the financial markets are performing a little bit better now. But keep in mind that the U.S. economist Nouriel Roubini was ridiculed for years for warning us about the global financial crisis, so do not expect to see an immediate response.”

Pyramid scheme

The hedge fund manager believes that providing cheap loans to banks and governments with debt problems is in itself quite absurd.

“It’s like your salary increases by 4 percent each year, while at the same time your debt increases by 12 percent and when you finally reach the stage where you’re unable to service the debt you notify your bank and ask them to double your loan. The bank would have responded with two words: Forget it. There isn’t a single soul on the planet that would have loaned you any more money!”

But this isn’t the only thing that should activate the alarm bells with the LTRO2 rescue package.

According to Warren, the banks have received guarantees from the ECB that they’re not liable for the debt if they decide to loan the money to debt-ridden countries such as Italy and Spain and these countries go bankrupt. In other words, not only do the ECB hand over 530 billion Euros almost free of charge, but they also accept the risk of default when the banks loan the money to these heavily indebted countries at a huge profit.

Read more on Warren’s own blog.

“What you are describing here sound suspiciously like the taxpayers, via the ECB, have invested in a pyramid scheme?”

“Exactly! It’s a Ponzi scheme. The taxpayers are sitting there with big grins on their faces while the Italian bank shares go up in value and think: Wow, this is going to end well”

But Warren fears that it’s not going to end that way.

“It would be a terrible thing if Italy went bankrupt. The country is ‘too big to fail, but too big to save’. If Italy were to default on its debt like Greece, the banks would probably go bankrupt too. And if the United States or Germany goes bust in the process — it does matter that you can take out an insurance policy, because who sell the insurance policies? The banks do, and the odds that they’re going to be able to honour their obligations are equal to zero.”

“How long can the alleged pyramid scheme be sustained?”

“It can keep on running until someone finally discovers that the emperor is naked, or rather until the people turn around and discover that he actually is naked.”

Horse’s head

Warren understands why the banks jumped at the rescue package “like a herd of lions attacking an injured antelope”, as he describes it on his own blog.

“In light of the massive bonuses and salaries involved it’s like Christmas Eve, Hanukkah and the leap day all rolled into one for the banks and their shareholders,” Warren tells

He doesn’t expect people in the banking industry are going to approve of today’s blog post, and particularly not the Italians.

“Just writing this makes me fear that I will wake up with a horse’s head in my bed one of these days” he writes in his blog post.

8 thoughts on “The World’s Greatest Scam

  1. This reminds me very much of what is going on here in the State of New York regarding the pension fund. The State of New York and various municipalities pay into a large pension fund pool. This year they are not financially able to pay. So, many municipalities and the State of New York itself have borrowed FROM the pension fund in order to make their payment TO the pension fund! So now they all owe the pension fund a years payment PLUS interest. This can only go on for so long…
    Talk about dumping wet snow in front of the shovel. What an apt metaphore.

  2. A horse’s head or a sudden heart attack a lá Andrew Breitbart.

    For sure, the European commission and the ECB know they are polishing a turd. It makes their infantile money tossing all the
    more disastrous. Wondering how will they sleaze out of this one. Oh wait, I know: more money, more power and more “Europe”. But next time they’ll have nothing but monopoly money to play with.

    These people remind me of the “wiseguys” you see in gangster films, spending all that money around, shoving it down the pockets of anybody that opens a door for them, fixes them a drink or a baloney sandwich. They spend that money liberally (pun intended) because they didn’t earn it. It’s not about money, but about power.

    Nigel Farrage said it himself, that the banks will go next. And this could be it.

    All countries in Europe should get their own first and second ammendements.

  3. During the last 2 weeks, the price of gold and silver jumped up. Silver went up by over 10 percent. I am thinking this massive Euro dilution was part of the equation. Then, in the middle of last week, precious metal prices fell after Bernake gave a talk alluding that there would be no massive dilution of the US dollar anytime soon. I think these prices will rise back up soon. The ever increasing supply of fiats does not allow for any alternative fate.

  4. The very same banks who took a major beating on the outstanding Greek loans are now being lent they money they claim to have lost. This no longer sounds like a loan but a quid quo pro.

  5. Well, it is still true that the ever expanding supply of fiat money is only a political necessity of the socialist governments now in power. There is no strict economic reason that a given government could not cut back and live entirely within the means accorded it by the people.

    Unfortunately, it is unlikely that enough people will wake up and start voting for fiscal sanity while there is still an operating political system in place. Until the total breakdown of monetary authority occurs, most people will be all to happy to make their plans for the future based on the idea that it is simply not possible for a government fiat currency to lose all value.

    And once that breakdown occurs, it means the sudden cessation of all public services, as those working in those industries will know that they are not being paid to continue working. A few will respond (relatively honestly) by staying home, but a certain number will take their paychecks out of the formerly public assets.

    So the utilities will suddenly demand payment for continued service in real goods supplied directly to their workers, and many other government run services will simply dissolve as their former employees loot the premises for anything of value. The police will not even pretend to be out there to protect the public, they will appropriate their weapons and vehicles and simply become an openly criminal organization extorting what they require from others.

    At that point, when perhaps more people will understand the folly of having voted for socialists (though the historical evidence for how people respond to these things is not even hopeful on that score), it will be far too late to restore order through political means.

    Chiu Chun-Ling.

  6. See about this kind of policies a.o. the books by Karl Denninger,
    f.e. his last one: “Leverage,
    how cheap money will destroy the world”.


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