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WALL STREET JOURNAL
June 28, 2010
U.S. Charges 11 in Russian Spy Case
By Evan Perez
Federal
authorities charged 11 people Monday with belonging to a long-running Russian
program to plant secret agents inside the U.S.
The FBI
affidavit quotes an encrypted 2009 message from Russian handlers in Moscow to
one of the defendants that reads in part: "You
were sent to USA for long-term service trip. Your education, bank accounts,
car, house etc. -- all these serve as one goal: fulfill your main mission,
i.e. to search and develop ties in policy-making circles in U.S. and send Intels [intelligence reports] to"
Moscow.
* * * * *
So what is
new with this revelation? In November 1987 Michail
M. Thomas published The Ropespinner Conspiracy,
a novel about an attempt by the KGB and "fellow- travelling"
economists to corrupt the US banking system.
We published
the following
book review in early 2000 and in September 2007.
Essentially,
policymaking means manipulation of interest rates and currency markets. It is
difficult to determine whether the Russians were intending to observe or
encourage corruption.
The irony is
exquisite.
THE ROPESPINNER CONSPIRACY
Published By Institutional
Advisors 2000 and 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
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© 2003-2008 Bob Hoye
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