By Don Quijones, Spain & Mexico, editor at WOLF STREET.
As official inaugurations go, few are as dramatic or eventful as today’s opening of the European Central Bank’s new headquarters in Frankfurt. Inside the skyscraper, everything was apparently calm and serene as a select coterie of invited guests shared their benighted hopes and utopian dreams of a unified Europe led by unelected bankers and bureaucrats.
Outside the building, the streets of Frankfurt’s financial district broiled with thousands of protestors belonging to the Blockupy movement, an alliance of trade unions and anti-capitalist groups sharply critical of the Troika’s austerity regime. As is the height of fashion these days, the authorities had erected a massive security zone separating the great and the good from the great unwashed. Barbed wire, security cordons and road blocks were a stark reminder of the already yawning and ever-widening gulf between the governors and the governed in Europe’s neo-medieval age.
Behind the barricades and inside the new building’s gleaming auditorium, the ECB’s Master of Ceremonies Mario Draghi spoke of the need for greater solidarity and unity in crisis-hit Europe. As for the multinational protestors outside the building, they were united in one main goal: to express their rage at an increasingly centralized, undemocratic, unaccountable system of governance run in the sole interest of bankers, lobbyists and self-important bureaucrats.
It didn’t take long for tempers to boil over, as small groups of masked protestors from countries across Europe did what masked protestors almost always do: hurl stones at police officers, smash windows, and set light to police cars. Dozens were injured in the fracas. In time-honored fashion, the police blamed the protestors, and the protestors blamed the police.
A Luxury Fortress
One of the primary triggers of public anger in Frankfurt was the shameless indulgence with which Europe’s central banking elite has feathered its new nest. Consisting of a 185/165-metre-twin-skyscraper and a low-rise structure to connect the two, the ECB’s new HQ cost an estimated €1.3 billion to build, roughly €400 million more than its original budget, making it one of the most expensive buildings in the world.
The organization regularly berates Greece and other peripheral nations on the evils of reckless spending on frivolous things like healthcare, education, and pensions. Yet, with the exception of the Bank of China Tower in Hong Kong, whose construction cost an estimated $2.1 billion, the ECB’s twin-tower complex is the most expensive bank building in recorded history. So much for austerity!
A Sturdy Façade
As a wise friend of mine recently told me, there is a rhyme to the reason: when stripped of all its verbose vernacular, colorful PR and complex equations, banking is nothing more than a giant confidence game, arguably the oldest in human history. Hence the need for a seriously sturdy façade, ideally one impressive and imposing enough to distract the masses into believing that the money they’ve just deposited in their bank is safe, despite the fact that the bank has already lent out (or gambled away) many multiples of that amount.
But if banking is one gigantic con trick, what does that make central banking, if not the nexus of all confidence games? After all, it is the central banks that make the big banks’ domination possible. During the last seven years, the supreme leaders of central banking have been on a roll of heretofore unimaginable proportions, as notes former investment banker turned best-selling author Nomi Prins:
We are entering the seventh year of US initiated zero-interest-rate policy. Biblically, Joseph only gathered wheat for seven years before seven years of famine. Quantitative easing, or central bank bond buying from banks and the governments that sustain them, has enjoyed its longest period of existence ever. If these policies were about fortifying economic conditions from the ground up, fostering equality as a force for future stability, they would have worked by now. We would have moved on from them sooner.
But they aren’t. Never were. Never will be. They were designed to aid big banks and capital markets, to provide cover to feeble leadership. They are policies of capital creation, dispersion and global reallocation.
The first central bank to begin this mad alchemic orgy was the big boss, the U.S. Federal Reserve. Since then other Western-aligned central banks have taken up the slack, most notably the Bank of England and the Bank of Japan. Now it’s the ECB’s turn to get seriously creative. As Draghi buys up covered bonds from the likes of Deutsche Bank, ING, Santander, and BNP to drive up asset prices for those few who hold them, the Euro is tanking against the dollar and sterling. But as long as the ECB’s primary stakeholders – the big banks – are alright (or not quite dead), the austerity-ravaged masses can jump off a financial cliff.
As I warned in July, if a Europe-wide banking union becomes a reality – which it did – pretty much everything that is wrong with Europe’s financial system (i.e. excessive concentration, over-complexity, moral hazard, capital shortfalls) would almost certainly get worse. Now, Europe’s newly enthroned banker overlords can pull the financial levers from the unparalleled comfort and opulence behind the purposefully confidence-inspiring façade of their new HQ. By Don Quijones, Raging Bull-Shit.
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