("Quid coniuratio est?")
"Although not one in 10,000 Americans knows it, the Fed has a huge secret cash stash of $20 billion, known among insiders as the 'currency stabilization fund'..."
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RAPE OF MEXICAN ECONOMY AIDED BY "INSIDE" INFO
By Warren Hough
[Excerpts from The Spotlight, Feb. 6, 1995]
Dismissing official explanations, seasoned currency traders privately blame the mess in Mexico on a series of secretive, high-level financial maneuvers that led to the collapse of the peso, while producing billion-dollar profits for a consortium of megabanks and financial speculators closely linked to [Federal Reserve Chairman Alan] Greenspan.
A detailed review of the current balance sheet of Citibank, ranked No. 1 among U.S.-based commercial banks and among Mexico's foreign lenders, confirms that far from suffering losses, the money center giant made prodigious profits on the peso's plunge, reports Spotlight correspondent George Nicholas from New York.
Calling its Mexican operations "stronger than ever," Citibank reported a whopping jump of 81 percent in its earnings for the last quarter of 1994 -- just when the peso collapsed.
-+- Cui Bono? -+-
Profits are soaring so nicely, "We are doubling our dividend payout for the period," Citibank Chairman John Reed informed stockholders on January 20, a month after Mexico's monetary meltdown.
The simultaneous headline, "Surprise Profits for Top N.Y. Banks" heading the financial page of Newsday, a major New York daily, highlighted the profit gains Chase Manhattan Bank (19 percent) and Chemical Bank (22 percent) realized for the same period.
"The big banks made out like bandits," says Paul Lanier, who heads the New York trading desk of a major European investment bank. "When I asked myself how that could have happened, I realized that although a complex scheme is behind it all, the essential facts are not hard to understand."
On the last day of 1994, major U.S.-based banks reported holding Mexican treasury bonds worth an astonishing $19.8 billion -- an extraordinary debt load. "The key is to realize that these Mexican debentures come in two principal species," explained Lanier. "There are the so-called 'cetes' -- loans which are repayable in pesos. Then there are 'tesobonos' -- bonds denominated in pesos which are, however, pegged to the dollar. If the peso falls against the dollar, the payments due on these tesobono bonds increase accordingly."
There is another important difference between these two main types of Mexican treasury IOUs. "The bonds known as cetes produce the highest yield," Lanier noted. "In 1994, cetes paid interest at rates averaging 24 percent -- a rich return for lenders willing to take a chance on them."
-+- Heavy In Cetes -+-
Most of the Mexican bonds held by Citibank and other American investors at the beginning of 1994 were cetes, since the speculation-driven U.S. money markets forced financial managers to lock in the highest possible returns. "Of the round $20 billion in Mexican treasury IOUs held by U.S. creditors, only $1.7 billion was in tesobonos [CN -- lower yield, more secure]; almost all the rest was in high-yield cetes," explained Lanier.
But when the economic earthquake hit Mexico on December 20, raising urgent questions about this debt, it was discovered that the proportion had been mysteriously reversed. In the days before the peso began to crumble, the largest Wall Street lenders abruptly switched from cetes to tesobonos, thus buying insurance against the looming currency collapse.
"The big banks were secretly tipped off by Greenspan about the coming devaluation," explained Dr. Felipe Arismendi, a U.N. economist specializing in monetary studies. "They converted their holdings from cetes to tesobonos a jump ahead of the market, and came out winners while tens of thousands of small American global-fund investors ended up losers."
But even if tesobonos are theoretically worth their weight in dollars, how can Citibank be so sure the busted and beleaguered Mexican government will pay?
"That is Greenspan's second scheme," explained Arismendi. "Although not one in 10,000 Americans knows about it, the Fed has a huge secret cash stash of $20 billion, known among insiders as the 'currency stabilization fund' or 'the swap pool.'"
Greenspan secretly assured Citibank and other major lenders the Fed would use its $20 billion kitty to compensate them for any shortfalls in their due debt payments caused by a Mexican default.
In that case, Congress might inquire, where is the need for the additional $40 billion bailout guarantee fund proposed by the Clinton administration? [CN -- That plan has just been dropped.]
The answer is that it would provide insurance for Wall Street banks eager to make more mega-loans to Mexico, on even more profitable terms.
I encourage distribution of "Conspiracy Nation."
Coming to you from Illinois -- "The Land of Skolnick"