PUBLISHED BY INSTITUTIONAL ADVISORS
2000 and 2007
THE ROPESPINNER CONSPIRACY
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repealed in 1999, which belatedly acknowledged that commercial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
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
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
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
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
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"