Sunday, August 6, 2017

"How Venice Rigged the First, and Worst, Global Financial Crash"

A repost from 2011.

From American Almanac, September 4, 1995:
How Venice Rigged the First, and Worst, Global Financial Crash
Six hundred and fifty years ago came the climax of the worst financial collapse in history to date. The 1930s Great Depression was a mild and brief episode, compared to the bank crash of the 1340s, which decimated the human population.

The crash, which peaked in 1345 A.D. when the world's biggest banks went under, ``led'' by the Bardi and Peruzzi companies of Florence, Italy, was more than a bank crash -- it was a financial disintegration. Like the disaster which looms now, projected in Lyndon LaRouche's ``9th Economic Forecast'' of July, 1994, that one was a blowup of all major banks and markets in Europe, in which, chroniclers reported, ``all credit vanished together,'' most trade and exchange stopped, and a catastrophic drop of the world's population by famine and disease loomed.

Like the financial disintegration hanging over us in late 1994 and 1995 with the collapse of Mexico, Orange County, British merchant banks, etc., that one of the 1340s was the result of 30-40 years of disastrous financial practices, by which the banks built up huge fictitious ``financial bubbles,'' parasitizing production and real trade in goods. These speculative cancers destroyed the real wealth they were monopolizing, and caused these banks to be effectively bankrupt long before they finally went under.

The critical difference between 1345 and 1995, was that in the fourteenth century there were as yet no nations. No governments had the national sovereignty to control the banks and the creation of credit; or, to force these banks into bankruptcy in an orderly way, and replace fictitious bank credit and money with national credit. Nor was the Vatican, the world leadership of the Catholic Church, fighting against the debt-looting of the international banks then as it is today; in fact, at that time it was allied with, aiding, and abetting them.

The result was a disaster for the human population, which fell worldwide by something like 25 percent between 1300 and 1450 (in Europe, by somewhere between 35 percent and 50 percent from the 1340s collapse to the 1440s).

This global crash, caused by the policies and actions of banks which finally completely bankrupted themselves, has been blamed by historians ever since on a king -- poor Edward III of England. Edward revolted against the seizure and looting of his kingdom by the Bardi and Peruzzi banks, by defaulting on their loans starting in 1342. King Edward's national budget was dwarfed by that of either the Bardi or Peruzzi; in fact, by 1342 his national budget had become a subdepartment of theirs. Their internal memos in Florence spoke of him contemptuously as ``Messer Edward''``we shall be fortunate to recover even a part'' of his debts, they sniffed in 1339.

A ``free trade'' mythology has been developed by historians about these ``sober, industrious, Christian bankers'' of Italy in the fourteenth century``doing good'' by their own private greed; developing trade and the beginnings of capitalist industry by seeking monopolies for their family banks; somehow existing in peace with other merchants, and expiating their greedy sins by donations to the Church. But, goes the myth, these sober bankers were led astray by kings (accursed governments!) who were spendthrift, warlike, and unreliable in paying their debts which they forced the helpless or momentarily foolish bankers to lend them. Thus, emerging ``private enterprise capitalism'' was set back by the disaster of the fourteenth century, concludes the classroom myth, noting in passing that 30 million people died in Europe in the ensuing Black Death, famine, and war. If only the ``sober, Christian'' bankers had stuck to industrious ``free trade'' and prosperous city-states, and never gotten entangled with warlike, spendthrift kings!

The Real Story
Two recent books help to turn over this cover story, though perhaps that is beyond the intention of their authors. Edwin Hunt's 1994 book The Medieval Supercompanies: A Study of the Peruzzi Company of Florence, establishes that this great bank was losing money and effectively going bankrupt throughout the late 1330s, as a result of its own destructive policies -- in Europe's agricultural credit and trade in particular -- before it ever dealt with Edward III.
``Indeed, the great banking companies were able to survive past 1340 only because news of their deteriorated position had not yet circulated....''
Just as in 1995.

And Hunt adds a shocker for the historians, based on exhaustive restudy of all the surviving correspondence and ledgers of the Bardi and Peruzzi. He concludes that their lending to King Edward III was done with such brutal ``conditionalities'' -- seizing and looting his revenues that his true debt to them may have been no more than 15-20,000 pounds sterling when he defaulted. Mr. Hunt himself works for an international bank, so he knows how such ``conditionalities'' of lending work today. He probably knows that the true international debt of Third World countries today is a small fraction of what the banks and the International Monetary Fund claim they owe. He definitely understands that fourteenth century England was a Third World country to the Bardi and Peruzzi and Acciaiuoli international banks. They loaned Edward II and Edward III far less than their promises -- but their promises have been dutifully added up as ``total loans'' by historians, starting with their fellow banker Giovanni Villani.

Even if we accept the highest figures ever given for Edward III's 1345 default against the bankers of Florence, the debt to them of the city government of Florence which they controlled, was 35 percent greater, and those bonds also defaulted.

More revealing is the latest work of the historian of Venice, Frederick C. Lane, Money and Banking in Medieval and Renaissance Venice. This work shows that it was Venetian finance which, by dominating and controlling a huge international ``bubble'' of currency speculation from 1275 through 1350, rigged the great collapse of the 1340s. Rather than sharing the peace of mutual greed and free enterprise with their ``allies''-- the bankers of Florence -- the merchants of Venice bankrupted them, and the economies of Europe and the Mediterranean along with them. Florence was the fourteenth century ``New York,'' the apparent center of banking with the world's biggest banks. But Venice was ``London,'' manipulating Florentine bankers, kings, and emperors alike, by tight knit financial conspiracy and complete dominance of the markets by which money was minted and credit created.

HT: my notes say FT Alphaville but I can't for the life of me remember which post.