The nature of accounting and of the balance sheet is that of recording the events that are relevant for the economic entity to which they relate on the basis of these two principles:
one is recording the events in a way that makes them comparable, and this implies quantifying them in money as a homogeneous unit of account;
the other is recording the events that actually occur, and this implies that the recording occurs after the fact.

The accounting trick, if we fancy being euphemistical, or if we prefer to call things with their name, the false accounting, is this:
the creation of scriptural money out of nothing has been organised in such a way that two events, that normally occur at a distance of time from each other, in the case of creation of money out of nothing occur simultaneously instead, and this simultaneity is used to conceal the fact that one of these two events, obviously the crucial one, is not booked.

The acquirement of a resource is one thing, and an accounting event; an employment of that same resource is ANOTHER thing, and ANOTHER accounting event. They are two DISTINCT AND SEPARATE events, both in reality and in accounting.

Let’s see it in practice by comparing the different strategies of two criminals:

A colonialist invades a foreign country and butchers, enslaves and reduces to misery its inhabitants, to the aim of robbing the gold of the country. Later on, he will use that gold for a further crime, let us assume to fund the growth of a monopoly he’s an accessory in.
Two events, acquirement and employment, distinct in reality, remain distinct in accounting, too: in his balance sheet, the colonialist initially enters a book entry of active occurrence for the acquirement of the gold, and then enters another book entry of employment for the investiment of that gold in the funding of the monopoly. What he will use that gold for is immaterial here for our purposes; what counts is that the fact that blood−stained gold entered his assets without him giving anything in exchange is perfectly visible in the balance sheet because there is a distinct and separate book entry that indicates it.

A banker provides a loan to the purpose of creating out of nothing in his pocket the scriptural money loaned. Later on, he will use that scriptural money for a further crime, let us assume he too to fund the growth of a monopoly he’s an accessory in.
The same two events, acquirement and employment, distinct in reality, do NOT remain distinct in accounting, too: on the contrary, in accounting they get confused in a single indistinct entity. The reason, and the difference between the two cases, is that in the case of the banker these two events occur simultaneously: the banker creates the money out of nothing in the very moment, and in the very act, of loaning it. Here’s the trick, the false accounting, then: these two events, simultaneous but nonetheless distinct in reality, do not remain so in accounting, because their simultaneity is used to confuse them with one another to the purpose of not booking the crucial one, the acquirement! In his balance sheet, the banker does NOT enter at all any book entry of active occurrence for the acquirement of that scriptural money, while he regularly enters a book entry of employment, instead, for the simultaneous loaning of that same scriptural money. In this case as well, what he will use that scriptural money for is immaterial here for our purposes; what counts is that the fact that scriptural money, which doesn’t even need to be physically blood−stained, entered his assets without him giving anything in exchange is perfectly INVISIBLE in the balance sheet because there ISN’T ANY distinct and separate book entry to indicate it. We may also say that the two simultaneous events do not get confused with one another, if we prefer; what counts does not change and what counts is: NO active occurrence book entry in the balance sheet, creation out of nothing totally INVISIBLE.

Ever heard the fable of the old trousers? Once upon a time there was a banker who had an old pair of trousers, and those old trousers no one would have paid any attention to were magical: every time he fumbled in their pockets, a penny materialised in his hand…

As an aside, the real reason, and the real importance, of providing loans is that that is the mechanism devised by bankers to the purpose of not only creating purchasing power out of nothing, but of obtaining that simultaneity, that concealment, and that not accounting of active occurrence to conceal that creation, too. In the same vein it could be said that the real reason, and the real importance, of acceptance of deposits from the public is most definitely not to have funds to loan, as what the bankers loan they create out of nothing in the very act of loaning it, but it is to build up the formal reserves to build their houses of rigged cards upon.

And indeed with good reason one should wonder how come that the bankers’ house of cards defies the ravages of time as much as and even more than the pyramids of Egypt. Quite puzzling, until one recollects that old saying, “There’s none so blind as those who will not see…”

So the question here is, what is it exactly that which those who will not see refuse to see? Or, perhaps more exactly, what legal screens do those who will not see set up to pretend there is nothing to see and to impede other people from seeing, exactly?

Conceptually speaking, the legalisation of each step in the sequence of these consecutive receiving stolen goods is simple and logical: taking the United States as an example, in 1964 the Chairman of Banking and Currency Committee of the House of Representatives, Wright Patman, explained in a Congressional document how, in essence, the Constitution gives the right to create money to the Congress, and the Congress delegated it to the banking system.
To delegate means transferring to others some of one’s power while setting the rules on the basis of which such others shall use that power; but beyond a certain measure to delegate can begin to mean outright transferring to others one’s very power to set the rules.

And so it goes with the Fathers of the Country drawing up a Constitution in which they bestow monetary sovereignty upon a legislative assembly, which is led to establish a central bank, that fifth column we now know well, and bestow upon it, both unfettered and unaccountable, monetary sovereignty and the power to delegate it in its turn to commercial banks through the power to grant lawfulness to practices such as privileged accounting principles, fractional reserve and clearing houses.

Technically speaking, we’re entering a minefield here: where moneypulators have to state their three−card trick in such a form as to conceal it so as to allow them to play it, while pretending to get it all out on the table to prove there is no three−card trick whatsoever in the first place, a minefield is what you have to expect – and where you have to look into –.

This minefield is semantics and grammar, the meanings and uses of words, the mines are the words, and the related human reactions are at the same time its camouflage and its soundboard.
It has been said that the single most important factor in study is the misunderstood word or symbol.
You can easily imagine the consequences should people driving motor vehicles, ships and airplaines not know the meaning of such words as “left”, “right”, “start” and “stop”; but these are the easy ones. The point is, there is much, much more about the misunderstood words or symbols than meets the eye. Let’s suppose some people that design buidings, bridges, motor vehicles, ships and airplanes had just a tiny, negligible misunderstood symbol: the decimal separator, and imagine the consequences.
I will discuss later on how there’s even many a way to misunderstand words and symbols, and how most of these ways go rather unnoticed; suffice to say now that it is not true that the smaller a misunderstood word or symbol is, the less important it is, oh no. Quite definitely the contrary is true. The more basic, and the more destructive; the more basic, and usually the tinier.

After all, language is used to build communication buildings and bridges as far as the eye can see, and all of them are made of the same building blocks: those bricks known as words and symbols. Imagining the consequences of having the basics of anything misunderstood, shacky, unstable and thus mishandled in unpredictable wrong ways, is quite a strain of one’s imagination, but it’s nonetheless the harsh truth that confronts us.

On these grounds, the evil intentions of moneypulators go hand−in−glove with the human reactions to misunderstood words and symbols: usually any reaction except the only correct one, detecting and clarifying them. If you have envisioned and assessed the scope and impact of drivers having misunderstood “start”, “stop”, etc., and of designers having misunderstood things like the decimal separator, now it’s the time for you to envision and assess the scope and impact of politicians, judges, academics, media operators – even conceding they’re in good faith – and of general public, having hit those mines so carefully placed by moneypulators…
The legalisation of moneypulation is hostile territory; confront it accordingly. Dictionaries, logic, pertinacy, and eyes wide open scanning for gaps.

It's been said that, unfortunately, in our packaging there wasn't an instruction manual, hence putting it together from scratch is a bit of a thankless task. Quite the same could be said about the Holy GAAP, except in this case the maze under its bonnet has been mapped for us, and we should consider our good fortune in terms of what difference it makes facing a labyrinth with or without a map. This is no small accomplishment; this is an invaluable one. That it enabled adding my two cents here is nothing compared to its enabling anyone to detect and face this labyrinth hiding the greatest swindle and the greatest crime against humanity in history. This is what Daniele Pace gave us with his “The Rabbit in The Hat. Bank Accounting and Money Creation”.

Every nation has its own sovereignty among the founding reasons for its birth, hopefully, and just as hopefully it retains it to the degree its politicians can’t sell it out to the highest bidder. In which case, good chunks of it get “delegated” to supranational entities aimed at centralising power more and more in less and less accountable hands.
This potentially makes for a separate study of the legal grounds of moneypulation for every nation, which then may or may not converge with those of other nations, according to the degree of “delegation” to such supranational centralised powers.

Law is famous for being written in a legalese jargon which is no less than legendary as to being cryptic, irksome and plainly unreadable. And if there’s a field where “Italians do it better”, this is it, at least according to their own opinion. Whether they’re right in boasting this leadership or people in other countries would be equally right in doing the same, I’ll take Italy as a case in point.
Actually, even legalese clouds do sometimes have a silver lining, as legalese even comes to our help in studying it. Those familiar with the absolute precision required in computer programming and in its logic know that if an output value depends on 1,946 input values, if even just one in those 1,946 inputs is missing or has an unexpected value, crash! Legalese must comply with such an absolute precision and logic, therefore, any legislative text must be unambiguously identified by a type, a date and a number, and must report in its preamble the same identifiers for all the previous laws it refers to. Thus, through the use of absolute and unflinching logic and diligence, applied to the connections between laws as well as to their contents and gaps, the riddle can be figured out. So let’s arm ourselves with these, plus a screwdriver and a magnifying glass, and let’s open the bonnet of the Italian version of the Holy GAAP.
By the way, I strongly suggest that you arm yourself with pen and paper, too; in your journey through the GAAP you will encounter a number of names, numbers, dates and relationships, so noting them down with boxes and lines will make your journey much more easy, clear, comfortable, and will spare you some useless and avoidable dizzy spell.

GAAP stands for Generally Accepted Accounting Principles, that is, the standards, conventions and rules followed in accounting and financial statements within a given jurisdiction, hence what is generally accepted in a country may differ from what is generally accepted in another country. But there is an overall tendency of countries to converge on one universal “standardised standard”, and the Chosen One, the lucky winner, is called “IAS/IFRS”, International Accounting Standards/International Financial Reporting Standards.
The IAS came first, which were issued by a group of accounting professionals called International Accounting Standards Committee (IASC), which was an internal committee of the world organisation of accounting professionals, International Federation of Accountants (IFAC). Then it is reported that this committee turned into a private foundation incorporated in the United States, the IASC Foundation, and later renamed as International Financial Reporting Standards Foundation, or IFRS Foundation, a not−for−profit foundation incorporated in the United States and registered as an overseas company in England and Wales, with headquarters in London. The IFRS Foundation, by its International Accounting Standards Board (IASB) and its own hierarchical structure above it, issues the IFRS. So the result is a single body of standards, comprising IAS not superseded by IFRS, IFRS, and the related interpretations by the issuer itself.

These IAS/IFRS international accounting standards then get adopted by the European Community:
“REGULATION (EC) No 1606/2002 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 19 July 2002 on the application of international accounting standards”
“Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof, […]” Refers to: Official Journal of the European Communities, C 154, 29 May 2001, Information and Notices, Notice No 2001/C 154 E/29, Proposal for a Regulation of the European Parliament and of the Council on the application of international accounting standards.

“Article 1, Aim: This Regulation has as its objective the adoption and use of international accounting standards in the Community […]” Just in case it wasn't clear what it's all about.
“Article 2, Definitions: For the purpose of this Regulation, ‘international accounting standards’ shall mean International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and related Interpretations (SIC−IFRIC interpretations), subsequent amendments to those standards and related interpretations, future standards and related interpretations issued or adopted by the International Accounting Standards Board (IASB).” Just in case it wasn’t clear how much we want the IAS/IFRS and nothing else, we hereby grant legal force even to those they will contrive in the future, sight unseen.
“Article 4, Consolidated accounts of publicly traded companies: […] companies governed by the law of a Member State shall prepare their consolidated accounts in conformity with the international accounting standards […] if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Member State […]” The terms “consolidated accounts” and “annual accounts” in this and the next article are synonims of “consolidated financial statement” and “financial statement”; a financial statement, wether consolidated or not, is always that document periodically stating the business accounts, while in the field of finance to consolidate means to group together, hence the difference is simply that a consolidated financial statement is that compiled by a parent company in which it adds to its business accounts those of its subsidiaries.
“Article 5, Options in respect of annual accounts and of non publicly−traded companies: Member States may permit or require: (a) the companies referred to in Article 4 to prepare their annual accounts, (b) companies other than those referred to in Article 4 to prepare their consolidated accounts and/or their annual accounts, in conformity with the international accounting standards adopted […]” In other words, the previous article prescribes that consolidated financial statements of listed parent companies must conform to the IAS/IFRS, while this article prescribes that Member States may require it in all the other cases: non−consolidated financial statements of listed parent companies, consolidated financial statements of non−listed parent companies, financial statementes of non−parent companies.

Then the surrender of our sovereignty perpetrated by our politicians to the European Community takes the form of the transposition of Community legislation into national law, so the adoption of the IAS/IFRS by the European Community becomes their adoption by the Member State Italy, which in turn exercises the options provided for in it:
“LEGISLATIVE DECREE of 28 February 2005, No 38, Exercise of the options provided for in the Article 5 of regulation (CE) No 1606/2002 with regard to international accounting standards.”
“Art. 1. International accounting standards
1. For the application of this decree, by «international accounting standards» it is meant the international accounting standards and related interpretations adopted in accordance with the procedure laid down in Article 6 of regulation (EC) no 1606/2002 of the European Parliament and of the Council, of 19 July 2002.” Just in case it wasn’t clear, as above.
“Art. 2. Field of application
1. This decree applies to: […]
c) the Italian banks […]; the Italian finance companies […] that control banks or banking groups […]; the Italian mixed financial holding companies […] that control one or more banks or finance companies […] if the banking field has the larger size within the financial conglomerate […]; the stock broking companies […] (SIM) (SIM is the Italian acronym of Società di Intermediazione Mobiliare, stock broking company, author’s note); the finance companies controlling SIMs or groups of SIMs […]; asset management companies […]; finance companies […]; finance companies controlling finance companies […], or registered finance groups […]; pawn brokers […]; electronic money institutions […]; payment institutions […]” Italy exercises the option given to Member States to the fullest, by covering more or less anyone that handles scriptural money, thus paving the way to enable them all to join the party.

Then for good measure the Banca d’Italia in its capacity as the control authority makes the same point in its turn:
“Official Journal of the Italian Republic, Part One, No 12, Saturday 14 January 2006, Ordinary Supplement to the Official Journal No 11 of 14 January 2006, General Series. Banca d’Italia, Provision 22 December 2005, Instructions for the drafting of the financial statement of companies and of the consolidated financial statement of banks and of parent finance companies of banking groups. – The bank balance sheet: patterns and compilation rules. Circular No 262 of 22 December 2005” As I said, as usual the various initial “Having regard to…” are a good starting point to investigate under which laws who does what: the Community legislator, the Italian legislator, the Italian central bank.
“Chapter 1. General Principles
1. Subjects to these provisions
These instructions shall apply to the banks registered in the register referred to in Art. 13 of the legislative decree of 1 September 1993, No 385 – setting out the Consolidated Law on banking and credit, hereinafter referred to as “T.U.B.” (T.U.B. is the Italian acronym for Testo Unico Bancario, banking consolidated law, author’s note) – and the financial entities referred to in Art. 1, paragraph 1, letter c), of the legislative decree of 27 January 1992, No 87 (hereinafter referred to as “decree 87/92”) (These are the finance parent companies of banking groups registered in the register referred to in the Art. 64 of the Consolidated Law.)
In particular: the Italian banks referred to in Art. 1 of T.U.B. as well as the finance parent companies of banking groups registered in the register referred to in the Art. 64 of the T.U.B. shall draw up for each financial year the financial statement and, where the conditions apply pursuant to the “decree 87/92”, the consolidated financial statement in accordance with the international accounting standards referred to in Art. 1 of legislative decree of 28 February 2005, No 38 (hereinafter “international accounting standards” and “IAS decree”) […] and according to the provisions contained in this dossier; […]”

Further step, the European Commission incorporates all the IAS/IFRS in a single legal text:
“Official Journal of the European Union No L 320 of 29 November 2008, COMMISSION REGULATION (EC) No 1126/2008 of 3 November 2008, adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council
The Commission of the European Communities, […]Whereas: […]
(3) The different international standards have been adopted by a number of amending regulations. This causes legal uncertainty and difficulty in correctly applying international accounting standards in the Community. In order to simplify Community legislation on accounting standards, it is appropriate, for the sake of clarity and transparency, to incorporate in a single text the standards presently contained in Regulation (EC) No 1725/2003 and the acts amending it. […] has adopted this regulation:
Article 1: The international accounting standards, as defined in Article 2 of Regulation (EC) No 1606/2002, shall be adopted as set out in the Annex hereto.”

If the where we’re going to investigate is these IAS/IFRS, the what we’re going to investigate is accounting; so before you start yawning out of either boredom or incomprehension let’s make clear that fortunately what we’re interested in is basic, and it’s simple.
The law requires any company to periodically disclose its business affairs in a public knowledge form called financial statement, made up of a few accounting statements, whose main two are called balance sheet and income statement. Both in their essence are so basic, simple and useful that can be freely used by any individual, group, or activity, not just compulsorily by companies; so here I’ll use the same convention used in the IAS and I will call “entity”, rather than “company”, that which draws up these documents.

Both the income statement and the balance sheet begin by taking a pen and paper and dividing a sheet in two columns, and both end by balancing the figures in each column so that their totals are the same.
The income statement reports what happened within a specified period of time, usually that between the previous financial statement and the current one; the balance sheet reports the state of things at a specific instant, usually that of the current financial statement. The income statement is the recording of a period of time, the balance sheet is the snapshot of an instant.
The income statement reports the income during that specified period of time in a column, and the outgo during that same period in the other column; their difference is the profit or loss in that same period, and it is entered in either one of the two columns, so that their totals are the same.
The balance sheet reports the assets available to the entity in a specific instant in a column, and to whom does the entity owe those assets in the other column.
In this investigation we are interested only in the balance sheet, so while setting the income statement aside, I’ll explain the meaning of the two columns of the balance sheet.
The entity the balance sheet refers to is an operating entity, and in order to operate it has to have resources to operate with, such as knowledge, money, personnel, land, buildings, plants, machinery, raw materials, energy, etc. The resources the entity owns are listed in the column named “assets”.
The resources owned by the entity have been purchased with some funds, and the entity accounts for those funds to those who provided them. The funds and their providers are listed in the column named “liabilities”.

In both the assets and liabilities columns, the figures are not entered haphazardly, but grouped by categories. Assets are basically grouped by the degree they tie up the funds used: while funds are immediately recoverable from cash, they are more or less rapidly, easily and entirely recoverable from each of the various categories of assets mentioned above. Liabilities, on the other hand, are basically grouped in two categories of financers: those who own the entity and those who don’t. Indeed both assets and liabilities can be grouped in more articulated categories, but these are the basic. Profits and losses occurred during the specified period of time between the previous balance sheet and the current one become increases or decreases of the assets in the current balance sheet; as the totals of the two columns must be equal, the increase or decrease must be carried over into the liabilities column, which means the entity accounts for that to its financers, owners and non−owners, who see their capital invested increase or decrease.

Back to our investigation of the IAS/IFRS, another reason why it is relatively simple is that it is confined to money, hence the following is shortlisted to blaze a narrow trial within a possibly otherwise inextricable financial jungle.

These IAS/IFRS are identified by numbers, and our investigation leads us to IAS 39, Financial instruments: recognition and measurement. Bankers’ scriptural money is a financial instrument, and here’s where financial instruments are recognised as such and hence measured, in accounting and officially in the financial statement.
We are looking for definitions, so in IAS 39 we find “Definitions, paragraph 8”, which refers to IAS 32, paragraph 11: “8. The terms defined in IAS 32 are used in this standard with the meanings specified in paragraph 11 of IAS 32. IAS 32 defines the following terms: – financial instrument, – financial asset, – financial liability, […] and provides guidance on applying those definitions.”

IAS 32, Financial instruments: presentation, covers a later point in the sequence: IAS 39 indicates whether something is a financial instrument, and, if it is, how it has to be measured, and then IAS 32 indicates how it is to be presented in the financial statement. IAS 32, Appendix, Application Guidance, paragraph AG2, confirms this: “AG2. The standard does not deal with the recognition or measurement of financial instruments. Requirements about the recognition and measurement of financial assets and financial liabilities are set out in IAS 39.”
Thus, its definitions are valid within IAS 39, and far as our money investigation is concerned are as follows:
“Definitions (see also paragraphs AG3−AG23), paragraph 11. The following terms are used in this standard with the meanings specified:
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability […] of another entity.
A financial asset is any asset that is: (a) cash; […] (c) a contractual right […] to receive cash […].
A financial liability is any liability that is: […] (a) a contractual obligation […] to deliver cash […].”
“Definitions (paragraphs 11−14), Financial assets and financial liabilities
AG3. Currency (cash) is a financial asset because it represents the medium of exchange and is therefore the basis on which all transactions are measured and recognised in financial statements. A deposit of cash with a bank or similar financial institution is a financial asset because it represents the contractual right of the depositor to obtain cash from the institution or to draw a cheque or similar instrument against the balance in favour of a creditor in payment of a financial liability.
AG4. Common examples of financial assets representing a contractual right to receive cash in the future and corresponding financial liabilities representing a contractual obligation to deliver cash in the future are: […] (c) loans receivable and payable […]. In each case, one party's contractual right to receive (or obligation to pay) cash is matched by the other party's corresponding obligation to pay (or right to receive).”

Just like IAS 32, IAS 7, Cash−flow statements, covering the specific facet of cash flows, follows the previous IAS 39 in logical sequence as well; hence, we can reasonably assume that a couple of definitions in its paragraph 6 and a requirement in its paragraph 24 are generally valid:
“Definitions, 6. The following terms are used in this standard with the meanings specified:
Cash comprises cash on hand and demand deposits.
Cash equivalents are short−term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents. […]
24. Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:
(a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date; […]”

Before we draw some conclusion, just to be doubly sure, let’s check whether other IAS/IFRS apply:
IAS 39, paragraph 2: “Scope, 2. This standard shall be applied by all entities to all types of financial instruments except: […]”, after which no item in the following list appears to show any pertinence to money. A first confirmation of IAS 39.
IAS 37, Provisions, contingent liabilities and contingent assets. What does IAS 37 have to do with money? Well, since we are investigating a creation of purchasing power out of nothing, we might consider being in the vicinity of the concept of contingent asset, and IAS 37 defines it in paragraph 10: “Definitions, 10. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non−occurrence of one or more uncertain future events not wholly within the control of the entity.” So let’s see its paragraph 2: “Scope, 2. This standard does not apply to financial instruments (including guarantees) that are within the scope of IAS 39 Financial instruments: recognition and measurement.” A second confirmation of IAS 39.

IAS 38, Intangible assets. What does IAS 38 have to do with money? Well, since the purchasing power created out of nothing we are investigating is in the intangible form of scriptural money, we might consider being in the vicinity of the concept of intangible asset, and IAS 38 defines both “intangible asset” and “asset” in paragraph 8: “Definitions, 8. The following terms are used in this standard with the meanings specified: […] An intangible asset is an identifiable non−monetary asset without physical substance. […] An asset is a resource: (a) controlled by an entity as a result of past events; and (b) from which future economic benefits are expected to flow to the entity.” So let’s see its paragraph 2: “Scope, 2. This standard shall be applied in accounting for intangible assets, except: […] (b) financial assets, as defined in IAS 32 Financial instruments: presentation; […]” A third confirmation of IAS 39.
IFRS 9, Financial Instruments. What does IFRS 9 have to do with it? Thanks to how avidly supranational and national legislators have adopted the IAS/IFRS sight unseen, the International Accounting Standards Board’s word is law: so when they said the IFRS 9 superseded IAS 39, IFRS 9 superseded IAS 39. With legal force. So? No relevant change: some definitions, including those that concern us here, financial instrument, financial asset and financial liability, have been picked up from IAS 32, paragraph 11, and included in IFRS 9; even though there were some changes in them, their relevant parts for our investigation did not change. Paragraph 2: “2. Definitions and Scope, 2.1. Definitions, A financial instrument is any contract that gives rise to a financial asset of one entity, and a financial liability […] of another entity. […] A financial asset is defined as any asset that is: […] Cash, […] A contractual right […] To receive cash […]. A financial liability is defined as any liability that is: […] A contractual obligation […] To deliver cash.” So, this is all about IFRS 9.

Lastly, a minor remark: the IAS/IFRS cover any type of entity, but banks are different. Fortunately, it is minor because it does not affect our analysis, and I mention it only for the sake of completeness and to prevent a potential source of confusion. IAS 7, in paragraph 6, defines three types of activity:
“Operating activities are the principal revenue−producing activities of the entity and other activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of long−term assets and other investments not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.”
So, if I grow potatoes, growing and selling potatoes is my operating activity, using my savings to buy machinery or a share in my friend’s business is my investimg activity, and selling shares of my business or borrowing funds, say, from a banker, to buy seed is my financing activity.
Conversely, the same “funds” I borrowed, for the banker who loaned them to me, are his operating activity. That is, the difference between the other types of entities and the banker is that loans are financing activities for the other entities and operating activities for the banker. However, as I said, this difference does not affect our analysis.

It has been said that repetita iuvant, repetitions are beneficial: that the understanding of a subject is proportional to the number ot times one studies it, and that’s a reason why, now that we’ve put the ducks in a row, we step back, give them a new overall look, and start connecting the dots.

A banker gives a loan to a borrower. They sign a loan contract. The contract is a contractual right of the borrower to receive the loan now and a contractual obligation of the banker to deliver the loan now, and a contractual right of the banker to the repayment of the loan in the future and a contractual obligation of the borrower to repay the loan in the future.
How is the loan granted? The borrower must open a checking account, and the banker grants the loan by crediting that account.
By definition, cash comprises cash on hand and demand deposits. Demand deposits include checking accounts, if they’re not even synonymous. Hence, the subject matter of the contract, the loan granted by crediting that account, is cash.
By definition, a financial asset is cash or a contractual right to receive cash, and a financial liability is a contractual obligation to deliver cash. Hence, the cash and contractual rights to receive cash of the contract are financial assets, and the contractual obligations to deliver cash of the contract are financial liabilities.
By definition, a contract that gives rise to a financial asset of one entity, and a financial liability of another entity is a financial instrument. Hence, by definition, that loan contract is a financial instrument.
And, again by definition, a financial instrument is a contract that GIVES RISE to a financial asset of one entity, and a financial liability of another entity…

By dictionary definition, to give rise means, “to be the cause or source of; to produce.”

Where did the banker take the money he loaned to the borrower, that is the question. According to the traditional banking gospel, the banker is a mere credit intermediary: he lends the money received and none else. But alas dogmas are bound to reveal their real nature under the erosive action of researchers throwing facts and evidences under the recalcitrant noses of people despite the barrage of police dogs.
We heard about the worldwide financial bubble: the amount of existing financial purchasing power on the planet is currently about tens and tens of times the amount of existing products and services. Consequences aside, this necessarily implies that someone creates those unspeakable amounts of purchasing power in monetary form and the alike, right? And if bankers were just those mere credit intermediaries their traditional dogma tells us about, then who would? Perhaps the central bankers whose traditional gospel is in turn “fighting inflation”, which may as well be reworded as “limiting the amount of existing money”? Given the position of central bankers in society, even us poor subjects of mainstream media would get to know about such a worldwide flagrant case of saying one thing and doing the opposite.

Let’s have another look at our ducks in a row, and review how the dots now connect to one another:
To give rise means, “to be the cause or source of; to produce.”
The IAS/IFRS’ Word is law, and It says:
The loan contract is a financial instrument.
A financial instrument gives rise to financial assets and financial liabilities.
A financial asset is cash or a contractual right to receive cash.
Cash is cash on hand or a demand deposit.

And now let’s connect the first and the last dot, directly:
The loan contract gives rise to the demand deposit. Which is cash.
Welcome to the tabernacle of the Holy Gaap.
How about halting some minutes in meditation, to confront it, its scope, its perpetrators, and its victims?
If there’s anything I ask of you, that is confront. An unlimited ability to face without flinching or avoiding. And if there is a single point where I ask all that of you, this is it.

And since we’re talking about confronting the Holy Gaap, let’s not forget to confront its capability to project itself into eternity as well, founded upon the clearing houses and banking reflux we’ve seen before. In doing so, let’s help ourselves with putting some more ducks in the row; obvious as they can be, it’s their existence that is relevant.
These ducks are some definitions in IAS 7, which once put in a row tell us a few things: For a financial institution, cash flows arising from cash receipts and payments for the acceptance and repayment of deposits may be reported in a given way, and we’re not much interested in how they are reported as much as we’re interested in the implicit statement that cash receipts and payments for the acceptance and repayment of deposits ARE cash flows. And cash flows are inflows and outflows of cash and cash equivalents, where by cash equivalents is meant those ways to invest cash from which cash is immediately and entirely recoverable, and where – more important – by inflows and outflows is meant those cash flows entering as such the financial statement.
So? If we connect one more time the first and the last dot, we have that cash from repayments is a cash flow entering the financial statement. Obvious as it can be, we are looking here at the banking reflux: the commercial bank scriptural money, the promise of the thing pretending to be the promised thing, does not cease to exist when repaid by the first borrower at all, but quite to the contrary continues to exist indefinitely, as proved by its never ending journey through the financial statements.
It goes like this: the banker loaned some quids, and the related credit was entered in his balance sheet’s assets under credits; when the borrower repays some quids, that credit in the balance sheet is obviously reduced of those quids, and if that scriptural money were destroyed that would be all; instead, and quite differently, ANOTHER book entry takes place, too: in parallel to reducing that credit of those quids, the banker increases his balance sheet’s assets of those same quids under cash. In short: those repaid quids taken off of credits are not destroyed, but transferred to cash. Banking reflux.

To help you further expand your ability to confront, it has been said that in order to evaluate a datum, you have to have at least another datum to compare it to. Hard to evaluate a can opener, if it were the only thing existing in the whole universe.
So let’s compare the above with the following:

Interestingly enough, these aforementioned definitions do not apply to financial assets:
An asset is a resource controlled as a result of past events.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non−occurrence of one or more uncertain future events not wholly within the control of the entity.

Events and their recordings are two distinct and separate realms. The recording of a sound is not the sound, the memory of a fact is not the fact, and the book entry of an economic fact is not the economic fact. Events occur, recordings record their occurrence. The recordings of facts, whether in recorders, minds or books, are not the facts, and do not substitute them. Quite to the contrary, the fact is the requisite of the recording: no fact, no recording, as there’s nothing to record in the first place.

Accounting, financial statement included, is a recording tool. It records the economic facts significant to an entity, quantifying them in terms of money as a unit of account. There is a cause, the economic fact, and there is its effect, the related book entry.
The aforementioned definitions of asset and contingent asset are true to the nature of accounting, as they state that if an entity controls an asset this is the result of past events: something actually occurred in the real world out there that brought that resource under the control of the entity, and later on the related book entry merely records and documents that. If the entity acquires an asset, this is a fact. As such, its acquisition may have a legal relevance, such as a deed for the purchase. Neither of them has anything to do with accounting; accounting comes after the fact and records it as economic fact.

Hence, accounting documents facts. It does not take their place. But it appears that some animals are more equal than others, as the Word of the International Accounting Standards Board, and of the legislators adopting it as law, seem to rule otherwise, when it comes to money and finance. After halting in meditation before about the mechanism, scope, perpetrators and victims, one is now easily led to halt in meditation again, this time to confront the question, whom do those individuals answer to?

According to the IAS/IFRS, when a banker gives a loan, in doing so he gives rise to what he loans. According to the IAS/IFRS, when a banker gives a loan, in doing so the accounting tool becomes the asset to be booked: the accounting record for an asset, whose existence and ownership ought to be material and legal facts, from a description of the asset becomes the asset itself.

And according to the IAS/IFRS, there’s even more to it that already meets the eye…

Since the loan contract, as a financial instrument, gives rise to financial assets, that is, to cash, and cash comprises cash on hand and demand deposits, I could be wrong but, in my humble opinion, the IAS/IFRS grant the banker the inconceivable privilege to produce what he creates out of nothing physically, too: as cash on hand just as well as demand deposits.

And since the IAS/IFRS seem to discuss all of the above in terms of finance rather than in terms of money, again I could be wrong but, in my humble opinion, the IAS/IFRS grant all of the above privileges not only to those who loan cash, but potentially to all those who deal with finance as well, dramatically expanding such privileged credit sector. In reviewing the definition of financial instrument from this point of view, we can see that there is probably no limit to the types of contract that can give rise to financial assets and liabilities, as well as to the types of contractual rights to receive cash and contractual obligations to deliver them. Financial products, insurance policies, pension funds are but the first examples that come to mind.

Before we halt a third time in meditation (becoming a habit, isn’t it?), this time to confront the aforementioned worldwide financial bubble, and how these IAS/IFRS may be instrumental to it, I would recall here to you my own draft of a definition of what we’re talking about here, what I previously labelled “tertiary seigniorage”: purchasing power created out of nothing in any form, physical or dematerialised, that does not even mind to pretend to be money by carrying its name any more. I guess the ease and speed with which the Ponzi scheme of global finance skyrockets well beyond the solar system somewhat demonstrates that something – or, in the final analysis, someone – clears its way.

Speaking of how legislators clear the banker’s way, an example comes in handy. IAS 32, paragraph AG3, tells us that a deposit of cash with a bank or similar financial institution is a financial asset. An asset belonging to its depositor, right? Well, in a sense… not exactly. Remember when we saw how the banker is not a bailee but a debtor of the money you deposited with him? The moment you hand him your quids, they are not yours any more, they are his; and he just owes you the same amount, hopefully. It’s no small thing, is it? But it’s not just that, should he go bankrupt, those quids would be subject to the bankruptcy as assets of the banker, so all you could do would just be hopefully join the queue of his unsatisfied creditors; that’s just a facet of it. The main purpose of this trick is that if he owns your money that money will be counted as part of his reserves on which he can leverage his fractional reserve. Out of nothing, but alas still not completely, so he needs your money to be formally his.
So here comes to the banker’s rescue, in the Italian law taken as an example, article 1834 of Civil Code: “In the deposits of a sum of money with a bank, the bank becomes its owner […]”. There you go, sir.

We talked a great deal about these two types of money, the “legal” money issued by the central bank, and the “bank”, “scriptural” money issued by commercial banks; for our purposes here, we set aside the issues related to the “legal” money and assumed that that was the real money, legitimately issued by the lawful holder of monetary sovereignty, in order to concentrate on, and investigate, commercial bank money. Now I think the time has come to make explicit an ambiguity whose presence is implicit in commercial bank scriptural money from the first duck we’ve put in a row: actual money or promise of money?

Let’s start from IAS 32, Appendix, Application Guidance, from its paragraph AG3 previously quoted.
A first remark is that it says that the reason why cash is a financial asset is because it represents the medium of exchange. A medium of exchange does not necessarily have intrinsic value, and “to represent” does not necessarily mean “to be”, hence something enters the financial statement here as a financial asset which may not even be the medium of exchange, which in turn may not have intrinsic value. A bit confusing, but maybe preparatory for something else.
A second remark is that it says that the reason why a deposit of cash is a financial asset is because it represents the right of the depositor to cash or to transfer that right to others. And that’s the point here: when “money” is not physically in our hands but “deposited”, is it still money, or is it a promise of money? After all, IAS 7 in definitions, paragraph 6, tells us that both cash on hand and demand deposits are cash, and this does not help us to get our thoughts in order about money and cash.

Scriptural, commercial bank money does have a deliberately ambiguous nature: when it is convenient to bankers, it is money; when it is convenient to bankers, it is not money but a promise of money. When it has to be money to produce purchasing power for the banker, it is; when it does not have to be money to avoid being booked by the banker as an asset, it is not. All its existence is characterised by this ambiguity: from its inception to the end of time, it is a promise of money that circulates and is accepted as money, and thus has purchasing power as money, as long as no one ever asks that that promise is honoured. And as to this, it has been observed that all the bankers of the world are in a state of permanent insolvency, and it can be observed how they are in a state of permanent war against cash – I mean, physical cash, that not directly under their control.

As you have seen, the length and breadth of the bankers’ legalised privilege, the depth of the pockets of their old trousers, are considerable. They border on the infinite. But, even though well on track towards it, do you think the speed is enough for their greed? What if those old trousers got too tight on them? What if the financial statement itself got too tight on them?
They obviously thought about that too… Just get rid of them!

“And now for something completely different”, the flying circus “It’s Man” says, “It’s…”
The off−balance sheet activities.
“Shadow banking”, to their friends.

In view of the following, we find ourselves in need of labelling “conventional”, “traditional” banking what until now we simply called “banking”, which is characterized by a model called “Originate−to−Hold”. That is all the bankers do, we thought: they originate loans, and hold the related credits while the borrowers pay them back. Leaving aside for a moment the negligible detail that that origination is out of thin air, since that whom loans is the banker, the loan is booked as a liability, and the corresponding receivable as an asset, in the banker’s balance sheet, and that’s all there is to it: the banker originates the loan, the banker holds it; and his balance sheet holds it, too.

Whereupon what follows is a brave new form of banking they deemed fit to label, more and more suggestively, “contingent commitment banking”, “assetless banking”, “banking below the bottom line”, “invisible banking” or “shadow banking system”, which is characterised by a slightly different – actually antithetical, as we’ll see – model, called “Originate−to−Distribute”. The banker originates the loan, and then sells it; he cashes in the payment, and the buyer becomes the holder of the related credit the borrower shall pay back. The corresponding receivable is booked as an asset in the purchaser’s balance sheet, not in the banker’s, where only the proceeds from the sale remain.

The reason for this shift from “Originate−to−Hold” to “Originate−to−Distribute” may in turn be labelled, “throw the stone and hide the hand”.
Still leaving aside that negligible detail that what is loaned is originated out of thin air and its very existence is rather ambiguous, as well as the considerable implications, when one loans something one exposes oneself to the risk of losing that something, should the borrower fail to return it, in all or in part. Hence, due diligence in granting loans. A twofold due diligence: self−imposed and required.
Self−imposed due diligence is merely dictated by the awareness of the risk: to the degree of the risk one is aware of, one commits to minimize it.
Required due diligence is dictated by law and it is aimed at preventing one from becoming too big a risk to others. By nature, the community and the state as its expression are bound to pick up the pieces and patch things up when someone’s out−ethics behaviour produces more damage than benefit, therefore on this ground they tend to guard against such behaviours in advance. In the case of banking, the term “moral hazard” explains this well: the newspaper “The Economist” of 18^thDecember 1987, on page 92, has been quoted as stating that “banks simply booked the fees and forgot the risk”, relying on the assumption that customers were protected by explicit and implicit insurance coverage… just from the very regulatory agencies. Hence, required due diligence in banking takes the form of capital requirements.

When the bank grants a loan, the related credit is entered in its balance sheet as an asset. If the borrower fails to pay it back, in part or in full, the loss is booked as a write−down or a write−off of that asset. But… who’s going to bear the loss?
As I said, the bank owes its resources on the assets side of its balance sheet to the providers of those resources on the liabilities side of it, and there are two types of resource providers: owners and lenders. The resources provided by its owners constitute what is called its equity capital, or equity. Equity is the bank’s own capital, the bank belongs to its owners who put it up and these, together with ownership, took responsibility for the business risk as well.
So when a borrower fails to pay back a loan, it’s the bank’s equity to bear the loss, and the bank’s owners through it.

Then there is the concept of leverage ratio: in finance just like in mechanics, a lever is a servomechanism that enables one to add more force to one’s own. In the liabilities side of the bank’s balance sheet, the resources provided by the lenders are the additional force added to that of the owners; the total resources to equity capital is called leverage ratio: every 100 quids the bank loans, how many of them belong to its owners? The more the bank works with other people’s money, the higher is the leverage ratio.

On one hand, the equity capital of the bank is a guarantee for its lenders and customers: in case of impaired loans the losses are absorbed by the owners through it before being dumped on them. On the other hand, just like fractional reserve, the higher the leverage ratio the smaller the guarantee: given a bank with an equity of 1, if it loans 10 there is a leverage of 10 to 1, hence 10 percent of impaired loans will wipe out its equity; if it loans 100 instead, there is a leverage of 100 to 1, hence to wipe it out 1 percent of impaired losses will be enough.

As a consequence, required due diligence in the form of capital requirements means that the banks are required by relevant regulators to limit risks by staying below a given leverage ratio. If they want to increase their loans, turnover, and income, they have to increase their capital equity.
Which at the same time increases costs and limits profitability. And we know the profitability is proportional to risk. The forefather of the Rothschild family has been reported as saying that the moment to get it on is when blood begins to flow on the streets.

The shift from the “Originate to Hold” model to the “Originate−to−Distribute” one is the banker’s countermove to escape all capital requirements, deposit insurers, regulatory restrictions and prudential supervisors intended to keep bank risk exposure in check, and keep on increasing credit risk and leverage, and thus keep on increasing the exploitation of his privilege without any constraint whatsoever. And to keep on spreading the contagion of speculative greed.

Capital requirements target credit risk, and credit risk follows credit; if the banker gets rid of credit, he’s got rid of credit risk, too. When the banker sells the credit, not only he turns illiquidity into liquidity, but also and above all he redeems the slice of capital requirements bound by it.

If someone is to sell, someone has to buy. And the buyer can be any type of third party investor: pension funds, asset managers, hedge funds, grandparents with their grandchildren’s moneyboxes, you name it.
Or Dr. Frankenstein the banker himself can give birth to a “creature” moulded for that purpose, known as SIV, Structured Investment Vehicle. Whatever they mean by such pompous label, an SIV is intrinsically a scrapyard of sorts that in order to produce further revenues or even support itself has to entice third party investors to purchase its junk.

And third party investors must be enticed to purchase the loans the banker has to get rid of anyway, SIVs or not SIVs. This entails two strategies: information gap and enticing dividends; third party investors shall be less informed than the banker about the degree of credit risk of the credits he’s selling them, and about their tempting dividens being artificially high. And both facets obviously set up the explosive charge and the fuse of a pyramid scheme and its deflagration.
I previously noticed how the IAS/IFRS definitions, starting from that of financial instrument, may potentially pave the way for sharing the banker’s “privilege” of creating purchasing power out of nothing with all sorts of financial entities, and here we face the “Originate−to−Distribute” model give raise (in their own words…) along with the contagion of speculative greed, to a spreading of banking itself across all sorts of financial entities without banking licences and thus outside the perimeter of associated regulations. Not that such regulations, given their premises, are to be considered more than a fig leaf, but now even that gets dropped. All things considered, I’d say that what we are watching here is no less than petrol pouring from innumerable cracks in an immense fuel depot. Going to be quite hot down here in a while.

For instance, the epitome of this pyramidal speculative contagion is the hedge fund: an intrinsically speculative creature, aimed at playing with fire, walking a tightrope, eluding regulatory oversight and requirements in order to play confidence tricks right where the risk is higher. In short, not only the intrinsically out−ethics core of finance, appropriating money out of money instead than out of delivered ethical production, but even worse making it one’s modus operandi of exacerbating it without limit.

The banker himself is of course at the head of this speculative drift: the loans granted are palmed off, margins of capital requirements and “funds” are replenished and ready for new adventures in no time, so full speed ahead! And new adventures means that, since the credit risk isn’t the banker’s problem any more, since granting riskier loans brings more loans, and at higher fees and profits, and since his Dr. Frankenstein’s “creature”, the third party investors’ greed, grows, the banker has every reason to surrender to the lure of, euphemistically speaking, “quantity at the expense of quality”.

And then third party investors follow suit with their growing demand for more assets and artificially high yields. It's not just that opportunity makes the thief, it's rather that contagion takes the form of severing the communication lines between the investor and the producer, and of a permeating, continuous, undetected and unopposed but rather greeted with open arms, blinding miseducation that the highest purpose in life is getting out exchange, plundering for an immediate short−sighted loot the vital lymph without which the investment is doomed. It’s not that the banker has much at heart his borrowers’ survival, not more than he has at heart seizing them; it’s that the vital care for the investment is even more cut off with such non−bank financial entities, even more stranger to the underlying borrower.

A quintessential link in the chain of transmission from the off−balance sheet to the financial bubble is called securitisation. When you see meatballs on the menu of a poor restaurant, you wonder what their ingredients once were, before being securitised into those meatballs. You know how it goes, when the cook is not your loving grandma: anything gets hashed together and, who knows… The richer and spicier the mixture, the less perceivable the rotten scraps that ended up inside it.
The securitisation recipe is quite simple: You need to set up a mixing bowl called SIV, Structured Investment Vehicle, but also SPV, Special−Purpose Vehicle, or SPE, Special−Purpose Entity. You sell it your wildly assorted loans – pardon, you put all your diverse ingredients in it, and mix them thoroughly until you obtain a smooth, homogeneous, undiscernible mixture. (They call this “granularity”, meaning “risk spreading”: the concept originates in the province of common sense, where it means minimizing altruistically the destructive potential of unavoidable risks inherent to constructive goals; in the province of securitisation, though, it means minimizing selfishly the destructive potential of deliberately pursued risks inherent to destructive goals.) Your SIV, SPV, SPE, then, resells your loans so “securitised” to third party investors – pardon again, you shape the mixture into loads of small balls, all the same, and fry them until they are crisp, golden and yummy. (They call this “repackaging”, but in doing so they take some poetic license: actually, they do not just put the same junk in a new box; they blend the junk before putting it in the new box.)

A few data can be put together to confirm what such premises would suggest: the off−balance sheet activities of bankers and their mates are a rising tide beside, and in addition to, the already incredible in itself privilege granted to them within the balance sheet by the legal coverage examined here. Let us see some:
In the period from 1980 to first quarter of 1987, while the loan commitments of United States’ banks remained rather stable at just above 300 percent of their capital, their off−balance sheet activities went from 225 percent of their capital to above 1100 percent of it.
In 1987, the gross value of the off−balance sheet business of Australian banks is three times the size of their balance sheet totals.
Until 2003, the market for loan securitisation in the United States rarely surpassed 20 billion dollars; in 2007, it surpassed 180 billion dollars.
And according to the Shared National Credit program run by the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency, as reported by an officer of the New York Federal Reserve Research and Statistics Group, “in 1988, lead banks – including commercial banks, bank holding companies, thrifts and thrift holding companies, credit unions, and foreign banking organizations – retained in aggregate 18 percent of the credit lines and 21 percent of the term loans they extended in that year. By 2006, the last year before the data pick up the effects of the most recent financial crisis, lead banks had lowered their market share to 14 percent of the credit lines they originated, and decreased their market share of the term loans they originated to 9 percent. […]

In other words, credit line provision continues to be in essence a “bank business.” In the case of term loans, however, the decline in the lead banks' aggregate retained share was accompanied by an even bigger decline in the share of the term loans acquired by other banks. Of the 47 billion dollar term loans originated in 1988 that are covered in the Shared National Credit program, lead banks and participating banks together retained on their balance sheet 89 percent of the amount of credit. Of the 315 billion dollar term loans originated in 2007, banks retained on their balance sheet only 44 percent. […] In 1993, of the 22.7 billion dollars in term loans that banks originated, they sold 2.2 billion dollars to CLOs (supposedly, Collateralised Loan Obligations investors, author’s note), brokers and investment banks, investment managers, private equity firms, finance companies, and foreign nonbank institutions – the so−called "shadow banking" system. In 2007, of the 315 billion dollars term loans that banks originated, they sold 125 billion dollars to these same nonbank institutions. Thus, over a period of roughly fifteen years, the annual volume of term loans and the corresponding credit risk that banks transferred out of the banking system increased by more than 120 billion dollars. While the impact this transfer may have on the stability of the entire financial system and the availability of credit to corporations is still unclear, its contribution to the growth of nonbank financial intermediaries, including that of the unregulated shadow banking system, is apparent.”

I think that gives an idea of the role of off−balance sheet activities within the framework of the Holy GAAP.

Before drawing my personal conclusions about the legal coverage of moneypulation and moneypulators, I think it is appropriate to point out the relationship between scriptural, commercial bank money and off−balance sheet activities in general, too. The studies of Mervyn K. Lewis and Daniele Pace, amongst the many important details they shed light on, highlight as well the off−balance sheet room for manoeuvre for commercial bank money.
Remembering that that “money” is a virtual, imagined, non−physical entity, we realise that as such it can exist, operate, and produce wealth transfer to its creator, everywhere not one, but two requirements are present: not only the acknowledgement and acceptance of its purchasing power, but also the presence of the physical infrastructure enabling it to exist and circulate at all.
The wide scope of off−balance sheet activities provides both such requirements, as it offers outside of the borders of the balance sheet further ample space where scriptural money is acknowledged, accepted and supported, and where it can therefore be unleashed and run wild even more. In fact, tens of different types of off−balance sheet activities exist, and at least a good dozen of them looks directly connected to the creation, circulation and persistence of the “promise of payment who would be payment”: loan commitments such as overdraft facilities, credit lines, back up lines for commercial paper, standby lines of credit, revolving lines of credit and reciprocal deposit agreements; loan−related services such as loan origination, loan servicing, loan pass throughs, asset sales without recourse, sales of loan participations, agent for syndicated loans…
Wait a minute! You don’t want us to get lost in this terminological minefield, do you? Don’t worry.
I previously warned you we enter a minefield here, a hostile territory where moneypulators may turn 1984’s Doublespeak into an art in order to conceal their three−card trick and get it on with it while convincing us there is none and how dare we even think so. Therefore it goes without saying that there can be countless controversies about what is what, what is applicable to what, and what are we talking about in the first place, and we’re not going to take this bait, right?. We’re going to study legalese semantics and grammar only to the point it brings us out of going in circles, not beyond that point where it brings us back into it.

In his study, Lewis observes, “From this comparison it is apparent that much the same functions are being performed in off−balance sheet banking as in traditional banking, and moreover for reasons which are essentially the same as those explaining traditional intermediation by banks.” That is the substance, and that is what we wanted to know. Another piece of the jigsaw, close by the way to other pieces telling us what he (naively?) calls “intermediation” by banks actually is.

Speaking in general of semantic minefields, interpretations, misunderstood words and the personal integrity of people and of public officials such as politicians and judges, anything is but majority agreement, semantics and grammar included. And if majority agrees that two plus two equals five, well, hardly any resulting natural disaster will do either.
Majority, actually is weighted majority, whereby weighted means that each individual has a specific degree of influence over the others, and that’s the “weight” of his or her “vote” in the “majority” agreement. Any kind of power, whether from sheer force, purchasing power or whatever authority, falls within that “weight”.
Thus, anything is but weighted majority agreement. And semantics and grammar, definitions of words and misunderstood words fall within that “anything”, as a product of that weighted majority.
We based our analysis on definitions, and such weighted majority dictates over words’ definitions and misunderstoods. Hence, those whose “weight” is majority, whether the few but powerful or the powerful because they’re many, not only control interpretations, language definitions and ruling misunderstood, but they do control as well whether the substance or the quibbles take precedence.

Ladies and Gentlemen, please welcome Orwell's 1984. Be very well aware this is the minefield we're moving in here. So be very well aware as well of the viewpoint you must assume on definitions and misunderstoods: one thing are the majority agreements, one thing is personal integrity. It has been said that what is true for you is what you observed yourself, and it is true on the basis of your observation, your actual observation, and of your actual observation alone, and that is personal integrity, regardless of how many judges may dictate otherwise on the basis of interpretations, loopholes and misunderstood words agreed upon by whatever majority.
I support the viepoint that justice is in the substance, rather than in quibbles. The letter of the law is at the same time incontrovertible and susceptible to infinite misunderstood words, interpretations, cavils and loopholes, and any law can be turned inside out at any time by whoever commands enough agreement to do so, and this is another reason why I favour the substance over the form, in addition to personal integrity, sense of justice and, last but not least, common sense. The world is a ship and people is its crew; safe successful navigation is the product of all the right decisions taken in the right places at the right moments by those which are on the ground, and the requisite for that is that each individual personally must evaluate correctly, and that is a matter among that individual and reality, directly and without intermediaries bypassing his or her judgement.
I say this because I gathered here all of the above in this spirit, and I invite you to pay more attention to personal integrity, definitions, misunderstood words and substance rather than to interpretations, cavils and loopholes agreed upon by weighted majorities, which are part of the problem, rather than part of the solution.

In fact, the way to sort out every possible confusion about purchasing power, money, their births and persistences, about what counts and whether and how the law handles what counts, is differentiating the substance from the rest: the purchasing power is one thing, its form, whether monetary or non−monetary, physical or dematerialised, is another thing, and it is purchasing power that counts, as well exemplified by the activity of the counterfeiter.
After all, the substance behind the quibbles, the two hard facts at the bottom of the banker’s house of cards are there for all to see, touch and examine in his financial statement: fact one, when the banker creates his scriptural money out of nothing and contextually loans it, he books only the loan, not the creation; fact two, when the loaned scriptural money out of nothing is repaid to the banker, he does not delete it but he transfers it to cash and never deletes it from then on. That’s it.

Anyway, whatever the legal trickeries and the controversies on their interpretations, the point is the common denominator of all the room for manoeuvre at the disposal of bankers and their mates, both within and off the balance sheet: they’re all made to make the basic element, the incredible privilege of the creation of purchasing power out of nothing, possible and to exploit it, through every possible use of it, and through every possible competitive advantage resulting from it. The whole process of the Holy GAAP is a masquerade to cover up the creation and exploitation of purchasing power out of nothing and its consequences and fallout up to the infinite debt trap. And its end product is achieved even before banking reflux completes its cycle by releasing it from the loan granted upon its creation, as that purchasing power is immediately available to the banker from the very inception of his “money”; having to lend it and wait until the borrower repays it or can be expropriated is but a little and profitable sacrifice.

And now I would introduce my conclusions by observing that how bank money comes into “existence” is a dogma comparable to that of the conception of Jesus and the virginity of the Virgin. What is blasphemous is not comparing them, but how much the comparison is fitting. And it’s not the Virgin’s virginity that is questionable, whether in value or in pausibility; it’s the banker’s that is definitely to be questioned – in both value and plausibility.
Bank money is there, which contrary to the moneypulators’ dogma means it was given birth, but the banker is extraneous to that: bank money was born, but the banker is virgin; virgin of whavever guilt, virgin of whatever act.

In my opinion, the strategy of bankers, moneypulators, manipulators of purchasing power, and of their mates producing the legal basis of their operations, that emerges from the analysis of data, is a strategy of concealment and invisibility through omission and code of silence, with even the loophole cavils reduced to a minimum as less eye−catching and as best dissimulated as possible.

The object of the “dogma”, and of the strategy of concealment and invisibility, are the three key foundations of the whole house of cards: the nature, the birth and the persistence of bank “money”.

The NATURE of scriptural, bank “money” is ambiguous: is it money or is it not money?
If it is money, why do bankers are not prosecuted for counterfeiting? Or, if as it seems they’re not, where is the law explicitly stating that, contrary to the principle that all are equal before the law, some citizens are more equal than others and are granted as a privilege the right to exercise monetary sovereignty, while the rest of the citizens are deprived of that same right by that same state which then makes that good use of monetary sovereignty that we have seen?
If it is not money, why is it treated as if it was? Why do the law backs up the banker in every possible way in keeping up the pretence of a promise of payment passed off as payment?
If it is not money, could it be somewhat assimilated to the promissory note? Well, maybe… if it wasn’t for the negligible details that ordinary mortals’ promissory notes do not pretend to be money, and do not last forever because they have to have an expiry date. If it is money, under a jurisdiction that does not explicitly grant monetary sovereignty to some citizen more equal than others, isn’t it counterfeiting?

But there’s a question even more basic than the above: why? What’s the point for the banker, exactly, in passing off a promise of money as if it was money? I mean, not that we didn’t grasp it; I just think that now it’s time to name it explicitly.
First, let’s differentiate purchasing power from its form: purchasing power is acknowledged by people, freely or forcibly, to a given form, and in the case in point people is induced to acknowledge to the “non money” form the same purchasing power acknowledged to the “money” form.
A promise of money, a “non money”, passed off as if it was money, as long as no one demands its fulfilment, its redemption in “real” money, not only is purchasing power out of nothing at zero cost, but in addition to that it has “all the advantages of money without having its disadvantages”. What “disadvantages”?
The first disadvantage of “real” money is that it can’t be created out of nothing just as easily than “non money”, and so the banker has to get hold of it before he can loan it; one way is honestly by delivering a valued product in exchange for it, one way is dishonestly by stealing it one way or another, one way is dishonestly by counterfeiting it in its “real” money form. Its second disadvantage is that “real” money is a “real” asset, therefore he has to book its acquisition into his financial statement, right where the taxman can spot it, hold him to account for it, and tax it.
Incidentally, how about considering for a moment the fiscal aspect? If you’re confronting the order of magnitude of the whole thing, you will understand why I refer to taxation “incidentally”, isn’t it? Not the moneypulators’ mother lode, but still a further profitable lode to them anyway…
Such “disadvantages” are even more obvious when compared to the corresponding “advantages” of “non money”: if the banker loans a promise of money, he doesn’t need to have what he loans; and it goes on this way as long as he is not required to fulfil it, thanks to the criminal conspiracy of clearing houses. And since a promise of money is “non money” and not “real” money, the banker can easily create it out of nothing and, moreover, he is not required to book its acquisition in his financial statement.

That’s what “all the advantages of money without having its disadvantages” means: they call it, “eating your triple fudge cake and keep it, too”. Here’s where the ambiguity of “non money” is instrumental, and where substance and cavils face one another: on one hand the substance of actual purchasing power of the banker’s promise of money, on the other hand the loophole that, being not money, it doesn’t “exist” as such and hence the banker does not have to account for its birth and persistence in his hands.

The BIRTH of scriptural, bank “money” is occulted and eluded: the Holy GAAP legal coverage and its creation contextual to its first lending are specifically designed to allow and conceal the simultaneity of its acquirement and its first employment, so that the booking of its first employment conceals the fact that its acquirement out of nothing in the hands of the banker is NOT booked.
However, the ambiguity of its nature and the concealment through such simultaneity of its birth do not interlace much. In the sense that claiming that it is not money can’t deflect the charge of false accounting. Purchasing power is a resource, an asset, and as such it has to be booked, regardless of the fact that it is in monetary form or not. The colonialist had no trouble booking his stolen blood−shed gold only because it was not in monetary form. If, while walking, the banker stumbles upon a gold nugget, a petrol can, a hypotetical bearer promissory note and a banknote, well, he is required to book all of them as active occurrences, not just the banknote. His scriptural “money” does have the same purchasing power anyway, regardless of whether it suits the banker and his mates to call it money one minute, or not money the next minute.
It is worth emphasising that concealment and code of silence are the main strategy used everywhere in the field of moneypulations, and that the consequences are two: this is the first and foremost enemy’s strategy to know and detect wherever it is applied, and we should never be caught unaware by how deep it goes.

Furthermore, in the technology of investigations I mention in the heartily recommended readings, it is pointed out how, among the wrongs, the most difficult to detect are those that are wrong because they’re absent. If you pull a wheel cover and notice that one of the wheel nuts is missing, that’s because there are a hole in the wheel and a column in the hub to help you notice its absence, but gaps are not always that clearly visible. On the contrary. If someone has the intention to conceal an absence, he will do everthing he can so that the state of the things that are present on the scene do not show it, but on the contrary dissimulate it: therefore not only it is intrinsically more difficult to notice the absence than the presence, but it is made even more difficult by having to detect it despite someone’s intention to hide it.
That said, not only in the IAS/IFRS, both in definitions and in treatise, there is no explicit reference to granting to the banker the privilege to create scriptural money out of nothing, a promise of payment which would be payment, having a purchasing power in ratio to its acceptance as a surrogate of legal money, born in his hands upon its creation, and surviving indefinitely from then on through any circumstance, in time and space, wherever it is accepted without its redemption being required. Not only in the IAS/IFRS there is no point where it is explicitly stated that the banker is a citizen more equal than others. Way beyond that, the strategy of concealment and code of silence continues far deeper, down to the level of basic accounting terminology.
The law is based on the concept of case: in order to legislate about something, it has to identify and define it as a specific case and name it with a specific term, first. And since Orwell’s 1984 as the very least we know full well the power of “Newspeak”: how the vocabulary is an instrument of manipulation, of conditioning, as evil as powerful and undetectable. No word, no fact: in law and accounting, if the related term and case do not exist, the fact does not exist, either.

Until now you heard me use the term “active occurrence” or “contingent asset”, but now I must confess it was a poetic license. Proof and measure of how deep the strategy goes is the absence even of a legal, accounting term for the chicken who came home to roost. The IAS/IFRS seem to somewhat rely on a lower strata of accounting basics they take for granted, and in neither of them there is any term and case for the banker’s creation of purchasing power out of nothing in the form of scriptural money. No word, no fact.
Speaking of improper terms, even “give rise” as opposed to “past event” may be replaced by “accounting event WITHOUT corresponding actual event” as opposed to “accounting event WITH corresponding actual event”.
The term “active occurrence” or “contingent asset” is merely the closest existing term, and it’s revealing to consider the points of differentiation, rooted in the definitions of “occurrence” and “contingent”, and in the previously seen IAS/IFRS definition of contingent asset.
Occurrence in itself simply means: something that occurs or its occurring. (Its corresponding Italian term, sopravvenienza, unforeseen occurrence, though, is more specific, as it means: in accounting, every unexpected chance fact unrelated to the management which alters the company’s assets.)
Contingent in short means: happening by chance or unforeseen causes. (Its corresponding Italian term, potenziale, potential, means: that can translate into act.)
And a contingent asset – even though according to the IAS/IFRS this definition does not apply to financial instruments… – is one whose existence requires both past events and future events, the latter not wholly within the control of the entity.

Now we can differentiate between the case of active occurrence or contingent asset and the fact of the creation of purchasing power out of nothing in the hands of the banker under the form of scriptural money created contextually to its first lending: one is unpredictable, the other is premeditated; one’s causes are unforeseen, the other’s are planned; one’s main cause is external, the other’s is internal; one is random, the other is systematic; one is sporadic, the other is continuous; one is collateral, the other is intrinsic; one is unrelated to the management, the other is the core of the business.
Is there another term for the case in law and accounting? Donation, act of generosity, acquisitive prescription all imply a pre−existing asset.
Maybe, income? Income is defined as the profit resulting from a work or from an employment of capital, and also as the money, goods, services received. It’s true that the banker creates his own money, but then he receives the rest in exchange for it; if we consider this creation as part of his “work”, then I’d say there definitely is an income.
From this point forward, in my humble opinion, if there are other terms for the case at all, they ough to be found within the field of criminal law.

The PERSISTENCE of scriptural, bank “money” enjoys the same Holy GAAP legal coverage as its birth, projected from the inception into eternity: once set the wheels in motion, it’s just a matter of keeping them turning by legally backing up banking reflux, clearing houses and the spell of the promise of payment pretending to be payment for ever.

Even though rapidly recapped, the issue of persistence gives us a good starting point to put in perspective the whole subject of legal coverage. If the birth is a crime, then the persistence is a criminal conspiracy, put into action by means of clearing houses and systems, and using the law to back it all up is as much a crime and a criminal conspiracy, too – in addition to being a betrayal of one’s mandate, mission and people… as usual.

And to further complete the mosaic, another important tessera: we previously set aside for sake of simplicity the “legal” money issued by central banks, as if it was real money, honestly issued in full right by the legitimate holder of monetary sovereignty, whereby honestly would mean a lot of requisites none of which is reflected in reality. We already know what a central bank is; that’s why we write “legal” money within quotes, isn’t it?
Well, now that we’ve put all our ducks in a row, we can add this duck to the row, too, step back and take another look at it. Everything we have seen here about the scriptural “bank” money applies just as well to the “legal” central bank money; roughly the same mechanisms repeat themselves in a sort of backwards cascading effect. We already know what a central bank is, and we already know all about central bank “legal” money, isn’t it? Actually, all such fraudulent mechanisms are applicable to any purchasing power fraudulently created out of nothing by any usurper of monetary sovereignty.

In a gang war among moneypulators the law is but a weapon: just like a loaded gun in a fight among criminals, sooner or later the worst finally seize it and use it against the other criminals first, and then against all the people. Counterfeiter, who was that person? Nothing more than the moneypulator who lost the gang war and thus was outlawed by the moneypulator who won it and anointed himself Lord of Money and Law.
Legislative loopholes included, through which a fluid, seamless money seeps like through a cullender, such as where the creation of purchasing power out of nothing is outlawed when in physical form, but not when in dematerialised form.

But once again the best is yet to come. The bankers’ criminal conspiracy, like a magmatic thrust under the earth’s crust, produces a constant tendency of their systems of clearing houses to progressively expand and integrate. We have seen how the infrastructure needed by scriptural money is a watertight network within which it can circulate indefinitely without any risk of redemption requests, and we have seen that the wider the network, the bigger the loot; hence the magmatic thrust towards expansion and integration. It is obvious that the goal is a one world watertight network, and considering the evidence of the support to the bankers from their mates in the legislative, judiciary, academia and media, it is just as well obvious that such one world watertight network is going to be way above any jurisdiction, law and public scrutiny. Today’s tax havens and clearing systems are but an inkling of a future brave new world where the banker will be the sole and final minister of the purchasing power of us all, commanding unquestionably where it unfathomably appears (guess in whose pockets) and disappears (guess from whose pockets). Any doubts? Well, take a good look around to assess how well under way towards that goal we already are.

I previously observed how, unlike the colonialist’s, the banker’s loot doesn’t even need to be blood−stained; but we are beginning to see how covert hostility is far more dangerous than overt hostility, and how much more suppression the latter will bring about. The purchasing power usurped by the banker doesn’t need to be born blood−stained, but in the course of its uninterrupted existence is going to get far more blood−stained than any usurped purchasing power that was born blood−stained.
Therefore, if the crime of usurping monetary sovereignty from its legitimate owner, the producing individual, the crimes of moneypulation, and the crimes based on them are crimes against humanity, then backing them, and their monopolisation, up in the legislative, judiciary, academia and media is betrayal and a crime against humanity, too. And of comparable magnitude.

Finally, indulging in wordgames for a moment, GAAP stands for Generally Accepted Accounting Principles, and as such, by and large and all−inclusively, it refers to all those officially recognised and adopted under all jurisdictions; well, if we take an A away from it, it becomes what it is, a GAP, and that’s why it is Holy to moneypulators, and a crime against humanity for the rest of us.
For the record, this wordgame is probably made possible by the soft spot suppressives have for symbolisms: they go crazy over packaging their crimes in a wrapping paper that is arcane, esoteric and abstruse enough to appease their yearning for diminishing the value of their victims – the rest of us – and at the same time dumping their own responsibilities on alleged higher wills – the projections of their own demons –. At the end of the day, such symbolisms are utterly arbitrary and stupid, and their only use is indicating to us their presence behind the scenes and their madness. Suppressive madness, though.