[G. Edward Griffin] The Creature from Jekyll Islan(BookZZ.org) (1)
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[G. Edward Griffin] The Creature from Jekyll Islan(BookZZ.org) (1)

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in which it was made. 
First. it was made by the Federal Reserve directly, acting as a central 
bank for Mexico, not the U.S.; and secondly, it was done almost in 
total secrecy. William Greider gives the details: 
The currency swaps had another advantage: they could be done 
secretly. Vo1cker discreetly informed both the Administration and the 
key congressional chairmen, and none objected. But the public 
reporting of currency swaps was required only every quarter, so the 
emergency loan from the Fed would not be disclosed for three or four 
months .... By that time, Vo1cker hoped, Mexico would be arranging 
more substantial new financing from the IMF .... The foreign assistance 
was done as discreetly as possible to avoid setting off a panic, but also 
to avoid domestic political controversy.... Bailing out Mexico, it 
seemed, was too grave to be controversial.1 
The currency swap did not solve the problem. So, in March of 
1988, the players and referees agreed to introduce a new maneuver 
in the game: an accounting trick called a "debt swap." A debt swap 
is similar to a currency swap in that the United States exchanges 
something of real value in return for something that is worthless. 
But, instead of currencies, they exchange government bonds. The 
transaction is complicated by the time-value of those bonds. 
Currencies are valued by their immediate worth, what they will buy 
today, but bonds are valued by their future worth, what they will 
buy in the future. After that differential factor is calculated, the 
process is essentially the same. Here is how it worked. 
Mexico, using U.S. dollars, purchased $492 million worth of 
American Treasury Bonds that pay no interest but which will pay 
$3.67 billion when they mature in twenty years. (Technically, these 
are called zero-coupon bonds.) Then Mexico issued its own bonds 
with the U.S. securities tied to them as collateral. This meant that 
the future value of Mexico's bonds, previously considered worth-
less, were now guaranteed by the United States government. The 
banks eagerly swapped their old loans for these new Mexican 
bonds at a ratio of about 1.4 to 1. In other words, they accepted $100 
million in bonds in return for canceling $140 million in old debt. 
That reduced their interest income, but they were happy to do it, 
because they had swapped worthless loans for fully-guaranteed 
L Greider, pp. 485-6. 
This maneuver was hailed in the press as true monetary magic. 
It would save the Mexican government more than $200 million in 
annual interest charges; it would restore cash flow to the banks; 
and-miracle of miracles-it would cost nothing to American 
taxpayers. 1 The reasoning was that the Treasury bonds were sold at 
normal market rates. The Mexican government paid as much for 
them as anyone else. That part was true, but what the commenta-
tors failed to notice was where Mexico got the American dollars 
with which to buy the bonds. They came through the IMF in the 
form of "foreign-currency exchange reserves." In other words, they 
were subsidies from the industrialized nations, primarily the 
United States. So, the U.S. Treasury put up the lion's share of the 
money to buy its own bonds. It went a half-billion dollars deeper in 
debt and agreed to pay $3.7 billion more in future payments so the 
Mexican government could continue paying interest to the banks. 
That is called bailout, and it does fallon the American taxpayer. 
The following year, Secretary of State, James Baker (CFR), and 
Treasury Secretary, Nicholas Brady (CFR), flew to Mexico to work 
out a new debt agreement that would begin to phase in the IMF as 
final guarantor. The IMF gave Mexico a new loan of $3.5 billion 
(later increased to $7.5 billion), the World Bank gave another $1.5 
billion, and the banks reduced their previous loan values by about 
a third. The private banks were quite willing to extend new loans 
and reschedule the old. Why not? Interest payments would now be 
guaranteed by the taxpayers of the United States and Japan. 
That did not permanently solve the problem, either, because the 
Mexican economy was suffering from massive inflation caused by 
internal debt, which was in addition to the external debt owed to the 
banks. The phrases "internal debt" and "domestic borrowing" are 
code for the fact that government has inflated its money supply by 
selling bonds. The interest it must pay to entice people to purchase 
those bonds can be staggering and, in fact, interest on Mexico's 
domestic borrowing was draining three times as much from the 
economy as the foreign debt service had been siphoning off? 
1. "U.S. Bond Issue Will Aid Mexico in Paying Debts," by Tom Redburn, Los 
Angeles Times, December 30, 1987. 
2. "With Foreign IOUs Massaged, Interest Turns to Internal Debt," Insight, Octo-
ber 2,1989, p. 34. 
Notwithstanding this reality, Citicorp chairman, John S. Reed 
(CPR), whose bank is one of Mexico's largest lenders, said they 
were prepared to lend even more now. Why? Did it have anything 
to do with the fact that the Federal Reserve and the IMF would 
guarantee payments? Not so. "Because we believe the Mexican 
economy is doing well," he said. 1 
At the end of 1994, the game was still going, and the play was 
the same. On December 21, the Mexican government announced 
that it could no longer pay the fixed exchange rate between the 
peso and the dollar and that the peso would now have to float in 
the free market to find its true value. The next day it plummeted 39 
per cent, and the Mexican stock market tumbled. Once again, 
Mexico could not pay the interest on its loans. On January 11, 
president Clinton (CFR) urged Congress to approve U.S. guaran-
tees for new loans up to $40 billion. Secretary of the Treasury 
Robert Rubin (CFR) explained: "It is the judgment of all, including 
Chairman Alan Greenspan [CFR], that the probability of the debts 
being paid [by Mexico] is exceedingly high." But, while Congress 
debated the issue, the loan clock was ticking. Payment of $17 billion 
in Mexican bonds was due within 60 days, and $4 billion of that 
was due on the first of February! Who was going to pay the banks? 
This matter could not wait. On January 31, acting inde-
pendently of Congress, President Clinton announced a bailout 
package of over $50 billion in loan guarantees to Mexico; $20 billion 
from the U.S. Exchange Stabilization Fund, $17.8 billion from the 
IMP, $10 billion from the Bank of International Settlements, and 
$3 billion from commercial banks. 
Brazil became a major player in 1982 when it announced that it 
too was unable to make payments on its debt. In response, the U.S. 
Treasury made a direct loan of $1.23 billion to keep those checks 
going to the banks while negotiations were under way for a more 
permanent solution through the IMF. Twenty days later, it gave 
another $1.5 billion; the Bank of International Settlements advanced 
$1.2 billion. The following month, the IMF provided $5.5 billion; 
Western banks extended $10 billion in trade credits; old loans were 
rescheduled; and $4.4 billion in new loans were made by a Morgan 
LIbid., p. 35. 
Bank syndication. The "temporary" loans from the U.S. Treasury 
were extended with no repayment date established. Ron Chernow 
The plan set a fateful precedent of "curing" the debt crisis by 
heaping on more debt. In this charade, bankers would lend more to 
Brazil with one hand, then take it back with the other. This preserved 
the fictitious book value of loans on bank balance sheets. Approaching 
the rescue as a grand new syndication, the bankers piled on high 
interest rates and rescheduling