Today’s Economic Warfare: Calling for Further Regulation in Financial Markets

Wrote this in 2012 but still relevant today. It was first published HERE.

Conspiracy theory or legitimate threat? Solomon Appiah says that loopholes in the global financial system exist and need to be taken seriously.

Countries have long used Economic Warfare to meet national interests by employing commerce and shipping tactics like blacklists and blockades. One could even argue that policies like structural adjustment programs and inequitable international trade policies fall under the definition of Economic Warfare.

Today, with the battlegrounds shifting from the physical to the digital, Economic Warfare is used to exploit loopholes in the global financial system. For instance, in a 2008 electronic bank run the US economy was drained of $550 billion within just two hours, according to Congressman Paul Kanjorski, then-Chairman of the Subcommittee on Capital Markets. In a CSPAN interview, Kanjorski explained that, had immediate action not been taken, then “the world economy would have collapsed” that same day.

Since 2008, $50 trillion has been lost in the global financial crisis, according to a report on Economic-Warfare-Risks-and-Responses authored by investment professional Kevin D. Freeman. Currency cannot be created or destroyed – its very name implies that, like energy, it flows from place to place – so it is worth asking, where is this money and who manipulated the system?

Freeman’s follow-up called “Secret Weapon” tries to answer this question. The report explains that the $50 trillion loss was made possible in part by vulnerabilities in the American economic structure that could have been exploited by financial terrorists or hostile foreign governments.

The report presents a three stage hypothesis behind these vulnerabilities, warning that the first two stages have already been executed with that last remaining.

The first stage was a speculative run-up in oil prices from 2007 to 2008, which resulted in the accrual of excess wealth for oil-producing nations of about $2 trillion, parked in Sovereign Wealth Funds. Naturally, this led to a rise in worth of OPEC reserves in the ground to about $137 trillion (based on $125/barrel oil) equivalent “to the value of all other world financial assets, including every share of stock, every bond, every private company, all government and corporate debt, and the entire world’s bank deposits”. The report fingered OPEC as the culprit of this attack.

The second stage was a succession of targeted bear raids against U.S. financial services firms starting in 2008 that appeared to be systemically significant. In bear raids, traders short a target stock and then spread rumors to get the stock to drop so they can cover their short. While shorting a target stock is perfectly legal, the use of rumors makes it illegal. The report states that the collapse of Bear Stearns and Lehman Brothers were really the result of a carefully planned bear raid using naked short selling and the manipulation of credit default swaps.

SEC Chairman Christopher Cox’s letter to Dr. Nout Wellink, Chairman of the Basel Committee on Banking Supervision, reads like an admission:

[T]he fate of Bear Stearns was the result of a lack of confidence, not lack of capital…Beginning late Monday, March 10, and increasingly through the week, rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm. Notwithstanding that Bear Stearns continued to have high quality collateral to provide as security for borrowings

The problem with bear raids is that perpetrators cannot easily be found out because of lack of transparency in the existing financial system. Nonetheless, the report singled out two relatively small broker dealers who “emerged virtually overnight to trade trillions of dollars worth of U.S. blue chip companies”. These two are the number one traders in the financial companies which collapsed. Freeman calls for an independent investigation into the suspicious trading activities of these firms.

The last phase – as yet unrealized – is a possible attack on the U.S. Treasury and U.S. dollar. Such an attack could be launched through replicating the bear raids but this time against the U.S. financial system as a whole rather than isolated financial entities. Such an enormous feat could be carried out through “a focused effort to collapse the dollar by dumping Treasury bonds” on a massive scale. This would create the likelihood of “a downgrading of U.S. debt forcing rapidly rising interest rates and a collapse of the American economy”. This assertion seems absurd but if there exists even the remotest probability of such an occurrence, U.S. policymakers would do well to investigate it.

Time to Acknowledge the Problem

Though the way forward is unclear, the report does make some practical recommendations. At a basic level, it advocates the admission that bear raids do take place.

Additionally, current regulations that make it difficult to identify culprits of such schemes within the financial framework should be made more transparent so it is easier to identify perpetrators. The report calls for stricter regulation of Short Selling and Credit Default Swaps, both of which were used in the economic war. Another recommendation was the creation of a “specialized threat finance unit to develop and implement appropriate countermeasures to emerging threats in coordination with key defence, intelligence, and financial agencies.”

These are a few of the recommendations set forth by the report. If taken seriously, specialists should have been consulted, a proper situational analysis done and strategies formulated to mitigate the challenges. One hopes U.S. policymakers have taken this report seriously and formulated a cross-institutional strategy to plug up any regulatory loopholes and defend their financial system, which still plays a key role in the global economy.


The WMD of willful ignorance

For a while now I’ve writing about Economic Warfare and/or Financial terrorism and I used among other resource materials  the report written for the U.S. Department of Defense Irregular Warfare Support Program (IWSP) written by Kevin D. Freeman and the book written by the two PLA Chinese Airforce colonels unrestricted warfare. This is the book that predicted the 9/11 attacks among other security breaches. I touched on the economic aspect of unconventional warfare in this article making reference to how it was employed in 2008 against the U.S.A.

It seems like more folks are waking up to the reality of such threats as reflected in an Oct 10 2012 article in The Washington Times titled “Inside the Ring: New WMD threats“. Sadly for the United States of America, the current Obama Administration criticized a study which seems  to build upon the the work of Kevin D. Freeman. This study was according to the Times article  also a Pentagon sponsored report. The Administration not only criticized it but have blocked any further research into the subject area. With the overwhelming evidence set forth by both reports, one wonders why the Administration is acting this way. It is almost ludicrous considering that fact that both reports were initiated by the Pentagon or some other DOD outfit. The government seems confused. It asks for studies to be done into a particular security subject matter  and sponsors the report but then eventually squashes the findings when not favourable to the Administration’s leanings. The Washington Times alleges that the current Undersecretary of defense for intelligence Michael Vickers is behind the criticism and blockade. What possible motive could he or his superiors have for such a policy move which could augur very badly for the U.S.? Is it a matter of willful ignorance or pride?  

A similar travesty occurred when the Bush Administration did not pay heed to the warnings of the Chinese PLA Airforce Colonels  book Unhindered Warfare. On page 144 and 145, the authors wrote:

Whether it be the intrusions of hackers, a major explosion at the World Trade Center, or a bombing attack by bin Laden, all of these greatly exceed the frequency band widths understood by the American military. The American military is naturally inadequately prepared to deal with this type of enemy psychologically, in terms or measures, and especially as regards military thinking and the methods of operation derived from this. This is because they have never taken into consideration and have even refused to consider means that are contrary to tradition and to select measures of operation other than military means.

It is very sad to say but history seem to have been on the side of the prediction of the Colonels  Had more attention been given to that book and its thesis, maybe the attacks could have been anticipated and pre-empted. Only GOD knows how much horror could have been averted. Pride indeed does go before a fall and is potentially the most dangerous of all WMDs. Pride is the only reason I can come up with for such willful ignorance being exhibited by some U.S. policy makers.

Gone are the days when policy-making was conventional and solely about what folks had been taught in Ivy League towers. Warfare of today has absolutely metamorphosed and taken up chimeric properties. The rules of engagement have changed. No one is playing fair. To engage, policymakers must learn to think outside the box and use the information given them by their various research units be it politically advantageous or not. Only nations with such selfless policymakers will make it out of this dispensation of unconventional, irregular warfare strategies  Those who refuse to change and choose to do politics as usual will most probably sink. Hopefully this hardheaded stance of the Obama Administration to anything different from its ideology will change soon.

The U.S. despite her 16 trillion dollar debt is still a major player in world economics. Hence what happens with and to this nation must be of concern to the entire globe.

Manipulating financial markets

On September 15, 2008, Lehman Brothers declared bankruptcy the magnitude of which surpasses General Motors, Washington Mutual, Enron, and Worldcom combined according to CBS news. Being the largest bankruptcy in history, it no doubt worsened the unraveling of the U.S. financial system and the thrust of the global economy in the trough we still find ourselves in 4 years down the line.

Listed as causes for this debacle are mismanagement by the firm’s top managers, misinformation by top U.S. accounting firms and possible economic warfare orchestrated via a series of targeted bear raids. An argument against an economic warfare hypothesis is the assumption that markets are too big to manipulate. Is such an assumption correct?

LIBOR Scandal

LIBOR is an acronym for the London Inter-bank Offered Rate. “It is a base interest rate for hundreds of trillions of dollars in loans…supposed to represent the rate charged from one bank to another as reflective of the best available private-sector rates”– Kevin D. Freeman. According to a New York Times article, “At least an estimated $350 trillion in derivatives and other financial products are tied to it.” This gives us an idea of how large a market we are talking about.

2012 saw the revelation of massive collusion between banks in manipulating the LIBOR going back to 2005. Barclays was one of the banks implicated in the LIBOR mess. According to the New York Times, “from 2005 to 2007, swaps traders often asked the Barclays employees who submit the rates to provide figures that would benefit the traders, instead of submitting the rates the bank would actually pay to borrow money” It adds, “In 2008, Barclays submitted artificially low figures to deflect scrutiny about its health.” Why would Barclays commit such a crime? A Forbes magazine article suggests the likelihood that then Barclays group chief executive Bob Diamond Jr. manipulated LIBOR to protect Barclays’ interests with regards to a looming deal which was to help Barclays secure investments from two Middle Eastern Sovereign Wealth Funds.

Mr. Diamond was on record as saying Barclays was not alone. Other banks posted rates below that of Barclays. If there is anything the LIBOR scandal teaches us, it is that even large markets that manage trillions of dollars can be manipulated.

Bank run saga

In a Feb. 6, 2009 CSPAN interview with then Chairman of the United States House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, it was revealed that $550 billion was withdrawn from US money markets within a space of 2 hours on September 15 2008.

In countering the possibility that this could have resulted from market manipulation, it is argued that the cause of such a mass drain was entirely panic driven as a result of the collapse of huge financial firms and news of the Reserve Primary Fund, a giant money market fund which “broke the buck” meaning instead of customers receiving a dollar per share invested, they would receive less—in this case 97 cents.

But is this assumption true? Partly but not entirely! Though one cannot ignore the negative effects of the collapses of financial firms, neither can one discount the fact that panic which accompanied the decline of investor confidence began much earlier than the period after the incidents cited but never did it result in such a colossal drain within just two hours.

The Cox letter

The decline of investor confidence that led to withdrawal of large chunks of money from U.S. Money Markets did not suddenly emerge in the autumn of 2008. In a letter by former U.S. Securities and Exchange Commission Chairman, Charles Christopher Cox to Dr. Nout Wellink, Chairman of the Basel Committee on Banking Supervision, this occurrence was already ongoing and even contributed to the later collapse of Bear Stearns.

…the fate of Bear Stearns was the result of a lack of confidence, not lack of capital…Beginning late Monday, March 10, and increasingly through the week, rumors spread about liquidity problems at Bear Stearns, which eroded investor confidence in the firm.

Instead of blaming this mass blood-letting of the U.S. financial markets on solely panic, maybe additional variables should be considered such as a deliberate manipulation of the markets. But even if this is considered, the current opaque nature of transactions created by some financial regulations does not allow for easy identification of possible culprits.


There is no question that the global financial system needs a reset with better transparency, accountability and regulations as some of its features. That said, regulation can be a double edged sword depending on how flexible or cumbersome it is. The problem is not more or less regulation. Quantity is not the problem. Quality, effectiveness and efficiency are. Current regulation should be either honed to reflect this or where not feasible, it should be replaced.

Another challenge is an excessive fetish with confidentiality. Until February 6, 2009 when Congressman Paul Kanjorski made public the tremendous bank run of September 2008, no information about this had reached the public and had he not done this during the CSPAN interview, it might have stayed confidential. Keeping a few technocrats in the information loop vis-à-vis opening up the information to all constrains society from benefitting from the potential gains of a well managed democratic network knowledge system.


Modern civilization will do well to glean some wisdom from those who have gone before us. George Washington was a Founding Father of the United States, served as commander-in-chief of the Continental Army during the American Revolutionary War, presided over the convention that wrote the American Constitution, signed it, presided over the framing of the Bill of rights and was the first President for two terms. After giving 45 years of his adult life to American public service, he gave a farewell address in 1796 in which he left us some words of wisdom. In this address he states, “Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports.”

That indicates that even if the world gets financial regulation and transparency issues right in global financial governance, but the people who run the system, especially the top managers still suffer from serious laxity in morality manifested through the unrestrained greed, lack of integrity and utter disregard for the consequence of individual actions on the global family—the crux of what has landed us in this quagmire in the first place—we will have accomplished nothing. Unfortunately for the globe, morality is not something we can regulate or legislate.

Economic Warfare and the financial crisis

Since 2008 and by some estimates before then, the globe began its return plunge into the messy financially situation in which it finds itself. Many of us have heard many probably causes for the current financial crisis—some of which were publicised by the Occupy Wall street movement. What has seen little or no media attention is an additional probable source for the current financial crisis—Economic Warfare. It is estimated that $50 trillion dollars of Global wealth has been lost with not many folks asking where the  currency (i.e. current) of global finance has flowed to.

Today we will consider an article I published in the Fair Observer using as a basis a report originally published “under contractual arrangement with a subcontractor of the United States Department of Defense Irregular Warfare Support Program (IWSP) per contractual arrangement between the sub-contractor and Cross Consulting and Services”. While the claims made by the report might at first glance seem absurd, do remember that so was the prognostication of the Chinese Air force Colonels when they published in their 1999 book “Unrestricted Warfare – Assumptions on War and Tactics in the Age of Globalization”, that America could suffer a great explosion at the World Trade Center because of vulnerabilities in its security architecture. History seems to have been on the side of these PLA Colonels. Who knows? Maybe if their book was given more thought and probing and not just chucked away as conspiracy theory, the events of 9/11 might have been averted. We’ll never know for certain but while we still stand on the better side of history as pertains to the report I discuss in my article, the US government still has time to investigate its assertions and take precautionary measures if found to be true.

A copy of the article I wrote can be accessed HERE. In future posts, I will touch on some of the arguments against Economic Warfare and its probable use in the current Financial crisis. At the end of the day, it is up to each of us to inform ourselves and develop our own opinion. The important issue is not who is right or wrong but rather the safeguarding of global economy. Regardless of our individual persuasions about the USA, she still plays a very pivotal role in the global finance arena and if she goes down, she could take a huge chunk of the global family along with her. One question I ask myself is in the absence of America as the global hegemon, who will take her place and are we assured that that new hegemon will operate any differently than the U.S. has with all its successes and failings? I do not thing anyone has a definite answer to this question! Nevertheless maybe it should be one of the topics we discuss in upcoming posts.

Economic Warfare

Economic warfare has been around for a long while and has been used by world powers to gain leverage in world affairs for a very long time to meet national interests. For some reason, this subject has not gotten much attention in international news media. One wonders why? As a beginning point we’ll consider a definition of Economic Warfare used by the Roosevelt government. It defined this type of warfare as follows:

The battle of economics: It is a war of commerce and shipping, of barter and buying, of loans and agreements, of blacklist and blockade. It is starvation for our enemies and food for our friends… It means fighting the Messer- schmitt before it is a Messerschmitt, fighting the tank before it is a tank, smashing the submarine before it can go to sea. It means preventing the Axis from getting raw materials. It means getting raw materials for our production (quoted in Medlicott, 1959. p. 51).

Source: Journal of Peace Research, vol. 28, no. 2, 1991, pp. 191-204

‘Economic Warfare’ and ‘Strategic Goods’: A Conceptual Framework for Analyzing COCOM* by Tor Egil Førland, International Peace Research Institute, Oslo

According to the same journal article by Tor Egil Førland, that definition was later modified by the US Department of Defense to include ‘aggressive use of economic means to achieve national objectives’ (US Joint Chiefs of Staff, 1974, p. 118).

Summary historical evolution of Economic Warfare

Economic warfare in olden times was waged before actual conventional warfare. It was used to weaken one’s opponent before conventional war. Comparing finances with blood as a metaphor, Economic warfare was a way to bleed ones opponent before actually fighting with them. It was also used to bend an opponent to the will of the aggressor. It involved cutting off a country’s main channel of food or energy supply. An example is the blocking of trading routes. Later it developed into annexing whole nations by imperial powers to meet national interests of their home countries. Home countries needed raw materials to feed their home industries or the industrial revolution and hence developing nations suffered colonial rule. Till today many countries suffer the fallouts of that system of brutality. In more recent years, Economic warfare could be described as being carried out through policies such as the economic structural adjustment programs, inequitable international trade policies, blacklists, blockades and embargos—all of which has done more harm than good for the globe as a collective human family.

Tor Egil Førland for example sees the Coordinating Committee for Multilateral Export Controls (COCOM) as “peacetime economic warfare: the Cold War successor to the blockades of the two world wars”. Based on the book “Unrestricted Warfare – Assumptions on War and Tactics in the Age of Globalization” authored by two senior Chinese Air Force Colonels, Qiao Liang and Wang Xiangsui, economic war in the 1990s included, “the use of domestic trade law on the international stage; the arbitrary erection and dismantling of tariff barriers; the use of hastily written trade sanctions; the imposition of embargoes on exports of critical technologies; the use of the Special Section 301 law; and the application of most-favored-nation (MFN) treatment“. The authors maintain that the Asian financial crisis was triggered as a result of economic war waged by international financiers against the Tiger nations setting them back at least a decade. According to them, this war spiraled out of control when Japan and Russia got involved in the conflict hence transforming an otherwise localized financial crisis into a global phenomenon. Are their assertions true? I do not know but I was quite astonished to find out that in this book of theirs published in 1999, these two PLA Colonels predicted the 9/11 attack on the World trade Center. They wrote:

Whether it be the intrusions of hackers, a major explosion at the World Trade Center, or a bombing attack by bin Laden, all of these greatly exceed the frequency band widths understood by the American military. The American military is naturally inadequately prepared to deal with this type of enemy psychologically, in terms or measures, and especially as regards military thinking and the methods of operation derived from this. This is because they have never taken into consideration and have even refused to consider means that are contrary to tradition and to select measures of operation other than military means.

Now though I cannot substantiate their allegation about the Asian financial crisis and its connection to Economic warfare, the record of history now proves that they were right on the money with regards to other things penned in their book which has since transpired like the major attack on the WTC. For what its worth these men got the attention of the federation of US scientists and hopefully the government as seen by the report sent by the US embassy in Beijing.

In conclusion, Economic Warfare is not a myth. It exists but like all warfare, most of its stratagems are shrouded in mystery for security reasons. Developing nations are well acquainted with this kind of warfare. Ghana was subject to it in the Nkrumah and Acheampong regime leading to the “Ye ntua” saga. Many times, justly democratically elected governments on different continents have been toppled simply by application of some of these economic warfare strategies. The aim of the strategy like a Boa Constrictor is to strangulate an economy until the point where citizens out of economic frustration or hardship revolt against a governing regime because of the financial lack and resulting lack of confidence generated as a result of the warfare. Thank GOD those days are behind most of sub-Saharan countries although there still remains much work to be done.

In future posts we will consider how Economic Warfare may have possibly been waged in recent times. It is  been noted as one of the possible contributing factor to the current financial trough which the entire globe finds itself in.