The confidential memo at the heart of the global financial crisis

[Lauren Johnson]

The answer conceived by the Big Bank Five: eliminate controls on banks in every nation on the planet -- in one single move. It was as brilliant as it was insanely dangerous.
How could they pull off this mad caper? The bankers' and Summers' game was to use the Financial Services Agreement (or FSA), an abstruse and benign addendum to the international trade agreements policed by the World Trade Organisation.

Until the bankers began their play, the WTO agreements dealt simply with trade in goods that is, my cars for your bananas. The new rules devised by Summers and the banks would force all nations to accept trade in "bads" toxic assets like financial derivatives.

Until the bankers' re-draft of the FSA, each nation controlled and chartered the banks within their own borders. The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives "products".

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

Mr. Guyatt or anyone else,

Trying to understand the mechanics forcing countries to take derivatives. It sounds as if derivatives with a few clicks of a word processor, are by "international agreement" to treated as legal tender. So if country A buys country B's bananas, country B is required to take toxic securities as payment in full. And furthermore, country B has no choice in the matter. In other words, country B sells bananas and has to take mortgaged backed securities which it then needs to sell in order to raise hard currency? That just does not make sense. Anyone able to make this a little clearer?

EDIT: Or to ask this another way, under what circumstances would countries be forced to take on derivatives and in exchange for what?