Paulson can't buy toxic mortgages, b/c they don't exist

[deminks]

http://www.dailykos.com/story/2008/11/13/201226/64/403/660641

At least, it baffled me until I read this article. And that's when it occurred to me--he can't buy up the toxic mortgages to stave off the meltdown because a vast majority of these loans don't exist.

Here's the money quote from this long but startling article by Michael Lewis in Portfolio.com:

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. "They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford," Eisman says. "They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?"

Read the whole article. It's a real eye-opener. And if this doesn't convince you that we should bring tarring and feathering back to the forefront of our criminal justice agenda, nothing will.

Link to Portfolio article:

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#page1

Sorry if already posted, but I think this is important. Paulson knew, then he pretended he didn't know.

[prairierose]

1. It is a very interesting and eye-opening article...

recommended reading for anyone who wants to understand or to try to understand what this mess is all about.

[Lyric]

2. So much for the "Blame poor black people" theory that Freepers love so much.

Kinda shoots that one right out of the water, doesn't it?

[KoKo]

73. And, that's why everyone (including Congress Critters) & Media want us to believe

that it's just those Clinton/Carter people who forced Fannie/Freddie and the crooks like Countrywide to give mortgages to those who didn't qualify. They still refuse to talk about the crookery involved in those lenders falsifying the mortgage qualifiers and appraisers who over appraised houses.

The jails aren't big enough to hold all the people who were involved in this Global Scam.

[windy252]

86. oh my gosh

that's basically what I considered that theory. I know exactly what theory you're talking about.

[truedelphi]

3. This is one of the BIGGEST REASONS why the Bailout BIll was only so much baloney

The Bailout Bill allows for no investigation of how much of the "wealth" created at the height of this insane mortgage, credit default bubble was only a value created on paper, and how much was real.

And to make matters even worse, I just read in today's newspaper that about 290 Billion has already been apportioned off to various entities - but no oversight person or person have yet been appointed.

[femrap]

4. With pleasure I kick and rec....

Our economy is based on a big gambling house of cards....WASF! Put these assholes in jail...NOW, please.

Hank Paulsen is a crook...so much worse than Nixon ever tried to be.

[Adsos Letter]

5. k&r... the dunking stool could be applied here as well...

maybe set up next to the reflection pool on The Mall in DC...

[anigbrowl]

6. Now that is interesting...

[Kaleko]

7. I've posted the article with the exact same quote

in several other forums and sent emails to investors to get them to read this piece even though it is long.

It truly is an eye-opener and the implications are staggering.

[KoKo]

57. It takes awhile for it to "catch on" for the masses. Really.... n/t

[rucognizant]

74. It sure will

Because I don't understand the football metaphore either. Am football illitterate!

[rucognizant]

75. But on the basis..........

of the Republicans trying to blame it on poor black people, I knew it had to be theft benefitting the rich. They lie about everything!

[Richard Steele]

8. So much of this stuff was just financial smoke & mirrors. It used to be called "fraud"...

...until the "Free Market" fraudsters took power
and made fraud LEGAL.

GRRRecommended.

[clear eye]

16. In any sane system of regulation it would be fraud,

but in the Alice-in-Wonderland world of global corporatism this behavior is legal.

[Greyhound]

77. The entire "banking system" is what used to be called fraud in contemporary terms.

Basically, it is a situation where thieves were caught stealing and, rather than being hung or burned for their crimes, they cut the rulers in on the action. Voila! A new business is born.

[Richard Steele]

85. Your statement would have been "wild-eyed radicalism" years ago. Today, it's just a sad TRUTH.

It boggles the mind to think that we've actually arrived
at the place we're at, doesn't it?

"The center cannot hold"...because the CENTER
was carted away in the dead of night awhile back.
The "center" was stripped of its valuables, sold for scrap,
and replaced with a paper-mache replica surrounded by
red velvet ropes to prevent ordinary passers-by
from getting close enough to see the 'made in China' sticker.

[Greyhound]

90. This is what I find completely stunning in our reaction to this.

Americans are treating this, almost universally, as if it were just some unfortunate, unforeseen, unavoidable mistake made by well-intentioned, upstanding people that were simply doing their jobs.

Where's the outrage?

BTW, if you look into the very earliest origins of banking you will find what I wrote in the previous post to be the literal truth.

[Dover]

88. Is Europe Accusing The US Federal Reserve of Fraud?

Posted on dailykos back in June -


Europe reports US financial meltdown imminent

Two European newspapers reported today that a major global financial crisis is imminent, blaming the US Federal Reserve Bank.

For the past seven years the Bush administration has ran up huge deficits and more recently, flooded the US and the world with liquidity. This was the reason for the housing bubble – too much money was “created” through predatory loans.

It’s time to consider the unthinkable - a major financial meltdown.

So far, American news sources have largely ignored the real and imminent danger we are facing. The UK’s Telegraph ran a story today:

”Barclays warns of a financial storm as Federal Reserve’s credibility crumbles.” The story goes on to say “US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard.”

“Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.

“We’re in a nasty environment,” said Tim Bond, the bank’s chief equity strategist. “There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.”

Note the use of the phrase “let its credibility fall “below zero”. I think this implies fraud.

http://www.dailykos.com/storyonly/2008/6/28/23530/9435/596/540450

[Delphinus]

89. Dover, that's a great reminder.

I remember reading some articles from Scotland and England about our upcoming economic storms and wondered why they weren't being talked about in the US.

This bailout had better be reeled back in - it was crooked from the start and most of the American people, for whatever reason, knew it was a lie.

[kentuck]

9. Not beyond disbelief...

It is very possible.

[BrklynLiberal]

10. K & R

[dixiegrrrrl]

11. How revolting..and it oughta be.

No body knows who owns the mortgages that do exist.

You wanna talk revolt? Stop all mortgage payments.

The courts have been blocking foreclosures unless the mortgage holder of record is available, and many times no one knows who that is.

I cannot believe that people/Dems/Courts are sitting still for this.

[truedelphi]

32. Many of the Dems voted this in. The 1999 Banking Reform Act

Came into existence under Bill Clinton, was passed by both houses, and Clinton signed it into law.

One of the things that this points out is that we must end the era of hundred page bills that are not even read yet are still enacted.

If you as a Rep or a Senator find an Act or other piece of legislation too convoluted to make sense of when you read it, maybe it should automatically be dismissed.

And the fact that so many in Congress admit they rarely even read the item before voting on it - that is abysmal.

[EmeraldCityGrl]

53. I'm waiting for the documentary on this mess...

I certainly hope one is in the works by a reputable documentarian.

[zeemike]

67. Oh no...people fighting back

The one thing that could bring down this house of cards.
And the question would be...where did that mortgage payment not go?

[dixiegrrrrl]

12. by the by...Michael Lewis is worth reading all the time.

( the 2nd link in the OP)

[Mojorabbit]

13. Very interesting article. nt

[Hannah Bell]

14. k&r

BTW, Morgan, Citi, Lehman, ML, et al were also big players in the enron debacle. They set up the dummy units & phoney trades so enron could look like it was bringing in $$$.

I don't understand why people aren't stringing up these folks. Fraud so deep you could drown in it.

[clear eye]

15. It was explained in OpEdNews as akin to multiple fire insurance policies taken out on one house.

I think that is a better analogy. They didn't actually create dummy mortgages, they just bundled and insured the same risky mortgages over and over, so when one defaulted for, say $150K, $150M had to be paid out because 1000 "policies" (credit default swaps) were issued against that one mortgage. Read this superb explanatory article: http://www.opednews.com/articles/CREDIT-DEFAULT-SWAPS--THE-by-Chuck-Simpson-080924-49.html

That's why there was nothing like $35T worth of defaulted mortgages, but there was $35T of outstanding credit default swaps that the insuring companies can't pay.

[leftstreet]

29. Excellent article

Thanks!

[truedelphi]

34. Notice how very carefuly the M$M, with the exception of "60 Minutes"

avoid all mention of the reality you are describing.

[onlyadream]

72. I didn't get it and felt really stoooopid

so, thanks Clear Eye, I think I get it now. How in the heck is that legal? And from what you said, if I do really get it, the banks get the money from the insurance (on the one defaulted loan) but the insurance companies go broke. Is that right? And if so, why would the insurance companies do that?

[clear eye]

84. It's legal because it was invented during the Bush years

when no one wanted to regulate anything Wall St. did. As to how it was supposed to work for the "insurers", I'm not entirely sure enough to answer. The fact is it didn't work--monumentally. I could speculate about them bundling the things and selling them for what seemed a profit, and the thing having a momentum of its own, in that it seemed like easy income, and the more issued the more income. Remember it wasn't exactly insurance (that is an analogy in that it paid if a negative event occurred) so I think the "premiums" were paid as a lump sales price. The issuers may have believed their own con, that because good mortgages were bundled in with bad, the things were worth their phony AAA rating. Or they thought they'd get out w/ their golden parachutes before the chips fell. (On edit): There may even have been kickbacks involved. Remember the author of the OpEdNews article spoke about collusion of people in various capacities. According to the OP of this thread, CDS's were also "shorted" so there was a brisk trade in side bets that were derivatives of the derivatives. Utter insanity.

I'm writing the author w/ your question and a request to either email me back or post on this thread with his answer. If he responds via email I'll post the answer as a reply to your post, so bookmark the permalink to it and check back in a few days.

[AZChuck]

91. You are Correct

Hi onlyadream;

You are correct. Although I believe buyers of credit default swaps (the insurance policies) were mostly hedge funds and brokers. Goldman Sachs comes to mind.

The insurance companies (AIG being a major player in this scam) sold the policies because they evidently expected home proces to increase to eternity with no downward correction. They apparently felt there was no risk they would ever need to "pay off".

Chuck Simpson aka azchuck

[clear eye]

93. Do you mean that no one would default becaused increased house values

would allow owners to keep borrowing against increasing valuations?

[Morning Dew]

78. that helps explain it even more. Thanks.

nm

[amborin]

83. Good Post.....it's not multiple mortgages, but multiple insurance policies against one default

[Celebration]

17. thanks for posting

This explains it all, in a not too technical article, with a lot of personalities added to the mix. This is a fascinating read.

[Karenina]

18. Top-notch read!

:kick:

[bluesmail]

19. Fantasy Finance sums it up in two succinct words. n/t

[ipfilter]

20. Credit Default Swap, Ponzi scheme, same thing.

[Usrename]

21. The numbers never did add up.

At the time the $750,000,000,000 bailout was being debated, there were less than 750,000 mortgages facing default.

The bailout was more than one million dollars per house.

Also, the credit-default swaps were valued in the neighborhood of $40 to $60 trillion (nobody knows how much of this stuff actually exists, because no one was allowed to keep tabs on them). A few trillion in bailouts will not make them go away.

We should just buy up the mortgages and let Wall Street implode. Pleny of people have money to lend right now only the risks are too high; these folks will be able to lend money freely once this mess is cleaned up and someone besides the taxpayer is left holding the bag. Let all those financial institutions go down in flames. It's the only real solution.

[w4rma]

36. That is the proper solution to our financial problems. (nt)

[Phoebe Loosinhouse]

22. Great article. I have a sub-theory which is: They created the existing toxic mortgages ON PURPOSE.

so that they would then be able to BET AGAINST THEM in a credit default swap which would generate far greater earnings than the original mortgage would.

The smoking gun would be if some company somewhere wrote clearly toxic mortgages ( or the bonds comprised of the crappy mortgages) and than purchased credit default swaps insuring against the highly predictable default.

[deminks]

26. Absolutely. And when they couldn't find enough of us to live out of our means,

they just made up bad loans and bet against them. There are no homeowners or borrowers, just paper. According to the article, that is what got out of control. That is where most of the debt is. That is why Paulson can't fake buying the bad mortgages, because there aren't many, compared to the bets made against them. They need a constant flow of cash to make the game work, and we cannot see who gets it.

What the American people need to see is that Wall Street has been on a grand ride betting against us. Shorting our mortgages and credit accounts. Making trillions off of our suffering. Not enough defaults? Raise the interest rates on credit cards, raise the price of drugs, raise the price of food and gas, they make trillions betting we will default, and we lose our homes and small businesses.

Smirky said Wall Street got drunk. He didn't know he was being taped. Who enabled them, George, who?

[KoKo]

71. Plus they caused a crisis that's wiped out over 40% of many 401-K's and IRA's

with their corruption. Hedge Funds had to de-lever so they are pulling it out of the stocks that are in the Mutual Funds we were forced into in our company plans and why the Money Market Funds (that were also shedding money) needed to be protected in emergency actions by the Government.

Meanwhile those who are responsible for the SCAM are not running the Bail Out...(many of them) and the rest are enjoying their profits which are stashed in a stealth bank offshore somewhere.

GIANT SCAM...and who will be held accountable? When do the folks holding crashed IRA's and 401-K's get their bail out to at least deduct their losses off their taxes?

[xiamiam]

61. i believe this as well....the collapse has been crafted...my opinion..but obviously yours as well..n

[amborin]

82. No, that's not how the CDFs worked....they were based on original bad mortgages or bonds

[Waiting For Everyman]

23. We should nationalize the whole thing and hire gov't employees

to run it, while watching over their shoulders every move. Total transparency and accountability. It would be worth it.

[Junkdrawer]

24. Great Read. K & R

[kentuck]

25. In other words....

A scam? A flim-flam? A conspiracy? A Crime?

[KoKo]

58. I'll chime in...even though it wasn't addressed to me.. Yeah, Yeah, Yeah...

:cry: Another Sham as Bush/Cheney and the Crime Family march out the door. They left us another "bag of tricks. But, there was nothing anyone could do about it in the middle of an election. They had Congress by the balls. Still our House Members managed to vote against it the first time. It was only when Dodd and the Senate rammed it back down to the House that they CAVED.

I'm thinking our Senate Dems are the problem ...:shrug: Who knows ...but it's what my gut tells me.

[KurtNYC]

27. great article

excellent

[Waiting For Everyman]

28. BINGO! I just realized - this is why there's resistance to the bankruptcy changes!!!

Nobody can understand that, not even Dodd, who just said so again yesterday in his hearing. None of the bankers there had a reason, none of them. THE MORTGAGES DON'T EXIST! A bankruptcy judge can modify anything BUT a primary home mortgage - and the code was specifically CHANGED to be that way from how it always used to be up until the late 1970s.

So this whole bankers' meme about how "we can't modify mortgages because they're securitized" is BULLSHIT! Damn, I thought so - mostly because Bank of America did it so blithely (for thousands of mortgages) when the California AG sued BofA and won recently.

Congress will be again trying to pass allowing BK judges to modify mortgages in the next week or two, as they tried to last Spring. The reason why there is opposition to this is the same as in the OP... the mortgages don't exist. If BK judges start looking into this, they will find out.

We have to make sure this BK reform passes this time!

Not only to stop needless foreclosures which is reason enough, but so this comes out.

This is also why they're resisting FDIC Chairman Sheila Bair's proposal, which is common sense and they all know it! If those two provisions pass, it's a GOTCHA for the bad guys, and it'll be soon enough to nab them and prosecute them for it!!!

[nolabels]

49. I wouldn't get so excited about BK reform just yet

If you haven't notice a lot of the parasites that help create this mess make up the majority of the Obama economic team. If we in the US are to get sane and transparent laws for financial transactions and contracts we will have to push it into existence from the ground up. It just doesn't make sense that the people who benefit most from the current economic situation would want to change it to something different

[Morning Dew]

30. this should be required reading.

tar and feathers would be a mild punishment.

[snot]

31. Not Bail but Jail

This isn't really news . . . What Paulson was ORIGINALLY talking about was NOT just buying toxic MORTGAGES -- those never WERE the really toxic part, because at least they're secured by real assets. What made his initial proposal so unacceptable was that he wanted to buy the toxic CREDIT DERIVATIVES -- "assets" with no backing other than these side bets.

I.m.h.o., the general principles of these derivatives are not that hard for a professional to understand -- I'm math-impaired and still get the general idea -- and I don't believe for one minute that the guys who designed these things didn't know exactly what they were doing. The de-regulation of the S&L's under Reagan turned into a giant looting opportunity at taxpayer expense, and de-reg of the markets had to have been recognized as a similar or even bigger opportunity by "the smartest guys in the room."

See, e.g., from http://c-cyte.blogspot.com/2008/10/brief-rant-pls-contact-your-reps-media.html (with permission from the author; additional links in the original article) :

Monday, October 20, 2008
A Brief Rant. If You Agree . . .
please contact your reps and favored media outlets.

Everyone knows bad mortgages are not the main problem -- they represent only a small percent of the total wealth that's being sucked out of our economy (see this gummint report; and several sources concur that the actual losses likely to result from bad mortgages alone won't be more than 5 - 10% of the total, if that).

The big losses are in the credit derivatives (if you're not sure what these are, see Financial Sense or MoneyMatters).

I don't mind bailing out poor people who got mortgages they shouldn't have gotten; I do mind bailing out their lenders, who should have known better (that would be McCain's plan, which might ultimately benefit some borrowers but would more directly benefit the lenders by taking the bad loans off their hands).

And I don't even mind bailing out any lenders who did not help create the mess and who bought derivatives in a reasonable effort to insure themselves against losses in mortgage-backed securities they actually owned.

But I DO mind very MUCH bailing out people who bought or sold derivatives NOT to hedge against losses for securities they actually owned but simply as a "bet." These people were engaging in naked speculation, and it is not only morally wrong to require the rest of us to bail them out, it is a huge mistake to shield them from their losses, as a matter of practical policy.

(snip)

I suspect a lot of these people deserve not bail but jail.

(snip)

The practical lesson I hope you're taking away from this experience is that we MUST re-regulate. It is not realistic to expect the foxes to guard the henhouse; nor is it realistic to expect consumers or even "sophisticated" investors to guard against sophisticated financial schemes. There is nothing patronizing about this; it's simply a fact: I and I suspect most other citizens simply do not have the expertise or even the time to investigate my depositary bank's claimed assets, let alone my other investments, the way a financial professional might -- any more than I have the expertise or time to evaluate scientific research on new drugs, or to capture and try criminals. This is the kind of stuff government is for.

The problem is not too much gummint; it's who owns it.

The problem is not that us Uhmericans are over-taxed; it's that we and our gummint's coffers are being looted (e.g., and this is just a trivial e.g., per ABC News, less than one week after the gummint committed $85 billion to bailing out AIG, the company spent $440,000 on a retreat for its execs, including $150,000 for meals and $23,000 in spa charges -- but hey, looting's stressful).

Moreover, forking over all the bail-out money we can print will do nothing to restore confidence in U.S. markets, either at home or abroad, so long as the same players are free to engage in the same schemes. Only re-regulation can restore such confidence.

We MUST restore Glass-Steagall, transparency, and accountability.

[DU GrovelBot]

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[Fire1]

35. As I stated on another thread, there's a fine line between investing and gambling.

[earth mom]

37. Most DUers knew the bailout was a SCAM all along.

:grr:

[bertman]

38. Thank you for the post. Recommended and kicked.

[malaise]

39. I'm still shaking my head after reading this

Who is going to prison?

[fascisthunter]

55. That's the Billion Dollar Question

[specimenfred1984]

40. That's too much truth for me to handle, I better start calling people...

"Clueless hysterical fuckers" which is what someone was calling me yesterday over on another board.

[depakid]

41. This looks to me like plain old fashioned fraud

among other things.

My bet is some people like this will be disgorging ill gotten gains and spending some time in Club Fed once the sherriff gets to town....

[kleec]

42. Splendid article

Terrific information, thanks.


:kick:

[MadrasT]

43. Kicked and rec'd with a sigh...

...at least people are starting to figure out that Paulson's been running a scam all along.

Unfortunately, it's too big to "undo" at this point.

We can survive GD2 if the motherfuckers that caused it are sitting behind bars.

If, however, they are not held accountable... I fear for what's coming down the road once more people figure out that not only are we screwn, but our Congress Critters supplied the lubrication.

[KamaAina]

44. Bring back the dual meaning of the word "stocks"!

[Usrename]

45. Yep!

Put 'em in Times Sqare.

:fistbump:

[Kurovski]

46. K&R. (nt)

[Mike 03]

47. Fascinating. This is difficult to grasp, I have to admit. NT

[dixiegrrrrl]

48. Just re-read the piece and am kicking it.

It is a seminal, historical piece. Needs to be in the saved files.
Much of the writing on this time in history is going to be as valuable as the Watergate story.
but bigger...Michale Lewis is a gem.

And I owe major apologies to the folks who asked if Wall Street CEO's were stupid.
I had always figured they were smart enough to know how to rip everyone off.

Now I think they are like sharks. All they know is to keep swimming and grab at every opportunity, without much deep thought to the long term/widespread implications of their behavior.

Mea culpa,
and
:kick:

[Kaleko]

50. Another kick

[madrchsod]

51. about 35% of the foreclosures near where i live are Deutsche Bank bundled loans.....

[mistertrickster]

52. If you read to the end of the article, it shows that the root cause that was

the people benefiting were not assuming the risk.

Perfect example of the classic "moral hazard."

[geckosfeet]

54. Another "money" quote closer to the end of the article -

Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game.

[KoKo]

56. YOU NAILED IT! Sliced/Diced/Traunched....it was all Paper/Vapor Dollars Up in Smoke!

There's NOTHING THERE! Goldman-Sachs and the rest TRASHED AND RAPED US! :rofl: they say as they RUN with our TAX DOLLARS...and the Hedge Funds RAID our 401-K's and IRA's!

AMERICA THE LOST! BOUGHT AND SOLD!

[laundry_queen]

59. k&r n/t

[ladywnch]

60. but more deregulation is ESSENTIAL to fix our economic problems!!!!! They said so!

[halobeam]

62. Critical reading...

only if you've already just lost your breakfast, lunch or dinner due to your 100th encounter with a Palin or Hillary SOS thread; then by all means, proceed. Otherwise, digest first, because this one does not allow you the extra room.

[whistle]

63. Ponzi scheme old trick in a new package...I see jail time for Wall Street executives

<snip>
A Credit Crisis or a Collapsing Ponzi Scheme?
The Two Trillion Dollar Black Hole
By PAM MARTENS

November 13, 2008 "Counterpunch" -- Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:

You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you "stay invested for the long haul" you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don't have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.

Now consider how Wikipedia describes a Ponzi scheme:

“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:

(1) the promoters will vanish, taking all the investment money (less payouts) with them;

(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);

(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."

Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).

We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.
<MORE>

http://www.informationclearinghouse.info/article21210.htm

[RandomThoughts]

64. I think I am saying this more in jest, but not sure.

Since non violent lower class people are put in prison by the millions, and they then work in factories for corporations. I think this model should be equally shared by the financial class.

All the thousands of people that allowed this to happen. And profited from money changing, and not actually doing anything, could be locked up, and given the task of finding all the assets that were taken from pension funds and peoples retirements. They could convert those soon to be empty buildings into live in dormitories(creating jobs), with little windows, bad food, guards and no weekend passes.

And since the people that were involved in this so appreciate the dollar, once every penny is returned to tax payers and retirement funds, they could be released.

However I realize I make this comment hastily, and I should go back to the lounge where the conversation is not as unsettling.

[Roland99]

65. That article at portfolio.com was simply jaw-dropping.

[Waiting For Everyman]

66. Too big to fail is also too big to regulate - globalism is max risk.

If we want to go through this again in 10 years, all we have to do is keep going down that route. They did the S&Ls and turned right around and started working on this right away. And right now, the G20 are discussing how to regulate this. IT CAN'T BE DONE!

Time to turn around, and go back the way we came on this wrong road. It won't get any better, continuing.

First thing we need to do, is dust off the Anti-trust laws and bust up these monstrosities, and make all of the parts be profitable.

[Hotler]

68. That was a good read. Kicking!

I'm going to have to read that book.

[AzDar]

69. Damn.

:kick:

[OnceUponTimeOnTheNet]

70. Riveting read! Even took notes. Kick.

[Mme. Defarge]

76. Fantastic read.

Couldn't finish it yesterday at work, but taking it to Starbucks now to savor with a vente latte.

[cachukis]

79. Great explanation of what was coming.

[OwnedByFerrets]

80. K and R....the largest Heist in the history of Mankind.

[amborin]

81. old news....the credit default swaps were the linch pin of the current crisis

but there have been oodles of articles dissecting them in great detail for the past several months

they were originally intended for good purpose...to provide insurance to protect investors

but they got abused

[Dover]

87. Drowning the government in a bathtub full of lies....emptying the coffers on their way out..

And it's likely they don't expect there to be any consequences for their theft coming from the
Dems.

[natrat]

92. outright theft-thank you barney street whore frank et al you scumbags