Winter Patriot Community Blog

I would like to tie together three subjects that are in the forefront at the moment with three separate essays and argue how they are parts of a whole. Three areas of capitalism are involved; the banking/investment/insurance or financial industry; the oil and resources industry; and the armaments and military services industry. These industries are, of course, controlled by the same group of people and so are readily co-ordinated and this should not surprise us. Indeed, we should expect it. The three subjects or issues breathlessly and inaccurately reported to us are the financial meltdown/bailout fiasco, the moves for a One World Currency and the ever building number and intensity of wars in the the Middle East and Central Asia for the control of oil. The “whole” I speak of is the domination or rulership of the whole world or more succinctly, One World Government.

This first part concerns the financial industry and the derivatives meltdown and the attendant bailout scandal. This essay is in large part a rewrite of part of James Lieber's excellent article, “What Cooked The World's Economy”. I have attempted to expand on some of his points with some logical deductions and also some opinions together with a few added bits of information from the public domain.
All quotes in this essay come from the above article and the first quote will start at the “bottom line”-

“The bottom line in this scandal is that fantastically wealthy entities positioned themselves to make unfathomable fortunes by betting that average Americans - Joe Six-Packs and hockey moms - would fail.“
Bearing this in mind will help makes sense of what I write below, I hope!
So after that introduction, let us deconstruct the scam.

INTO THE VALLEY OF DEBT

It struck me, at first, as very odd that the derivative scam artists are walking around very much alive. They have caused some major financial institutions that were very much a part of the establishment to go belly up apparently because of their reckless yet deliberate actions. Personally, I would rather scam the Gambino family than mess with the likes of the Rockefellers or the Rothschilds. These people are seriously attached to money. Bankers have a habit of washing up on the ebb tide and or dying from heart attacks in the peak of health or leaving suicide notes that don't sound like them and swinging from bridges. We've had a rash of them over the last few years though they didn't get much play in the MSM, surprisingly . . . not. So how come the likes of Joseph Cassano of AIG Financial Products are not only alive and still in employment but also receiving huge bonuses. Something is seriously wrong with this picture, is it not?

From this evidence, one must immediately conclude that the Rockefellers and Rothschilds et.al. have not been burnt which means that they were not involved in any way. But given the interconnectedness of everything financial and their attraction to huge profits, this would seem highly unlikely, indeed. The other option is that they were involved but on the winning side. This would account for Cassano et. al. remaining alive after (or even before) the collapse became public knowledge.

Not only are they still alive, but they are still in employment at the scene of the various disasters and still at the helm. For this situation to continue, the apparently incompetent fraudsters must be under the control and protection of whomever is benefitting from this situation, past and present. So all this would indicate there is still evidence to conceal and James Lieber quotes William Black, a former financial regulator, suggesting that very thing, ' "Don't count on them keeping records for long," Black warns. "It's time to get out the subpoenas."'
/This would also account for the obscene and PR risky bonuses these snake oil salesmen have received. But I will be suggesting that there is more to it and that is that the derivative scam is still in process and the “backsheesh” is to ensure that the salesmen stay in place for the time being, at least, as they still have work to do. After the party's over, though, they may have to avoid taking rides on boats; or flights in small planes; or bending over bridges . . . or bending over anything, really.

I found James Lieber's article very illuminating. Crucial to my understanding from his article is this,
'“Derivatives weren't initially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, but shaky, venture, like what Ford or GM have become, could hedge its bet by buying a credit derivative (insurance policy) to cover losses if the debtor defaulted.”

A market or trading forum was needed to facilitate the selling of these loan insurance policies (a.k.a. Credit Derivatives or CDs or just “derivatives”) on a large scale and thereby create a new financial services industry (and new profit centre) and was duly supplied in the form of a computer network. From Leiber again,

“the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg. It was quite expensive for a financial institution - say, a bank - to get a Bloomberg machine and receive the specialized training required to certify analysts who would figure out the terms of the insurance. These Bloomberg terminals, originally called Market Masters, were first installed at Merrill Lynch in the late 1980s.
Subsequently, thousands of units have been placed in trading and financial institutions; they became the cornerstone of Michael Bloomberg's wealth, marrying his skills as a securities trader and an electrical engineer.
It's an open question when or if he or his company knew how they would be misused over time to devastate the world's economy.”

The scale of this operation, even granting that it was builtup over years, together with the fact that Bloomberg's company is privately owned, suggests to me that Bloomberg needed lots of finance to not only develop and provide the hardware and software but also for promotion and, critical in this industry, he would have needed influential sponsorship to put this system in place and the most likely place that would come from is within this same industry. If I were investigating this meltdown, one of the first questions I would want answered is, “who financed this time bomb?” I suspect the answer would be very revealing and would be at least one of the major anonymous “counterparties”.

So how was it a time bomb? How did legitimate insurance on a loan mutate so badly? Well, it soon became apparent (if it wasn't the purpose from the begining) that with the insurance (derivative) in place, there was more money to be made from a loan going bad and collecting on the insurance than if the loan was secure and paid off in due course. Particularly if the loan could be insured for more than it was worth or was purchased for. Coupled with the fact that the loan could be insured multiple times and the fact that you didn't even need to own the loan yourself. So if you insure a loan a hundred times over so that when it falls over, you are paid its full book value one hundred times. This is more than a “goldmine”; this is an exponential formula to unlimited wealth if the fabulous profits are parlayed a few times. Imagine betting on the winning number on a roulette table and letting the winnings ride and having the number come up again . . . and then keep on repeating this process with no pit-boss (or regulator) to shut the table down!
Now think in trillions!

But this jackpot payoff is dependent on the insured loan going bad. So now there is a market for bad or high risk loans and it is an exponentially ever-growing market because once a derivative buyer or “counterparty” (as he is known in the business) has collected big time on his “investment” he naturally wants to plough it all back into the same glorious, no risk, bonanza. But our counterparty's capital has grown like Topsy and he needs a hundred bad loans this time. How many bad loans will he need after a few circuits on this magic merry-go-round? Clearly the “Bad Loan” business needs to go “bigtime” and to do that the financial regulations and supervision need to be eradicated. Bye-bye Glass-Steagall Act. Hello Commodity Futures Modernization Act (CFMA). And thank you, Bill Clinton.

This need for loans to be defaulted on is one of the reasons why Obama and his backers on Wall Street will not help rescue ordinary, but over committed, people struggling to stay in their homes or pay off their credit cards. There are still derivatives in play to be collected on.
Lieber again, “By plunking down millions of dollars, a hedge fund could reap billions once these fatally constructed securities plunged. Again, the funds did not need to own the securities; they just needed to pay for the derivatives - the insurance policies for the securities. And they could pay for them again and again. This was known as replicating. It became an addiction. “

It's not over, either. To repeat, its still in play and there are still loans to fall over and there are still payoffs to collect for the mysterious counterparties whom the Fed and everyone else involved refuse to identify.
“What about the $600 trillion in credit derivatives that are still out there, sucking vital liquidity and credit out of the system? It's the tyrannosaurus in the mall, the one that made Henry Paulson, the former Treasury Secretary who looks like Daddy Warbucks, get down on his knees and beg Nancy Pelosi for a bailout.
Even with the bailout, no one can get their arms around this monster. Obviously, the $600 trillion includes not only many unseemly replicated death bets, but also some benign derivatives that creditors bought to hedge risky loans. Instead of sorting them out, the Bush administration tried to protect them all, while keeping the counterparties happy and anonymous.”

Note well that last clause, “while keeping the counterparties happy and anonymous.” And Obama is in the continuity business here as well, it seems.

But let me backtrack a little to how the first half of the scam operated before the government intervention and the second half began.
The challenge was how to do it on a mass scale. It needed to pull most of the financial industry in because the object was to firstly, loot whole economies and secondly, set the stage for a one world currency which would give the issuers of this currency a de facto world government. If you control the issue of money then you control the economy. You can run it up and you can run it down through the simple expedient of how much money you put into circulaton or withdraw from circulation via bank lending policy. With the control of the economy, you control the government and more besides because you can buy and sell anything and anybody you please.

So they needed a respectable and respected front to lead the way for others to follow; to assure the nervous Nellies that success lay in joining “The Charge of the Blight Brigade into the Valley of Debt”.
What better vehicle than AIG, the biggest insurance company in the world. You are probably protesting that this company is “one of their own”. Yes, but many a fortune has been made from bankrupting a company, particularly, one's own. Greenburg, the head of AIG, established the demolition team in London, AIG Financial Products by name. I suggest this was not only to escape the rather non-existent regulatory control but also to escape internal detection and intervention from senior executives at the parent company who might not be too exicted about the prospect of their careers, status and livelihoods going up in smoke and so "out" the operation before its time is due. Lieber points out,

“ . . . William Black, an effective federal litigator and regulator during the 1980s savings-and-loan scandal . . . . . has testified to Congress about the current crisis and paints it as "control fraud" at every level. Such fraud flows from the top tiers of corporations - typically CEOs and CFOs, who control perverse compensation systems that reward cheating and volume rather than quality, and circumvent standard due diligence such as underwriting and accounting. For instance, AIGFP's Cassano reportedly rebuffed AIG's internal auditor.”

And also, “In 2000, AIG asked the New York State Insurance Department to decide if it wanted to regulate them, but the department's superintendent, Neil Levin, said no. The question was not posed by AIGFP, but by the company's main office through its general counsel”.
Perhaps head office was trying to get the regulator to do what it ironically couldn't i.e. audit its own subsiduary.

With the solid looking facade of AIG in place all that's needed now is an outside “seal of good housekeeping” for the bait which was provided by Standard & Poors and the other rating agencies. The bait made up of mortgages, credit card debt and sundry other things and otherwise known as CDOs (Collateralised Debt Obligations) was sold to,
“Banks like Wachovia, National City, Washington Mutual, and Lehman Brothers (who) loaded up on this financial trash, which soon proved to be practically worthless. Today, those banks are extinct” (unlike the ratings agencies)

Presumably these banks did not take out CDs (Credit Derivatives) on their new assets, the CDOs. Why not? If they had have, they would be in clover now and not in bankrupcy.
Either these institutions were kept in ignorance and were set up by their fellow bankers to fail with the view to taking out the competition.
Or, they were gutted and offered up as sacrificial lambs; that the derivatives were, indeed, taken out on the bad loans (CDOs) by the principals of these firms but held in other companies away from the creditors and eventual liquidators. All sorts of other obligations would be conveniently voided, too, and the victims (shareholders and creditors) wouldn't realise that it was deliberate and thinking that Lehman Brothers, for instance, wouldn't deliberately bring down the house on top of their heads like Samson did; and the wholesale looting put down to incompetence instead of larceny.

I think it likely that both these scenarios were in play with different individual companies and for both the reasons outlined above.

But this bomb is a time bomb and these institutions (and also private investors) are loaded up with these explosive bad loans, we need a trigger to set the chain reaction off. This was supplied by the banks tightening up consumer credit causing the CDOs to start popping off and then . . .
“the raters rushed to downgrade them to junk status. This occurred suddenly with more than 4,000 CDOs in the first quarter of 2008 - the financial community now regards them as "toxic waste."
To top it all off, JP MorganChase and others delivered the “coup de grace” by freezing interbank lending with instantaneous catastrophic results.

Part one of the scam was complete by this stage. The fiasco had now entered the public arena through the media coverage. And Part Two was about to start.

The Fed went to Congress to appeal for funds to ease the “credit crisis” which had been deliberately created, of course. After initially baulking, Congress handed over the funds and the Fed promptly gave it to the insurers such as AIG who almost certainly turned this money over to the derivative holders, the anonymous “counterparties” i.e. the scammers and builders of this massive operation. This has to be be part of the original plot because AIG and other insurers simply had nowhere near the capital to pay out on the derivatives and the whole operation only makes sense if the scammers can collect which means the government was meant to pay and pay big right from the beginning. This was the prize, the goal of the whole exercise And the government did pay up and is continuing to pay up, what's more. The scam is still in operation.

In the tight monetary conditions i.e. tight lending practices of the banks to the hoi poloi, loans are continuing to fall over and derivatives are continuing to be triggered and are continuing to be payed out and Congress, via the Fed, is continuing to fund it all. The strugglers out there in mortgageland will not be helped in any meaningful way because that would stop this process that provides the continuing shower of funds down on the pigs at the trough.

But it gets even better because the scammers now have enormous funds to buy up all those cheap assets that are up for fire sales by their victims amongst whom are their once upon a time competitors. And they are, no doubt, hoping to convert the bulk of this ill gotten plunder into assets before inflation caused by all this extra money has its effect on prices. The coming inevitable inflation is the cost that everyone will bear. Any savings will effectively be halved in value as prices double or triple or . . . .

I think it is worth taking a side trip to explain the mechanism of inflation. Initiates of this mysterious knowledge can take a break here and rejoin us further down-
The value of one dollar (in theory and also roughly in practice) is calculated by the wealth of a country (which is conveniently measured by the GDP of the country) divided by the number of dollars in existence. The GDP is the amount of wealth collectively created in any given year within the nation. Given that the GDP will only vary by a few percent (if that) year to year, the amount of dollars on issue is crucial to the value of each dollar. i.e. whether there is inflation or not. If the amount of dollars on issue is doubled then the value of each one is halved. There is a simple symmetry involved. To say it another way, if the amount of money on issue is doubled then the prices of everything must double too. You will need twice as many dollars to buy the same thing so each dollar is worth half of what it was before. Or from yet another perspective, the extra money will compete for the goods on sale and thus push the prices up until an equilibrium between the amount of dollars in circulation matches the collective or sum price of everything that it can buy.

There is yet another variation on how to see this relationship and that is through the the realisation that in a stable economy, the money supply not only matches the value of the GDP or wealth of the country but that this GDP is what gives the currency or money supply its value. This is what backs the face value of the currency. This value belongs the citizens of the country as a whole as they largely own it. Yet it is “borrowed” by the bankers to give their issued money value. But that's another scam for another essay which will look at the One World Currency. But bearing this relationship in mind between GDP and Money Supply/Currency will be very helpful in understanding the scams involved with the proposed, and perhaps immanent, One World Currency.

Anyway, back to the topic of this essay (and to the initiates amongst us), all this is to say that the bailouts give massive dollar amounts to the already wealthy and every one pays for it because, for one, the value of the dollars everyone else is holding goes down to accommodate and facilitate this shift of wealth.

In summary, with AIG and JP Morgan in the lead, insurers, investment houses and banks created subprime loan assets and had the rating agencies give them prime rating. These subprime assets had higher subprime returns with apparent prime safety. This was irresistable bait for the greedy. The anonymous “counterparties” behind the AIG/JP Morgan push insured these subprime loans (CDOs) with derivatives (CDs or Credit Derivatives) betting that the loans would fall over and thus collecting handsomely. And in the process, bleeding the above companies and others dry and then bleeding the whole nation dry through the government and its bailouts which was the real and ultimate "mark" all along.

The concept was simple. However, the implementation took some doing over many years including dismantling the regulatory provisions and hobbling the oversight bodies.

With this information, looking back over those years makes it plain that it was all deliberately engineered. The same cast of characters are present at every step; building, priming, selling and setting off the charges and then lobbying excitedly and making threats for the compensation or more correctly, the payoff.

Many privately wealthy people have lost much of their capital by buying CDOs directly without attendant derivatives or by investing in companies that got caught with them.

Many people of more modest means have lost investments, too, and seen the value of their superannuation plummet, as well. Their Mutual Funds have been caught with CDOs and also hold shares that have lost value through the same process.

And lastly, everyone, again, will suffer from the coming inflation and from future increased taxes to pay off the government debts incurred to make the filthy rich obscenely rich.

And all this through a simple scam. To repeat James Lieber's bottom line -
““The bottom line in this scandal is that fantastically wealthy entities (aided and abetted by both political parties ed.) positioned themselves to make unfathomable fortunes by betting that average Americans - Joe Six-Packs and hockey moms - would fail.“

I believe this is called “anti-social behaviour”.

With the economy and population financially bloodied, beaten and fearful (and it ain't over yet by any means) we are all open to being lead over the cliff of a One World Currency and then it's a freefall down into the abyss of a One World Government.

That's the bad news. The good news is that we aren't over the cliff, yet. And we know what's happening and who's doing it and who not to turn to for help. And that's a good start.