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Science Forum Index » Energy - Hydrogen Forum » Ponzi Comes Home to Roost
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| Guest |
 Posted: Thu Apr 10, 2008 6:04 pm |
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http://www.webofdebt.com/articles/derivative-disaster.php
<snip>
The Wall Street Ponzi Scheme
The Ponzi scheme that has gone bad is not just another misguided
investment strategy. It is at the very heart of the banking business,
the thing that has propped it up over the course of three centuries. A
Ponzi scheme is a form of pyramid scheme in which new investors must
continually be sucked in at the bottom to support the investors at the
top. In this case, new borrowers must continually be sucked in to
support the creditors at the top. The Wall Street Ponzi scheme is
built on "fractional reserve" lending, which allows banks to create
"credit" (or "debt") with accounting entries. Banks are now allowed to
lend from 10 to 30 times their "reserves," essentially counterfeiting
the money they lend. Over 97 percent of the U.S. money supply (M3) has
been created by banks in this way.2 The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
loans composing the money supply. The scramble to find new debtors has
now gone on for over 300 years - ever since the founding of the Bank
of England in 1694 - until the whole world has become mired in debt to
the bankers' private money monopoly. The Ponzi scheme has finally
reached its mathematical limits: we are "all borrowed up."
When the banks ran out of creditworthy borrowers, they had to turn to
uncreditworthy "subprime" borrowers; and to avoid losses from default,
they moved these risky mortgages off their books by bundling them into
"securities" and selling them to investors. To induce investors to
buy, these securities were then "insured" with credit default swaps.
But the housing bubble itself was another Ponzi scheme, and eventually
there were no more borrowers to be sucked in at the bottom who could
afford the ever-inflating home prices. When the subprime borrowers
quit paying, the investors quit buying mortgage-backed securities. The
banks were then left holding their own suspect paper; and without
triple-A ratings, there is little chance that buyers for this "junk"
will be found. The crisis is not, however, in the economy itself,
which is fundamentally sound - or would be with a proper credit system
to oil the wheels of production. The crisis is in the banking system,
which can no longer cover up the shell game it has played for three
centuries with other people's money.
The Derivatives Chernobyl
The latest jolt to the massive derivatives edifice came with the
collapse of Bear Stearns on March 16, 2008. Bear Stearns helped fuel
the explosive growth in the credit derivative market, where banks,
hedge funds and other investors have engaged in $45 trillion worth of
bets on the credit-worthiness of companies and countries. Before it
collapsed, Bear was the counterparty to $13 trillion in derivative
trades. On March 14, 2008, Bear's ratings were downgraded by Moody's,
a major rating agency; and on March 16, the brokerage was bought by
JPMorgan for pennies on the dollar, a token buyout designed to avoid
the legal complications of bankruptcy. The deal was backed by a $29
billion "non-recourse" loan from the Federal Reserve. "Non-recourse"
meant that the Fed got only Bear's shaky paper assets as collateral.
If those proved to be worthless, JPM was off the hook. It was an
unprecedented move, of questionable legality; but it was said to be
justified because, as one headline put it, "Fed's Rescue of Bear
Halted Derivatives Chernobyl." The notion either that Bear was
"rescued" or that the Chernobyl was halted, however, was grossly
misleading. The CEOs managed to salvage their enormous bonuses, but it
was a "bailout" only for JPM and Bear's creditors. For the
shareholders, it was a wipeout. Their stock initially dropped from
$156 to $2, and 30 percent of it was held by the employees. Another
big chunk was held by the pension funds of teachers and other public
servants. The share price was later raised to $10 a share in response
to shareholder outrage, but the shareholders were still essentially
wiped out; and the fact that one Wall Street bank had to be fed to the
lions to rescue the others hardly inspires a feeling of confidence.
Neutron bombs are not so easily contained.
The Bear Stearns hit from the derivatives iceberg followed an earlier
one in January, when global markets took their worst tumble since
September 11, 2001. Commentators were asking if this was "the big one"
- a 1929-style crash; and it probably would have been if deft market
manipulations had not swiftly covered over the approaching
catastrophe. The precipitous drop was blamed on the threat of
downgrades in the ratings of two major monoline insurers, Ambac and
MBIA, followed by a $7.2 billion loss in derivative trades by Societe
Generale, France's second-largest bank. Like Bear Stearns, the
monolines serve as counterparties in a web of credit default swaps,
and a downgrade in their ratings would jeopardize the whole shaky
derivatives edifice. Without the monoline insurers' traiple-A seal,
billions of dollars worth of triple-A investments would revert to junk
bonds. Many institutional investors (pension funds, municipal
governments and the like) have a fiduciary duty to invest in only the
"safest" triple-A bonds. Downgraded bonds therefore get dumped on the
market, jeopardizing the banks that are still holding billions of
dollars worth of these bonds. The downgrade of Ambac in January
signaled a simultaneous downgrade of bonds from over 100,000
municipalities and institutions, totaling more than $500 billion.3
Institutional investors have lost a good deal of money in all this,
but the real calamity is to the banks. The institutional investors
that formerly bought mortgage-backed bonds stopped buying them in
2007, when the housing market slumped. But the big investment houses
that were selling them have billions' worth left on their books, and
it is these banks that particularly stand to lose as the derivative
Chernobyl implodes.4
A Parade of Bailout Schemes
Now that some highly leveraged banks and hedge funds have had to lay
their cards on the table and expose their worthless hands, these avid
free marketers are crying out for government intervention to save them
from monumental losses, while preserving the monumental gains raked in
when their bluff was still good. In response to their pleas, the men
behind the curtain have scrambled to devise various bailout schemes;
but the schemes have been bandaids at best. To bail out a $681
trillion derivative scheme with taxpayer money is obviously
impossible. As Michael Panzer observed on SeekingAlpha.com:
As the slow-motion train wreck in our financial system continues
to unfold, there are going to be plenty of ill-conceived rescue
attempts and dubious turnaround plans, as well as propagandizing,
dissembling and scheming by banks, regulators and politicians. This is
all happening in an effort to try and buy time or to figure out how
the losses can be dumped onto the lap of some patsy (e.g., the
taxpayer).
<snip> |
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| Guest |
| Posted: Fri Apr 11, 2008 2:42 am |
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In misc.survivalism knews4u2chew@yahoo.com wrote:
Quote: The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
loans composing the money supply.
You either have of grasp of ecoomics, or else you are intentioally
deceitful.
Take a simple example - a farmer borrows in the spring to finance his
seeds and fertilizer. By fall, the crops can be sold to pay back the
principle, the interest, and hopefully, provide a profit.
No "new" borrowers are needed. Instead, value is created, and the money
supply grows. You posit a structural problem that does not exist. |
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| Guest |
| Posted: Fri Apr 11, 2008 7:47 am |
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On Apr 11, 4:16 am, "Kirby M. Wilson" <kir...@yahoo.com> wrote:
Quote: On Apr 10, 11:04 pm, knews4u2c...@yahoo.com wrote:
knews4u2c...@yahoo.com
investment strategy. It is at the very heart of the banking business,
the thing that has propped it up over the course of three centuries. A
been created by banks in this way.2 The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
misleading. The CEOs managed to salvage their enormous bonuses, but it
September 11, 2001. Commentators were asking if this was "the big one"
- a 1929-style crash; and it probably would have been if deft market
manipulations had not swiftly covered over the approaching
catastrophe. The precipitous drop was blamed on the threat of
knews4U2, if you are a subprime borrower there is hope, do not
despair !
Not me. You're ignorant.
Quote: Contact your bank - you may be able to renegotiate your loan rate, if
you were a speculator
or "flipper" then - tough luck !
Idiot.
I own my house debt free.
I own all my cars debt free.
I own my guns debt free.
I haven't had any debt in over ten years. |
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| Too_Many_Tools |
| Posted: Fri Apr 11, 2008 6:36 pm |
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Guest
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On Apr 11, 11:47 am, knews4u2c...@yahoo.com wrote:
Quote: On Apr 11, 4:16 am, "Kirby M. Wilson" <kir...@yahoo.com> wrote:
On Apr 10, 11:04 pm, knews4u2c...@yahoo.com wrote:
knews4u2c...@yahoo.com
investment strategy. It is at the very heart of the banking business,
the thing that has propped it up over the course of three centuries. A
been created by banks in this way.2 The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
misleading. The CEOs managed to salvage their enormous bonuses, but it
September 11, 2001. Commentators were asking if this was "the big one"
- a 1929-style crash; and it probably would have been if deft market
manipulations had not swiftly covered over the approaching
catastrophe. The precipitous drop was blamed on the threat of
knews4U2, if you are a subprime borrower there is hope, do not
despair !
Not me. You're ignorant.
Contact your bank - you may be able to renegotiate your loan rate, if
you were a speculator
or "flipper" then - tough luck !
Idiot.
I own my house debt free.
I own all my cars debt free.
I own my guns debt free.
I haven't had any debt in over ten years.- Hide quoted text -
- Show quoted text -
And under Bush all your assets have had their value reduced by at
least 40%
And in reality much more..
How do you feel about that?
TMT |
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| Guest |
| Posted: Sat Apr 12, 2008 12:12 pm |
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On Apr 11, 9:36 pm, Too_Many_Tools <too_many_to...@yahoo.com> wrote:
Quote: On Apr 11, 11:47 am, knews4u2c...@yahoo.com wrote:
On Apr 11, 4:16 am, "Kirby M. Wilson" <kir...@yahoo.com> wrote:
On Apr 10, 11:04 pm, knews4u2c...@yahoo.com wrote:
knews4u2c...@yahoo.com
investment strategy. It is at the very heart of the banking business,
the thing that has propped it up over the course of three centuries. A
been created by banks in this way.2 The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
misleading. The CEOs managed to salvage their enormous bonuses, but it
September 11, 2001. Commentators were asking if this was "the big one"
- a 1929-style crash; and it probably would have been if deft market
manipulations had not swiftly covered over the approaching
catastrophe. The precipitous drop was blamed on the threat of
knews4U2, if you are a subprime borrower there is hope, do not
despair !
Not me. You're ignorant.
Contact your bank - you may be able to renegotiate your loan rate, if
you were a speculator
or "flipper" then - tough luck !
Idiot.
I own my house debt free.
I own all my cars debt free.
I own my guns debt free.
I haven't had any debt in over ten years.- Hide quoted text -
- Show quoted text -
And under Bush all your assets have had their value reduced by at
least 40%
And in reality much more..
How do you feel about that?
My assets are what their value is in use.
I cannot relace them for less.
I am not a Busche family fan.
Ron Paul is the only leader that has a clue about how to save America
from the vermin that pose as our leaders now. |
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| Guest |
| Posted: Sat Apr 12, 2008 2:09 pm |
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| Kirby M. Wilson |
| Posted: Sun Apr 13, 2008 4:43 am |
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Guest
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On Apr 12, 5:12 pm, knews4u2c...@yahoo.com wrote:
Quote: On Apr 11, 9:36 pm, Too_Many_Tools <too_many_to...@yahoo.com> wrote:
On Apr 11, 11:47 am, knews4u2c...@yahoo.com wrote:
On Apr 11, 4:16 am, "Kirby M. Wilson" <kir...@yahoo.com> wrote:
On Apr 10, 11:04 pm, knews4u2c...@yahoo.com wrote:
knews4u2c...@yahoo.com
investment strategy. It is at the very heart of the banking business,
the thing that has propped it up over the course of three centuries. A
been created by banks in this way.2 The problem is that banks create
only the principal and not the interest necessary to pay back their
loans, so new borrowers must continually be found to take out new
loans just to create enough "money" (or "credit") to service the old
misleading. The CEOs managed to salvage their enormous bonuses, but it
September 11, 2001. Commentators were asking if this was "the big one"
- a 1929-style crash; and it probably would have been if deft market
manipulations had not swiftly covered over the approaching
catastrophe. The precipitous drop was blamed on the threat of
knews4U2, if you are a subprime borrower there is hope, do not
despair !
Not me. You're ignorant.
Contact your bank - you may be able to renegotiate your loan rate, if
you were a speculator
or "flipper" then - tough luck !
Idiot.
I own my house debt free.
I own all my cars debt free.
I own my guns debt free.
I haven't had any debt in over ten years.- Hide quoted text -
- Show quoted text -
And under Bush all your assets have had their value reduced by at
least 40%
And in reality much more..
How do you feel about that?
My assets are what their value is in use.
I cannot relace them for less.
TMT
I am not a Busche family fan.
Ron Paul is the only leader that has a clue about how to save America
from the vermin that pose as our leaders now.
your nutty "knews" posts are not going to "save America".
or Ron Paul gold dollars or any of your wacky conspiracy theories.
ever think about why people disagree with your "theories" ???
right - can't think ... knews, you're the one who "needs a clue" ! |
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