inside wallstreet

One of the better articles on how a powerful group could massively profit by engineering a global depression - all by accident of course.

What's Next For The US Economy, or What's Left of It?
Bob O'Brien
June 11, 2009

It's ugly, folks. About as ugly as one could imagine.

For starters, the entire global meltdown looks like it was engineered by the large mercantilist influences on Wall Street. That's correct. The whole thing, engineered, as in deliberate.

Remember that predatory interests don't really care whether economies or currencies get wrecked or not - they benefit mainly by massive volatility, in either direction, caused by their actions. They know the timing as they engineer the swings, thus are perfectly positioned to profit from everyone elses's loss.



An example of how the current calamity played out:

1) The Fed loosens and Greenspan encourages everyone to get into adjustable rate mortgages. The government encourages riskier lending, under the guise of enabling minority or low income home ownership. This feeds a speculative frenzy and drives asset values up, as do all easy money policies.

2) The Fed tightens, crunching all the borrowers as the rates start adjusting up, as well as driving unemployment higher as easy money shuts off and jobs are cut as credit tightens. The jobs lost are usually the most expendable, i.e. the subprime type of job.

3) Wall Street innovates the ABX index in 2007. That index is used to value mortgage paper. A little known but extremely important aspect of it is that the entire index is based upon the value of 24 bonds. If you know (because you are GS or another big Wall Street player), or can guess those 24 bonds, you can then go out and buy massive CDS bets against those 24 bonds, driving the market into the cellar for the entire index. Easy as pie. Anyone plugged in will get wind of the big CDS purchases of those bonds and dump the bonds ASAP, understanding that they have been targeted or are unexplainably going to crash, further accelerating the downward spiral. That's how the entire mortgage paper market tunneled when only a fraction of it was composed of sub-prime paper that was actually defaulting. As with naked short selling, you could create the appearance of an asset in sharp decline just by playing the CDS game with the right bonds, generating massive drops in asset values. That's what happened.

4) FASB 157 requires quarterly mark to market of assets, including mortgage backed securities. FASB 157 was introduced in 2007. The benchmark to establish value of the assets was, you guessed it, the ABX index, as well as ratings by agencies whose ownership ultimately leads back to, well, Wall Street.

5) Goldman and the like made massive money shorting the MBS they were selling globally. So they were betting on a big decline in the value of those assets, even as they sold tens of billions of them. GS is also key in creating the ABX index, putting them in a unique position to ensure their bets pay off handsomely from a crash in that index driven by, well, CDS purchases against the 24 bonds that literally price the index.

6) Global oil goes to $147 in a wildly manipulated dark market whose main movers are, you guessed it, Wall Street's biggest names. That additional load on the global economy, the skyrocketing cost of the price of oil coupled with asset values dropping through the floor, causes banks to stop writing things like letters of credit, which are used to enable shipping internationally. Ports sit clogged with empty container ships as nobody can get paper with which to ship things. This makes a bad crisis a disaster of magnified proportions.

7) Paulson leaves GS, and abandons his almost billion dollar worth, to run Treasury, ensuring a strong GS hand at the tiller to decide who will benefit from government handouts, as well as which policies will be enacted to amplify and sustain the disaster, as opposed to stopping it. Remember that GS under Paulson was huge in the CDS game with AIG as the contra-party, and was busy under Paulson shorting their own paper they were selling to clients all over the world. He also was critical in keeping CDS unregulated, as well as subsequently deciding which entities survived the crisis, and which ones didn't. He played a major role, some would say godlike, in nationalizing banks like Fannie and Freddie even as analysts came out saying things at the banks weren't as bad as thought. As treasury secretary, he could just pronounce them DOA and the markets would make them so, making any massive short positions wildly profitable for those on the inside of the loop. Same for deciding Lehman would fail, but AIG wouldn't. And the list goes on.

8) The SEC removes virtually all safeguards against illegal delivery failure, i.e. naked short selling. They roll out the red carpet to market makers to just print as much stock as they like, ensuring those market makers would be used by those wishing to manipulate stocks down. We witness time and time again, massive dislocations in companies like Bear, Wachovia, Indymac, Lehman, etc. Much hand wringing and fist shaking goes on at the Congressional level about investigations, but like the investigations into oil price manipulation, nothing ever actually happens. Oh, but the SEC also removes the uptick rule, and then pretends to be mystified as bear raids accelerate and the market loses half its value. Some spurious media questions whether too little, too late anti-NSS measures were effective, yet somehow manages to miss that during the shorting ban shorting tripled year over year - so the ban wasn't enforced, and amounted to more placating media soundbites from a compromised regulator running interference for Wall Street. Additionally, naked shorting of Treasuries increases to record levels, creating a double-whammy where Wall Street fails to deliver Treasuries, thereby artificially creating supply and ensuring that the country gets lower prices for its bonds. Again, regulators refuse to do anything of note. Anyone see a pattern?

9) Instead of declaring CDS a scam form of insurance fraud, where those without any interest in the asset can bet on the decline of its value even as they force its decline, Congress and Treasury studiously pretend that CDS are sacrosanct. Not surprisingly, it later turns out that much of the money going from taxpayers to AIG made its way into large Wall Street firms like GS as payoffs on these CDS bets. Congress could render CDS illegal tomorrow, ending this looting of the treasury, but won't. So it continues.

10) Once Paulson gets TARP passed against the majority of the populace's wishes, Treasury and the Fed then circumvent Congress and the taxpayers by simply doing multi-trillion dollar loans out the back door. The Fed then refuses to discuss those loans, any collateral associated with them, or the recipients. The total tab now is being estimated in the $14 trillion dollar range. In a little over a year. You are reading that correctly. Nobody actually knows the number, because nobody is talking.

11) The Fed is Wall Street friendly, and inevitably does things that favor Wall Street. The current Treasury Sec used to run the NY Fed, which is why all Treasury's "fixes" amount to little more than keeping CDS legal while funneling the wealth of the nation to Wall Street.

This is a deliberate, systematic, studied crash of the system and subsequent looting of it by Wall Street's most powerful interests, nothing more. Like the Great Depression, where millions lived in misery as the rich got much, much richer, the globe is experiencing a massive value drain so that a few interests on Wall Street can build dynastic wealth in a few short years.

I could go on, and cite many other contributing deliberate manipulations. I won't bother. You probably know most of them. A friend of mine has written a stunning book outlining the history of all this, as well as defining in detail the manipulation - it is a masterwork, and hopefully will soon find a publisher.

But the truth is that we are witnessing a nation whose policy is being run so special interests can profit at unprecedented levels while the standard of living of the populace inevitably declines to accommodate the transfer of wealth. It is completely deliberate, and not a bit of it is accidental. The smartest guys in the financial world didn't all just get stupid and blow it - that's a facile cover story being propagated by the captured press. They knew exactly what they were doing, they crashed the system to profit at levels it would normally take 50 years of stability to see, and they could give a rat's ass whether you work at Burger King during your retirement as a result.

They win. You lose.

But don't expect to see it in the WSJ or NY Times - those rags are devoted to broadcasting Wall Street's spin on things. That's why you keep hearing about how the heads of the big banks are morons, and how outraged everyone is that they kept their jobs, etc. They aren't morons. They, and their buds in hedge funds and trading desks, made trillions from being "morons." And the reason they are declared idiots over and over, is because there's no prosecuting a guy for being a retard. The smartest guys in the room always pretend to be fools when the prosecutor is around, however they don't have to worry - they long ago bought off the establishment, including the regulators and prosecutors. Nobody but a few token outsider fall guys will see any prosecution - like Countrywide's CEO. But not the head of BofA or Goldman or JP Morgan. They got away with it. And they now are so rich they will never be touched.

Welcome to the Banana Republic of America, brought to you by 300 rich white guys on Wall Street. Game over.