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Deep Creek Hot Springs

The Moon is Waning Crescent (6% of Full)



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January 22, 2008 09:23PM

Is This The Big One?

.............The present crisis is not the result of normal market forces, but PRICE FIXING AT THE FEDERAL RESERVE AND THE FINACIAL ENGINEERING OF THE MAIN INVESTMENT BANKS. If there had been sufficient regulation of the activities of the Central Bank, so that interest rates had not been kept below the rate of inflation for over 31 months straight (under Greenspan) than the trillions of dollars in low-interest credit would not have flooded the real estate market, igniting a frenzy of speculative home-buying and creating the biggest housing bubble in US history. Despite his feeble excuses, Greenspan's role in destroying the US economy is no longer in doubt. Even the far-right Op-ed page of the Wall Street Journal conceded Greenspan's culpability in Saturday's edition. Here's what they said:

“Amid the daily market turmoil, and to help prevent a crash, it helps to step back and remember how we got here. With the benefit of hindsight, everyone can see that the U.S. economy built up an enormous credit bubble that has now popped. Our own view -- which we warned about going back to 2003 -- is that this bubble was created principally by a Federal Reserve that kept real interest rates too low for too long. In doing so the Fed created a subsidy for debt and a commodity price spike.”

Greenspan's low interest rates stimulated risky speculation that resulted in humongous equity bubbles. That much is certain. The Fed's “cheap money” policy generated artificial demand for housing which drove prices to unsustainable levels. Now we can expect to see a real estate crash unlike anything this country has experienced since the 1930s. That is the unavoidable outcome of Greenspan's "low interest" fake prosperity.

Greenspan is not the only one responsible for the present calamity. The financial markets have been reconfigured in a way that accommodates all manner of corruption. The new model, “structured finance”, allows worthless assets to be disguised by fraudulent ratings and sold to unsuspecting investors. At one time, this assertion might have been dismissed as the ravings of a conspiracy nut. But now we can find the similar accusations in the Wall Street Journal and on CNBC.

Here's the Wall Street Journal explaining how the $800 billion US current account deficit created a circular loop which channeled that money back to the U.S.:

"That capital flow and debt subsidy, in turn, became fuel for smart people in mortgage companies, investment banks and elsewhere to exploit. In a sense they created a new financial system -- subprime loans, SIVs, CDOs, etc. -- that is enormously efficient and brought capital to new places. But thanks to low interest rates and human enthusiasm, this debt spree also got carried away. ”

"Human enthusiasm”? Is that a euphemism for insatiable greed?

The Wall Street Journal admits that a new “structured debt” market was created to package dubious subprime liabilities (from “no doc”, no collateral , “bad credit” loan applicants) and sell them to hedge funds, insurance companies and foreign banks as if they were precious jewels. The WSJ avers that this is the way that “smart people” “exploit” the opportunities from lavish “capital flows”.

But was it “smart” or criminal?

Fortunately, that question was answered this week in an extraordinary outburst on cable TV by market-insider and equities guru, Jim Cramer. In Cramer's latest explosion, he details his own involvement in creating and selling “structured products” which had never been stress-tested in a slumping market. No one knew how badly they would perform. Cramer admits that the motivation behind peddling this junk to gullible investors was simply greed. Here's his statement:


(We used to say) “The commissions on structured products are so huge let's JAM IT.” (note “jam it” means foist it on the customer) It's all about the 'commish'. The commission on structured product is GIGANTIC. I could make a fortune 'JAMMING THAT CRUMMY PAPER' but I had a degree of conscience---what a shocker!--We used to regulate people but they decided during the Reagan revolution that that was bad. So we don't regulate anyone anymore. But listen the commission in structured product is so gigantic. (pause) First of all the customer has no idea what the product really is because it is invented. Second, you assume the customer is really stupid; like we used to say about the German bankers, 'The German banks are just Bozos. Throw them anything.' Or the Australians 'M O R O N S' Or the Florida Fund (ha ha ) “They're so stupid let's give them Triple B (junk grade) Then we'd just laugh and laugh at the customers and Jam them with the commission...That's what happened; that's what happened....Remember, this is about commissions, about how much money you can make by jamming stupid customers. I've seen it all my life; you jam stupid customers.” See the whole damning confession on: http://www.cnbc.com/id/22706231

Trillions of dollars in structured investments (CDOs, MBSs, an ASCP) have now clogged up the global economic system and are dragging the world headlong into recession/depression. Cramer's confession is a candid admission of criminal intent to defraud the public by selling products which people--within the financial industry---KNEW were falsely represented by their ratings. They sold them simply to fatten their own paychecks and because there is no longer any regulatory agency within the US government that curtails ilicit activity.


As the stock market continues its inexorable downward plunge, foreign central banks and investors need to reevaluate the present situation and aggressively pursue legal alternatives. They should initiate a boycott of all US financial products until an appropriate settlement for the hundreds of billions in losses due to the “structured finance” swindle can be negotiated. That is the best way that they can serve their own national interests and those of their people.

Deregulation has annihilated the credibility of US markets. There is no oversight; it's the Wild West. The assets are falsely represented, the ratings are meaningless, and there's a clear intention to deceive. That means that the stewardship of the global economic system is no longer in good hands. There needs to be a fundamental change..............

The “nightmare scenario” of global recession/depression continues to unfold, and, the US economy is getting JAMMED by all the crooks running the place, that includes the corrupt Federal Reserve System.


Wizard 1840January 22, 2008 09:23PM

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Wizard 615January 22, 2008 09:44PM

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Wizard 636January 22, 2008 10:17PM

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Wizard 590January 29, 2008 05:32PM

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Wizard 1330January 29, 2008 05:54PM

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Wizard 710January 29, 2008 06:48PM

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Wizard 652February 03, 2008 06:46PM

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Wizard 734February 03, 2008 09:38PM

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Wizard 614February 05, 2008 09:48PM

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Wizard 1084February 05, 2008 10:06PM

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