World Financial Fraud And Collapse:
A Primer And The Best Possible Links

by Jim March, a lowly volunteer at OccupyTucson

PUBLIC DRAFT ONE, Dec. 7 2011: I am fact-checking the details of the bankruptcy law implications discussed in chapter 7 so that in particular needs to be considered “not well founded yet”, although Karl Denniger at market-ticker.org is saying the same thing and more.

Across the Bush era, the US financial system was treated as a giant pyramid scheme.  In 2007-2008 it blew up, and was crudely patched back together with huge heaping shovel-fulls of our money.  Officially the “TARP” bank bailout loans of 2008-2009 were repaid but the actual cost to US citizens in the form of extreme debt and other real losses totaled over $2trillion dollars.

This was the largest theft in world history since the Mongols stole China.  This systematic looting of the world and our future has crippled our economy and jobs base.  It is harming us right now and worse, the fraud hasn’t stopped.  It’s about to come just as unravelled in Europe while China is still trying to keep the lid on while froth and foam appear around the edges of their financial pressure cooker.

There has been no systematic prosecution of this fraud anwhere in the world.  That alone constitutes a crisis.  The fact that the frauds are ongoing in a planned, international fashion is a complete and utter disaster.

If the USofA allows corruption on this scale, we become literally the most visibly corrupt nation on earth as our banking losses are the highest on the planet.  That corruption won’t just eat at our wallets – eventually it will eat at our souls as we become a nation of systemic lawlessness as the rot spreads from the top down.

Hanging out in tents until we get some answers is an extremely reasonable response to this insanity.  Hell, pitchforks and torches would be a reasonable response.  So would tar and feathers, or much worse.  We’re fighting to prevent that, because we know that the US basic spirit of standing up to bullies isn’t dead.

While the prosecutions have been stalled, investigations have not!  They have, unfortunately, come from the legislature and private sources rather than law enforcement investigators who can issue subpoenas and make arrests.  And similar information is available regarding financial misconduct in Europe and China, either or both of which could have a major impact on the US all the way up to “Great Depression levels” or worse.

This page is going to detail the best, most understandable and most credible sources of such investigations available online for free, and in language that somebody who isn’t a “money geek” can understand.

URGENT NOTE ON UNDERSTANDING THIS STUFF: let’s assume you buy either goods or services from me.  I make you, say, a chair, or fix your computer, or teach you to use your computer better.  Done right it’s a “win-win” – and that can happen because wealth got created.  Either you got something useful you didn’t have before, or got something fixed, or your productivity went up which is less tangible but still useful.  If this is done right, we both walk away from the deal happy.  The greatest wealth creators in history were inventors such as Edison and Tesla or builders of various sorts – people who knew how to efficiently make stuff.

Most of the financial markets aren’t like that.  They’re “zero sum games” – somebody wins, somebody loses…same as at a poker table.

The more of a “gambling” aspect to what’s going on, the more this principle kicks in.  Stocks are bad, derivatives are worse.  Insurance is a “least-bad” example of this because people accept a certain level of losses in order to mitigate risk.  Derivatives were originally “insurance” of sorts but they mutated into something no actual insurance agent would touch with a 10ft USB cord.

Here’s the kicker: the crazier markets attracted the kind of human personalities that enjoy screwing people over.  The sort that love it not just when they win, but when others lose.

And inevitably, given that twisted mindset, some people cheated big.  Cheating is possible in other classes of business such as, say, making cars (crappy motor, etc.) but it gets spotted fast and it’s not tied as deeply to the sort of people the financial markets attracted.  It’s probably unfair to call all the top financial industry execs psychopaths, but it seems very plausible that a “culture of psychopathy” pervades the whole industry.

We have to solve this problem somehow.  Long term, I think improving psychology to a point where sociopaths and psychopaths are easier to spot will clean up a lot of stuff but…we don’t have that kind of time.

Initial Concepts

Stock Market Manipulation

The Bank Bailout Situation – From The Banker’s Point Of View

The Ultimate Overview Of The Bailout-Related Fraud

Retail Fraud Directly Against US Consumers

The Federal Reserve Bank – The Obvious Fraud

The Federal Reserve Bank – The SYSTEMIC Fraud

The Worst Fraud Of All: Derivatives

Greece And The Upcoming European Bank Holocaust

The Final Wildcard: China

Upshot: Final Editorial By Jim March

Initial Concepts

* Companies or even nations usually don’t go broke because they “run out of money” exactly.  They go broke when they get into debt, debts come due and then new lenders don’t believe they have it in ‘em to pay off additional loans when they try to re-finance.  In other words, if a billion dollars of debt comes due next month BUT the lenders think you’re OK to borrow another billion, you’re fine (as long as high interest rates don’t kill you along the way).  When it goes wrong the banks kill the company (or country!) either by refusing new loans or only issuing new loans at insane interest rates because they think the risks are getting too high.  Italy recently sold some 10-year bonds at almost 8% interest, which is well into the “insane” range – and that interest rate level is what triggered the first bailouts in Greece.  Because Germany is effectively backstopping a lot of these loans for lesser European nations (like parents co-signing loans for pot-head teens), their interest rates are going up too.  We’ll discuss Europe in it’s own chapter.

* This “re-finance failure” is also what happened to “Adjustable Rate Mortgages” sold to US home buyers from 2004 forward – they came due when housing prices started to collapse.  The “plan” behind those loans was to re-fi three years later (sometimes two) when the home value had risen in the housing bubble.  Bubble collapses, and the whole structure fails when credit access tightened and home values fell.  We’ll discuss the causes of all this below.

* I have a theory about what’s going wrong: the banks that run Wall St. and the Federal Reserve Bank (which really is controlled by people who also run the “normal” banks) have a deal going with the US Presidents since at least Clinton if not earlier and congress.  It goes like this: we’ll keep US interest rates at rock bottom, 2% or less, and that way congress can run budget deficits every single year (which violates every single economic theory, Keynes included).  Politicians gets to buy our votes with our own future money.  Congress and the Prez in return deliberately fail to prosecute Wall Street fraud on an epic scale, allowing the Banksters to fleece us dry – if they don’t Wall Street can pull the plug on the whole US economy.  There’s a ton of evidence this is happening and was planned years ago as you’ll see herein.  I call this “the deal between two devils”.  The best evidence is two-fold: fraud is being clearly ignored, and when the housing bubble heated up and was obviously a bubble by 2006 or so at the absolute latest, the Federal Reserve should have cranked up interest rates to slow the frenzy and try for a “soft landing”.  Except they couldn’t – if they did, the re-payments on the US federal deficit would have gone bananas and the US sovereign (national) debt problem would have blown the hell up.  Understand: even with peanuts interest it will eventually, but low interest has delayed the disaster.

* The other reason the US can rack up huge debt is because, as wild as ours is, Europe’s debt situation is way worse.  Look, if you’re an institutional investor or wealthy family trust with, say, a billion dollars laying around, you have to park it somewhere.  A normal bank is a bad idea because only the first quarter million is insured at best.  Whoops.  Well one place to park big cash is long-term national bonds.  US Treasury bonds are currently seen as the safest in the world.  Money is flowing right now from European bonds into US bonds like some kind of giant siphon.  But this is part of what’s trashing Europe’s finances…if the US wasn’t racking up such huge deficits of our own, more money might stay in Europe.  This doesn’t necessarily mean the US is “strong” in absolute terms, rather it means we stink less.  Great.  But if Europe’s banks chain-fail like some of ours did in 2007/2008, we’re going to get burned too – and our finances are too shaky to withstand another big hit.

NOTE: this chapter is the most speculative and has more of my own personal theories in it than the rest of this.  I need to give you some kind of starting point to understanding this lunacy.

1) Stock Market Manipulation

Stocks are basically a gambling den.  Steps are publicly taken to prevent cheating.  Most cheating happens as a result of “information inequality” – at a poker table, a mirror on the other guy’s cards is a classic example where one guy knows more than he should and more than somebody else. The stock market is electronic, with most trades handled by programmed computers.  One easy way to cheat if you have the resources is to throw tiny trades at the other guy’s software to see how it responds – finding out what level the other system is willing to sell or buy at.  Once you do that, it’s exactly like a mirror on the other guy’s cards.  This is illegal as hell, it’s happening in a systemic manner and the Securities and Exchange Commission (SEC) could easily sort out what’s happening.  They have so far refused to do squat.  Whoever IS doing it  has significant computing resources and is likely very politically connected, such as Goldman Sachs or similar large investment houses.  We have no idea just how many cheaters there are but of course the SEC could find out in a snap from the computer logs.

Remember, this isn’t just about past fraud, it’s absolutely “current events”!  If you’re still playing the “day trader” game after the bloodbath when the Tech Bubble blew you’re a minnow swimming in a tank with an unknown number of sharks.

Visible proof of the algorithms:

http://www.theatlantic.com/technology/archive/2010/08/market-data-firm-spots-the-tracks-of-bizarre-robot-traders/60829/

Karl Denniger’s explanation as to why this is huge trouble, parts one and two:

http://www.market-ticker.org/akcs-www?post=163801&ord=1378565

http://www.market-ticker.org/akcs-www?post=163804&ord=1380809

Karl’s summary:

http://market-ticker.org/akcs-www?post=189999

2) The Bank Bailout Situation – From The Banker’s Point Of View

Karl Denniger writes a wonderful story about what the bank blowups of early 2008 would have looked like if you were the CEO of a “Too Big To Fail” (“TBTF”) bank such as Bank Of America:

http://www.market-ticker.org/akcs-www?post=196348

…and pay particular attention in the comments below to posts by “Flappingeagle”.

Note that this is just one small aspect of the total fraud situation – but it’s also one of the easiest to understand and prove.

3) The Ultimate Overview Of The Bailout-Related Fraud

Dated 3/15/2011, a joint committee of the US Senate (both parties involved) wrote almost 650 pages of after-action report on the banking crisis.  Titled “WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse”, it covers:

*  What the banks did wrong, with WaMu and Goldman-Sachs as examples (the G-S section is the biggest!).

*  The misdeeds of the private regulators at Moody’s and Standard & Poors.

*  Problems with the FDIC and other federal regulators.

The only significant entities left out of this report are Fanny and Freddie (home loan bureaucracies) and the role of the Federal Reserve Bank (we’ll get to them in a bit).

http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf

(It’s unclear whether or not Fanny and Freddie committed fraud – best guess is, they were more victims than perpetrators for the most part.)

Don’t want to read anything that long?  Fine.  Here’s a really short snipped of ONE clearly documented case of fraud by a bank during this period, in which the bank in question admitted guilt and paid a quarter-billion-dollar fine.  In short, Citigroup put together a package of mortgage-based investments that they knew would fail, and were actually picked for their likelihood of failure.  They then sold this “investment opportunity” to chumps while secretly betting against it’s success.  The only way Citi could make any money was if the investors in this “opportunity” they sold lost their shirts (100% value loss).  Citi also concealed their role in picking turkeys to go into this bad-meat package.

This is an example of “information disparity” – one party to a contract knows what’s going on while the other cannot know – it’s impossible for them to learn what’s going on (as opposed to cases where they didn’t fully check something out).  The existence of this disparity violates any contract as everybody is supposed to know what’s going on with a contract before it’s signed and entered into.

http://market-ticker.org/akcs-www?post=196437

As Karl Denniger notes, this case is among the thousands-plus that should have led to handcuffs and prison time.

Late-breaking news as of Nov. 11th: the judge in New York that this sweetheart “punishment” deal was brought to has balked and has severely criticized the plea, the proposed punishment and the SEC “regulators”:

http://www.courthousenews.com/2011/11/10/41354.htm

For more on why the various Federal-level regulators are doing kid-gloves handling of Wall Street fraudsters, see also the chapter “The Federal Reserve Bank – The SYSTEMIC Fraud” in this document.

Note: Karl Denniger and Peter Schiff are the two top sources of info on the economic collapse.  Schiff tends to focus on the big picture (and is Dr. Ron Paul’s chief economic advisor) while Denniger tends to expose the nitty-gritty mechanics of financial fraud.  They are generally in agreement on financial trends and both have a strong history of predicting economic breakdowns.  Here’s examples of Peter’s predictions:

http://www.youtube.com/watch?v=zz_yw0kq3MM

…and here’s Karl’s take on the Occupy movement and police brutality – Karl is much more pro-Occupy than Peter:

http://market-ticker.org/akcs-www?post=197132

4) Retail Fraud Directly Against US Consumers

The best known “fraud” is the systematic mis-handling of paperwork related to “who owns what” – in other words, as loans were bought and sold in chunks and fractions, the legally required paperwork to track who really owns what was systematically subverted.  That’s a mess I’m not going to go into because it’s hard to figure out what was “short-cuts on paperwork” and what was “real ripoff attempts”.  Interested readers should google “MERS” with “fraud” for more.

Examples abound however of deliberately ripping off consumers in the home mortgage/loan business.  The most common fall into these categories:

4a) The ARM Ponzi Scheme
Home buyers were often diverted into “adjustable rate mortgage” deals, or ARMs.  This involved a low down payment, low monthly payments for (typically) three years and then things got ugly with either major boosts to the monthly payments, a “balloon payment” or both.  (They never “adjusted” down, always up!)

Under normal conditions this was going to cause a default with most buyers, and both the bank and buyer knew this.  They also “knew” the following: in early 2004 somebody might buy a house that way for, say, $500,000.  By very early 2007 it might have been worth $650,000.  The buyer was then supposed to re-finance, borrowing $600,000, pay the bank somewhere around $500,000 (maybe a bit more if the monthy payments hadn’t kept up with the low interest) and pocket up to $100,000 cold cash.

And in early 2004, it’s possible that sort of deal would have worked.  But not by late 2004 – because by late ’07, the housing market started to tank, credit dried up, re-financing became impossible and people ended up walking away from major bad-news loans.

Now here’s the kicker.  This whole class of ARM-based loans was structured as a classic Ponzi scheme.  It depended on new speculator/buyers in a constant flow because if home prices so much as stagnated, the re-financing needed to keep the ARMs from defaulting wouldn’t happen.  New home buyers/speculators were needed to keep the home values rising so that the previous ARM-based loans wouldn’t puke and die.  So you have two sub-classes of fraud going on related to this. First, since “fresh blood” was needed to keep it all going, towards the end (2005-forward in particular) loans of this sort were going to “anybody with a heartbeat”, bad credit or not.  This led to rigging credit scores up and also appraisal fraud which we’ll get to in a bit.

Second, and worse, remember what I said in the stock market section above about “information disparity”?  It applies here in spades, because the top managers at the major banks full well understood that the party was going to end.  It had to, as Ponzi schemes always do.  But instead of throttling back, they were drowning in money and loving every minute of it, and knowingly kept this class of loans going right up to the end (2007) despite the “last in” crowd (anybody jumping in by late ’04 or so) being inevitably screwed silly.  They knew what was going to happen and didn’t care.

Changes in the accounting rules didn’t help – the banks were allowed to book ARM-based mortgages based on a “best-case scenario” right away, hiding large potential losses by way of some early Bush II-era regulatory changes.  But the trend towards using Freddie and Fannie to do loans to “anybody with a heartbeat” was a late Clinton-era rule change (1999).

http://seekingalpha.com/article/112185-the-great-american-ponzi-scheme-part-i

http://www.theleftcoaster.com/archives/010209.php

The ARM-based loans and loans to “anybody with a heartbeat” were aided by ridiculously low interest rates dictated by the Federal Reserve Bank.  By the time the US housing bubble was in full swing, the US government was racking up ridiculous debt due in part to the post-9/11 military adventures and general social spending.  Low interest rates were vital because it allowed cheaper servicing of the enormous US government debt.  Some think that the housing bubble and subsequent fraud and blowup was really a side-effect of the Federal Reserve’s Bank monkeying with interest rates.

(If you think the US was bad, at least we tried to find buyers for the crappy “McMansions” we were building en mass.  Wait until we talk about China later!)

4b) Rigging people into worse loans than they should have gotten.
Individual loan sellers were paid on commission and were under a strong incentive to sell people “products” that made more profits.  This was happening more towards the beginning of the housing bubble, before the need for new “fresh blood speculators” was apparent as it went all Ponzi (see 4a above).  It still happened towards the end to some degree; some people were being redirected towards ARMs who should have (and could have) qualified for traditional mortgages.  In other words, they started out as regular home-buyers but the bankers actually steered them towards the “joys” of speculation.

But far worse was the trend to steer people into bad loans despite good credit, purely to make more profit.  And the worst of all of those was the trend to do so to minorities and/or women who were considered more “unsophisticated” in banking.

Wells Fargo has come under particular fire on this point due to whistleblowers Tony Paschal and Beth Jacobson. The New York Times covered their allegations in 2009:

http://www.nytimes.com/2009/06/07/us/07baltimore.html?scp=2&sq=wells%20fargo&st=cse

Paschal was employed by Wells Fargo in Maryland while Jacobson was in Virginia, suggesting this was a geographically widespread problem.  Suits against Wells Fargo citing their testimony are proceeding in Shelby County TN and Baltimore MD; both cases were brought by local governments and both have survived summary judgement so far:

http://www.nytimes.com/2011/05/06/business/06redlining.html

4c) Appraisal Fraud
This would appear to be one of the few forms of fraud in which con artists lower down on the food chain screwed the higher-ups (even the “1%”) above them.  But if you look deeper it’s more complicated than that.

You would think that when a home is appraised for more than it’s actual worth, it’s the home owner who benefits the most.  And they did benefit (for a while).  But it turns out the banks above them wanted it to happen too.  Why?  Because first, they were re-selling “mortgage based securities” to other types of financial institutions and making big bucks off it – so you had “the rich screwing the rich”.  Remember the “information disparity” concept?  Well whichever bank was closest to the loan had more info than the downstream buyers of these “prime rated assets”…more opportunity for fraud.

“SALEM, Ore. (CNN/Money) – Anyone who’s ever bought or refinanced a home knows the sense of relief when the appraisal comes in with high marks.

The appraisal tells bankers, brokers and, ultimately, investors whether a house is a sound investment.

But, as the Appraisal Institute recently testified to Congress, appraisers are under increasing pressure from lenders, mortgage bankers and real estate agents to “hit their number” when appraising property.” – Source: http://money.cnn.com/2005/05/23/real_estate/financing/appraisalfraud

…and see also: http://www.washingtonpost.com/wp-dyn/content/article/2010/04/30/AR2010043000041.html

Another driving force for this class of fraud was the Ponzi-like aspects readily apparent by 2004-2005: the need for new loans to keep ramping up the home values so that the ARM-resets would result in refinancing based on a higher home value rather than a rash of defaults when the ARMs came due.

5) The Federal Reserve Bank – The Obvious Fraud

First, understand that the “Fed” is really a private bank, actually owned by member banks, chartered by congress in 1913 with monetary control policy abilities that would otherwise have been in the hands of congress.

It’s actions are highly secretive.  By controlling the amount of money in circulation (along with who gets first dibs on it!) they control…well, everything, more or less.  Interest rates, money supply, jobs creation, level of inflation, level of debt, you name it…well…right up until the meddling gets to be too much and something blows up…depression, hyper-inflation, etc.  Hyper-inflation is what happens when a government’s central bank knows there’s too much debt and raises inflation to slowly reduce the debt burden…and loses control of the process.

Confused?

OK, say I loan you $100 in 1990 and you are going to repay me in 10 years.  Over the course of 10 years inflation drops the debt’s real-world value.  You repay me $100 all right, maybe more with interest, but if interest is low and inflation is high, you as the debtor do pretty well by repaying in “dollars” that are worth less. Whoever makes the loan gets hosed unless inflation is calculated in – and it isn’t with most loans. Well the US federal government is the world’s biggest debtor – so inflation helps a lot in keeping deficit spending going decade after decade.

Here’s just one example of how bad inflation really is.  In 1913 a Colt revolver model SAA in 45LC was worth $16.  Today a newly-minted specimen of the exact same gun is still available – for $1,600.  And weirdest of all, it’s worth just about the exact same amount in terms of weight of gold it’s worth…well…actually, it was until the price of gold started spiking of late.  (And gold is spiking because people are afraid the dollar is going to lose even more value soon due to the lunacy described in this document…)

The problem is that these “controls” over inflation and the monetary supply aren’t perfect.  They never are.  It’s like steering a car with a steering wheel that reacts a second or two late.  Things can get “interesting” real quick.  That’s the Fed’s situation, except the “steering delay” can be measured in weeks, sometimes months.  And that’s why the central bank in Germany let inflation get completely out of hand before Hitler’s rise, or why money in Zimbabwe had so many zeros on it before they just gave up.

And then there’s fraud.  There’s been two “mini-audits” done on the Fed in the post-blowup era.  While not a full accounting, both have revealed truly major problems.

The first report (based on public records requests from Bloomberg News) documents fishy loans to everybody from foreign banks to the wives of bank executives:

http://www.economicpopulist.org/content/federal-reserves-foreign-banks-rich-housewives-discount-window-pig-trough

The second is actually worse – it documented systematic conflicts of interest.  In other words, you’d have a member of a Fed branch board of directors who was also a top exec at a regular bank of some sort, voting to give his own bank a sweetheart loan.  And they more or less all did this in a sort of feeding frenzy despite much of it being outright illegal.  Senator Bernie Sander’s page provides a good short overview:

http://sanders.senate.gov/newsroom/news/?id=70c40aba-736c-4716-97d1-45f1a1af10a0

The full 127-page formal report:

http://sanders.senate.gov/imo/media/doc/d1218%20%282%29.pdf

6) The Federal Reserve Bank – The SYSTEMIC Fraud

This is actually the last chapter I’ve written in this article, and it took me the longest time to understand.  When I started, I assumed that the main reason Wall St. fraudsters weren’t being prosecuted was because the banksters had paid major politicians and bureaucrats (going all the way to Hank Paulson, Tim Geithner and Ben Bernanke) off wholesale and nobody wants to bust that many.  I think that’s still a factor.  The “smaller scale model” is how Savings’n'Loan fraudster Keating of the smaller bank scandal 25 years ago was busted and ended up tanking the careers of the five US Senators who helped him.  My thinking was, while Keating bought legicritters retail, Goldman-Sachs and the like bought them wholesale.

Well that IS part of what’s going on, but there’s much worse fraud afoot – fraud that could easily bankrupt the entire world.

First, let’s understand what the “Fed” is supposed to do.

They have a “dual mandate”: to support “maximum employment” and “price stability”.  To do this they have several tools: they can print more money to “heat up” the economy and they can raise and lower interest rates to have either a cooling or heating effect on the economy.  They were supposed to have controlled the “boom and bust cycles” that tended to run throughout the 19th and early 20th centuries.  Raising interest rates (to reduce credit availability) is supposed to keep “overenthusiastic bubbles” from running out of control.  But when the economy is lagging, introducing fresh cash and making credit easier to get (dropping the interest rate) is supposed to increase business expansion and employment.

This was their stated goals as of 1913 when the Fed was created.

One of their main tools is the ability to print money – “stimulating” the economy by making more cash available.  This is an ability congress has per the Constitution and they delegated it to the Fed.  These days they mostly don’t print the money exactly (or rather, order bills from the Treasury’s printers), they literally generate it electronically.

http://finance.fortune.cnn.com/2011/02/18/how-the-fed-prints-money-without-any-ink/

As they increase the money supply they’re de-valuing the dollar in proportion.  The dollar has lost 97% of it’s value since 1913 when the Fed took over the money supply.  Example: there exists a manufactured good that basically hasn’t changed since 1913 when the Fed was created. The Colt “Single Action Army” revolver in 45LC. In 1913 it was worth $16. Today it’s worth $1,600 I shit you not. And guess what? Just about the same raw weight of gold would have bought it then and now.

To a degree, when a country de-values their currency as a policy decision, there’s some upside. People who owe money benefit – I borrow say $100 from you when it’s worth a lot, and pay you later in less-valuable cash. The country with the lowering money value also gains in terms of exports – foreign buyers can come and buy the stuff you grow or make for cheap with your currency. Exports from other countries get more expensive but if you are a politician who wants your people to buy locally made/grown stuff instead of importing stuff, and you want to sell our stuff overseas, devaluing the currency starts to look like a good idea. Except savings and investment are discouraged and that bites you in the ass eventually.

Now, so far devaluation of the dollar (aka “inflation”) been controlled, mostly. Slow enough that people don’t get pissed off because their savings are being trickled away in a secret tax (which is exactly what’s going on). But it’s easy to have this get out of control…it’s called “hyperinflation”. You end up carting a wheelbarrow full of money down the street to buy a few basic groceries, a thief comes along and steals the wheelbarrow. I’m not kidding – that’s exactly what was going on in Germany between the wars.  I’m not terribly worried about this because I think we’ll blow up before that becomes an issue -  see also Chapter 7 on “derivatives” but in short I think we’re scheduled to get ripped off while the money is still worth something and we need to worry about hyperinflation only if we can stop that.

Let’s talk about “bubbles” for a sec.  Overly enthusiastic markets for something have happened before – from 1634 to 1637 Holland went through a big involving tulip bulbs I shit you not…crashed their whole economy when people finally realized that hey, a friggin’ plant was NOT worth the value of a whole house.

http://www.investopedia.com/features/crashes/crashes2.asp#axzz1dX4AAdRZ

So by 1913, we knew all about bubbles and how to spot them.  The Fed is supposed to control these pesky things by tightening money supplies and raising interest to tighten credit.  But from the late Clinton era through Dubya’s reign, the US housing bubble was allowed to run unchecked until it went all kablooey.

Why?

Well after 1913 came the Great Depression and the rise of economic theories championed by a guy name of John Maynard Keynes.  Keynes said (among other things) that when an economy was truly in trouble, government spending (even if it was deficit spending) could help pull things out of a nosedive.  During the Depression both the US and Germany (and many other nations) used massive government spending to pull clear.  The US spent money on major public works while Germany geared up for world conquest which thank the deity of your choice didn’t work out too well.  But both programs followed Keynes’ rules, more or less.

Now, Keynes has a lot of critics.  Those interested can study his whole program if you want and the alternative “Austrian Economics”.  But here’s the kicker: when times are GOOD, governments are then supposed to save money, build up a surplus, pay back any debt racked up in bad times and otherwise work in concert with a central bank like the Fed to keep things on an even keel.  This too is part of the Keynes recipe.

Well about 30 years ago, we stopped applying that second part.  The US congress started doing deficit budgets every – single – year.

There was a very short period late in the Clinton era where we managed to run a tiny surplus, but that’s only because the Federal Reserve Bank and the financial markets were running another massive bubble – the “tech stock bubble” (aka “the new economy”).  In reality, the stock of yahoo.com was NOT worth more than General Motors any more than a tulip bulb was worth more than a decent house in Amsterdam in 1636.

OK.  So the question is “why”?  Why did the Fed go from the tech stock bubble that blew up by 2000 straight into the even-bigger housing bubble, and let that inflate until it naturally collapsed in 2007?  Why did they let ridiculously loose credit flow like water with interest rates in the basement, which let anybody with a body temperature roughly near normal “buy” a house?  Which had the secondary effect of inflating the education bubble, with student loans also flowing like water because of the low interest rates?

Well it’s simple.

Two devils cut each other deals: congress and Wall Street (the latter working hand in hand with the Federal Reserve Bank).

Wall Street got protection from fraud prosecutions, a free reign to terrorize US consumers, tax breaks and ultimately, trillions of dollars in their gambling debts plopped onto the backs of US taxpayers.  Oh, and in 2005 student loan debt was barred from US bankruptcy courts, which yet again means a major protection for the banks who made bad loans at the expense of the “99%”.

So what did congress get?

The ability to do deficit spending EVERY year, “good” years or bad, with ridiculously low interest rates to allow this mountain of US taxpayer collective debt to roll over without the interest rates slaughtering us.

In effect, congress bought the ability to buy our votes with “largess” that the nation can’t afford.

And now we see why the housing bubble in particular (which anybody smart knew was gonna blow the hell up) was allowed to overheat.  Remember the Fed’s key tool to slow down an overheating bubble?  Right – raise interest rates.  But if they did that, the US national debt would implode under the interest rates and we go into immediate meltdown the way Europe is now.

Look, there’s a chapter below on Europe but a key indicator of major trouble coming is that when Italy just sold some 10-year bonds, they had to agree to nearly an 8% rate of annual repayment because the banks think there’s a strong chance they’re not good for repayment.  That’s why that clown  Silvio Berlusconi just quit – the banks were saying that with him in charge, the Italian economy was going to puke and die.  And they sent that message via the interest rates, which hit 7.5% or so just before he caved in.  At that point, big national debt turns into a killer.

Well the US interest rates are far, far less than that…because if they were allowed to rise to about that, the USofA would tank too for the same reason.  (This also means our savings are being stolen if any of us still have some, because both the inflation rate that they’ll admit to and the real inflation rate which is worse are way, WAY above interest rates.  If you stash money in the bank, it’s slowly being “ghost-taxed-to-death” by inflation, right now.  When inflation really gets out of hand such as in Argentina circa 2000, any money you get on a given day needs to be spent immediately before it loses more value later that day.  This is happening right now in the US, it’s just not as fast as true “hyperinflation” – yet.)

But…whooops…wait.  That means that while the Federal Reserve Bank is allegedly “driving” the economy, “steering” it between stagnation and overheating like it was planned to do back in 1913, WE’VE RIPPED OUT HALF THE MOTHERFUCKING CONTROLS TO THE CAR WITH A CROWBAR AND BLOWTORCH!  Interest rates can’t be used as a control without crashing the car immediately.

Oh…shit oh dear, folks.  We’re in for a very wild ride.

For one thing, the only remaining way to “grow the economy” and generate the taxes needed to pay off the deficit while keeping us all out of cardboard boxes and duct-taped tents is to launch another bubble (got any deals on tulips?!) but guess what, the banks themselves are too fried to do another really big one because they know that Europe and/or China is going to barf next and the smart ones are holding onto cash to try and weather that storm.

The Federal Reserve Bank is trying to pump more money into the economy with “quantitative easing” to bring us out of the recession, but there’s a problem: they can only give money to lesser banks instead of “main street” and the banks they do give money to are hoarding it pending yet more international bubble-pops such as Portugese/Italian/Irish/Greek/Spanish debt, the Chinese real estate market or any of several others.

And finally, we see the real reason for the bankster bailouts: without the combined support of the major Wall Street banks and the Federal Reserve Bank, the US congress would have to bring deficit spending under control, which would cost them most of their jobs.  The bastards have bought our votes with our money.

Bottom line: we have to re-think the entire way we run the economy.  We have to remove Wall Street’s control over it – AND we have to make sure congress can’t pull decade-after-decade deficits ever again.

Links…well Karl has some choice words as part of a response to Senator Bernie Sanders:

http://www.market-ticker.org/akcs-www?post=197194

But really, all you have to do is ask a simple question: when the housing market was clearly overheated, when low US interest rates were causing a giant credit party worldwide, why didn’t the Fed throttle back the credit tap with higher interest?  Because it would have slaughtered the world’s biggest debtor: the USofA.

Sidenote: I’m not even getting into how state and local governments are just as deeply in the debt toilet as the national government…it’s too complex but it’s just as ugly if not worse.  When it all comes unglued, the pain will spread down FAST through the rest of “government”.

7) The Worst Fraud Of All: Derivatives

The “Derivatives Market” is the most pure form of gambling den among the major banks.  They literally bet on various financial events, such as a rise or fall on a given stock, block of stocks, a daily average, any or all investments, the value of more or less anything imaginable.

The original goal was to hedge bets – make sure that one particular investment was balanced against possible blowup.  But it’s turned into the world’s largest casino ever…and the total amount of bets in play exceed a quadrillion dollars.

Yeah, that’s 1,000 times a trillion.  Seriously.

The total world yearly income is about 64 trillion dollars.  Even that much money doesn’t really exist in a payable form, in the whole world.

For a starting point on this fiasco, see:

http://theeconomiccollapseblog.com/archives/the-coming-derivatives-crisis…

Now, that’s not the most credible possible source of data.  It’s one of the least impressive links here in terms of being a grade-AAA source.  But as you’ll see, it’s very believable that there’s a coming blowup in derivatives on this scale.

“Bank Of America Holdings” is a large corporation that owns two companies: BofA the normal bank which has it’s problems but it’s still a “bank”, and Merrill Lynch which is now more or less a pure gambling house heavily tied up in derivatives, mostly relating to European markets which have their own issues we’ll get to in a bit.

Merrill Lynch is potentially on the hook for $74trillion in derivatives.  And it’s not the biggest derivatives player even in the US.  It’s in shaky enough straights that it’s creditors are demanding that the BofA parent holding company play a dirty trick: they want to transfer that risk (again, at $74tril it’s more than the total world economy!) over to BofA the normal bank – where the risk would be backstopped by the US Federal Deposit Insurance Corporation and from there, the US taxpayers.

To their credit, the FDIC is screaming bloody murder that this is bad news!  The Federal Reserve Bank however is saying “no problem” and supporting the deal.  In this, they’ve probably over-reached.  Too many people are becoming aware of this freakshow deal and there may be enough push-back from minor players in the financial system such as one Barak Obama to kill this mess.

But the fact that they’d even consider this insanity (and it STILL might happen!) shows how close to implosion this market is, and gives a strong clue as to the scale of the problem.

Links of interest on the BofA/Merrill Lynch deal:

http://www.heraldonline.com/2011/10/28/3499342/bank-of-america-derivatives-transfer.html

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/27/bloomberg_articlesLTQE7T6S9728.DTL

Short form: congress appears to have figured out this is a disaster and are planning legislation – possibly on an emergency basis.  Google search the following for the latest news as it develops:

https://www.google.com/search?q=BofA+merrell+FDIC+derivatives…

As of this writing (Dec. 7th 2011) this deal actually went through and put nearly $80trillion potentially at risk to the US taxpayer.

Worse, the 2005 “reforms” to the bankruptcy laws turns out to have an additional ugly “gotcha”.  Per those rules, known as the “Bankruptcy Abuse Prevention and Consumer Protection Act”, a bank’s debt in derivatives (gambling!) is accorded a much higher status than previously in bankruptcy court if the financial institution is “international” and hence qualifies as a so-far-rare “Chapter 15 bankruptcy”.

Here’s how it works.  The rules define for the first time a type of debt called a “forward contract”.  If you download the bill in PDF form from here:

http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.00256: (click on “text of legislation” and then the PDF “as passed”)

…it’s on page 129 (PDF page numbers):

(d) DEFINITION OF FORWARD CONTRACT.—
(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section
11(e)(8)(D)(iv) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(iv)) is amended to read as follows:

‘‘(iv) FORWARD CONTRACT.—The term ‘forward contract’ means—
‘‘(I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than 2 days after the date the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any other similar agreement; [emphasis added - the parts in bold are the fancy terms for "derivatives" plus it names other well-known-as-turds financial instruments such as "swaps" that helped blow things up in 2007/2008]
OK, so what exactly happens to “forward contracts” (derivatives, aka gambling debts) in a major bank’s bankruptcy action?

Well the damage is on page 157:

§ 561. Contractual right to terminate, liquidate, accelerate, or offset under a master netting agreement and across contracts; proceedings under chapter 15

(a) Subject to subsection (b), the exercise of any contractual right, because of a condition of the kind specified in section 365(e)(1), to cause the termination, liquidation, or acceleration of or to offset or net termination values, payment amounts, or other transfer obligations arising under or in connection with one or more (or the termination, liquidation, or acceleration of one or more)—

(1) securities contracts, as defined in section 741(7);
(2) commodity contracts, as defined in section 761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,

shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by any order of a court or administrative agency in any proceeding under this title.
Wait, what’s “Chapter 15″?  Well it’s a brand new type of bankruptcy – for “international corporations”.  Which the really big banks are.  All of ‘em.

Read the last two lines again, folks.  “Forward contracts” “shall not be stayed, avoided, etc. by any order of a court“.

Oh.  Shit.

So.  If Bank of America implodes, the derivatives debt is bigger than the entire deposit amount of ordinary US residents stashing their money there.  If they implode, the derivatives debt gets fed first, and with most of those being international trade, all our money goes rushing overseas.  And per this 2005 law, there ain’t a damn thing we can do about it.

And remember, any casino can be rigged – especially an unregulated, international casino like the world derivatives market.  They can set up exactly who our money will all go “poof” to.

Now, in BofA’s case the derivatives debt is economy-killing huge all on it’s own because they just took over Merill Lynch’s gambling books.  That one set of books is the financial equivalent of a dinasaur-killer asteroid.  But it’s not that much of an outlier!  Per Zerohedge all of the following megabanks (well, most are anyhow, I’m not sure of a few) have more risk on the derivatives market than they do normal bank deposits:

- JPMorgan
- Citi
- BAC (“Bank America Corp”, parent to BofA and Merill Lynch)
- Goldman Sachs
- HSBC
- Wells Fargo
- Morgan Stanley
- Bank of New York Mellon
- State Street Bank Trust
- PNC Bank
- Suntrust
- Northern Trust
- Regions Bank
- TD Bank USA
Source: http://www.zerohedge.com/sites/default/files/images/…

Karl Denniger at Market-Ticker.org has been covering this issue.  This is what actually happened at MF Global.  Customer deposits that were supposed to be secured under an insurance system similar to the FDIC deposit insurance for banks were instead held by the bankruptcy courts for months now pending figuring out who’s going to get what.  And in the case of MF Global, something even nastier is being talked about: “clawback”.  That’s what happens when you take your money out of a dying financial institution and the bankrupcy court figures you shouldn’t have done that because that money may need to go to somebody higher up the bankruptcy creditor food chain than you.  At that point the bankruptcy judge “claws back” your money even though it’s now in your possession!

http://market-ticker.org/akcs-www?post=198641

http://market-ticker.org/akcs-www?post=198650

If this same process happens to a bank, Karl thinks there’s a potential for clawback against anybody who suspected the bank was in trouble and pulled their assets out!  Personally I’m skeptical – that sort of thing would “trigger” immediate problems, pardon the nasty pun.

Well that’s it, folks, with or without “clawback”.  Now you know exactly how US assets will flow overseas to an insanely wealthy few who don’t even have to deal with international borders because they can buy whatever they want in any number of smaller countries if they don’t buy the countries first.  This is the mechanism behind the biggest fraud ever considered.  If US banking assets are raided in this fashion, by putting gambling debts near the top of the bankruptcy court food chain, it will very likely mean civil war.  Right here.

Even if by some miracle US bankruptcy judges act to protect US depositor money, the rest of the bank’s assets are at risk of being siphoned out on the derivatives market and if this happens to even one of the really big ones (again, look to BofA as a “leader”) the mess will be beyond any possible cleanup.  They call these bad boys “too big to fail” for a reason.

Historically this kind of thing isn’t even abnormal.  Psychopaths in power don’t understand the emotional impact of the ripoffs they pull.  They expect everybody to shrug and just go do something else when they get ripped off.  That’s what they’d do.  But for most people?  Let’s put it this way: this is exactly the level of ripoff, rich-friendly government policies and cronyism that cost Marie Antionette and company their heads in France some years back.

Oh yeah.  One more detail about this totally pro-bank turkey of a law from 2005 – it further pulled student loan debt out of any possible bankruptcy protection.  The trend had been in progress for a while:

http://www.finaid.org/questions/bankruptcyexception.phtml

This in combination with very low interest rates and easy credit caused an explosion in education costs in the mid-2000s, because the loans were easy and “risk free” because the poor kids can’t walk away from the debt under any condition.  If the debt COULD be discharged in bankruptcy (say, after a 5-year delay) then loans would have been scaled by the potential income of the degrees earned, and students whose grades started to stink would find themselves unable to get the next quarter’s loan.  Plus the overall costs would have been lower – the loans and their inability to bankrupt-discharge have caused a steady spike in school prices.  The whole system would have been more rational with limits placed on the loans due to bankruptcy options – less loans at stricter conditions.

Instead it turned into a loan shark’s feeding frenzy, with student loan debt now bigger than the entire US credit card debt.  US policy created that mess and a change in the laws putting the risk back (in part) on the loan sharks is overdue.

8) Greece And The Upcoming European Bank Holocaust

Portugal, Ireland, Italy, Greece and Spain have become known as the “PIIGS” – small nations within the “Eurozone” (common Euro economy and money) who are in serious trouble.  All have racked up major government debt, spending it on various social programs and inflated public sector employment.

Greece is the worst off.  They’re in a truly horrible spiral: the stronger Eurozone nations led by France and especially Germany have now arranged two rounds of debt reduction, neither of which have solved the basic structural problem of “too much debt”.  The Greek government has tried each time to cut spending to allow repayments of the existing debt, with inadequate results the first time (when banks agreed to a 21% shave off what Greece owes ‘em).  Germany and France have recently (Oct. 28th 2011) strong-armed the banks into taking a 50% shave, but even that isn’t going to help because it only reduces the total Greek government debt by 20% since most of it isn’t owed to banks.

Once this deal was announced on the 28th, Greek Prime Minister Papandreou wanted to put the new deal (covering additional austerity measures on an already crippled Greek economy) to a vote of the people.  France and Germany immediately had a shit-fit, and elements within his own government called for his resignation for even suggesting such a thing.

What’s going on?

Well first, bank fraud is yet again part of the problem – specifically involving our “friends” at Goldman-Sachs.  They helped the Greek government hide excess debt and then placed bets that the shaky financial deals they helped create would collapse.  This exactly matches a lot of what they did with US mortgage-based “investment” deals, where they put together turkeys of “investments” rigged to fail and then bet on the failures (which is both fraud against the buyers plus insider trading from hell since nobody else was in a position to understand just how stinky the deals were.)

http://www.gregpalast.com/lazy-ouzo-swilling-olive-pit-spitting-greeksor-how-goldman-sacked-greece/

But the Greek government shouldn’t have gone along with it and remain primarily at fault.  They bought votes with a huge ramp-up in social services and public-sector employment at massive wages.

What exactly is at stake here?

Well to understand that, you need to look to Iceland.  Their banks acted like pirates on the financial seas, small compared to the major US and Euro-mainland banks, but pirates all the same.  When those banks collapsed in 2008, the government (and Icelandic taxpayers) were naturally on the hook.  They were facing years, possibly decades of poverty paying off the criminal acts of their banking sector.

Except the people revolted.  They refused to take on the bank’s debts, forcing all three major banks into recievership (bankruptcy).  Overseas “investors/speculators” lost big, but, oh well.  The people of Iceland ended up in surprisingly good shape – the economy contracted between 2008 and 2010, but by early 2011 was climbing back up.  Essentially, they took a short “sting” but not a long drawn-out drama of ongoing “Greek tragedy” as Greece is experiencing right now.  Iceland was quietly allowed to do this because they weren’t part of the Eurozone common currency and interconnected bank systems.  The PIIGS are – so when they catch cold, Germany and France have sneezing fits from hell.  And the threat of the PIIGS defaulting is why you don’t see the media talk very much about Iceland’s success, because of fears of more Icelandic-style raised middle digits to theBanking Powers That Be[tm].

See also:

http://online.wsj.com/article/SB10001424052702304319804576387572241329838.html

Now here’s the kicker.  The “PIIGS” can’t “pull an Iceland” without completely screwing over the rest of Europe.  Because they share a common currency with stronger nations such as France and Germany, those stronger nations essentially acted as co-signers for the loans.  It’s as if parents (France, Germany, etc.) co-signed car loans for drunken idiotic teenage kids (the PIIGS).

This is why the political cartoons in Greece run towards a lot of “Nazi invasion” imagery (with similarly rude depictions of the French) while the people of the financially stronger nations feel like they’re picking up the tab for freeloaders.

Looked at from the point of view of, say, a German taxpayer, the situation is ghastly.  If they pay to prop up Greece now, they’re being screwed over.  But if they don’t and Greece “pulls an Iceland” by bailing out of the Euro and repudiating their debt, the German taxpayers end up having to prop up German banks with similar levels of tax dollars who lost their shirts on Greek debt…the German taxpayers are screwed either way.

Under the defaulting plan, Greece would do comparatively well.  They get the pain over with in a year or two, and recover by 2014-2015 at the latest with a bit less socialistic a form of government.

Just the threat of a Greek default (plus risk among the rest of the PIIGS of the same thinking) has already had major implications.  A smallish US “investment bank” by the name of MF Global has just gone belly up after dabbling in the Euro government debt market.  MF was led by former New Jersey governor Jon Corzine – who was CEO of Goldman-Sachs before that.  He tried to play G-S’s games without G-S’s resources and lost everything.  Just before that, a major bank in Belgium (Dexia) blew up due to holding too much Greek paper.

http://www.npr.org/2011/10/11/141246687/greek-debt-crisis-leads-to-dexia-fail

But it’s not just Greece at risk.  With Greece in trouble and threats of a total Greek default on their existing debt, the rest of the PIIGS are seeing their interest rates rise – which is basically the banks saying the risks (to the banks) are rising quickly.

Italy is by far the biggest of the PIIGS in terms of their total economy.  They’re now paying almost 8% on ten-year bonds, which is unsustainable – at that rate the interest over principle starts to turn into a killer.  And in terms of percentage of debt to the size of the economy, Italy is the worst off of the rest of the PIIGS, second only to Greece itself.  While there’s no bailout being talked about for Italy, that’s likely because it’s just not possible, they’re too damn big.

http://www.bbc.co.uk/news/business-14326026

Italy, like all other countries in debt, needs a constant “debt rollover” as various bonds come due. Between now and the end of the 1st quarter 2012 (four months away!) they need to come up with about $140bil in new loans to service debt coming due. Well as this has happened recently, the various banks that they try and borrow off of have come to the conclusion that it’s not that likely they’ll be able to pay up after 5 years, 10 years, whatever. And when that happens, first thing is the banks start raising the interest rates. In their most recent round of bond sales the interest rate hit nearly 8%, which is bonkers and just not sustainable. If it gets any worse, nobody will sell them new debt at all and old debt coming due will be defaulted on.

And Italy is way, way too big for anybody to bail out, outside of maybe China and they’ve got their own problems! With really major pain and effort Germany might be able to do it, but their constitution flat-out doesn’t allow it…in large part because their banking crisis between the two world wars led to all kinds of problems such as, fr’instance…Hitler, death camps, etc.  Berlusconi resigned because the banks no longer believed he’d be able to steer the Italian economy in a direction that could repay the near-Greek-level Italian debt.  The banks delivered that message with higher interest rates corresponding to higher risk of default: 8% for 10 year sovereign debt is unheard of and could easily trigger an Italian default.  The Italian economy is too big for anybody to “bail out” even in a half-assed fashion as is being attempted in Greece.  If Berlusconi’s successor doesn’t fix things damned fast, Italy is a bigger threat to the Euro than Greece, for basically the same reasons: too – much – government – debt.

To understand the dynamics of these messes, you have to think like a major banker.  It’s not easy, but here’s the world as they see it: let’s say three banks are owed $10bil each in 10 year bonds coming due around the same time.  One bank in England, one in Germany, one in France.  Each has to make the same choice: do we do a new loan of $10bil or so to make sure they don’t default, or do we call the debt?  Let’s say the Brit bank says “loan ‘em more”.  They cough up $10bil.  The Germans say “nein” and call the original loan – they might well get the $10bil from England and come out in decent shape.  The English bank is out $20bil – zero sum game, remember?  The French as usual wait too long and while they don’t dump another $10bil out, they lose the first $10bil.

Each bank made different decisions and got a different result.

Now here’s the kicker: in order for them all to win, somebody has to bail out the nation in question – Germany or the US.  If any one of ‘em calls the debt too soon before such a bailout can happen, they could all get screwed or just the first one to blink and call the note.  This isn’t just gambling, it’s high-stakes poker.  So they communicate to some degree while all working to stab each other in the back as they so dearly love per their early training in the stock market.

What does it all mean?

Well it’s likely that Dexia is only the first of a wave of European bank failures, similar to how Lehman Brothers had a chain-reaction effect across Bear-Sterns, AIG, Chase, Countrywide, etc.  Some of these US banks failed completely, others were propped up by US taxpayers either directly or as payments to get other banks to swallow junker banks that they’d otherwise have choked on.  US tax dollars put enough “sweetener” on Countrywide to get BofA to swallow them, and the same for JPMorgan eating Chase.  Either of these “heavy diners” might still puke and die over the poisoned diet.

Europe is looking at the same chain of events, but with a difference: each bank will look to it’s host nation for a bailout first, and each of those nations is much smaller than the US.  Belgium couldn’t bail out Dexia and when they looked to the Germans for help, they said “Nein!”  Expect this pattern to repeat.

And as we saw with the failure MF Global and the extreme risk of same to Merrill Lynch, numerous US banks who’ve dabbled in the European financial markets are likely to go down too, triggering either more US taxpayer bailouts saving banks from fraudsters or an immediate deep recession which could fall over into a depression.  Along the way that quadrillion-dollar derivatives mess could be used to siphon money from one “planned gamble” to another until it vanishes beyond even the FBI’s ability to track it – assuming they wanted to.

So what’s the plan to get all this under control?

Well in both Greece and Italy new “leaders” have been selected as opposed to elected.  Both have strong ties to the banking sector and appear to have been chosen for their willingness to bleed their own nations dry to satisfy the banks.  The new Prime Minister in Greece used to sit on the board of the Federal Reserve Bank of Boston, the new guy in Italy is one of the morons that came up with this “Euro” currency idea in the first place.  Discussions of the need to take over financial control from the worst debtor nations is running rampant:

http://www.guardian.co.uk/business/2011/dec/06/eurozone-shakeup-voting-rights…

Calling this “undemocratic” is absolutely on target.  So is “coup in progress”.

The US Federal Reserve Bank is saying they’re going to come to the “rescue” but to an unknown degree:

http://rt.com/usa/news/fed-european-bank-central-605/

The timing couldn’t be worse from a PR point of view because the full details of the last round of bailouts (to US banks mostly) is starting to come out and US taxpayers are getting seriously pissed in an election year when Ron Paul is running (oops):

http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed…

Where does it end?  Helifino.  It’s a mess and a half, for damnsure.  There’s a Euro-wide financial conference on the 10th of December, it’s the 7th as I write this…we’ll know more after that, or at least whatever they spin for us.

9) The Final Wildcard: China

China’s banking system is a capitalist monstrosity built by evil, corrupt commies.

http://bootheglobalperspectives.com/article.asp?id=98 – a short synopsys from 2005.

http://www.princeton.edu/ceps/workingpapers/116chow.pdf – a longer treatment, also from 2005.

http://theglitteringeye.com/?p=954 – very scary, not too long, yet again 2005…

(I just realized something…if these guys realized in 2005 that China could tank at the drop of the hat, and knew that this would affect the US economy something fierce…is that what triggered the radically pro-banker bankruptcy law “reforms” of…wait for it…2005?)

http://chovanec.wordpress.com/2011/08/20/victor-shih-and-carl-walter-on-chinas-banks/ – very recent data, and links to a series of videos that are a must-see.

It is much harder to figure out how close to the edge of collapse they are because of the Party’s near-total control over information.  But some things can’t be hidden, chief among these the “Ghost Cities”:

http://www.youtube.com/watch?v=rPILhiTJv7E

That’s 15 minutes produced by Australian TV.  Their economy is too closely tied to China to ignore this problem.

Why do those shops and apartments and entire cities stand empty?  Well it’s simple: they can’t be sold or rented at a fair market price because too many loan papers are out there based on their alleged value.  Marking them down and taking a loss is impossible without revealing the world’s biggest and nastiest real estate bubble, fueled by pure corruption and greed.  Many were built by companies with close ties to corrupt banks, often with bank officers who decided the loans also involved in the construction and/or development companies that profited from the loans.

Here in the US we have entire “ghost” housing subdivisions built late in the real estate bubble (2006, early 2007) and remaining unsold today.  But those are relatively minor…and they were built well enough that when we do finally get a recovery there’ll be some value left.

But these critters in China?  Too much sand in the concrete and other shoddy practices…most will literally fall apart before they become valuable enough to deal with again.

The only question is, when does that bubble burst and toss the world into a depression?  Hard to say.  A big enough European collapse caused by one or more PIIGS following Iceland’s lead and defaulting could easily do it…or it could easily be unstable enough to blow up on it’s own.

The best line of any of the economic commentators I’ve read applies to China: “when the tide is in, nobody can tell you’re swimming naked”.  In other words, when the money is flowing like water, insanely risky banking practices hide screwed-up fundamentals and insane risks. But when the “tide” goes out…whoops, you’re standing there with your genitalia seeing daylight.

That same commentator makes a good case that China is indeed about to get “nekkid”:

http://globalpublicsquare.blogs.cnn.com/2011/11/03/pei-swimming-naked-in-china

Upshot: Final Editorial By Jim March

At some point all this fraud will come unglued – or worse, it’ll cause entire economies to collapse.  All of the fraud happened with the collusion of government officials in the US, in Europe, in China and elsewhere.  My bet now is that Europe will tank, that $1,000trillion derivatives market will blow sky-high and that’s been rigged as the way all the top players will try and retire in luxury (or at least armored bunkers fit for a James Bond bad guy) via the rigged bets (and out of $1,000tril you know there’s some).

As the wheels fall off there will be significant revolt worldwide.  This process has already started in the Arab world, where economic corruption was a significant factor in the various overthrows.

Calling for a return of the separation of bank and speculator that the Glass-Steagall Act enforced (first enacted in 1933, repealed in 1999) will help but at this point that would be nowhere near enough.  Investigating and prosecuting the fraud in the US would help more, providing an incentive to real reform, putting politicians on notice not to support this insanity on pain of seeing their careers tanked.  If the politicians and bureacrats won’t prosecute fraud, we need to bring back the right to private prosecutions that have also been gutted in the name of “tort reform” over the last 20+ years.

Here in the US, the “Occupy” movements could easily form the core of the revolt once the various frauds are more obvious to more people.  Right now the first wave of people who have flocked to us are the homeless, but as the economic collapse spreads as it inevitably will, we’ll have a lot more than just the homeless joining us.  Official oppression of those calling for government and corporate reforms will increase, perhaps drastically before this is over.  Getting ordinary people to see the risks posed by the “bankruptcy reforms” of 2005 is potentially huge – if they figure out that every major bank is now pre-rigged to be drained out overseas via laws their lobbyists wrote, they might finally wake up.

If there’s a light at the end of the tunnel that is NOT an oncoming train, it is a chance to completely re-think the links between the people, our government and for-profit corporations – esp. those in the financial sector.

Meanwhile, the Occupations must continue as a necessary core around which serious reform efforts can coalesce.

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Jim March – 1.jim.march@gmail.com

Jim March is the 2nd Vice Chair of the Pima County Libertarian Party, and serves as an IT assistant and peacekeeper resource for OccupyTucson.  He is also well known in electronic voting reform circles, locally to Arizona as part of AUDIT-AZ, http://auditaz.blogspot.com and nationally as a member of the board of Directors at Black Box Voting, http://BlackBoxVoting.org