What caused America’s economic collapse?
By Mark Wachtler
(ONN) Wall Street. With the collapse of the United States economy still in its beginning phases, most Americans are content with being in denial. To be fair, nobody really knows just how bad America’s economic collapse is going to be. Unfortunately, our Democratic and Republican elected officials, together with the national press, have done an incredible job convincing the American People that the worst is behind us and we’re actually in the middle of a recovery.
Other opinions are much more shocking. One such conclusion suggests that during the chaos of the economic meltdown, the government of the United States of America was overthrown. It wasn’t a military or political coup like in most countries. It was an economic coup. That may sound like a wild conspiracy theory or an overly dramatic exaggeration. We’ll leave that for the reader to decide.
We know you probably don’t care now, thanks to genius marketing. But very soon, you will care. And you’ll be asking the same questions as all your other friends, family and neighbors – How did this happen? When did this happen? Who’s responsible for this? Why didn’t anyone tell me?
There’s a reason nobody, including Bush, Obama and Greenspan, understands what happened, or how to fix it. That’s exactly how it was designed by the super-rich and super-elite on Wall Street and in Washington D.C. After years of research and reading documented accounts and testimony from the individuals that were a part of the Economic Coup, or helplessly witnessed it first-hand, we have put together this step-by-step account of how YOU, the American People, gave away your freedom, your liberty, your possessions, your country and your children’s and grandchildren’s futures.
Believe it or not, the ‘Housing Meltdown’ and the ‘Economic Meltdown’ were two completely separate things. Their only connection is that the ‘Housing Meltdown’ created the opportunity and setting for the ‘Economic Meltdown’. But on the way to the bank, something sinister happened. With a Republican ally in the White House, the world’s super-rich and super-elite, “My base” as George Bush affectionately called them, and the “shadow government” as referred to by others, enlisted Hank Paulson to carry out their instructions.
But how? When? Who? History will debate those questions forever. Based on numerous first-hand accounts however, here is the best summary we could put together with the ever-increasing confessions of those who were involved. Some only now realize they took part. And the worst offenders of all were the American People who let it happen without ever giving it a second thought, or a first thought in most cases.
It all started with America’s ‘Housing Bubble’. See our separate account of ‘America’s Housing Meltdown’ for more specific information on that. For the purposes of explaining the ‘Economic Meltdown’, we’ll just pick up where the ‘Housing Meltdown’ left off. For that’s exactly how it happened. International financiers, aka the world’s super-rich, had gone from net worths of tens of millions of dollars to hundreds of millions thanks to the ignorance of the American People and the corruption of the Republican and Democratic Party representatives responsible for monitoring Fannie Mae and Freddie Mac.
When America ran out of credit-worthy people to buy homes or take out a third mortgage or home equity loan, the once-booming housing market that produced mega-profits for small banks, mortgage originators, real estate companies, investment banks and hedge funds began to fizzle out. Addicted to guaranteed profits on their wagers thanks to the U.S. taxpayer’s guarantee on all Freddie and Fannie mortgages, the world’s banks and super-rich concocted a scheme to keep the record profits coming in.
Thanks to behind the scenes actions by America’s investment banks, overnight, small, local banks and small mortgage originating companies began giving out huge loans to anyone who applied, regardless of whether or not they had any income, a heartbeat or even human DNA. Both the local banks and mortgage originators knew these borrowers were frauds and sure to default on their loans. And the ones that were legitimate borrowers pursuing the American dream were victims anyway. The loans were bogus and doomed to fail. Not only because of astronomical interest rates and unachievable balloon payments, but also because of hundreds of pages of fraudulent, undecipherable, fine print that protected everyone but the borrower and the U.S. taxpayer. But nobody cared. Millions of Americans were sick of being homeless and desperate for a home of their own. And the banks knew the U.S. taxpayer was guaranteeing every one of these bogus loans. The fees from originating them were too enticing to ignore.
The investment banks also knew the loans were bogus and never going to be paid back. But they bought them anyway. Why? Why would anyone pay a fortune for something they know to be worthless? Because they had already bribed at least two of the nation’s three ratings agencies (the three being Moody’s, Standard & Poors and Fitch), with inflated ‘fees’, to rate worthless garbage as AAA. By rating them AAA, not only would the unknowing American People buy them, but they could also resell the AAA rated garbage to investors all over the world – pension and retirement funds, unions, mutual funds, hedge funds and private investors like you and me. The best part about these sub-prime mortgages was that the interest rates were astronomical, the fees were outrageous and all of that was hidden in pages and pages of fine print. The return on investment for the world’s super-rich was better than any other investment on Earth. That’s why the Housing Bubble kept expanding – it was a huge profit with no risk. The American People guaranteed every bet.
Even regular Americans began taking part. Homes multiplied with two or three home equity loans and midnight infomercials taught people “with no credit and no money down” to get rich buying and quickly reselling homes. But that still wasn’t enough for the investment banks. That’s when the money-stealing scheme gets really sinister. Unbelievably, the ‘Grand Scheme’ can be traced directly back to a half dozen criminal minds, including those behind Michael Milken and his evil empire of junk bonds. Being white collar criminals, these men had served their short time in a country club prison and were now free to rip off the world once again. Having gone their separate ways, they each individually found themselves working in the ‘new products’ divisions of the world’s largest investment banks.
It was at these 4 or 5 desks that the scam to defraud the world was simultaneously created, possibly without a conspiracy and by only an amazing coincidence. Admittedly, the supervisors, corporate executives, risk managers, board members and stock holders – didn’t understand the financial atom bombs that they were creating, and now defrauding the world with – all in the name of great American Capitalism and the Free Market system.
If the geniuses at JP Morgan, Goldman Sachs, Merrill Lynch, Bear Sterns and Lehman Brothers didn’t understand what they themselves had created, and everyone from Alan Greenspan, the SEC and the ratings agencies that rated them all AAA didn’t understand what they were looking at – how, you wonder, are we going to not only understand it, but explain it to the American People? Well, unlike all the above people and institutions, we weren’t the perpetrators of the crime and have no problem calling it like we see it. Also, we’re regular Americans, we speak the American People’s language. With the above people and institutions being the ‘who’, lets take a look at the ‘why’ and ‘how’.
The ‘why’ is simple – greed. The ‘how’ is a little more difficult to follow. So, stay with us here:
Home Loans – When the profits on legitimate mortgages maxed out and the profits on fraudulent mortgages also maxed out, they simply ran out of houses to mortgage and double-mortgage. That’s when the above half dozen individuals and institutions came up with the brilliant idea of creating non-existent, fake houses and mortgages. Basically, they were all the same thing – derivatives. These half dozen institutions literally opened up casinos and they were the dealer, unable to win or lose, only profit on the buying and selling of securities that didn’t even exist. They were ‘derived’ from actual home mortgages, but only in name. Thanks to the fantasyland created with deregulation, the investment banks opened their casinos and replaced roulette, black jack and slot machines with Credit Default Swaps, Credit Default Obligations and Synthetic Mortgages.
Unlike the legitimate odds of a regulated casino, the SEC allowed the investment banks to create games with 100 to 1 odds, 500 to 1 odds and even 1 million to 1 odds. Playing the role of middle-man again, the investment banks didn’t care who won or lost or whether the mortgages were defaulted on or not. They got rich from the fees they charged to play the game. There was one catch however – these weren’t mortgages and therefore not backed by Fannie, Freddie and the U.S. taxpayer. They were simply fictitious funds that were derived from other fictitious funds that were derived from even more fictitious funds that were derived from the original list of mortgages sitting on the desks of those half dozen investment banks and the former Michael Milken managers. By throwing a thousand mortgages into a pool, mixing them all up and then selling shares to investors, the investment banks now had a mysterious ‘base’ of trackable securities to create all the other derivatives from. When the original mortgages were paid in full or defaulted, it trickled down to the casino where investors won or lost their bets. It seemed simple enough.
But without Fannie and Freddie taking the positive side of the bet, the investment banks needed someone to replace the U.S. Taxpayer. They found it in the world’s hedge funds. At first, the bet was simple. The odds were 100 to 1 that the mortgages would default. After all, thanks to the many regulations that used to be in place, the American homeowner was the most dependable borrower on Earth. Rarely, if ever, did they default on their home mortgages. Through America’s recent history, 1 in 100 defaulted in good times and 1 in 50 in bad times. And the investment banks who created this game didn’t care either way. They got rich on each wager no matter who won or lost.
That was early on. Now however, the world’s largest investment banks decided to cash in even bigger and began gambling in their own games. On one side, you had hedge funds gambling that mortgages would default. And on the other side, betting the mortgages they created and resold would get paid in full, was Wall Street and the world’s biggest financial players.
Betting on Homeowner Default
Hedge Funds
Betting on the Homeowner
AIG
Citigroup
Lehman Brothers
Bear Stearns
Merrill Lynch
Goldman Sachs
JP Morgan
Deutschebank
The odds were 50 to 1, multiplied by a trillion dollars. When the mortgage was paid in full, the Hedge Funds lost and paid the banks $1. If the mortgage defaulted, the banks paid the Hedge Funds $50. But mortgages weren’t defaulting yet and the big banks were making huge profits off of the Hedge Funds. There simply weren’t enough Hedge Funds, so the big banks invested all their efforts into finding more and more players to bet against the American homeowner. Their yearly profits went from millions to billions overnight. Trillions in profits was their next goal.
But this is where it pays to do your homework. The hedge fund managers physically went to the small town banks and small mortgage originating companies. They saw first hand that billions of dollars were being loaned to dead people, little kids and even dogs and cats. They also knew that the most recent mortgages had a balloon payment coming up in two years that was impossible to make. Therefore, they kept betting against the American homeowner and endured their $1 losses. They knew that within a year and a half, they would begin winning their bets, and taking in a staggering 50 times their wager on each one.
This is where the old saying, ‘truth is indeed stranger than fiction’ comes to mind. Because once the tide began turning and the millions of fraudulent loans began to default, the investment banks that created the scam mortgages in the first place and knew for a fact were going to default, still kept betting on them. On the 23rd floor of some building, they were creating doomed-to-fail investments and on the 34th floor, they were buying these worthless investments from themselves. The greed and easy profits had literally blinded them to their own sinister reality. Instead of staying out of it and making a fortune as middlemen, the investment banks decided to take a seat at their own rigged table and gamble – and somehow, they still lost. The Hedge Funds had out scammed the scammers and were suddenly winning on their bets, legitimately, and only because they did their homework.
This is when the second phase occurred. The more intelligent and nimble investment banks saw the tide turning and after losing billions of dollars of borrowed money by betting on the American homeowner and the bogus mortgages, they suddenly switched their wager and joined the Hedge Funds on the ‘default’ side of the bet. Some weren’t so quick or wise and would soon suffer dearly for it. After all, most of these investment banks were not only betting on fictitious securities, they were betting with fictitious money. That’s right. That’s how out of control the biggest banks in the world were and how perverted the American financial system has become. They began gambling with money they didn’t have – the sign of a true addict. Half way through the collapse, here’s how the sides were drawn.
Betting on Homeowner Default
Hedge Funds
Goldman Sachs
JP Morgan
Deutschebank
Betting on dogs, babies, dead people
AIG
Citigroup
Lehman Brothers
Bear Stearns
Merrill Lynch
Up until now, 1 in 50 American mortgages were being defaulted on and the bet’s loser only had to pay up $50 two percent of the time. Now however, a staggering 1 in 5 mortgages was defaulting, just as the Hedge Funds had quietly predicted. The loser of each bet was being forced to pay off 50 to 1 and 100 to 1 odds, multiplied by hundreds of billions of dollars. And they couldn’t cover their bets.
This was the moment that President Bush went on TV and informed the world that the United States of America was on the brink of financial Armageddon and if “extreme measures” weren’t taken beginning immediately in the middle of the night and continuing over the weekend, America and its entire financial system would collapse. Reinforcing the seriousness of the matter, Senator John McCain suspended his Presidential campaign and assured the world that he would vote for whatever extreme measures and demands the international bankers thrust before him. Senator Barak Obama rushed to the White House and assured the world he would also vote for and support whatever extreme measures were demanded. To his credit, he did insist, “I’d like to read it first”. And President Bush, with the empty, scared look in his eyes, signed and authorized what amounted to a trillion dollar blank check to the very same Wall Street firms that bankrupted their own institutions.
Again, if America truly had a free market system, they would have simply failed and more honest, legitimate and better-run businesses would have picked-up their customers, employees and taken their market share. Instead, the super-rich couldn’t stand the thought of going from being billionaires back to mere multi-millionaires. So they orchestrated the biggest bailout in American history.
Let’s start with AIG. Strangely enough, it begins with the former head of Goldman Sachs Hank Paulson who was now Treasury Secretary. He, along with Tim Geithner, orchestrated payments to bail out AIG that totaled upwards of $100 billion. Unbeknownst to the American People, that bailout went right through AIG and was handed over to Goldman Sachs, on top of Goldman Sachs’ own bailout. Many experts agree that the only reason AIG was even bailed out was because it was needed to save Goldman Sachs and the super-rich and super-elite that comprise it, including Treasury Secretary Hank Paulson.
Citigroup was also given a huge bailout, probably second only to AIG. Some have argued that Citi was bailed out because it actually had a foot in America’s everyday communities – regular people would suffer if Citi went under. Also, Citi’s books were the most screwed-up and nobody, including Citigroup, had any clue how big a bailout they would need. Another factor that may have played a roll was that according to various accounts, the brand new and therefore oblivious CEO of Citi, Vikram Pandit, was the one and only big bank CEO that said – and I’m paraphrasing, “You can’t FORCE me to do ANYTHING. This is Unconstitutional. I know what you’re trying to do. And I don’t care how much you threaten me, I’m not doing it”. Whoo-hoo for Mr. Pandit, the only stand-up guy in the Wall Street penthouse.
Lehman Brothers was not only allowed to fail, Hank Paulson single-handedly pulled the plug. Some say the ‘shadow government’ needed a fall-guy and Hank Paulson decided it would be Lehman. Others believe it was simply a power-drunk move by Treasury Secretary Paulson to destroy the company that had rivaled him in his career at Goldman Sachs and who he truly despised on a personal level. The truth probably includes both.
Bear Stearns and Merrill Lynch were literally forced to sell themselves for pennies on the dollar by Hank Paulson and Tim Geithner. Individual accounts by first-hand witnesses repeatedly state that Paulson and Geithner used not only personal intimidation against the executives at the firms and the firms of potential buyers, but also threats of using the full force of the Federal Government to destroy any person or firm that didn’t do exactly what Paulson and Geithner instructed. They instructed the CEO’s to defraud their stock-holders and Boards of Directors by endorsing and forcing through purchases and sales of the largest firms in the world, in the middle of the night, with only hours of warning. And that’s exactly what the CEO’s did.
In conclusion, when the biggest financial institutions began gambling, literally, with billions of dollars they didn’t have, U.S. regulators should have stepped in and shut them down. But thanks to the inept SEC and Republican deregulation, that didn’t happen. Instead, we let them explode in a financial neutron bomb. Instead of letting the masters of destruction blow themselves up and leave the world a better-off place, our Republican and Democratic representatives in government reimbursed the very same Wall Street firms that perpetrated the fraud.
America’s super-rich and super-elite insisted that if we the American People didn’t reimburse them for every penny they bet and lost, they’d freeze the flow of money throughout the country and bring America to its knees. Strangely enough, even after the extortion payments were made, they still froze the financial system and brought America to its knees. Everything they terrorized us with that one day on the White House front lawn – saying if we didn’t bail them out, financial Armageddon would happen. Well, we bailed them out and they gave us financial Armageddon anyway.
Some believe it was to punish the American people for voting a Democrat into the White House and daring to try and limit their massive profits. Others simply believe it’s as simple as any corporation representative and employee will tell you, “My loyalty is to the shareholders. My only priority is maximizing their return on investment and constantly growing our profits quarter after quarter”. What they also mean is that they have absolutely no loyalty to the United States of America and if committing treason and destroying the very country that gave them their opportunity is what they have to do to honor their promise to maximize profits for the stockholders, that’s exactly what they have and will continue to do. If you don’t believe us, please reread this whole article again.
