Tuesday, March 31, 2009

The derivatives market= $1.405 quadrillion. So how much is a Quadrillion?

To anyone that finds this topic interesting and has a Facebook account, I recommend joining the group ATCA. DK Matai is a Certified Financial Analyst and a Philanthropist out of Switzerland who throws a lot of philanthropy which good sugar to swallow this with, and yes I'm a critic of reports and he has his facts straight (and he's not trying to sell us stocks).

So how big is the derivatives market? A Quadrillion US dollars does not exist yet (sign of excessive fraud). The total net worth of the Planet Earth is around $100 trillion, or only 1/10th of a quadrillion US Dollars. The net worth of the United States floats between $50-60 trillion dollars. The square root of a Quadrillion is over 32 million. A Quadrillion dollars holds 15 zeros.

How big is $1.405 quadrillion?

This is $206,000 US Dollars per person on the planet. "According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.

The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.

Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers! For example, the North star is "just" a couple of quadrillion miles away, ie, a few thousand trillion miles. The new "Roadrunner" supercomputer built by IBM for the US Department of Energy's Los Alamos National Laboratory has achieved a peak performance of 1.026 Peta Flop per second -- becoming the first supercomputer ever to reach this milestone. One Quadrillion Floating Point Operations (Flops) per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second.

It is estimated that all the data found on all the websites and stored on computers across the world totals more than One Exa byte of memory, ie, 1,000 Quadrillion bytes of data...

...1. Subprime Mortgage linked Loans & Assets (USD 1.5 trillion) within Mortgage backed Assets (USD 5 trillion);
2. China, India, Eastern Europe and other Emerging Market Loans (USD 5 trillion);
3. Commodities (Commodity Derivatives at about USD 13 trillion);
4. Corporate bonds (USD 18 trillion);
5. Commercial (USD 22 trillion) and Residential property (USD 45 trillion);
6. Credit Cards Outstanding Debt (USD 4.5 trillion);
7. Currencies (Foreign Exchange Derivatives at about USD 62 trillion); and
8. Credit Default Swaps (USD 57 trillion) as a subset of all Derivatives (USD 1,405 Trillion).

The relative scale of the world's financial engine is as follows:
1. The entire GDP of the US is about USD 14 trillion and falling.
2. The entire US money supply is also about USD 14 trillion with rising Quantitative Easing in trillions.
3. The GDP of the entire world is USD 45 trillion and falling. USD 1,405 trillion is 31 times world GDP.
4. The real estate of the entire world is valued at about USD 65 trillion.
5. The world stock and bond markets are valued at about USD 70 trillion.
6. The trans-national universal model financial institutions own about USD 150 trillion in derivatives.
7. The population of the whole planet is 6.8 billion people. So the derivatives market represents about USD 206,000 per person on the planet."


The issue of Quantitative Easing is a heavy question. Bernanke and the current/former Treasury Secretary have been snagging taxpayer dollars in the form of a "bailout" and TARP to add value to the toxic assets without hyperinflation? Are the TARP funds supposed to absorb the inflation? Not sure how that works. Bernanke seems to be pro-inflation. Our Federal Reserve chairman and Treasury Secretary are engaging in some sort of financial contortionism to give value to the fraudulent assets. We've got creditors around the world to pay off!

And we all thought that the banks were just insolvent. It's been 6 months and $3 trillion dollars later (spoken $1.4 trillion spent on bailouts + stimulus + omnibus + earmarks + pork) and the banks have yet to lend. Many jobs have been lost since the initial collapse, many more people foreclosed on their homes since then. This obviously isn't working.

This is Obama on the Toxic Asset plan.


On a personal note:
As a late comer to the financial markets during the dot com economy, post layoffs from our brokerage firms finance professionals were forced to find work. Our options were finance/accounting, the real estate market or the Derivatives market. Working in a firm that invested in derivatives was like working in a prestigious niche that dealt with a market which operated like a sketchy pawn shop. Many savvy, marketable engineering/techie types with masters in their own field and MBA's ended up in this field. On my first day of work, my boss told us right out that these derivatives are "supposed to be backed by bonds". Everything I processed were. We were set up in the perfect work environment, were treated really well as employees. However noone understands the joy of processing a multimillion dollar settlement from any random firm (Countrywide, Morgan Stanely, etc.) in an unregulated market through inconsistant means when the pertinent information is on page 9 and jammed in the fax machine.

I wrote the story to illustrate this point, these bank and non-bank lenders knew they were selling krap. This story happened a few years ago. We knew this was coming, and we knew it was huge. Did we say anything? People were preoccupied in their personal gains during the booming real estate market. Talking like this would make anyone sound crazy unless the audience was already familiar with financial instruments. I'm trying to illustrate why I'm against the bailout.

Here's a Max Keiser video discussing the topic. He gets to the good stuff 6 minute into the vid. At least on blogspot you can just fastforward without waiting for the video to upload. 5 minutes into the video he discusses the role of the Federal Reserve and the status of our debt as is.

also found on http://www.youtube.com/watch?v=SdZMsPWnwMk

The markets were unregulated so finding accounts to hold the banksters accountable for their crimes is going to be a sticky wicket. Disappointingly enough, Congress has forced the taxpayers to be shareholders yet we have not seen one proxy. We have no rights as shareholders. They have not mentioned any sort of prosecution against these criminals. The AIG bonus issue is a red herring.

(I may have another video to upload shortly)

Sunday, March 29, 2009

Are Boomers the Most Selfish Generation in History?

Ah, the Beatniks. The NAM protestors. I'm not old enough to have been there so my bias comes from what I see today. But it looked like fun. FUN! But a generation later, these same people are preaching the essense of global warming as boomers enjoy their SUV's with a "save Tahoe" sticker on the bumper and telling everyone else what to eat, smoke or drink in lieu of the upcoming massive use of medicare budget.

Honestly though, I have to credit the Depression Era children for marching for our civil liberties and braving the coldest opposition in order for us to enjoy the rights and priveledges we do today. This is a real over generalization of course. The boomers are infact a large group and not everyone started or ended up in the same place. But I'm addressing the trends and the Boomers are a large enough group to take precidence over everyone else. Our Congress is made up of Boomers.

Someone had mentioned that this is the 1st generation to leave their children in a world worse than they found it.

1. The Boomers make up the majority of those who benefitted from real estate speculation, since real estate was priced fairly (as they had access to stronger real wages in order to save up for that mortgage. Gen Y has no chance in the current conditions. Don't think the public sector is going to enable them to afford legitimate mortgages on the excessively high real estate value).

2. The Boomers have demanded rises in Social Security (of course, hello inflation) however the future costs of Medicare and Social security alone will raise the fiscal burden $41 trillion to $52 trillion. http://www.gao.gov/cghome/d08446cg.pdf -see pages 17 and 18.
To make matters worse, it appears that we are going to be nationalizing the banks, at a cost of $1.4+ trillion in bailout funds approved by our congress and a proposed bailouts for those who gambled in the real estate marekt.

The net worth of America floats between $50-60 trillion dollars. OUR DEBT = OUR NET WORTH (or exceeds it). Hello! AMERICA IS BANKRUPT!!! China buys treasuries to keep the Yuan valued lower than the value of the US Dollar. However, Hillary Clinton is selling even more treasuries to China to finance our spending (the debt we have can be considered a Security issue, China can easily push our currency to collapse). And Geithner thinks that he can just tell China to raise the value of the Yuan. Kids, if we want to fix the detrimental trade deficit, we need to stop spending. Why is the trade deficit bad? The biggest economists, including Krugman believe that the deficit is the fundamental root of our economic crisis. http://www.economist.com/finance/displaystory.cfm?story_id=13251429 We can't have a public sector without a private sector and the private sector is vanishing to far away lands with labor so cheap Americans can't compete because of our cost of living index.

3. With that being said, they will be spending the their as of now non-existant grandchildren's salaries to save their asses NOW! The ironic part is that Boomers were the most open to Marxist ideals during times of protest (another selfish trait in my opinion) when Capitalism runs on greed. Capitalism allowed the Boomers to do so much throughout their lifetime, including the indulgence of credit and a middle class lifestyle for most. And this they refuse to leave to their children, while we, our children or the children that do not exist are left to pick up the tab--without a private sector due to offshoring and outsourcing because more Boomer CEO's and shareholders want to benefit from the cheaper costs (and same or lacking production).

4. Mind you, this crisis couldn't be created by itself. It needed willing participants to buy ARM loans to flip property to keep it unaffordable to the people who earn the average salaries in any town or city. Credit thrives on midlife crisis'. A technique often used in marketing is tricking people into believing they need something. Sure spending helps the economy, as keynesian economists preach. But if you don't have value, you shouldn't have credit.

Here are a few more articles concerning the silent Boomer group:
another blogspot.

So yes, I may be attacking the Boomers "unfairly". As Gen X & Y would be attacked for other items. Remember the Boomers raised Gen Y. Do I have issues personally with my Boomer parents? Absolutely. My parents foolishlly gambled away money in the real estate market in the amount that could've paid off my college education (which I paid for myself. I'm no Paris Hilton wannabe trust fund brat. The media ignores us, so you blame Gen X&Y for being spoilt based on what you want to see). Again, it's their money not mine. But now I don't want to pay for their Medicare and bail them out of their real esatte gambling on my lowered real wage. I (or the collective Gen X&Y) could not afford the real estate (as the free market should dictate, but gouged thanks to the misuse of the credit market), socializing our lifestyle with community property (or lack of ownership due to affordability issues) through means of ARM loans and public sector jobs while those who 'already have' privitize the gains. This is the reality. Gen Y is in the workforce. Gen Y is starting families. Gen Y should be building the support in real estate prices if the real wages, courtesy of the private sectors enables us to. The boomers are not retiring soon enough. But they're concerned with short term gains, although long term gains would benefit them if they wanted to increase their social security benefits.

We know that the system wasn't perfect, but the Boomers enjoyed more good times than bad. And the Boomers have the largest collective voting and purchasing power which makes the trends in the group influential. This group has more influence, than the current Gen Y in numbers and in financial matters. Its' a shame that most of those protesting the bad fiscal management of our politicians are infact Gen X and Gen Y. I will soon be adding to the numbers in protest.

My parents ignore the real wage troubles relative to the higher cost of living, like our collective society they suffer from the entitled, narcissistic trait of 'I have mine'isms. Shared between the left and the right. However, they look no further than themselves when discussing matters outside their realm. And again, it was the boomers who bought into more socialist ideals because we're not nice enough (preached by liberals who are a part of the worlds most selfish generation).

They approve of a credit bubble regardless of its' effects on the world economy (silence is consent). My parents need the media to tell them how to think, be it MSNBC or Fox News; both which are flawed due to political bias (serving political agendas, not ours). Again, it would be unfair to generalize an entire group based on the behavior of my parents. However, these things are a part of larger trends, the trends are in contrast to some freedoms that the hippies preached or preached against years ago. The result of trends as of now will make it difficult for Gen Y or later to make ends meet. Which is rediculous, our country has so much wealth. It requires pathetic fiscal mismanagement to result our country in the situation it is in today.

Saturday, March 28, 2009

Fiat Currencies-America in 2009 too similar to Weimar Republic

The talk is that the US is heading for inflation or hyper inflation due to the massive printing to pay for the US debts. The Weimar Republic is noted in history as the time when post WWI Germany, in financial ruin printed so much money that people were hauling wheelbarrows of money to buy a loaf of bread.

This is a comprehensive piece on the situation.

I'm loosely pulling together comparisons to show similarities are probably a general additude in human behavior reflected in politics during a time of crisis and need.

Germany lost and owed debts and reparations after WWI. Germany depended heavily on American loans as the Great Depression hit. The US today is borrowing excessively from China and other foreign creditors as we spend quite a bit of money due to the War in Iraq and Afghanistan and who knows what else. The Wyanmar Republic did not have the strong economy that the US has enjoyed, but they also didn't suffer issues such as massive trade deficits and credit crisis' as well.

During times of economic hardship, as a trend the votes swing to the left.
The Election of 1928 in Germany resulted in just that. The Social Democrats were only six seats shy of an absolute majority. This is again quite comparable to the democratic majority on Capitol Hill as of now. The Democrats in America hold the majority in the Senate and the Congress, along with a liberal POTUS. At this time, the NAZI's were seen as a minor radical group.

In 1930, the Nazis increased their number of Parlimentary seats from 12 to 107 due to the proportional representation provision. The right and left extremists had a larger combined proportion than the Social Democrat.

Again, I see this trend occuring in the US. Due to human nature. Americans tend to be centrists in their views, but when faced with hardships people turn further away from the center believing that it's a failed strategy.

Today, people are calling out for more socialism in our governmnet and communism has been praised.

Again, the Parliament (like the US today) added several taxes, yet programs had to be cut. Obama just spent over $3 trillion on stimulus and bailouts alone. America is already bankrupt. Which is beyond a disaster knowing how rich America really is. No other country has been able to create and build wealth and improve the quality of life at the rate America's freedoms and capitalism has allowed us to in the last 200 years.

The demand for gold has gone up in the last 10 years. The spikes in price/demand for gold mimic the spikes during the Savings and Loan Crisis. ETFs are manipulated and oh, mutual funds and mainstream brokerages such as Charles Shwab are now selling ETF's. However, the Fed does manipulate the price of gold, and there is probably not enough gold to represent the net worth in America. Other precious metals are enjoying a high demand, such as Platinum and Palladium (those seem to resist volatility in market fluctuations). Silver is a metal, yet it doesn't rise the way gold does. But may be more accessible for those who don't yet have $900 to invest in an ounce.

The fiat currency is in question. On April 2nd, the US will attend a G-20 meeting in London. The Chinese have already requested a global currency as a mixed bag of international currencies to hold as a reserve currency.

Okay, this is a personal note from myself. China is an inexperienced player in the global markets. China only thrives because of the trade surplus they received from America (as they impose protectionist barriers against the US in trade), which is enforced by the WTO. China did not create or innovate their own wealth. China has not had the long standing political structure that allows their people to do exactly that. As a result, THe only way they can compete in the global market is not through products of competative quality but through currency manipulation. The only benefit of China is their population of a billion, which is seen as an opportunity through the world if their leaders allow imports. bfd. India too has a population of a billion people, they're bright people who enjoy a low cost of living and have not caused deficits in other countries. Why is China entitled to make demands... if India is able to handle the fluctuations on it's own? There is no perfect country. But I'd rather do business with Indians than with the Chinese under their radical governments.

So exactly why do the Chinese get the soapbox to make such demands? The bill for a global currency (as a reserve) has already been introduced to Congress. I trust Congress less than I trust our enemies.

Our politicians are just incompetant sellouts who should be banned altogether from enacting any fiscal (esp. spending) legislation, regulations in the markets, federal reserve policy, proposals made by the treasury secretary, trade policies or strategic moves to our economy. These measures would probably be better off if voted on directly by the American citizens, we understand it better than they do. My late dog understands this better than they do. And it's only because we care, they don't.

Friday, March 27, 2009

the dangers of idealism, ideologies -- explained by a laissez faire capitalist

Before I get into the depressing topic, I would like to mention the reason why I defend my free market capitalist stance. It works like gravity, you can fly or ride a bike when you work with it. If you attempt to defy gravity, you will fall. As in other systems, government control is being called out. But these systems of bigger government ignore the fallacy of human nature, and the nature of narcissism and sociopaths.

Which brings us to the reason why free market capitalism works and the most important rhetorical question.

Who do you trust most with your money and affairs?

Do you trust the government?
How about a special interest whoring politician?
How about a Bush? Any Bush, Neil Bush (indicted for crimes in the S&L Scandal). Or Bush Sr (the president at the end of the S&L Scandal). Or what about Dubya, the manipulator of the great sequel of the S&L Scandal?

A NAFTA signing Bill Clinton?
How about derelgulating Phil Gramm?
Would you trust bailout bank pimps such as Paulson or Geithner?
How about a Jr. Senator from Illinois with no prior fiscal management or business experience?
Do any of these people have your own or their own best interest at heart?

Or would you trust yourself to be the most responsible with your own affairs?

Again, this all retorts back to the essense of human nature (and when I say "human" I mean faulted), and how do to work efficiently around with it.

Ideologies are irrelevant because absolutes are almost impossible.

These questions come up in light of the recent economic turmoil and the possibility of nationalizing our banks/financial sector/country in general. And I'm motivated to say these things in light of the misinformation broadcasted throughout the mainstream about the issue.

The likes of Naomi Klein seem to be or promote ignorance on the topic. She seems to be reactive (vs. projecting) in her protest so I can give her the benefit of a doubt that she has good intentions. However the details are that important and I hope somehow that people will or already are familiar with it.

Many accuse Ameirca's capitalism to be a violent one. Note, every war in history has it's roots in economics. When nothing makes sense, always follow the money. The main combats throughout the world have been fought between systems built on ideologies or governments with roots in a specific type of bartering system.
Societies throughout history have always fought eachother over something of value, be it land or even taxation (or oppression by the government resulting in poverty and starvation). I beg to argue that the violence in America is a result of a problem, not the system and the violence by America at times were committed in either defense of a different government (ie. communism- see Vietnam or Korean Wars) or for imperialistic purposes.

I personally find it baffling that communists and socialist sympathizers might call themselves "compassionates" or "liberals" would denounce capitalism when Communism and extreme forms of socialism (facism) have led to democides that outnumber the casualties in any war fought in American history. Communist Manifesto does mention force as a necessary means of control. Mao is one fine example. He was a poverty pimp, yet he pulled a nice bait and switch and murdered 35 million of his own people. I want to pull up two sources to cite my proof.

1. http://www.bigeye.com/062697.htm

"Mass-murderer Pol Pot was run to ground this week in the remote jungle of northern Cambodia. Leader of the notorious Khmer Rouge, Pot ordered the killing of at least one million `class enemies' in Cambodia's Killing Fields.
Pot is a monster, and deserves to be buried alive, like many of his victims. This marxist madman reminds us of an amazing, but little-know fact: more people have been killed in the 20th Century by their own governments than by all wars combined.

About 25 million soldiers died in World Wars I and II. Another 12 million were killed in this century's other wars and revolutions, a total of 37 million dead.

Under Lenin and Stalin, the Soviet government became the greatest mass-murderer in history. Lenin's collectivization and purges of 1921-1922 caused 4 million deaths. In 1932, Stalin ordered Ukraine starved to enforce collectivization and crush Ukrainian nationalism. At least 8 million Ukrainians were murdered. Others resorted to cannibalism.
From 1917 to Stalin's death in 1953, the Soviet Union, worshipped by leftists around the world as the acme of human political accomplishment, shot, tortured, beat, froze or starved to death at least 40 million of its people. Some Russian historians claim the true figure is even higher. In an ugly spasm of deja-vu, Russian troops slaughtered 80,000 Chechen civilians over the past two years.

In China. Great Helmsman Mao Zedong had 2 million `class enemies' shot when the communists took power. Another million Tibetans and Turkestani Muslims were `liquidated.' from 1950-1975. During Mao's crazy Great Leap Forward, in which China's farmers were collectivized en masse, an estimated 30 million or more people starved to death. Another two million are said to have been died in Mao's Cultural Revolution. Total: 35 million dead.

Hitler was responsible for the deaths of 12 million civilians, half of them Jews. The Nazis exterminated people because of race; the communists because of class or nationality. Hitler killed with gas; Stalin with bullets, cold, and hunger.
Some two million German civilians were killed in 1945, and at least 200,000 died in communist concentration camps from 1945-1953. The victories Allies handed back 2 million anti-communist Soviet citizens to Stalin in 1945: he had half shot, and the rest sent to Arctic death camps.

During World War I, the Ottoman Empire slaughtered or starved up to 2 million Armenians, the first great genocide of the new century.

In the early 1960's, 600,000 ethnic Chinese were massacred in Indonesia by government-encouraged mobs and soldiers.

During the Marcos era in the Philippines, 75,000 Muslims were massacred by government paramilitary gangs.

In 1971, Pakistani troops killed tens of thousands of Bengalis in former East Pakistan. Indian security forces and police have massacred great numbers of tribesmen in border regions, and many civilians in Kashmir and Punjab.

In the 1980's, Ethiopia's marxist regime denied seeds to `capitalist' farmers, causing a million people to starve to death.

A half-century of tribal massacres between Hutu and Tutsi culminated in the recent slaughter of half a million Tutsi civilians by Rwanda's Hutu government.

Serbia's nazi-nationalist regime conducted the massacre of 200,000 Muslim civilians in Bosnia.

There are many other examples. But just the figures cited above amount to almost 100 million deaths this century - deaths that were not caused by war or revolution, but by the conscious decision of tyrants, politicians, or bureaucrats to murder great numbers of their own people for reasons of ideology, religion, race or land.
Compare: 100 million people murdered by governments this century; 75% by communist regimes - to about 38 million killed in all wars and conflicts.

So let Cambodia's by now almost forgotten Pol Pot remind us that big governments, particularly those driven by ideology and idealism, have been a greater menace than big armies, heavy armaments, - even nuclear weapons.

In fact, Pol Pot's Khmer Rouge killed five times more civilians than did atomic bombs at Hiroshima and Nagasaki."

2. China's Bloody Century By R.J. Rummel
"1. Introduction and Overview [China's Bloody Century]

2. 105,000 Victims: Dynastic and Republican China
3. 632,000 Victims: Warlord China
4. 2,724,000 Victims: The Nationalist Period
5. 10,216,000 Victims: The Sino-Japanese War
6. 3,949,000 Victims: Japanese Mass Murder in China
7. 4,968,000 Victims: The Civil War
8. The People's Republic of China: Overview
9. 8,427,000 Victims: The Totalization Period
10.7,474,000 Victims: Collectivization and "The Great Leap Forward"
11. 10,729,000 Victims: The Great Famine and Retrenchment Period
12. 7,731,000 Victims: The "Cultural Revolution"
13. 874,000 Victims: Liberalization..."

Today, we have another issue regarding gun control and the second amendment. I can vouch and say that most homicides in America are committed with knives. The Census Bureau has the 411 on that.

The second amendment states that "A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed." This can be interpreted in many ways, but the point is that the people have a right to defend ourselves.

an elaboration would move to the fourth amendment, "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

Guns anymore seem to be symbolic of self defense. Today's society is becoming centered on intellegence and technology. Nobody is bombarding your home with guns for robberies. Well there are a few, and in self defense I understand why people would prefer to own a gun. I do not, but everyone I know does lock their doors when they're at home and often have a security alarms placed in their home, their businesses or on their car.

As represented by the recent economic crisis, including the Bernie Madoff scandal theft is occuring through more sophisticated matters. The mafia isn't showing up at anyone's home with guns. They're robbing people in a white collar fashion with sophisticated heists with the help of our legislators. Legislations have been enacted (then removed, thanks Gramm!) as a defense. Even with laywers, it's costly and often inefficient. Gun sales have recently gone through the roof on the eve of Obama's inauguration. Unfortunately, guns may not be the adequate measure of protection.

Which brings the topic to the next mystery. How can this subprime crisis be contained? Right now Geithner and Congress seem to add fuel to the fire by tossing money at CEO's. They're the fox guarding the henhouse. The shareholders should be the defendants, as they have direct influence over the affairs of the banks. Unfortunately, the taxpayers are forced to own stake in these companies without ever seeing a proxy. We will never get to vote out a CEO or take these banks to court like shareholders do (remember Enron?). Our "representatives" want our money without a say in how the matter is resolved. The people might have to take this on, again it's always the people (not the politicians) who do great things for our country.

Thursday, March 26, 2009

The Bailouts, Criminal banks, our Legislators and the Constitution

I hate law. I hate politics. I am an expert at neither and I personally hate them both more than the average American hates dealing with the CHORE that is this subprime lending mess. Yet again, it's a necessary evil. Since the American people are unconstitutionally dragged into this mess.

Dear Readers, may I introduce you to the tactic and rhetoric and fallacy that is called Fear, Uncertainty and Doubt. Or FUD for short. This is an older phenomenon. Bill Gates and Microsoft used this tactic to intimidate their competators Linux and IBM. Since the rise of the tech industry I've seen this tactic used along with ad hominems and red herrings to intimidate their antagonist. It can be called a lot of other things, jargon changes with it's intentions.

THe bailout initially violated the Constitution because spending bills must be passed in the House first and the Senate second before it heads to the President’s desk in the Oval Office. The bailout passed President Bush on behalf of Paulson before it was voted on by Congress and the Senate.

The night the bailout was proposed, our government declared Martial Law while the Constitution was being violated. They used scare tactics like declaring that the economy was going to collapse at that very minute, or that this was so complicated that Congress must resign all control of the bailout to the Treasury Secretary. This is a FEAR tactic. They depend on our ignorance to pull this off. Resourceful, accurate information on the scenario as is in an objective manner is not presented to the general public, or made easily accessible as a reference. That would solve our own purposes, not Paulson's.

One could have the media tell us that the universe supports these bailouts, I can go anywhere; such as a store or a gas station or anywhere people spend their money and people are complaining about this, openly. In public. Everywhere. I've heard clerks ask if this is really happening. In a logical sense, it shouldn't be.

Someone can tell me that the sky is red when my own eyes tells me that it's blue. There could be two reasons for this.
1. They confuse blue for red.
2. They are convincing me not to trust my sense. That i don't know what I'm talking about. That my eyes are fooling me.

This is uncertainty and doubt that will plague the financial crisis and any other unethical or manipulative schemes. I ran into this when realtors were defending the unjustly high price of real estate. The real wages didn't support it. Most of these properties were owned by specualtors. But they were telling me that "demand was high"... that "San Diego was a desirable location".

Okay. I'm a multigenerational decendant of San Diego and I personally know what homes sold for in the last 50 years in San Diego. Because my family has bought and sold homes in San Diego for 4 generations. The job market in San Diego was always muffled, as were the salaries. Therefore, in the last century the homes in San Diego were always valued at just above par (or average). The Cost of Living Index might have been 135, not 220. So I knew right away that the realtors were full of @#$!. Mind you, not one realtor or specualtor gave me any credible evidence as to why the real estate in San Diego was infact that expensive. Realtors were using ARM loans to speculate, artificially making the price of real estate unrealistically expensive. Natives of San Diego were infact looking at the home prices with their jaws to their knees, blaming transplants or the tech sector in the Bay Area for the "demand" (false, artificial demand) that got the price so high to begin with. Many of them were just concerned about their ability to afford a home in their hometown. The realtors were backed by the media pimping out the prices.

So that was a fine example of how Uncertainty and Doubt plays into a scenario. To sum it up, it's just exaggerated bull$@%! with absolutely no proven fact to support their claim. Infact, the facts proved otherwise. The average household salaries in that city in 2000-2005 were around $50,000 per year. This is not enough to qualify for a legitimate mortgage on a home that is valued at $750,000 (or whatever the average price of a house was at that time). Yet the Pied Piper, aka. the media played the tune of how great the housing market is (to justify the prices).

All this can be retorted to "hear say", aka Uncertainty and Doubt (of FUD). Or just straight out lies.

Now back to the bailouts.

When considering the bailouts, Not once did Congress even breathe the words "auditor" or seek their own council to interpret the situation to them before passing the bailout.

Not once did anyone bother to examine the possibility of suspending the mark to market rule; or any other means to make the banks solvent to keep businesses running (and people employed).

When 95% of Americans oppose this bill, signing it into law is infact Taxation Without Representation.

Note: The president swears to defend the Constitution upon taking his oath.

"I do solemnly swear (or affirm) that I will faithfully execute the office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."
—Presidential oath of office, Article II, Section 1, United States Constitution

So whose responsibility is it to protect and defend the Constitution? The POTUS of course. Obama taught Constitutional Law, he hates that thing and the Machievellian Prince knows better than most how to get around it. So are the lawyers supposed to protect us? Only if we hire them. So in the end, it's up to us to learn the Constitution and to do our sole duty to interpret, protect and defend it. We need to be familiar with it. Stand for something you'll fall for anything.

In reality, shareholders should be the only outsiders dealing with the bank during trial. The taxpayers and our money should not be involved with this, most Americans did not participate or understand the crime even. Without being melodramatic (I'm trying to prove a point here), this legislation is an unwarrented seizure or bond set on the taxpayers for the crimes of the banks. This is not just a moral hazard.

Think about it this way, one assumes control of the situation once they take responsibility for it. Sure it's not your fault if you're attacked and mugged, but it's your responsibility to defend yourself if you can or you suffer the consequenses.

Taxpayers are supposed to be watching this entire ordeal go down on the sidelines; without our Constituion, our liberties, our rights and our money seized from us. The 2nd Amendment, the right to bear arms protects us from that. Remove the 2nd Amendment and we have no case against unwarranted searches and seizures. The 2nd Amendment does not end with guns. (guns and gun control are symbolic of this gesture, and gun sales have been going through the roof)

This Congress may want to re-consider grand theft and larsony of the American taxpayers without the immediate scare of pine-tar torches and clatter of pitchforks; and tempermental women sitting patiently with heads on a stake right outside the gates...silence is consent.

Wednesday, March 25, 2009

A MUST READ: "The Big Takeover" by the Rolling Stones

preface: the people who were credited with the financial engineering, sorry I think they did a sloppy ass krap job creating CDO's.
By the way we can thank the moron REPUBLICAN Gramm for enacting the Commodities Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities.

The Big Takeover
The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

Posted Mar 19, 2009 12:49 PM

It's over — we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.


The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."

The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.

Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.

The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."

Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.

Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.

The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.

In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million-dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.

When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.

What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.

Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.

In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.

Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.


Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.

But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."

When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)

In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.


Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.

By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."

The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.

On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.

"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."

On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.

A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.

Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!

"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.

"But didn't these 'highly expert people' basically destroy your company?" I ask.

Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.

The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."


So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.

The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.

Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.

Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.

Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.

When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."

Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.

Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.


There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.

The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.

That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.

Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.

If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.

The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.

While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.

No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.

"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.


Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.

"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"

"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.

Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.

"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"

"None are worthless," Kohn snapped.

"Then why don't you mark them to market?" Grayson demanded.

"Well," Kohn sighed, "we are marking the ones to market that have market values."

In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."

When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."

Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.

And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.

The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.

"Do you believe that?" she says incredulously. "That's not what we had in mind."

Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.

This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.

"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.

Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."

Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.

This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.

Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.

In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.

In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.


The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.

In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.

God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Good luck with that, America. And enjoy tax season.

[From Issue 1075 — April 2, 2009]

Monday, March 23, 2009

Geithner throws another trillion dollars at the banks.

Well according to Geithner. Okay so the first billion TARP allocated fund didn't make the banks solvent. So they're demanding more money. Meanwhile, AIG blew $400,000 taxpayer dollars on a lavish party for themselves, lost $61 billion last quarter and oh... acted like jerks after Chris Dodd intentionally wrote loopholes in the bailouts allowing AIG to get these hefty bonuses for losing money. So the banks are demanding more money. Who's in control here? The government or the banks? Here's the logic. When a CEO bankrupts a company, either the shareholders or the Board of Directors have enough influence to change management, or have an executive removed. This is what business students are taught on the first day of Finance 101. This is also tested on other business/finance affiliated exams, such as the Series 7. There's a rumour going around that many politicians are vested with AIG. Or that AIG made some of the biggest contributions to our politicians. Maybe they're not in bed together, but they're sucking AIG's toes. But what the government is doing is preventing the natural course of events with these banks. AIG isn't even a bank, they're an insurance company with bank like duties (thanks deregulation!). Instead of allowing the shareholders and BOD to pursue these banks, the government is using our taxdollars to buy toxic assets from these banks, some like myself are kicking and screaming the entire way through. This should cost 300 million taxpayers around $5000. If my math is correct. I have better things to do with $5000 that I don't have in my back pocket. Sorry Bernanke. These toxic assets will not provide 100% returns. Just trust me on this one, I'll explain why. (for speed readers, go directly to the bottom of the screen) TOXIC ASSETS ARE UNSECURED DERIVATIVES These toxic assets are derivatives that are again not secured by a bond like they should be. If anyone is even reading this and they don't understand the concept of being "secured", a mortgage loan is secured with a house. An autoloan is secured with that vehicle. A stock is secured with ownership of a company. A future's contract (a type of derivative) is secured with ownership of a particular commodity. Or an option's contract (another type of derivative) is secured by 100 shares of stocks in either a long or short position. Derivatives are financial instruments that are secured by other financial instruments. The toxic assets in question are Credit Defaults. Credit Defaults supposed to be secured by bonds. CREDIT DEFAULT DERIVATIVES WERE SOLD TO FINANCE ARM LOAN INVENTORY When people are not able to pay off their ARM loans, the institutions would default on the agreed Credit default payments to the investor (often Hedge Funds). When the credit defaults were not secured by bonds, the derivatives were illiquid. They were merely an arbitrary agreement of money transfer between two parties making a risky gamble that the ARM borrower would pay their mortgages. When the borrower defaulted on their payments (due to increase in interest rates/payments, financial hardship, job loss), the lender had no payments to make to the hedge fund borrower. Because these things were not backed by bonds, they had nothing to give to the hedge fund traders. Hedge fund traders dumped these CD's. This is why the banks are illiquid. With that being said, a few questions come to mind that the Board of Directors or the shareholders should be asking the CEO's (but can't because the government interferred). 1. Who did the economic forecasting? What methods/models did they use? (btw, the Case Schilling Indes proved to be a JOKE!) 2. What business model was used to establish inventory? in other words, why is there too much inventory? What information were these decisions made from? 3. Who allowed the toxic assets to be sold in the first place? Sorry, if the share holders don't want these things, why are taxpayers forced to secure them? (see TARP) THE SEC IS NOT RESPONSIBLE FOR REGULATING DERIVATIVES. Most established derivatives are regulated by the Securities and Exchange Commission. Credit Defaults are not. Somehow the SEC got out of it after deregulation; when non-banks became mortgage lenders. Lastly, the quantity of derivatives traded were in the quadrillions. THE ENTIRE PLANET EARTH IS NOT YET VALUED AT A QUADRILLION DOLLARS!!! There was a lot of fraudulent derivatives sold world wide. It's going to cost a lot of money to secure these toxic assets. Who are they kidding?