Banking Scam Elites Keep Ponzi Bubbles Alive at Mainstreet Expense

Table of Contents

  • You Can Spot Ponzi Schemes by Banks and Governments
  • How to Spot Ponzi Housing Bubble Schemes
  • My Seeking Alpha Article About the Aussie Housing Bubble
  • Some of My Other Housing Bubble and Financial Articles
  • More on the Importance of Glass-Steagall In Preventing the Existence of Too-Big-To-Fail Banks
  • Crisis on Wall Street in the News


You Can Spot Ponzi Schemes By Banks and Governments

Bank scam elites caused the housing bubble in the United States, the dot com bubble, the housing crash and the dot com crash. Be sure to read the section toward the bottom of this page on the importance of Glass-Steagall, and it's repeal, which is a key to understanding the housing bubble bank scam in the USA. While this scam was international in scope, the ponzi lending scheme reached it's apex with the US housing market, hurting mainstreet in the process.

The first known speculative bubble in history had to do with a certain kind of tulip that became massively expensive before a massive crash took it down. With the Tulip, it is argued that speculators were permitted to avoid taking hold of the tulips, which caused the crash. Prior to this, Tulips futures were not options. One had to take delivery.

It is often mainstreet, and their investments, house values and over all wealth that is hurt when a speculative bubble bursts. This is not always the case, because mainstreet benefited when the oil price of $147 per barrel could not be maintained, although the bubble caused by Goldman Sachs and others not needing to take delivery of the oil was very painful to Americans. This along with the housing bubble were the two cancers of Wall Street that threw us into a recession that may last for years.

Certainly, the first easy rule in spotting a bubble is that the easy money is gone from the market. Easy money loans, for example, have fueled the Australian infrastructure market, but now that is gone. The banker elite are looking around for others to come in and invest to keep the ponzi going. They have their eyes on the superannuation or retirement accounts of Australians.

Another easy rule in spotting a bubble has to do with stock manipulation. When stocks are offered as initial public offerings, or IPO's, the investors can make a killing, leaving the buyers of the IPO to often struggle. The easy money gets out and the patsy comes in and buys. We saw this a lot in the dot com bubble. Goldman Sachs and other companies were underwriting crap companies, and the initial investors got out, only to leave the bagholders, well, holding the bag. Now we are hearing about the possibility for funding drying up for the 30 year mortgage. Talk about leaving homeowners in these mortgages holding the bag! They would be major bagholders with houses not worth anywhere near what they paid for them.


Will the Financial Cabal Get What They Want from Greece and the PIIGS Like They Did From Our Homeowners?

How to Spot Ponzi Housing Bubble Schemes

Ponzi housing bubbles work a little differently. Easy money is needed to generate the bubble after a sound time of lending. When the bubble starts, wage and rent ratios to price of the house makes little difference. The market starts out by requiring money down, a good credit report, and a history of responsibility. As the market matures, there is easy money being made available, with no money down, no credit check, and no skin in the games. Of course, the ease of qualification puts more demand in the market place and prices go up. Easy money pushes up prices, until it doesn't. The investors who flipped or made money selling the easy money paper get out of the market, and it crashes.

Repeal of Glass-Steagall and Creation of Basel 2:

The key to the housing bubble is quite simple. While Fannie and Freddie did assist in buying mortgage backed securities and by guaranteeing risky loans and Democrats fought for this, the truth of the matter is that both Republicans and Democrats voted to repeal Glass-Steagall by a landslide of 90 to 8 through the Gramm-Leach-Bliley Act of 1999. This allowed banks to gamble with deposits and mortgages and swaps insurance on those mortgages. This cause the massive amounts of swaps to be written as thebarrier between banking, insurance and brokeragewas destroyed by the legislation. This allowed massive swaps on the crap CDO's that entered the system, and this is what caused the massive mortgage bubble that resulted in the credit crisis and crash.

The Community Reinvestment Act has been around for years. It was used to help in subprime, and certainly it contributed to the bubble, but it was not the cause of the bubble. Without Wall Street being able to leverage up and gamble with your deposits, and that was pushed primarily by Republicans (Gramm, Leach, Bliley), the Community Reinvestment Act and subprime never would turned into a ponzi!

So, when you have the diabolical Tea Party leaders who are corrupt elitist Republicans blaming poor people for the credit meltdown, you are seeing history being rewritten. The truth is, and Fox News wants to protect the banks so they won't admit this, the lenders that were set up by Wall Street, and Wall Street itself were primarily to blame along with those who sponsored the repeal of Glass-Steagall which included almost all Republicans and almost all Democrats!

The three senators who sponsored the repeal of Glass-Steagall were all Republicans. That is the root of the housing bubble folks. The Tea Party fails to put the blame on the lenders and the Wall Street investment banks, where the problem centered! Fox has an agenda, and it is a lying agenda. The Community Reinvestment Act was around for 20 years and there was no bubble folks.

The Tea Party wants to blame the borrowers but as you can see they were not driving the car. The lenders and their puppet masters were driving the car. The responsibility for the US housing ponzi rests with Wall Street in collusion with the private central banks who allowed off balance sheet banking at Basel 2.

Basel 2 was supposed to have high capital requirements for banks, yet really that was a smokescreen set up by the Bank of International Settlements and her children, the central banks. In fact, Basel 2 allowed bad loans to be hidden in an Enron fashion, but without Enron penalties, and low capital requirements. The combination of low capital requirements and Bush tax cuts for the rich created huge liquidity as private debt in developed nations including the USA exploded.

I have heard insiders come on to that Metaprogramming network, CNBC, saying that keeping Glass-Steagall would not have stopped the housing bubble and crash. That is a lie. They are liars. Banks were able to make and purchase bad loans through using deposits (because of low capital requirements) and by writing insurance swaps against each other to protect themselves. This explosion of derivatives made lack of sound underwriting and liar loans possible!

The credit crisis was really a swaps crisis. The banks insured themselves against crap CDO's that they purchased, but then the insurance became suspect as it isn't regulated. When banks have a bunch of bad loans, they don't trust each other and the swap spreads rise.



Republicans and Democrats Both Pushed Repeal of Glass-Steagall So Banks Could Gamble With Deposits. The Sponsors Were Republicans

My Seeking Alpha Article About the Aussie Housing Bubble

The Aussie housing bubble is being driven by no money down private lending. And it was reported that ING was going to offer the perpetual loan. This would make the borrower a "mortgage partner for life". Can you believe it? A reporter who I was corresponding with emailed me and state he called ING. ING state that they had not yet decided whether to use this loan. This is an example of finding the patsy to keep the ponsi going. It will be interesting how many patsies will be found who will have no skin in the game, just to keep this ponzi intact. We need to watch the Aussie housing bubble and ING carefully, and warn our Aussie friends.

Keep in mind that the New Financial Order is behind ING. ING was originally BBL, a contributor at Seeking Alpha tells me. BBL was owned by Baron Lambert, the great grandson of Baron Rothschild. Of course Lambert gained fame in the insider trading scandal that took down Drexel, Burnham, Lambert. So then, perhaps the most powerful financial family on the face of the earth was interested in offering ponzi loans to Aussies! And apparently, the rest of their European friends are waking up to the Aussie housing market. The sharks are now swimming in the pool and Aussies may see a short term boost but once it has run its course, the crash will be horrible for Aussies!

Apparently these same people control Amro, the TBTF bank that had to be bailed out after losing a bet with Goldman Sachs. But then, Amro probably didn't much care. The ones who cared were the partners of Amro who lost their shirts.

There may be, though not proven, a link between Warren Buffet and Amro and ING. But my source seemed pretty sure that was the case. Guess that nice grandfather, Warren Buffet, is big on derivatives, big on ratings agencies who cheat, like Moody's, and big on ponzi's. If anyone has more info about this connection please post it in the comment section. Here is how the ponzi premium rental scheme (you own nothing) was supposed to work before they had second thoughts:

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.

At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.

“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”

Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices asrising house prices as they go.

Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.

Of course, what happens if this bubble crashes and takes many decades or a century to restore value up to the bubble levels? You never pay the loan off. If you bite for this I have a bridge to nowhere in Alaska that Senator Ted Stevens left me that I want to sell to you cheap!

Understand this: if you give money that is that easy, and the housing goes high enough, it could be hundreds of years for real estate to come up to bubble levels when it crashes. This is what happened in the Tulip Bubble in Europe many centuries ago.

More On The Importance of Glass-Steagall In Preventing The Existence of Too Big To Fail Banks

Glass-Steagall separated the commercial banks from the gamblers on swaps (insurance) and separated the commercial banks from investment banks. The separation of commercial banks from insurance and Wall Street stocks was passed during the great depression, as the fusion of these things hurt America then. This repeal of Glass-Steagall created the monster of massive derivative betting being tied to commercial bank deposits, and created a "Too Big To Fail" banking system that made it possible for crony big banks to get bigger because of the crash, get bailed out, and get made whole while mainstreet languishes. This selfish act of bailing these banks out to protect the derivative infrastructure rather than just bypassing these big banks makes Bush and Obama look like damn fools.

Swaps became a vehicle for massive betting. Ordinarily betting is regulated and insurance is regulated. But betting and insurance in this scam became part of the free market. But we know it wasn't free market capitalism, but rather a system controlled by the biggest banks in the world.US swaps are estimated at being well over 50 trillion dollars in the US alone.

That it is possible to bet on an asset that you don't even own are called naked swaps. Betting on the demise of a third party is inherently dangerous. If I bet on the failure of Greece, for example, and people get wind of it, they may be less inclined to purchase Greek bonds. Sometimes I think that Goldman Sachs got in trouble with the central banks for shorting sovereign debt, but of course, that is a theory and not proveable since Ben Bernanke and his foreign cronies won't ever tell us that!

The repeal of Glass-Steagall not only merged insurance and banking, but also banking and investment banking. Securities from mortgages could now become widespread. This securitization is resulting in such fraud as Foreclosuregate.

Add to all of this the ability to hide assets with off balance sheet banking permitted at Basel 2 in 1998, and you had the framework for massive mortgage fraud. Enron people went to jail for hiding their transactions off balance sheet, yet it was legal for banks to hide bad loans, which resulted in shareholders of the banks being thrown under the bus when the crash came.

The 90 senators who voted to repeal Glass-Steagall should all be put in jail for a long time. But of course those same senators are now trying the "fix" the problem of too big to fail.

Once it was repealed, deposits of commercial banks were used to make leveraged bets on crap mortgage backed securities that were rated AAA but were failing. They wrote massive derivative swaps to protect themselves against failure. This is indeed a derivative crisis, and that is what could destroy the financial system. I suggest we bypass this financial system.

I wrote this at Seeking Alpha about the real deliberate causes of the bank ponzi scheme and bubble:

It is funny. Basel 2 was supposed to raise capital requirements of banks, but in 1998 when off balance sheet accounting was permitted, the banks actually were permitted to operate with very low capital requirements. All that was left to start the housing bubble in the US was the repeal of Glass-Steagall, so that banks could write swaps to protect themselves from buying and writing crap loans, and the table was set.

The housing bubble was not done by accident. It was a deliberate plan to reflate after what they knew was going to be a dot com crash. This was well known in 1998 because these banksters knew that crap IPO's were being written and investors were getting ripped off. So, off balance sheet banking was just another way to fool investors. This was no accident.

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Comments 15 comments

Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

Very informative about a subject I don't know a lot about. It was an interesting reading. Thank you.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

YW, I will try to add something to explain Glass-Steagall's importance later.


ethel smith profile image

ethel smith 6 years ago from Kingston-Upon-Hull

Interesting and like HH new to me


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

It was a very sophisticated scam Ethel.


bioentrepreneur 6 years ago

bgamall, please elaborate on how glass steagal affected Goldman Sachs, Bear Stearns, Morgan Stanley, Fannie Mae, Freddie Mac, and AIG, because it seems those who are responsible for the financial crisis were not affected by the repeal of the glass steagal act at all.

I see a lot of prattle and bickering in your blog, but with no data to back it up.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Hello bio, thanks for stopping by. Glass-Steagall forbade banks from writing insurance on their products. With the repeal of Glass-Steagall banks were able to take on more risk than they ever would have done without the insurance to cover the bad loans they were making.

So, the combination of Enron type off balance sheet banking so the bad loans could be hidden coupled with the reduced risk of writing them, set up the ponzi. All that was needed was AAA from the ratings agencies and CDO's of crap loans could be sold all over the world. It was a pretty simple scheme and Phil Gramm made sure the casino was established, as he wrote the bill.


Tom 4 years ago

The only provision of Glass-Steagall that was repealed was the one preventing commercial and investment banks from being controlled by the same holding company. Massive regulatory firewalls made it impossible for this to cause problems for one or the other institution. Commercial banks are far too small to have brought down investment banks anyway, and when we recall that stand-along institutions, both commercial and investment, also failed during the crisis, the Glass-Steagall "repeal" looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place. We're going to need much more radical thinking than that.

Incidentally, the lack of government-enforced division between commercial and investment banking had precisely zero to do with the Great Depression. You will not find a scholar arguing to the contrary. You will find an occasional one saying that this might have become a problem in the future, but no one will say it had anything to do with 1929. What's more, European banks have never operated under Glass-Steagall restrictions.


bgamall profile image

bgamall 4 years ago from Las Vegas, Nevada Author

What you don't understand Tom is that the Euro banks are levered even worse than the US banks. The US banks piggy backed on that as soon as Glass-Steagall was repealed. The insurance swaps that were bogus also allowed the banks to lend easy money, and the repeal of Glass-Steagall helped that to occur. And sorry, speculation was destroyed by Glass-Steagall, allowing the growth of the middle class in the 50's and 60's.

You are a typical libertarian, and you are wrong.


TheMoneyGuy profile image

TheMoneyGuy 4 years ago from Pyote, TX

Bgamall,

I like how you look at things, and I agree this is, was, and always has been a Ponzi Scheme. But, I think the Ponzi has predated this crisis. The more I contemplate it, I think what we witnessed, was actually insurance fraud.

Something to think about, the loans are cut into tranches based on characteristics of the loans, then the tranches are packaged into a bond. Since the loans look like a sampling of the loan market as a whole. Not all loans in any single bond could have failed, therefore, most CDO's have not only been paying some income stream, but also, still have the underlying value of the real estate attached as collateral. By, forcing AIG to pay up on the default swaps was a little nefarious, in that basically, they paid face value, for an assett, that was for all tenses and purposes was still paying, just not exactly as expected or predicted. But, valuable none the less. The loss in value was a direct result of banking actions by freezing up the credit market.

I know the bonds were and are still valuable, because if they weren't the banks would have hawked them at pennies on the dollar and that never happened. They have held and continue to hold those assetts. Keeping that income stream and inherent value of the collateral.

Just a thought.

TMG


bgamall profile image

bgamall 4 years ago from Las Vegas, Nevada Author

I agree that insurance fraud was at the heart of this. Even default in Greece doesn't trigger these useless CDS's. And in America AIG couldn't pay them. However, mark to market caused the crash and was implimented by the financial system to deflate the markets. Then churn raised the markets back up starting March, 2009.

But easy money is always unsustainable, especially in the quantities of loans made with toxic terms.


TheMoneyGuy profile image

TheMoneyGuy 4 years ago from Pyote, TX

I forgot to mention mark to market, I was still working at AIG when I first heard of that. Most of the people in that trade, the workers, liked the concept as that gave them a really fast way to use rank sum statistics on valuations of an institution based on their holdings.

And on straight stick debt instruments it was actually quite accurate, fast and useful.

The problem came in how do you classify CDO's in the mark to market system. There was much legal maneuvering to decide how the CDO would fit into a method that became the de facto legal standard. I remember the memo's flying back and forth.

In a regular bond(loan), there is a principal amount, an interest rate, and a time period for repayment. Violate any one of those and the instrument is in default. Pretty straight forward eveyone understands that formula. No one doubts if they short the bank on any of those elements the repo man will make a visit.

But these CDO's weren't exactly straight forward, and that was because they were broke into tranches based on characteristics of the loan(even if they weren't people pay back their mortgages at different rates even if they all have the same kind), that gave it a particular payback period of say 7 years, 10 year, 15 years, 20 years. When the credit market froze up, and people were not selling there houses in the normal intervals the time components of those bonds were no longer valid(in a very loose sense).

So, then it got ugly, since the bonds (even though paying within the parameters for the most part) weren't paying the principle back in the right timeframe, under mark to market, these companies were declaring them at a zero value, and making claims against their insurance.

Of course none of the insurers were buying that, they weren't ignorant to the working of the instruments, but it went into arbitrations and the courts for a good 2 years before government said though shalt pay, but don't worry we won't let you fail.

The part that chaps me about the whole thing, and I am sure this is what led to my need to seek other employment opportunities. Was, the fact that everyone, kept yacking about the houses in default being the cause for the bonds. This was not true, except for a small percentage of bonds due in the 2008,2009 timeframe, the default rate had not hit the trigger limit on the vast majority of bonds.

The bonds were based off a historic default value of the great depression, and given a little bump. So, until the default rate hit above 15 percent, which it only barely has done a couple of times. Then and only then was the bond not performing as expected by the buyer(but eighty percent of the other mortgage were still paying in the bond). The return of the bond has that default rate factored in. Since the actual mortgages are randomized before packaging to ensure only a minimal amount of bonds could be severely affected by a tanking of the economy.

Long story short, if it wasn't for mark to market, the whole fiasco would never have happened. I don't think if any reasonable person, not influenced by the people looking to make a fortune, heard the case for mark to market, they would not have ruled its applicability to CDO's. Everyone in that decision should be put on trial.

You know what else bugs me now looking back, all those empty houses, the bank got there's, the investors got their's, the insurance companies got their's, the people playing the financial hot potato game got homeless.

TMG


bgamall profile image

bgamall 4 years ago from Las Vegas, Nevada Author

You are making a case that the housing bubble crashed because FASB, an arm of the central banks, applied mark to market. Now, we do know that the housing bubble started to tank in 2006. But the real crash of house values was in late 2008. So what you are saying is that after the run on the money markets in September of 2008, the powers that be decided they had to take the housing market down through the mark to market of the CDO's in order for the bad collateral that was deposited at the money markets would not be used any further. Right?


TheMoneyGuy profile image

TheMoneyGuy 4 years ago from Pyote, TX

Sort of, as I recall, FAS made a rule that basically said you could no longer value the bond based on its underlying real estate value (prior to that rule you could pretty much say what you wanted on a CDO as to value), but at its actual market value, basically there was no market in 2006,2007,2008 (when the rule was in effect) so essentially all those positions got wrote down, for no real reason other than there was no market. As we all no the real estate market tanked and large amounts of homes went into foreclosure, this was do to no money being available, no money was available because under mark to market the banks didn't have the reserves necessary to borrow from the fed, since the bonds were worthless. In 2009 magically they say you no longer have to use the actual market, but what the market value would reasonably be in a normal market, so magically all the bonds have value again. I was not an accountant, I was just a trader, but of course I read all the company emails about what to say to customers and what not.

My only regret is not forwarding many of those emails to my personal account. You talk about a no no. One of my managers thought I forwarded an email to my personal account and threatened to report me to compliance. I really learned to hate that job. Although, I was told that every email was kept by law. So, if no one messed with the data, every email sent internally at AIG should still be there. To bad you can't do an FOI request on a major corporation.

TMG


Eilis 4 years ago

The root problem are the puppet masters of the banks, corporations and governments who are using this crisis to create more power for themselves. Governments and banks need to decentralise. Local and answerable to the people is what is needed.


bgamall profile image

bgamall 4 years ago from Las Vegas, Nevada Author

I agree Ellis. Well said.

And so,Moneyguy, bonds are market down, for a time at least, when there is no market. That is sort of optional right? Because in March 2009 they stopped marking them down, like it was a miracle, only it was simply manipulation.

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