'It is this ever increasing desperate attempt to manufacture profits out of thin air that has brought our banking system to the brink of collapse'

From: “Financial” Crisis?

Our leading financial institutions have gone over the line, the result being what financial reporters call a “crisis”. This is not a question concerning economic orientation. These are questions of morality, criminality and national character.

The major-league bunko artists that have brought this nation to the brink of ruin took their lead from practices perfected down on the farm. In the minor leagues of high finance, certain sectors of our lending establishment have long feasted on the desperate and naïve elements of our society living from paycheck to paycheck. These seedy practices are widespread and readily apparent in the car- loan, check cashing, credit card, student loan, and paycheck loan operations that prey on these desperate folks. In these industries, the more you take advantage of your customers the better off you are. Too many of our fellow Americans earn their living everyday by selling bad deals to the rest of us. The worse the financial instrument is for the customer, the more money they make in profit and commission. These sordid practices were an inspiration to our banking elite. They were an enabler of things to come.

This malevolent consciousness provided the architecture within which the initial fraud that underpins this scandal occurred. In the past, predatory loans represented a hardship to the borrower, but lenders still predicated profit on the expectation of being paid back. Today's mortgage brokers issued loans to homebuyers knowing full well the borrowers would default. Every professional credit review informed the lenders that they were handing out loans that would never be repaid, and that they would never see a profit on the capital they were “investing”. This is not the twenty bucks your buddy “borrows” from you at the pub on Friday night. We are talking about hundreds of billions of dollars, perhaps trillions. The loss of such sums would represent the greatest disaster in our financial history, yet this huge amount was exposed knowing full well that it was not properly secured. This exposure had to be covered up, and this cover-up can be described as “stage two” of the scheme.

The availability of bad mortgages distorted the market for homes by increasing demand. This distortion in demand artificially increased home prices, an increase that provided a smokescreen to the underlying unsound mortgages and a rosy story for the business desk to report. These market distortions cannot be understood by traditional financial analysis because they were predicated on unsound principles, and perpetuated outside the bounds of all normal lending models. Even if the press didn't, the perps knew these mortgages were no good. The proof of this is how fast they repackaged them and got them off the books. After all, if they were good loans, why the bum's rush to get rid of them?

This derivative process can be likened to the role that “fences” play in the criminal underground. Hot goods are not worth a dime unless they can be fenced, turned into cash. Banks, institutions run by our leading citizens, took these highly questionable mortgages off the hands of the mortgage lenders, keeping the fraudulent scheme alive. Like an art thief scribbling a moustache on the Mona Lisa, losing mortgages were turned into derivatives. Apparently, on Wall Street, you can make a silk purse out of a cow's ear. In this way, they enabled the unscrupulous lending they depended on to continue evading the economic consequence of a shady practice. While this went on, the financial press did not see a thing, nor sound the alarm, but restricted their abbreviated commentary to the single word: “bubble”.

To make the swindle complete, one more “accessory after the fact” was required. They needed somebody to provide a French bath to keep the stink off. The firms that rate bonds and derivatives provided this final link in the crooked scheme. Ratings agencies are supposed to be the Sergeant at Arms for the bond markets, providing one last firewall, protecting investors from instruments of dubious quality. Despite the fact they were based on bad loans, this garbage paper was allowed to enter global markets with a “Triple A” rating. These austere gentlemen were acting in a manner akin to Al Capone slapping a Stolichnaya label on a bottle of bathtub gin. Once again, the business desk missed the story, only continuing to murmur softly, “bubble”.

In the last few months the entire fabric of this scheme has come unwoven. Reported losses have already amounted to several hundred billion dollars. Lending institutions have lost so much money; they don't have sufficient funds to make the legitimate loans
that allow for business expansion. This they call a “credit” crisis.

When a sun-glassed coke-head on a used car lot informs a customer (who may be a recent immigrant barely able to comprehend English), that the “good news” is that he has qualified for the special low rate of l6% on that lovely overpriced rust-bucket, we all know what that is about. But when you can no longer distinguish between that used car salesman and the heads of our largest banks; that is a sorry spectacle.

How can we explain the financial media missing the biggest story of the century?

The community of business journalists and economic commentators, including great newspapers, several magazines and a fistful of cable networks, did manage to send up a warning balloon. They called the situation a “bubble.” That was their way of saying, “there is something going on here, but we can't say what it is, can we Mr. Jones?”

At that point, we should have gone on alert. After all, it was less than a decade ago, that our economy last suffered the damages caused by a “bubble”. That scam was called the dotcom “bubble”, when any jackass that could post a pricelist online was hailed, by our friends at the business desk, as a captain of industry. Have we forgotten how the entire nation was gulled into spending billions on resetting the clocks on our computers? We all learned then, or should have, what a “bubble” was and the damage it could do. When the dotcom bubble burst, to begin the new millennium, billions were lost. But today's bursting, perhaps because we seemed to have learned nothing from the last one, is much, much worse.