The subprime mortgage crisis and subsequent financial crisis did not come as a surprise to many and was certainly part of a larger agenda by the globalist banking cartel to steal the wealth of the middle class and further subjugate them to their New World Order.
The 2008 Financial Crisis: Crash Course Economics #12
The crisis began with the bursting of the US housing bubble and high default rates on “subprime” and adjustable rate mortgages (ARM). Once home prices failed to go up as anticipated, refinancing became more difficult and defaults and foreclosure activity increased dramatically as easy initial terms expired and ARM interest rates reset higher.
As a result, millions of Americans lost their homes to the banking cartel in what is perhaps the greatest looting of the middle class in the early 21st Century.
Every American president for decades along with both Democrat and Republican representatives were complicit in carrying out the agenda of the globalists bankers using the Hegelian Dialectic, or otherwise known as Problem – Reaction – Solution.
The process begins first with a created problem…
I’ve heard many people criticize the deregulation brought about by the Gramm-Leach-Bliley Financial Services Modernization Act in 1999 as a primary cause of the subprime mortgage crisis. The argument is that the Financial Services Modernization Act repealed the four provisions of the 1933 Banking Act (often referred to as the Glass-Steagall Act) that separated commercial banking from investment banking. Two provisions of the 1933 Banking Act prohibited a bank from offering a full range of investment, commercial banking, and insurance services. The problem is… it did not repeal the specific provisions of Glass-Stegall that called for that separation. In fact, those parts of the Banking Act of 1933 that separated investment and commercial banks was not changed by the Gramm-Leach-Bliley Act as many have claimed.
In February 2009, one of the act’s co-authors, former Senator Phil Gramm, defended his bill saying, “GLB did not deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.” [Phil Gramm, “Deregulation and the Financial Panic”, opinion pages of The Wall Street Journal, published and retrieved on February 20, 2009]
Only the two provisions that restricted affiliations between commercial banks and securities firms were repealed by GLBA.
It would appear that the deregulation narrative was only a straw-man argument designed to take your attention away from the real cause of the mortgage crisis.
I’m reminded of the words of President Regan… “In this present crisis, government is not the solution to our problem; government is the problem.” [January 20, 1981: From Reagan’s Inaugural Address.]
Certainly the Federal Reserve had a role in creating the subprime mortgage bubble with easy cheap money (from May 2000 to December 2001, the Federal Reserve lowered the Federal funds rate 11 times, from 6.5% to 1.75%).
The Community Reinvestment Act encouraged lending to uncreditworthy consumers and later amendments to the CRA in the mid-1990s, raised the amount of home loans to otherwise unqualified low-income borrowers. In Congressional debate on the Act, critics charged that the law would “distort credit markets, create unnecessary regulatory burden, lead to unsound lending, and cause the governmental agencies charged with implementing the law to allocate credit.”
Signed into law by President Jimmy Carter in 1977, it also allowed for the first time the securitization of CRA-regulated loans (derivatives) containing subprime mortgages.
Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged that the CRA with “forcing banks to lend to people who normally would be rejected as bad credit risks.” In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.
The Commodity Futures Modernization Act of 2000, cosponsored by Sen. Phil Gramm (now a vice-chairman of UBS Investment Bank and was John McCain’s presidential campaign co-chair and his most senior economic adviser from summer 2007 to July 18, 2008.) was signed into law by President Bill Clinton on Dec. 21, 2000.
It allowed for the creation of a new kind of derivative security, the single-stock future, which had been prohibited since 1982.
This legislation provided certainty that products (derivatives) offered by banking institutions would not be regulated as futures contracts, thus setting the stage for a massive concentration of financial power and setting up the investment dominoes ready to tumble.
One provision of the Commodity Futures Modernization Act was referred to as the “Enron loophole” and is blamed for permitting the Enron scandal to occur. The “Enron loophole” exempts most over-the-counter energy trades and trading on electronic energy commodity markets from government regulation.
McCain, Enron and Gas Prices
With the pieces now in place, the bubble was inflated.
To inflate the financial bubble even more, these derivative products were “insured” with Credit Default Swaps amounting to $62.2 trillion in 2007.
This “global financial supermarket” created by our bank bought politicians was a fundamental cause of the 2008 financial meltdown.
During 2002, the annual home price in California, Florida, and most Northeastern states appreciated by 10% or more. Between 2004 and 2005, Arizona, California, Florida, Hawaii, and Nevada had record price increases in excess of 25% per year.
The bubble began to burst in 2005 when the booming housing market halted abruptly for many parts of the U.S. in late summer of 2005 and throughout 2006 continued to slowddown. Prices were flat, home sales fell, resulting in inventory buildup. In 2007, home sales continued to fall the steepest since 1989 and the subprime mortgage industry begins to collapse.
In a classic pyramid scheme style, by buying mortgages and repackaging the loans for resale via mortgage-backed securities, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. Income is generated for Fannie Mae through the positive interest rate spread between the rate paid to fund the purchase of mortgage investments and the return it earns on those retained mortgage investments in the derivatives market. Fannie Mae expanded to also buy mortgage bonds or loans outright using borrowed money, and make money based on the difference between interest it receives from the bonds and what it has to pay on its borrowings. Fannie Mae also earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on the mortgage loans underlying its portfolio.
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, was founded as a government sponsored enterprise (GSE) in 1938 as part of Franklin Delano Roosevelt’s New Deal to provide liquidity to the mortgage market. In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a stockholder-owned corporation authorized to make loans and loan guarantees. Fannie Mae is the leading participant in the U.S. secondary mortgage market, which serves to provide liquidity to the primary mortgage market to ensure that mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies have enough funds to lend to home buyers. As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) own or guarantee about half of the U.S.’s $12 trillion mortgage market.
With the crisis firmly established, lenders began to pile on loads of bad debt and reacted as planned… filing bankruptcy. Fears were stoked by the mainstream media and government officials of impending doom and the importance of protecting those institutions “too big to fail.”
Bank Bailout or martial law
The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $435 billion as of 17 July 2008. Owing to a form of financial engineering called securitization (a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment), many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined.
It’s here in the Shadow Financial Markets of derivatives where Bear Stearns, Fannie Mae, Freddie Mac, and others got in to financial trouble. Derivatives such as interest rate swaps and options to enter interest rate swaps (“pay-fixed swaps”, “receive-fixed swaps”, “basis swaps”, “interest rate caps and swaptions”, “forward starting swaps”) are used to “hedge” cash flow.
To better understand how this confusing economy works, listen to Law professor Michael Greenberger explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.
Derivatives are used by investors in any particular industry and speculators as hedges against problem with their investments, or just to make money. It’s like an insurance policy for certain types of upsets in any industry. It’s one of the reasons why the worlds economy is falling apart now, because the derivatives market is unregulated because it’s so complicated the government doesn’t know how to look into how it is being used to build pyramid money making schemes by all of our major and minor financial institutions.
What they do is borrow discounted money from the federal government, then turn around and sell it to us for a profit as loans or credit. But once they have our name on the dotted line, they don’t have to wait for us to pay them back. They simply turn around and use what we owe them as credit to get more money using derivatives to secure what they owe on it in case we don’t pay them back. And they just keep doing it and over and over lending out money that doesn’t represent the amount of product and services available in the economy so we import goods and services using credit that’s supposed to represent what our economy is worth but actually represents what we owe foreign countries in the future, which if they keep doing this, we will never catch up with what we owe sinking further and further into debt, which has now caught up with us and our economy is crashing.
So as their pockets get lined with money, the value of the dollar goes down while the price of everything we import goes up and other countries can better afford to buy what we produce than we can so we’re exporting products that we need here in our domestic economy. They borrow millions of dollars turning it into a hundreds of millions before we’ve made any payments on the money they lend us. And they’re also lending money to themselves investing it on Wall Street to make more money covering their investments from their house of cards portfolios with derivatives, not to create competition in the market place but using multi levels of their fabricated money scams to cover the money they owe back to the federal reserve.
What they’ve done has basically had the same effect as counterfeiters putting trillions of dollars of worthless money into our economy only worse because it was done with the support of our lawmakers and central financial institutions. So now the people that ripped us off are the same ones we have to look to fix what they broke, which wasn’t an accident. It was a bank robbery by the owners of the bank, a most heinous and ludicrous crime.
- Between February and March, 2007, more than 25 subprime lenders declared bankruptcy, announced significant losses, or put themselves up for sale.
- On April 2, 2007, the largest U.S. subprime lender, New Century Financial, files for chapter 11 bankruptcy.
- On 19 July 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time, and by 15 August, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date. The crisis caused panic in financial markets and encouraged investors to take their money out of risky mortgage bonds and shaky equities and put it into commodities as “stores of value”.
- American Home Mortgage files for chapter 11 bankruptcy on August 6.
- On August 16th., Countrywide Financial Corporation, the biggest U.S. mortgage lender, narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks.
- By August 31st., Ameriquest, once the largest subprime lender in the U.S., goes out of business.
- On September 30th., Internet banking pioneer NetBank goes bankrupt, and the Swiss bank UBS announced that it lost US$690 million in the third quarter.
- In October, a consortium of U.S. banks backed by the U.S. government announced a “super fund” of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the subprime collapse.
- By Nov, 2007, the CEOs of Merrill Lynch and Citigroup were forced to resign within a week of each other.
- On November 1st., the Federal Reserve injects $41B into the money supply for banks to borrow at a low rate. The largest single expansion by the Fed since $50.35B on September 19, 2001.
It’s at this point in the Hegelian Dialectic that the very same people that created the problem in the first place steps forward to provide the solution.
The Treasury Department and the Federal Reserve stepped forward in 2008 to bolster confidence in Fannie Mae and Freddie Mac, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs’ stock. On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008, intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding.
On Sept.5, 2008, the Treasury Department placed both Fannie Mae and Freddie Mac into conservatorship and took over management of the pair.
Jim Rogers Speaks the Truth about Fannie Mae and Freddie Mac
- IndyMac was shut down by the FDIC on July 11, 2008.
- In March 2008, the Bear Stearns Companies, Inc., one of the largest global investment banks and securities trading and brokerage firms was given an emergency loan by the Federal Reserve to try to avert a sudden collapse of the company. The company could not be saved, however, and was sold to JPMorgan Chase. As of November 30, 2007 Bear Stearns had notional contract amounts of approximately $13.40 trillion in derivative financial instruments, of which $1.85 trillion were listed futures and option contracts.
- On Sept. 7, 2008, Fannie Mae and Freddie Mac were taken over by the federal government.
- On Sept.14, 2008, the investment bank Lehman Brothers declared bankruptcy, while Merrill Lynch was joined with Bank of America in a forced merger worth $50 billion.
- On Sept. 16, 2008, Trilateral Commission member, American International Group (AIG) got $85 Billion handed to them by the Federal Reserve in exchange for an 80% stake, yet people can’t get help with keeping their homes. AIG CEO Martin Sullivan made $68 million in one year. Jim Rogers, CEO of Rogers Holdings said, “they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this.”
- On September 19, 2008, a plan intended to improve the difficulties caused by the subprime mortgage crisis was proposed by the Secretary of the Treasury, Henry Paulson. He proposed a Troubled Assets Relief Program, later incorporated into the Emergency Economic Stabilization Act, which would permit for the United States government to purchase illiquid assets, also termed toxic assets, from financial institutions. Henry Paulson, Secretary of the Treasury and President Bush announced a proposal for the federal government to buy up to US$700 billion of illiquid mortgage backed securities with the intent to increase the liquidity of the secondary mortgage markets and reduce potential losses encountered by financial institutions owning the securities.
- On September 21, the two remaining investment banks, Goldman Sachs and Morgan Stanley, with the approval of the Federal Reserve, converted to bank holding companies.
- On September 25, Washington Mutual, the nation’s largest savings and loan, was seized by the Federal Deposit Insurance Corporation and most of its assets transferred to JPMorgan Chase.
- It was reported on September 29, that Wachovia, the 4th largest bank in the United States, would be acquired by Citigroup. Later, Wachovia rejected the previous offer from Citigroup in favor of acquisition by Wells Fargo.
- On September 29, the U.S. Federal Reserve announced plans to double its Term Auction Facility to $300 billion. Because there appeared to be a shortage of U.S. dollars in Europe at that time, the Federal Reserve also announced it would increase its swap facilities with foreign central banks from $290 billion to $620 billion.
- On October 1, the United States Congress passed a $700 billion bailout plan, Emergency Economic Stabilization Act of 2008, to expand bank deposit guarantees to $250,000 and to include $100 billion in tax breaks for businesses and alternative energy, despite a widespread public outcry to not pass it. President Bush signed the bill into law within hours of its enactment, creating a $700 billion Troubled Assets Relief Program to purchase failing bank assets
- On October 8, the European Central Bank, Bank of England, Federal Reserve, Bank of Canada, Swedish Riksbank and Swiss National Bank all announced simultaneous cuts of 0.5% to their base rates, and shortly afterwards, the Central Bank of the People’s Republic of China also cut interest rates.
- Also on October 8, the Federal Reserve loaned AIG $37.8 billion, in addition to the previous loan of $85 billion.
- On October 10, the government of the United States, as authorized by the Emergency Economic Stabilization Act, announced plans to infuse funds into banks by purchasing equity interests in them, in effect, partial nationalization, as done in Britain. The bonds of the bankrupt Lehman Brothers were also auctioned off, selling for a little over 8 cents on the dollar.
- On October 11, the United States government announced a change in emphasis in its rescue efforts from buying illiquid assets to recapitalizing banks, including strong banks, in exchange for preferred equity; and purchase of mortgages by Fannie Mae and Freddie Mac.
- On October 14, the United States announced a plan to take an equity interest of $250 billion in US banks with 25 billion going to each of the four largest banks. The 9 largest banks in the US: Goldman Sachs, Morgan Stanley, J.P. Morgan, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon and State Street were called in to a meeting on Monday morning and pressured to sign.
- On November 10, the US Treasury announced investment of another 40 billion dollars in preferred stock of AIG, adjusting the terms of the existing credit line and its amount. Total exposure, including equity and debt, is now 150 billion dollars.
- On November 12, US Treasury Secretary Henry Paulson scrapped the original Troubled Asset Relief Program (TARP) and announced shift in the focus to consumer lending. The remaining portion of the TARP budget will be used to help relieve pressure on consumer credits such as car loans, student loans, credit cards etc.
- As of the week of November 16 stock losses in United States markets during 2008 as measured by the S&P 500 were equivalent to those suffered in 1931, over 50%.
- On November 23, a rescue plan for Citigroup was agreed by the United States government. In a joint statement by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp it was announced that in exchange for preferred stock valued at 27 billon dollars paying 8% interest a further $20 billion would be invested into the company and that the government would limit loss on $306 billion in risky loans and securities to 29 billion dollars plus 10% of any remaining losses.
- The total cost of funds committed to the bailout in its various guises has now hit $8.5 trillion dollars, an amount that represents 60 per cent of the U.S. gross domestic product. Millions of Americans with savings accounts and pensions will ultimately pay the price because, as the San Francisco Chronicle admits, “The Fed lends money from its own balance sheet or by essentially creating new money.” “If you print money all the time, the money becomes worth less,” warns Diane Lim Rogers, chief economist with the Concord Coalition. Veteran investor Jim Rogers echoed the sentiment, predicting the dollar is “going to lose its status as the world’s reserve currency,” adding, “It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.”How long will it be before Americans realize the looming specter of hyperinflation spells disaster for their life savings? How long will it be before we see rioting in the streets on a par with the scenes witnessed in Iceland recently, where the Icelandic krona has lost half its value in a matter of weeks? Meanwhile, over in the UK, the government assured the vast majority of the population that they will “tax the rich” in order to pay for the bailout on the other side of the Atlantic, with whopping 61 per cent tax bands being levied on those earning over £100,000 a year.
- Days before the doomed financial broker filed for bankruptcy, MF Global conducted “unexplained wire transfers” that led to a $900 million looting of client funds held in segregated accounts. MF Global trustee James Giddens said in a court filing that customers would get back 60 per cent of their account funds, prompting fury amongst clients, many of whom used their accounts for business collateral and living expenses. Although individuals were burned by the broker’s downfall, larger “insider” clients such as the Koch brothers and others were protected from the fallout because they had the miraculous fortune of withdrawing all their funds just weeks before the collapse.One of the victims of the scandal, popular trends forecaster Gerald Celente, joined Alex Jones on Infowars Nightly News to detail how a six figure sum was looted from his gold futures account, which, unbeknownst to Celente, was being held under the auspices of an MF Global subsidiary. Despite his account being fully funded, Celente was hit by a margin call as Chapter 11 trustees stepped in to take control of his funds, leaving his account empty thereby closing his positions and preventing him from taking physical delivery of his gold which was due in December. When Celente rejected demands to transfer more money into the account it was hastily closed.As the Financial Times reported, the hundreds of millions in looted funds from customers’ accounts later “turned up at JPMorgan Chase, the failed broker-dealer’s custody bank.”
Too Big to Jail
In a recent report by McClatchy details how the same banks that caused the financial crisis have agreed to pay $81 BILLION in restitution & penalties to resolve federal investigations into alleged corruption and to avert criminal and civil trials.
Bank of America
Restitution & Penalties: $27.8 Billion.
Defrauded homebuyers with risky mortgage loans, committed mortgage servicing abuses, and engaged in unsound foreign exchange practices.
JP Morgan Chase
Restitution & Penalties: $17.6 Billion.
Rigged currency exchange rates, facilitated Bernie Madoff’s Ponzi scheme, sold risky mortgage securities, and engaged in mortgage servicing abuses and unsound banking practices.
Restitution & Penalties: $5.3 Billion.
Engaged in mortgage servicing abuses, and is now at the center of a scandal involving the opening of bogus customer accounts without customer knowledge.
Restitution & Penalties: $3.9 Billion.
Misled investors in sale of risky mortgage securities.
Restitution & Penalties: $3.5 Billion.
Manipulated currency exchange rates, engaged in mortgage servicing abuses, and extended toxic loans.
Restitution & Penalties: $3.5 Billion.
Manipulated benchmark interest rates, helped Americans evade taxes, and sold toxic mortgage securities.
Restitution & Penalties: $2.5 Billion.
Sold toxic mortgage securities and laundered money to violate U.S. sanctions against Sudan, Cuba, Iran, Libya & Burma.
Restitution & Penalties: $1.7 Billion.
Duped investors in offshore sale of risky mortgage securities and scammed Fannie Mae & Freddie Mac.
While these financial penalties represent historic records, they are a drop in the bucket compared to the hundreds of billions banks earned from scamming the public & its own customers for years.
Yet not a single banker has gone to jail after committing these horrible, criminal offenses!
And here’s the really scary part: Despite paying $81 billion in restitution & penalties, banks are still gambling with your money.
Congress recently passed a new spending bill that allows banks to once again use your deposited money to bet on those insanely risky derivatives that caused the global financial collapse of 2008!