You probably know by now that the crisis that entire world is suffering had broken out in 2008, started from Wall Street and it had something to do with very high risk mortgages which were sold to families who cannot pay for them, and entire world is going through a neverending, agonizing crisis and have to suffer austerity, right ?
The crisis didn’t have anything to do with high risk mortgages and the poor people who cannot pay for the mortgages they have taken – the truth is much more sinister, dastardly, and horrible than that. It was due to a worldwide, far-reaching, undetectable and well-planned scam of epic proportions – maybe the biggest fraud, the most hazardous scam ever to be conceived in the history of mankind. Now, sit back and enjoy the narrative – it’s going to start slow, like most scams do, but it’s going to make a climax at the end which isn’t even seen in the biggest scam stories of the most notorious con artists in history.
Good. Here we go then. Let’s explain what Wall Street did, over a hypothetical garage sale going on in your neighborhood, and you tell me whether this would be the biggest scam ever pulled in your neighborhood or not.
Hey – i got some stuff in my garage
Let’s say that you have some stuff in your garage – a $350 worth used bicycle, a $1500 worth second-hand car, $50 worth toolkit box, and some unopened paint cans that are worth $100 in total. How much are they worth in total ? $2000. Neat.
Now imagine that, you write some stuff on a paper, and say that a neighbor owns a share of all of these stuff combined – a certain share of this collection of items worth $2000 in total. And that you write more papers, and sell more shares around your neighborhood to more people. And in a few months, when the prices these items can fetch in a garage sale increases, the participants will also have made profits.
Congratulations ! You have a ‘Hedge Fund‘ !
Now, see, the thing you have there, is an exact collection of items which are not of one nature – a lot of different stuff, which don’t even go together – paint, tools, and hell, even a used car. You just gave out guarantees and shareholder-ship notes to people around your neighborhood, and now it is an ‘investment tool’. People get these, and they will make a profit after some time.
See, now, the catch here is that, the fund shares also now have a value of their own. A neighbor may tell another that, he has some shares you sold him, and another may buy it by giving a higher or lower price than the initial price your neighbor paid to you.
So, now they have a value of their own. Like stocks.
So far so good. At this point in the ‘Great Neighborhood Scam of the Century’, we have a collection of items, and a paper issued over them which says that you own a share of those item collection in your garage.
The legitimacy of the prices that your paper shares are fetching, may be questioned, but since they are based, indexed on what you actually have, its no big deal. After all, which idiot would pay 10, hell, even 100 times the price the shares are actually worth in actual car, paint and stuff you have in your garage, right ?
But it gets worse.
Now imagine that, just as if the papers you sold around were not enough, you again wrote new papers and started selling them. These new papers are based on the original papers you issued. So, they are papers based upon the paper you sold based upon the real stuff in your garage !
Now people can trade these new papers, with prices of their own. Despite they are technically based on value of the papers you issued over the real stuff in your garage, their actual value has become more distant than what your real stuff are worth.
Starting to sound fishy isn’t it.
Well, even though it started to become a real stretch, it still isn’t a scam. It isn’t hot air, in a manner of speaking – even though it is a stretch, papers are still based on real things.
These papers can be traded independent of the stuff in your garage, AND the papers they are based on. And even, their value can increase while the value of the original papers and even your real stuff are falling.
These are derivatives.
If this was what Wall Street did to scam the entire world, we still wouldn’t be in this deep in mess. They took it FAR worse. And the stunt they pulled with the last tool which we will check out now, is unbelievable.
Fractional Reserve Lending
Hey, right when these were happening, one neighbor comes and asks to borrow some cash.
You don’t have it on you. But, you are soon going to sell/trade some of the items in your garage – maybe the car, or the toolbox. And you say, “Hey, i don’t have cash on me right now, but, take this note i’m giving you, in which i promise to pay the person that you are going to pay some money when i sell my stuff”. Alright. Good. We are among neighbors. Everyone knows everyone, and there is a certain level of trust. And what you are giving is basically a check.
The guy takes the note, and goes and gives it to the painter who painted his house. Painter is going to be paid with the money that isn’t there now, but going to be there soon. Everyone is happy.
See, basically, you CREATED ‘money’ right now. It wasn’t there. You didn’t have $100 to shell out to your neighbor as a loan. But, you showed the valuable stuff in your garage, made a promise which is backed up with those stuff.
That works. It’s not unreasonable, it’s a simple promise and guarantee. You don’t have cash, but you have some stuff to trade – it is certain – and there is going to be profit over this, and you can easily give out the money later.
Though… How much ? How much loan could you make like this ? How much profit can you expect to have made, when you do your garage sale in a week ? It’s not like you are going to make $10,000 over the items in your garage, right ? They are worth $2000 in total in the first place !
Of course – o, there should be a certain ratio, a percentage that you could reasonably lend like that. A certain ratio of profit which you can reliably make. So that, when you make the profit from the sale, the profit will match the loans you lent around the neighborhood. Otherwise your neighbors will call you out on that, won’t they ?
If you have given out $3000 in loans, and end up with making only $250 profit over the sale, you now have $2250 in your hands.
Where the hell is the $750 you lent around ?
You didn’t promise to back the loan up with the stuff in your neighborhood, but future profit. So, since you have given no guarantees to back the loans up with the original $2000 you make from the sale, you can only show $250, and you are basically $750 short.
Well you shouldn’t have. You should have loaned around to the guys in your neighborhood, to an amount that would match your profits. A certain percentage.
This, is called ‘Fractional Reserve Lending ratio’. Around the world, it changes in between 4% and 6% of the assets you can show. In USA however, there is an appalling, unbelievable ratio of 10% allowance.
Though technically, you of course support your promise with not only the profits, but also the original value of the assets. I.e. you show all stuff you have as collateral. So its o.k.
But which stuff you show as collateral ? The items in your garage ? Since the papers are based on the stuff in your garage, and then the other bunch of papers are based on those papers, it would be totally absurd if you went out and showed the papers you issued as collateral, wouldn’t it ? Paper of the paper of the garage stuff ?
It would. And let’s say that you did. You not only said “Hey, i have $2000 worth of stuff that i’m going to sell, but i ALSO have some papers based on them which are worth $5000 now, AND also OTHER papers based on those papers which are worth $6000 – so i have $13,000 worth of assets. Let me give you 10 times loans over this’.
And just like that you lent around $130,000 you don’t have in your neighborhood. Everyone was in the money for a little, beautiful while.
They bought stuff with the loans, they renovated their kitchens, they bought presents for families, even they started businesses and opened small shops with the loans you gave them.
Nobody knew that you were lending $130,000 worth of loans to neighborhood over $2000 worth of stuff in your garage. Leaving that aside, the neighbors who knew it, and the community council that is supposed to know stuff, did not know, or even vouched for you, saying that ‘Yeah, he is right – he has that much assets/stuff’.
And your entire neighborhood boarded a train to doom over the trust you and your conspirators had in your neighborhood.
Everything comes crashing down
Then one day, some neighbors have noticed something – that you didn’t have that much stuff, and the stuff you were showing as collateral were papers based on papers on the stuff you had. In short, you didn’t have $130,000 at all, but $2000. Nothing you did was technically illegal, but there was no way in hell that you could actually back up the promises you have made.
There just wasn’t that much money around – the money people thought there was, was actually not there at all – nada. Nothing. Water vapor. Hot gas !
Now Suddenly everyone realizes that no one can pay no one for anything – presents bought, renovations made, even small shops opened – no one can pay anything that they got from anyone. Your entire neighborhood was running on hot air for the last month.
Everyone stops lending to anyone. Everyone stops buying stuff, and starts keeping their cash. Because, you cant trust anyone – for, who has the power to back their promises up at this point, right ? Everyone was using nonexistent money as loans.
And then what happens with the small shops people opened with your loans ? They created those businesses with nonexistent money, and then their shop made profits, and it is worth more now. Or is it ? For, someone opened a shop with $5000 loans from you, made $1000 in the past month, and the shop is now worth $6000 ? But that original $5000 was water vapor in the first place ? How can you go and trust that shop and borrow from them, or give them loans ? Even if the shop owner also put some of his/her money into the investment, how on earth can you know how much of it was original, how much of that was nonexistent loans ?
That is called ‘financial asset poisoning‘. It’s a situation in which you cannot know how much of the value you have is real, and how much of it is fake. Forcing you to back up your assets with more money. ‘Fill it up’, if you pardon the saying.
Now everyone starts trying to back up the promises they made to other people – they set aside money, and try to back the nonexistent loans they have used to do stuff – like the shop owner who cannot tell what part of his/her investment was real, what part was nonexistent loans. And because the loans that went around were so big, you end up tightening belts to back up the hot gas – austerity !!
Since no one can trust anyone, and everyone is tightening their belts to back up the hot gas, things come to a screeching halt. Economy grinds to a stop. Spending, buying stuff is scarce now. Recession in the neighborhood ensues – people are not even paying kids to move lawns.
A terrible time for everyone.
Now imagine that you didn’t do this in your neighborhood, but in entire world economy. You lent around nonexistent money all around the world. And you didn’t do it to 1-2 times what money and assets you had, like in our example, but you did to hundreds of multiples of the stuff you had. What ratio would be unbelievable at this point ? 5 ? 10 ? 100 ?
Wall street did this to the order of 1 to 600. Six hundred. They lent around 600 units of money, whereas they had 1 units of assets. 599 units of the loans they lent around, was fake. Hot gas.
They had mortgages – the stuff in the garage. They created an investment paper based on these – the hedge fund. They created additional investment papers based on the earlier one – derivatives.
They traded the hedge funds, derivatives to SIXTY times their value.
Then they came and showed not only the original stuff in the garage – the mortgages, but also the derived papers as assets. In short, they have said that they had 601 units of assets, whereas they had only 1 real unit.
The private rating agencies which were supposed to inspect and ensure the health of the banks, vouched for them. Whereas in fact they shouldn’t have at all. They gave them AAA+ credit ratings – to financial papers and banks which had 600% hot gas !
The government which was supposed to enforce regulations so this kind of scam couldn’t be pulled, told banks that it wouldn’t enforce regulations and laws.
Entire world, trusting that a 1st world country like USA would have a rational, serious administration and business regulations, had no idea what was happening. Wall street was free to pull its scam around entire world.
They gave out loans, with which companies were founded, investments were made, factories were built, people worked in them and created products which sold for extra profits.
Even further, the assets, wealth created by using these loans were shown as collateral by other banks and more loans were lent over these – furthering the poisoning. This is how financial asset poisoning propagates itself – poisoning any asset that creates new wealth.
And that is also the reason why all financial institutions stop lending and borrowing, and even investing when financial asset poisoning happens.
Because you can’t trust anyone – no one can know how much fake and how much real assets they have.
And this brings ENTIRE world to a halt – because, leaving aside investments, loans and borrowing are instrumental in running the day to day operations of all kinds of organizations. A factory needs the ability to take loans to pay for unexpected situations in production, shipment, and even paying day to day expenses for example. So, when lending stops, everything grinds to a halt, which causes more distrust everywhere, and spending comes to a stop.
Now add to that the fact that a lot of countries, banks and mega corporations did business with Wall Street banks, and therefore had asset poisoning. Which forces everyone to have to fill in the banks containing fake assets so that they can work again. And you have even less spending. Now you are in a recession.
Greece, Spain, UK, numerous other countries which heavily did business with Wall Street banks by trusting them, ended up with their banks getting screwed up. Huge banks had fake assets to unknown degree. Even governments, which borrowed from Wall Street banks, found themselves poisoned in their assets. Forcing themselves to impose austerity to get money to fill in the banks to back them up. Even the countries which had stayed outside the scam through properly set fractional reserve lending ratios and properly enforced regulations are feeling the heat because of the recession going global.
Interestingly, and maybe not surprisingly, its austerity for the people – public services are being cut or sold/privatized, perfectly viable and working social services are being discontinued or cut, more taxes are imposed on the ordinary people to get the cash to fill in the banks. In various countries, even the retirement money of people who have worked and paid for over 40 years of their life are being confiscated or tapped into – the money they trusted with their government.
Meanwhile Wall Street, the people who have pulled out this scam, and the people who profited from it, are sitting pretty with all their profits, leave aside going to jail or even being fined for what they have done.
With our example, the neighborhood is paying the price for trusting you, whereas you and your friends sit pretty with not only what you have done, but all the fake assets you created – all 600% of them – not even the fake, nonexistent 600 units of assets you created over the original 1 unit has been even taxed, leave aside being confiscated.
And unfortunately, there is no fix for financial asset poisoning. It’s something that recreates itself, even if you bail out the banks with trillions of dollars. Until now, more than 2 trillion $ has been put into banks worldwide. Even that hasn’t been enough to back the nonexistent, fake money Wall Street infused into the system.
It’s a scam of epic proportions, with bastardy that is unparalleled, done in full knowledge of what would it end up in – a global, never ending recession that would break everyone, everywhere. Last time there was a recession, it ended up in a World War. And, the Crisis of 1929 was a legitimate, real crisis with no scam involved. Yet it still ended up in a decade-long recession, ending up bringing about World War 2.
What would be even worse on top of this, would you think ?
Imagine that US Government told the Wall Street banks that it STILL would not regulate this, and allow the scam to continue ? Wouldn’t that be incredibly irresponsible, even foolish ?
Well, stop imagining – this is what US Government told Wall Street in the past few weeks. They can just keep scamming without any intervention !
After the garage sale
Now you know why we are in knee deep mess – just because of the greed of a very tiny number of people. It’s not the ~3 million people risking foreclosure of their homes in USA (Hell, china builds around ~3 million houses every 3 months), not the 50% or so value loss in the housing market for these high-risk houses in USA, not ‘government spending’, nothing – just the greed of a tiny number of people who do not hesitate from scamming an entire planet even if it risks a world war.
Hundreds of millions are suffering as of this moment – kids are going hungry even in 1st world countries like USA, unemployment, bankruptcies, homelessness, even people dying of malnutrition in the very midst of ‘civilized world’ – all for the profit and benefit of a very tiny number of people, who get to keep what they scammed the world with without even a question.
Good times we are living in, isn’t it.
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