The Wall Street Ponzi scheme
The Global Research says, “The collapse of the derivative monster thus appears to be both imminent and inevitable. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system.”
Ponzi scheme is a term used to define a system wherein interest on money collected from investors is paid from the same money instead of from profits earned by investing in a real operation; in such a scheme, the organization depends on a never ending flow of money from new investors. But once the banks start issuing loans that are not backed by any real assets, it become another kind of Ponzi Scheme, wherein the banks rely on an assumption of never ending new investors and their habit of not taking money out of the banks.
The article says that the Wall Street Ponzi Scheme is built on “fractional reserve” lending, which allows the banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves”, essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.
The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up”.
The Credit Rating Scam
It seems that the real heart of the problem is the credit ratings. Many institutional investors (pension funds, municipal governments and the like) have a fiduciary duty to invest in only the “safest” triple-A bonds. Downgraded bonds, therefore, get dumped on the market, jeopardizing the banks that are still holding billions of dollars’ worth of these bonds. In order to save these bonds and keep them floating in the market, the banks have immorally made settings with different credit rating agencies to give good ratings to faulty bonds.
AMBAC, a bond insurance company, was being used as a “cover” by the banks that originated bundles of mortgages on residential houses, to get their mispriced ratings. Now that the mortgages are failing and the banks are stuck with them, AMBAC cannot possibly pay; they cannot cover the debt.
The banks will, therefore, no doubt be looking for one bailout after another, from the only pocket deeper than their own – the U.S. government’s. But if the federal government acquiesces, it too could be dragged into the debt cyclone of the mortgage mess. The federal government’s triple-A rating is already in jeopardy due to its trillions of dollars of debt, its credit ceiling and many other factors.
JPMorgan Scam (A proof to all three scams explained above)
A recent example of this is JPMorgan agreeing to pay $5.1 billion to Fannie Mae and Freddie Mac to resolve claims stemming from the housing bubble. The FHFA sued JPMorgan in September 2011, accusing the bank of misleading Fannie Mae and Freddie Mac in their purchase of billions of dollars’ worth of risky mortgage securities.
The bank says that 80% of the losses from problem loans were from Bear Stearns and Washington Mutual, two companies it acquired during the height of the financial crisis.
Before its collapse on March 16, 2008, Bear Stearns helped fuel the explosive growth in the credit derivative market, where banks, hedge funds and other investors had engaged in $45 trillion worth of bets on the credit-worthiness of companies and countries.