Criminal Conjecture

I have no proof for what I am about to say. In fact, I have found lots of proof to the opposite. But I am sending it out into the ether anyway  because I am not bound to journalistic notions of accuracy.  I just want to point out some holes in our finical system that could be exploited even though the reliable independent traditional media has written story after story intended to allay my concerns.

Credit default swaps are basically an insurance against the failure of a company that owes you money. You loan ABC corp 2 million and you want to protect against a default of the loan.  You can go to a third party, that for a premium, will insure you to the tune of the 2 million. The ludicrous part is you don’t actually have to loan any money out. You can simply place a wager that a company will go bankrupt for any amount you want. The insanity continues.  The company that sells you the insurance does not have to have any capitol reserves to write new insurance. This means I can go out and write 100 billion dollars of insurance against any company I want with little or nothing to back up the value of the principal I am insuring.  I just collect the premiums and hope for the best. Still more, their is no clearing house for the credit default swap.  No one is keeping track of who buys what insurance against what company.

If I am a large bank (one of the banks that say an investment bank would rely on for loans to operate day to day) and stay solvent, I could theoretically collude with the other big banks, buy huge amounts of credit default swaps against a company and then refuse to loan them money. In this instance, I am placing a wager on a companies failure then could insure that it happens. If I was Bank of America I could go buy billions of dollars worth of credit default swaps against say Lehman brothers, even though I have loaned them no money which means I can make the amount as humongous as I want.  Then, I refuse to loan Lehman Bros. any money, they go bankrupt and Bank of America cashes in. No one could legitimately track that this is occurring because no one is tracking the market.  It is totally unregulated.

I am not saying this has happened.  I am just saying it could. The New York Times has reported that AIG ( a large writer of credit default swaps) was basically a push on the failed investment banks because they bet against them as much as they bet for them. This could still theoretically happen and I am not prepared to trust bankers with this kind of murky condition to operate in.

If you’re not mad about the bailout, allow me to help

With the TARP bailout looming in the mouths of all the pretty faces on the all powerful glitter box, the bigger picture has been missed. Yes the TARP is a big deal, (for all of you recently thawed from cryogenic freeze, the TARP is essentially a 700 billion free cash give away from the US treasury to their favorite struggling banks) but the banks stream of money has been flowing for a really long time. The list is so long I can’t even recount it. Some that I can remember are

• The bailoutof AIG reported as at least 80 billion,
• “Infusions” of capitol to international banks of 200 billion on three separate occasions,
• A program that allowed banks to swap bad assets to the Federal Reserve for Treasury notes. It should be noted that no one knows how much was traded or what the cost is because the Fed won’t tell us). Needless to say the total cost of all bailout schemes is much much higher then the 700 billion that has become the number du jour to the media.

I am just going to throw a number out their are you ready? 5 TRILLION DOLLARS. That is not my number that has been widely reported by the AP and others. Naysayers head here. Mad yet? well lets keep going shall we? Their are 350 million Americans. Subtract from that children the elderly and the unemployed lets call the number of tax paying Americans 200 million, and that’s being generous (we are an ageing population). Guess what your cut of 5 TRILLION would be………….go ahead guess I will wait……………………………….. got a number? well your wrong it’s 25,000 dollars. 25,000 dollars to all you hard working tax paying Americans, talk about a stimulus.

This seems especially silly when you consider all this trouble arises from the idea that working Americans will be unable to meet their debt obligations causing the derivatives that back those debts to lose value and in turn wiping out the value of the banks. But if you gave us all 25k who would work at Wal-Mart tomorrow, that would be a years salary on their slave pay scale.