The ruse that has been played out in the stock, bond, and credit markets for the last two months is one of the biggest scams of the century, after the crash of the NASDAQ. At stake is the cementing together of a global economic structure that will not be able to be dismantled.
At the core of the trumped up credit crunch were a handful of international bankers that helped create a big enough deception which will ultimately lead to Congress exchanging our national regulatory laws for standardized international regulatory laws. Sadly, I have seen the pattern of creating a problem so you can solve it according to your hidden agenda, over and over again in the 27 years I have spent in the investment business. For those who think it is about a new low in the value of the dollar, they are wrongthe dollar has been dropping ever since the twin 1973 currency crises which sent then Assistant Treasury Secretary for International Monetary Affairs Paul Volcker around the world to hammer out a new regime for floating currencies (what a great way to transfer wealth and control countries: currencies). Every time the dollar drops, it is new and historic. For those who think the past two months was about the Rothschilds cornering the global gold market, no way. They and the same core of international bankers that own the Bank of England, the Federal Reserve, and other major central banks control the value of gold. When central banks sell gold as they did in the late 90s, it is only title that changes, not the owners.
In the fall of 1983, my husband and I purchased our first home. Several months later he got a job in another city but we were straddled for 2 ½ years with a house we could not sell because interest rates climbed to 22% with mortgages as high as 14-16%. Years later, I found out that our Congress changed old and outdated banking laws to render to national and international bankers, one of the most major coups of the century! The law which Congress passed is called the Depositary Institutions Deregulation and Monetary Control Act (1980 Deregulation Act), which basically lifted all restrictions on U.S. banks as to the amount of interest they could pay or charge investors/creditors. At the time this was heralded as being good for America since banks would have to pay market rates on savings, which conveniently rose to 22% for a short period of time. That was not a bad short-term price to pay for banks being able to pay very low rates for savings and charge usurious rates for credit cards from 9 ½% to 35% with home equity lines of credit being tied to prime. The high interest rates were appreciated by the serfs who have ceased to remember their joy.
This globally trumped up liquidity and credit crunch was orchestrated by the key players: the international bankers: Goldman Sachs, Barclays, BNP Paribas, Bear Stearns, Citigroup, JP Morgan Chase, and Bank of America. They would not buy commercial paper from one another or lend to one another. Come on. This was reported as being shocking when in fact, it was the standard insiders game designed to facilitate major changes to U.S. regulations by scaring Congress and the rest of the country first. Once the Security and Exchange regulator has been folded into one agencylike Britains Financial Services Authority, instead of having separate regulators for commodities and derivatives, the world will go back to calmfor a little while. The next thing you are likely to hear is that the world needs a global financial regulator. But before that can happen, the national regulatory laws have to be harmonized to prepare the way.
The supporting players were the hedge funds and complex investment instruments. It is not Joe Average who can afford to invest in these animals. Hedged funds known as Quants attempt to profit from price inefficiencies identified through mathematical models. These send buy/sell signals on small variations in price between different securities (Financial Times-FT, 8/13/07). Most of the international bankers have quant funds. In fact while they were crying the blues over a 30% drop in August and external investors lost 20% of their investment, it was reported that Goldman Sachs made $300M last month from the rescue of one of their troubled hedge funds. They injected $2B of their own money while billionaire friends injected another $1B to save it (FT, 9/16/7, 6). The fund was up 15% before the Fed bailout! What great math!
The investment instruments are no doubt terribly complex. They are called derivatives ($400T in a world where the entire GDP is $40T), off-balance sheet structures known as conduits ($1,400B), and SIV or structured investment vehicles.
The pawns were those who took a sub-prime mortgage and bit the apple in the same way Eve did. According to Fed Chairman Ben Bernanke, About 7.5 million first-lien subprime mortgages are now outstanding, accounting for 14% of all first-lien mortgages. So-called near-prime loansloans to borrowers who typically have higher credit scores than subprime borrowers but have other higher-risk aspectsaccount for an additional 8 to 10 percent of mortgages (speech 5/17/07). Six months ago, there were $1,300B of subprime loans or about 13% of all outstanding mortgages while the total residential mortgage market is more than $20,000B. In other words, the subprime market is a very small percentage of our total economy. In fact the losses from the Savings and Loan Crisis in the 1990s were much higher.
Regarding the mortgage market, it should be noted that the practice of banks selling mortgages they use to hold until maturity is over. In the 1980s when there was a mortgage default, it was the bank that took the hit. Now mortgages and loans of every type (auto, credit card, etc.) have been securitized (packaged into group of mortgages), then repackaged in a collateralized debt obligation bond (CDO) and sold to a hedge fund that bought it on leverage (David Hale, FT, 8/14/7, 11). The sophistication and complexity of how you sell mortgages has evolved since the 1980s. Bottom line is that the banks no longer carry mortgages or the riskthey basically act as conduits. It is the marketnow the global market that carries the risk. The banks really are not concerned about the risk in the loans they make because all of them are now sold in the bond markets to pension funds, mutual funds, and others.
While there is much more that could be said about this whole trumped up charade of loss of liquidity, the bottom line is that the Federal Reserve could have solved this problem two months ago by lowering interest rates. They are the ones who create the business cycle and market highs and lows by the amount of money they inject into the banking system. Just like in the 1980s, interest rates could have come down at any time, but there was another agenda. Can the Fed solve the problem of the sub-prime mortgages, no. Congress will have to deal with the inequities.
At the international level, all of the international organizations: the Bank for International Settlements, the International Organization of Security Commissions, the Group of Seven finance ministers, and the Financial Stability Forum are talking about the need to have capital markets that are globally integrated since no one Central Bank could determine how to proceed. The U.S. is the only major country not to have all of their regulators under one roof (just like the British system which is used in many countries around the world). All countries need to adopt global accounting standards (the US is in the process of moving in that direction, there has been agreement between GAAP and the IASB) and countries must implement the BASEL II Capital Accords (which are new rules for international banks on how much they need to have in reserve for protection), the U.S. is in the process of implementing them. Then once these things are put in place, the world is ready for a global financial regulator!
Just days after the Fed reduced interest rates by ½ of 1%, it was announced that the Dubai Stock exchange will acquire just under 20% of the Nasdaq stock exchange and 28% of the London Stock Exchange while the Nasdaq purchases the Nordic stock exchange, OMX. Do we see the handwriting on the wall?
If the IMF is suppose to become a Global Central Bank, then perhaps the Financial Stability Forum is a forerunner of what might be suggested next month when the G7 reports on the problems of supposed credit crunch! All this drama just to integrate world markets and stock exchanges! The ruse is now global! People need to see beyond the lies, deceit, deception, and distortion so that they stop operating in fear and begin living in truth. Lastly, all of the volatility created allowed those in the know to make lots of extra money at the expense of those who sold low and those who lost their homes. Be prepared for more of these trumped up vignettes, they have been occurring from the beginning of time. This one is in our generation.
Joan Veon is Executive of The Womens International Media Group, Inc., www.joanveon.com