U.S. Economic Terrorism the New 'Winning Trade'

17 February 2010

By Jeff Nielson

When Wall Street planned and executed the U.S. housing-bubble (and all its related scams), it destroyed the lives of tens of millions of Americans. Then, when it subsequently 'crashed' global markets, it inflicted hardship on most of the world. But the Oligarchs were just getting started.

As governments responded in a totally predictable manner, Wall Street began to collect on its interest-rate swap scam (see “WHO were the WINNERS in Interest Rate Swaps?”). With this scam the Oligarchs progressed from merely destroying companies and individuals to destroying schools, hospitals, towns and even states.

However, as we are now finding out, those were merely Wall Street's “appetizers”. For their “main course”, the Oligarchs have moved up to destroying nations. Here, I must confess to once again underestimating the Oligarchs. I had thought that the latest propaganda campaign was merely a tactic to pull the worthless, U.S. dollar out of yet another nose-dive. How wrong I was!

I should have been tipped-off by the obsessive/excessive “coverage” from the U.S. media of Greece's (and now the rest of the “PIGS”s) financial problems. The indifference of Americans to any and all events which take place outside of their own borders is legendary. Apart from wars, Americans generally have as much curiosity about the “rest of the world” as the average house-fly.

Even if a massive earthquake had swallowed-up Greece like some modern-day Atlantis, such an event would have interested Americans for no more than a few days. To illustrate this, we only need to observe how grossly disproportionate has been the “coverage” of Greece's financial problems compared to the devastating earthquake which struck Haiti – a close neighbour to the U.S.

For those propaganda-numbed sheep who would argue that Greece's budget crisis warrants weeks of around-the-clock coverage, you need to acquire some perspective. As has been frequently mentioned outside of the U.S. propaganda-machine, the Greek economy constitutes less than 3% of the EU. In other words, this would be like the rest of the world writing commentary-after-commentary predicting disaster for the United States because of financial problems in the state of Oregon.

For the record, while there are a handful of European nations with serious financial crises, these nations represent no more than 1/3 of the EU economy. In contrast, as has been frequently published, there are at least forty U.S. states struggling to ward off insolvency – and representing somewhere around 80% of the U.S. economy.

Bolstered by its propaganda-machine, Wall Street (and its hedge fund allies) launched their attacks – unveiling a new way to wreak financial devastation with their unregulated casino, known as the “derivatives” market. The new weapons-of-choice for Wall Street are “credit default swaps” - something which I discussed in some detail in a recent commentary (see “The Goldman Sachs/AIG Saga”).

Essentially, credit defaults swaps (CDS's) are a form of insurance to hedge against the risk of default on debt – or, rather, that is what they are supposed to be. Instead of using CDS's to hedge their risk, much of the CDS market was simply a Wall Street sham, pretend-insurance allowing Wall Street to pretend it had reduced its risk – allowing the oligarchs to over-leverage their balance sheets to the insane level of 30:1.

There are many ways to demonstrate that CDS's were never intended to be a “hedge against risk”. The most obvious way is to simply to look at the size of the market. The credit default swap market is roughly $60 trillion in size – by itself it is as large as the entire global economy. Thus, the first observation to make is that it is obviously impossible to properly back this insurance – and thus it cannot be “insurance”. If the insurers lack the capacity to make good on claims, then obviously these contracts do not represent real “insurance”.

Wall Street zealots will argue that no insurance market is capable of paying-out on most or all of its claims. However, there is a huge difference between CDS's and conventional insurance: correlation. With most forms of legitimate insurance, there are no correlations between one insured party making a claim on their insurance, and other insured parties also making claims.

If the house down the street from you suffers a fire, there is no reason to believe you are about to have a fire of your own. Of course there is always the possibility of an arsonist, but a) that is a very low-probability event; and b) over the insurance market as a whole, even a group of arsonists would produce claims on only a tiny minority of the insured.

In contrast, the banksters' unregulated casino – the derivatives market – is highly correlated. If events cause a claim against one contract, the likelihood of claims against other contracts immediately begins to rise exponentially. The Oligarchs claim otherwise. They continually produce “statistics” which supposedly indicate close to zero net exposure. However, given the intentional absence of any transparency in that market, there is no evidence to support those claims. There is however, an abundance of evidence that they are lying.

The 2008 near-collapse of the entire U.S. financial sector clearly illustrates that rather than having offsetting “hedges” which would cancel each other out, that instead, once the Wall Street dominoes began to topple that they would have all come crashing down – if not for the $10 trillion in hand-outs, loans, and guarantees used to prop-up the Oligarchs. In other words, it took $10 trillion of backing to offset Wall Street's 'bets' to a sufficient degree to ward off total implosion (for the moment).

We now have a new example to demonstrate the dishonesty of the oligarchs: Greece. If as the Oligarchs claim, the CDS market was one of “offsetting hedges”, then it would have been mathematically impossible for the “spreads” on Greek credit default swaps to have widened so far, so fast. By “spreads”, I'm referring to the gap between the insurance rates which Greece must pay on its debt versus the insurance rates for other (supposedly) more solvent economies.

In a market where the 'bets' were perfectly offset, there would be no movement in the “spreads” at all. In a market which was mostly offset, the spreads could only move slowly – in tiny increments. The fact that Greek spreads have “blown up” in global financial markets (over a period of days) is proof-positive that “someone” has been piling onto only one side of the bet: namely, the bet on Greek default.

Given the always perfect synchronicity between the message of the U.S. propaganda-machine, and Wall Street's current scam(s), and given that the propaganda-machine has done everything possible to amplify fear over Greece's financial woes, the circumstantial evidence is overwhelming. And, of course, if the propaganda-machine has been deployed in this manner, this also means that the U.S. government is fully complicit in Wall Street's latest scheme – if only as a passive accomplice.

To comprehend how ruthless and devastating this attack has been, we can have a glimpse at a CDS contract between two of the Oligarchs. In “Bankster Sues Bankster - AGAIN”, I commented on the lawsuit by Citigroup against Morgan Stanley. There was no dispute on the terms. Morgan Stanley wrote-up the CDS, it “blew up”, and Citi wanted to collect. This raises the obvious question: why would one Oligarch force one of its brethren to sue, simply to collect on a debt? Could it have been that, in Morgan Stanley's eyes this CDS was merely a sham – and it was outraged when Citi sought to treat it like legitimate insurance?

That is certainly one possible motive. The other was the size of the pay-out. Even after Morgan Stanley liquidated all the collateral which supposedly “backed” this contract, it was forced to pay out at 300:1 against what it had received in premiums. In the case of this one contract, that meant Morgan Stanley had to pay out $200 million (on top of its “collateral”) against the $0.75 million it had received from Citi.

With pay-outs like that, it should have surprised no one that Goldman Sachs was the first bankster to come up with the idea of using CDS's as a profit-making weapon. The trial guinea-pig was AIG. Having “raped” AIG for more than $10 billion, while only needing to “invest” relative pennies to net that windfall, Wall Street was ready to unleash this financial “weapon of mass destruction” on the world.

To understand the relative consequences of this attack against Greece, we need only compare what would happen if the same thing had been done to the United States. As I have written on countless occasions, the hopelessly insolvent U.S. economy is burdened with $60 trillion in total public/private debt (not including one penny of the $70 trillion or so, in “unfunded liabilities”).

Thus, there is a very good reason why the Federal Reserve has been “buying up” virtually every U.S. bond in sight – in order to artificially keep U.S. interest rates several percent lower than they would be without such radical intervention. Raising U.S. interest rates by even one percent would drain an additional $600 billion per year out of the U.S. economy – in additional interest payments alone.

This would be equal to a 5% drop in U.S. GDP – before factoring in the “multiplier effect” of all that lost capital. It would immediately push the U.S. into a debt-default spiral – which could only be averted by hyperinflationary money-printing...and that would be the scenario even without other nefarious nations attempting to deliberately force it into default. Naturally, this means that the endless “chatter” from the U.S. propaganda-machine that the Fed is “contemplating interest rate increases” has zero probability. Put simply, the U.S. government can never afford to voluntarily raise interest rates again.

Thus, given that the debt problems of the U.S. economy are already far worse than those of Greece (see “Fiscal Follies: Greece versus the U.S.”), if someone else had done to the U.S. what the U.S. is doing to Greece, the U.S. would be plummeting toward imminent bankruptcy, as we speak. In other words, the “Greek bail-out” now being cobbled-together by the EU was forced by the use of financial “WMD's” by Wall Street's economic terrorists.

It will be even more interesting to see what happens next. If the CDS spreads now begin to “mysteriously” (and rapidly) widen for Spain, Portugal, and perhaps other EU members, this will signal that these financial psychopaths are going to simply continue to “nuke” one vulnerable economy after another.

The Oligarchs must be stopped. Given that we cannot rely upon our capricious “Gods” to produce some convenient plague to wipe this blight off of the face of the Earth, this means it is imperative that the Wall Street oligarchies be smashed into little pieces immediately, and their casino must be thoroughly regulated, or merely unwound, and then closed.

Destroying entire nations for profit is a human abomination for which we lack even a proper term. It goes well beyond “greed”. It can't be described as “immoral”, since like all psychopaths, the Oligarchs are completely amoral. These are “crimes against humanity” but on a scale which goes well-beyond Hiroshima and Nagasaki.

Americans are now at a cross-roads. They can continue in their apathetic coma, allowing their two-party dictatorship (and the Wall Street Puppet-Masters) to continue to rape and pillage not only their own nation but any and every other economy foolish enough to allow the Oligarchs to get it in their choke-hold. That way lies the path to being an economic pariah – shunned and isolated by the rest of the world.

The alternative is for Americans to overthrow their two-party dictatorship. Each day, the possibility of doing so through something short of outright Revolution wanes. With a broken political system, two hopelessly corrupt political entities, and a propaganda-machine which would have been envied by Hitler and Stalin, this will likely be a much more difficult task than when Americans deposed their relatively benign, British monarch.

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