An intriguing news item this week was the announcement that Citigroup (C) is suing Morgan Stanley (MS) for $245 million, alleging non-payment from Morgan Stanley regarding a “credit default swap” (i.e. default insurance) which Citigroup purchased from Morgan Stanley.
Apart from the vicarious joy of watching one Wall Street bankster suing another, the story seemed to lack a great deal of relevance – given that the amount of the suit (a mere $245 million) is nothing more than “pocket change” in a derivatives market recently valued at over $1 quadrillion ($1,000,000,000,000,000). Put another way, the derivatives market was/is 4 million times the size of the damages sought after in this suit. However, sifting through the limited details available provides some sobering insights.
To begin with, the statement of claim notes that it only cost Citigroup $750,000 for this credit default swap. It further adds that the damages sought were the net amount owing on this CDS after the “collateral” for this agreement had been “liquidated”. Thus, even after reducing the amount owing by the collateral which covered this obligation, Morgan Stanley would be required to make a greater-than 300:1 pay-out on this CDS.
As we already saw with the meltdown of AIG (the “king” of the CDS market), the companies which underwrote these “insurance” contracts never contemplated that they would ever have to make good on these agreements. The entire purpose of this market was to fraudulently reduce the perceived risk of the “toxic” securities peddled by the Wall Street crime syndicate – in order that their “partners in crime” (the credit rating agencies) could rubber-stamp inflated credit ratings on these financial products.
Thus, thousands (tens of thousands?, millions?) of these contracts were written up during Wall Street's multi-trillion dollar Ponzi-scheme to essentially allow them to leverage their entire balance sheets much further than they could have otherwise – by writing up all of this phony insurance. In order to reach a ridiculous, average leverage of 30:1, they wrote up these bogus, insurance contracts which (as we see in this example) represented even more-leveraged bets of greater than 300:1.
This is further support for the assertion by The Telegraph's Ambrose Pritchard-Evans (and others) that Wall Street's claim of only relatively minor “net exposures” in this bankster-casino is nothing but hollow rhetoric (see “A Derivatives Myth Exposed”) . With capital-cushions which are microscopic in comparison to the total size of the derivatives market, and with the pay-outs required by individual gamblers in this market leveraged to such extremes, it is a mathematical certainty that this entire market must implode if specific performance is required on just a tiny portion of these contracts/bets.
Despite claims by the Obama regime, and the continual reassurances from the media propagandists that the U.S. financial sector has been “saved” through re-inflating the financial sector bubble with $10 trillion in hand-outs/loans/guarantees, the reality is that nothing has been fixed. Two other news items provide further context for this fact.
Two days ago, The Huffington Post released an interview with Neil Barofsky, the government “inspector” assigned to oversee how the infamous “TARP program” funds were being used – or, rather, misused. Barofksy pointed out that bankster assurances that the TARP money would be used to “increase lending” were simply lies: bank lending has decreased, not increased. Instead, the money has been used to prey upon weaker financial institutions and to place more gambling-bets in the derivatives market – but mostly just to “sit on” as a (small) cushion against more large, looming losses. As I have mentioned on several occasions, at last report Wall Street banksters had over $600 billion in free money from the Federal Reserve simply sitting in a Fed “savings account”.
Barofsky also confirmed what has been obvious to Wall Street's legions of critics: that these oligarchies have actually been allowed (if not actively encouraged) to get even bigger. The result, concludes Barofsky is that the U.S. financial system is likely “in a far more dangerous place” today than it was a year ago. That's not quite the message being cranked-out every day by the U.S. propaganda-machine.
Another related news item comes from two months ago, again involving Morgan Stanley. This time Morgan Stanley was paying damages for bullion-fraud (see “Morgan Stanley pays damages for Precious Metals Fraud”). Since Morgan Stanley only had to deal with one of the U.S.'s corrupt regulators in that instance, it was able to cut a “sweetheart deal” where (as is usually the case), it was not required to admit any wrongdoing – even though it only pretended to purchase “bullion” for the clients with whom it contracted to provide these services.
Clearly, written contracts are something which Wall Street honours only when it is convenient to them. The only thing more frightening than the fact that the world's most reckless gamblers have placed bets totaling roughly $1 quadrillion in their own private casino is the fact that they are also cheats – who can and do frequently renege on those very same bets.
Since the vast majority of these bets are wagered purely between the banksters, themselves, and since capitalist theory dictates that these oligopolies must be broken-up for the greater good of our societies (see “U.S. bankers the most-overpaid in the world”), the solution (as I have advocated on many occasions) is to use all this U.S. government money (i.e. taxpayer money) to create a new, fraud-free banking system – and to simply allow this openly-fraudulent crime syndicate to drown in its own debts.
Unless/until that happens, the banksters will continue to demand that their servants in the U.S. government only pretend to “regulate” these companies, that they continue to allow them to engage in fraudulent conduct (with never anything worse than a “slap on the wrist”), and that they continue to allow them to get even bigger (and thus exert even more control over the U.S. government).
Far from “fixing” anything, all that the current policies of the Obama regime (and the past policies of the Bush regime) do is to guarantee a much worse financial collapse in the future – since all that is being done is to create even more unstable financial markets.
Disclosure: I hold no position in Morgan Stanley, Citigroup or AIG
