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No Wonder the $700 Billion Bailout 'Deal' Failed

Legislators Must Understand the Problems to Properly Evaluate the Bail-out Solutions The Homeowner Defaults are a Small Part of the Economic Disruption It is obvious that the financial sector of the United States currently requires significant actions and financial support from the U.S. government. These actions must be undertaken with the proper information or the current bail-out will assuredly fail and another bail-out will be required very soon. The next bail-out will cripple the country. According to President Bush, economists mostly blame the current financial crisis on homeowners‟ inability to fulfill their obligations on their mortgage debt. This is a small part of the economic problems facing the U.S. today and most importantly, in the very near future. A Root Cause of the Economic Destabilization Massively accelerating U.S. market manipulation is a root cause of the fundamental breakdown of the U.S. economy. The widespread market manipulation affects the entire economic interests of the United States, including employment that allows homeowners to pay for their mortgages. The economists are missing several key components of the financial crisis, including the below ominous warning of another economic meltdown by SEC Chairman Christopher Cox because of „credit default swaps.‟ Credit Default Swaps
Credit default swaps are contracts between dealers on stocks, bonds, mortgage backed securities or other financial instruments (collectively referred to herein as „securities‟) that can be hedged by selling the securities at the current market value. The credit default traders do not need to own any of the underlying assets to trade the contract. The nature of the credit default swaps is to profit from a future price decline of the underlying contract asset. The most profit is obtained if the security that is the asset for the contract declines to a price of zero. The credit default swaps are accounted for in the books of the major broker-dealers as „off balance sheet transactions‟, hidden from regulators and the investors in these broker-dealers.1 A standard way to profit from large credit default swaps is to trade a swapped contract for a future delivery of a security (several years from the contract date), then hedge the contract by selling the securities into the public markets or to investment funds, such as pension funds. These contracts can then be transferred in another credit default swap trade that can again be hedged by selling the underlying securities. Value of the Credit Default Swaps
The entire incentive for the traders of these contracts is to have the securities financially implode. The value of these so called „contracts‟, which generally require no investment by the contract holders, has been estimated to currently be 58 to 62 trillion dollars. These amounts are understated because only about 10% of the members of the reporting entity, called the International Swaps and Derivatives Association, voluntarily disclose their credit default swap positions.
1 For example: Citigroup Inc. 10-K filed 2/22/2008, Merrill Lynch & Co. Inc. 10-K filed 2/25/2008 and Wachovia Corp 10-K filed 2/28/2008.
To put 60 trillion dollars of these credit default contracts into perspective, the entire U.S. public retirement accounts only amounted to 17.6 trillion dollars at the end of 2007. Sixty trillion dollars is equal to the value of all publicly traded stocks listed on all major global stock exchanges.2 Just the credit default swaps reported equals the value of the companies that make up the world‟s economic engine. September 23, 2008 Senate Banking Committee Testimony of SEC Chairman Christopher Cox: “I will conclude, Mr. Chairman, by warning of another similar regulatory hole in statute that must immediately be addressed or we will have similar consequences. The $58 trillion notional market in credit default swaps to which several of you have referred in your opening comments that is double the amount that was outstanding in 2006, is regulated by absolutely no one. Neither the SEC nor any regulator has authority over the CDS market, even to require minimum disclosure to the market. This market is ripe for fraud and manipulation and indeed we are using the full extent of our anti-fraud authority, our law enforcement authority right now to investigate this market. Because CDS buyers don‟t have to own the bond or the debt instrument upon which the contract is based they can effectively naked short the debt of companies without any restriction potentially causing market disruption and destabilizing the companies themselves. As the Congress considers reform of the financial system in the current crisis I urge you to provide in statute for regulatory authority over the CDS market. This is vitally important to enhance investor protection and to ensure the continued operation of fair and orderly markets.”
“Holding a credit default swap is effectively or nearly effectively taking a short position in the underlying, but CDS buyers don‟t have to own the underlying, they don‟t have to own the bond or debt instrument upon which the credit default swap is based so they can effectively naked short it, this is a problem we have been dealing with, with our international regulatory counterparts around the world with straight equities and it‟s a big problem in a market that has no transparency and people don‟t know where the risk lies.”3 Please Consider
Money in Wall Street does not vaporize in a financial crisis; it is only transferred from investors to those Wall Street participants who benefit from market crashes. There have been very large credit default swap contracts and other methods of naked short selling used against U.S. securities. There is an incentive for the small number of profiteers in these large naked short positions to crash the value of the underlying securities, but this will, as it already has begun to, crash the U.S. economy. These profiteers can then conceal the fact that they have previously stolen the money from the financial system by selling securities they created from sham contracts. There are vast pools of money gained from this activity by a small number of identifiable participants and if the U.S. cannot counteract these pools, financial devastation is assured.
2 World Federation of Exchanges, Annual Equity Market Statistics, Domestic Market Capitalization report. 3 Senate Committee: Banking, Housing and Urban Affairs Hearing in Washington D.C., September 23, 2008, U.S. Credit Markets and Federal Rescue Plan.

No Wonder the $700 Billion Bailout 'Deal' Failed

Keep it up Alpha. You and the likes of Bud Burrell will finally nail this coffin shut. Next will be the unfolding scandal of the greatest share counterfeiting scam ever perpetrated on the people of the USA. It may make this present game look like small beer. Hold on to your hats!!!

The $700 Billion Disconnect: Lost in Translation

Phoenix and Ashes spring to mind. Let them all burn first.