Why the economic meltdown? A layman's view

The economy is made complex for a reason, so Joe Public (or perhaps the infamous Joe the plumber) will never know what is truly going on.

Bankruptcies can be filed under different chapters, money generation is called quantitative easing, bank products are called Collateralized Debt Obligations (CDOs), Credit Default Swaps (CDS), etc, etc, the list goes on and on.

So why the massive meltdown that's happened in the past 12 months? In a simple answer....those pesky bankers Goldman Sachs.

About five years ago, markets were becoming stagnant as people were happily paying off their mortgages, paying HP's for their washing machines, cars and even indulging in holidays; the halcyon days of frivolous prosperity...you remember...don't you?

Then along came a guy called Lloyd Craig Blankfein, CEO & Chairman of Goldman Sachs. Not happy with the status quo of normality, he needed more money, much more money so he could build his galactic starships or whatever these Rockefeller Society members do with their money.

Blankfein earned a total of $53.4 million in 2006, making him one of the highest paid executives on Wall Street. His bonus allegedly reflected the performance of Goldman Sachs, which reported record net earnings of $9.5 billion. The compensation included a cash bonus of $27.3 million, with the rest paid in stock and options. While CEO of Goldman Sachs Group in 2007, Lloyd C. Blankfein earned a total compensation of $53,965,418, which included a base salary of $600,000, a cash bonus of $26,985,474, stocks granted of $15,542,756 and options granted of $10,453,031.

Wiki

So in a nutshell, Blankfein (aka Dr. Evil) said 'we need more money from our slaves', and so began the engineered downfall of the Global economy. They went hell for leather, targeting the sub prime market, a demographic consisting of crack taking, weed smoking degenerates in the southern states of USA. They were colloquially termed NINJA's - No Income No Job or Assets. The kind of people who were coerced into getting $300k mortgages even though they rummaged bins to feed themselves. I'm being facetious, but you get the point.

A year or two into their contracts, the fine print kicked in (remember these people can't read) and up went the rates and their monthly payments became extortionate and the slippery slope of foreclosures began.

Why would banks knowingly do this, i hear you ask? Because it was part of the plan, that's why.

Goldman Sachs knew exactly what they were doing. They sold these toxic mortgages off to secondary markets like pensions and insurance companies and workers’ unions. Instead of overtly declaring their crap security status, they were deviously packaging these bad debts with AAA investments, so no-one was the wiser. This was possible because they were in bed with the ratings agencies and even the regulation authorities had executives who were ex-bank execs, so the plan could be put to action.

These debts were so well hidden, they eventually found their way up the food chain to huge corps like Lehman Brothers, who couldn't absolve the massive toxic waste and have since filed for bankruptcy protection.

Now this is where the plot thickens as Dr. Evil had hedged his bets with AIG, who insured against the toxic waste and swallowing the BS that they were AAA securities. As soon as the market collapsed Dr. Evil came after AIG, wanting his money. Ofcourse AIG couldn't finance the huge hole that had been created and so the bailouts began. AIG received $180billion and guess where half of that went...to the banks and Goldman Sachs received $13billion indirectly from the tax payers, who in essence have paid twice for this architectured economic behemoth.

'That's why we enter into these contracts. That's why we have collateral terms in the first place, to make sure that we are protected', David Viniar said, Executive Vice President of Goldman Sachs. 'And all we did was call for the collateral that was due to us under the contracts. I don't think there's any guilt whatsoever.'

Viniar said that while Goldman would not have suffered direct losses from AIG's failure, because it was hedged and collateralized, a collapse would have disrupted the financial markets.

Forbes

And so the mantra began "we can't allow banks to fail", not from g'ment, but from the very institution that started the downfall.

If AIG was allowed to fail, then Goldman Sachs would have lost out on billions of billions of dollars. With the bail-out they were in a win-win situation and even received 100% payback on its AIG debt, which ordinarily, would have been a marginal return.

There are other mini-me's from Goldman Sachs, namely Peter Kraus who joined the Merrill Lynch bank after leaving Goldman Sachs. He only worked there for three months and received $24.9million for his hard work after Merrill Lynch struck a takeover deal with the Bank of America:

Mr Kraus will not have a role in the combined bank's new management structure, and as the terms of his contract have changed, he is now eligible for an exit payment.

...reported that he joined the bank on a $90m package, with his "golden parachute" payment on departure worth about $10m-$25m.

Telegraph.co.uk

So ladies and gentleman, trust no-one, especially bankers and don't borrow money you can't afford to pay back. If we empower ourselves with correct money management, then these fat cats will soon starve. However, it may be too late, as the bailout repayments will last decades and if you think Obama will give you hope, well guess who his biggest campaign funder was.....yep, Goldman Sachs (link).

Thanks to:
Matt Taibbi
kosmicjack

Edit: Typo

[edit on 26-6-2009 by PrisonerOfSociety]

Good analysis. S + F!

It really gets to me when people try to place blame for their lack of education on what is their own fault. Now I know that the "complex" economy is not their fault and is a direct result of our indoctrination centers (read: public schools), and after a few generations not know where to go look for the right information.

But there will never be a substitute for knowledge, understanding, and a proper education. People say capitalism is failing, when in actuality it is doing what the money changers want it to do, which is consolidating power. It isn't about the money it is about the power.

So these same people (i.e. Dr. Evil and his mini-me's) advocate class warfare in order to help them along with their agenda. Because they get richer off of the ignorance and envy that is created with the wealth.

If you know the rules of the game then the game changes. Kids aren't taught the rules, because these same people have infected the public education system.

But I agree 200%, we have to be financially literate and have to know the rules of the game. When bankers start throwing out acronyms to explain these exotic financial instruments it should automatically raise a red flag in your head. Which it still does, but the "slaves" overlook it because they are about to get a house they know they can't afford.

If you really want to get deeper with it, these "toxic assets" are not really toxic at all, they are only toxic because it is unpaid debt, but they really own the property which is what they really want. The problem with it is though is that under legal accounting rules and in order for them to raise more capital, these "toxic assets" need to go away so the bank can look profitable.

Hence why they want a "bad bank". Shuffle the "toxic assets" to the "bad bank" only to be bought at fire sale prices later on.

Originally posted by Hastobemoretolife
Hence why they want a "bad bank". Shuffle the "toxic assets" to the "bad bank" only to be bought at fire sale prices later on.

That's an interesting observation.

I created another thread about John Harris in the UK who wants us to realise that we can opt out of the system and he mentioned that companies can incur debt and then set up sister companies to clean their books, so to speak.

I'm not sure of the technicalities, but i agree with your point that banks can be used as patsies and creative book-keeping.

Also read this fascinating article posted by someone on another thread and it's amazing how audacious they were with TARP funds, giving them to any Tom, Dick or Harry, as congress were in a muddle finalising legislation. A blatant abuse of the very essence they were meant to be used for.

Look at the first great depression. Who profited from it? 4,000+ banks were swallowed up. We see the same thing happening today. Meanwhile the talking heads in DC like Bernanke are saying noone should investigate the FED because otherwise it would cause the collapse of the whole system.

The wind is blowing and it's whispering.... revolution!

reply to post by warrenb

No it's SHOUTING revolution !!
and this depression seems to be mirroring the last one on many levels.
What we are seeing at the moment on the markets is the sucker rally phase before the house of cards comes tumblin down !!
Just as in the last depression.
Can investors not see this
excellent post btw POS---starred and flagged

I pray Matt Taibbi has 24/7 bodyguards. I'm worried for him as his articles cut right down to the bone of truth.

Goldman Sadchs: The Wall Street Bubble Mafia

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup – which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York – which, incidentally, is now in charge of overseeing Goldman – not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain – an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

It is a fallaci to say that it was just the sub-prime loans that made this financial mess. We don't know who or when the word got out to start making loans in droves, but it did. The countrwides and the other large mortgage places where okaying mortgages from everyone and anybody. Then they got the okay from the banks (either local or large) to get funding, and then these banks bundled these loans up to the large investment banks so that they could securitize them and sell them in Truanches to investors in the US and across the world (Iceland etc. etc.). With each step of the process everyone got a fee (why do you think that loan officers and mortgage brokers and real estate sellers where making 6 figure salaries and many of them without education). The reason why banks allowed this was that these performing and non performing loans where never going to be ON THEIR BOOKS (except for the ones they considered prime). They got a nice fee for every loan given to the investment banks.

Who's to blame for all of this, the main culprit is the rating agencies and the investment banks that securitized this stuff and the agencies that rated the grade F paper to triple A because their customers (CITI bank, Goldman etc.) said so. To a lesser degree are the "Crack smoking, poor people, etc.". The reason is that if the mortgage companies and the banks did just a 10 second glance or not even that just put the information into their qualification software, it would have showed that said person couldn't afford a 750,000 dollar mortgage on a 17,500 dollar salary as a migrant worker (google it it actually happened, and it was a no doc loan also). It paid for the banks and the mortgage companies to give everyone and anyone a loan because as stated before the banks weren't holding on to any of them. You know why we have laws against speeding or murder or whatever, it's because we know that people good or bad are stupid and ignorant and naive. That is why we have regulations and laws and why businesses have guidelines in dealing with customers. Because they know that people good or bad can be delusional or to optomistic in their view of the world and themselves.

Not just the sub-prime but prime loans also went through the floor because if they where willing to give people 750,000 dollar mortgages on 17 thousand dollar salaries, what do you think they did for people that where making 100,000 a year, they got whateve they wanted. So people who where prime at the time bought second houses, boats and/or refinanced or had equity in their house that they saved or was going to use for a line of credit. In essence the prime borrowers who where marginally prime and/or fully prime at the start overextended themselves and became sub-prime or lower later on. And then the game couldn't be played anymore. The value of homes stopped going up and reversed to the downside (which many americans rich and poor was using their homes as to subsidize their salaries and/or spending habits), people started to get laid off and the machinations of the bubble wasn't needed anymore which in turn means the people involved in the machinations aren't needed (Porters, BMW sales people, construction workers you name it).

People and institutions started to defualt on properties worth 50% less and lower for a mortgage that was 100% plus any refinancing or second loan. Once this got started the ponzi scheme went bust. Here's an example. Lets say Gunther bank from Germany buys 1 Billion of CDO's (Collateralized Debt Obligations), and for this example all of it is mortgage paper of "good quality". In buying a billion dollars worth of triple A debt, they get interest and principal back using cash flows produced from the CDO assets. And in almost all of these CDO bonds there is contractual language that makes it clear that if said cash flow from the assets are delayed or altered then the issuer of the bond is in default and the issuer must pay back the full amount of the bond plus fees etc. to the buyer. Since trillions of dollars of debt obligations where produced, and even just for this billion dollars and change from this bank, the issuer doesn't have or want to give Gunther bank a billion dollars because they may not have it and/or it will cut into the other side of their accounting books which is realized profit and debt.

Why do you think that these loan modifications that the politicians and such want done are on death ears or are called modifications in name only. It's because no matter how you slice it, if Gunther bank doesn't get their payments on time and at said amount they are in default. And Gunther bank may not even have a choice in the matter because they may have leveraged those assets on their books they bought for other financial instruments (you see the massive web here). That is why everything started to fall apart and banks didn't trust other banks, and that was some of the banks (actually all the American investment banks) and rating agencies where lying and they got caught. Of course you could say that insurance was bought for this type of scenario, and it was. Remember AIG what they did and other real small ones did was to insure against assets like this by investing IN THE SAME ASSETS!!! Why do you think that AIG and the large banks went running to the govt., when it was good they where good but when it went bad or south the whole PONZI game came apart. The govt. couldn't afford the bond system to fall apart because not only do companies use it for funds but Federal, State and Local use the bond market to finance their municipalities. And if the international public can't trust the ratings and bond market they won't trust the govt. bonds or heaven forbid US treasuries.

And as a side note why are small and medium banks failing, it's as I stated before those prime borrowers became sub prime during the collapse. Like the developer that got a 15 million dollar loan to develop a few strip malls but nobody to rent to due to the economy now and/or falling property prices. A big bank can take a 15 million dollar hit, a small to medium can't on their books. Everybody from the little person to the big investment banks to the raters gave the wink and nod in order to get the American dream. Now it became a nightmare because the checks and balances where thrown out the window by the companies and the Fed.

One of the best threads I have read on ATS. When I try to explain to people what happened I always get caught up in the little details and fail to explain the big picture in a way that is easy to understand.

Yeah! Damn Bankster Rats!

Thanks for an interesting read! S&F

My view is that Bernake raising rates in something like 18 consecutive meetings was the real cause of the collapse. In fact the way the FED controls the economy will always lead to these bubbles and busts. What we need is fixed affordable interest rates. When the economy gets overheated you require banks to hold more capital. When it needs to be sped up you require less. While this would work just fine for the economy, it would be a disaster for banks as they could no longer use changing rates to seperate us from our money.

reply to post by hoghead cheese


Great post hoghead, thanks

However, i disagree with your claim to blame the regulators. You are correct the web is indeed deep but in the UK for example, it was obvious 'they' work from the inside as the chairman of the regulatory authority was an ex-bankster:

Perhaps the best known person with HBOS connections named in the report is Sir James Crosby, who was chief executive of the bank from 2001 to 2006 before leaving to become deputy chairman of the Financial Services Authority (FSA), the UK body responsible for regulating the financial sector.

Study reveals true extent of 'old boys network' between Government and banks

This conflict of interest goes across the pond with so many GS banksters now embedded in the political game of chess, thus corroborating my OP that GS are the spin doctors of all this collapse.

They aren't stupid people. They engineered these loans many years ago knowing full well they'd have people on the inside to chant their mantra of 'we can't let the banks fail', so in essence the taxpayer has paid once for 5-10 years of mortgage/loans to then default as the squeeze began and secondly for the g'ment to step in and give hundreds of billions of even more money from the taxpayer; a double whammy.

The easy solution to all this....get rid of central banks and allow g'ments to print their own money and negate any usury that perpetuates debt which grows exponentially at the hands of the FED & BoE. The game they play with Fiat money and fractional reserve banking is coming to a cyclical end...until the NWO SDR kicks in

Imagine a halcyon World, where you go to your local bank and borrow $1,000 and pay a small 5% admin charge and you only pay back the amount you borrow...no interest = liberation. Tis but a dream, as the banksters will try to shackle humanity for eternity; we are their gimps, physically and financially.


[edit on 30-9-2009 by PrisonerOfSociety]