You left out the biggest and most obvious Ponzi scheme of all: Social Security.
Allan Mitch Haley <[EMAIL PROTECTED]> writes: > A Credit Crisis or a Collapsing Ponzi Scheme? > The Two Trillion Dollar Black Hole > > By PAM MARTENS > > November 13, 2008 "Counterpunch" -- Purge your mind for a moment about > everything you've heard and read in the last decade about investing on > Wall Street and think about the following business model: > > You take your hard earned retirement savings to a Wall Street firm and > they tell you that as long as you "stay invested for the long haul" > you can expect double digit annual returns. You never really know what > your money is invested in because it’s pooled with other investors and > comes with incomprehensible but legal looking prospectuses. The heads > of these Wall Street firms have been taking massive payouts for > themselves, ranging from $160 million to $1 billion per CEO over a > number of years. As long as new money keeps flooding in from > newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education > savings, and hedge funds (each carrying ever greater restrictions for > withdrawing your money and ever greater opacity) everything appears > fine on the surface. And then, suddenly, you learn that many of these > Wall Street firms don't have any assets that anybody wants to > buy. Because these firms are both managing your money as well as > having their own shares constitute a large percentage of your pooled > investments, your funds begin to plummet as confidence drains from the > scheme. > > Now consider how Wikipedia describes a Ponzi scheme: > > “A Ponzi scheme is a fraudulent investment operation that involves > promising or paying abnormally high returns (‘profits’) to investors > out of the money paid in by subsequent investors, rather than from net > revenues generated by any real business. It is named after Charles > Ponzi...One reason that the scheme initially works so well is that > early investors – those who actually got paid the large returns – > quite commonly reinvest (keep) their money in the scheme (it does, > after all, pay out much better than any alternative investment). Thus > those running the scheme do not actually have to pay out very much > (net) – they simply have to send statements to investors that show how > much the investors have earned by keeping the money in what looks like > a great place to get a high return. They also try to minimize > withdrawals by offering new plans to investors, often where money is > frozen for a longer period of time...The catch is that at some point > one of three things will happen: > > (1) the promoters will vanish, taking all the investment money (less > payouts) with them; > > (2) the scheme will collapse of its own weight, as investment slows > and the promoters start having problems paying out the promised > returns (and when they start having problems, the word spreads and > more people start asking for their money, similar to a bank run); > > (3) the scheme is exposed, because when legal authorities begin > examining accounting records of the so-called enterprise they find > that many of the 'assets' that should exist do not." > > Looking at outcomes 1, 2, and 3 above, here’s where we are today. The > promoters have clearly not vanished as in outcome 1. In fact, they are > behaving as if they know they have nothing to fear. As over $2 > trillion of taxpayer money is rapidly infused through Federal Reserve > loans and over $125 Billion in U.S. Treasury equity purchases to keep > these firms from collapsing, the promoters are standing at the elbow > of the President-Elect in press conferences (Citigroup promoter, > Robert Rubin); they are served up as business gurus on the business > channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); > they are put in charge of nationalized zombie firms like Fannie Mae > (Herbert Allison, former President of Merrill Lynch); they are paying > $26 million and $42 million, respectively, for new digs at 15 Central > Park West in Manhattan, where their chauffeurs have their own waiting > room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, > former CEO of Citigroup, who put his penthouse in the name of his > wife’s trust, perhaps smelling a few pesky questions ahead over the $1 > billion he sucked out of Citigroup before the Fed had to implant a > feeding tube). > > We are definitely seeing all the signs of outcome 2: the scheme is > collapsing under its own weight; there are panic runs around the globe > wherever Wall Street has left its footprint. > > But outcome 3 is the most fascinating area of departure from the > classic Ponzi scheme. Legal authorities have, indeed, examined the > books of these firms, except for one area we’ll discuss later. They > found worthless assets along with debts hidden off the balance sheet > instead of real depositor funds. Instead of arresting the perpetrators > and shutting down the schemes, Federal authorities have developed > their own new schemes and pumped over $2 trillion of taxpayer money > into propping up the firms while leaving the schemers in > place. Equally astonishing, Congress has not held any meaningful > investigations. This has left many Wall Street veterans wondering if > the problem isn’t that the firms are “too big to fail” but rather “too > Ponzi-like to prosecute.” Imagine the worldwide reaction to learning > that all the claptrap coming from U.S. think-tanks and ivy-league > academics over the last decade about efficient market theory and > deregulation and trickle down was merely a ruse for a Ponzi scheme now > being propped up by a U.S. Treasury Department bailout and loans from > our central bank, the Federal Reserve. > > Fortunately for American taxpayers, Bloomberg News has some inquiring > minds, even if our Congress and prosecutors don’t. On May 20, 2008, > Bloomberg News reporter, Mark Pittman, filed a Freedom of Information > Act request (FOIA) with the Federal Reserve asking for detailed > information relevant to whom the central bank was giving these massive > loans and precisely what securities these firms were posting as > collateral. Bloomberg also wanted details on “contracts with outside > entities that show the employees or entities being used to price the > Relevant Securities and to conduct the process of lending.” > Heretofore, our opaque central bank had been mum on all points. > > By law, the Federal Reserve had until June 18, 2008 to answer the FOIA > request. Here’s what happened instead, according to the Bloomberg > lawsuit: On June 19, 2008, the Fed invoked its right to extend the > response time to July 3, 2008. On July 8, 2008, the Fed called > Bloomberg News to say it was processing the request. The Fed rang up > Bloomberg again on August 15, 2008, wherein Alison Thro, Senior > Counsel and another employee, Pam Wilson, informed the business wire > service that their request was going to be denied by the end of > September 2008. No further response of any kind was received, > including the denial. On November 7, 2008, Bloomberg News slapped a > federal lawsuit on the Board of Governors of the Federal Reserve, > asserting the following: > > “The government documents that Bloomberg seeks are central to > understanding and assessing the government’s response to the most > cataclysmic financial crisis in America since the Great > Depression. The effect of that crisis on the American public has been > and will continue to be devastating. Hundreds of corporations are > announcing layoffs in response to the crisis, and the economy was the > top issue for many Americans in the recent elections. In response to > the crisis, the Fed has vastly expanded its lending programs to > private financial institutions. To obtain access to this public money > and to safeguard the taxpayers’ interests, borrowers are required to > post collateral. Despite the manifest public interest in such matters, > however, none of the programs themselves make reference to any public > disclosure of the posted collateral or of the Fed’s methods in valuing > it. Thus, while the taxpayers are the ultimate counterparty for the > collateral, they have not been given any information regarding the > kind of collateral received, how it was valued, or by whom.” > > As evidence that Bloomberg News is not engaging in hyperbole when it > uses the word “cataclysmic” in a Federal court filing, consider the > following price movements of some of these giant financial > institutions. (All current prices are intraday on November 12, 2008): > > American International Group (AIG): Currently $2.16; in May 2007, $72.00 > > Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; > share price in April 2007, $159 > > Fannie Mae: Currently 65 cents; in June 2007 $69.00 > > Freddie Mac: Currently 79 cents; in May 2007 $67.00 > > Lehman Brothers: Currently 6 cents; in February 2007, $85.00 > > What all of the companies in this article have in common is that they > were writing secret contracts called Credit Default Swaps (CDS) on > each other and/or between each other. These are not the credit default > swaps recently disclosed by the Depository Trust and Clearing > Corporation (DTCC). These are the contracts that still live in > darkness and are at the root of why the Wall Street banks won’t lend > to each other and why their share prices are melting faster than a > snow cone in July. > > A Credit Default Swap can be used by a bank to hedge against default > on loans it has made by buying a type of insurance from another > party. The buyer pays a premium upfront and annually and the seller > pays the face amount of the insurance in the event of default. In the > last few years, however, the contracts have been increasingly used to > speculate on defaults when the buyer of the CDS has no exposure to the > firm or underlying debt instruments. The CDS contracts outstanding now > total somewhere between $34 Trillion and $54 Trillion, depending on > whose data you want to use, and it remains an unregulated market of > darkness. It is also quite likely that none of the firms that agreed > to pay the hundreds of billions in insurance, such as AIG, have the > money to do so. It is also quite likely that were these hedges shown > to be uncollectible hedges, massive amounts of new capital would be > needed by the big Wall Street firms and some would be deemed > insolvent. > > Until Congress holds serious investigations and hearings, the > U.S. taxpayer may be funding little more than Ponzi schemes while > companies that provide real products and services, legitimate jobs and > contributions to the economy are left to fail. > > Pam Martens worked on Wall Street for 21 years; she has no security > position, long or short, in any company mentioned in this article. She > writes on public interest issues from New Hampshire. She can be > reached at [EMAIL PROTECTED] > > http://www.informationclearinghouse.info/article21210.htm > > > _______________________________________ > http://www.okiebenz.com > For new parts see official list sponsor: http://www.buymbparts.com/ > For used parts email [EMAIL PROTECTED] > > To Unsubscribe or change delivery options go to: > http://okiebenz.com/mailman/listinfo/mercedes_okiebenz.com > -- 1983 300D _______________________________________ http://www.okiebenz.com For new parts see official list sponsor: http://www.buymbparts.com/ For used parts email [EMAIL PROTECTED] To Unsubscribe or change delivery options go to: http://okiebenz.com/mailman/listinfo/mercedes_okiebenz.com
