Subprime Mortgage Crisis

In the subprime mortgage bubble partially created by the Federal Reserve with easy cheap money (from May 2000 to December 2001, the Federal Reserve lowered the Federal funds rate 11 times, from 6.5% to 1.75%), millions of Americans lost their homes to the banking cartel in what is perhaps the greatest looting of the middle class in the early 21st Century.

The crisis began with the bursting of the US housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM). Once home prices failed to go up as anticipated, refinancing became more difficult and defaults and foreclosure activity increased dramatically as easy initial terms expired and ARM interest rates reset higher.

Problem-Reaction-SolutionProblem Rection Solution
The mortgage crisis and subsequent financial crisis was not a surprise to many and was certainly part of a larger agenda by the globalist banking cartel to steal the wealth of the middle class and further subjugate them to the New World Order. Every American president for decades along with both Democrat and Republican representatives were complicit in carrying out the agenda of the globalists bankers using the Hegelian Dialectic, or otherwise known as Problem - Reaction - Solution.


The process begins first with a created problem...

Jimmy CarterThe Community Reinvestment Act encouraged lending to uncreditworthy consumers and later amendments to the CRA in the mid-1990s, raised the amount of home loans to otherwise unqualified low-income borrowers. In Congressional debate on the Act, critics charged that the law would "distort credit markets, create unnecessary regulatory burden, lead to unsound lending, and cause the governmental agencies charged with implementing the law to allocate credit."

Signed into law by President Jimmy Carter in 1977, it also allowed for the first time the securitization of CRA-regulated loans (derivatives) containing subprime mortgages.

Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged that the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks." In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.

Bill ClintonThe Commodity Futures Modernization Act of 2000, cosponsored by Sen. Phil Gramm (now a vice-chairman of UBS Investment Bank and was John McCain’s presidential campaign co-chair and his most senior economic adviser from summer 2007 to July 18, 2008.) was signed into law by President Bill Clinton on Dec. 21, 2000. It allowed for the creation of a new kind of derivative security, the single-stock future, which had been prohibited since 1982 under the Shad-Johnson Accord. This legislation provided certainty that products (derivatives) offered by banking institutions would not be regulated as futures contracts, thus setting the stage for a massive concentration of financial power and setting up the investment dominos ready to tumble.

Enron LoopholeMcCain, Enron and Gas Prices
One provision of the Commodity Futures Modernization Act was referred to as the "Enron loophole" and is blamed for permitting the Enron scandal to occur. The "Enron loophole" exempts most over-the-counter energy trades and trading on electronic energy commodity markets from government regulation.

Another piece of legislation spearheaded by Phil Gramm in efforts to pass banking reform laws, include the landmark Gramm-Leach-Bliley Financial Services Modernization Act in 1999, Phil Grammwhich served to reduce government regulations in existence since the Great Depression separating banking, insurance and brokerage activities. Under the FSMA new rules commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies could freely invest in each others businesses as well as fully consolidate their financial operations. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services. Other major mergers in the financial sector had already taken place such as the Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation combination in the mid-1990s.

With the pieces now in place, the bubble was inflated.

The Hegelian Dialectic "problem" was thus created and facilitated financial institutions to create leveraged derivative products comprised of home mortgages valued at trillions of dollars. To inflate the financial bubble even more, these derivative products were "insured" with Credit Default Swaps amounting to $62.2 trillion in 2007. This "global financial supermarket" created by our bank bought politicians was a foundational cause of the 2008 financial meltdown.

In a classic pyramid scheme style, by buying mortgages and repackaging the loans for resale via mortgage-backed securities, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. Income is generated for Fannie Mae through the positive interest rate spread between the rate paid to fund the purchase of mortgage investments and the return it earns on those retained mortgage investments in the derivatives market. Fannie Mae expanded to also buy mortgage bonds or loans outright using borrowed money, and make money based on the difference between interest it receives from the bonds and what it has to pay on its borrowings. Fannie Mae also earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on the mortgage loans underlying its portfolio.

The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, was founded as a government sponsored enterprise (GSE) in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a stockholder-owned corporation authorized to make loans and loan guarantees. Fannie Mae is the leading participant in the U.S. secondary mortgage market, which serves to provide liquidity to the primary mortgage market to ensure that mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies have enough funds to lend to home buyers. As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) own or guarantee about half of the U.S.'s $12 trillion mortgage market.


With the crisis firmly established, lenders began to pile on loads of bad debt and reacted as planned by filing bankruptcy. Fears were stoked by the mainstream media and government officials of impending doom and the importance of protecting those institutions "too big to fail."

The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately U.S. $435 billion as of 17 July 2008. Owing to a form of financial engineering called securitization (a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment), many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined.

It's here in the Shadow Financial Markets of derivatives where Bear Stearns, Fannie Mae, Freddie Mac, and others got in to financial trouble. Derivatives such as interest rate swaps and options to enter interest rate swaps ("pay-fixed swaps", "receive-fixed swaps", "basis swaps", "interest rate caps and swaptions", "forward starting swaps") are used to "hedge" cash flow.

To better understand how this confusing economy works, listen to Law professor Michael Greenberger explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.

Derivatives are used by investors in any particular industry and speculators as hedges against problem with their investments, or just to make money. It’s like an insurance policy for certain types of upsets in any industry. It’s one of the reasons why the worlds economy is falling apart now, because the derivatives market is unregulated because it’s so complicated the government doesn’t know how to look into how it is being used to build pyramid money making schemes by all of our major and minor financial institutions.

What they do is borrow discounted money from the federal government, then turn around and sell it to us for a profit as loans or credit. But once they have our name on the dotted line, they don’t have to wait for us to pay them back. They simply turn around and use what we owe them as credit to get more money using derivatives to secure what they owe on it in case we don’t pay them back. And they just keep doing it and over and over lending out money that doesn’t represent the amount of product and services available in the economy so we import goods and services using credit that’s supposed to represent what our economy is worth but actually represents what we owe foreign countries in the future, which if they keep doing this, we will never catch up with what we owe sinking further and further into debt, which has now caught up with us and our economy is crashing.

So as their pockets get lined with money, the value of the dollar goes down while the price of everything we import goes up and other countries can better afford to buy what we produce than we can so we’re exporting products that we need here in our domestic economy. They borrow millions of dollars turning it into a hundreds of millions before we’ve made any payments on the money they lend us. And they’re also lending money to themselves investing it on Wall Street to make more money covering their investments from their house of cards portfolios with derivatives, not to create competition in the market place but using multi levels of their fabricated money scams to cover the money they owe back to the federal reserve.

What they’ve done has basically had the same effect as counterfeiters putting trillions of dollars of worthless money into our economy only worse because it was done with the support of our lawmakers and central financial institutions. So now the people that ripped us off are the same ones we have to look to fix what they broke, which wasn’t an accident. It was a bank robbery by the owners of the bank, a most heinous and ludicrous crime.

| Hedge Funds


It's at this point in the Hegelian Dialectic that the very same people that created the problem in the first place steps forward to provide the solution.

The Treasury Department and the Federal Reserve took steps in 2008 to bolster confidence in Fannie Mae and Freddie Mac, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs' stock. On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008, intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding. On Sept.5, 2008, the Treasury Department placed both Fannie Mae and Freddie Mac into conservatorship and took over management of the pair.

The Price to Stay out of Jail

In a recent report by McClatchy details how the same banks that caused the finncial crisis have agreed to pay $81 BILLION in restitution & penalties to resolve federal investigations into alleged corruption and to avert criminal and civil trials.

Bank of America
Restitution & Penalties: $27.8 Billion.
Defrauded homebuyers with risky mortgage loans, committed mortgage servicing abuses, and engaged in unsound foreign exchange practices.

JP Morgan Chase
Restitution & Penalties: $17.6 Billion.
Rigged currency exchange rates, facilitated Bernie Madoff’s Ponzi scheme, sold risky mortgage securities, and engaged in mortgage servicing abuses and unsound banking practices.

Wells Fargo
Restitution & Penalties: $5.3 Billion.
Engaged in mortgage servicing abuses, and is now at the center of a scandal involving the opening of bogus customer accounts without customer knowledge.

Morgan Stanley
Restitution & Penalties: $3.9 Billion.
Misled investors in sale of risky mortgage securities.

Restitution & Penalties: $3.5 Billion.
Manipulated currency exchange rates, engaged in mortgage servicing abuses, and extended toxic loans.

Restitution & Penalties: $3.5 Billion.
Manipulated benchmark interest rates, helped Americans evade taxes, and sold toxic mortgage securities.

Restitution & Penalties: $2.5 Billion.
Sold toxic mortgage securities and laundered money to violate U.S. sanctions against Sudan, Cuba, Iran, Libya & Burma.

Goldman Sachs
Restitution & Penalties: $1.7 Billion.
Duped investors in offshore sale of risky mortgage securities and scammed Fannie Mae & Freddie Mac.

While these financial penalties represent historic records, they are a drop in the bucket compared to the hundreds of billions banks earned from scamming the public & its own customers for years. Yet not a single banker has gone to jail after committing these horrible, criminal offenses! And here’s the really scary part: Despite paying $81 billion in restitution & penalties, banks are still gambling with your money. Congress recently passed a new spending bill that allows banks to once again use your deposited money to bet on those insanely risky derivatives that caused the global financial collapse of 2008!

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