They need to be phased out, NOW. All the existing
speculator-held contracts need to be nullified and their
monies returned. All legitimate bond-holder policies need to
allowed to expire and no renewals allowed except by actual,
certified bond holders.
As it stands, the U.S.A. might currently be in a state of
siege with CDS's as the trebuchets of choice. Here's why:
Imagine if anybody could take out life insurance on you and
make a million dollars if you died. And the sicker you got,
the more people bought life insurance against your declining
health - 1,000's of policies. Would you worry for your life?
And what about the insurance companies that issued all these
policies? Would they worry whether they could pay out all
these life insurance claims on just one person
dying?
This is what happened with Credit Default Swaps (CDS's) where
insurance against a company defaulting on its bonds could be
bought for a fraction of a corporate bond's values -- say a $1
billion insurance policy could be had for $20 million a year.
Seems simple enough except it wasn't regulated. Dishonest
companies took advantage of this lack of regulation and sold
more insurance than they could pay out as claims, which would
be insurance fraud were it not for the lack of a regulator.
This means the world's financial system is in the hole for $60
trillion because AIG, Merrill, Citi & a few other firms
ran their operations like a bunch of mad Ponzi-like bookies
selling bond insurance against business bond defaults. They
sold these CDS insurance policies to speculators who didn't
even hold the bonds, where neither party was in any way
related to the bond or related collateral, buying &
selling betting rights on the ability of the actual
bond-issuing company to meet its payments. Perhaps these fake
policies were made out of thin air by mutual consent, and
buyer beware. Maybe it was all a big accident.
But here's the problem: There are $60 Trillion worth of CDS's
outstanding. There's a problem with this. Never mind neither
Merrill Lynch, AIG nor any of the other shady operations that
overissued bond policies can actually honor these 3rd-party
policies (they can't), the actual originating bond values only
amount to $5 Trillion. That's right, CDSs face values were
sold on the order of 12 times the actual
value of the actual bond values with nothing to back them up,
with no intention of ever honoring the obligations.
That is what I would call criminal. I think I just found the
point where I can define a clear and descriptive anger about
this. We - the American taxpayer - are on the hook for fraud,
massive fraud, a scale of theft that defies belief.
If the American economy fell into a real depression and there
began a widespread trend of defaults in corporate bonds, the
companies that issued the CDS's - Merrill, AGI, Citi - either
wouldn't be able to honor them and will default on the CDS's
holder's claims OR if the USA were to somehow try to honor the
claims it would oblige every American to pay for the
destruction of our own country.
But these CDS policies were *bought* with real money - real
BIG MONEY - paid by speculators. This is the kind of money
that expects a return. Why pay insurance on something you
don't own, that doesn't belong to you, if you don't expect to
file a claim? It's as though the speculators expected the
world to fall into a vast, huge slump and they expected to
clean up, big time.
Whether the obligations are worth the paper they're printed on
is another matter. However, looking back to the example of the
peril of multiple indemnities issued against one person, I
have to speculate that should the scenario ever arise where
claims were made on these CDS policies, it'd be tantamount to
forcing the citizens of a nation to pay off a rigged bet to an
army of gamblers who all held a vested interest in the
destruction of America.
In this case I find it hard to describe this degree of fraud
as anything other than the equivalent of high treason and that
level of speculation in any other terms but as the functional
equivalent of an act of war.
Thinking further, the only way to cancel these fraudulent
contracts is to either 1) let the CDS-issuing companies go
bankrupt or 2) nationalize them. If you're saying "Fine,
let them go bankrupt," you're not alone. The problem is
that financial analysts and bankers believe that either event
-- bankruptcy or nationalization - could start a run on the
U.S. dollar, leading to massive devaluation of the U.S.
dollar. The outcome would be almost certain hyperinflation and
a real depression.
In other words the holders of these CDS's hold a great deal of
power over the U.S.A. with these obligations. We - as
individual citizens and as a nation - didn't take these
dangerous bets but we're on the hook for them. Were these
CDS's to be owned by the wrong people the U.S.A. could be
quietly extorted and our foreign policy steered. In other
words our financial people may have unwittingly signed over
our futures to some people who may a vested interest in
driving American policy their way.
Or worse.
When oil commodity futures went sky high it was briefly
mentioned that this was accomplished by a handful of Mid East
sovereign funds cornering oil futures -- players completely
divorced from the actual commodity use of oil. It was an
anomaly, atypical and unprecedented. That sudden and wild
surge in oil prices - unrelated to supply and demand - drove
the U.S. economy faster and deeper into the vulnerable state
that it is now in.
Again, these CDS policies were bought by big investors and
speculators who expect a return. They didn't fork over
hundreds of millions of dollars for NO REASON, so they
anticipated that there were deep pockets backing up their
ability to file a bond default claim. Why pay insurance on
something you don't own, that doesn't belong to you, if you
don't expect to file a claim? If they hadn't expected to make
a killing down the road they would've never spent the money
betting on somebody else's bankruptcy.
In other words there were some very big players that might
still be hoping to score a huge payout on a minor investment.
Or this was all just a big coincidence. I'm thinking of a new
book that Robert Ludlum could write: "The Caliphate
Coincidence."
But who holds these CDS's? The U.S.A. is under siege, but by
whose hand? If someone in the U.S. government knows then why
aren't they telling us? And if we don't actually yet know, is
anyone in our government actually trying to find out?
see also:
http://www.thisamericanlife.org/extras/radio/365_transcript.pdf
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1263
After reading pages 9 - 19, I'm still trying to digest what
I've read.
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