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Sub prime mortgage crisis explained

I’m sure there are a few people other there really not sure what the sub prime crisis was, or what caused it to occur.

How did so many supposedly smart financiers and bankers get sucked into it, or where they knowing and willing participants, feeling that they were not going to be held liable.

I must admit if you use the language of the accountants, lawyers, banker and government its really hard to decipher what actually happened and who was at fault.

What you do know is you got shafted but you aren’t exactly sure how this happened.

Help is at hand.

Here is a really good common sense explanation of what happened using a small pub as an example. This analogy is approved my our economics adviser as ‘more or less what happened’.

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Mary is the proprietor of a bar in Dublin. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin.

By providing her customers freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks’ liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

Now, do you understand economics in 2015?

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http://comicchill.com/?p=72

Worst of all this could still happen to other parts of the economy, including the monetary system, your cash in hand could suddenly become as worthless as a 2006 sub prime CDO.

Shout out to M V.

Catherine Austin Fitts Explains the last 10 years of finance fraud

Catherine Austin Fitts quite succinctly explains the entire sub prime scandal and how it was all deliberately planned to destroy wealth in the USA and then flow on to Europe and elsewhere.

A basic synopsis:

 

If you had savings:

The banks took your savings to lend it to your employer to invest it in foreign business to off shore your job and reduce your wages/salary or force you into unemployment.

If you were a borrower:

You were encouraged to get a mortgage on a bigger (and vastly over valued) house in a market bubble, despite that known rising energy costs in the future would make it too expensive to live in.

Those mortgages were packaged into securities and sold to your pension fund, so that when you default on your mortgage you default on your retirement plan, so you can loose your house and your retirement income.

 

So in short: a deliberate fraud planned out in a cold and clinical way to steal all the wealth and destroy the economy.

bank deposit tax coming to Australia

Bank robbery a la Cyprus 2013_thumb[3]

 

Just weeks after Kevin Rudd was reinstated as PM the Federal government has revealed plans for a  bank depositor tax of 0.05 % on all deposits up to $250,000AUD.

http://www.abc.net.au/news/2013-08-01/government-sets-new-bank-bailout-levy/4859732

So this means:

Another tax for everyone except the ultra rich.

Customers of bank are make to insure the bank, not the shareholders.

The bank will have fund to plunder which they will definitely will attempt to get.

The banks are being offered a reward for failure which make banking failure more likely.

The banks have taken secret bailout money in the past and will do so in the future.

http://www.moneymorning.com.au/20101203/nab-and-westpacs-secret-bailout-revealed.html

How has banking become so thoroughly corrupted that customers are expected to insure the  bank (a business) they are forced to use?

Many of the major banks here in Australia have recorded vast profits in the last few years, why are the shareholders not required to fund this insurance fund?

If i was a builder, could i then charge all of my customers a tax in case my business failed? Surely not. If my business failed the shareholders would be liable for losses not my customers.

Why does banking demand such preferential legal treatment system to support them?

So if the Federal government is going to collect money in the form of a tax to insure against banking collapse, where are they going to keep the money, to keep it safe?

A bank?  no, sort of like keeping you house fire insurance policy document inside your house.

Sovereign bonds? Many are not profitable. Most are just as risky as banks.

Big mattress?  Might actually be viable as a  stack of $100 notes in a vault.

Gold? Silver?  other precious metals? probably a better idea.

Perhaps the people of Australia should put a levy on the  Australian government, in case they fail to uphold the rule of law and the Constitution.

If a bank fails the solution is simple, the shareholders must pay for the losses, after all they took the gains and had their say in the running of the operation.

Do some research, you will find the same multinationals you hear about from the USA , Europe etc are behind the big 4 banks here, and the playbook they are using is largely the same.

Bernanke where did the $500,000,000,000 go? “I dont know”

 

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