Saturday, October 08, 2011

Non-Performing Papers

The present global economic crisis is the result of black market economics. By black market, I mean the same economic practices that allow the criminal underworld to function. A world in which few if any records exist regarding their profits – a shadow economy.

The new business of America and much of Europe operates without standards or oversight and the known value of most paper assets or financial instruments. Such to the extent that they cannot even be used to guarantee credit, a consistent observation in plain view in the US market and those in Europe. If one was to ask what were these papers and why they cannot be given accurate value, I could not answer because there are so many and no regulation for them that the only proof that they exist is reduced to growing unemployment, homelessness and protestors in the streets worldwide. I can say this because it has been “estimated” there combined value to be between $600 and $700 trillion – ten times the GDP of the entire world.

We see their weight on all markets. Take America for example, it is difficult not to see the impact of derivatives, mortgage backed securities, interest rate swaps or credit default swaps on the destruction of our economy. Both nongovernmental credit and private lending has dropped and contracted more than 20 percent since 2007. Namely because regulations that once existed that may have prevented this crisis have been reduced to nonexistent. Used be a time when people knew who own a mortgage for a house. Now such is impossible because the paper trail does not exist since most have been pooled and packaged into liquid Mortgage backed securities that allowed for them to get around the usual means to record the owners of said mortgages. Now most are hidden in a “shell company (MERS)” instead of banks or companies that have an actual interest in reclaiming the mortgage debt. This means that the value of even the bonds backed by mortgage backed securities will always be questionable and housing prices will continue to fall.

The same is true with default swaps. In an effort to avoid the tedious processes involved in recording and tracking the value of paper products and the foolish leveraging practices that created MBS’s, credit default swaps were invented. These “made out of thin air” papers were created so that lenders could insure the risk of papers with no know value and sell them to others. Now it is impossible for anyone to know who bears the risk for these instruments they are supposed to guarantee. This overlapping of paper means that no one can even accurately say what is owed or what their value are.

I intentionally did not include “off-balance sheet accounting “because it would show how our current fiscal crisis is truly the consequence of criminal activity, although our President says there are now laws to suggest that criminal activity was conducted by large Wall Street banks. I would disagree.

It is criminal because their actions has resulted in the number of Americans on food stamps increasing 74 percent since 2007 and 77 percent of US citizens now living from pay check to paycheck to date. Yet no such increases have proffered by bankers and corporate big wigs and their precious hedge funds created around these complex papers although most are none performing – not worth their stated value.

It is criminal when we question the rationale for the intense dislike for Wall Street when the President and Congress, who are recipients of large donation from this group and their K street lobbyist, are connected at the hip. We are a nation where the ratio of household debt to personal income is 154 percent. Yet the average CEO made 343 times more money than the average American did last year.

Yes it is criminal and unfortunately the President, Congress and Senate are criminal as well if they cannot see or understand such. But what can one expect when the percentage of millionaires in congress is more than 50 times those in the general public? Yes our crisis is the result of lawmakers who made money from rules that created these non-performing papers. Papers that obviously perform for politicians, CEOs and Wall Street bankers, but not for us.


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