What precipitated the financial crisis nevertheless engulfing the world was a harsh shortage of cash by leading edges. This article will try to discarded a little light on what has truly happened, as opposed to what we are told by the media.
The lending frenzy of the last few years culminated in the lending of large sums of money by edges and mortgage institutions to down-and-outers and no-hopers with no chance of ever repaying the money. Part of the reason they did this may be put down to political pressure from politicians who saw this as a chance to increase their own popularity with down-and-out voters.
Another reason may be that the original lenders made some initial profit from each deal and then sold the toxic debts as part of a “package” of debts that included some that were not so toxic. They sold them to all kinds of financial institutions, including overseas edges, hedge funds, and pension funds. The racket could consequently be carried on for much longer than if the original lenders had to deal themselves with the toxic character of the loans, and confront the consequences.
Because of this shuffling around of thousands and thousands of mortgage accounts, the fact that the overwhelming majority of them were falling further and further behind with the monthly payments was lost, as focus was kept on the perceived value of each package as it was traded from one financial institution to another.
By the time the extent and severity of the problem became apparent it was far too late. Finance houses and edges had carried on lending their fictitious money, based on the assumed value of these so-called assets, and had thereby made the problem ten or twenty times worse. Don’t forget Merrill Lynch had lent over 30 times its complete capital base in toxic loans. That doesn’t count the loans that weren’t toxic. That was undoubtedly because the more of these loan packages they bought, somehow the greater their capital base became and the more they were able to carry on lending. “Every loan creates a place”, right?
It was consequently only a matter of time before the inverted pyramid collapsed. When it did, the problem was world-wide. But it was not just the USA that had lent to bad debtors. The same thing had been going on in the UK, and many other Western countries (though it’s nice to be able to blame the “US sub-chief mortgage market” for the crisis). As we all now know, the complete international banking system has had to be bailed out with loans and buy-outs totaling at the minimum a trillion dollars ($750 billion in the USA and $250 billion in the UK alone).
Has this bailout helped people retrieve their repossessed homes? Has it helped lift the threat of repossession from millions of families? Evidently not. In the UK, half a million families confront the threat of being evicted from their homes, at the rate of 120 a day. With house prices set to fall from their peak by 20 per cent by December 2009, this method that most repossessed houses will be sold by the mortgagee bank at a loss. The bailout package is to ensure that these edges can claim the shortfall back from the government, i.e. the taxpayer.
So ordinary folk are having to pay for the greed and stupidity of edges by having their jobs and businesses on the line, their home in danger of being taken from them, and having to pay higher taxes to protect the edges’ profits.
That deals with where all this additional money is going to. But there is another question that has to be answered – Where did all this additional money come from?
The controlled media will just tell us that it is coming from the taxpayer, or already from future generations of taxpayers. In a way they are right here, as present and future taxpayers will certainly be paying for all this folly, but that answer doesn’t deal with the actual mechanics of how the money is produced in the first place.
To say it’s produced by government borrowing is only half the story. Who does the government borrow this money from? From either their central bank – the Federal save or the Bank of England, or at any rate the central bank is in the country concerned – or on the international money market. So who lends this money? Did it exist before this crisis? Where was it being kept? How long has it existed?
That’s where the whole racket falls down. The money is produced out of nothing by the international banking system and lent to governments to lend to edges. It’s certainly a new twist on the old system. And it gives already more strength to the shadowy figures, the “Superclass”, that pulls the levers of world politics and decides the fate of millions.