Rick Siegel Prespectives on Freedom and Liberty

Another $600 Billion dollars floated into the currency bailouts this week and added to the $700 Billion earlier this fall brings the gross debt of the USA to around $1.5 trillion nearly tripling over the last 4 months. Why are Bush and the banks rapidly deepening the debt as they leave office backing investment banks with inflated fiat currencies?

Lets see what the pundits say is going to happen to all this money to be taken off the backs of our grandchildren, "The goal of the plan is to fix the mechanism that keeps credit flowing freely from lenders to borrowers. Lenders often package consumer loans into securities and sell them to investors. Then the lenders use the proceeds to issue more loans to consumers. But over the last two months, those investors have stopped buying." (1) This is basically explaining that the money will be used to fix a mechanism that mechanism is actually the disease and is called “derivatives” in the market. Adding to the problem is using the "proceeds" to leverage more leveraged money. A big empty balloon is forming.

When lenders, that is banks, investment banks, and bond brokers, “package consumer loans” into “securities” they become junk bonds, municipal bonds and others sold on the market at their full value with interest and profits. That means a house with 100 percent mortgage on it is sold for 100 percent of its paid up value and that is much more than the value of the house as it includes the 30 years of interest payments. Basically an investor pays for a bond, which your house may be a small part of, at full sold market value.

The problem comes when the government changed the law making the bond accumulators to value the bonds on real value. All of a sudden the slide started as the scam was exposed to its over leveraged valuation.

To aggravate the situation the banks took these bound up mortgage-backed securities onto the market and started to deal them again as derivatives. The derivative derives its value on the full market value of the bond portfolio. In the beginning you could buy these and as housing prices rose your bond rose. The big problem was the banks and investors used these derived bonds to obtain more of the same with the invisible profits.

You buy a mortgage-backed bond for $1 Million and you could use it to leverage out more loans for up to $8 million more! Now you have $9 million you are investing again that is backed by a bond worth $1 million only if everyone pays and only if no one defaults and house prices keep rising. You put the 9 million into more mortgage backed securities and can now get 90 million in loans. Do you see why banks and investment houses fed like piranhas on a lost pig?

The fact that the government wants to bail out (read nationalize the debt) while leaving these despicable shysters with profits, business and reputation shows that only business and banks have value to the government. There is no trickle down because the bankers know their own scam and know it was exposed. Responsible lending is now the practice and the money being given by your future taxes at less than 1 percent interest (basically free money to banks!) is only being held by these banks to shore up their own bottom line so they do not fail – as they should have.

Shout it out!