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September 25, 2008 at 11:49:30
Promoted to Headline (H2) on 9/25/08: by Chuck Simpson Page 1 of 5 page(s) 
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The paramount reason for today's cancerous credit crisis is seldom even hinted and never explained. First, a simple definition. A credit default swap is a form of insurance. A variant of mortgage insurance required of many home purchasers. An insurance policy that requires a company with financial strength to step up to the plate and pay the mortgage if for some reason the home buyer defaults. A credit default swap is similar: If default occurs, an insurance company pays the income stream of the mortgage. With one extremely important difference: Payments are made to the owner of the policy, not to the financial institution that stands to suffer a loss. 
Financial institutions are allowed, through total lack of regulation, to buy and sell credit default swaps, or insurance they will be paid in event of default, on financial instruments in which they have no financial interest.
Start with a simple example. Assume I know the young son of the couple next door likes to crawl into closets and play with matches. I therefore see a reasonably good shot at "winning the disaster lottery" so to speak, by buying fire insurance on their $200,000 house.
In simple terms, I now have a financial interest is seeing that disaster occurs. If the house, for whatever mysterious reason, burns down an insurance company will pay me the insured value of the house - even though I suffered no loss, financial or otherwise. My neighbor's misfortune is thus magically transformed into my good fortune. A polite way of saying I was paid $200,000, the insured value of my next-door neighbor's house, after I paid the $400 insurance premium.
Being bright and suitably equipped with an MBA from a prestigious eastern university, I well and fully understand the desirable objective of maximizing my return on investment. I can accomplish this in one or both of two ways - increasing the return or decreasing the investment.
I can increase the return by artificially increasing the value of the house - say from $200,000 to $400,000. This will allow me to collect twice as much for suffering no personal loss. The easiest way to accomplish this would be to hire one of my buddies, who happens to be a real estate appraiser, to "document" the higher value.
I could also decrease my investment - meaning the premium I paid for the insurance, say from $400 to $200. The easiest way to do this would be to hire a widely acclaimed "fire risk rating agency" to send out an inspector who will look around (or perhaps only drive by without stopping) and then solemnly declare: "This house is fireproof".
Either of the two most prominent and widely known fire rating companies would be excellent choices, based on their prior experience.
In the real world, meaning Main Street as opposed to Wall Street, this would be illegal. Against the public interest, because it encourages houses to mysteriously burn down. The insurance policies owned by people without a financial stake in the fire would be declared null and void because they are contrary to public policy, which sees minimizing the number of mysterious house fires as a good thing.
Rather than a bad thing, as now occurs under America's predatory capitalist system.
Now change an assumption. Assume I tell 99 of my poker-playing gambler friends about the boy's strange and dangerous interest. Starting with my appraiser buddy, who's predatory income as a result of a mysterious fire will double, as a direct result of his appraisal.
Now assume the $400,000 house burns to the ground. One hundred or so insurance companies will collectively pay $40 million in claims on the loss of a single $400,000 house. The benefits of a $400,000 disaster are magically multiplied by a factor of 100 and transformed into a $40 million disaster - with one family suffering a loss and 100 families experiencing a gain. The losses of the insurance companies don't count, because, in America's capitalist society, they are in the business of writing insurance - and paying claims for losses.
But in today's society, fire is not the only disaster that can be insured against. Of particular interest, default on a home mortgage can be insured against. And possession of an interest in the mortgage or actual risk of financial loss as a result of default is not required in order to purchase the insurance.
Take action -- click here to contact your local newspaper or congress people:
SOLVING THE CREDIT DEFAULT SWAP PROBLEM
Click here to see the most recent messages sent to congressional reps and local newspapers
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banksters in jail yet?
Excellent, simple terms, explanation of crisis and bogus solution... audacious, power-grab, bailout for banksters. Kent Welton PublicCentralBank.com by Kent Welton (71 articles, 0 quicklinks, 0 diaries, 63 comments [5 recommended, 0 rejected]) on Thursday, Sep 25, 2008 at 12:39:58 PM  (0+)
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Reply: No, but they should be along with the "regulators" and
all of the others who looked the other way while rampant fraud by the bankers resulted in unheard of levels of mortgage defaults. Could it be a case of the Bush Administration looking the other way while all kinds of scamming was going on? Let's see. Bush I is ruling during the Savings and Loan bail out, and Bush II is ruling when the banks need to be bailed out. Does anyone see a pattern here? Find out who caused this mess and learn a better way to get out of it. This article contains links to the Miami Herald articles showing that (surprise, surprise) the Republicons looked the other way while widespread mortgage fraud went unchecked. Please check it out, digg it, buzz it, reddit it, and pass it along to your friends. Also, use the link Help the Victims, Not the Scam Artists! to send a message to your members of Congress and your local newspaper telling them what you think about the latest Bush engineered crisis! by Mark Adams (20 articles, 0 quicklinks, 0 diaries, 312 comments [39 recommended, 0 rejected]) on Saturday, Sep 27, 2008 at 3:40:11 PM (0+)
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The other NECESSARY step to take....
is to boycott the election and to refuse to vote in November. If we keep delegating the power to screw us to government officials we cannot hold accountable, they'll keep screwing us. Consensual Political Intercourse Anything that Congress and the White House may do is by the power invested in them by the American people. Bad investment. The Democrats just voted $612 BILLION more for the wars based on lies to enrich Halliburton, and are posturing about conditions but will vote for the $700 BILLION bailout. They ALWAYS vote for anything the Republicans want. They should change their name from the Democratic Party to the Republican Auxiliary. We vote for the Democrats (or for 3rd party & independent candidates who can't win), the Democrats concede to the Republicans and then vote for whatever the Republicans want, and they all claim that they are doing it by the power invested in them by the American people who voted. They're a bunch of crooks. All of them. Don't vote! Excellent article, Chuck. Casting a ballot in the November election is handing that kid a book of matches and shutting the kid in a dark closet. And if the kid cries, "Let me out -- it's dark in here," Congress will say, "By the power invested in us by the American people, we authorize you to strike a match so you'll have some light. Don't worry kid -- would we ever do anything to hurt you?" by Mark E. Smith (21 articles, 30 quicklinks, 100 diaries, 1325 comments) on Thursday, Sep 25, 2008 at 4:01:30 PM (0+)
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Reply: Mark's Comment
Mark, I certainly share your frustrations and sense of futility, sometimes overwhelmingly so. And in general I agree with your "don't vote" proposal. As I've often said for many years, voting for the lesser of two evils is voting for evil. The downside is that refusal to use what little power we have is a voluntary acceptance of our lack of power. I see a better alternative in this case, although the speed of approval probably makes the alternative ineffective: E-mail your Representative (and your Senator, if standing for election this year) that you will vote against them if they vote for this bill, no matter who their opponent is. Better yet, vote for one of the independent candidates in the Presidential race, and in national races for Rep and Sen if they are on the ballot. At least this sends the message: A pox on both your houses. Long term, I believe independent parties are the only peaceful alternative to achieving meaningful change. Certainly we have learned that substituting Rs for Ds or Ds for Rs achieves nothing. Thanks for commenting. Chuck by Chuck Simpson (12 articles, 0 quicklinks, 0 diaries, 19 comments [3 recommended, 0 rejected]) on Thursday, Sep 25, 2008 at 4:16:43 PM (0+)
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Reply: Please do the research, Chuck.
Chuck wrote: Mark, I certainly share your frustrations and sense of futility, sometimes overwhelmingly so. I don't have a sense of futility, Chuck. I have a plan. A nonviolent, proven effective plan to delegitimize our government and replace it with a democratic one. And in general I agree with your "don't vote" proposal. As I've often said for many years, voting for the lesser of two evils is voting for evil. The downside is that refusal to use what little power we have is a voluntary acceptance of our lack of power. Where do you imagine an illusion of power, Chuck? Do you think that the central tabulators can't undetectably flip your vote to a candidate you didn't choose? Go to the member page of senior editor Rady Ananda here on opednews, look for the two articles entitled Election Fraud bibliography and Scientific Election Fraud Bibliography, and start reading. But even if we didn't have secret vote counts, voting still wouldn't give us any power because the Constitution didn't give us the final say in elections. The popular vote is totally irrelevant to who becomes President and Vice-President. The Constitution doesn't allow us to vote directly for President and Vice-President. In 2000 and 2004 the President and Vice-President were sworn in BEFORE THE VOTES WERE EVEN COUNTED. The Electoral College vote can be accepted or rejected by Congress. If the Republicans get up a petition to throw out the Electoral votes of California and New York, it doesn't matter how many votes Obama gets, McCain will become President. Or Obama could win and then follow the precedent of Gore and Kerry before him and concede to McCain, so that the Democratic Party can continue to blame everything they do on the Republicans. Or McCain could appeal to the Supreme Court and no matter how unconstitutional and irrational their decision, even if it neither follows nor sets precedent, like their Bush v. Gore 2000 decision, and is therefore not within their discretion, their decision is final and cannot be appealed. In what "democratic" country can an unelected Supreme Court install an unelected President who can then appoint Supreme Court justices? I see a better alternative in this case, although the speed of approval probably makes the alternative ineffective: E-mail your Representative (and your Senator, if standing for election this year) that you will vote against them if they vote for this bill, no matter who their opponent is. Once Congress passed HAVA, they no longer had to worry about who you voted for. Once you vote, the central tabulators will apportion the votes the way that the ruling elites prefer and you have no recourse. Haven't you ever working in a Congressional office? I have, Chuck. They have unpaid interns and volunteers to handle your phone calls, letters and emails. You get a pleasant form letter in return and that's that. Better yet, vote for one of the independent candidates in the Presidential race, and in national races for Rep and Sen if they are on the ballot. At least this sends the message: A pox on both your houses. No, Chuck. The message it sends is: I don't care if my vote is stolen or flushed down the toilet -- I don't know the different between a symbolic and meaningless vote and a real voice in government. I hereby give my consent to whoever the central tabulators "elect" to steal and rob me blind. Long term, I believe independent parties are the only peaceful alternative to achieving meaningful change. Certainly we have learned that substituting Rs for Ds or Ds for Rs achieves nothing. If we could replace our fascist government with a democratic form of government, we could have proportional representation the way that democratic countries do, and then a vote for an independent party or candidate would be meaningful. But as long as you vote to give your consent, confer your mandate, and grant your authority to fascism, that isn't going to happen. Thanks for commenting. Chuck You're welcome. Thanks for responding. --Mark by Mark E. Smith (21 articles, 30 quicklinks, 100 diaries, 1325 comments) on Thursday, Sep 25, 2008 at 7:35:59 PM (0+)
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Reply: Non-Voting
Mark, I have and continue to do a great deal of research. Which is why I at times feel an overwhelming sense of dispair. My belief is that "they" now have control of too many levers of power, and that legitimate means will never be sufficient to return power to the people. Vote theft clearly ranks as one of the most powerful. This thought is clearly hinted at in my blog. The picture depicts what I feel may be necessary. As to not voting. For years, I have agreed with your position. Ron Paul's results make the futility of voting crystal clear. I last voted in 1988. We may differ as to non-violence being sufficient. Sometimes I think so. Becase we are governed by bullies, and bullies are cowards. I have never known this rule to fail. Cheney, who refuses to step out the front door without a convoy of armed vehicles filled with armed soldiers, all overlooked by armed helicopters, makes my point. A late chapter in my book proposes a milion-man march on Washington. With every last man varrying a rifle. I would not expect a shot to be fired in such a dramatic display of objection. Because bullies will never go face to face against real fighters. This hints at agreement with another point you rase as to non-payment of taxes: If all of us are criminals, none of us are criminals. Again, thanks for commenting. Chuck by Chuck Simpson (12 articles, 0 quicklinks, 0 diaries, 19 comments [3 recommended, 0 rejected]) on Thursday, Sep 25, 2008 at 9:01:52 PM (0+)
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Reply: Don't candy coat it...
The current administration has stolen everything that we have. Now, they'reworking on stealing everything that we will ever have. If Osama bin Laden were running for president, I would vote for him. by Matthew Peters (0 articles, 0 quicklinks, 2 diaries, 171 comments [4 recommended, 0 rejected]) on Thursday, Sep 25, 2008 at 10:09:19 PM (0+)
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Outstanding Article
Well done. Logical. Makes sense. Make the bets illegal. Cancel all illegal bets. And my own thought is if any bailout should be needed, pay it with debt free money Congress is empowered with the power to coin money. Just mint a 700 billion steel coin. Costs 1 dollar, debt free, and Paulson can stick it in his pocket or wherever. by pft (0 articles, 0 quicklinks, 0 diaries, 601 comments [7 recommended, 0 rejected]) on Thursday, Sep 25, 2008 at 6:42:50 PM (0+)
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I have been
advocating closure of bank accounts for a year now, maybe more. I also advocate withholding taxes and withholding votes, and though I agree with Mark that withholding votes are necessary, it only makes sense if you also close all bank accounts and stop paying taxes. These elements combined are the only tools we have left and they won't work separately. They will work when combined. There is NO WAY to affectively make the many necessary changes to this system from within. It is specifically designed to work against us, the people. by jeff prager (0 articles, 0 quicklinks, 0 diaries, 188 comments) on Thursday, Sep 25, 2008 at 8:04:20 PM (0+)
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Credit Default Swaps
Thanks for a truly easy-to-understand article on credit default swaps! I hadn't thought of putting one's money into a local credit union, but I am glad to see someone knowledgable saying the best thing is to deny the bailout. I agree with the basic premise that Congress can do this (the bailout) because they are certain of reelection - via fixed election. I do think there is still time. The Supreme Court intervened in the Florida election in a matter of days, and they issued an order (presumably a writ of mandamus) that changed the entire social system of aparteid by integrating the schools. The Supreme Court could issue a writ of mandamus ordering Boards of Election to ensure election integrity by 1)Election Day registration; 2)requiring a voter receipt, common to all commercial transactions; and 3) providing for all interested voter witnesses to observe the counting, announcing and posting of election results at every precinct immediately after the polls close. Without Bush appointees Roberts and Alito, there is a good chance of a fair hearing from a 4-3 Supreme Court. And if the lawsuit charges George Bush with election fraud - with permitting the Ohio Secretary of State to function as chairman of the Bush Reelection Campaign in 2004 - then I think a lawsuit can be successfully filed with original Supreme Court jurisdiction. In which case, the democracy has a chance of survival. by Jean Braun (0 articles, 0 quicklinks, 0 diaries, 29 comments) on Thursday, Sep 25, 2008 at 11:13:19 PM (0+)
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Reply: Jean, before Bush appointees....
it was the corrupt and partisan Supreme Court that nullified the 2000 election and selected Bush as President, remember? They're election thieves. They're also an unelected body, unaccountable to the people, and therefore totally incompatible with democracy. In Bush v. Gore 2000 the Supreme Court found that the Constitution does not grant us a federal right to vote, so that allowed Bush to be sworn in in 2000, and returned to office and sworn in again in 2004 BEFORE THE POPULAR VOTES WERE EVEN COUNTED. The Supreme court steals elections, it doesn't protect our votes. It is just as corrupt, if not more so, than the other two branches of government. by Mark E. Smith (21 articles, 30 quicklinks, 100 diaries, 1325 comments) on Friday, Sep 26, 2008 at 3:10:46 AM (0+)
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EVERYONE MAJOR ELERT
A must watch film: Empire of the City II - I watched this film last night and I have to tell you, it ties everything - and I mean everything together as well as any documentary you'll ever see and ends with several ways we can defeat the bastards. I promise you won't be disappointed. Google: Empire of the City II by Mr M (8 articles, 0 quicklinks, 66 diaries, 2845 comments [654 recommended, 27 rejected]) on Friday, Sep 26, 2008 at 7:28:14 AM (0+)
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Excellent article
It helps me understand why the Republicans have been so much against stemming foreclosures. There is money to be made via CDS. When Paulson buys up a portion of the CDS market and honors the payments, the Champale will flow at a few select banks and hedge funds. Jonathan Weil opinion writer Bloomberg has a another take on the security buyout package. He calls it Mark-to-Paulson. Simply, by paying inflated prices for securities, the rest of the market can value their toxic waste generously. This will help their balance sheets for a while until the true value can be established when the knife stops falling. By then, they may have sold them off to a pension fund or some other dumb money. by Bernard (0 articles, 0 quicklinks, 0 diaries, 59 comments [1 recommended, 0 rejected]) on Friday, Sep 26, 2008 at 8:51:17 AM (0+)
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Reply: An Early Example
Many years ago, after consuming several alcoholic beverages, an old friend of mine shared a enlightening experience. Around 1960 or so, he had been a real estate negotiator for the Indiana Highway Department, assigned to purchasing right-of-way for a new highway through corn and bean fields. Chad negotiated to purchase farmland for several miles of highway for about $300 an acre. Then he bumped up against an owner who knew of the plans. Being resourceful, the man had subdivided part of his farm into residential building lots. He then established a price of $2,000 per lot and sold one lot to his brother-in-law for $2,000, receiving $100 down. As Chad explained: "Yep. We paid $7,000 an acre for that $300 farmland." Imagine. $7,000 an acre for two or three acres. He was born too soon. Today, that man could be a billionaire - at taxpayer expense. Chuck by Chuck Simpson (12 articles, 0 quicklinks, 0 diaries, 19 comments [3 recommended, 0 rejected]) on Friday, Sep 26, 2008 at 9:14:31 AM (0+)
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Via E-mail
A comment received via E-mail: Chuck--I appreciate the clarification you provided in regard to Credit Default Swaps. Until reading your article, I could not understand how the defaults on a few loans would cause such a problem--since the bank would repossess the assets. But, if the insurance companies stand to lose multiple times the value of a given property, then it changes the picture. My grandfather had a saying about some of our "unfortunate" relatives: "They brung it on theirselves, didn't they." My response: Yes. Problem is, they aren't merely brunging it upon themselves. They are brunging it on us too, like it or not. One small example: Treasury implies taxpayers got a good deal because the Treasury was granted options to acquire 80 percent of AIG as part of an $85 billion bailout. On the day that deal was announced, the market cap, or value of 100 percent of AIG, was $7 billion. This is represented to be a "good deal" for taxpayers. This type of thing explains why a few Democrats are attempting to limit executive compensation. A move Bush is stoutly resisting. In 2006, Wall Street bonuses totalled $53 billion. Chuck by Chuck Simpson (12 articles, 0 quicklinks, 0 diaries, 19 comments [3 recommended, 0 rejected]) on Friday, Sep 26, 2008 at 12:10:54 PM (0+)
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Innovation so-called
"We made it possible for banks to get their credit risk off their books and into nonfinancial institutions like insurance companies and pension funds," says Duhon, who now heads her own derivatives consulting business in London. --from a newsweek article, The Monster That Ate Wall Street So they simply ended up peeling it off their own book. Isn't that an irresponsible move? Then comes the boom of massive risky loans. In order to reduce risk, should the bank put more efforts to get a better evaluation of the borrowers, rather than dumping risk to someone else? by kei kei (0 articles, 0 quicklinks, 0 diaries, 1 comments) on Tuesday, Sep 30, 2008 at 10:01:23 PM (0+)
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