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Credit Default Swap Fraud Exposed/Confirmed

Articles & Blogs - International Commentary

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One of the most poorly kept secrets in Wall Street’s empire of fraud was that credit default swaps were never anything but pretend-insurance. The credit default swap market is a $60+ trillion paper Ponzi-scheme. The Wall Street crime syndicate claiming to “back” this insurance have nothing more than a few $billion of liquidity apiece. It is a fact of arithmetic that these fraud-factories never intended to honour these contracts.

Given the magnitude of this fraud and the audacity of the perpetrators, this alone is reason enough to abolish the Wall Street fraud-factories, abolish the credit default swaps market, and (indeed) to abolish the entire derivatives market – so that the banksters cannot perpetrate a similar crime again in the future. Indeed, credit default swaps were banned in th U.S. for many decades, based upon anti-gambling statutes.

However the CDS fraud itself only scratches the surface on the monstrous evil behind this scheme. As I have written about frequently in the past, the CDS fraud is a tool which the banksters have used to perpetrate an even greater crime: the sabotage and/or destruction of most of Europe’s debt markets.

Here is how this particular Wall Street scam operates. First of all the banksters pile on massive shorting with respect to the credit default swaps of a particular European debt-market. This drives the prices of credit default swaps sky-high. Meanwhile, the banksters’ accomplices in the mainstream media then all perform their best impersonation of Chicken Little: “the sky is falling on Greece’s economy.” At this point the third partner of this illegitimate tag-team chimes in: the ratings agencies. Based on nothing more than changes in credit default swap prices and media rhetoric, the ratings agencies downgrade the debt of these Euro markets – immediately driving interest rates higher.

This significantly raises the interest payments on these debtor economies, instantly making those economies less solvent. This is then followed by another shorting operation in the credit default swap market, more media rhetoric, and more bogus “downgrades”. And thus the perfect vicious-circle of crime is established. Through the fraudulent manipulation of Europe’s debt markets, Wall Street’s economic terrorists have been able to drive Greek interest rates as much as 50 times higher than U.S. interest rates, despite the fact that the U.S. economy is more fundamentally insolvent than that of Greece.

Now we have what should be the final nail in the coffin of what has been the largest single scam in the history of humanity: proof that this entire market is nothing but a gigantic fraud. Last week, the International Swaps and Derivatives Association issued a ruling that the 70+% write-downs on Greece’s entire national debt did not constitute a “default event”, and thus the fraud-factories who wrote up the insurance on that debt don’t have to honour their contracts.

Understand that it has been universally acknowledged by everyone: the Greek government, Greece’s creditors, the European Central Bank, and other European nations that without some “deal” that Greece would have engaged in an involuntary, 100% default within days. As an attempt to mitigate that cataclysmic event, Greece’s creditors engaged in a negotiated, voluntary default with Greece’s government, where creditors accepted an immediate 53% reduction on the principal owing to them. Including the interest accrued, these write-downs amounted to as much as 75% for some creditors, and an average write-down of approximately 70%.

Now here is the law. If there had been an involuntary 100% default on Greece’s debt, even the unscrupulous ISDA could not avoid paying out on this supposed “insurance”, at which point the entire $60+ trillion Ponzi-scheme would come crashing down, and along with it all of the Wall Street banks, and along with it the entire derivatives market (and the world would live happily ever after).

However, in the Western legal system, when losses occur in some financial transaction and one or more parties seek to rely upon the terms of the contract for some form of indemnification there exists a Duty to Mitigate. What this means is that (in this case) if one or more of Greece’s creditors wants to collect on the “insurance” they (thought they had) purchased on their Greek debt that they had a legal duty to attempt to minimize the magnitude of Greece’s default.

This is exactly what these creditors did, and once they had done so they were entitled to rely upon the insurance they had purchased. For the ISDA to issue an entirely perverse ruling that no “default” had occurred could only be based upon one of two conclusions on their part:

a) That no default event had occurred because the “haircut” was less than 100%.

b) That no default event had occurred because the default was voluntary.

With respect to (a), as I have just finished explaining above insured parties have a Duty to Mitigate and because of this, 100% losses of this nature are rarely if ever seen. Even apart from mitigating damages, rational/intelligent parties will always seek to negotiate some compromise rather than allow a market to experience a messy collapse which benefits no one. For the ISDA to adopt this interpretation essentially means there could never be any pay-outs on this insurance, ever.

With respect to (b), for precisely the same reasons all “default events” will ultimately end up as voluntary, negotiated arrangements. So (again, as above) if the ISDA were to adopt this interpretation it would essentially mean that there would never/could never be any pay-outs on this insurance. A proverbial “heads-I-win, tails-you-lose” form of insurance. And totally fraudulent.

Understand that such a perverse interpretation of standard business practices could only be legally valid if it were explicitly codified in these contracts. We can assume that none of this has been explicitly detailed in these contracts, or there would have been no need for the ISDA to issue a “ruling” over an entirely straightforward, negotiated debt-default.

One can only gaze in wonder at the colossal naivety/stupidity of the parties purchasing this “insurance”. It ranks as one level of folly to enter Wall Street’s private, crooked casino (i.e. the derivatives market) to place a bet. However, it ranks many levels higher on this scale of idiocy to place a bet in this crooked casino, when the banksters running the casino simply tell you that they “will explain to you later if/when you win the bet.”

Allowing bets to be placed (more than $60 trillion in total), and then allowing the banksters taking the bets to define when they lose, after all the bets have been placed, is not even a subtle scam. It is a clumsy fraud perpetrated by a group of Oligarchs who yet again have demonstrated their complete contempt for an apparently antiquated doctrine known as the Rule of Law.

This brings us to the best part: the ISDA is run by the very same Wall Street fraud-factories holding the vast majority of these bets. The losers (i.e. the insurors of this debt) are claiming the exclusive/sacrosanct right to define when they have lost the bet – irrespective of how perverse/outrageous their “definitions” appear.

Understand how absurd this fraud has become. If Greece’s creditors had simply allowed Greece’s government to go under, triggering a 100% default – and payment on all of the fraudulent CDS contracts – this same ISDA would be claiming that they weren’t required to pay out on their insurance because of the refusal of the creditors to mitigate their losses. Heads I win. Tails you lose. None of the fraud-factories ever pays out on this make-believe insurance.

Sadly however, the economic terrorism which Wall Street has been perpetrating against Europe for over two years lives on, as does this entirely fraudulent market. With this massive fraud now open and totally exposed, we can add (with certainty) yet another group of “accomplices” in allegiance with the Wall Street banksters: the traitorous governments of our Western nations who are blatantly turning their backs while these banksters rape-and-pillage the economies of Europe.

Western governments can no longer pretend to represent enlightened, progressive “democracies”. The descent into Fascism in the West is nearly complete. Our governments are now nothing more than a network of crime syndicates, working wholly and exclusively against the best interests of their own people, and on behalf of a totally unprincipled cabal of Oligarchs.

This latest outrage in the Greek CDS market; this latest, blatant violation of the Rule of Law can be looked at as nothing less than a neon sign proclaiming the guilt of the bankers involved, the failure of any/all “regulators”, and the complicity of our own governments. A very dark day for democracy.

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Dylan
...
written by Dylan, March 06, 2012
Jeff, the article is in NO way kind to the banksters, it calls them fraudsters from the start in plain and simple language (that`s why it appeals to mesmilies/grin.gif)

It was me that put in the "honouring" of the contracts, to be undertood in the same way that the title "man of honour" is understood in the Cosa Nostra, i.e getting one`s cut.

As to the "beginning of honouring" the contracts being enough to bring on the collapse, by the same logic if the Greek CDS holders take a "haircut" and only receive a small percentage of what they are "owed" it will still be enough to enrich them beyond all the dreams of avarice AND set off the debt dominoes.

Bankster whimpering is an act. Take AIG, why would they allow their subsidiary, AIGFP to operate in London (where there were no regulations)and sell off contracts far more than the value of it`s parent company if somebody didn`t know they would be BAILED OUT? The money was "drawn down" it went to pay them off before any talk of being bailed out, thats where the black holes that needed plugging came from.

This whole scam is in mafia terms a "bust-out" A bank robber who has succeeded in robbing a bank has not failed.
Jeff Nielson
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written by Jeff Nielson, March 06, 2012
Dylan, I would suggest that the article you refer to (as is often the case) portrays history in a manner which is MUCH too kind to the banksters. It was NOT "honouring contracts" which led to the sub-prime collapse or any aspect of the Crash of '08.

Rather, it was when they BEGAN to honour some of the contracts in those fraud-saturated "houses of cards" that the system IMMEDIATELY began to come crashing down - and the same banksters who CREATED all of that fraud were the ones whimpering about how they COULDN'T be forced to honour their own sleazy contracts.

The difference between that fraud and this fraud is that the CDS fraud is yet ANOTHER order of magnitude larger - so large that with this fraud the banksters don't even want to BEGIN honouring contracts.

So the difference between the two crises is that in the first one about 2% of the contracts have been honoured while in the current/pending crisis 0% of the contracts have been honoured...

smilies/wink.gif
Dylan
...
written by Dylan, March 06, 2012
"None of the fraud-factories ever pays out on this make-believe insurance."

It would seem that this particular CDS scam is playing out in an opposite fashion to the one riding on the Sub-Prime Mortgage collapse.

According to James Lieber in his excellent "What cooked the world`s economy" http://www.villagevoice.com/20...s-economy/

It was the "honouring" of the contracts themselves that actually caused the global crisis.

"People still seem surprised to read that hedge principals have raked in billions of dollars in a single year. They shouldn't be. These subprime-time players knew how to score. The scam bled AIG white. In mid-September, when it was on the ropes, AIG received an astonishing $85 billion emergency line of credit from the Fed. Soon, that was supplemented by another $67 billion. Much of that money, to use the government's euphemism, has already been "drawn down." Shamefully, neither Washington nor AIG will explain where the billions went. But the answer is increasingly clear: It went to counterparties who bought derivatives from Cassano's shop in London."

The counterparties knew the issuers of the CDS contracts would be bailed out by the public so that they would receive their fraudulent insurance pay out.

In the case of Greece it looks at the moment like the "insiders" are taking the other side of the bet, safe in the knowledge that they would never have been required to "honour" it.
This leaves the eternal question (for me at least) - who are these creditors exactly? Are they the same people who benefitted from the MBS collapse? Or just a bunch of incredibly naive, non-insider rich people who wanted a piece of the action and got burnt?
paxjds
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written by paxjds, March 05, 2012
Walter, you are correct in what you said. But the BIS (Bank of International Settlements in Geneva) is owned by the Federal Reserve Bank and major Central Banks in Europe and started around 1928. Major initial owners were the likes of Rockerfeller, JP Morgan, Rothchild, etc). The BIS is over these Central Banks, the World Bank, and the IMF. Since they created paper Fiat money backed by nothing, they collectively are behind the attempts to fix the Gold and Silver(real money) to keep power with and thru their worthless fiat money. Now they want the citizens of the world to pay for their losses of fiat money by their own Banksters gambling in the market place, selling and recieving high salary and bonuses from Phoney Derivitive products and phoney mortgages. The list of evil is almost endless.
Edmond Burke said " All that is necessary for the triumph of Evil, is for good men to do nothing."
paxjds
...
written by paxjds, March 05, 2012
Very well said and to the point Jeff.
I agree that government(like USA)can no longer pretend to progressive democracies. Democrat Progressive liberals are only Progressive in Progressing Fascism. Republican Conservatives are not conserving the constitution, but conserving political power for themselves and Democrats in the New Fascism being created right before our eyes. Personal rights are going down the tube just like under Hitler, Stalin, and Mussalini.
Contract Law is going down the tubes with the Derivitives and MSGlobal.
Anything the Banks want, Washington delivers along with our rights. There is no Justice Department any longer, Just a get out of Jail Free card for the FASCIST Insiders and Banksters. Politicians get paid back with campaign contributions that keep Banksters in control illegally.
The ISDA has now in truth Defaulted, and since being the largest banks in the World and in partners with the government, and is getting away with high crimes. Contract law that started with the Magna Carta around 1200 AD is also gone. Let us not forget that the government has bailed out the banks several times, now has preferred stock in the Banks, allows the Banks thru ISDA to default on contracts is also a co-conspiritor along with quite a few government agencies. Same is true for MSGlobal. Bankers are at the highest level of government and now pull the puppet strings of enslavement on free people everywhere.
And to think the Greek citizens are being over taxed and raped while the Banksters stomp them into serfdom! This banker fiat money is created out of thin air. The air is free, but now the Banksters are suffocating Greek citizens. Rummer has it that Portugal, Ireland, Spain, Italy, and Japan in this order are next on the Banksters list to be inculcated into serfdom. US to follow. All will be taxed to death for the Banksters and the politicians to stay in power.
Where is the legal profession today while our constitutions and right are being shredded worldwide?
Jeff Nielson
...
written by Jeff Nielson, March 05, 2012
It is stunning how, over the years, the international financial mafia have corrupted the world's central banking system. They are all interlinked on a world-wide basis, and every country's central bank takes orders from the IMF and World Bank. That's why they could shut down Iran by freezing all their accounts located in various banks around the world. Essentially, the banksters own the world. Unbelievable.


Yes, Walter Hunt, it is shocking (and very disturbing) both to see the rapid decay in the integrity of our Western financial systems AND the almost complete absence of criticism of that failure by our supposed "free press" (now also almost completely owned by a DIFFERENT cadre of Corporate Oligarchs).
Walter Hunt
...
written by Walter Hunt, March 05, 2012
Imagine if an offended party in one of these CDS transactions threatened to sue a counter party and the IMF or (World Bank) stepped in and said (1) we will print endless amounts of fiat paper currency to underwrite the case of the defense, (2) we also have at our disposal a cadre of trained attorneys in international law and we will delay this lawsuit for years, and (3) we "own" the International Court of Law and the World Court since we selected the "judges" that will adjudicate any and all cases that are brought before the court. So, good luck, partner!

It is stunning how, over the years, the international financial mafia have corrupted the world's central banking system. They are all interlinked on a world-wide basis, and every country's central bank takes orders from the IMF and World Bank. That's why they could shut down Iran by freezing all their accounts located in various banks around the world. Essentially, the banksters own the world. Unbelievable.

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