Fortune favours the bold?

Audrey
Audrey Manning
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The average salary of the world's top 25 derivative companies was $700 million in 2006, according to reports circulating since the trouble on Wall Street erupted. Sadly, that probably meant nothing to the average person until it triggered a stock market meltdown signaling hard times ahead.

The world's middleclass are shivering in their shoes because of something as far removed as Wall Street. The whole world, it seems, has been sold a pig in a poke. Even the politicians are stymied. They didn't see this economic crisis coming and don't understand it now that it's here.

The future is in our past - The average salary of the world's top 25 derivative companies was $700 million in 2006, according to reports circulating since the trouble on Wall Street erupted. Sadly, that probably meant nothing to the average person until it triggered a stock market meltdown signaling hard times ahead.

The world's middleclass are shivering in their shoes because of something as far removed as Wall Street. The whole world, it seems, has been sold a pig in a poke. Even the politicians are stymied. They didn't see this economic crisis coming and don't understand it now that it's here.

That is surprising considering how easy it is to understand. The reason for the present crisis is the simplest con game in the book. With a sleight of hand, investment houses sold something, which did/does not exist.

The simple sub-prime mortgage con game started with some bright spark realizing that every poor person in the world wanted to own a home. So the game began. Set up a system whereby mortgage sellers would approach a prospective homebuyer with something too good to refuse... a way to buy a home.

Keep in mind that banks would never lend the money directly because poor people are a bad risk. Mortgage lenders lent to everyone regardless of their credit rating and whether they could afford the mortgage.

And now comes the crazy part and a clear indication that the lunatics were running the asylum. Banks bought the bad debts, packaged them and move them to Wall Street, where they were bought and sold as commodities globally.

You might well ask how anyone could possibly sell mortgages, which were never likely to be paid. The answer is simple. They packaged the bad debt with classy sounding names.

For instance, Bear Sterns, a well-known, respected company, which eventually collapsed, sold a High Grade Structured Credit Strategies Fund and a High Grade Structured Credit Enhanced Leverage Fund. Marketing and hype are the keys.

For a time, house prices soared because people had more money to spend. The game got even crazier as the house owner could raise even more loans on the inflated value of their homes. Just as the investment packages of bad debt weren't real, the money wasn't real. It was all bad loans that could never be repaid.

Funds with fancy names are in every investment portfolio worldwide. Pension fund managers gobbled up the dodgy debts like magic. But that is only one part of the game. In order to increase profits, the Emperor's New Clothes dodgy debts were bought and sold with regularity generating huge benefits for buyers and sellers throughout the system.

All these profits, very real and stored in luxury apartments, houses, cars and boats, increased with the value of the packages, until someone realized that poor people couldn't pay back their loans. It begs the question, would investors have been so quick to buy had they known that they were buying the debt of a person in the slums of America who didn't have a job?

Like all cons, it was just a bubble and had to collapse when people started defaulting on their loans. Then the whole system crumbled and the value of the packages became more realistic. The big institutions that had paid real money realized suddenly that they were rich in worthless paper and were ruined.

It doesn't end there. The manipulators are trying to get their last kick at the can. The top guys want a $700 billion bailout for all their hard work selling wind. The American people have put the brakes on once, but Wall Street will win.

Do you know why Wall Street will win? Scare tactics. They are doing another con job by telling the public that pensions will suffer if they're not bailed out. Not only will pensions suffer but also jobs will be lost and everyone will end up in the poor house (pun unintended).

That is hard to swallow considering the money on Wall Street is but a fraction of the money circulating in the economy, or this is the way we used to think. In fact now these con artists have grown their balloon/business to a point where a scheme based on nothing is comparable to industrial values.

More than that, these schemers have made themselves indispensable, by being the ones that lend money to industry just to pay the workers or to make new investment to keep the ball rolling and beat the competitors. Even legitimate industry has become addicted to easy money.

Manipulators are not only con artists, they are also very close to drug dealers - they indeed share the same huge unearned salaries. Without quick and fast money industry will have to wait to earn its own money before being able to invest again and that means a reality check.

Throw Wall Street to the wolves and tell people there is nothing to fear but the manufactured fear of a few financial con artists who are master manipulators of the system. The banks will soon start lending money again to those who are good credit risks. Let the game end.

Organizations: High Grade Structured Credit Strategies Fund, High Grade Structured Credit Enhanced Leverage Fund

Geographic location: America

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