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U.S. Economic Terrorism the New 'Winning Trade'

Articles & Blogs - US Commentary

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When Wall Street planned and executed the U.S. housing-bubble (and all its related scams), it destroyed the lives of tens of millions of Americans. Then, when it subsequently 'crashed' global markets, it inflicted hardship on most of the world. But the Oligarchs were just getting started.

As governments responded in a totally predictable manner, Wall Street began to collect on its interest-rate swap scam (see “WHO were the WINNERS in Interest Rate Swaps?”). With this scam the Oligarchs progressed from merely destroying companies and individuals to destroying schools, hospitals, towns and even states.

However, as we are now finding out, those were merely Wall Street's “appetizers”. For their “main course”, the Oligarchs have moved up to destroying nations. Here, I must confess to once again underestimating the Oligarchs. I had thought that the latest propaganda campaign was merely a tactic to pull the worthless, U.S. dollar out of yet another nose-dive. How wrong I was!

I should have been tipped-off by the obsessive/excessive “coverage” from the U.S. media of Greece's (and now the rest of the “PIGS”s) financial problems. The indifference of Americans to any and all events which take place outside of their own borders is legendary. Apart from wars, Americans generally have as much curiosity about the “rest of the world” as the average house-fly.

Even if a massive earthquake had swallowed-up Greece like some modern-day Atlantis, such an event would have interested Americans for no more than a few days. To illustrate this, we only need to observe how grossly disproportionate has been the “coverage” of Greece's financial problems compared to the devastating earthquake which struck Haiti – a close neighbour to the U.S.

For those propaganda-numbed sheep who would argue that Greece's budget crisis warrants weeks of around-the-clock coverage, you need to acquire some perspective. As has been frequently mentioned outside of the U.S. propaganda-machine, the Greek economy constitutes less than 3% of the EU. In other words, this would be like the rest of the world writing commentary-after-commentary predicting disaster for the United States because of financial problems in the state of Oregon.

For the record, while there are a handful of European nations with serious financial crises, these nations represent no more than 1/3 of the EU economy. In contrast, as has been frequently published, there are at least forty U.S. states struggling to ward off insolvency – and representing somewhere around 80% of the U.S. economy.

Bolstered by its propaganda-machine, Wall Street (and its hedge fund allies) launched their attacks – unveiling a new way to wreak financial devastation with their unregulated casino, known as the “derivatives” market. The new weapons-of-choice for Wall Street are “credit default swaps” - something which I discussed in some detail in a recent commentary (see “The Goldman Sachs/AIG Saga”).

Essentially, credit defaults swaps (CDS's) are a form of insurance to hedge against the risk of default on debt – or, rather, that is what they are supposed to be. Instead of using CDS's to hedge their risk, much of the CDS market was simply a Wall Street sham, pretend-insurance allowing Wall Street to pretend it had reduced its risk – allowing the oligarchs to over-leverage their balance sheets to the insane level of 30:1.


There are many ways to demonstrate that CDS's were never intended to be a “hedge against risk”. The most obvious way is to simply to look at the size of the market. The credit default swap market is roughly $60 trillion in size – by itself it is as large as the entire global economy. Thus, the first observation to make is that it is obviously impossible to properly back this insurance – and thus it cannot be “insurance”. If the insurers lack the capacity to make good on claims, then obviously these contracts do not represent real “insurance”.

Wall Street zealots will argue that no insurance market is capable of paying-out on most or all of its claims. However, there is a huge difference between CDS's and conventional insurance: correlation. With most forms of legitimate insurance, there are no correlations between one insured party making a claim on their insurance, and other insured parties also making claims.

If the house down the street from you suffers a fire, there is no reason to believe you are about to have a fire of your own. Of course there is always the possibility of an arsonist, but a) that is a very low-probability event; and b) over the insurance market as a whole, even a group of arsonists would produce claims on only a tiny minority of the insured.

In contrast, the banksters' unregulated casino – the derivatives market – is highly correlated. If events cause a claim against one contract, the likelihood of claims against other contracts immediately begins to rise exponentially. The Oligarchs claim otherwise. They continually produce “statistics” which supposedly indicate close to zero net exposure. However, given the intentional absence of any transparency in that market, there is no evidence to support those claims. There is however, an abundance of evidence that they are lying.

The 2008 near-collapse of the entire U.S. financial sector clearly illustrates that rather than having offsetting “hedges” which would cancel each other out, that instead, once the Wall Street dominoes began to topple that they would have all come crashing down – if not for the $10 trillion in hand-outs, loans, and guarantees used to prop-up the Oligarchs. In other words, it took $10 trillion of backing to offset Wall Street's 'bets' to a sufficient degree to ward off total implosion (for the moment).

We now have a new example to demonstrate the dishonesty of the oligarchs: Greece. If as the Oligarchs claim, the CDS market was one of “offsetting hedges”, then it would have been mathematically impossible for the “spreads” on Greek credit default swaps to have widened so far, so fast. By “spreads”, I'm referring to the gap between the insurance rates which Greece must pay on its debt versus the insurance rates for other (supposedly) more solvent economies.

In a market where the 'bets' were perfectly offset, there would be no movement in the “spreads” at all. In a market which was mostly offset, the spreads could only move slowly – in tiny increments. The fact that Greek spreads have “blown up” in global financial markets (over a period of days) is proof-positive that “someone” has been piling onto only one side of the bet: namely, the bet on Greek default.

Given the always perfect synchronicity between the message of the U.S. propaganda-machine, and Wall Street's current scam(s), and given that the propaganda-machine has done everything possible to amplify fear over Greece's financial woes, the circumstantial evidence is overwhelming. And, of course, if the propaganda-machine has been deployed in this manner, this also means that the U.S. government is fully complicit in Wall Street's latest scheme – if only as a passive accomplice.

To comprehend how ruthless and devastating this attack has been, we can have a glimpse at a CDS contract between two of the Oligarchs. In “Bankster Sues Bankster - AGAIN”, I commented on the lawsuit by Citigroup against Morgan Stanley. There was no dispute on the terms. Morgan Stanley wrote-up the CDS, it “blew up”, and Citi wanted to collect. This raises the obvious question: why would one Oligarch force one of its brethren to sue, simply to collect on a debt? Could it have been that, in Morgan Stanley's eyes this CDS was merely a sham – and it was outraged when Citi sought to treat it like legitimate insurance?

That is certainly one possible motive. The other was the size of the pay-out. Even after Morgan Stanley liquidated all the collateral which supposedly “backed” this contract, it was forced to pay out at 300:1 against what it had received in premiums. In the case of this one contract, that meant Morgan Stanley had to pay out $200 million (on top of its “collateral”) against the $0.75 million it had received from Citi.

With pay-outs like that, it should have surprised no one that Goldman Sachs was the first bankster to come up with the idea of using CDS's as a profit-making weapon. The trial guinea-pig was AIG. Having “raped” AIG for more than $10 billion, while only needing to “invest” relative pennies to net that windfall, Wall Street was ready to unleash this financial “weapon of mass destruction” on the world.

To understand the relative consequences of this attack against Greece, we need only compare what would happen if the same thing had been done to the United States. As I have written on countless occasions, the hopelessly insolvent U.S. economy is burdened with $60 trillion in total public/private debt (not including one penny of the $70 trillion or so, in “unfunded liabilities”).

Thus, there is a very good reason why the Federal Reserve has been “buying up” virtually every U.S. bond in sight – in order to artificially keep U.S. interest rates several percent lower than they would be without such radical intervention. Raising U.S. interest rates by even one percent would drain an additional $600 billion per year out of the U.S. economy – in additional interest payments alone.

This would be equal to a 5% drop in U.S. GDP – before factoring in the “multiplier effect” of all that lost capital. It would immediately push the U.S. into a debt-default spiral – which could only be averted by hyperinflationary money-printing...and that would be the scenario even without other nefarious nations attempting to deliberately force it into default. Naturally, this means that the endless “chatter” from the U.S. propaganda-machine that the Fed is “contemplating interest rate increases” has zero probability. Put simply, the U.S. government can never afford to voluntarily raise interest rates again.

Thus, given that the debt problems of the U.S. economy are already far worse than those of Greece (see “Fiscal Follies: Greece versus the U.S.”), if someone else had done to the U.S. what the U.S. is doing to Greece, the U.S. would be plummeting toward imminent bankruptcy, as we speak. In other words, the “Greek bail-out” now being cobbled-together by the EU was forced by the use of financial “WMD's” by Wall Street's economic terrorists.

It will be even more interesting to see what happens next. If the CDS spreads now begin to “mysteriously” (and rapidly) widen for Spain, Portugal, and perhaps other EU members, this will signal that these financial psychopaths are going to simply continue to “nuke” one vulnerable economy after another.

The Oligarchs must be stopped. Given that we cannot rely upon our capricious “Gods” to produce some convenient plague to wipe this blight off of the face of the Earth, this means it is imperative that the Wall Street oligarchies be smashed into little pieces immediately, and their casino must be thoroughly regulated, or merely unwound, and then closed.

Destroying entire nations for profit is a human abomination for which we lack even a proper term. It goes well beyond “greed”. It can't be described as “immoral”, since like all psychopaths, the Oligarchs are completely amoral. These are “crimes against humanity” but on a scale which goes well-beyond Hiroshima and Nagasaki.

Americans are now at a cross-roads. They can continue in their apathetic coma, allowing their two-party dictatorship (and the Wall Street Puppet-Masters) to continue to rape and pillage not only their own nation but any and every other economy foolish enough to allow the Oligarchs to get it in their choke-hold. That way lies the path to being an economic pariah – shunned and isolated by the rest of the world.

The alternative is for Americans to overthrow their two-party dictatorship. Each day, the possibility of doing so through something short of outright Revolution wanes. With a broken political system, two hopelessly corrupt political entities, and a propaganda-machine which would have been envied by Hitler and Stalin, this will likely be a much more difficult task than when Americans deposed their relatively benign, British monarch.

Comments (14)Add Comment
Jeff Nielson
written by Jeff Nielson, July 10, 2010
Bobby, I've heard the ALLEGED claims by bankers that the $60 TRILLION CDS market is supposedly some zero-sum game. And the day that the derivatives market becomes FULLY TRANSPARENT, and I can see it with my own eyes is the day that I will believe the word of the banker.

Instead, I will point to 6 months of around-the-clock U.S. propaganda - which stated again and again that Euro CDS spreads had "blown up" (because SOMEONE was piling onto only one side of the bet).

IF the CDS market was as neatly balanced as the banksters claim, it would have been IMPOSSIBLE for spreads to have widened 1/10th as fast. The bankers can't have it BOTH ways.

You can't go around "blowing up debt markets" while claiming that the market you're using for such terrorist acts is "perfectly balanced".
written by Bobby, July 10, 2010
Though effectively correct I would like to correct the CDS - statistically it is close to net sum zero. However there are two facts which cause CDSs to destroy the participants:
1/ Consider a game of musical chairs with 100 players and 99 chairs. When the music stops. Stats - near zero net sum. However the pooling of the chairs (or risk by CDSs)the order is of grave consequence to someone. CDSs are likely not written to unwind gracefully.
2/ The extreme leverage and hollowing out via fees. The actual invested values were leveraged allowing ridiculous multiples of resellinga where each sale netted someone a handsome fee. Effectively the 99 chairs are near zero chairs with everyone hoping the music would stop.
Jeff Nielson
written by Jeff Nielson, March 17, 2010
Hi Jaoapft. I have been asking myself similar questions with respect to where the "end game" of all this scamming would lead - and it simply defies rationality.

See today's piece: http://www.bullionbullscanada....Itemid=133

The only rationale I have been able to come up is that these people are true "psychopaths" - and thus they are incapable of RATIONALLY analyzing the consequences of their actions. Instead (like all psychopaths), they simply consider themselves so much smarter (or simply more powerful) than anyone else that they will deal with those FUTURE problems the same way they deal with their current ones: with more scams and lies.
written by joaopft, March 17, 2010
I don't know much about finance. But I know that the so called PIGS plus Iceland are strategically placed on the Mediterranean Sea and North Atlantic. Greece controls the access to the Black Sea; Portugal and Spain the access to the Gibraltar Strait; Iceland, Ireland, and the Atlantic islands of Portugal and Spain are vital to the strategic supremacy over the North Atlantic. If these states were to fail, bringing political caos, possible uprisings and rise to power to leaders like Hugo Chaves, I imagine the losses for the West (thus the gains for Russia and/or China) would surely have an impact on the worthiness of the main western nations.

If this has been planned by Wall Street, it is really dangerous game. I am puzzled, maybe the Defense guys should, by now, be voicing their concern over this. Germany lost the 2nd world war when it decided to wage war over Russia before gaining control over the Mediterranean, the British Islands and Iceland (thus obtaining strategic supremacy over the Mediterranean, and control of the North Atlantic). Is the same, now, going to happen to the US?
Jeff Nielson
written by Jeff Nielson, February 14, 2010
Thanks for the comment, Monkeyman. The SUGGESTED motive for the banksters' attack was that they had been "shut out" of recent debt issues from the Greek government. But I don't buy that story.

As I was trying to come up with some sort of general "intent" (other than simply profit), I wondered if a "message" was being sent to the Obama government - given the tough, (election-year) rhetoric which has suddenly been emanating from Obama: "mess with us, and YOU'RE next."
written by monkeyman, February 14, 2010
Jeff-excellent analysis.

As an American I had been wondering why the 'big fear' was being whipped up re: Greece. The Greek's felt they are being set up, and it seems they have been correct. Also, the German's seem to be colluding with the US/Wall Street by fanning the flames of doubt and uncertainty re: assistance.

Given that the Banks have now become like sharks, who must swim and feed continuously or die, do you think it possible they intend to swallow up all of Europe now? Is Greece just the soft underbelly of the coming financial corpse of Europe?

The oligarchical money men now control the entire continent via their EURO deception (finally realizing Hitler's dream, Napoleon's dream) Will they seek to bring it to ruin again?

Is it time to sell my Euros?

Jeff Nielson
written by Jeff Nielson, February 14, 2010
Hi Kevin.

For all us Canadians, a comedian named Rick Mercer is a household name - along with a regular skit he used to do called "Talking to Americans".

He would head to the U.S. (posing as a journalist), and then interview Americans (often at their universities) about some Canadian "news item" (which he completely fabricated).

Each time he would come up with a new topic, I'd think "no way" will he be able to dupe anyone with that 'whopper'...and time, and time again he would prove me wrong.

So if I have an exaggerated perspective on this particular issue, then I'm pointing the finger at Rick Mercer!
written by Kevinjohn, February 14, 2010
" Apart from wars, Americans generally have as much curiosity about the “rest of the world” as the average house-fly."

Ouch! Not true!

I for one, dear sir, knoweth where Greece is, as well as Iceland!
They're both just a short car trip from Toronto right? See? We're not as dumb as you hoser!smilies/smiley.gif
Jeff Nielson
written by Jeff Nielson, February 14, 2010
Hi Thomas. You're not factoring-in the around-the-clock propaganda campaign to generate as much FEAR as possible. Without fully deploying the U.S. propaganda-machine (for a full MONTH), the banksters couldn't have done this much damage, this fast.

Keep in mind that in the REAL WORLD, the financial problems for the U.S. are much worse than those of Greece. So if not for the propaganda campaign, the only way for Greek CDS spreads to widen this much is if the U.S. spreads widened even MORE.

As I've pointed out in other commentaries, ANY significant increase in U.S. interest rates would bankrupt the U.S. economy in a matter of months. Thus, "exploding" the debt of Greece without doing the same to the U.S. could only be caused by the combination of the full participation of the U.S. propaganda-machine (and the U.S. government) along with the amoral behavior of the banksters in the derivatives market.
thomas mosley
written by thomas mosley, February 14, 2010

Great article. This is the clearest explanation of CDS I have seen to date.

I'm not sure that you can blame the people forcing up the spreads for the problems. I think it is analogous to an insurance company raising someone's rates when they reveal that they are keeping their house warm at night by burning furniture. If Greece and Co didn't hadn't amassed such such a huge amount of debt in pursuit of maintaining government spending in a floundering economy, then they would be fine. The CDS traders are just calling them on it. Don't shoot the messenger, no matter how well compensated he is.

In addition, an attack on a government is not necessarily the same thing as an attack on the people of a country. I, for one, would welcome the collapse of the US government, as it would open an opportunity for us to rebuild from the ashes of Keynesianism. Otherwise, it's just a continuation of the slide into 3rd world status. If we can do it before all of our savings disappears, all the better. It should be the same for any of the PIIGS.

Indeed, in your given example of AIG, remember they would not have been able to pay out on those CDS' without government intervention. AIG should have failed, and taken everyone waiting for a payday with them. It was the government that allowed GS to make that profit. Get rid of the government backing, and the CDS market will evaporate overnight.
Jeff Nielson
written by Jeff Nielson, February 13, 2010
Hi William. I don't claim to precisely understand HOW the CDS market could grow to the same size as the global economy, but yes, as a matter of logic it appears that people can use CDS's purely as independent bets - without being the party that actually needs this 'insurance'.

Yes, human nature being what it is, if you allow a massive, rigged-casino to dominate global financial markets then you will have people cheating the system - as Goldman Sachs did in scamming AIG for more than $10 billion.

However, when greed gives way to pure evil - and these predators attempt to destroy national economies for profit, then this adds a whole new imperative to break-up the oligarchs, and regulate or eliminate the derivatives market.
William Legrand
written by William Legrand, February 12, 2010
Superb article. Unless I missed it, isn't one problem with CDS insurance that at least some disinterested third parties are allowed to purchase it (as a straight-up bet) without having any ownership of the assets being "bet" on. In other words, isn't it like a gambler just playing the horses, without the cost/risk of buying/owning a horse? If not, then how is it possible for total value of CDS coverage to roughly equal the size of the global economy, when it's likely that only a minority of the global economy has CDS coverage? On the other hand, if so, then shouldn't we expect an unscrupulous third party that buys CDS coverage to take actions aimed at causing a default, so as to collect on the "bet"?
Jeff Nielson
written by Jeff Nielson, February 12, 2010
Good points, JsJ - and further support to my own argument that the relentless coverage of Greece's situation was 100% for propaganda purposes, as opposed to being a legitimate "response" to the curiosity of Americans.

Yes, the "sudden" changes can happen without warning - but such scenarios are usually (to say the least) "highly disruptive". For my part, I plan on continuing to "shout from the roof-tops" about what is taking place, in the fading hope that change can occur "within" the current system.

This isn't purely compassion for my U.S. neighbours. It would get VERY uncomfortable for us here in Canada if the U.S. went through anything remotely close to "revolution".

Of course, if it takes too LONG, we might be needing a "revolution" here in Canada as well. If the Conservatives succeed in THEIR OWN attempts to sabotage Canada's democracy (through allowing corporations to "buy" elections up here like they can in the U.S.), then there will be no DEMOCRATIC way to rid ourselves of this government.
written by JsJ, February 12, 2010
Americans have not yet been sufficiently provoked. When enough Americans get mad enough, the change will happen quickly. It will be quiet. The noisier a change in the U.S., the less important it is, because the media always emphasize the wrong things. The tea parties were an important first step, but it has to be shown that talking and arguing will not change things before scarier tactics are required.

No one wishes for a violent revolution. I happen to believe that it won't come to that. I do know, however, that the banking barons will get what's coming to them and more, but not before they finally cross the line.

Where is the line? No one can say. As you said, though, Americans don't much care about the rest of the world. When the enormity of it can no longer be denied then the elites will wake up to a different world. It will happen fast, and a lot will change overnight. American rage is a giant, snoring through history until some fool pokes him hard enough to wake. It's an ugly, ugly thing when Americans get mad enough. 9-11 got us mad enough. Pearl Harbor got us mad enough. And the current depradations will get us mad enough... but Greece's situation never will.

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