Tag Archives: interest rate derivatives

Billions Are Being Transferred From The Taxpayers To Wall Street

I stated in 2003 that the insider elitists would hold up the system with printed money  long enough to wipe every last crumb of middle class wealth off the “table” and into their pockets.  If you don’t have enough cash laying around to buy your own Federal-level “elected” official, you are middle class.

It’s easy for Wall Street to get their share of the crumbs being swept off the table because it’s managed to infiltrate and control every nook and cranny of Capitol Hill.  Hillary Clinton is a Democrat? Really?  Then how come she and Bill greedily take millions from Goldman Sachs alone in “speaking” fees.  Quite frankly, ex-Presidents OR potential Presidential candidates should be barred from accepting paid appearances from any corporate or corporate-sponsored entity, but especially from Wall Street.

I want to call your attention to an investigative article by Wall Street On Parade titled “The U.S. Government [really, The Taxpayer] Is Quietly Paying Billions To Wall St. Banks.”   In the past for years, 2011 – 2015, Freddie Mac alone paid out nearly $12 billion in derivatives counter-party payouts.   These payouts resulted from losses interest rate swaps, 90% of which are owned by Wall Street banks. That money from Freddie Mac is actually Taxpayer money because the Government still owns FRE and FNM.  LINK

But it’s even more profound than the WSOP lays out.

Interest rates are held artificially low by the Fed/Treasury, which enable FNM/FRE to underwrite mortgages for people who otherwise would not be able to afford the mortgage. The Too Big To Fail banks make money off of this is several ways.  They source the mortgages and take a fee, they flip the mortgage to FNM/FRE and take a fee, they securitize the FNM/FRE mortgages and sell the mortgage pools to institutional investors and take a  fee and they sell interest rate swaps to FNM/FRE and take a fee.  When interest rates don’t go up because the Fed is holding them down, FNM/FRE lose money on the swaps and…Wall Street gets the money from the loss.

A close friend of mine was curious about how the housing market might play out, because – after I described what’s happening and why the mid-price homes in Denver are hot right now (while the over $800k housing inventory piles up like trash at the local dump) – I explained that the same mortgage bubble that fueled the big housing bubble has been reinflated.  The only difference is that FNM/FRE are now the underwriters of sub-prime mortgages that are disguised to look like conventional mortgages.  But they’re far from “conventional.”  If someone puts down 3% – or, more likely borrows the 3% – they are underwater on the value of their home after all closing costs are factored in.  These de facto LTV mortgages well in excess of 100%.   That’s what Countrywide and Wash Mutual were underwriting, only this time it’s well-disguised and backed by YOU, the Taxpayer.

The same dynamic has already occurred with auto loans and student debt.  Auto loans are starting to blow up, as are student loans.  These 3% (FHA) and 3.5% (FNM/FRE) and 0% (USDA and VHA) down payment mortgages are next.   We’re already seeing this occur in energy-heavy areas like Houston.   What’s going to happen to the Central States Teamster pension beneficiaries who need their pension payout to make a mortgage payment after their payout is cut 60%?  That’s close to half a million people, many of whom use that payout to fund monthly mortgage payments.

There’s another gigantic bail-out coming.  And Wall Street will get to keep all the $10’s of billions in Taxpayer money that was funneled to it while it was underwriting the current housing, auto sales and student loan bubble.

My friend then asked me what I thought be would be the event that collapses the U.S. house of cards.   The fact is, no one knows but it will likely be derivatives-related just like in 2008.   No one saw the de facto AIG/Goldman collapse.  Note:  the Martins reference AIG blowing up but Goldman Sachs blew up too.  The only difference between AIG and Goldman was that Henry Paulson, ex-Goldman CEO who was Treasury Secretary, was in a position to direct Taxpayer money toward a bail-out Goldman, while AIG and Lehman were left for dead.  Note also:  AIG was taken over by the Government because it enabled the Government to “dis-arm” – with the help of the Fed – all of the derivative bombs that would have completely incinerated Goldman Sachs.

The only way to protect yourself from what’s coming is to get your money out of the banking system.  The Fed’s inexorable suppression of the price of gold/silver is openly giving everyone a chance to convert as much paper monopoly money as possible into physical gold and silver at artificially low prices.

A Mining Stock Journal subscriber told me over the weekend that he was contemplating a 100% cash-out refi on on his house, which has a lot of equity in it, and buying gold and silver.  He asked me if I thought it was a good idea.  I said that as long as he was okay sending the keys to the bank and walking away when this thing blows – because I know of a lot of people who are going to do just that – that he would be an idiot if he didn’t do it.

This is exactly what Wall Street is doing with the Government’s blessing.   If you can’t beat ’em, join ’em…

SoT – Paul Craig Roberts Pt 2: The U.S. Faces Catastrophic Financial Risk

Try to find people you can have an intelligent conversation with about all of this – they’re all inside the matrix including all those idiot economists who thought the Fed was going to raise interest rates. How can you be an economist and think that? – Dr. Paul Craig Roberts, Shadow of Truth

Deflate-gate: if you dropped into the U.S. from another planet on the first day of 2015, you would have that “deflate-gate” was the most serious issue facing this country. This is because the entire media system in the U.S. is one massive propaganda machine designed to deflect the public’s attention away from the truth by inundating us with stories designed to calcify our brains with an overdose of useless news that should be relegated to the back-side of bubble gum wrappers.

The truth is that this country’s economic and political system is collapsing while the U.S. neocons running the Department of Defense are busy fanning the flames of war all over the world.

Perhaps the most serious “unspoken” problem facing the U.S. financial and economic system is the $100’s of trillions in derivatives that have been created by America’s Too Big To Fail Banks.

It’s a new thing and we don’t have experience to go on because we’ve never had this type of exposure to risk that no one can quantify. How it plays out we have no real way of knowing. We can not go by the past because it wasn’t there in the past. When I was in the Treasury none of these derivatives existed. In fact, they called derivatives “Treasury bond futures.” – Dr. Paul Craig Roberts

The size of this cache of weapons of mass financial destruction is even bigger now than it was in 2008, when derivatives caused the de facto collapse of the financial system.

Even a small rise in interest rates could cause all kinds of problems with the trillions and trillions of interest rate derivatives. I don’t know much about them – I don’t think the banks that are holding them knows much about them…if all those derivatives start blowing up, the Fed would have to print trillions and trillions more dollars to save the banks. And all those trillions and trillions of dollars would sink the dollar. – Dr. Paul Craig Roberts

PCR5The Fed has been threatening to raise interest rates ever since Ben Bernanke’s infamous “taper” speech in May 2013. In between every FOMC meeting the Fed officials play out a well-choreographed stage-play of “good cop/bad cop,” where mostly “bad cops” give speeches threatening us with a rate hike at the next FOMC meeting. Then, at the next meeting the Fed invariably defers.

Twenty-five basis points. The Fed is terrified of raising its Fed funds rate by even a measly 25 basis points. One-quarter of one percent. If the Fed can’t lift rates by one-quarter of one percent, it’s because to do so would cause irreparable damage of some sort in the financial and economic system.

Here’s is Part 2 of the Shadow of Truth’s conversation with Dr. Paul Craig Roberts in which we process the Fed’s inability to raise interest rates at the September FOMC even though more than 80% of Wall Street’s “brain trust” expected the Fed to move needle a paltry 25 basis points: