Shadow Banking and Financial Fraud: Massive Asset Inflation, Who Really Benefits?
Matthias Chang * Global Research
Have you ever wondered why when over 40 million Americans are on food stamps, millions of homes foreclosed and millions more unemployed, there is hardly any social unrest in the United States?
In the European Union, the economic situation is dire as well, but again there is hardly any social unrest. Sure there were demonstrations, but it is abundantly clear that the people in these countries have no idea as to the actual culprits who have caused them to suffer such poverty and hardship and why there have been no massive bail-outs for them.
There have been hundreds of thousands of articles published on the Global Financial Tsunami and many have pointed out the scams perpetrated by the banks and other financial institutions which resulted in movements such as “Occupy Wall Street”. But, such protests were not sustainable and were also largely unsupported by the very people who were affected by these financial scams.
Ask any debtor why he has not taken any action, and he would most likely say that he cannot really complain as he was in debt and could not pay off the debt and as such he must suffer the consequences, be it bankruptcy or foreclosures. This is the response of a typical brainwashed debtor!
Joe Six-Packs never even pondered that debtor-banks never had to suffer any consequences of their indebtedness as a result of their reckless speculations and other financial shenanigans! In fact, such banks were given freebies and back-stopped by the FED and other central banks. They were not allowed to fail, to be declared insolvent and liquidated. The banks were just Too Big To Fail and must be given a life-line.
That Joe Six-Packs have not started a revolution to throw out the power elites and shut down the Too Big To Fail Banks is because they are ignorant and do not understand the mechanics and the intricacies of banking in general and shadow banking in particular and how financial frauds have been perpetrated by these banks with the connivance of the FED and other central banks as well as the governing regimes. The judiciary willingly turned a blind-eye to these criminal activities.
So, I have decided to explain in as simple a language as I can muster in the hope that the Joe Six-Packs of the world would take action and put right the injustice that has been perpetrated by the global financial elites and reclaim their hard-earned money that was stolen from them.
Before explaining the reasons for the massive asset inflation engineered by the FED and other central banks, we must have some idea of banking and the securities / collaterals given to banks for the credit extended to borrowers (i.e. the Joe Six-Packs etc.)
Lesson 1
When a borrower takes out a loan, invariably he or she is required to provide collaterals in the form of a property, public quoted shares, government bonds etc. to secure the loan.
Usually, the bank will provide a loan in an amount equivalent to 80 per cent of the value of the security. So, if a house is worth US$100,000 or in Malaysia RM100,000, the bank would extend a loan of US$80,000 or RM80,000. The reason being, in a default the bank has a cushion of US$20,000 / RM20,000 to cover any fall in value of the house and or a lower price in a foreclosure sale. Thus, when there is a foreclosure there will always be more than enough money to cover the outstanding loan. Such a security is referred to as a “mortgage”.
In the case of shares of a company listed in a stock exchange e.g. shares in Citibank, Wal-Mart, General Motors, Sime Darby, MMC etc., the bank would extend a loan usually not exceeding 60 per cent of the value of the shares pledged to the bank. This is the rule of thumb. But, banks in different countries and jurisdictions have different rules and regulations governing such securities. But, for the purposes of this article we shall use the 80 per cent rule for mortgages and 60 per cent rule for shares. For simplicity sake, I will not refer to other types of securities offered.
These collaterals (mortgages etc.) were then packaged and repackaged and sold to investors as “Collateralised Debt Obligations” (CDOs etc.) and or re-hypothecated many times over (the technical jargon for using the securities to secure further loans) thereby compounding the exposure and risks should there be a default.
Lesson 2
What happens when there is a financial crisis?
Malaysians will recall that during the 1997/1998 Asian Financial Crisis, shares worth RM30 or more plummeted to less than RM1. But, price of houses did not suffer as much depreciation as the property bubble was confined to commercial properties.
During the Global Financial Tsunami, Citibank shares fell to less than US$5 from a peak of US$550 in early 2007. Citigroup’s market capital was US$147 Billion
on December 31, 2007, and on March 5, 2009, the market capital of Citigroup dropped to US$5 Billion, eroding over 96% of the companies’ value.
When the sub-prime bubble exploded, house prices fell by as much as 30 per cent or more resulting in the outstanding loan value exceeding the value of the mortgage.
This was a bloody disaster for the banks!
By banking regulations, the value of the security must be written down to the actual value i.e. in the case of Citibank shares to US$5. And, in the case of houses, it had to be written down to the actual depressed price e.g. from US$100,000 to US$60,000.
Borrowers could not repay their debts and in many cases refused to pay the debt because they have purchased a house which value has depreciated to the extent that it is less than the loaned sum! There were massive defaults and as such these loans must be declared as “Non-performing Loans” (NPLs).
And by accounting standards, NPLs must be written off. If and when these NPLs are written off, the banks would be insolvent and unless the banks’ shareholders pump in more money to increase the share capital sufficient to offset the losses, the banks cannot continue doing banking business. This is so basic.
The shareholders did not have the monies to increase the share capital and neither were they in any position to borrow any money to keep the banks afloat.
The global banks were starring at a bottomless black-hole!
Lesson 3
The FED and other central banks came to the rescue of the Too Big To Fail Banks (TBTF banks) by providing loans, guarantees etc. such as the TARP program, followed later by Quantitative Easing (QE).
Remember that the TBTF banks were not allowed to be bankrupted. But, the toxic “assets” (i.e. massive undervalued securities and NPLs) cannot remain on the balance sheet of the banks if marked-to-market. The world would know that the banks were insolvent. There has to be a cover-up.
How was the cover-up implemented?
Firstly, banks need not mark-to-market these toxic assets. This is outright fraud – what was worth e.g. US$5 was declared as US$300 in the case of shares. A house worth US$60,000 was declared to be worth US$100,000.
This cover-up bought the TBTF banks and the central banks time to implement the second fraud.
Bear in mind that the losses were in the US$ Trillions.
So, there was no way for the FED and other central banks to print digitally US$ Trillions in one swoop to bail out the banks. This would result in a massive devaluation of the fiat currency be it the US dollar, the Pound Sterling or the Euro and the consequential hyperinflation. All currencies would be toilet papers overnight.
So, like the thief in the night, the FED and the other central banks did so quietly and in “batches” for want of a better term.
The FED printed digital money (i.e. virtual money) via the computer and made simple book entries.
The FED and other central banks acting in concert bought the toxic assets from the bank at book value (i.e. at or close to the original price) thereby reducing the amount of toxic assets on the TBTF banks’ balance sheets. This has been going on since 2008/2009 and will continue for a long time to come, at least a decade from 2008. So, by reducing the amount of the toxic assets on the TBTF banks’ balance sheet, the amount of share capital as well as bank reserves would likewise be reduced. In fact, the Bank of International Settlements (BIS), the Central Bank of central banks have allowed the TBTF banks till 2019 to comply fully the Basel III Accords relating to capital requirements.
continue article at Global Research:
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Whistler Blowers, Insiders
Re: IRS Scrutiny of Non-profits
The IRS hearings was like watching the defendants playing “dodgeball” — the testimony thereof was “an indictment for conspiracy” to discriminate and target Americans for their views; and then to cover-up their criminal acts by not cooperating; giving vague answers; “I don’t remember”; or “I did not have time to prepare”, etc. …… (??? “I was having a lobotomy at that time!” ???)
…O’ but they all prepared that questionable conference of Lois Lerner’s response to a question at an American Bar Assn; whereas Lois Lerner spilled information before the review of the IRS audit report.
…IRS, Treasury and the IG having “collective bargaining” meetings during this discrimination and targeting activity; and during the inquiry audit of the IRS by the IG.
…Douglas Shulman has a sociopath personality (lacks a sense of moral responsibility); he has no feelings for what has been going on when he was IRS commissioner and to this day; besides having a laxed work-product when he was commissioner of the IRS. Shulman also visited the White House over a hundred-fifty times and there were over forty news articles during this three year targeting escapade, and yet nobody knows that this has been going on.
…There is no wiggle room for Lois Lerner invoking the Fifth Amendment to avoid testifying; she will have to come back and answer all the questions put to her.
…These IRS, Treasury, and IG bureaucrats with their bloated paychecks is disgusting considering we have over 40,000,000 Americans living below the poverty line and are dirt poor. These bureaucrats annual pay shouldn’t be over $40,000 for what they do. Government employees are causing inflation. The private sector cannot keep up with this government’s bloated salaries. The U.S. Congress needs to cut the annual pay for all government workers down to $40,000 and below to save on overall government expenditures and to compete with the private sector.
IRS SCRUTINY SCREENING OF TAX-EXEMPT APPLICANTS (IRS screening litmus test):
The 70,000 plus and the other special treatment 202 organizations that submitted their tax exempt status forms to the IRS that did not have the word Tea Party or Patriot in their name – (the IRS used this scrutiny screening litmus test for all organizations they were screening)… The IRS must be completely investigated by our U.S. Congress and all the criminals involved rounded up. And let’s ask about all the TAX-EXEMPT orgs’ that the White House and their associates are interconnected to. Who are their donors? Some of these orgs might be receiving kick-backs from foreigners that the U.S. has been giving money support to these foreigners and/or their countries.
Off-center inexcusable statement that “two rouge IRS employees are responsible” is a laughable farce!
…Many of the IRS employees looked up the founders of these organizations personal tax returns information to review; to see who they made contributions to (whether political, churches or other) which would show up on their personal tax returns to be a deduction. The IRS had the personal tax information of founders of these organizations with a click of a button for political discrimination and targeting.
This use of personal tax records by the IRS employees could have been stopped if there was a regulation, that after a tax payer settled their yearly tax obligation; all their personal information was destroyed (not held for future use by the IRS).
The underhanded activities of the IRS have been destroying our lives and businesses for years (for at least forty-five years). They destroyed all my family’s companies (over fifty Vahlsing companies / three of these companies were public; so they destroyed stockholders investments, besides our employees livelihood).
IRS employees with certain political views and self interests have been using their job for discrimination and targeting; “the proof is in the pudding”. The IRS, Treasury, and other federal departments are all connected to this illegal behavior to promote their views and cause disruption to people’s lives that disagree with their views. Having J. Russell George to oversee an investigation of the illegal acts of these government employees is really non-sense; as he is investigating himself too of wrongdoing. You need an independent investigative team to expose all government employees involved; so they can be brought in for criminal charges. It is obvious that J. Russell George’s Treasury /IRS relationship is too close for him to be able to perform an independent criminal investigation of all government employees involved. He is already showing signs of long-drawn-out incompetency and not delivering precise investigative information. Making “inquiries” / “audit” is “hum drum” not investigating.
Actually, the IRS does not represent our U.S. Constitution, as the IRS is an unfair tax collecting system – (a “voluntary tax system” but with force is a contradiction incongruity). If it’s a “voluntary tax system” why should anyone participate?
Oppression and government employee corruption is everywhere in the USA. An individual does not have choices anymore, as their choices are limited by the U.S. government employees and their regulations. The elected that are meant to protect this nation’s Freedoms; have instead destroyed our Freedoms; they have regulated and taxed us to death to the point that the oppression in this country is in the anger phase.
A FAIR AND EQUAL TAX SYSTEM:
“We the People” need “Individual Freedoms” / the “Free Enterprise / Market System” upheld; and my TRANSACTING TAX in place -The TRANSACTION TAX is my idea that I thought about back in the early 1970’s when I was working alongside my father Fred H. Vahlsing Jr. for our family’s companies. I want to abolish all taxes at the federal level, at the State level and at the local level; and I want to put in place my TRANSACTION TAX which is the most “fairest” tax on earth. Everyone pays — No Exceptions / No Exemptions. Everyone pays on every transaction a 12% tax–including all donations to non-profits, foundations, churches, etc. (No Exceptions / No Exemptions / EVERYONE PAYS). This TRANSACTION TAX will cause the stock market manipulators to cease their manipulating market games; as they will have to pay 12% on every securities transaction. At the same time we must abolish every tax that is existent. Every time a dollar is transacted; 12% goes to the Feds; no matter what entity or who is transacting the dollar – (part of this 12% TRANSACTION TAX to be shared with each State directly using location where the initiated transaction took place). The wealthy do not want this TRANSACTION TAX as they know that they will not be able to avoid this tax and that they will be hit the hardest. That’s why when any one promotes a tax similar to my TRANSACTION TAX; the wealthy uses their leverage to stop it. But they don’t understand that in the long run the wealthy would come out ahead considerably; if they did the math they would understand this. Our economy would flourish, as the business arena using this TRANSACTION TAX system would equal the competition playing field for all enterprises (new and established).
The IRS must be shut down and my TRANSACTION TAX system put in place. We must abolish every tax that is existent (the U.S. Congress must stop the States and local governments from creating any kind of taxation including property tax). All existing taxes must be abolished at the federal level, State level and local level and put in place my TRANSACTION TAX system. Do the math on this. At some point the 12% could be dropped down to 8% or 5% because this TRANSACTION TAX system will increase “supply and demand” in the market.
The U.S. Congress must stop the States and Local governments from collecting any type of tax. I will list a few here – such as property tax and special assessment tax, sales tax, profession license tax, business taxes and fees of any kind (franchise taxes, etc.), vehicle reg. tax, driver license tax, CDL license tax, tractor-trailer taxes, shipping taxes, building permits taxes and fees, assorted fuel taxes, oil tax, pollution tax, utility tax, water tax, sewer tax, communications tax, carbon tax, farm animals and pet taxes, all special and excise taxes (including cigarette excise; estate; bank franchise; insurance franchise; ore; energy mineral severance; coin operated laundromat license fees; beer, wine and distilled spirits; gaming excise; beer and liquor license fees; and alcohol beverage brand registration fees), capital gains tax, “?THE FANNY TAX?”, j-walking tax, including and not limited to a million or more hidden illegal taxes, fees and fines, etc., etc….
Do the math – if you shut down the IRS tomorrow and fired every IRS employee, what would that cost saving be? ($ about ten to twelve-billion in savings?) …
We the People are powerful in numbers. Shut the IRS down now.
IRS employee bonus over $25,000 must be approved by the president. …All government employees salary are frozen (no bonus). Why are IRS employees getting bonuses?????
No private sector corporation would spend $50,000,000 for employee conventions. IRS employees had a big time ball on tax payer monies.
IRS new commissioner Danny Werfel is already showing us a delay procrastinated personality. It is obvious that our U.S. Congress must start prosecuting procedures right away to get to truth. Having J. Russell George to oversee an investigation of the illegal acts of these government employees is really non-sense; as he is investigating himself too of wrongdoing. You need an independent investigative team to expose all government employees involved; so they can be brought in for criminal charges.
Remember that local governments have been sued for big bucks over a government employee’s discrimination treatment using disparage words at someone. This IRS discrimination activity against many Americans goes far beyond disparage words.
Tell the IRS employees that “DENIAL” is not a river in Egypt.
Protect Free Speech and Freedom of the Press (sue Eric Holder and Justice Department for their vile actions against the press)…
The First Amendment is a strategic asset –
It is axiomatic that not all speech is created equal. In evaluating the degree to which different types of content are protected, courts have classified speech into three broad categories: editorial/newsworthy, entertainment and commercial speech. Courts afford news, especially information concerning the political process, the highest degree of constitutional protection. Other content that falls within the category of editorial speech includes journalism, nonfiction writing, documentaries and educational information. Although entertainment speech receives less protection than newsworthy speech, it is still afforded broad constitutional protections. Such speech predominates in the entertainment industry and includes novels, motion pictures, video games, most TV shows and music. Although the last type of speech, commercial speech, is protected from most content restrictions, it is this category that receives the least amount of judicial deference. Determining what constitutes commercial speech is vexing, however, as the U.S. Supreme Court has used numerous definitions for this classification. For example, in Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council Inc., the court defined commercial speech as speech that does “no more than propose a commercial transaction.” By contrast, in Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, the court classified speech as commercial when the “expression related solely to the economic interests of the speaker and its audience.” (Reference published in Entertainment & Sports Lawyer, Volume 23, Number 3, Fall 2005 by the American Bar Association.)
NOTE: About securing the U.S. / Mexico border and help pay for this security >>>> What we should do is … instead of building a wall; we should build a high speed monorail to run from the Pacific Ocean along the U.S. / Mexico border to the Gulf of Mexico. The monorail structure would have all the security technology built into it to secure the border.
NOTE: About drones…Drones are just unmanned aerial vehicles and part of the weapons’ arsenal machinery of the military, as like Apache assault helicopters, tanks, etc. Human error and/or inaccuracy can happen in all forms during war deployments. Drones are an advantage for surgical operations.