Ben Bernanke – In His Own Words

From the description over at YouTube.

This video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It’s a compilation of statements he’s made from 2005-2007 that will have you 100% certain America is doomed if we continue to value what this moron says.

And a comment from the YouTube viewer toppermost1:

Is he an idiot or is he wilfully obtuse? Goldman Sachs and JP Morgan have done alright by Uncle Ben. I think he knows exactly what he’s doing – leech main street dry and give it all to his wall street buddies. Just like Bush’s administration were full of people that were invested in oil, defence and construction - and hence profited from the Iraq war, Obama’s administration is full of wall street people – who have profited from the cheap fed money and the bailouts.

Thanks to Barry over at TheBigPicture.

Global Mortgage Ripoff Revisited

Today I am republishing part of a series of articles I wrote back in May, 2008. Since then Wordout has added hundreds of new readers, and I hope they find this further insight helpful.
This was before Fannie and Freddie, before Lehman and the whole October surprise. But the general gist of it still applies.

James Madison - Series of 1934 $5000 billImage via WikipediaThere Is No Spoon

Earlier, we looked into how much money there is in the world. If you took the time to watch that video, you probably came out of it with the only conclusion that was possible, which is this: There is no money in the world. There is only debt, promises to pay, IOUs. It’s hard to wrap your head around that, though, so it’s easy to look at all that debt the way we’ve been trained to: as if it were real money. Remember the main difference between “real money” and “Federal Reserve Notes” is only the difference between assets and debt.

But how, you might ask, if banks can create all the notes they want by creating debt, how could a bank ever go out of business? How could a banking behemoth such as Bear Stearns, be taken over for just a fraction of its current valuation? Well, they can only create those notes by creating debt. If there’s nobody left trying to get a loan, the bank simply has no way to create more debt. That’s essentially what happened to Bear Stearns. Nobody wanted their notes anymore.

Over most of the course of human history, the accumulated savings in fixed income securities of the world had built up to about 36 trillion dollars. Then, in the last several years, that figure nearly doubled to about 70 trillion. This is more than all the money spent by all the countries in the world in one year.

Much of this new wealth was stored up overseas, insane profits made recently by historically poor countries, cash made from the sale of oil and high tech items. The people in charge of managing all this new cash wanted to increase the returns on their investments. But they didn’t want to lose any of it. Normally, they would invest in treasury notes, or government secured bonds, something safe.

Think about it, there’s suddenly twice as much money to invest, and there’s just not that many great investments around. As if that wasn’t enough to cause the money managers to scramble, before he left, the great Alan Greenspan released a statement, which basically said that the US Federal Reserve funds rate would remain extremely low indefinitely, which made the treasury markets look much less attractive.

Mortgage Backed Securities

So these guys started looking for something that was still reasonably safe, but still more profitable. All they needed to do was beat the 1% from the Fed on Treasury notes, so even the low mortgage rates, around 5% on average, were very attractive. But these guys couldn’t manage a mortgage from around the world. Something new needed to be created.

So the Mortgage Backed Securities were created, and the global pool of money managers loved them. Individual mortgages were bundled together, and those bundles bundled and so on until enough mortgages were bundled together to sell for millions of dollars. That’s thousands of mortgages per package. For awhile, things were great.

But no market is endless. Eventually, everybody who could afford and qualified for a mortgage had bought one. By 2003, the market was starting to slow, but the demand for these types of securities was still insane. So looser guidelines were instated, making loans easier to get for slightly less qualified borrowers.

These new guidelines determined the loan an applicant could get, but in the end, literally anybody should have been able to get a mortgage. That was the so-called NINA loan, which is short for No Income No Assets, which means that there was no check run on you at all, except verifying that you had a credit score. (There were cases of loans made to dead people.)

Common Cents

Naturally, this makes absolutely no sense in the common use of the word. Why were the banks doing this? They were writing loans to people knowing in advance that these loans would default. Common belief is that the US housing market will never have a correction, that real estate values would only rise. Common sense says that no market can sustain endless growth. Corrections are a natural part of the cycle, like storms with the heat of summer.

So how did it happen? With all the computers and brilliant people on staff, why did they keep creating this bad debt? The answer is insidious. They were monitoring. They were watching these mortgages like a hawk, and all the data they had was positive. The projected foreclosure rates were capped at around 8-12% of these bad loans. The problem was, the computer programs used to analyze that data were wrong. The analysis used was the same as for the old-fashioned, Income Verified, Assets Verified, fixed-rate mortgages, and not for these new variations. In some areas the mortgage rates are now expected to go beyond 50% foreclosure rates.

This isn’t the end of the story. It actually gets a bit worse. So far we’ve seen that there isn’t really any money anywhere there are banks. We’ve also seen how the global pool of “money”, really just a collection of IOUs, doubled in less than a decade, creating a new investment market in the form of (mostly American) home mortgages. Click back to Wordout to learn how the crisis was guaranteed to happen by the use of neat little things called Collateralized Debt Obligations.

I am Jon, and right about now we are knee-deep in it.

Image 14

To read all of the Crunch Week series, use these links:
How Much Money Is There
Bear Stearns – The BS Timeline
The Global Mortgage Ripoff
The Promise Of Recession

For those interested in where we’re going with this, and too impatient to wait, click this link to an audio file which can explain it to you. The audio lasts about an hour, and covers the topic here today and the continuation for the next post at Wordout.

How Much Money Is There?

Today I am republishing part of a series of articles I wrote back in May, 2008. Since then Wordout has added hundreds of new readers, and I hope they find this further insight helpful.
This was before Fannie and Freddie, before Lehman and the whole October surprise. But the general gist of it still applies.

Stained Glass Panel, Eye-CatcherImage by cobalt123 via FlickrThe Setup

Welcome to Crunch Week, Day 1. This week I’m going to try to explain the current financial crunch we all find ourselves in. If you haven’t found yourself in it yet, don’t worry. You will soon, probably sometime this year. What’s going on affects everyone on the planet, and it’s intentional.

To understand it, we have to understand money. How much money are we talking about here? This is just the mortgage industry right? Bear Stearns, Nationwide, Citicorp and the rest, they’re all having trouble because of those pesky loans, right? So how much could that be, as a percentage of how much money there is totally in the world?

Honestly, that’s a tricky question. In my mind, the answer is either 100% or zero, depending on how you look at it. I know that there’s about 70 trillion dollars involved in this mess. Yes, that’s correct. No, it’s not a typo. We’ll go deeper into that tomorrow, but for now rest assured that that figure is pretty close to accurate.

So am I saying that there’s 70 trillion dollars in existence? Not exactly. The truth is, there’s no money in existence. At least, not like you think of money. The truth is, in every developed or developing society on earth where banking exists, there’s no real money at all. There are “notes”, essentially IOUs, promises to pay a stated value in what else; more notes.

Love Me, Legal Tender

Although these notes are backed by the good faith of a government, they are not created by that government. They are created by the banks, who issue loans in order to create more notes, each of which is backed by debt, a promise to pay, essentially an IOU. There are usually rules in place to control how much debt, and therefore how many notes, any bank may create. When you consider that all those deposits represent nothing more than debt themselves, you start to realize that there is indeed no real “money” there.

Look at a dollar and read, in the upper left, where it says “This note is legal tender for all debts public and private”. Think about that sentence, printed on every Federal Reserve Note you have ever seen (unless you’re older). It’s plain as the sun in your eyes, and just as blinding. The Federal Reserve is a private bank, which issues Federal Reserve Notes based on the repayment of all debts public and private. It’s right there on the paper. Read it.

This is a rather long video, but it’s informative and entertaining. If you’ll watch it, you’ll get a very clear understanding of exactly how the financial world got to be the way it is. You’ll understand why you can never catch up on your bills for more than just awhile. You’ll see the words of some of America’s most respected presidents warning us of the problems we have now, and the words of the one who is mostly responsible for allowing it to happen, by signing it into law, in what appears to be a belated sort of apology for his actions.

Time Is All You Have, Spend Some On Yourself

I know you don’t have time to watch this. I’m asking you to make time. This is stuff you need to know, anyway. It will help you and all it costs is 47 minutes.

Many thanks to


We’ll continue Crunch Week next with a piece on the fall of Bear Stearns. Just how did it all go down, from start to finish? If the banks can print whatever fiat money they need, how did they get so far into debt? Where did all that debt come from anyway?

I am Jon, thankfully not buried in debt.

To read all of the Crunch Week series, use these links:
How Much Money Is There
Bear Stearns – The BS Timeline
The Global Mortgage Ripoff
The Promise Of Recession