Here is a copy of recently Letter to the Editor of the  in September 2012.  After my pst are two VERY imporatnt artcles added to help explain what I have written:

How Credit Default Swap Bonds Caused the American Fiscal Disaster, and Why?

Introduction

Here is an essay which I hope will help you to understand the financial crisis here in the USA.  I wrote it for the editor of the Providence Journal.  I had sent it to the paper several times, but he never saw it.  Finally, after a few phone messages, he asked me to send it directly to him. The point o the essay is that the fiscal crisis was a plan to move trillions of dollars out of our economy and into the hands of about 25,000 people I am not going to edit it now, but if I did, I would add the following two points. 

1)  Last week, the government of Italy had to deal with a terrible crisis created by London Banks through the sale of Credit Default Swap Bonds--the key to what happened in the US starting 13 years ago.

2)  Al Lewis reported two weeks ago that Fed Chairman Bernanke testified to Congress that the Fed was going to spend 40 Billion dollars a month to buy up all the bad mortgages that banks created and are still holding.  This is big news.  He also reported on the fact that the Obama administration had decided not to follow up on any of the illegal back practices of the past decade. 

There are two people who do agree with my analysis of Credit Default Swap Bonds: Mr. Anthony Santa Barbara and President Obama.

Mr. Santa Barbara confirmed everything in this essay, and agreed that the CDSB were tested with Enron.  So, buyers of these bonds at that time knew that Enron was going to crash—therefore, they made $30 for every $1 they invested in CDSBs backed by Enron stock.  That is when the flow of trillions of dollars started to leave our economy and go into he hands of CDSB holders.

President Obama made a specific reference to these Bonds during his first press conference, and here is what he said:

QUESTION: Thank you, Mr. President. In your opening remarks, you talked about that if your plan works the way you want it to work, it's going to increase consumer spending. But isn't consumer spending, or over-spending, how we got into this mess? And if people get money back into their pockets, do you not want them saving it or paying down debt first, before they start spending money into the economy?

MR. OBAMA: Well, first of all, I don't think it's accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies, based on shaky assets. And because of the enormous leverage, where they had $1 worth of assets and they were betting $30 on that $1, what we had was a crisis in the financial system.

Finally, to truly understand my work, you have to Undset and Credit Default Swap Bonds.  Here is an article that Janet Morrissey wrote for Time Magazine in March of 2008.  It puts things in perspective, so you can understand better what I am trying to say.

So, without any more introductions, here is the essay that I tried to get to you since

January.\

Well, here is the essay.  I hope you enjoy it.

Sixty Minutes did an article about the foreclosure crisis which did more to hide the truth than it told.  This article does not tell the whole truth. These foreclosures were part of a three part plan to shift the future of America.  I have coined the phrase THE NEW URBAN RENEWAL to name this Plan.

Plan Step #1:  To move about 50 to 75 trillion dollars from our economy to the hands of very few.  First, please read Time Magazine for March of 2008 article by Janet Morrissey about Credit Default Swap Bonds. It explains that millions of sub-prime mortgages were designed to go up to 13% after two years.  The stocks backed by these mortgages would lose ALL their investors their money.  The Credit Default Bonds, as Morrissey writes, were based on the possibility of the stocks backed by the mortgages would go bad.  They were modeled after municipal bonds which are guaranteed and insured.  So, if a city goes bankrupt the Bond holders would have to be paid and would have to be paid at thirty times what they invested.  This means that the trillions of dollars paid out by the Bond writers, which almost put AIG and all the other collaborators out of business.  The amount of money shifted out of our economy represents the largest theft in the history of the world.  That money will NEVER come back to America.  Hedge funds buying Bonds to save Greece in the first round last year were guaranteed an 18% return—what investment in ANY American business will ever be able to pay those returns?  Right now, hedge funds control every Cocoa crop in the work for the next ten years.

The impact over the world, all the bad mortgages backed stocks that the makers knew were going to go bad, cost stock holders all over the world billions. s failing. For every dollar invested in CDBS pays the holder 30-40 dollars. That means that a foreclosure of a $100,000 pays the CDNS holder $3,000,000. President Obama mentions this is his first Press Conference, but no one has reported on it except Morrissey. This process has not been stopped and its aims have been accomplished

Plan Step #2     To demolish and clear the thousands of acres of “Red-Lined” neighborhoods (Slums) to create, for banks, the largest land sell off in the history of the world.  Since American investors know that they make little or nothing investing in American real estate, most of these acres will be sold to cash rich world citizens who need a safe and secure country to live and prosper.  This will be their home while their own countries fall into chaos, oppression, and revolutions.  The failed Lee-Schumer bill is the best example of this plan.  The bill would have given almost unlimited visas to people from foreign countries who bought houses here for $500,000 or more with cash.  The bill failed, but be assured; there are twenty other bills that you will not hear about that will accomplish the same purpose.  This is at a time in our history when National Public Broadcasting’s show Need to Know reported last week that 33% of Americans are now living at or below the poverty level.  Will this plan change that?  No.  Is it too late to change it?  I think it is.

Plan Step #3    

The Third steps in this plan cover the obvious and less obvious.  In fact, we can really only speculate on what dimensions of our current reality were part of the initial plan.  I can only speculate on some of these last aspects of the Banking/Wall Street Financial Plan for America initiated as I described in 1998 to 1999. 

1)    The first result is that acres and acres of urban slums are now wastelands.  The CBS show discussed the demolition of homes, and the landscaping of the lots with grasslands.  These “open spaces” still have a tiny number of homes still standing, but the homeowners are not paying their mortgages, and expect to be evicted at some point in the future.   This land represents billions of dollars of potential income for the banks that have ended up owning them.  Here are the possibilities that I have read about:

a)    The Congress almost passed a Bill that would have given almost free visas to foreign buyers who bought homes in the United States for $ 500,000 or more, and that paid cash for the homes.  The bill did not pass, but the banks do have lines forming form wealthy foreigners to move here—especially from countries where the governments are drifting towards anarchy.

b)   Our inner cities are dying, these acres of land will provide excellent open space for commercial and industrial construction.

c)    Five years ago, NPR reported that 63% of Americans lived in gated or “sealed” communities with no access to public streets.  These acres of land will provide developers with “virgin” land to develop “closed cities” where the concept of open governance will not be tolerated, and corporations will provide all the structures that the citizens need—from schools to hospitals to police and lot more.

2)    The concentration of wealth gives hedge fund managers assets to control future commodity markets that shut out competition and normal market limitations on risk and control.   A year ago, it was reported in the news that hedge funds owned all the futures on cocoa beans for the next ten years.  This means that the funds will control the coat of chocolate for the next ten years, and most likely forever, because their funds continue to grow daily.  Payments to Credit Default Swap Bond holders have not stopped. and will not stop. They are not going to be stopped, and below is an article that describes the Department of Justice reluctance to do anything about correcting these derivatives or punish Wall Street for creating them.  My guess is that a massive amount of wealth in these funds “buys” anyone—Democrat, Republican. President or Senator. 

3)    The last possible area of the use of these massive assets has much more sinister goals.  Some writers think that the money will create “private” armies both in the United States and thereabout the world.  For instance, hedge funds have been involved in creating mercenaries groups used by the United States to protect American embassies.  MPR reported that the American Embassy in Iraq has 16,000 employees:  11, 000 with the Embassy, and 5,000 paid military personnel from a private contractors.  Within the United States, Chuck Norris (Not a politician, but an “entertainers’”) said that there were over 1,000 militias armed and ready to be mobilized in case a national “crisis”.  With what we have seen owned by individuals, we can speculate without a doubt that we are talking about thousands of weapons and millions of rounds of ammunition.  This is the one goal that I know the least about.

In conclusion, the plans laid by billionaires in America in 1998-19999 have succeeded.  83% of our wealth goes to the top 1%, and there is nothing we can do about it. (Onpoint Radio report).  I am not the only writer who sees this.  See the attached article by Dylan Ratigan.  He states that the plan actually took out “hundreds of trillions” of dollars out of our economy.  The 75 trillion coming out of the fraud sub-prime mortgage plan was just part of a much larger and extremely successful plan that will change our future for decades to come.  It will be up to you, now, to see if it can be reversed.

Credit Default Swaps: The Next Crisis?

By Janet Morrissey Time Magazine Monday, Mach. 17, 2008

 

Read More: http://www.time.com/time/business/article/0,8599,1723152,00.html#ixzz22yVfGSCc

 As Bear Stearns careened toward its eventual fire sale to JPMorgan Chase last weekend, the cost of protecting its debt, through an instrument called a credit default swap, began to rise rapidly as investors feared that Bear would not be good for the money it promised on its bonds. Not familiar with credit default swaps? Well, we didn't know much about collateralized debt obligations (CDOs) either — until they began to undermine the economy. Credit default swaps, once an obscure financial instrument for banks and bondholders, could soon become the eye of the credit hurricane. Fun, huh?

The CDS market exploded over the past decade to more than $45 trillion in mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market (which is valued at about $22 trillion and falling) and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market, notes Harvey Miller, senior partner at Weil, Gotshal & Manges. "It could be another — I hate to use the expression — nail in the coffin," said Miller, when referring to how this troubled CDS market could impact the country's credit crisis.

Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft.

Except that it doesn't. Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends — the insured and the insurer.

All of this makes it tough for banks to value the insurance contracts and the securities on their books. And it comes at a time when banks are already reeling from write-downs on mortgage-related securities. "These are the same institutions that themselves have either directly or through subsidiaries invested in the subprime market," said Andrea Pincus, partner at Reed Smith LLP. "They're suffering losses all over the place," and now they face potentially more losses from the CDS market.

Indeed, commercial banks are among the most active in this market, with the top 25 banks holding more than $13 trillion in credit default swaps — where they acted as either the insured or insurer — at the end of the third quarter of 2007, according to the Comptroller of the Currency, a federal banking regulator. JP Morgan Chase, Citibank, Bank of America and Wachovia were ranked among the top four most active, it said.

Credit default swaps were seen as easy money for banks when they were first launched more than a decade ago. Reason? The economy was booming and corporate defaults were few back then, making the swaps a low-risk way to collect premiums and earn extra cash. The swaps focused primarily on municipal bonds and corporate debt in the 1990s, not on structured finance securities. Investors flocked to the swaps in the belief that big corporations would seldom go bust in such flourishing economic times.

The CDS market then expanded into structured finance, such as CDOs, that contained pools of mortgages. It also exploded into the secondary market, where speculative investors, hedge funds and others would buy and sell CDS instruments from the sidelines without having any direct relationship with the underlying investment. "They're betting on whether the investments will succeed or fail," said Pincus. "It's like betting on a sports event. The game is being played and you're not playing in the game, but people all over the country are betting on the outcome."

But as the economy soured and the subprime credit crunch began expanding into other credit areas over the past year, CDS investors became jittery. They wondered if the parties holding the CDS insurance after multiple trades would have the financial wherewithal to pay up in the event of mass defaults. "In the past six to eight months, there's been a deterioration in market liquidity and the ability to get willing buyers for structured finance securities," causing the values of the securities to fall, said Glenn Arden, a partner at Jones Day who heads up the firm's worldwide securitization practice and New York derivative.

The situation is already taking a toll on insurers, who have been forced to write down the value of their CDS portfolios. American International Group, the world's largest insurer, recently reported the biggest loss in the company's history largely due to an $11 billion writedown on its CDS holdings. Even Swiss Reinsurance Co., the industry's largest reinsurer, took CDS writedowns in the fourth quarter and warned of more to come in the first quarter of 2008.

Monoline bond insurance companies, such as MBIA and Ambac Financial Group Inc., have been hit the hardest as they scramble to raise capital to cover possible defaults and to stave off a downgrade from the ratings agencies. It was this group's foray out of its traditional municipal bonds and into mortgage-backed securities that caused the turmoil. A rating downgrade of the monoline companies could be devastating for banks and others who bought insurance protection from them to cover their corporate bond exposure.

The situation is exacerbated by the heavy trading volume of the instruments, the secrecy surrounding the trades, and — most importantly — the lack of regulation in this insurance contract business. "An original CDS can go through 15 or 20 trades," said Miller. "So when a default occurs, the so-called insured party or hedged party doesn't know who's responsible for making up the default and if that end player has the resources to cure the default."

Prakash Shimpi, managing principal at Towers Perrin, downplays this risk, noting that contractual law requires both parties to inform and get approval from the other before selling the CDS policy to someone else. "These transactions don't take place on a handshake," he said. Still, being unregulated, there is no standard contract, no standard capital requirements, and no standard way of valuating securities in these transactions. As a result, Pincus said she wouldn't be surprised to see a surge in litigation as defaults start happening. "There's a lot of outcry right now for more regulation and more transparency," said Pincus.

A meltdown in the CDS market has potentially even wider ramifications nationwide than the subprime crisis. If bond insurance disappears or becomes too costly, lenders will become even more cautious about making loans, and this could impact everyone from mortgage-seekers to municipalities that need money to fix roads and build schools. "We're seeing players in all of those spaces being more circumspect about whose credit they're going to guarantee and what exactly the credit obligation is," said Ellen Marshall, partner at Manatt, Phelps & Phillips LLP.

Shimpi admits a meltdown or even a slowdown in the CDS market would affect the amount and cost of liquidity in the market. However, he dismisses concerns that municipalities and others seeking capital could be left in the dust. "Even if the U.S. takes a hit, there are other markets in the world that have different dynamics, and capital flows are international," he said.

Still, most agree the potential repercussions are far-reaching. "It's the ripple effects, the domino effects" that are worrisome, said Pincus. "I think it's [going to be] one of the next shoes to fall" in the credit crisis. Miller said the subprime debacle, rising unemployment, record-high oil prices, and now CDS market troubles "have all the makings of the perfect storm.... There are some economists who say this could be another 1929 — but I don't believe it," he said. "We have a lot of safeguards built into the system that did not exist in 1929 and 1930." None of them, though, are directly targeted at CDS. On Wall Street, innovators are always ahead of regulators. And that can sometimes have a very steep price.