What Caused the Stock Market Crash? Credit Default Swap Scandal Revealed

The current financial meltdown on Wall Street is not the unfortunate side effect of collapsing home values and a few mortgages going into default. It’s the exact opposite in fact. The collapse in home values as well as the crash of the economy is the result of an insurance fraud scheme being ran by a group of Wall Street insiders and the corrupt politicians that they have in their pockets. They are that are getting rich by destroying our economy in what I call the Credit Default Swap Scandal.

History leading up to the credit default swap scandal
Origin of the Credit Default Swap Scandal
How the mortgage insurance fraud scheme that crashed our stock markets work
Quick Summary of the Credit Default Swap Scandal

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History leading up to the credit default swap scandal

In 1999 the Federal government put through regulation that forced banks to make mortgages available to low income and minority borrowers, who by historical lending standards were too risky to get a mortgage. This legislation was called the Community Reinvestment Act and was a piece of democratic legislation. By itself the legislation didn’t cause our current financial crisis. However, Wall Street would end up using these high risk mortgages to create time bomb that would eventually destroy our economy. Why? Because when the time bomb explodes it’s going to make Wall Street Trillions of dollars.

In 2000, congress passed another piece of legislation called the Commodity Future Modernization Act. This act allowed the exchange of certain securities on Wall Street without the need for government oversight. The bill was introduced by Republicans and it repealed regulations that where set up during the Great Depression to stop Wall Street from ever putting the American Economy in the same situation again. It was packed as a piece of pork into rushed spending bill and was passed without out ever being reviewed by congress.

Within a year of its passage, the bill was responsible for the Enron scandal. Since the Enron Bankruptcy, democrats attempted several times to have the bill repealed but where blocked each time by the republicans. That brings us to 2008 when democrats introduced another bill to repeal the legislation in response to public outcry that commodity speculation was the cause for our nation’s high oil prices. However, when the bill got to George Bush he vetoed it. Finally, in the summer of 2008 democrats overrode the Bush veto but by that time it was already too late. Within 7 years of its passage crooked politicians and crooks on Wall Street managed to make a time bomb that would destroy our economy and make them rich when it exploded.

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Origin of the Credit Default Swap Scandal
In order to avoid having to keep the cash on hand needed to pay the insurance claims, in case the underlying mortgages defaulted, Wall Street kept their insurance policies off of the governments radar by giving their insurance policies a fancy name called a “Credit Default Swaps“. They hired mathematicians and physicists to create elaborate algorithms to price these insurance swaps. They then hid their transactions by buy burying the insurance policies in contracts that where literally hundreds of pages long. In a voluntary survey of who owns of these insurance swaps, it is reported that there are $60 trillion dollars worth of credit default swap policies outstanding worldwide.

Now let’s make this story even more interesting. These insurance swaps are not just for mortgage backed securities. They can also be purchased to insure the companies selling mortgage backed securities and they can also be purchased to insure against a change in a company’s credit rating. That means that you can by an insurance swap on Bank of America that would require the insurer to have to pay you an insurance claim if Bank of America’s credit rating gets cut. Even more shocking is that you don’t even have to own a Mortgage backed security in the first place to buy an insurance swap on a company.

Even though these Wall Street firms know they couldn’t possibly pay the insurance claims they continued to sell trillions of dollars, over $60 trillion to be exact. The whole time this was happening the corrupt politicians involved in this scandal look the other way. Politicians that weren’t involved in the scandal were put on Wall Street’s bankroll effectively paying them to look away or even worse to fight any legislation that would stop their illegal practices. The cover up went even further as Wall Street cooked their books and hid these investments from stock and bond holders because they know they are putting their companies at risk. But the greedy executives didn’t care.

We add our final ingredient to the disaster recipe, the richest and brightest financial minds. We mix the batter, put our ingredients in the oven, bake 45 minutes and out the ultimate economic time bomb. Let me put the pieces of the puzzle together for you.

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How the mortgage insurance fraud scheme that crashed our stock markets works

First a Wall Street Crook in this scam buys some insurance swaps for pennies on the dollar, against lets use Lehman brothers as an example. Let’s say for $500 million dollars he buys a $2 billion dollar insurance policy against Lehman’s credit rating changing. The Wall Street crook then goes and shorts Lehman’s stocks, again for pennies on the dollar. Over the course of a 3 month period the he buys $100 million of shorts against Lehman’s representing a $1 billion short position. The huge amount of shorts drives Lehman’s stock price down causing Lehman’s credit rating to be cut. The crook makes $1 Billion as the stock drops on his short position and the credit rating change of Lehman entitles the crook to another $2 billion for his insurance policy.

With all of the money just made the crook repeats the process driving the stock price down and down until eventually poor Lehman goes bankrupt. The crook really makes a killing on insurance swap he has against Lehman’s bankruptcy. But that’s OK there’s still more banks, who’s next? Washington Mutual looks pretty weak, let’s go after them.

In reality however, it’s not a single crook doing this. It is a combination of corrupt politicians, government bureaucrats, greedy Wall Street executives and Top Wall Street Brass as well as Hedge Fund managers. They have all been working together to orchestrate this collapse. Wall Street CEOs purposely put their companies at risk so they would fail. Government officials turned their heads and let them do it. Then the hedge fund managers come in and do the dirty work and make the insurance policies default. In essence, what we have here is an Insurance fraud scheme that is making these corrupt individuals trillions of dollars.

Working together they have put the entire world economy into a tailspin and result is crashing markets around the world. But don’t be fooled there are still a lot of greedy people grinning on Wall Street. As the stock market crashes, more of these insurance policies go into default and more money goes into the pockets of these greedy firms.

But there are $60 trillion dollars of credit default swaps outstanding and you might say it’s possible for these companies to pay all of these insurance claims. Well, don’t kid yourself. These Wall Street insiders are not worried. They already have crooked politicians on their bankroll and will simply throw money at the politicians that they don’t. All of that political power is the Federal Government stepping in and offering up taxpayer’s money to pay these insurance claims. Furthermore, we see the FED urging nations around the world to step in with their taxpayer’s money.

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The Credit Default Swap Scandal Summarized

This group of Wall Street insiders went and purposely sold $60 trillion dollars of these insurance policies to make our nation’s financial institutions become very risky so they could drive their stock prices down. Then the hedge fund managers in the scam went and placed bets against the financial institutions these insiders run. They placed so many bets that it drove the stock price down. As the stock price went down credit rating agents were forced to review the financial institutions and cut their credit rating. When the credit rating was cut these crooks collected on the insurance policies that the insiders took out to protect against the credit rating change on these companies.

So what we have here is an elaborate scam that is being run by a group of hedge fund managers and top level executives. They put our financial institutions at risk selling trillions of dollars in insurance policies they couldn’t cover. Then they make billions of dollars by betting against the stock price and driving the stock price down. When the stock price goes down they collect on the insurance policies that protect against the credit rating being changed.

And every time out government steps and bails out a bank, these crooks collect insurance money because they hold insurance policies against the bank being restructured or going into bankruptcy.

So the next time you here about a government taking over a bank, giving a bank a loan or injecting money into a bank keep in mind that taxpayers money is being used to pay phony insurance claims that are part of the largest insurance fraud scheme in history.

References and other info about Credit Default Swaps

Mainstream media won’t tell us what credit default swaps really are they say they are to complex to understand.  The truth is the only thing we can’t understand is why government allowed wall street to sell them.

• Truth about Credit default swaps revealed on 60 minutes. Watch the Video Wall Street’s Shadow Market
• Credit Default Swaps explained on WikiPedia
• Wall Street Journal Reveals Credit Default Swap Scandal involving Insider trading in 2006.
• How Credit Default Swaps became a time bomb - NewsWeek
• Credit Default Swaps on Lehman Brothers failure total $400 billion in insurance payouts.