October 22, 2011
-- by Dave Johnson
The financial system collapsed because it was full of "toxic assets." That collapse took millions of jobs, homes, businesses, retirements down with it. Years later we are nowhere near recovering.
But even when markets are collapsing there is a lot of money that can be made. You can place bets against assets that are overvalued, and when their price drops those bets pay off. If they drop a lot, the bets pay off really big. (Oh - and when they do pay off the billionaires get special, lower tax rates.)
And if you know where the toxic assets are, in advance, you can make a ton of money. And you can know that if you put them there, on purpose, in order for them to collapse, so you can make a killing when they do collapse.
Here is a story in ProPublica about an SEC settlement with CitiBank for creating toxic assets on purpose in order to make bets that they would fail, Did Citi Get a Sweet Deal? Bank Claims SEC Settlement on One CDO Clears It on All Others,
In the run-up to the global financial collapse, Citigroup’s bankers worked feverishly to create complex securities. In just one year, 2007, Citi marketed more than $20 billion worth of deals backed by home mortgages to investors around the world, most of which failed spectacularly. Subsequent lawsuits and investigations turned up evidence that the bank knew that some of the products were low quality and, in some instances, had even bet they would fail.
In this case Citibank made a lot of money from these bets because they knew where the toxic assets were, because they put them there, on purpose, in order to bet against them. CitiBank created these CDO toxic assets in a way that was designed to fail, and sold them to customers as solid investments, and then made bets that these assets were worthless. When the designed-to-fail assets failed, CitiBank made money, the customers were wiped out.
As I pointed out in the previous post, the corrupt SEC is "settling" a case with corrupt Citibank, and the corrupt Justice Department isn't doing anything about it. Everyone knows that the people in the SEC who are doing the settling will get lucrative jobs on Wall Street in a year or two. That is the quid pro quo. Everyone knows this.
This sort of thing was widespread - and probably still is. Wall Street firms created toxic assets on purpose in order to make money betting against them as they imploded on the customers. Goldman Sachs, for example, also did this. In one case they worked with - and were paid millions by - a big hedge fund to create toxic CDOs that were sold to customers, while the hedge fund made bets that the CDOs would fail. When the CDOs failed as planned the hedge fund made billions, the customers lost. The SEC settled with Goldman - no one was prosecuted.
And , of course, after the collapse these very firms were bailed out by taxpayers because they were so big. And now, with all the money that taxpayers have had to spent on the effects of the disaster that these firms created the Wall Street-backed Tea Partiers are demanding that taxpayers take "cuts" in pensions, health care, education, infrastructure.
With this in mind, watch this video of Wall Street types on a balcony mocking the #OccupyWallStreet people as they march past.
Posted by Dave Johnson at October 22, 2011 1:35 PM
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