To restore the flow of capital, US President Barack Obama proposes to "buy toxic assets" that, he says, clog the US financial system. But the real reason that the US financial system is clogged is the system is controlled by a mafia of dishonest financiers. Buying these so-called "assets" will not unclog the system as long as nobody has confidence in the integrity or competence of the US financiers who run the system and who filled the system with toxicity.

These so-called "toxic assets" are mostly trillions of dollars of US mortgage-backed securities, that is, a type of bond which relies on money collected as monthly mortgage payments from US homeowners to pay accrued interest and principal on bonds held by millions of bondholders throughout the world.

These so-called "assets" are toxic chiefly for two reasons: Ponzi schemes and predatory mortgages.

1. The Ponzi Schemes and Toxicity

Most of these mortgage-backed bonds are toxic because they have no mortgages backing them up. In other words, most of these bonds are parts of Ponzi schemes perpetrated by dishonest US financiers. As of early 2006, there were about $6.1 trillion worth of US residential mortgages outstanding to back up about $18 trillion in mortgage-backed securities! So, only about 1 out of every 3 the bonds, of this type were "backed."

In other words, only 1 out of 3 bonds had an income source to pay them off. The other 2 bonds had nothing to back them up. The money to pay interest on the un-backed bonds came from a portion of the proceeds from the sale of the bonds and from the proceeds from future sales of similar bonds. The non-existence of a pool of mortgages to back up the mass of these securities means that the un-backed bonds are worthless or fraudulent. When bond sales couldn't keep up with interest and principal due on the bonds, the Ponzi scheme began to collapse. The bond market lost confidence in all of these bonds whether they were backed or un-backed or sound or unsound. After years of feeding its insatiable and indiscriminate worldwide appetite for US mortgage-backed securities due their high yields of generally 6% to 8% and to their false appearance of low risk, confidence melted like a snowball in July. The bond market also lost confidence in the integrity and competence of most US financiers or, more correctly, the US con artists who sold these bonds.

It is very possible that mass of outstanding mortgage-backed securities far exceeded our $18 trillion estimate. But we are comfortable that our $18 trillion estimate is at least the minimum amount of these securities outstanding.

About 150,000 dope-dealing, human-trafficking Venezuelan bourgeoisie, opposition millionaires lost about $20 billion in this US mortgage-backed securities Ponzi scheme, perpetrated by the criminals who control the financial sector of the US bourgeoisie.

Then came the twist. Who was to blame when the dollar hit the fan? Exploiting racist and class biases, the criminal financiers in the USA blamed "sub-prime borrowers," ... namely, low-income black, Latino (the browns), and poor white mortgage borrowers ... for the worldwide collapse of capitalism that resulted, in large part, from the collapse of the Ponzi scheme in the bond craps game. They were people who were promised the opportunity to buy their first home ever. For them it was a dream-come-true. The mortgage officer convinced them that they could afford it. The new "subprime" home buyers were only the initial victims, when Ponzi scheme began to collapse in 2006.

The investors in the mortgage-backed bonds and securities were next in line for the ripoff. They began waking to their bad dream when they saw their favorite stock begin to poop the bed. Moreover, the US imperialist thieves even lied with their propaganda that BAD mortgages, or "sub-prime mortgages" were to blame when in reality, there were NO mortgages backing many of these bonds.

Enslaved to the US imperialists, the Ven-Economy cabal in Venezuela and others continue to blame the poor, i.e. the "sub-prime borrowers" for the immense damage caused by the un-backed mortgage securities, even though most of the Ven-Economy cabal are themselves, victims of the Ponzi scheme. You won't find many revolutionary tears being shed for them, however.

Of particular interest are Brazilian President Luiz Inacio Lula da Silva's words to UK Prime Minister, Gordon Brown at a recent press conference. In bold and flamboyant language, Lula tried to express the essence of psychological warfare waged by the US imperialists and their puppets over the questions of the causes and responsibility for the world capitalist collapse. As he stood next to Gordon Brown, Lula said: "This is a crisis that was caused by white people with blue eyes. And before the crisis, they looked as if they knew everything about economics". Some apologists for US imperialists argue that "sub-prime borrowers" are mostly white and blue-eyed, but only the witless cabal at Ven-Economy believes such hogwash.

Nevertheless, the gist of Lula's comment that is profoundly TRUE is its negation of the imperialist racist lie that the "sub-prime borrowers" screwed up the world's economy. The flamboyant content that is profoundly UNTRUE in Lula's comment is that only "white people with blue eyes" caused the crisis. What Lula means is the people who caused the crisis, for most part, happened to be white and blue-eyed, but 99.99% of whites with blue eyes had nothing to do with causing the crisis or even benefiting from it. Lula makes a mistake when he imputes by implication the guilt of those criminals who control the financial sector of the US bourgeoisie who happen to be mostly a white and blue-eyed sub-group of the Caucasoid race.

Lula's erring expression does not extend to the second sentence in his comment, "And before the crisis, they [the people who caused the crisis] looked as if they knew everything about economics." Here, Lula refers to the false appearance of competence and integrity that some people find in the criminals who control the financial sector of the US bourgeoisie.

2. Predatory Mortgages and Toxicity

Some of the bonds, backed by mortgages, are still toxic because the mortgages are indeed BAD. James Petras exposed them in his April, 2007 Axis of Logic essay, The Great Financial Crisis or Who's Got a Turd in his Briefcase?

But the mortgages are bad not so much because the borrowers are "sub-prime," but because the mortgages themselves are predatory. In this massive fraud, mortgage lenders ripped off mortgage borrowers while security dealers ripped off investors who bought bonds based, in part, on predatory mortgages.

These bad mortgages are usually predatory adjustable rate mortgages in which the mortgage payments of the US homeowners balloons between 300%-500% after an introductory mortgage payment period expires. In other words, if your introductory monthly mortgage payment was $1000 per month, it blew up to between $3000- $5000 per month after the introductory period expires. This ABSOLUTELY required refinancing of the homeowners equity. In the year 2000, the criminals who control the financial sector of the US bourgeoisie KNOWINGLY stepped up the signing of these predatory adjustable rate mortgages and also increased the issuance of mortgage backed securities, based on predatory mortgages as the possibility of refinancing diminished and disappeared.

>Around 1999, an excess of supply of houses existed in the US residential housing market and started to force down the price of homes in certain pockets of the US housing market. Progressively, the falling prices spread outside of the pockets of the market where they first appeared, wiping out homeowner equity, eliminating any possibility of refinancing, and pushing more and more homeowners into mortgage defaults, and finally causing, by the middle of 2007, the market value of mortgage-related bonds to nosedive from $25,000 per bond to their current market value of about $1.75, if that much, in some cases.

Let’s look at three elements of the concept of fraud: (1) a false statement about a material fact [or concealment of the fact]; (2) victim's reliance on this statement; and (3) damages suffered by the victim as a result of reliance on the false statement.

The key thing to understand is the thief’s false statement from the outset or the information the thief conceals from the victim.

Fraud by those who sold the mortgages

Here is the false statement knowingly made by the dishonest mortgage lender to the unsuspecting home buyer: "In order to keep up with your payments on this mortgage, you will have to refinance but you will be able to refinance." And here is the truth concealed: "In order to keep up with the payments on this mortgage, it’s true that you will have to refinance. But in one or two years, you won't be able to refinance."

Fraud by those who sold the bonds

On November 14-15, the G-20 Leaders Summit on Financial Markets & World Economy in Washington, D.C., all 19 leaders timidly signed a Final Declaration, drafted exclusively by the White House, about the causes of the crisis. This G-20 Summit resulted from an initiative by French and European Union President Nicolas Sarkozy.

Under the caption "Root Causes of the Current Crisis", the Final Declaration states:

"During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

In effect, the Final Statement is saying that Bush ordered all 19 leaders to sign off ... and they did indeed sign the statement. It could just as well have read:

"You asses are so stupid that you didn't appreciate the risks or the see through the fraud related to these mortgage-backed securities. If you had done due diligence or your homework, we couldn't have robbed you. Toxic means poisonous and you ate the poison we fed you; so, you fools deserve everything you got."

At the April 2009 G-20 Summit in London, many of the leaders, begged Obama to regulate the thieves who control the financial sector of the US bourgeoisie. These G- 20 leaders forget that regulation is meaningless if regulations are not backed by criminal and civil prosecutions of people who ignore the regulations. It’s called, “Law Enforcement”. These G-20 leaders should demand that Obama the thieves who control the US financial sector into jail – for a long time. If a poor kid robs 60 bucks from a convenience store and gets caught, he goes to jail – most of the time without a truly fair trial. If a banker or Wall Street billionaire puts a 9mm ball point pen to the head of the home-buyer, an investor, a pension fund or the taxpayer, he walks with a multimillion dollar bonus, buys a yacht or a gold brick and laughs all the way to the bank. That’s the problem and the problem pervades the entire capitalist system. Capitalism does not, cannot be “restructured” or “reformed”. It must be replaced and “you can take that to the bank”.

© Copyright 2009 by AxisofLogic.com

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