Banksters invented these derivative instruments, creating them by taking big piles of loans and chopping them up in a process that's called securitization. Securitization has actually been around since the "70s, but in the "70s they didn't have this way of taking those diced-up loans and dividing them up into what they call tranches. Today they apply a very obscure math to these pools where they basically say, "99% of the time, 28% of these loans will never fail, so therefore we can sell that 28% part as AAA." They invented that tool in the late "90s. That's when it all took off because now they could take a bunch of junk, mix that in with the good stuff, and sell the whole caboodle as AAA, which (fraudulently) signifies to the buyer that the credit risk is almost zero. They were never able to do all this stuff before laws were changed in 1998 (thanks to heavy lobbying), so that's when this catastrophe began to take shape.
In his book, Tiabbi describes several bubbles, including the Internet bubble, the housing bubble and the commodities bubble, which were all clever forms of thievery that transferred huge amounts of wealth from the middle class to the very rich.
Commodities bubble raised consumer prices to artificially high levels
In 2008 gas prices went through the roof. Presidential candidate McCain was giving his "drill baby drill" speech, and the reporters afterward were joking, "McCain, what a moron, as though this was what caused gas prices to go up -- because we weren't drilling in the Gulf of Mexico!" In fact most people had no idea why gas prices were going up. Eventually some began to understand that it had to do with deregulation. Originally there was a tightly regulated system in which most of the people who were buying and selling commodities had to be physical hedgers, according to the law, which means you are either physically producing or physically consuming oil or gas or soybeans or corn before you can speculate. Therefore, only a small percentage of people could be speculators. Why this restriction? Because the regulators were smart enough to know that you didn't want speculators buying up the whole corn market and then dominating the prices.
However, starting in the early "90s, a lot of companies went to the government and, with plenty of lobbying money, got exemptions to these rules. So over the course of about 10 or 15 years, the amount of speculative money in the market started to balloon. In 2003, there was $13 billion dollars worth of speculative money in commodities. By 2007 it was over $300 billion. That money was betting on the price of oil and corn to go up. And so, sure enough, those prices went up. Every single commodity saw a price increase in that four-year period, the average being 200%. It was a speculative bubble and the speculators made billions in "profits' -" at everyone else's expense.
Right in the middle of the commodities bubble market and its associated thievery
If you buy and sell commodities, you're probably doing it on the Goldman Sachs commodities index. They are a major commodities trader. They were the first company to get one of those exemptions. Their subsidiary got the first one, and then Goldman, who was telling the entire world that oil was going to go up to $200 a barrel in 2008, got the second one. The price of oil never got that high, but it did get to $149, which was at least three or four times what oil would have sold for had it not been for the speculative frenzy and resulting bubble. And by way of commissions, Goldman made money off of each one of those speculators, each of those speculative "investments." Most people thought the rising price of oil was a supply-and-demand issue, but supply was up that year and demand was down, and none of this was reported in the media. The rising price of oil was totally due to the Goldman-fueled speculative frenzy. The result: Everyone who paid more for gas and oil inadvertently helped pay for the billions in profits the speculators made off of the speculative frenzy that drove the bubble price of oil skyward. In other words, a very clever form of theft was going on.
So we have systemic problems and the public is not getting the information to understand them. Politicians are not really educating the public about these things, and they are bailing out the companies that have acted badly. The media, too, are not really informing people, so it seems that many in the public are left with a simplistic understanding, rather than seeing the systemic issues and solutions.
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