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Rob Garbin's Blog

Confidence and Delusion Part II

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A sad facet of the debt based economy we have created is the ability to buy and sell debt to other parties. Again, this was a program created to help sell more products by having investors with money buy debt off the books of banks at a discount rate in hopes of making a profit off the remaining interest paid on the debt. The banks get more money to lend along with some of the profit and the investor gets the difference in profit from what they paid the bank and the total repayment of the debt and interest, in theory. Of course, the theory is only sound if the debt and interest actually gets repaid. As with the debt situation I discussed earlier; however, this system became addictive. Banks loved getting more money that they could loan out for interest profit and fees that they could then turn around and sell again. In the end, someone gets left holding the bag of debt.

The derivatives at the heart of the meltdown were an attempt by the banks to tie a beautiful bow on the stinking cesspool of debt they had unwisely accumulated and no one wanted to buy. Unfortunately for us, the country and the world fell head over heels in love with the concept. The banks saw a new way to make money and ran with it, pushing Freddie Mac and Fannie Mae to continue supplying product (loans) to be repackaged and sold. Both institutions failed our country by allowing themselves to be caught up in the fervor of the moment and forgoing sound banking principals to take on riskier and riskier debt to feed the banks. In the end, they are just as guilty as the banks.

One thought that seems to have permeated the industry was that if things went south, the government would have to step in or face the implosion of our economy. These people chose to continue their march to Armageddon because they knew that they could keep their profits by holding the country hostage. If the government did not step up, they would just walk away, leaving the rest of the country holding worthless IOUís. If we donít continue to feed the system money that does not exist, then it comes crumbling down. Personally, I feel these individuals need to be tried as traitors to our country for placing profit ahead of country. Their actions have undermined the security of our country far more than most foreign entities to date.

This system of buying and selling debt is the main tool that the 1% uses to continue growing their wealth at the cost of the prosperity of the 99%. In their positions, they can get a better view of the status of the debt they own and can sell their obligations to someone without the information to make good decisions. They in essence trade their useless debt for real money, which continues until some poor sucker gets left with the burning bag of dog excrement. The more money you have, the easier it is to play this game.

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