Endgame: Unregulated Private Money Creation

The Financial Tsunami – Part IV

Published on Global Research.ca, by F. William Engdahl, February 8, 2008.

3 excerpts: … The New Finance was built on an incestuous, interlocking, if informal, cartel of players, all reading from the script written by Alan Greenspan and his friends at J.P. Morgan, Citigroup, Goldman Sachs, and the other major financial houses of New York. Securitization was going to secure a “new” American Century and its financial domination, as its creators clearly believed on the eve of the millennium …

… Deregulation, TBTF and Gigantomania among banks:

In the United States, between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance. That was far more than in any other period since the advent of federal deposit insurance in the 1930s. It was part of a process of concentration into giant banking groups that would go into the next century …

… Off the books:

The entire securitization revolution allowed banks to move assets off their books into unregulated opaque vehicles. They sold the mortgages at a discount to underwriters such as Merrill Lynch, Bear Stearns, Citigroup, and similar financial securitizers. They then in turn sold the mortgage collateral to their own separate Special Investment Vehicle or SIV as they were known. The attraction of a stand-alone SIV was that they and their potential losses were theoretically at least, isolated from the main underwriting bank. Should things ever, God forbid, run amok with the various Asset Backed Securities held by the SIV, only the SIV would suffer, not Citigroup or Merrill Lynch.


The dubious revenue streams from sub-prime mortgages and similar low quality loans, once bundled into the new Collateralized Mortgage Obligations or similar securities, then often got an injection of Monoline insurance, a kind of financial Viagra for junk quality mortgages such as the NINA (No Income, No Assets) or “Liars� Loans,” or so-called stated-income loans, that were commonplace during the colossal Greenspan Real Estate economy up until July 2007.

According to the Mortgage Brokers� Association for Responsible Lending, a consumer protection group, by 2006 Liars� Loans were a staggering 62% of all USA mortgage originations. In one independent sampling audit of stated-income mortgage loans in Virginia in 2006, the auditors found, based on IRS records that almost 60% of the stated-income loans were exaggerated by more than 50%. Those stated-income chickens are now coming home to roost or far worse. The default rates on those Liars� Loans, which is now sweeping across the entire US real estate market, makes the waste problems of Tyson Foods factory chicken farms look like a wonderland.

None of that would have been possible without securitization, without the full backing of the Greenspan Fed, without the repeal of Glass-Steagall, without monoline insurance, without the collusion of the major rating agencies, and the selling on of that risk by the mortgage-originating banks to underwriters who bundled them, rated and insured them as all AAA.

In fact the Greenspan New Finance revolution literally opened the floodgates to fraud on every level from home mortgage brokers to lending agencies to Wall Street and London securitization banks to the credit rating agencies. Leaving oversight of the new securitized assets, hundreds of billions of dollars worth of them, to private “self-regulation” between issuing banks like Bear Stearns, Merrill Lynch or Citigroup and their rating agencies, was tantamount to pouring water on a drowning man. In Part V we discuss the consequences of the grand design in New Finance. (full long text).

(F. William Engdahl is the author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation.

The present series is adapted from his new book, now in writing, The Rise and Fall of the American Century: Money and Empire in Our Era. He may be contacted through his website).

Comments are closed.