A Must Read | The Collapse of Our Corrupt, Predatory, Pathological Financial System is Necessary and Positive

“This is how we get hundreds of trillions of dollars in “notational” derivatives: every hedged is hedged with another “instrument,” “products” are bundled and insured, and so on. The system is based on the principle that risk can be reduced to zero, and so there is no need for capital.”


If anyone who reads this site is interested in understanding the complexities of the how and why they are losing everything they have ever worked for or believed in, I suggest you read the article below at least twice.

I read it three times to make sure it reaffirmed all I have known and I was not spreading anything that I did not believe to be ABSOLUTELY true.

This is how it was done and why it needs to be reset…


The Collapse Of Our Corrupt, Predatory, Pathological Financial System Is Necessary And Positive

Submitted by Charles Hugh Smith from Of Two Minds

We are being throttled by the Big Lie: we’re told that if the predatory financial system implodes, we’ll all be ruined. The opposite is true: the only way to save our economy is to let the corrupt, pathological and flawed financial system implode.

I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.

Our first stop is modern finance itself. Modern financial “products” and “instruments” are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position’s yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.

That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.

In modern finance, high-risk “investments” (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers.

And since even high-risk positions can be seamlessly hedged to zero, then there is no reason not to borrow money to increase the size of your wagers: since you can’t lose, then why not? Wagering in risk-free skimming with borrowed or leveraged money is simply rational.

Put these together and we see how a system based on risk-free skimming eventually leverages itself to the point that the slightest disruption can bring down the entire over-leveraged, over-extended system.

Why is this so? Every hedge has a counterparty who is supposed to pay off if the initial wager blows up. A system based on risk-free hedging is ultimately a self-organizing system which maximizes return by increasing bet sizes, leveraging/borrowing to near infinity and hedging every hedge as well as every wager.

This creates long chains of hedges and counterparties. Here’s an example based on an asset we all understand, a house. Let’s say someone buys a house for $1,000 down, something that was common in the housing bubble. That $1,000 is leveraged up to buy a $200,000 house via a $200,000 mortgage.

The “owner” of the house then buys a hedge to protect himself from the house losing value, so the risk is reduced to zero: if the value rises, the owner reaps the gain and if it declines, then he collects the payoff of the hedge from the counterparty, for example, a Wall Street investment firm.

The counterparty calculated the risk of real estate declining and then priced the hedge accordingly. There is some small risk that the loss will exceed the cost of the hedge, so the issuer of that hedge bundles similar bets and then buys a hedge or “insurance” from another player, who makes the same calculations of risk and return.

Meanwhile, the mortgage has been tranched (sliced into principal and interest and into various pools of risk) and bundled with other “low-risk” mortgages and sold to investors, who also buy a hedge against any loss in the tranch, for example, a credit default swap (CDS) which pays out if a borrower defaults. Those hedges are sold or “insured” with another hedges.

All of this debt and all of these hedges are based on a mere $1,000 of actual capital. The players who originated each hedge are similarly leveraged, because since risk can be lowered to zero, who needs capital?

So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble?

Be absolutely sure to read the rest here…

Then do it again here…



6 Responses to “A Must Read | The Collapse of Our Corrupt, Predatory, Pathological Financial System is Necessary and Positive”
  1. John says:

    Here is a lawyer that will help you and has GREATLY helped me. He is a advocate for the little man, always has been, and knows his stuff about the banks and Mortgage companies.

    Jerry Quick

    I read of so many needing representation and wish I could somehow get his name to them.
    How can I do this?

  2. lvent says:

    As always Zero Hedge does a brilliant job of explaining away the fear mongering by the ruling elite and all of their cohorts and minions ..These crooks wiped us out by creating investments out of thin air…backed by zero…and gambling off of every aspect of those empty investments……This business model is rotten to its core…..Max Keiser has a name for this business model, SUICIDE BANKING…their cohorts and minions who have already failed dumped all of their bad debt onto the more capitalized banks who had a ton of their own bad debts and now all they have left is alot of empty promises made to their investors with nothing to back that up..ZERO COLLATERAL….MEANS THEY ARE OUT OF BUSINESS….Max Keiser said that CHASE is sitting on 60 trillion in derivatives with no counterparty back up. Max also said that this is a bank balance sheet recession..Many have said that the FDIC should have done the audits and shut the Big Banks down and put them into receivership a long time ago…The BIG BANKS have no collateral to back up their $600 trillion in debt……The BIG BANKS, GOLDMAN SACHS AND THE LIKE, are MF GLOBAL ON STEROIDS…TIME FOR THE UNITED STATES OF AMERICA TO GO BACK ONTO THE GOLD STANDARD…ISSUE U.S. BANK NOTES AND ABOLISH THE FED…..AND STOP THE FRAUDCLOSURES AND GIVE THE PEOPLE BACK THEIR STOLEN HOMES AND BUSINESSES PLUS MONETARY COMPENSATION OUT OF THE BANKSTERS ILL GOTTEN GAINS THEY HAVE HIDDEN OVERSEAS….TIME TO SIEZE THEIR ASSETS, THEY ARE NO BETTER THAN MUBARAK, KADAFFI OR SUDAM…….THEY SHOULD BE FORCED TO REPAY THE 99% THAT THEY HAVE SO SHAMELESSLY ROBBED TO PAY FOR THEIR MASSIVE FRAUDS..!

  3. Nancy Coxall says:

    I second the comments from (Litgant says)

    I lost a retirement home that my husband and I built in 1989. As a result of these freakin banks we have lost everything and my marriage is hanging on by a thread because my husband believes I caused this to happen, therefore, he lost his dream home on the water, in a town where all his friends are. We have been vacationing there for 44 years….and now nothing. Our home is still vacant and if I knew then, when they foreclosed on our home, I never ever would have left. FRAUD, FRAUD….IS EVERYWHERE!…..Starting with the refinance, and the foreclosure and even after the foreclosure…..the cover-up…..

    All this started with IndyMac Bank FSB who fransfered our loan to MERS on the day of closing and then Deutsche Bank National Trust Company was Trustee of the “Home Equity Mortgage Loan” Asset-Backed Certeificates, Series INABS 2006-C, Home Equity Mortgage Loan Asset-Backed Certificates, Series INABSS 2006-C under the Pooling and Servicing agreement dated June 1, 2006. We closed our loan on June 22, 2006. Supposedly Deutsche Bank has my note….But impossible as none of the FRAUD that took place would have been necessary….Robo-Signers on OneWest Bank FSB. Two illegal Assignments of Mortgage. These two banks bounced my home back and forth a couple of times and all illegal. I was told by a representative of IndyMac Servicing that IndyMac did not have the note and neither does Deutsche. They went to great lengths to make it look as if the property has a clean title, but it does not. They have no clue who ones the loan.

    I have been told that I would win my case hands down, but I cannot afford the retainer. Plus, I have not been able to find an attorney in Maine who could go after these banks. I do know that Attorney Mitchell Stein is fantastic but I cannot afford him.

    Should anyone out there can help me make those two banks pay for what they have do to us, please, please let me know…..nancy_coxall@yahoo.com. We are desperate!

    Thank you….Nancy

    • lies is all they tell says:

      @nancy hi i am right with you. my husbabd an i are married 22 years have had PERFECT credit our whole lives. 789 credit scores. worked our buns off to raise our 3 children. we didnt go on expensive vacations but always had what we needed to have a good life for our children. we put our 20% down. we didnt take out equity loans as so many people. the downpayment was to keep our money “safe” for our retirement. so in not so many words we lost our retirement home also. this is our retirement home i live in north tampabay area. the area is semi rural. bedroom community of tampa florida. hot summers, cold winters but perfect weather in spring and fall that you just except all the craziness for the great weather fro 6 months . our marriage is also hanging by a few threads. never thought we would be inthi spositions. a few things irritates me.

      if we would have taken out a home equity loan when we bought this house and tokk our kids on expensive fancy vacations we could bone a banrupctcy and our 2nd lein oculd have been wiped out.

      if i had not put down that 20% i still would be losing my house but i would still have our money.

      i am over whelemed with saddness. we had some high credit cards because of our good credit scores and i used it to save our home.

      my husband brings up everything when he gets stressed over this. i do not know how we are going to survive this. what they have done to break up our families is just terrible.

    • Kathleen Burt says:

      I don’t know if your banks are among the 14 that the federal government is requiring do audits on all foreclosures–I think the audit years are 2009-10 –it’s the robosigning period—but I’d check. and then, if they’re on the list, I’d collect the documents for the audits.. Banks have often lost theirs!

      You can also call Legal Aid, if you haven’t already.

      Of course, the banks audiing themselves is like the old tale about the fox put in charge of the hen house, still, maybe you could get in touch with them and request audits..

      If your state has a Mortgage Fraud Task Force, you can also send a fraud complaint to the present Attorney General, even if your foreclosure predates his/her term, and mention that you wrote and requested audits from the banks. If you’re senior citizens, include that in the letter to the AG. Also mention that this has nearly destroyed your marriage.

      Task Force attorneys get in touch with bank officers higher up the chain of command than homeowners can usually reach. Hearing from the AG’s office puts banks on notice that this is now a contested foreclosure, which could end up costing them money in court..

      In other words, you can try to negociate. They’re paying taxes every year on a lot of vacant houses, it’s in their interest to get them “off the books.”

      Banks often claim they tried to find the owners of vacant houses and failed. If you contact them, a registered, signature- required card attached to the envelope will serve as proof you contacted them and they know how to find you for the audit/ negociation.

      Good luck!

  4. Litgant says:

    Let all the banks fail, I do not care. Most of us have so little now in them anyway. And those who have money, let FDIC pay them in full. Let the whole financial system collapse. It is ok with me. I would like the barter days anyway.

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