wpe50.jpg (1913 bytes)      TigerSoft News Service   5/5/2009      www.tigersoft.com 


                          CREDIT DEFAULT SWAPS ARE A FRAUD.

                           LIKE GAMBLING DEBTS, THEY SHOULD
                                BE DECLARED UNENFORCEABLE

                                             WHY ARE THEY NOT?


                                                             by William Schmidt, Ph.D. (Columbia University)
                         (C) 2009All rights reserved.  Reproducing any part of this page without
                         giving full acknowledgement is a copyright infringement.
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                                BUT THAT WOULD HURT GOLDMAN SACHS!

                                                by William Schmidt, Ph.D -  www.tigersoft.com

                     Credit Default Swaps - guarantee the owner of the CDS against the nonpayment
            of a debt by a second party.  How realistically can any entity guarantee thousands and
            thousands of contracts, mortgages and loans against default when a housing, real estate
            or stock market "boom" turns into a bust?  Would it not be fraud for me to take in money
            guaranteeing all comers against some monstrous catastrophe?  In the event of a giant
            earthquake, tidal wave or meteor, I would have no way of ever paying those I "insured".
            I know this.  It would be fraud for me to take in money in this fashion.            

                      CDS, have for years been an unregulated $62 trillion market. Until 2000, many
            states prohibited them, much like stock market side-bets were banned in the 1930s.
            Yet, amazingly, Obama's Treasury Secretary would have the US government guarantee
             them all.   He has urged this in meeting after meeting since June 2008.

                           "He (Geithner) proposed asking Congress to give the president broad power to guarantee
                     all the debt in the banking system, according to two participants, including Michele Davis,
                     then an assistant Treasury secretary.  The proposal quickly died amid protests that it
                     was politically untenable because it could put taxpayers on the hook for trillions of dollars.
                     “People thought, ‘Wow, that’s kind of out there,’ ” said John C. Dugan, the comptroller
                     of the currency, who heard about the idea afterward. Mr. Geithner says, “I don’t remember
                     a serious discussion on that proposal then.”

                         "But in the 10 months since then, the government has in many ways embraced his
                     blue-sky prescription. Step by step, through an array of new programs, the Federal Reserve
                     and Treasury have assumed an unprecedented role in the banking system, using unprecedented
                     amounts of taxpayer money, to try to save the nation’s financiers from their own mistakes.
                     And more often than not, Mr. Geithner has been a leading architect of those bailouts, the activist
                     at the head of the pack. He was the federal regulator most willing to “push the envelope,”
                     said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner."
                      (Source - New York Times).

                     So, the US Government guaranteed the debts of AIG, and its many credit default swaps,
           in September 2008 after a hurried and secret Saturday meeting between Paulson (US Treasury Secretary),
           Geithner (NY Fed Chairman) and Lloyd Blankfein, the Chairman of Goldman Sachs.  The
           US takeover of AIG and all its financial responsibilities amounted to the taxpayer providing
           Goldman Sachs a $13 billion handout in return for the credit default swaps that Goldman had
           bought from AIG.  No effort was made by AIG, or its CEO Edward Libby, an ex-Goldman guy,
           or the Paulson regime at the Treasury or more recently by the Obama Administration to question
           the very legality of these Credit Default Swaps or seek to reduce the taxpayer payment to Goldman
           based on their lack of legal sanction.  Many folks think that this was a massive fraud, that it
           shows how corrupt both Bush-Paulson and the Obama-Geithner Administrations were and are.
           More dangerously, it clearly demonstrates that the US Government is little more than a tool
           for Wall Street and Goldman Sachs, in particular. 

                   AIG sold billions of dollars worth of Credit Default Swaps.  In doing so, it guaranteed
           against the owner against a financial failure by various issuers of debts like banks and GM
           and other corporations.   It was in no financial position to do that, especially since as the economy
           weakened, it had agreed to put up more and more collateral against its own default.  It made
           these arrangements fraudulently.  Executives at AIG urged its salesmen to sell these CDS because
           they wanted more short-term revenue - despite the risks - to bring them outrageously high
           salaries.  AIG and others thus collected money to guard against an eventuality which they could
           see would end up making them insolvent. They would never have enough money to pay all that
           they would owe in this case.    They knew this.  But they were happy collecting money as long
           as possible to shore up their profits and executive bonuses.

                    I would like to see the government declare that ALL Credit Default Swaps
           are illegal private gambling and fraud.
  As such no court could require them to be honored. 
           Realize that Credit Default Swaps have never been certified by an appropriate government entity to
           be valid insurance policies.  Credit default swaps were fraudulent wagers that should be
           declared null, void and unenforceable, just as illegal gambling debts are.

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                             Obama contends without investigation that no laws were violated by bankers
                        and insurance companies in crashing down the entire world financial system..

                    It can reasonably be contended that when AIG and others sold these, they knew that there
           was always a risk of wisdespread financial disaster, in which case they would not be able to pay
           what the CDS agreements required of them.  Therefore, these CDS contracts were entered into
           in a fraudulent way.

                  It is the biggest banks that Bernanke, Paulson Obama, Geithner and Summers are closest
            to that have made nearly all these transactions.  Trillions of tax payer money is going to bail out
            the very culprits who engaged in these transactions to prolong the financial bubble. Analysis Shows
            Megabanks Have 23,000 Times More Exposure to Credit Default Swaps Than Community Banks
      As the economic crisis puts a spotlight on the obscure world of credit default swaps CDS, a
n unregulated $62 trillionmarket that most people never heard of and even fewer understood, the fear
of a CDS catastrophe is haunting the country's largest banks, and the nation's healthy community institutions
and consumers are paying the price.

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           Obama's biggest source of campaign contributions in 2008 was Wall Street. 
            Goldman Sachs gave twice as much to Obama as John McCain.  It was
            a very profitable investment.  Or was it a bribe, pure and simple?.

                         THE US GOVERMENT.

    It is hard not to see the extent to which America is under the heel of a small number of banking
elites.  It is as though Goldman Sachs in its tireless quest for profits at the expense of ordinary people
is out to prove Marx and Linin were correct when they said that wealth and political power would
over time become more and more concentrated in financial elites.  See for example these writings.

    Preposterous?  Not after the Paulson naked $700 billion bailout of banks which Congress rubber stamped.
More and more the trend is clear to anyone who follows the news.  See thee writeups I did this
past year.  They express my total exasperation and disillusionment with Democrats..

TigerSoft Blog - 4/7/2009 - Goldman Sachs: The UnBridled Greed Connection
TigerSoft Blog - 3/23/2009 - Obama's Monopoly FInance ...
TigerSoft Blog   9/21/2008 - Monopoly Finance Capitalism Revealed for All To See.
TigerSoft Blog - September 20, 2008 - Paulson Takes Corruption To Dizzying New Heights...

Look at what Illinois Sen. Dick Durbin confessed to a Chicago radio
audience station this past week:  "And the banks -- hard to believe in a time when we're facing a
banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill.
And they frankly own the place." 
    Please read  http://www.salon.com/opinion/greenwald/2009/04/30/ownership/ for more
evidence of this obvious proposition.
  1)  Revolving Door Goldman Sachs Lobbyists:
..            Goldman Sachs' new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank.  Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September, will join Goldman as director of government affairs.
               Former Tom Daschle intimate, Mark Patterson, was until this year Goldman's top lobbyist.  Now
he is the chief of staff at the Treasury Department.
Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin
2)  Conservative Democrats clash with their own consituencies' needs
because they are in the pay of Banks and Wall Street:
Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes.  Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site --
is Bayh's top donor:

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                         Goldman is also the top donor to Bayh over the course of his Congressional career, during which 
          Bayh has received more than $4 million from the finance, insurance and real estate sectors:
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       obody in Congress or the Administratin Now Even Tries To Hide
         The Extent to Which Banks Control Public Policy-Making. 

Glenn Greenwald  Thursday April 30, 2009 05:35 EDT

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  "The only way they could make it more blatant is if they hung a huge
     Goldman Sachs logo on the Capitol dome and then branded it onto the
     foreheads of leading members of Congress and executive branch officials."

     "Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations.  Just as one example, as Jane Hamsher reported about Bayh:

Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee.

Bayh wants people to believe he's a "moderate" who sits in the "center."

Center of K Street, maybe.

Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality":

After all, the reason the winger crowd can’t find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That’s why even people like [Glenn] Beck’s audience, who I’d wager are mostly lower-income people, can’t imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . .

Actual rich people can’t ever be the target. It’s a classic peasant mentality: going into fits of groveling and bowing whenever the master’s carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields.  You know you’re a peasant when you worship the very people who are right now, this minute, conning you and taking your shit. Whatever the master does, you’re on board. When you get frisky, he sticks a big cross in the middle of your village, and you spend the rest of your life praying to it with big googly eyes. Or he puts out newspapers full of innuendo about this or that faraway group and you immediately salute and rush off to join the hate squad.  A good peasant is loyal, simpleminded, and full of misdirected anger.  And that’s what we’ve got now, a lot of misdirected anger searching around for a non-target to mis-punish . . . can’t be mad at AIG, can’t be mad at Citi or Goldman Sachs. The real villains have to be the anti-AIG protesters! After all, those people earned those bonuses! If ever there was a textbook case of peasant thinking, it’s struggling middle-class Americans burned up in defense of taxpayer-funded bonuses to millionaires. It’s really weird stuff.

One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions.  But it won't be.  The leading members of the media work for the very corporations that benefit most from this process.  Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo").  

That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored.  Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple.

* * * * * *

Here's Jane Hamsher, with Rachel Maddow, in February, assessing the motives of people like Evan Bayh and analyzing who owns and controls them (begins at the 3:00 minute mark):        http://www.youtube.com/watch?v=pj5wxAdLlds&eurl=http%3A%2F%2Fwww.salon.com%2Fopinion%2Fgreenwald%2F2009%2F04%2F30%2Fownership%2F&feature=player_embedded

"Prince of Lies and proud of it"

Dear Hank:

You have outdone yourself once again, my loyal servant, with these fraudulent, deliciously deceptive proposals to reform the utterly corrupt financial system you exploited so profitably as head of Goldman Sachs.

My plans for the destruction of the United States of America have been going along rather swimmingly until we rushed things a bit with Bear Stearns--ah, the wondrous power of pure, unmitigated greed! It remains my favorite tool--and calls for reform were suddenly everywhere.

The rules which would have undone us were simple indeed, as you know all too well:

complete transparency of risk and leverage in all financial documents and financial instruments
the marking to market of all financial instruments and assets at the close of the trading day, as is currently done with commodities futures and stock options
the banning of "off balance sheet" accounting
the banning of offshore accounts and holding companies
the uniform enforcement of these regulations across all financial classes, assets, firms, brokers and banks

As you know, Hank, transparency, mark-to-market and strictly enforced regulations of all banks, broker-dealers and financial institutions would deal a death blow to my plans to destroy the U.S. via destruction of its financial system. Having sold your soul to me for the glory and riches you received at Goldman Sachs, you had to comply with my orders to destroy any such useful regulations with cunning "fixes" of your own.

Though I counted on your native feral survival instincts, I did not expect a plan of such evil genius. Imagine how foolish and naive humans must be to accept your "fix"! My mind boggles at the ease with which you have conned the gullible gallery of idiots in Congress and the mainstream media:

You diminish the powers of the Federal agencies and favor the "shadow government" Federal Reserve, which is not even a government agency but a private institution.
Instead of proposing transparency, you are adding another layer of secrecy in what the Fed can investigate and do to "fix" future problems.
Enable more "self-regulation" (hahahaha, I can't stop laughing at this one! You really are a comedian!)

I am still amused that the American populace hasn't noticed that you, Master of the Dark Arts at Goldman Sachs, have been duly appointed as the wolf assigned to guard the sheep. Now you have suggested opening the rusty wire fencing and lighting the opening so your brethren can more easily slip in and slaughter as many sheep as they wish--and the American sheep sit there mesmerized by my other crowning achievement, the TV, blithely accepted that the most voracious, cleverest wolf is now their "guardian." Never in my wildest imaginations did I hope for such gross stupidity, ignorance and naiveté.

Keep up the fine work--

Your Lord and Master,



"Why on earth not a single Wall Street CEO behind bars? Only logical explanation is Obama has been paid off handsomely."    toulouse_20...