From racial socialism-driven subprime mortgages, to subprime mortgage-based CDOs … to CDO-based Ponzi schemes?

Not only were wildly irresponsible subprime mortgages pushed and mandated by two administrations and several Congresses in pursuit of the joint Racial Socialist (Razi) Party’s object of making blacks and Hispanics (and even Hispanic illegal aliens) equal in home ownership to whites; not only were these subprime mortgages packaged together into “mortgage-backed securities” or “collateralized debt obligations” thus making high risk mortgages the object of security investments (an idea so uncanny and bizarre that several months after the emergence of the crisis last August I still can’t get my head around the fact that human brains thought up such a scheme and supported it and went along with it); and not only was the entire structure considered sustainable on the expectation of the forever rising prices of the homes on which the subprime mortgages had been taken out; but, it now appears, on top of everything else, these fantastical CDOs then became the basis of some huge Ponzi scheme. Meaning that at one end of the process was the expectation of ever-rising housing prices, and at the other end of the process was the expectation of ever-new investors in the essentially worthless CDOs making them seem worth a lot.

Start with the December 4 article in the New York Post, “‘PONZI SCHEME’ AT CITI SUIT SLAMS RUBIN” (text below), about a suit by former investors of Citigroup against former Treasury Secretary Robert Rubin who as director of Citigroup allegedly engaged in improper dealings. Unfortunately, the article does not explain what the alleged Ponzi scheme consisted of. If you want more, go to Robert Butche’s article, “The Great American Ponzi Scheme,” and to Henry Makow’s website where he comments on it. I endorse neither of these authors as their writing seems half-cocked, with Makow talking about the “Illuminati” as the ultimate villains on whose sins the Jews are being blamed. However, the reason I link Butche’s article is this comment, which was quoted by Makow:

Little did people know that banking and finance had contracted a nasty disease—one known in the grifter trade as a Ponzi Scheme—in which sub-prime mortgages were securitized and traded based on an unsustainable promise to pay high returns to investors from monies obtained from subsequent investors.

Again, I have no idea what this means, if it means anything. But, having just read about the amazing Ponzi scheme run by Bernard Madoff, what I’m dimly glimpsing here is the possibility that in addition to the bizarrely complicated MBS’s consisting of “tranches” consisting of differently risky mortgages packaged together, with the less risky mortgages somehow concealing the more risky mortgages, and with the whole package turned into securities which were purchased and traded by investment houses such as Lehman Brothers, there was yet another level of unreal complexity.

Makow gives a notion of the surreal intellectual realms people have to inhabit in order to dream up these schemes:

In the commentary to the NY Post article above, a Ph.D. in Physics explained that his fellow graduates all went to work for big banks, brokerages and Fannie May. They were “hired to do complicated calculations (loop level) borrowed from quantum field theory and statistical mechanics. They can take any number(s) as an input and produce any output as desired. Hence the banks hired at a much higher pay these people than they could earn in Universities or research institutes…Their bosses told them to inflate the value of anything to any number and these people did that.”

“No ordinary derivatives trader can ever understand any formula(e) to calculate the value of anything. These are too complicated but intentionally. But there are some conservation laws for energy, momentum etc in physics. Where every (loop level) calculation has to abide by them. In finance and banking there is no such conserved quantity as credit can be created from thin air and destroyed also to that. Hence the fiasco.”

Quantum field theory? Meaning that the indeterminacy of the moment in time when a given electron will change its energy level is a model for the indeterminacy of racial socialism-driven, CDO-based Ponzi schemes? Is this the marriage of “Jewish finance” with “Jewish physics”? As Makow notes, the anti-Semites must be having a field day. Which is why he’s blaming it all on the Illuminati.

Here’s the Post article:

‘PONZI SCHEME’ AT CITI
SUIT SLAMS RUBIN
By PAUL THARP
December 4, 2008

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that’s now choking world banking.

Director Rubin and ousted CEO Prince—and their lieutenants over the past five years—are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted—and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi’s stock collapsed, wiping out more than $122 billion of shareholder value.

However, Rubin and other top insiders were able to keep Citi shares afloat until they could cash out more than $150 million for themselves in “suspicious” stock sales “calculated to maximize the personal benefits from undisclosed inside information,” the lawsuit said.

The latest troubles for Rubin, Prince and others emerged in a 500-page investigation by Citigroup investors represented by law firm Kirby McInerney.

The probe was used to amend and add new details to a blanket investor lawsuit filed against Citigroup a year ago. The amended suit called the actions of Citi leaders “a quasi-Ponzi scheme” to hide troubles—and keep Citi stock afloat while insiders unloaded about 3 million shares between Jan. 1, 2004 and Feb. 22, 2008 for huge profits.

In addition to Citigroup, Rubin and Prince, the complaint names Vice Chairman Lewis Kaden, ex-CFO Sallie Krawcheck and her successor CFO Gary Crittenden.

Rubin cleared $30.6 million on his stock sales, while Prince got $26.5 million, former COO Robert Druskin got nearly $32 million and former Global Wealth Management unit chief Todd Thomson got $25.7 million, the suit said.

Citi denied the allegations and said it “will defend against it vigorously.”

Posted by Lawrence Auster at December 14, 2008 06:46 PM | Send