The Financial Crisis - the greatest bank robbery of all times

This time around I want to talk about an article I found on the website of the German magazine "Manager Magazine":
http://www.manager-magazin.de/unternehmen/artikel/0,2828,604619,00.html.
It is part of a series of articles, excerpts from Rene Zeyer's book: Bank, Banker, Bankrott (Bank, Banker, Bankruptcy). This excerpt/article is called: The greatest bank robbery of all time.

[...] How could it happen that a bunch of financial acrobats in the U.S. and their notorious accomplices burned more than $ 1000 Billion, probably more like $ 2000 Billion and nobody saw the littlest bit of smoke?
Interestingly enough, this worked because nothing was "burned" as such. It was withdrawn - syphoned off. For years and years, on a massive scale and in broad daylight. Always keep in mind: Money does not disappear, it is not being burnt, it does not lose its value (unless there is rampant inflation), but rather it is redistributed. If one has less, another has more. That is how money works - simple.
The whole scheme is a gigantic, shameless, yet well orchestrated robbery of a few bankers of the fortunes of many investors as well as current and future pensioners.
Their tools weren't welding torches and lockpicks, but "financial instruments", derivates, hedge funds, financial engineering, CDO, RLN, Alt-A, Private Banking, Private asset management, just to name a few. Products that were designed in such a way that neither inventor nor seller, and particularly not the buyer had the slightest clue what they were and are about. What is really new and innovative about all those derivates, acronyms and finance double-speak?
The answer is simple: Nothing! And particularly nothing new!. At the beginning there is a more or less destitute and jobless American in the Midwest who wants to live beyond his means. Countless banks and financial institutions can't wait to help him fulfill his dream. All he has to do: Buy a house in his name and have one of the "banks", let's call her "bankruptcy bank" pay for it.
And he has to promise that some day he will pay back the loan including interest. This will not be a problem because the house will have certainly doubled in value by then and he could pay back the loan using the appreciated value. Then the house would be his and his alone. It is a great promise - nothing could possibly go wrong.
Now the bank that makes these wonderful promises must get the money itself from somewhere. This is called "re-financing". And since "bankruptcy bank" would never be able to re-finance such bad loans, they have to be "re-packaged". There are re-packaging specialists just for this purpose. But there is another reason why this re-packaging has to take place: The bonuses of its managers, but more about that later. The loans are in their re-packaged form no longer recognizable as bad loans and can be sold as attractive modern financial products to the greedy buyers. The worse the loans, the more modern they are.
The fact that the highly-paid specialists of the rating agencies gave their blessing indicates that this is about more than just ignorance of the many and cunning tricks of the few.
The end result is that the simplest financial transaction in history: Giving someone a loan with interest based on a collateral has been turned into a complex sleight-of-hand financial transaction. The result of this "financial engineering" was sold to the tune of thousands of billions of Dollars.
Interestingly enough this trick worked with what appears to be the most solid and fool-proof deal of all: Real estate. In the past this did not fly because even a financial layman can more or less figure out the value of a house and what it is definitely not worth. So how come millions of simple private investors as well as highly paid bank directors, CEOs of pension funds and other institutional investors fell for this simple trick?
The reason is surprisingly simple: They were forced to. Whoever, in the last 10 years, saved his hard-earned money to pay for college for the kids, for his retirement, a house or whatsoever, lost money every day. And the more he saved, the more he lost.
The interest was barely enough to offset inflation, more often than not, it wasn't. Once the taxes were paid, the interest was definitely less than inflation. The only way to protect your savings from this inflation was to listen to the banks advice who politely pointed to the financial markets with its attractive investment opportunities.
This mass movement was fueled by the low interest rates in the Dollar as well as in the Euro zone.
If the interest rate had not been so incredibly low, "bankruptcy bank" could not have afforded to offer the loan on the house interest-free for years and our bank would not have gotten more or less "interest free" re-financing loans. The pension fund 10000 miles away would not have invested in the hedge fund but rather put its money in the classic investment of bonds and stocks.
This gigantic cake would have crumbled long before the first indications of a soufflé-like bubble.
It is an illusion to believe that "bankruptcy bank", or let's call her "investment bank" was in the business of giving real-estate loans or about "investments" as the name implies. Particularly not about investments in destitute Americans. Its business was "re-packaging". The house was just the alibi. It could have been a dog-house for all the bank cared. There were commissions and bonuses attached to this deal.
The extemely boring business of granting real-estate loans had become a highly profitable business. Nobody noticed that officially 100 went into the package, the buyer paid for 110 and did not notice that 0nly 90 were inside. And this adds up. Within a decade "re-packager" Goldman Sachs was able to pay its minions $20 billion in bonuses for their efforts in the field of "re-packaging". UBS was able to pay more than $10 billion.
If you add all "re-packagers" in the U.S., there was easily a total of $ 1000 billion in accumulated bonusses for their activities. Without "re-packaging" it would have been 1/10th that.
These "financial engineers" caused a collateral damage well in excess of this number. Now we are talking about the "damage". Possibly $ 5000 billion, nobody knows for sure and probably nobody ever will.
To be very clear on this: The fact that the American's house had an inflated value ascribed to it is the smaller problem. At least the house is still there and has some value. The American has the smaller loss.
The American was broke at the start. Now he is even more broke and more sober. The real damage is the gigantic changing of assets: From the investors to the managers of the financial institutions. The trick is that the gangsters pulled this off with no risk to themselves and no fear of punishment. The entire world was watching and celebrated the stars of a new economy.
[...] Unless you want to assume the the celebrated chief of the Fed, Mr. Alan Greenspan, is a complete imbecile for not seeing what was going on, there has to be another explanation for his behaviour.
The only explanation is that this was a gigantic theft in which Alan - if he wasn't pulling the strings behind the scenes - was at least an accomplice.
It is simply not conceivable that for 10 years this robbery was pulled off, accompanied by encouraging words from the Fed which watches as billions change hands, the entire financial market system is crashing and justifies it with the growth of the economy for the greater good of all.This is obviously a great conspiracy in which a few abused their power over public insttitutions and the public wealth in an unheard of fashion. Just like bank presidents abused their power over the banks they headed and shamelessly exploited them.
In other words: People who had neither invested in the banks they headed nor bore any risk whatsoever if the banks were to suffer, have exploited them and put the money into their own pockets. This is the greated bank robbery in world history that would not have been possible if the head warden Alan Greenspan had raised the interest rate to where it belonged.
The years of robbery were hidden behind a wall of blabla like advantages, necessity and importance of low interest rates for the economy. The investor was not asked once if he agreed to the interest he is getting.
And the claims of these financial gurus were repeated so many times that they have become the tenets not only of economists, but the conventional wisdom of any cleaning lady.
And because they are wrong but are necessary for the greatest bank robbery, they are being repeated constantly.
What is not being said is that low interest rates are important for the stock exchange, but not for the economy as such. The economy will be fine if the interest rate is twice or three times what it is today. And he has gotten along fine for decades when interest rates where that high. At the beginning of the 80ies the Fed's interest rate was at close to 20%, the lending rate on the markets was around 10%. Although there was a mild recession, the economy did not collapse. Quite the opposite - it emerged strengthened from this period. In Brazil, 10% interest have been common for years and the economy is growing.
Anyone who was ever involved in how investment decisions in companies are made is aware that the interest rate is but one of many decision factors. In fact it is usually one of the less important ones. In a return on investment calculation that usually spans 5 years, it makes little difference if the interest rate is at four or eight percent.
I in no way intend to push for high interest rates here, but the millenia-old rule that the interest rate has to be adequate for the investment. This fundamental rule was ignored for a decade with criminal intent. And this for the single reason to permit the greatest re-allocation, the greatest syphoning off of assets the world has ever seen.
It was a conspiracy of those who happened to be in centers of power to greedily to amass wealth at the expense of others. And many contributed their part to the newfound wealth of the robbers, be it as an investor, tax payer, stock holder or American.
If we estimate the commissions, fees, kick-backs, expenses and bonuses that accumulated during the last three years in the real-estate sector alone at a conservative 10% of the $10 trillion turnover in this market, this amounts to a theft of $ 1000 billion. This gives a whole new meaning to the word "bank robbery".
Better yet for the marauding banker gangs: Reparations, pay-backs or returning the booty is out of the question. There will not be international court cases to sentence the leaders. Accomplices will not have to find excuses for their actions.
Quite the opposite: Those who have been robbed are now replacing the lost billions as well as the collateral damage, to the applause of economists and so-called experts. All the while, almost all the robbers - except those who were to dumb or to greedy and left judicially relevant traces - now enjoy life on their yachts around the world, or watch the sunset from the porches of their villas or fly to exclusive Golf courts and luxury resorts around the world.
This is any bank robber's dream. But he should have become a banker instead.