The Perfect Crime

"Fact is, all lies, all evil deeds, they stink. You can cover them up for a while, but they don't go away."
--Dalton Russell (Inside Man)

Make sure you understand what is going on here.

Big banks levered 10:1 or more lost $ trillions when the housing market rolled over. The value of their real estate holdings (mortgages, mortgage backed securities, etc) dropped in some cases to pennies on the dollar. When you're highly levered, declines like this easily push assets lower than liabilities. Most of these institutions faced margin calls and were technically insolvent.

On top of that, many firms had sold catastrophic insurance policies to holders of bank debt that would make those bond holders whole in the event of default. This insurance policy is better known today as a credit default swap (CDS). Many big banks were short credit default swaps in such size that, if they weren't already underwater from the decline of their real estate longs, then the exploding value of their CDS shorts would surely break them.

Enter the government, with the Fed and Treasury as lead agents.

Permanent short term lending facilities were established so creditors would not lose confidence in bank abilities to honor their obligations. Lest a bank run.

Accounting rules were altered so that banks did not have to mark their holdings to reflect the losses. Lest pending financial reporting cycles would certainly reveal conditions of insolvency.

Using money printed out of thin air, the Fed bought troubled assets from banks (a.k.a. QE1 and TARP) to the tune of about $1.2 trillion. The prices paid for those assets are unclear, but were surely favorable to the banks (lest the banks would not have sold in such large numbers).

The Fed dropped borrowing rates to nearly zero, permitting big banks to borrow essentially unlimited quantitites at virtually zero cost. Banks then used the proceeds to buy risk free Treasury securities yielding 3 percent or more. Banks have been raking in hundreds of billions on the spread.

Recently, the Fed initiated QE2, where essentially the US Treasury sells government bonds to the banks, and then, in Ponzi fashioin, the banks turn around and sell them to the Fed--all with money that the Fed prints out of thin air. At least $700 billion worth is in motion.

Currently, banks are reporting record profits.

No wealth is being created here. IT IS BEING TRANSFERRED. The benefit of first user advantage means that those $ trillions being created out of thin air benefit bankers and politicians at our expense.

Hard to see how these actions don't constitute the largest theft in history. It certainly places among the most inscrutable.

Indeed, future generation looking back on this operation will surely wonder how a crime of this size went unrecognized by so many for so long.