So this is the scam and
the reason for the bailouts:
Create many hedge funds
that buy mortgage default insurance from AIG, Lehman Brothers, Bear
Allow and encourage risky
lending as to assure future defaults. In fact, insure 10 or more times
the real underlying asset (the physical mortgage that is sure to
default). This is like insuring a house 10 times. It’s better for the
house to be burned than to keep the house!
the AIG´s, Bear Stern´s, Lehman´s can’t keep paying, get the taxpayers
(i.e. mega bailout from taxpayers) such that these companies can
continue paying for the mortgage defaults.
Who cares if the investment banks or
insurance companies fall. They have basically emptied the net
worth/assets of these companies via the payment of these mortgage
default insurances (by writing insurance contracts that they OBVIOUSLY
should have not). So they screw the equity holders.
So the minority holders and/or
management that control these companies transfer ALL the bank or
insurance company’s wealth/assets via this mortgage insurance default to
hedge funds (which they happen to own of course).
So, even if these people own 10% of the
investment bank: Via this “money transfer” they get to steal the other
90% of its worth/assets and taxpayers even provide an extra return from
potential bailouts (if congress is stupid enough to provide).
It does not matter how high the bailout
is, the bigger the better. The bailout will never be enough to cover the
full value of the mortgage default insurance (trillians!). They will
just keep trying to get more and more bailouts and the more they get the
better their swindle. The firms go bankrupt at the end, but they
extracted 2, 3 or more times of what the company was worth to begin
And what better to assure the highest
probability of taxpayer bailouts? Place one of their “insider friends”
as Treasury Secretary to direct the bailout process.
P.S. Based on prior
Ben Stein almost lets out the Big Secret