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Buffett's time bomb goes off on Wall Street

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posted on Sep, 29 2008 @ 09:56 PM
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Hey Guys,

I came across this article, and I haven't seen it posted. If it has please do what you must with it.

I have to say, it is the best article I have read explaining the complex derivatives and credit default swaps problem. You really don't hear TPTB talk about this very much. Or, if they do, they say it's to complicated. It's not, they just don't want you to understand it.

Buffett's time bomb goes off on Wall Street


When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.

But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil.

"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."

"I'm sure their predictive models were right as far as the risk of the things they were insuring against. But what they didn't factor in was the risk that the sellers of this protection wouldn't pay ... That's what we're seeing now."



Defaulting on a mortgage is part of the problem, but selling insurance against it without the money to back it up is criminal. And that is exactly what they did.

Here is what Warren Buffett said five years ago.

source

Brown is hardly alone in her criticism of the derivatives. Five years ago, billionaire investor Warren Buffett called them a "time bomb" and "financial weapons of mass destruction" and directed the insurance arm of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) to exit the business.


Source (Article Author)

"They booked all these derivatives assuming bad things would never happen. It was like writing fire insurance, assuming no one is ever going to have a fire, only now they're turning around and watching as the whole town burns down."


Here is a great example of how this all went down, and I believe it to be criminal.

Source

In one notorious case, a small hedge fund agreed to insure UBS AG, the Swiss banking giant, from losses related to defaults on $1.3 billion of subprime mortgages for an annual premium of about $2 million.

The trouble was, the hedge fund set up a subsidiary to stand behind the guarantee -- and capitalized it with just $4.6 million. As long as the loans performed, the fund made a killing, raking in an annualized return of nearly 44 percent.

But in the summer of 2007, as home owners began to default, things got ugly. UBS demanded the hedge fund put up additional collateral. The fund balked. UBS sued.





As far as I'm concerned this meltdown was all planned. Very well planned.




posted on Sep, 29 2008 @ 10:29 PM
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Yeah I remember years ago reading that Warren Buffet was cleaning out all the derivatives from his insurance company. If I remember right he spent a small fortune doing this. He is a flipping genius. They should beg him to be Treasury Secretary.



posted on Sep, 29 2008 @ 10:44 PM
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Flagged and Starred


Agree with you, Seawolf

planned down to the hour


and planned a long, long time ago


This is what it was all about, all leading to .. all that planning, going back decades

because it isn't just about financial meltdown

that's part of it of course, the cherry on the cake, the looting of the US and with similar ramifications worldwide

But it's what they going to utilize the alleged financial meltdown to achieve AFTER they've loaded their trucks and made their getaway (to those bunker-type luxury chalets in Sth of France, Hampshire UK and private, off-the-map island paradises to wait out the ugly backlash) that we should be watching out for

They plan to rewrite the world map

always planned to

We know who they are. They've even planned it so that no-one is allowed to name them or point the finger or apportion the blame

and of course they virtually control the world's media

and they OWN 'national leaders' !

So sure, there are writers and experts dashing into print right now (oh, and 'they' control virtually all publishing houses these days too) putting forth this and that scenario to explain 'how it all happened, all went so wrong'.

When in fact, the champagne is flowing now in certain quarters. It's one big party. Years of skullduggery now come to fruition. 'How it all went so wrong' ? LOL. It's been a collosal success ! Depending on where you stand, of course.

The financial meltdown, horrific though it is, is nothing compared to what they'll unleash in subsequent phases of this little exercise.

And ah .. there were those who insisted (of course they did) that the Protocols of the Elders of Zion was a 'hoax' .. lol



posted on Sep, 30 2008 @ 12:23 AM
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reply to post by Dock6
 


I'm still trying to understand something. In the normal markets we have options to hedge stocks from falling. The put option. It's based on the value of the stock, a time period, and it's dividend. If the stock falls the exposure is covered by the option.

In this case we have a hedge of a mortgage falling called a credit default swap derivative. If the buyer walks we have the value of the home. If we are in a market where nobody is buying a home, how do you put a value on the derivative? It's tied to something else. What? This only works when the market is moving up, not down, because the value of the home is unknown. Not like the stock. The derivative is a ticking time bomb.

Here is why I feel it was planned.

This only works in an up economy.

In the last 5 years people were allowed to purchase homes with nothing down, and a low interest ARM. The idea was they would re-finance later as the price of their home increased. The set up.

When the bubble burst, and there was no money to re-finance there was nothing left to do but walk away from the mortgage.

As people walked away from the mortgages, there was no "insurance" for the finance companies because their derivative was ultimately based on a price of an unknown, and the idea that people wouldn't default.

This whole thing was designed to fail. But the people at the top will walk away with fortunes.

It's madness, but make no mistake, they knew exactly when supply would out do demand. More houses available than buyers with no money to lend.

Game over. Buffett figured it out.

[edit on 30-9-2008 by seawolf197]



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