Mortgage Market Musing

Sometimes, it helps to step back and see the big picture.

Let’s say that I serve as the depository for a large government and I also own the central bank. I get my partners appointed to run the government’s treasury and key funds on a regular basis so I can also control financial system policies and regulation that help me finance what I want to do and mess up my competitors. Even that is getting cumbersome so I am arranging to move most of the regulatory control over to my central bank because I can control all of it privately.

Frustrated with having to deal with democratic processes, I decide to move a significant amount of money out of the government between 1997 and 2001 for reinvestment abroad. I and my partners and our syndicates engineer a series of steps to bubble the economy so that when I move the money out the currency is high and because everyone was making money they did not notice that lots of capital was leaving. To ensure no one notices, I suppress the gold price which turns off the financial burglar alarm and shifts gold out of the government into my private control at below market prices.

Normally moving money out of a government in excess of the total taxes that year would be hard to do. However, I could use securities fraud. I could issue a lot more government securities and government agency (like mortgage agencies) securities than I recorded on the government books and sell them abroad. I would have to make sure not to publish audited financial statements as that would increase the liabilities of engaging in this kind of fraud. It would help a lot if I could pool mortgages and sell government agency securities to finance those mortgages in a process where the same mortgage could be sold many times into the same pool. Investors would not notice or care because the securities were government guaranteed.

I also engineer an internet and telecom stock bubble, and move trillions more out through that mechanism.

OK, so as I move the money out of the country at a high price because my currency is high, what do I invest? Well if places like Asia, Latin America and Russia experience economic crashes as a result of credit crunches that result as my cutting off credit, then their currencies will be low and they will welcome investment. Or if they don’t welcome investment, I can make sure that the IMF and World Bank can strong arm. So I can buy in really really cheap. Meantime, these currencies rise as I move manufacturing and jobs into the places where I now have big investment positions. So my investments go up.

Well, back in the U.S. the bubble bursts, and the institutions like Fannie and Freddie that financed the housing bubble experience significant losses. Their stocks drop by a lot. That hits the pension funds, 401ks, IRAs and other savings of the people who have lost money on their homes. It’s a double whammy. A lot of them also lose their jobs. Triple whammy.

The currency drops in value a lot. This means that the dollar I pulled out and put into other currency that has been going up, up, up, is now worth multiple dollars. As asset values drop, each remaining dollar can buy things cheaply.

Indeed, with Fannie and Freddie’s stock dropping like a stone, I could have one or more of my offshore investment vehicles fund a recapitalization plan and buy control of the senior positions directly or indirectly controlling 50% of the residential mortgages in the country with my profits — that is for a small portion of that which I shifted out of the government.

Think of it. The housing bubble has reached it’s logical conclusion. If you can get enough people to buy a home for no money down, you can buy their country for no money down.

See:

Cantor Fitzgerald Finds Permanent NYC HQ, Will Ad 200 Jobs
By Jack Lyne – SiteSelection.com  (2 Aug 2004)

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