Wednesday, August 08, 2012

Source of the Next Bubble Identified!

It took quite a while to figure this out. At first I thought that unpaid mortgages and people staying in homes for free might create a large enough bubble. Then I thought that maybe student loans could provide enough money to power the next bubble. But alas, both of these frauds can only provide a small fraction of the money required to power the next boom. How much money? Each of them are worth 2 maybe 3 trillion. How much is needed? About 15-25 trillion.

Where in the blazes can that much bubble money possibly come from? It's simple: It comes directly from the future! These are no ordinary loans I'm talking about. 

This latest and greatest scam is called the "capital appreciation bond". It is simply a deferred interest loan. Yes, as unbelievable as it sounds, it is really true, and it is really happening. Imagine taking out a $300k mortgage and not paying any principle or interest for 30 years. At the end of the 30 years, you simply agree to pay the amount due. Exactly how much money would be due in 30 years? Haha it is the truly unbelievable and astronomical amount of $1.3 million!! For a 5% mortgage! But the real kicker is that it wont be 5%. Because it is deemed a higher risk loan, it will be more like 10%. Or 20%. At 10% interest, that same $300k loan comes out to.... an unfathomable $5.2 million

3 million such loans is all it takes to produce a $15 trillion bubble.

It's pure insanity. But no more insane than claiming 10 years ago that the Federal Reserve would buy $2 trillion in worthless mortgage backed securities! Well they did it. And they're going to do it again, when the next unforeseeable crisis appears out of nowhere 5-7 years from now.

The key to making this work is getting the number entered onto a balance sheet. That is all the Fed needs now. People are so dumbed down that they are incapable of processing this very simple type of outright open fraud. So it will happen. All these $5 million loans on $300k homes will get packaged into securities and eventually sold to the Fed when the next crisis comes. But not before the financial sector reaps obscene profits from the fees on these loans that will never be paid. 

If you think that the country is not far gone enough to allow this level of fraud... you better drink your Brawndo because we're there. We are that far gone.


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