It’s a sound the sheeple have long forgotten.
It’s a sound rarely heard.
It’s a sound that must awaken us if the American Dream is to survive.
CHAPTER 4
Nightmare on Wall Street
We know that the free market is nonsense, we know that the whole point is to game the system …
—Ron Bloom, Obama’s Manufacturing Czar, 2/27/2008
When I was eleven years old, I had my first bank account at Bankers Trust Company on Union Turnpike in Queens, New York. Each week I would deposit the money I earned from the local candy store where I worked after school as a soda jerk. I felt like the richest kid on the planet when the account grew to something like $618.08 after one year. One night, while reviewing my account, I discovered something startling. I looked at the balance and discovered that, while I had only deposited six hundred dollars, there was $18 more than I had actually put in.
I went to my father and, holding my savings summary for him to see, said, “Dad, the bank made a mistake. They deposited more money than I put in. Should I return it to them?”
He said, “Michael, that’s your interest.”
“Dad,” I said, “What’s interest?”
He said, “Well, they take your money and invest it and then they give you back a little bit of what they make on their investment. That’s called interest—and you get to keep it.” That was the day I became a capitalist. That’s the day when I first understood the value of saving and investing. Over the years, I grew in my understanding of building wealth through savings and investments, as well as the risks and rewards associated with placing funds in the stock market. I imagine you may have had a similar experience when you were young. And, if you are like many in the middle class, you probably opened an Individual Retirement Account or employer-based 401k retirement savings plan maybe in addition to modest investments in the stock market.
While you and I played by the rules and trusted Wall Street with our monies, others, behind the scenes, manipulated America’s leading financial institutions for their own personal gain. That gain wasn’t just measured in lining their pockets. In some instances, as you’ll see in a moment, it was to advance an agenda. Case in point.
In 2007, Christopher Cox, then Chairman of the Securities and Exchange Commission (SEC), under pressure from lobbyists did not prevent the change of two regulations that allowed hedge fund pirates to plunder the U.S. financial markets. This change in policy was responsible for driving down the value of America’s assets by more than $10 trillion in 2008. Let’s be clear. There was an agenda lurking behind the shadowy dealings. Is it a coincidence that this happened right before the presidential election?
Hardly.
Where did those dollars go?
They ended up in the hands of a relatively small number of people and companies whose purpose was far more nefarious than merely making profits: The raiders who trashed our markets sought nothing less than to use the control they had gained over our financial system to put a wet-behind-the-ears leftist president in office. Moreover, they leveraged that power to create a government run on socialist principles but controlled by a small group of wealthy investors who dictate policy to the puppet president they elected. In effect, they pushed us further along the path to a socialist oligarchy.1
Another player in the financial meltdown is leftist financier George Soros, WHO SOME BELIEVE, has been trying for decades to manipulate American politics to the advantage of the Marxists with whom he is in league. It seems to me that Soros tried to rig the 2004 presidential election in favor of John Kerry. How? By pouring tens of millions of dollars into Kerry’s campaign coffers and into building anti-capitalist, anti-democratic organizations such as MoveOn.org.
In spite of that massive investment, Soros was unsuccessful.
Did he give up? Far from it.
During the next few years, the Managed Funds Association (MFA), a group of hedge fund investors with whom Soros is affiliated, lobbied SEC Chairman Cox to have the rules changed. Why? So they could engineer a raid on U.S. markets to trigger a financial crisis that they foresaw could turn the election in favor of their 2008 candidate, Barack Obama. This time, the strategy worked. In the end, end, some believe that George Soros and similarly minded financiers benefited in an extraordinary way while moving the country dangerously toward control by leftists.2
Despite this alleged manipulation of the marketplace, Soros is free and active today. While he’s still denying his involvement in one of the greatest scandals in American history, that is, when he’s not crowing that he had “a very good crisis,” 3 I’m wondering why there isn’t an investigation into this matter.
Hundreds upon hundreds of minor players were involved in this fraud as well. Another member of the MFA is John Paulson (no relation to former Treasury Secretary Henry Paulson, one of the architects of the TARP bailout). Paulson saw the value of his hedge fund firm rise exponentially in 2007, thanks to the rule changes that the MFA lobbied for. While he predicted the crash and the demise of Lehman Brothers and Wachovia, the real reasons he was able to realize huge profits from the financial meltdown were the rule changes that he took advantage of to line his pockets. Paulson, like Cox and Soros, is still plying his trade—in his case as a hedge fund trader. He’s still enjoying the billions of dollars in profits he made personally from participating in the attack on the American economy.4
The Threat of Nationalization
Make no mistake about it: American businesses are under attack.
The threat comes from a Marxist president with his drive to nationalize many aspects of the private sector—from General Motors and insurance giant AIG, to our lending institutions and health care. Some argue this is Obama’s move toward a Bolivarian socialist revolution like the one Hugo Chávez has created in Venezuela. Obama is putting rank amateurs in charge of businesses that they did not create, that they did not build, and that they do not know how to run.
Take, for example, Peter Orszag, Chairman of the Office of Management and Budget. Under this man, our national debt crisis has exploded into a systemic problem characterized by unrelenting governmental and corporate greed at the top of the economic food chain and unsupportable mortgage and credit card debt at the bottom. This should come as no surprise. Orszag is one of the guys who was advising the Russian government during the time when Russian businessmen absconded with billions of rubles in the economic chaos after the fall of the Soviet Union in the early ‘90s. He also advised the nation of Iceland during the time just before the country went bankrupt. He’s another empty suit at a time when the country needs real leaders with solid credentials.
All of this will lead to total disaster and failure! Never in American history has one man—in this case, Obama—been in such a position of power to destroy personal freedoms, individual ownership, and the cycle of risk and reward inherent within market capitalism. The American middle class is especially vulnerable.
In fact, if you’re a member of the middle class, you’re one of the hundred million-plus people Obama has singled out to be brought to your knees. That’s because you’re one of the people who have made America the great nation that it is. You’re raising your family, working at your job or running the business you created, contributing to investment and retirement accounts, attending church or temple, and, now, you’re asking yourself what you’ve done to deserve Obama’s attack on your wealth and freedoms. The answer is unsettling.
To leftists and pan-Leninists like Obama, you are not simply “middle class,” you’re part of the bourgeoisie—that’s the group most despised by Marxists like Obama and so many members of his inner circle and czars. The savage truth is that you’re part of the group Obama has singled out to feel the pain of trickle up poverty.
The Puppet Masters
Those who conspired to create the financial meltdown have something in common. They’re either affiliated with, or in the hip pocket of, the Managed Fund Association (MFA). The MFA consi
sts of hundreds of financial firms and private investors who run hedge funds. Hedge funds are not bound by the rules that govern most stock and mutual fund trading. They thrive on such practices as short selling (selling a stock that you don’t own in the hope that its value will decrease, and then buying it at a lower price, thus making a profit) and trading derivatives (financial instruments based on such things as bonds and mortgages that are designed to reduce the risk associated with owning the underlying securities).
I believe Soros and hundreds of other hedge fund traders, most of them MFA members, manipulated the system using, primarily, changes in two rules that enabled them to raid the financial markets, generating huge profits for themselves, causing the financial crash of 2008, and enabling Barack Obama to be elected. In other words, it appears they engineered the fraud that ushered in the era of the socialist oligarchy in the United States. If so, they were successful in accomplishing their objectives in the 2008 election because they managed to have two of the primary safeguards to investors—the “uptick rule” and conventional accounting standards—removed in
2007.
During Christopher Cox’s term at the SEC the uptick rule was eliminated on July 6, 2007.
The rule, initially adopted in 1938, was one of the primary reasons we were able to recover from the Great Depression. This uptick rule limited short sales to stocks whose last trade was higher than the previous one. The uptick rule meant that traders who sell short could not cause the market price of a stock to drop continuously at a precipitous rate. Once the rule was removed, “naked” short selling was enabled, and the circumstances were ripe for a raid such as the one that occurred in 2008.
Mark-to-market accounting standards were implemented on November 15, 2007. Prior to the implementation of mark-to-market accounting standards, the value of assets held by banks and other financial institutions was based on the price at which they were acquired. After mark-to-market was instituted, those assets had to be valued at the prices at which they could be sold at the present time. That meant that, even if a given asset had long-term value and might eventually be sold for a profit, if its present value was very low, that current low market value was the value banks must carry on their books.
One of the effects of mark-to-market accounting was that banks and other financial institutions were required to revalue their assets at the end of every trading day. This led to a dramatic rise in day trading of securities, often including unchecked short selling, which put enormous pressure on the issues traded. It resulted in the value of many financial institution stocks plummeting, because under mark-to-market rules, if asset values decline, the holder of the assets must produce cash to offset the decline. It meant that banks had to find cash in order to make up for the lost asset value that the new accounting rules generated. The result was a liquidity crisis that led ultimately to the Troubled Asset Relief Program (TARP), a $700-billion bailout of America’s financial institutions whose very existence had been jeopardized by the change in accounting rules, and the so-called “stimulus” legislation.
By November, 2008, just prior to the presidential election, the elimination of the uptick rule had begun to have its desired effect. Short sellers raided the market, triggering the panic that changed the election’s outcome in favor of Barack Obama. The value of shares of major financial institutions dropped precipitously, and Americans were rapidly cheated out of some $10 trillion in their 401K and other investment and retirement accounts. Who could forget that one?
The result was the election of a leftist president, Barack Obama. No doubt Soros recognized that Obama was utterly ignorant of how capital markets work, and he knew that the new president could be led around by the nose by him and his associates. That, coupled with Obama’s leftist upbringing and education, made him the perfect stooge for the financial saboteurs with designs, not just on our economy, but on our very way of life.5
This situation is exacerbated by Mary Schapiro, who replaced Christopher Cox when he resigned from the chairmanship of the SEC in 2009. Schapiro, along with Treasury Secretary Timothy Geithner, has long been a supporter of mark-to-market accounting practices. Investors in the stock market fear the potential for the same risks that severely damaged the market in 2008, and are reluctant to get back into the market as fully as they might. Banks are reluctant to assume the risk of lending to businesses, especially small businesses, because of the risk that Schapiro will reinstitute some form of mark-to-market rules for banks and other financial firms, again causing them to mark down their assets and precipitating another liquidity crisis like that of 2008.
The result was what appeared to be an economic stalemate until early
May, 2010.
On the afternoon of May 6, the Dow Jones Industrial Average plummeted 998.50 points in a matter of minutes, the largest intra-day drop in the history of the Dow. As usual, commentators and analysts missed the mark completely when trying to unravel what had happened. Some speculated that a trader had mistakenly added too many zeroes to the number of shares he was selling and triggered the fall; others blamed the Greek debt crisis and the underlying weakness in the Euro and in the EU’s approach to the financial woes of several of their member nations for launching panic selling; still others blamed the rise in electronic trading for causing the drop. While there is certainly some validity in the last two, in fact, the immediate trigger of the sudden sell-off was very likely a raid by short sellers on the stock market.
First, the precipitous drop occurred shortly after 2:30 in the afternoon.
That should have been a clue to those trying to figure out what had happened.
As Nelson D. Schwartz and Louise Story explain:
Some circuit breakers do exist, a legacy of the reforms made following the 1987 stock market crash, but they only kick in after a huge drop—and only at certain hours. Before 2 p.m., a 10 percent drop in the Dow causes New York Stock Exchange to halt trading for one hour. Between 2 p.m. and 2:30 p.m., the pause shrinks to a half-hour and after 2:30, there is no halt in trading.6
The time of day is significant. Why? If the drop had occurred before that time, the size of the drop would have triggered a halt in trading. Any further potential damage that the continuation of such a drop might have caused could have been contained. Since it occurred immediately after that time, no protections were in place.
That in itself points the finger directly at short sellers.
In fact, the May 6 drop was the quite possibly the work of hedge fund traders raiding the market with the intent to send a message that they could still do whatever they wanted, despite the fact that only days earlier a new, “alternative” uptick rule had been put in place. They demonstrated clearly that the new rule had no teeth whatsoever; that traders who staged the raid were free to do what they would for the remainder of the afternoon.
In fact, before it closed for the day, the market had gained back more than half of what it had lost. Short sellers first drove down the price of many stocks dramatically; what’s more, the value of a number of issues dropped to a penny a share, making them worthless. The raiders then bought them back, driving the market back up, although not before they pocketed somewhere in the neighborhood of half a trillion to a trillion dollars. Short sellers had what they sought: significant profits and a trial run to prove that they were still in control of the market, despite the new rule supposedly protecting investors from precisely the kind of raid that had just been staged.
The “alternative” uptick rule, just implemented, halts the trading of a stock whose price declines by 10 percent in a single day, but after 2:30 in the afternoon, the rule doesn’t apply. The incident demonstrates that the SEC is essentially still a toothless entity headed by someone who’s in the bag for hedge fund traders. It may well mean that things haven’t changed significantly, that the market is still at the mercy of the MFA.
In an important sense, the hedge fund traders of the MFA hold power over the economy. Until they determine again that there’s a
need for them to step in and resume control of the economy and political policy by staging yet another raid of the capital markets, the uncertainty that accompanies this threat is likely to stall a return to a full economic recovery at pre-2008 levels. Banks will continue to be wary about lending to businesses and homeowners, fearing sudden policy changes like a resumption of mark to market accounting that might again jeopardize their balance sheets. And middle Americans’ investment portfolios will once again be hog-tied by what may well be a shadow government.
This is un-American on the face of it.
What has occurred over the past several years is a power grab of epic proportions, and no one in Congress is even close to understanding what happened and what a dangerous position we’re in. From a high of more than fourteen thousand in October, 2007, the Dow Jones Average had lost nearly half of its value by the time of the 2008 election.7 Much of the lost money went into the pockets of the hedge fund raiders who, thanks to changes permitted by the SEC, were able to sell short with no limits, further driving down asset values. SEC’s giving in to those lobbying on behalf of the MFA cost millions of average Americans invested in the stock market and in money market funds through their 401K plans as much as half the value of the assets they had planned to retire on. The raid made Bernie Madoff look like a piker. By the way, SEC also looked the other way where Madoff was concerned.
By the time John McCain correctly called for Cox’s resignation as part of his bumbling response to the financial meltdown that cost him the election, it was already too late. In his response to McCain, Cox disingenuously said, “we have no tolerance for naked short selling,” despite the fact that under his leadership, that’s precisely what the SEC enabled.8 The uptick rule was reinstated (February, 2010) and the mark-to-market accounting relaxed (March, 2009) only after potentially irreparable damage to the economy and to millions of Americans’ savings and retirement accounts had been done.
Trickle Up Poverty: Stopping Obama’s Attack on Our Borders, Economy, and Security Page 11
