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Wednesday, May 27, 2009

How to make money out of nothing

This is the simple explanation of the High Level Financial World.
I am talking about the one which is often described with big words, which you do not understand and either confess "I do not understand because I am not an expert" or you pretend to understand even though you are not an expert.
The real reality is that nobody really understands, because there is nothing to understand, at least besides the fact that it is nothing of what it looks to be.
It has nothing to do with Finance, with economy and markets, but a lot to do with cheating and robbing.
It is just an elongation and exasperation of what they have been doing for long: stealing people’s money.
The difference is that it works in the same way, but in the opposite direction.
To explain better: once they worked with the money you gained, now they work with the money you loose.
Which is much better, because while it is not too easy to make money, it is certainly much easier to loose it.
Just give it an exotic name: Credit default swaps.
To have an idea just think about the size of it: 70 trillion dollar.

If you just charge 1 to 2 percent "service fee" you are talking nearly three-quarters to one-and-a-half trillion dollars in real term fees being siphoned off (i.e. hijacked from) the global economy for no productive, but merely parasitic, purpose.
It works insuring credit default with inadequate capital, assuming the market will always go up.
We're talking of a tenth of a percent reserve.
As the market goes up, everybody's happy. Everybody appears to be making a killing, much like a pyramid scheme... as long as you can get the next person to pay.
If I have insured against loss with only a tenth-of-a-percent reserve, and yet I am charging a percent or two per year for my services, I'm actually charging ten times more than I can actually pay out in case of a default. I guarantee you that those fees were not going into the reserve but into the pockets of the servicers.

This is not something I do not understand.
This is something so easy to understand that a child could.
I still remember what they called "San Antonio´s chain".
It was done I guess with post cards, then a few years later with small coins and so on.
In the beginning, the first lucky ones got the money back, but when the chain broke it left behind just tears.
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