November 23, 2013 By Joseph P. Farrell

If you're like me you watch with wonder and revulsion at the ever-more creative uses of language that the banksters come up with, and this one - as my friend George Ann Hughes of the Byte Show likes to say - is a whopper doozie!

The Unspoken Toxic Secret at the Heat of "Self Securitization"

Now in case you missed it, here it is again:

 "'The numbers for OFIs presented in sections 2 to 4 of this report include all financial assets of Structured Finance Vehicles (SFVs), regardless of who holds the securitised products. However, in a number of jurisdictions, some of these products are returned back onto the balance sheet of the bank that originally provided the asset to be securitised. This so called self-securitisation, or retained securitisation, is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the SFV for all tranches are owned by the originating bank and remain on the bank’s balance sheet, so that third-party investors do not own any of the securities issued by the SFV. These assets should not be included in the shadow banking figure, as prudential consolidation rules consider them as banks’ own assets and as such subject to consolidated supervision and capital requirements.

"'...  some of the assets that are currently ‘self-securitised’ by banks may at some point be sold to third parties when financial conditions improve.'

"'Wait a minute: a company is "securitizing" assets.... which it then keeps, but only after it has "obtained funding with a central bank'? What?"

This pithy summary is followed up by two graphs which display the biggest players in the self-securitization game: Australia, Canada, Spain, Italy, the Netherlands...

Anyone noticing a trend here? I mean, besides the indicators of inducements to fraud? and besides the "usual players"? And...uhm... besides the indicators of "vast hidden systems of leverage" and the creation of... oh nevermind. I could go on and on. But there is something else that bothers in the graphs... the conspicuous absense  of the USA, home of the biggest mortgage fraud, credit default swaps, and other "tranches" par excellence, and Germany.

Why Germany?

Well, maybe this is why: some German banks failed in the wake of the housing/mortgage bubble collapse in the USA, and are now suing major US banks for their losses. Why? Because those banks had been sold mortgage based securities which, they allege, the selling institutions knew to be bad paper to begin with (there's that bait-and-switch inducement to fraud again).

But notice another country is missing... Spain. The near catastrophic unemployment in Spain is masking something else, and that is, why are more mortgage defaults not showing up in Spain, given the country's extreme rate of unemployment? Check this out:

The Mystery Behind Spanish Banks' Extend and Pretend Principle

I hope you caught the two very significant paragraphs in this article:

"'The Bank of Spain, the country's central bank, began forcing banks in April to re-evaluate and disclose their refinanced loan books out of concern that some lenders had been taking advantage of relatively loose guidelines to mask the deteriorating creditworthiness of their clients. As Spain's economic slump deepened, the Bank of Spain said at the time, 'Difficulties considered to be temporary in many cases have become structural.'

"Which is the story of the New Normal in a nutshell: temporary issues revealed to be structural, and in fact worsened by ongoing, relentless central bank intervention which prevents the liquidation and cleansing of tens of trillions in bad debt from the global system. What is worse is that alongside that revelation, it is also about to be revealed that, surprise, Spain is not even close to recovery. Which will kill the only thing that matters in that insolvent continent: the latest dose of confidence."

So... in line with the high-octane speculation we indulge in here, let me tender a wild speculation: all of this, all  of it, is deeply and ultimately tied to the systems of finance designed to suck funds into the American black research projects budget, and the mechanism to do it was mortgage fraud. When the domestic (American) market was not enough for the enormous sums required, the methods were extended to "other markets," Europe being at the top of the list, and Europe's two "wonder economies" of the time, Spain and Germany, being at the top of the top.  But as the second Zero Hedge article makes clear, the scam is now being perpetuated by its own deadly inertia, in spite of its apparent failures and in spite of the growing breakdown of confidence in the whole system.

What really remains to be seen, is what is going to happen when all those scammed German banks get together with all those scammed Spanish mortgage holders, and take the whole thing to the next legal level.  My guess is, that they will find that the threads run ultimately back not just to New York, but also to the City of London, because such bubbles are not new, nor foreign business practice, to the elites of either city.

See you on the flip side.