Did Drug Money Save the Economy in 2008? - TLDR News

[Music] hello and welcome to another tldr us video one that's very likely to be demonetized because we talk about drugs like a lot now lockdown's been rough and we've all had to find different ways of keeping ourselves entertained without going outside especially in the recent winter months so i've already binged the crown to death i finished breaking bad and better call saul and i've decided to re-watch ozark upon this re-watching i noticed the comment made by the main character's son presumably trying to justify his dance role in laundering the cartel's money he explains that there's even this theory that says drug money was the only thing that prevented the collapse of the global economy in 2008. you know in real estate went bust because drug money was the only cash available to prop up big banks not to mention the 350 million narco dollars that paid for bridges and roads and healthcare probably even education i thought that if true this would make an amazing video topic so we did some digging and well here we are just to make it clear off the bat though this is simply a theory and information is understandably pretty sparse but we wanted to examine the 2008 recession mexico's cartels and how drugs could maybe have saved the global economy as i said at the beginning it's very likely that this video will end up getting demonetized because it discusses drugs we think it's important that we're able to cover the stories that we think are interesting and valuable so if you want to help us out and protect our independent journalism then consider backing us on patreon you'll get a whole bunch of cool perks in return as well as the knowledge that you're helping out our independence the link is in the description so before we get into the drug side of things that you're probably itching for it's important to understand what actually happened in 2008. in oh 8 investors were looking for something to invest in interest rates for traditional investments weren't particularly high which meant that people with money weren't able to increase their wealth as easily using these traditional techniques so something called a mortgage-backed security was introduced which were basically bundles of mortgages these look like good investments in part because they're tied up to something physical a house if someone can't pay their mortgage anymore the bank just sells the house as house prices generally increase over time mortgages were seen as a fairly safe bet after all the worst case scenario is that the bank sells the house for a profit as such there was a lot of demand for these mortgage-backed securities so to keep up with demand banks increased the number of mortgages available by loosening who they offered mortgages to the now infamous subprime mortgages were introduced loans offered to people with bad credit and who previously wouldn't have been allowed to take out a mortgage because subprime mortgages were new there wasn't yet anything to demonstrate how unsafe they were so everyone was happy and made lots of money at least for a little while most if not all securities are given credit ratings by racing agencies such as moody's and smp the issue being that mortgage bundles consisting of solely subprime mortgages weren't exactly the highest rated which meant that certain institutional investors such as pension funds which require triple a ratings couldn't be sold them so collateralized debt obligations or cdos which are bundles of any type of secured debt began to be developed including subprime mortgages backed by securities in effect these low-rated subprime mortgages were mixed alongside higher rated automotive finance and credit card debt into these new cdo's to balance the perceived risk these cdo's got extremely high ratings as they were considered to be diversified meaning that the risk was spread out across the financial system the issue was that these subprime mortgages had often been offered with introductory rates of low repayments but when these offers came to an end repayments suddenly went up meaning that people suddenly couldn't afford them resulting in many defaulting on their mortgages banks started selling these homes to try and reclaim the lost mortgage money as a result more houses were on the market and as we all know increased supply versus demand results in a lower price as such house prices started to stagnate and then full this created a wider issue because banks could no longer reclaim the money on the mortgages and due to the way these mortgages had been diced up and spread throughout the financial system no one could really know how exposed they were to these subprime mortgages causing banks to de-leverage i.e get rid of cdos and mbs's as quick as possible further dragging down the housing market this was ultimately the bust of the housing bubble many many banks lost a lot of money with several requiring bailouts or support from the government with huge names like lehman brothers completely collapsing and the recession had well and truly begun but what does all of this have to do with drug money well the collapse of banks and the bursting of the housing bubble led to what's known as a liquidity crisis put simply banks with short of assets they could quickly convert into money it's all well and good having a billion dollars in stocks but if it takes several months to actually turn that billion dollars into hard cash when you actually need it well then you lack liquidity and this is incredibly important to keep the banking system running to keep loans being repaid etc and this is where drug money comes in as a report from the executive intelligence review shows the financial speculation bubble is about 10 times bigger than the liquid secured liabilities the report claims that the persistent lack of liquidity and attempts to stay afloat during a crisis promote not only tolerance towards criminal money but an attitude of encouraging the availability of such money to summarize liquidity is generally an issue when there's a large speculative bubble but following a crash such as in 2008 banks become so desperate for liquidity that they seemingly resorted to accepting drug money the very same report cites the example of wachovia bank in early 2010 the bank settled with u.s regulators outside of court paying 150 million dollars in exchange for charges of money laundering being dropped according to the federal prosecutor disregard for our banking laws gave international cocaine cartels a virtual cart launch to finance their operations by laundering drug proceeds this bank alone was found guilty of transferring the equivalent of a third of the mexican gdp to currency exchange offices in mexico this was a front for money laundering although this was over a longer period and the bank was obviously caught antonio costa the former head of the un office for drugs and crime calculated that more than 352 billion dollars were injected into major world banks following the 2008-2009 crisis in order to avoid shortages of liquidity he also suggested that this money was then used once it had been injected to fund things such as inter bank loans so clearly larger banks had to be involved too well the eir report shows that even the bank of america was found to have enabled transactions related to the sale of 22 tons of cocaine again it's hard to know how much money was laundered through each individual bank as many were likely not caught however mr costa's 352 billion dollars gives us a rough idea of the overall picture so you may be wondering how does this all relate to now why have we made a full video on something that happened over a decade ago well while drug money may have been used to prop up the financial system following the 2008 crash the eir report goes even further and suggests that not only did money laundering save the economy in 2008 but also drug and global drug traffic money are not just valuable elements but as donors of liquidity which is so scarce they are a vital and indispensable segment of the whole monetary system this report demonstrates that hydrocarbons oil and gas make up about six percent of world trade this is also true of the narcotics market the report ends by claiming that a drastic transformation will be required in order to liquidate global drug trafficking in fact it's such an essential source of liquidity for banks that it's pretty alarming and something major needs to be done to address the world's reliance on drug money now it would be irresponsible for us not to highlight some of the issues with this theory firstly as we mentioned at the beginning it is only a theory secondly while koster has had important positions of power in the international sphere felix salmond at reuters has claimed that costa is prone to making outlandish statements specifically when justifying the importance of his own department he supposedly also suggested that nicolas cage will help us achieve security and justice for all nonetheless some have claimed that it's a plausible theory although they are in no doubt that central banks provided more firepower than drug cartels in saving the banking industry but what do you think is this just a crackpot theory or did drugs actually save the global economy in 2008 let us know your thoughts in the comments below be sure to subscribe the channel and hit the bell icon to be notified every time we release a new video special thanks to our patreon backers who make videos like this one possible and if you want to see your name at the end of videos then you too can back us on patreon the link to that's in the description you

Channel: TLDR News US

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Length: 10min 9sec (609 seconds)

Published: Mon Apr 12 2021