As a result of this boom, non-standard lending has also become increasingly used for

investment purposes. That is, banks and mortgage companies began to sell the issued
loans, contracts with borrowers, future interests, to their investors. Or, to put it
simply, to each other. The theatre of absurd flourished in full.

People who did not have money took loans, which were given out by the
organizations that did not have money and that themselves accumulated borrowed
funds just to distribute them to anyone!

Scores of employees of various organisations were counting their chickens before

they were hatched, unwilling to take the trouble to think that those chickens did not
exist. One debt begot another, people were surrounded by it. From the outside, they
looked like quite decent securities. The truth is that trade in debts was also put on
completely industrial rails. Sale of mortgage bonds and loans was carried out
according to the following scheme: the credit default risk was assessed by rating
agencies, depending on this, securities were assigned different grades of "freshness".
The highest grade and the first grade were at higher costs and found their buyers
quickly. However, the second grade, "second fresh fish ", also found its way. The
price of such a "package" of high risk mortgage contracts was low and also found its
owner. As a result, everybody were happy. The bank has thrown off agreements with
private persons, received money from the investors and could start off once again.
Investors have used money and waited for profit, and dubious customers could again
ask for loans. The humour of the situation was that investors, or simply speaking,
speculators, having purchased cheap second-grade mortgage bonds, again divided
them into grades with the help of rating agencies. But under the name "top grade"
(reliability rating) were not the best of the best, but the best of the worst.

And this went on for 6-7 years! The US economy was growing, the GDP increased,
everyone was happy. Scores of people were in business, and also earned a lot of
money without really making anything. This debt pyramid was based solely on the

1
constant rise in the price of real estate, which allowed them to draw new players with
new financial resources to the mortgage market.

Banks, the respectable and competent institutions, all took the same gamble. Its name
is "give the most money to anyone you can". Mailboxes of all Americans, packed
with letters, were the sequent. Except they were not filled with ads and promotions
from supermarkets nearby, but with thick envelopes from banks holding a contract
inside. Each envelope contained a credit card. And nothing was required for its
activation. You just had to take it and make a payment, then the contract was
considered signed. In fact, real money was shipped via mail. It was shipped
thoughtlessly and in great quantities. Where in the history of humankind have we
ever seen anything like this? A friend of my who lives in the US told me that was
facing a new, previously unknown problem: to cut the credit cards he received by
mail with scissors, so that one of the family members would not take it into his head
to use it. This kingdom of the absurd has also reached Russia: one of the most
advanced domestic banks also began to send out credit cards by mail. But the scope
of the problem in Russia is incomparable with American.

The result of such postal activity was only natural: mass non-payment of credit card
debts. According to the US Federal Reserve, gross "plastic debt" of Americans was
about $ 950 billion at the beginning of November 2008. This number is huge, and it
is to continue to grow — as the amount of debt grows, the amount of interest on the
overdraft increases as well, that is, the over-expenditure of funds on the account,
which ultimately results in the increase in non-payments. According to the Moody's
agency, the share of non-refundable credit card loans increased from 4.61 to 6.82%
during the period from August 2007 to August 2008, that is, its has grown by 48%. If
unemployment rates rise as well, withdrawals from credits card can take a "truly
historical scale".

Not a single analyst has sounded the alarm, and not a single economist has instructed
the bankers on the pernicious nature of their actions. Are they indeed idiots that do

2
not understand what would be obvious for anyone with some common sense — that
all this just led to no good? Did the American bankers not understand what was clear
for all of us? They all did too well. But they had one escape, one thought that calmed
their shivering. If anything happens you can always re-credit.

We should remember one very important thing: the main condition for this fuss about
mortgages and credit cards were cheap and affordable loans. And not so much for
private persons, as for the mortgage and credit organizations themselves.

If we look into the reason for the childish carelessness of American mortgage agents,
we can easily understand the same odd infantilism of the American stock exchange
brokers. Because the cause is the same. But first let's figure out what a stock is. It is a
security that certifies a contribution of funds made to the development of a joint-stock
company or an enterprise and gives its owner the right to receive part of the profit of
that joint-stock company (or enterprise) in the form of dividends. This definition can
be found in textbooks. And as such, stocks were at the dawn of capitalism. The logic
behind them was very plain: to develop, a business required funds. The funds were
granted by the investor, who received a stake in the enterprise, which was indicated
by the number of shares. At the same time, the main motive for investing in stocks
was the income they gave to their owner — dividends. Basically, someone all clever
and businesslike came up with shares and equity and found an alternative to bank
deposits. With the money you invested you could live off of your dividends, which,
with the rapid development of the economy in the 18th and 19th centuries, could be
more profitable than the interest from the funds placed in the bank. This method was
also very convenient for enterprises: by issuing and selling their shares, the business
owners attracted the funds necessary for their expansion. If things were going bad,
they could lower the dividends, or even not pay them at all. If one took a bank loan,
paying the agreed interest would be mandatory, so an increasing number of
companies was getting attracted by this idea.

3
The fist to invent and open a stock exchange were the cunning-as-ever Dutch. The
first permanent exchange was established in 1406 in the Dutch city of Bruges near
the house of the venerable van der Burs. A coat of arms was drawn on the house,
shaped as three purses, which in Late Latin were called bursa. Hence the name of the
place where people exchanged their money for a share in an other's enterprise. The
first stock exchange in Russia was opened by Peter I in St. Petersburg in 1703, who
not only adopted vital shipbuilding craftsmanship and the latest military technologies
from the West, but also some of its harmful inventions like tobacco smoking. It
should be noted that the first stock exchanges were by no means stock in the word's
today's meaning, but rather wholesale exchanges, and they were not trading
intangible papers, but rather quite tangible spices, hemp and cloth. Although not for
small sums of cash, but through exchange intermediaries and in large amounts. The
first stock exchange was the Amsterdam Stock Exchange, opened in 1608.

Why there, you say? Because it was Holland, free from the yoke of Spain, that was
the most important trading power of the time. Here then the world most money was
circulating. Properly speaking, based on the location of the main stock market, we
can determine who dominated the world at any time in history. A series of Anglo-
Dutch wars had ended, and the Dutch took the leading role from the Brits. And even
today, where are the main exchanges of the world located at? In rich and peaceful
Switzerland? In Israel, which, as conspirators claim, has deceived and entangled the
whole world? No. They are in London and New York. And it becomes clear the
world is dominated neither by the Alps dwellers, nor Jews, but by people of the
Anglo-Saxon countries.

In olden times, Parisian and London landlords lived off of interest rates and dividends
from the shares they owned. These were handed over to heirs and left in favour of
children. To own shares in strong companies meant to lead a well existence with a
guaranteed income. Say, how many modern landlords you know to live off of their
dividends? Personally, I don't know one. Yet I do have some friends among exchange
brokers. And it's not like the capital they use to enter the stock market is too small to
4
receive sufficient dividends. The fact is that for the past century the very definition of
shares has changed drastically. More precisely, it was changed.

So, what is implied here? Anyone familiar with Maths knows that the total number of
shares of any company should equal 100%. This means that the total value of a
company, that is, of all its assets (facilities, furniture, materials and manufactured
goods), should equal the value of its shares. The initial premise of shareholding was
exactly this: with investing a dollar, the investor was entitled to a share in its property
equal to the invested dollar. If the management was poor though, the overall value of
all the assets of the company would went down and the invested dollar was already
70 cents. If everything went well it became $ 1.5. But there was always an invariable
rule: the cost of shares was directly connected with the real company. Or rather, the
real state of affairs in a particular company. As the company developed, the value of
its assets grew; the dividends increased, and the value of the shares themselves grew.
And vice versa.

What would seem to have changes? Everything! Today virtually none of the stock
exchange brokers buy shares to receive dividends. All purchases on the stock market
are made for the subsequent resale and to profit from the growth of the share price.
The price indicated on a share is a par value and may be 10 roubles, but you will have
to buy it for 100 roubles. In this case, the purchase will be profitable, if the exchange
value, that is, the price at which you can sell it tomorrow, is expected to be 110
roubles. That's how the stock exchange works. The principle is simple: to buy at a
low price and sell at a higher one. And do it many times. For a month, a year, even a
day. From each successful sale there is a profit, from a failure operation a loss is
formed. Money on the stock exchange is not earned, the saying goes, they just change
their owners. In this endless "buy-and-sell" scheme there is no place for dividends.
This is not a primary target, as it used to be, but a secondary one. If payment of
dividends is coming, the share price simply increases by the expected amount. And
after some time the price goes down again.

5
It is important to understand that the dividends paid by a company do not depend on
the rate of its shares! Dividends are paid from profit, which is formed as a result of
the company's activity, and not from the rise in the quotation of its shares. Today the
two main things are the growth and fall in the value of the stock itself, and not the
revenue it may bring. Since dividends are no longer the main thing, the average time
for which an owner holds his shares is decreasing: in the 19th century it was decades,
in the middle of the 20th century — years, at its end — months, and today it came
down to weeks and even days. Just a little longer and we will be counting hours and
minutes.

So what? a critic would say. Though the system has changed a little, the principle
remains the same. A successful enterprise has an increasing shares price, while losers'
shares are getting cheaper. No. Not only has the system changed, the principle of
determining the value of the share has changed too. Now none of the most cunning
brokers will not say that the overall value of the shares of the enterprise is equal to
the value of its assets. Because the stock price can fluctuate very strongly, and even
with such giants as Gazprom that have issued a lot of these securities, a small
fluctuation leads to a million or even a billion changes in the final value of the
company. But the company itself has not changed at all. The gas is still pumped, the
towers still stand, the pipelines still work. Without gas, Europe will freeze, so the sale
is guaranteed. A share price of Gazprom may fall and very often does. Then it grows
back, then falls again. And behind all these fluctuations nothing happens in the real
economy. The absurdity of the current version of trading stocks is most is manifested
in days of instability and crises. Then the stock price goes up, like a hare jumps away
from a hound, falling for a day and growing again by 10-15%. It is clear that Siemens
or GE business cannot deteriorate or improve to such an extent in just one day.

So that this would not amuse you, a beautiful word capitalisation was invented. It
reflects the value of the company in the form of a simple arithmetic sum of the value
of all its shares. This is what they say: Gazprom's capitalisation has grown,
Gazprom's capitalisation has fallen.
6
But this does not mean that something has improved or deteriorated in the company's
work. No, it only means that the overall value of its shares has jumped up or down. It
has nothing to do with the real state of affairs.

Sometimes, the company's capitalisation can fall or grow 30% in a single day, but its
facilities were not exploded by aliens, they were not destroyed by insects, and little
green men did not suddenly start to work for free in sweatshops. Therefore, serious
businessmen, when consider buying an enterprise, say: the capitalization of company
"X" is equal to such n amount, but in fact it costs other money.

This situation is only possible with a complete unbundling of shares from the real
work of the enterprise. The share became just a thing itself and to a very small extent
reflects the real state of affairs. That's why we are witnessing an absurd scene when
shares of American investment banks that have no other property except for chairs,
computers and secretaries can grow in price, while the shares of Rosneft or Lukoil
that mine tangible products can fall in price!

Today's situation with shares, which became the mere subject of speculation on the
stock exchange market, is almost a mirror image of the equally strange situation with
the American mortgage. This is the theatre of the absurd that, as we already know is
called the market economy in the world. What is necessary for the successful
existence of the stock exchange market and mortgage? Just two things: brokers and
money. And the first ca not exist without the second. Money is always primary. The
desire for profit, as the bourgeois economists say, or for lucre, as the Marxists say, is
an inalienable property of capitalism. The whole philosophy of this system is based
on this principle: to do something, to invent, to bring and to sell for more than it
really costs. The profit is then obtained. But it is always more difficult to do
something than not doing anything. That is why the stock exchange was invented.
You do not need to embark on far trips when you can enlarge your capital on the
spot. Shares are just an additional tool for speculation, and nothing more.

7
However, this book is not about exposing the beastial essence of capitalism. It is
about something else - about the crisis and the way it is orchestrated. Concluding the
topic with shares, I'll ask you one question. Imagine that your friend, not a very close
one, came to ask for money for loan to expand his store. What would you ask him? I
believe there are several things: when the money is returned and the main thing is
what you will gain from it. And in response you will hear:

"I'll return it money in a year or two." I will dispose of them without your notice. I'm
not sure that I'll ultimately return everything I receive from you. As for the interest
rates, I do not know this either. At the end of the year, when I have a meeting with
my partners, we will decide how much you get, my dear investor.

Will you give money to such a borrower?

Then why do you purchase shares? After all, the situation is absolutely identical. You
give your money to those you do not know, the company disposes of them without
asking your advice. Earnings per share are determined at the shareholders' meeting at
the end of each year. The number ascribed you at the meeting is not sixteen, but 116.
And if you bought shares of giant company, then you will not have any influence on
its actions, of course. You are even unlikely to attend the meeting. What they decide
there, what dividends will be accrued, God knows. There is no guarantee that in a
year or two you will be able to get your money back fully: the stock price may fall.

Please do not get offended by this, dear stock market players, brokers, analysts. But
how can you call a man who invests in stocks on such circumstances? An investor?
No, a fool. If your neighbour Vasya comes to your doorstep and asks for money in all
the above mentioned words, will you give it to them? No, no one will ever commit
such stupidity in his life. And still crowds flock to stock markets. And since the stock
exchange was invented for the lazy, for the convenience of disposing with their
money, investment funds were invented. This is absurd multiplied. When you buy a
share of Lukoil, you can at least roughly imagine what this company is doing and
what kind of projections it may have. At the head of such monsters from the economy
8
are charismatic leaders with predictable (in part) moves. These companies have
property, and therefore there is a hope that you can still get something out of your
papers after the bad outcome. By giving money to an investment fund, you are
buying shares of this fund, which, in turn, buys shares of unknown companies which
do not understand how it works.

The head of the fund, a broker, an employed analyst. Who are they? Who will they be
tomorrow? What responsibility do they hold before you? Zero. They shake their
heads and smile. The game is a game. It just happened.

Such funds many funds, and fortunately, most of them are located outside of Russia.
Analysts are sometimes lament that the population of Russia has little involvement in
the stock exchange game, they say, Russians backward. In the US everyone is
playing. And in my opinion, the reluctance to dive from reality into virtual reality is
an indicator of the health and sanity of society, which is largely the same thing. In the
US, the entire abstract virtual economy is put on an industrial basis: both the
mortgage system and the stock exchange. The biggest players on the stock market are
investment banking giants with a multi-billion dollar capitalisation. They, complying
with their names, started with investments, that is, they bought shares of companies
and banks for tens of billions. And then they issued their own shares, which, feel free
to laugh, were also sold on the stock exchange. Their nominal value remained
unchanged, and the rate was constantly growing, so they were bought willingly. Most
recently, I saw sad faces of workers of the municipality of one of the small Japanese
cities on TV. The retirement savings of these old people were invested in the shares
of the largest US investment bank Lehman Brothers. But in the summer of 2008, it
unexpectedly went bankrupt. The retirement savings of the Japanese elderly were
turned into dust. No one expected this outcome. Now the municipalities are forced to
save money: they visit the elderly not on cars, but on bicycles. But to regain the lost,
they would have to twist the pedals backwards for two hundred years or so.

9
The thirst for profit, the desire to earn without working, without labour, draws more
and more players to the stock exchange. Everyone wants to make money, everyone
hopes that the exchange value of shares will grow. As the well-known economist
Alexander Livshits pointed out wittily: "In the morning people came to the office to
work with a security paper. And by the evening they suddenly found out that it was
only suitable for daily needs. "

The exchange is like gambling, it is kind of casino. This comparison is used very
often. But it's not entirely true. For a casino, as for a stock exchange, two things are
also required: players and money. However, in the casino, a person makes a bet
himself, he makes his choice himself. And with the exchange, a good half of the
circulating shares belongs to companies that have no money on them, except for the
same shares of other companies. That is, in this case, the player doesn't go to the
casino himself, but trusts his bet to a certain structure, only to receive a receipt of
benefit, which, in fact, is the share. And then the real fun begins. This structure also
does not go to the casino, but trusts another company to play by buying its shares

10