Vegas Hotel Worker Warned Police Of Shooter Before Massacre Began

In one of the most shocking developments to emerge in the week-and-a-half since Stephen Paddock killed 59 people and wounded more than 500 others during the worst mass shooting in US history, NBC is reporting that a maintenance worker said Wednesday he told hotel dispatchers to call police and report a gunman had opened fire with a rifle inside Mandalay Bay before Paddock began firing on the Harvest country music festival below.

Worker Stephen Schuck told NBC News that he was checking out a report of a jammed fire door on the 32nd floor of Mandalay Bay when he heard Paddock shoot security guard Jesus Campos in the leg. After the shooting, Campos peeked out from an alcove and told Schuck to take cover.

“As soon as I started to go to a door to my left the rounds started coming down the hallway,” Schuck said. “I could feel them pass right behind my head. “It was kind of relentless so I called over the radio what was going on,” he said.

 

“As soon as the shooting stopped we made our way down the hallway and took cover again and then the shooting started again.”


 

Paddock fired more than 200 bullets into the hall and nearby rooms at the beginning of his deadly rampage on Oct. 1.

Somehow, Schuck avoided the bullets.

"I am incredibly blessed that somehow I came out of there alive," Schuck added.

Before Las Vegas Police unveiled the latest "narrative change" during a Monday press conference, it was believed that Campos had been shot after the rampage, not before. The changeup has raised questions about why Paddock chose to end his rampage and take his own life with a gunshot blast to the head when evidence in his room and truck suggested he intended to escape.

According to the official timeline, Campos was injured at about 9:59 p.m. Six minutes later, at 10:05 p.m., Paddock fired the first shots on concertgoers.

A police SWAT team got to the 32nd floor at 10:17 p.m., and a minute later learned that the security guard was hit and where the shots were fired from.

Mandalay Bay owner MGM Resorts said in a statement that it cannot comment about the ongoing investigation, but raised questions about the timeline since "many facts are still unverified."

The report has raised questions about whether there was a lapse in communication among first responders that delayed their arrival on the scene.

The police's latest timeline means it took 19 minutes for Las Vegas police to learn where the fire was coming from, information that Schuck had already relayed to hotel dispatchers.

In an audio recording of Schuck's dispatch call released by NBC earlier today, Paddock's first shots into the hallway are clearly audible.

 

San Diego’s Deadly Hepatitis A Outbreak Turns “Statewide Epidemic” As “Outbreak Could Last Years”

A few weeks ago we highlighted the staggering outbreak of Hepatitis A in San Diego that had infected 400 people and killed more than a dozen.  The outbreak was first identified in early Marchaccording to the county, and declared a public health emergency in September.

But, as the LA Times points out, the hepatitis A outbreak that started in San Diego is now on the verge of reaching statewide epidemic status, as cases have spread through homeless tent cities all the way north to Sacramento.

California’s outbreak of hepatitis A, already the nation’s second largest in the last 20 years, could continue for many months, even years, health officials said Thursday.

 

At least 569 people have been infected and 17 have died of the virus since November in San Diego, Santa Cruz and Los Angeles counties, where local outbreaks have been declared.

 

Dr. Monique Foster, a medical epidemiologist with the Division of Viral Hepatitis at the U.S. Centers for Disease Control and Prevention, told reporters Thursday that California’s outbreak could linger even with the right prevention efforts.

 

“It’s not unusual for them to last quite some time — usually over a year, one to two years,” Foster said.

Hepatitis A is commonly transmitted through contaminated food. The only outbreak in the last 20 years bigger than California’s occurred in Pennsylvania in 2003, when more than 900 people were infected after eating contaminated green onions at a restaurant.

California’s outbreak, however, is spreading from person to person, mostly among the homeless community.

The virus is transmitted from feces to mouth, so unsanitary conditions make it more likely to spread. The city of San Diego has installed dozens of handwashing stations and begun cleaning streets with bleach-spiked water in recent weeks.

Meanwhile, the outbreak has made its way to Santa Cruz and L.A. counties, where 70 and 12 people have already been diagnosed, respectively, as public health officials warn that the worst is likely far from over.

San Diego County declared a public health emergency in September because of its hepatitis A outbreak.

 

Since November, 481 people there have fallen ill, including 17 who died, according to Dr. Eric McDonald with the county’s health department. An additional 57 cases are under investigation, he said.

 

Officials from both counties say they’ve vaccinated thousands of homeless people and will continue to do so.

 

New cases linked to the outbreak might not appear for weeks, because it can take up to 50 days for an infected person to show symptoms, said Santa Cruz public health manager Jessica Randolph.

 

“I don’t think the worst is over,” Randolph said.

Hep A

Of course, as we pointed out earlier this year (see: Shocking Video Footage Of Sprawling California Tent City), sprawling tent cities have been popping up all over California for years and are called home by 1,000s of residents in even the most posh cities from Newport to Santa Cruz.  All of which has prompted a wave of vaccinations and a “review of sanitation protocols for homeless encampments”…which we’re sure will be followed very rigorously by residents.

In Orange County, which has had two hepatitis A cases linked to the outbreak, public health workers have given out 492 vaccines, mostly to homeless people, officials said. County nurses have also been visiting shelters and parks to vaccinate people.

 

Some officials, including in Riverside and Sacramento counties, also said they were reviewing their sanitation protocols for homeless encampments. An L.A. councilman recently called for more toilets in neighborhoods such as skid row and Venice in light of the local hepatitis cases.

 

In Oakland, city workers, represented by SEIU Local 1021, sent a letter to City Hall last month saying they feared a hepatitis A outbreak in the region’s homeless community. So far, there haven’t been any cases in Oakland or the rest of Alameda County, but city safety steward Brian Clay said he believed the city has allowed unsanitary conditions in homeless encampments.

 

“There’s syringes, there’s human feces, there are dead animals, rats alive, and dead rats … pee bottles, five-gallon buckets used as toilets,” Clay said. “We’re definitely concerned about this added threat of hepatitis A.”

As Breitbart points out, California’s tent cities are the direct result of “proactive” legislation that forbids police from dispersing homeless people living in tent cities between the hours of 9pm and 5:30am.

California homeless advocates have been successful across the state in forcing cities to accept the homeless living in large tent communities on public property. The advocates refer to anti-homeless ordinances as the modern-day equivalent to post-slavery Jim Crow and Depression era anti-Okie laws that allowed police to disperse people deemed “undesirable” after dark.

 

The City of San Diego was forced to sign the Spencer Settlement in 2006, which forbids its Police Department from enforcing the city’s “Illegal Lodging Enforcement Guidelines” between the hours of 9 pm to 5:30 am.

 

California, with 115,738 homeless, now accounts for about 21 percent of America’s total homeless population. Due to legal settlements against vagrancy laws, about 72.3 percent of California’s homeless are unsheltered, usually living in tent cities.

If you like your socialist utopia, you can keep your socialist utopia.

Brandon Smith: A Tactical Analysis Of The Las Vegas Mass Shooting Incident

Authored by Brandon Smith via Alt-Market.com,

I set aside some time for more details of the Vegas shooting to emerge before writing this article. A few important data points have been released, but I have to say that this remains one of the most confusing terror incidents in decades.

The tactical and strategic thought applied in this attack denotes a sophisticated and experienced shooter, yet, we are told by Stephen Paddock's family and girlfriend that there was no indication that he had such knowledge or experience. There were some advanced tactical decisions involved in every aspect of the staging of the event, yet, there were also a few glaring mistakes that do not fit. Beyond this, there is evidence that Paddock (the alleged shooter) did not act alone, yet, the official mainstream narrative continues to tell us that he was a lone wolf.

Now, every terror event these days produces an endless supply of alternative theories, some practical and some ridiculous. I will be keeping my theories to a minimum here, because I don't think they serve much purpose in this instance beyond comfort for those that desperately want explanations. What I will be doing is presenting some questions and pointing out inconsistencies. My goal is merely to show that there is evidence which indicates far more complexity to the Vegas shooting than the mainstream media and federal officials are willing to discuss.

First, lets look at how the attack was staged versus what we are told about the background of Stephen Paddock.

Mass Shooter Psychological Profile

Psychological disposition is the root of tactical behavior.  It is important to note that mass shootings are an extremely rare occurrence despite the propaganda often poured onto the pages of the mainstream media. Psychological profiling of the people behind these crimes is difficult because the number of candidates is very small. There are, however, some common themes.

For example — many mass shooters are motivated by revenge or envy. Shooters often exhibit signs of sociopathy, a self-centered nature and a lack of compassion along with past instances of abuse and violence towards other people and animals. There is also usually a previous history of mental illness. In most cases there is a "triggering event" which leads to a psychological break and a reaction to violence.

According to the personal accounts from the people that knew Paddock, including his girlfriend, none of these attributes seems to fit. Marilou Danley described him as a "kind and caring man," stating that he had never taken any action which would have led her to believe he was capable of such violence. The only factor that stands as evidence of a potential psychological break is the fact that Paddock was prescribed the anti-anxiety drug diazepam months prior, which has been known to cause aggression when taken in larger doses.

Did Paddock take this drug because of unrelated anxiety and did it trigger his shooting spree? Or, was his anxiety caused by the fact that he was already planning a shooting spree and the drug was meant to "take the edge off" so he could more easily follow through with the attack?

Paddock was prescribed the drug once in 2016 and on June 21st of this year.  I have seen no evidence that he was using the medication in the days before the attack.  The meticulous planning that went into this attack, as well as possible evidence that Paddock was renting rooms adjacent to major musical events for some time, shows that this was not initiated by a psychological break. Rather, there was a considerable level of conscious critical thought and foresight.

There is also no available evidence of domestic instability or financial troubles. Paddock was a multi-millionaire with a successful real estate investment portfolio. He was a former postal worker and tax auditor, as well as an employee for defense contractor Lockheed Martin (I have not seen any statements by Lockheed on what exactly he did for them). It should be noted that Paddock, at age 64, was one of the oldest mass shooters in recent history.

Paddock's father, a bank robber on the FBI's Most Wanted list, was not present for the most of the early lives of the children according to his brother, Eric Paddock, which undermines the notion of poor environmental influences.

Eric Paddock claims Stephen also had no strong ideological or religious leanings and simply "didn't care" about such matters. Meaning, no apparent ties to extremist views. He had no social media profiles and police claim they have found nothing in his home computers or phones to suggest a philosophical or political motive. So far I have not seen a single concrete and verified piece of evidence proving Paddock believed in anything other than making money, gambling and traveling the world for fun.

I personally find this extremely hard to believe. Stephen Paddock, for all intents and purposes, was positively the perfect "Gray Man," a ghost that blended completely into the background, so much so that his own family and girlfriend had no idea that he was amassing the weapons and training needed to pull off the Vegas attack.

The Tactical Know-How Of A Nobody

This is the area which brings up the most questions for me in terms of the Vegas incident. As an avid tactical shooter and long distance shooter, I immediately recognized some strange factors. For instance, the choice of his perch, two adjacent rooms on the 32nd floor of the Mandalay Bay Hotel, was rather effective for a number of reasons.

If you have the chance to study counter-sniping methodologies or talk with veterans involved in counter-sniping in urban areas, you will learn that the most successful snipers tend to choose mid-ground perches to take shots from. Meaning, they never choose the highest points nor the lowest points, and never shoot from the closest points or the furthest points. Well trained snipers can and do sometimes shoot from 1,000 yards or more, but they prefer to shoot from the "sweet spot" around 300-400 yards away at an elevated point from an expedient hide in the middle of a building or structure.

They do this because when people (including trained combat soldiers) are shot at, their eyes naturally tend to scan for the highest points in the background and the closest points in the foreground first. Choosing mid-ground positions makes snipers more difficult to pick out quickly and also harder for the average person to shoot back at.

I would note that average, untrained mass shooters are more likely to enter a crowd and start shooting at point blank range in order to ensure hits on targets. Paddock chose the position of a trained shooter, which you can see a photo of in this article by The New Yorker. It was NOT the best possible position, but a very good one.

Paddock's choice to fire from the position of a large occupied hotel gave a layer of cover to his attack; anyone attempting to suppress him with their own fire would risk hitting innocent people within the building.  Only a person with an understanding of counter-sniping and a scoped rifle would have the ability to stop the attack from outside.  Nevada is a very concealed carry friendly state and attacking a crowd at close range on the ground would be a high risk scenario.  Firing from the Mandalay was the shooter's most likely chance of a high body count without meeting opposition, as long as he had the proper training.

The first room Paddock used in the Mandalay is in the corner of the 32nd floor with a view of the concert area and the north. It has a diagonal range of around 400 yards and a linear range of around 240 yards. When firing from an elevated position snipers range targets and bullet drop according to the shorter linear range or "true ballistic distance" (base of the ground to the target) rather than the direct range from their perch to the target. This is because gravity only affects the bullet over the true ballistic distance and elevation in a scope must be adjusted to that distance. It is not as easy as it seems to hit targets from an elevated position, even with an "automatic" weapon.

It has been recently stated by Las Vegas police that the "note" found near Paddock's body was scribbled with calculations for bullet drop from his position. These calculations can be done with newer laser rangefinders, but Stephen apparently chose to do them on paper. Las Vegas Detective Casey Clarkson was on the grounds of the concert during the attack, and recounted "I'm like, how is he so accurate" (in reference to Paddock) in an interview with 60 Minutes. Yet another piece of evidence showing that Paddock (or someone else) had extensive shooter training.

The two adjacent rooms at the Mandalay offered extensive coverage of possible approaches for first responders. The first room gave the shooter good coverage of the concert and the north approach of Las Vegas Blvd. The second room gave the shooter a very wide angle of coverage to the south approach to the Mandalay as well as the main entrance of the hotel. More tactical know-how on display.

Finally, Paddock allegedly placed small surveillance cameras in the hall approaching his room. A valuable tool which a shooter could use to surprise law enforcement, maintaining a longer period of shooter effectiveness as well as possibly allowing for an escape. Las Vegas police are quoted as stating that it appeared as though Paddock had planned to evade capture. This fits in line with the rest of his tactical staging. His suicide does not.

Things That Don't Add Up

Again, I am not going to enter into much discussion on theory, here. I am only going to cite some instances of evidence and narrative that, for me, do not make sense.  Let's begin…

The motive: No apparent motive. Paddock led a life of near luxury, had a happy relationship with his girlfriend and gave no indication to anyone of any instability or ideological affiliation. He had no criminal record. He was also well beyond the average age range of people commonly involved in such crimes. He does not fit any of the characteristics of mass shooters.  Period.

The arsenal: Paddock put a substantial amount of thought and planning into the position of his perch as well as a potential escape. He had the knowledge and experience to calculate accurate shots from an elevated position at distance. But, for some reason the 64-year-old-man decided it was warranted to drag at least 23 guns and hundreds of pounds of ammunition in ten separate suitcases to his room at the Mandalay Bay. A person with the intelligence displayed in the planning of this event would know that most of these rifles were not needed in the slightest to achieve the effect desired. They are dead weight, and moving them into the Mandalay only presented unnecessary risk of discovery. Unless, of course, the original plan involved multiple shooters.

A strange year?: Family and acquaintances have mentioned Paddock's propensity for "disappearing" in the year previous to the Vegas attack. And, there is the fact that 33 of the 47 firearms Paddock owned were purchased in the last 12 months.

Security calls: Paddock called hotel security at least twice to complain about "loud music" on the floor below him the day of the shooting.  Why would a mass shooter care, or take the risk of drawing too much attention to himself?

The windows: Why, after so much careful planning, did Paddock expose his position by smashing two separate windows in his adjacent hotel rooms? There are other ways of providing a shooter's loophole with less exposure? Very odd.  Almost as if the decision to actually shoot was made suddenly, which does not fit the rest of the narrative or evidence.

"Unrelated" room alarm leads security right to Paddock: The Las Vegas Sheriffs Department indicates that security was originally led directly to the floor that Paddock was shooting from by a "door alarm" that was set off by someone three rooms down from him. Now, authorities have been forced to admit that this alarm and the confrontation between security and Paddock took place BEFORE he began his shooting spree.  This means that police should have been alerted to Paddock's presence and exact location in advance of the attack.  Who set off this alarm which conveniently helped to give away Paddock's position early, and why?

The surveillance cameras: Paddock had a head start on security, SWAT and anyone else that approached his rooms. He fired at hotel security through his door injuring employee Jesus Campos. He also had thousands of rounds of ammunition including .308 rounds which could easily be fired through several walls on the floor of his hotel room. Why did Paddock prepare for an escape, use his cameras to allow him to fire at hotel security through his door, equip rounds capable of annihilating any SWAT team that stacked up to breach his room, but decided to shoot himself instead before SWAT ever entered? Some people might argue that there is no logic to the mind of a "madman," but again, I've seen no evidence that Paddock was insane beyond the criminal act itself.  Also, the hotel had its own surveillance in the hall near Paddock's rooms.  No one noticed the man placing cameras about the area?

Multiple shooters?: Las Vegas County Sheriff Joseph Lombardo is quoted as saying that it was only logical to assume given the evidence that Paddock "had some help at some point" in the staging of the Vegas attack. To me, this is absolutely clear in the tactical planning.  Paddock does not appear to have the background or training to have chosen and staged the perch.

The report suggesting that a phone charger was found that did not belong to Paddock has since been refuted by police, as well as the report that his card key was used to access his room while Paddock was gone. Of course, hotel surveillance would prove this one way or the other and should be made available to the public.

Still, there are multiple accounts by witnesses that there may have been a second shooter, including the initial reports given by first responders on the scene, who were told a shooter was on the 29th floor as well as the 32nd floor.  All of these accounts have been dismissed as a result of "panic" and the fog of war.

The mystery woman: A witness on site at the concert stated that a woman (and her apparent boyfriend) approached people near the stage 45 minutes before the attack, telling them that "they were all going to die." She was later escorted out of the venue by security. Who was this woman? Was she trying to menace the concertgoers or warn them? Or, was it all coincidence?

Conclusion

In my view, there is simply no way that a man with Stephen Paddock's history and background committed the Vegas shooting alone.

There is no motive, no clear evidence of mental illness, no ideological markers and nothing to be gained. The tactical expertise displayed in most cases shows considerable training. Theories will abound.

It is possible that he was used. It is also possible that he was secretly radicalized and trained, as ISIS has continuously asserted since the attack. Or, perhaps he never pulled a single trigger and somehow ended up shot through the head in a room full of guns overlooking Las Vegas Blvd. and dozens of dead concertgoers.

The most disturbing aspect of this event and the mainstream narrative, though, is what it insinuates.

It insinuates that anyone no matter how seemingly normal could one day simply "snap" and murder crowds of people with impunity.

It is the anti-Second Amendment narrative personified, because if "anyone" is capable of such horror, and motive is nonexistent, then the mere existence of firearm access means that we are surrounded by millions of latent mass shooters.

That is to say, we are supposed to fear everyone around us at all times.

I will write about the solution to this problem in my next article. In the meantime, I suggest everyone ponder on the oddities of this event and continue to ask questions.

FBI Reportedly Investigating Harvey Weinstein

The FBI has opened an investigation into Harvey Weinstein for alleged sex crimes, the DailyMail reported on Wednesday evening, a move that reportedly came at the behest of the DOJ which instructed the bureau to investigate the mounting allegations leveled at the movie mogul. The move comes amid rumors that Weinstein plans to head to Europe for sex rehab – leading to fears that Weinstein could attempt to pull a “Roman Polanski” where he lands in some non-extradition country in Europe to dodge U.S. prosecution.

The FBI can both look at whether he has committed any federal crimes in the U.S. and prepare extradition proceedings if he remains in Europe.

The Mail writes that while it is unknown whether the DOJ order came directly from Attorney General Jeff Sessions, the probe will likely be seen in a political light given Weinstein’s friendship with Trump foe Hillary Clinton. Additionally, it is not yet known if Sessions gave the direct order or if Trump requested the investigation, however the president has previously said he wasn’t surprised by the sexual harassment and assault claims made against Weinstein.

Trump said shortly after news of the shock report on Thursday: ‘I’ve known him for years. I’m not surprised.’

Among the allegations against Weinstein, which the FBI is expected to examine, is that he forced Lucia Evans, a student who wanted to be an actress, to perform oral sex on him in New York in 2004. And since New York State has no statute of limitations on rape and criminal sexual acts – its legal term for forced oral or anal intercourse – Weinstein may be out of luck if Evans, or any other number of women who have stepped up in recent days, decides to press charges.

Ironically, even escaping to Europe may not help the scandalous former movie exec: So far five accusers have given accounts of attacks in France, while allegations of attacks in London have also surfaced – any of which could lead to charges there. Additionally, the FBI has field offices in both countries and could assist prosecutors there with their cases.

Weinstein was a big donor for Hillary Clinton, who kept silent for five days after the accusations emerged, before finally denouncing her longtime friend in a statement on Tuesday;

“I was shocked and appalled by the revelations about Harvey Weinstein. The behavior described by women coming forward cannot be tolerated. Their courage and the support of others is critical in helping to stop this kind of behavior.”

She has, however, remained silent on the crucial issue of the vast amount of cash Weinstein donated directly to her and her family.  The move by the DOJ comes as it emerged the movie mogul has taken on top criminal defense lawyers Blair Berk and David Chesnoff. Berk has represented A-listers like, Mel Gibson, Johnny Depp, Britney Spears, Kiefer Sutherland, and Lindsay Lohan, while Chesnoff’s clients have included Vince Neil, Bruno Mars, Paris Hilton, Leonardo DiCaprio and the family of Michael Jackson.   The pair will join his expanding legal team following an article in the New Yorker, which alleged three women were sexually assaulted by him.

Up to 30 women have now come forward to make allegations of sexual misconduct

Trump To Sign Executive Order On Obamacare Tomorrow Morning

As first previewed over the weekend, tomorrow at 11:15am, President Trump will sign an executive order aimed at taking action on health care, or as the White House put it, “to promote health care choice and competition”, after Congress’s failure to repeal ObamaCare.  The order – which is expected to further weaken Obamacare – should, in theory, ease rules on small businesses banding together to buy health insurance, through what are known as association health plans, and lift Obama administration limits on short-term health insurance plans, according to a source on a call with administration officials Wednesday night.

According to The Hill’s sources, the order will direct the Department of Labor to “modernize” rules to allow small employers to create association health plans. Small businesses will be able to band together if they are within the same state, in the same “line of business,” or are in the same trade association. 

Needless to say, this latest attempt to dismantle Obamacare did not make the likes of Andy Slavitt, who ran Medicare, Madicaid and Obamacare under Obama, happy, and he took to twitter to make it clear:

Slavitt’s slamming aside, it does not appear that the order will go as far as some Democrats feared, though: liberals are worried that the order will undermine the stability of ObamaCare markets because healthy people will be attracted to the cheaper, new association health plans, which do not have the same protections, leaving only sicker people remaining in ObamaCare plans. However, according to The Hill, it does not seem that individuals will be eligible to join the association health plans, which would be a more sweeping move.

The source said administration officials did not mention individuals joining the association health plans, only referring to small businesses being able to join.

That would steer the changes clear of disrupting the individual market, which is the core of ObamaCare.

Still, the order will lift Obama administration limits on short-term health insurance plans, allowing the plans to last as long as 12 months and be renewed. The change to short-term health insurance could damage the stability of ObamaCare.  The fear from Democrats is that healthier people will migrate to cheaper, short-term plans, leaving only sicker people in ObamaCare plans and driving up premiums.

The source said the new rules for short-term plans are where administration officials think the order will have the “most immediate impact.”

 

The order will also allow people to use tax-advantaged accounts known as Health Reimbursement Accounts to pay for their premiums.

Meanwhile, as democrats scream bloody murder around 11am tomorrow when Trump is signing the EO, one person will be delighted: Sen. Rand Paul has been pushing for this order for months, arguing that allowing small businesses to band together to buy insurance gives them leverage to lower premiums. Paul is expected to be in attendance at the unveiling at the White House on Thursday.

Goldman Is Allowing Its Clients To Bet On The Next Financial Crisis

Just over a decade ago, as the S&P was hitting all time highs and there was a line around the block of 30-some year old hedge fund managers, desperate to put other people’s money in various ultra risky investments just so they could pick a few excess bps of yield over Treasurys – a situation painfully familiar to what is going on now – Goldman had an epiphany: create new synthetic products that have huge convexity, i.e., provide little upside (such as a few basis points pick up in yield) versus unlimited downside, link them to the shittiest assets possible and sell them to gullible, yield-chasing idiots (collecting a transaction fee) while taking the other side of the trade (collecting a huge profit once everything crashes). The instruments, of course, were CDOs, and not long after Goldman sold a whole of them, the financial system crashed and needed a multi-trillion bailout from which the world has not recovered since.

Ten years later, Goldman is doing it again, only instead of targeting subprime mortgages, this time the bank has focused on quasi-insolvent European banks.

And just like right before the last financial crash, Goldman is once again allowing its clients to profit from the upcoming collapse, or as Bloomberg puts it, “less than a decade after the last major banking crisis, Goldman Sachs and JPMorgan  are offering investors a new way to bet on the next one.”

The trade in question is a total return swap, a highly levered product which is similar or a credit default swap but has some nuanced differences, which targets what are known as Tier 1 , or AT1 or “buffer” notes issued by European banks, and which usually are the first to get wiped out when there is even a modest insolvency event (just ask Banco Popular), let alone a full blown financial crisis.

Goldman and JPM are offering the derivative trades that enable investors to bet on or against high-risk bank bonds that financial regulators can wipe out if a lender runs into trouble. Other banks are also hoping to get in on the fun, and start making markets in the contracts, known as total-return swaps, or TRS, in the coming weeks, according to Max Ruscher, the London-based director of credit indexes at IHS Markit Ltd., which administers the benchmarks that the swaps are linked to.

Why now? Bloomberg explains:

At a time when financial markets are racing from one high to another, and even the new Nobel laureate in economics is wondering aloud about investor behavior, the development is at once a sign of the headlong global race for investment returns and nagging worries that the investors may be getting ahead of themselves.

Just like with CDS, the security underlying these trades is debt, in this case what is known as additional Tier 1 notes, or AT1s, which banks started issuing after the European debt crisis. Since they were created to protect taxpayers from bearing the cost of government bailouts – and are therefore the first instrument to get bailed in (usually alongside the equity) – they pay generously high yields. And just like CDOs ten years ago, in today’s era of near-zero interest rates, they’ve become sought after by debt investors around the world, ballooning into a $150 billion market: according to BofA index data, the average yield on AT1 debt is about 4.8%, around 10 times that for senior bank bonds.

To be sure, it’s not just yield-chasing fanatics: as shown in the chart below…

… at least some of the demand for the new derivatives is coming from investors looking to hedge their exposure and protect themselves should prices of the debt drop… or in the case of another banking crisis erupt. Those risks became apparent in June, when AT1s issued by Banco Popular Espanol were wiped out as part of a bank rescue, after trading at part just months earlier.

 

The good news for Goldman is that whether for hedging or prop trading, the TRS is in great demand:

“Some participants are looking to get exposure to an asset class while others are hedging their positions,” according to a report on IHS Markit’s website. “On one side of the TRS trade, the index buyer anticipates that the total return of the index will rise. The index seller on the other side takes the opposite view.”

But if all the TRS does is payoff in the event of a technical default, why not just buy CDS to hedge AT1 exposure (or simpy to naked short)? The answer is that unlike with conventional trigger events, banks can skip coupon payments on the bonds without triggering a CDS default.

So they needed something new, and that’s where Goldman’s TRS emerged. As for the similarities to CDS, total-return swaps allow investors to hedge a single name or a basket of AT1s, and traders can make amplified gains – or potentially outsized losses – without having to own the underlying notes or tie up large amounts of collateral.

The good news – for Goldman clients – is that they can now start putting on a very, very cheap hedge with almost no negative carry ahead of the next financial crisis. And just like before the last financial crisis, Goldman is delighted to make the markets, in this case in swaps tied to an iBoxx index of dollar-denominated bank-capital notes and a gauge of similar euro bonds. The two indexes include AT1s issued by lenders such as Banco Santander SA, Deutsche Bank AG and HSBC Holdings Plc. In other words, anyone who shorts the product will make out like a bandit should some of Europe’s biggest banks suffere an “unexpected” financial crisis.

Just like Lehman.

Explaining the need for the TRS, Manav Gupta, Goldman’s co-head of European credit flow trading, who confirmed to Bloomberg the bank is making markets for the trades said that the swaps on bank-capital note indexes “will be a very useful addition to the toolkit that our clients use in managing risk and taking broad-based exposure to the AT1 market.”  Similarly, a spokesman for JPM also confirmed the bank is offering swaps on iBoxx indexes. Other have also jumped on board: Deutsche Bank started trading total-return swaps referencing Bloomberg Barclays indexes last month and plans to trade on iBoxx gauges, a spokesman said. Which is ironic: the biggest payoff to the TRS would come if Deutsche Bank suffers another liquidity, or solvency, event and its AT1s get wiped out.

Which begs the question: will vindictive Deutsche Bank traders bet the bank, so to speak, that their bank will be the next to tank? Of course, if they are right, there will be no middle or back office to collect the funds.

As for everyone else, now that both Goldman and JPM have once again announced it is “open season” for hunting banks, you may want to keep a close eye on unexpected risk-flaring episodes, first out of European banks and then everywhere else.