Posted to 22 March 20007 (Commercial Intelligence Portal Page)
This financial analyst, Jim Willie, editor of THE HAT TRICK NEWSLETTER,
often sounds a bit extreme, but he's been absolutely correct the last year or
two.
The following article makes grim reading, but crucial reading for anyone who
wants to comprehend what's happening, and about to happen, and why.
While he does not mention Iran, it becomes painfully clear that Washington will launch a hair-raising attack on Iran the moment the Great Crash of 2008 goes Terminal, in order to distract American citizens, and the world as a whole, from the financial disaster going ballistic. Note that the Germans who dominate the ECB are resisting trying to rescue the dollar, throwing good money after bad. Why should Europe save Washington from the consequences of a century of extreme corruption? One can only hope that Dubya will go down in history as the president who tickled America's throat, causing Americans to regurgitate all the vileness.
But will Americans regurgitate, or go back to sleep?
Sterling
______
Cliff Notes on Financial Maelstrom
By Jim Willie CB
Mar 20 2008 10:48AM
BROKERAGE FIRMS REEL
Bear Stearns was fed to the wolves, an easy correct forecast from last
early autumn. Denials nowadays constitute confirmations, from mere
mention. Their refusal in 1998 during the LongTerm Capital Mgmt bailout
to act like a Wall Street team player was the hidden motive to carve
them into pieces. One must ask why last Friday it traded around the
$30/share price all day long after 10am. The answer is easy, as they
wanted to give insiders a chance to sell most of the 186 million shares,
a gift of $5 billion sure to anger many. My view is that JPMorgan took
its best assets at discount, tossed much of the damaged assets into
their Wall Street garbage can, which is never emptied, never sees any
balance sheet, blessed by the US Federal Reserve, protected to new
security laws. If Bear Stearns share holders reject the JPM seizure
takeover, then the gem Bear Stearns headquarter building in Manhattan
can be bought by JPM for a song. Actually, JPM might have only started
the bidding process, sure to result in JPM upping their own bid.
BStearns has (or had) 14 thousand workers, most having been paid in
stock share bonuses in recent months. The economy in New York City is
sure to be badly harmed, worse than already. Wall Street jobs account
for 35% of NYCity wages.
The other story not told is that Bear Stearns was dissolved before the
wrecked investment bank had a chance to take advantage of the Term
Security Lending Facility. It will be made available by the USFed at the
end of March. The sleazy hogs on Wall Street wanted to remove one player
at that window. The other story not told is that a liquidation of Bear
Stearns would inevitably have resulted in a massive credit derivative
meltdown. The consequences cannot be estimated. The derivative upside
down pyramid is mammoth. No precedent exists for its partial unwind or
dissolution. The pyramid holds together the entire USTreasury complex,
attached to interest rate swaps, attached to credit default swaps of
various types, and so on. This pyramid is leveraged 70 to 1. The talk is
funny though, since the USFed has backstopped only $30 billion in Bear
Stearns securities. What about the other $800 to $1500 billion rancid
bonds floating within striking distance to Wall Street and major bank
balance sheets? In truth, we might later learn that Bear Stearns helped
to bail out JPMorgan, in helping to shore up its credit derivatives, in
providing some emergency collateral, soon to bust, to prevent a JPMorgan
failure!!! JPMorgan owns $7.778 trillion of credit derivatives, two and
half times as much as Citigroup, the same toxic stuff that crippled
Citigroup. JPMorgan skated on this one without publicity.
The other story is that Bear Stearns CEO Alan Schwartz assured just last
week that all was well, liquidity was adequate, and the company was in
good shape. Enron CEO Ken Lay said the same thing. And lest one forget,
Enron and Bear Stearns have a common denominator in JPMorgan being a key
player in the operations and agent during the demise of the two firms.
JPM taught Enron everything they knew about offshore special purpose
entity firms, yet they escaped all legal challenges by losing clients in
court. When the USFed frees JPM from liability on any losses from
collateral submitted by Bear Stearns, one has to giggle since the USFed
is JPMorgan. Think consolidation of the best bond assets in JPMorgan's
hands. Think more damage and consolidation upon the next victim, like
Lehman Brothers. Think building the Fed Reserve bank system. The
Mussolini Fascist Business Model might be opening a new chapter.
The XBD banker broker dealer stock index had a horrible day on Monday,
with some repair on Tuesday and Wednesday. The XBD stock index fell 11%
in a visit to hell and back, rendering big technical damage to many
component stocks, especially Lehman Brothers. LEH fell by 19% on Monday.
Goldman Sachs was down 10% early in the day, closing down 4%. Citigroup
lost another 7% after being down almost 10%, UBS lost 11%, Morgan
Stanley lost 8%, Merrill Lynch lost 4% after being down 8%. The stock
price action tells the wary observer to expect a challenge or near death
experience for Lehman Brothers, possibly worse. Their portfolio is
similar to Bear Stearns, only larger. The mortgage bond damage will next
shift to the prime adjustable mortgages, so reckless in their
innovation. They will crater this summer upon rate reset, victims of
their own written time bombs. Thus the deserved name of Exploding ARMs.
Even USFed Chairman Bernanke acknowledged last week that 40% of all
mortgage defaults are prime, not subprime. On two days, the XBD broker
dealers recovered most of the loss. The broker dealers play a
significant role, to manage the execution of official policy, full of
the requisite manipulation and corruption of markets. See the management
of the credit derivative pyramid, the gold ambushes, the currency
interventions, the collusion with the debt ratings agencies, and even
possibly the intimidation of the monoline bond insurers to serve as the
bagholders in the historically unprecedented international sale of
fraudulent mortgage bonds. Can anyone defend against my claim that the
Untied States upper echelons represent institutionalized and protected
dishonesty???
My warning quip to the idealists among us has been often used lately,
when people salivate over the prospect of chronic conmen suffering deep
losses, enduring insolvency, incapable of shame, yet almost certain to
end up in some form of bankruptcy. My stated line is "Beware when
billionaires face bankruptcy, since they make a phone call and change
the rules. Often those rules conflict with your strategy and plans."
This time the rules might be concerning gathering wealth from strategies
that oppose the defense of a national financial integrity. This time
those attempting to secure their wealth and protect it from illicit
national grabs and seizures might be labeled as unpatriotic. This time
the system has been virtually broken by decades of destructive
inflation, of misspent funds, of grand theft(see Fannie Mae and military
contractors), of encouraged abandonment of the manufacturing sector, of
destructive emphasis of a war economy footing, of irresponsible Medicare
guarantees, of harmful demographic shifts, and lately of incredibly deep
bond fraud. The bond fraud episode is the crowning finale of the US
banking system, with toxic outlets to most global banking centers. One
might wonder if it were planned.
REMINISCENT OF GREAT DEPRESSION
When Bear Stearns was dissolved and its assets rescued, the USFed and
JPMorgan invoked a feature of banking policies not used since the Great
Depression. Too many other comparisons can be made to that dreaded era.
The bank insolvency is the biggest commonality. The ability to print
money, shovel printing press output from one room to another easily,
permit phony accounting of balance sheets, hide within offshore
subsidiaries, and extend the risk model to great heights, these are new
& better innovations not available 70 years ago. Well tragically, these
innovations are being unmasked as thin, flimsy, unable to withstand
storms, and possibly even fraudulent. As the stock market and bond
market suffer blow after blow, fail to stabilize, fail to recover, only
to endure more breakdown in the structure, memories come to the Great
Depression, when recoveries only led to deeper losses as the catastrophe
unfolded. This time around, another catastrophe is expected in a bank
system meltdown, a bond system total seizure, and a risk model system
dissolved.
Amidst all this maelstrom, one must ask if wisdom prevailed during the
Clinton Administration to repeal the Glass Steagall Law from the Great
Depression era. That law created the Federal Deposit Insurance Corp for
insuring individual banks and depositors, up to $100k per account. The
law also blocked any attempt to merge banks, brokerage firms, and
insurance companies. The legislation intended to protect a meltdown to
spread to all critical structural elements of the financial system. With
the Glass Steagall repeal, one has to wonder if some destruction was
planned, or else a major consolidation was the ultimate goal. My belief
is firm, that powers in Old Europe and London that control the USFed
more than is publicly known are restoring power back to Switzerland.
They have resented the arrogant and reckless US bankers for two
generations.
By the way, the FDIC insures bank accounts. But the SIPC guarantees
participating brokerage accounts up to a $500k limit, plus $100k on cash
accounts. People might soon hear more about their stock protection if
giant financial conglomerates go bust. Some stock accounts might be
frozen, as the courts sort it all out. When an SIPC member becomes
insolvent, SIPC will ask the court to appoint a trustee to supervise the
liquidation of firm assets and to process investor claims. Coverage of
bank and brokerage accounts will be a popular topic soon.
3 SCARY GRAPHS: BANKS, MONEY & HOUSEHOLDS
Some have asked in private emails whether the bigger the bank, the safer
their future. My answer is simple. The bigger the bank, the more likely
they are to hold a much riskier portfolio, and thus the more likely
their failure. Most big Wall Street banks and broker dealers, along with
a scattering of major US banks are in the same pickle, from owning too
many mortgage bonds and related credit derivatives leveraged from them,
even being saddled with bonds scheduled for interrupted private equity
deals. Bank assets have vanished. The neighborhood bank with branches of
operation only within a corner of their resident state is probably much
more insulated from the bond market debacle. They likely originated
loans, own some, but might have recycled most of them through Fannie Mae
in order to continue to earn fees on new loans. Some have asked if the
USFed can make unlimited number of bank bailouts, can refund on
unlimited number of mortgage bonds submitted by banks. Well yes, sure,
but the accumulating risk to the USDollar is being recognized and felt.
The US$ decline is not done; it is going lower.
The US banking system is teetering at the precipice, the brink of
collapse. Almost two years ago, in the Hat Trick Letter, my forecast was
made crystal clear, that the housing crisis and mortgage debacle would
topple and destroy the US banking system, just like what happened to
Japan in the 1990 decade. The US banking system cannot withstand
insolvency like the stronger Japanese banking system, which survived
temporarily as vampire entities. Weekly events point to wrecked
mechanisms in the US banking system. They will continue to worsen
unfortunately. The financial condition of institutions within the US
banking system has gone critical, with core assets gone negative. Total
deposits held, free of borrowed USFed reserves, have vanished. US banks
have burned through their entire capital core, melted down from
disastrous mortgage portfolios, their bonds, and related CDO leveraged
bond derivatives. They must now rely upon borrowed reserves from the
USFed in order to continue to function as lending institutions. They
have turned heavily to the USFed Term Auction Facility and now the Term
Security Lending Facility for resupplied capital. That is not injected,
donated, free money. It must be returned, or such is the plan. With the
TSLF, the USFed now extends loans for AAA-rated mortgage bonds of
private vintage, not just Fannie & Freddie type. They expanded to $200
billion per month and 28 days in duration, with a lowered 3.25%
borrowing rate, and likely renewable feature. As we know, many AAA bonds
are crappy. So banks might be unloading some rancid meat. The masters
who control the USFed cannot be happy.
The US banks by early December had about $43 billion in total reserves.
The current statement by the Federal Reserve offers a daily average
'Non-Borrowed Reserves' at MINUS $20 billion. Worse, the Fed Reserve
estimates by early April that amount will be MINUS $60 billion. The US
banks are living off borrowed money, and time. Be prepared for some high
profile bank failures, a process already begun.Home loan defaults have
combined with falling home collateral valuation to destroy mortgage
bonds and related securities to the extent that banks have lost their
entire capital. The only way to recover from this situation is for banks
to find a way to make a lot of money really fast. The time has grown
urgent to inflate rapidly, or else face an unstoppable chain reaction of
bond failures followed by bank failures. Big banks do not have adequate
loan loss reserves set aside. Money and wealth will be destroyed either
from falling home portfolios and mortgage bond values, from reckless
lending and much fraud at all levels.
The shocking reality is that the banking system has gone from a 10%
reserve requirement to a minus 5% requirement. Still too much bank
capital is in illiquid overvalued bonds. The USFed is trying to increase
the money supply faster than banks can write down losses. Keep in mind
what New York University economics professor Nouriel Roubini says, "For
every dollar loss of capital, you reduce lending by ten dollars." The
Shadow Govt Statistics folks do such great work in removing deceptive
games and gimmicks. They report the US$ money supply is growing at an
annual 18.0% rate, March 2007 over March 2007. The sitting Secy of
Inflation Bernanke, when pressed in Congress recently to comment on the
monetary inflation gone haywire, simply said they monitor the Consumer
Price Inflation only. Wow! Talk about riding a horse while sitting
backwards on the saddle! What a hack! What a lousy cowboy!
Many standing loans involve homeowners who owe a greater loan balance
than the home is worth, the home equity having evaporated. And home
prices are heading lower. Chronicling the Great American Tragedy, the
New York Times writes, "Not since the Depression has a larger share of
Americans owed more on their homes than they are worth. With the
collapse of the housing boom, nearly 8.8 million homeowners, or 10.3% of
the total are underwater. That is more than double the percentage just a
year ago." To this date, USFed, Dept Treasury, and USGovt efforts have
not accomplished much toward reversing this trend. Tragically, of
mortgages originated from 2006 onward in recent vintage, 30% are now
burdened by negative equity. The ratio of under-water mortgages, those
with negative equity, the 'Upside Down' loans, for these more recent
loans is forecasted to rise to more than 50%. The mortgages of older
vintage are also rising in their negative equity ratio. They are
catching up to the newer vintage home loans. The national housing
foundation is going underwater. Contrast with falling home values, which
might not stabilize in 2008 as the graph shows. Note two different
scales describe the two series.
The latest data on home foreclosures, delinquencies, late payments,
existing home inventory, new home inventory, and median home value does