Largest Financial Swindle in the History of the World - The Tipping Point has been Breached
Tuesday, September 23, 2008
Market Commentary By Benjamin Train
U.S. Economy and Stock Market Update
There are fundamentally different ways of understanding the
world around us. Perception drives reality, and the reality
that, those in power, want you to believe is that our US
economy is no longer sustainable, and that you should be in
fear.
We are in historically unprecedented times. The foundation is
being laid for a default of US Treasuries in the wake of the
greatest regulatory failure in modern history, and the
collapse of the US financial system.
Anyone who cannot see that suffers from poor vision, chronic
nostalgia, or has not studied Economics. The wheels came off
the US financial wagon in 2001, but only now that fact is
being publicly recognized and monetized.
Citizens should be concerned that the US Federal Reserve and
US Dept of Treasury have begun to take actions far outside
their own legal powers.
Marc Faber on CNBC's European News said that he predicted the
U.S. government would soon ban U.S. investors from buying
foreign currencies and gold in order to protect the U.S.
dollar and as a follow-up to the current ban on short-selling
financial stocks.
5 member banks own 53% of the stock in the Federal Reserve
Bank of New York. The major stockholders are confidential. No
one, not even the government or the President knows who they
are. Only a small group of elite insiders know who these
people are.
World Central Banks agree to inject "unlimited liquidity
Central Banks aim to boost liquidity."
The Federal Reserve and other major central banks announced
last Thursday they would inject hundreds of billions of
dollars worth of liquidity into the financial system in a bid
to alleviate extreme distress in the short-term money markets.
The Fed, in a statement, said its Federal Open Market
Committee had authorized a $180 billion expansion of its swap
lines with other world central banks. The funds, which will be
provided by the U.S. central bank, can be injected into money
markets through overnight and term loans. "I think this is a
recognition that the time for subtlety is past," said Russell
Jones, head of fixed income and currency strategy research at
RBC Capital Markets.
All eyes will remain focused on Wall Street this week to study
the effects of reforms imposed by regulators in recent days
and whether a plan is finalized to take bad assets off
financial firms’ balance sheets.
U.S. stocks soared on Friday, led by a surge in financial
shares, as a series of sweeping steps to contain fallout from
the credit crisis temporarily eased investor worries, after
one of the most volatile weeks in financial history.
On Monday Sept 22, shares dropped. The Dow closed down to
11,015, the S&P dropped down to 1,207, and the NASDAQ closed
down to 2,178.98. Banks were among the biggest decliners as
the Bush administration pressed Congress to approve one of the
costliest U.S. bailouts for financial companies since the
Great Depression.
Economic reports on new-and existing-home sales and quarterly
results from three home builders will update views on the
struggling housing market.
Economic reports on August existing home sales and new home
sales are to be released Wednesday and Thursday, respectively.
Experts predict new-home sales will rise from July while
existing-home sales will fall short.
Dallas Fed President Richard Fisher discussed the U.S. economy
and financial industry Monday. The government will release its
final figure on second-quarter economic growth Friday.
World leaders have gathered in New York for the annual opening
of the United Nations General Assembly’s general debate. U.N.
Secretary-General Ban Ki-moon starts off the proceedings
Tuesday, followed by speeches by President Bush, Iranian
President Mahmoud Ahmadinejad and Georgia’s President Mikheil
Saakashvili among others.
Over the last weekend, Investment houses Goldman Sachs and
Morgan Stanley were granted a new status as Bank Holding
Companies, giving them a preferred status for low cost
government financing, and to buy US banking interests. Former
Goldman Sachs executive, Treasury Secretary, Henry Paulson is
said to have had a heavy hand in the deal.
"It will be a lot easier to make an acquisition, which the two
firms [Morgan Stanley and Goldman Sachs] are immediately
equipped to do, without having to go through the regulatory
machine," said Campbell Harvey, professor of finance at Duke
University's Fuqua School of Business.
Mitsubishi UFJ Financial Group Inc. said Monday it has agreed
to buy as much as a 20 percent stake in Morgan Stanley, the
same day reports said a merger between Wachovia Corp.
European shares fell by midday on Monday as questions lingered
over a U.S. financial sector package designed to tackle the
financial crisis.
Treasuries:
A gigantic wave of selling hit the whole Treasury
market on sweeping aid from the Federal Government
to the financial sector amid the worst financial
crisis since 1930s.
The Government announcements improved investors' confidence,
eased tremendous tensions in the short-term funding markets,
and encouraged investors to return to risky assets from stocks
and corporate bonds to agency mortgage-backed securities and
emerging-market assets.
The Treasury Department announced today the initiation of a
temporary Supplementary Financing Program at the request of
the Federal Reserve. The program will consist of a series of
Treasury bills, apart from Treasury's current borrowing
program, which will provide cash for use in the Federal
Reserve initiatives.
"The Federal Reserve has announced a series of lending and
liquidity initiatives during the past several quarters
intended to address heightened liquidity pressures in the
financial market, including enhancing its liquidity facilities
this week. To manage the balance sheet impact of these
efforts, the Federal Reserve has taken a number of actions,
including redeeming and selling securities from the System
Open Market Account portfolio.
Announcements of and participation in auctions conducted under
the Supplementary Financing Program will be governed by
existing Treasury auction rules. Treasury will provide as much
advance notification as possible regarding the timing, size,
and maturity of any bills auctioned for Supplementary
Financing Program purposes."
In simple terms:
When the US Federal Reserve System announced it was broke, the
US Treasury turned on its printing presses to create new
Treasury Bills which have no value whatsoever, except giving
the illusion of liquidity to the unsuspecting American public
so they will cease withdrawing their dollars from their
crashing banks and stock markets prior to their savings
becoming completely worthless.
To the astounding plan unveiled by the US Government to
address their financial collapse, one could justifiably be
confused to if they are reading a pronouncement from the old
Soviet Politburo, instead of the largest capitalistic economy
system in the World, and as we can read as reported by the
Bloomberg News Service:
"The Bush administration sought unchecked power from Congress
to buy $700 billion in bad mortgage investments from financial
companies in what would be an unprecedented government
intrusion into the markets.", reported by the Bloomberg News
Service.
US Senator Jim Bunning stated, "The free market for all
intents and purposes is dead in America. The action proposed
today by the Treasury Department will take away the free
market and institute socialism in America."
Fed says it assumes risk in New Loan Program:
The Federal Reserve says it is assuming market risk in its new
loan program aimed at shoring up money market mutual funds,
but senior Fed staff said they don’t expect the Fed to lose
money.
The program, announced early Friday, allows banks to obtain
cheap loans from the Fed to finance purchases of asset-backed
commercial paper from money market mutual funds.
The package, which is awaiting Congressional approval, would
give sweeping powers to the U.S. Treasury to buy up toxic
mortgage-related debt from financial firms, including U.S.
subsidiaries of foreign banks.
Temporary Ban in place on "Short Selling" financial equities:
The U.S. Securities and Exchange Commission temporarily banned
short-selling in the stocks of 799 financial companies. British, and
other Countries authorities have also issued a ban on short selling.
Short-selling is a form of trading which effectively bets that
the value of a market sector, or company's shares will fall.
This method of trading is executed by Market Makers, such as
Goldman Sacks and Lehman Bros to make billions of dollars.
The aim, Fed staff said in a briefing, "is to prevent further
precautionary short selling on the part of money market
funds."
Taiwan dealers said the Taiwan market got a boost from local
curbs on short sales. Taiwan's top financial regulator
announced a temporary ban on short-selling in 150 stocks to
"maintain the order and stability of the stock market."
The Australian benchmark S&P/ASX 200 index finished 4.5
percent higher at 5,020.5, boosted by a ban on short selling
and renewed confidence after the U.S. government unveiled
steps to rescue the financial system.
The Fed initiative, which also includes purchases from primary
dealers of federal agency discount rate notes, serves as a
complement to actions announced earlier Friday by the Treasury
Department to shore up the money market mutual fund sector.
Under the Treasury program, Treasury will insure the holdings
of any eligible publicly offered money market fund. The funds
must pay a fee to participate in the program. The insurance
program will be financed with up to $50 billion from the
Treasury’s Exchange Stabilization Fund, which was created in 1934.
Under the Fed’s new initiative, the Central Bank will extend
non-recourse loans to commercial banks and holding companies
at the discount rate to back bank purchases of asset-backed
commercial paper from money market funds. Money market funds
hold about $230 billion in asset-backed commercial paper, Fed
staff said.
On Sat. a Treasury official said hedge funds and non-U.S.
financial institutions would not be allowed to offload
troubled assets under the plan. However, Monday Paulson came
out and said non-U.S. financial institutions would be allowed
to participate in the plan, an aspect that will significantly
add to the cost of the plan.
Government's "$700 billion plan" to buy bad mortgages
may not save troubled banks:
The proposal for the government to soak up a small portion the
mortgage-backed securities would be the biggest bailout plan
since the Great Depression, but experts say a critical issue
will be how much it actually pays for the troubled assets.
Even the banks themselves don't think the rescue plan will
work. Expect more and larger liquidity operations in weeks to
come.
"The U.S. plan has calmed nerves, but I don't think people
believe it will take out all the problems yet," said Standard
Bank analyst Walter de Wet. "Details are still sketchy. We
need to see when and how the plan the will be implemented."
The gov't. is proposing "reverse auctions", where the gov't.
would put up a set amount of money for a class of distressed
assets -- such as loans that are delinquent but not in default
-- and financial institutions would compete for how little
they would accept for the investments.
Banking industry sources say the reverse auctions would offer
to purchase $50 billion of debt, which could include
residential and commercial mortgages and mortgage-backed
securities. One source said the purchases would then be made
in further increments of $10 billion and that five outside
asset managers would help run the auctions.
Treasury Secretary Henry Paulson involves a process under
which financial institutions would propose a price for their
mortgage-backed securities and the government would choose the
lowest bids.
If banks sell at the proposed price -- say 50 cents on the
dollar -- accounting rules would require firms to take the
losses on their balance sheets before getting the damaged
assets off their books. For weaker banks buffeted by the
deepening credit crisis, the losses may hinder their ability
to go out raise capital, make loans and ultimately stay
afloat, according to industry experts.
"There is a risk that there will be bank failures to come,"
said Vincent R. Reinhart, former director of the Federal
Reserve's monetary affairs division.
While the reverse auctions could help banks set a clearing
price for mortgage-related assets, Reinhart said, that "price
doesn't mean that every financial firm will be solvent" after
those assets are sold.
Another risk is that if the auctions set too low a price for
mortgage-related assets, other institutions with bad debt may
be forced to take the distressed valuation onto their books
under mark-to-market accounting rules, Reinhart said.
Mark-to-market rules involve adjusting the price of an asset
to reflect its current market value. "If the auctions don't go
well, it will drag down everybody's balance sheet who marks to
market," Reinhart said.
The American Bankers Association sharply criticized the U.S.
Treasury’s move to backstop money market funds, saying it
would give institutions managing such funds a competitive edge
over commercial banks.
“Today’s action will undermine the role of banks during this
credit crisis and has the potential to have an extremely
negative impact in the future. Simply put, the ability of
banks to attract and keep deposits is being compromised in a
profound fashion,” Wrote, ABA President Edward L. Yingling in
a letter to Treasury Secretary Henry Paulson.
This is a pivotal moment in both the U.S. and World economies:
If you thought successful Bank Robbers got away with lots of
money, then you have not been paying attention to the
financial markets and the Federal Reserve's actions over the
last 90 days.
This financial bail-out could prove the most cataclysmic of
all, driving the Dow Jones Industrial Average down below
7,000. I also believe you will see the entire World financial
system collapse within six months to a year.
The current bank bailout will cost, we the Citizens of the
U.S., more than $1.2 trillion Dollars. You will never hear
that number stated in the mass media. They, our Government
"advisors" and "officials", don't want to scare you. Instead
they are stating only "$700 billion" dollars.
If I am right, you will see Congress take emergency measures
to further raise the Statutory Limit of our National Debt
Public Debt again this week, or the following week, in excess
of $10.615,000,000,000.00 trillion Dollars. I think you may
here something near $12 trillion dollars.
I am sure that Socrates would have something to say about
this. He is credited as one of the founders of the field of
ethics in Western philosophy. It would appear that ethics have
been removed from the U.S. charter, along with honor, common
sense and the economic sovereignty of the United States of
America.
It is hard to believe that the dollar will continue to stand
its ground as the crisis continues to deepen and unfold into
2009.
One of the most extraordinary features of the past month is
the extent to which the dollar has remained immune to a
once-in-a-lifetime financial crisis. If the US were an
emerging market country, its exchange rate would be plummeting
and interest rates on government debt would be soaring.
Instead, the dollar has actually strengthened modestly, while
interest rates on three- month US Treasury Bills have now
reached 54-year lows. Do not expect the current value of the
faux U.S. Dollar to continue.
The US Constitution has also come under attack the last two
weeks. There are sound reasons that the US has three branches
of government.
This is a major power grab, and it is backed by party members
from both sides of the political aisle. The Secretary of
Treasury is asking for unlimited powers coupled with no
judicial review.
The Treasury Sec. Paulson and Chairman Ben Bernanke would be
able to grab anything and impose anything without court oversight.
U.S. debt rescue plan is taking shape while you sleep:
Details are emerging of an emergency plan by the US government
to tackle one of the worst crises to be announced about the
world's financial markets in decades.
The US Treasury is proposing a fund worth up to $800 billion
dollars to buy back a proportion of the bad debt in the US
mortgage market, reports say. "We've had skyrocketing funding
costs, interbank lending has dried up and there's been a run
on money markets that's led to stress in the commercial paper
market." said Weston Boone, vice president of listed trading
at Stifel Nicolaus Capital Markets in Baltimore.
Talks and deals will continue throughout the week and the
package is expected to be signed into law within a week or
two.
It is believed, the intention is to find a way of bringing all
the bad debts into one organization whose task will be to hold
them on behalf of the taxpayer until they can be sold off at
some point in the distant future, says the BBC's Justin Webb
in Washington.
There are some members of Congress who are queasy at the
thought of the taxpayer taking on additional hundreds of
billions of dollars of currently worthless debt, he says.
But the leader of the Democrats in the House of
Representatives, Steney Hoyer, said he expected quick action.
After a week of turmoil, stock markets around the world
rallied on news of the U.S. rescue plan, with the UK's FTSE
100 closing on Friday with its biggest one-day gain.
'Maximum impact'
President Bush said swift, politically bipartisan action was
needed to keep the US economy from grinding to a halt as
problems sparked by the credit crisis had begun to spread
through the entire financial system - leaving jobs, pensions
and companies under threat.
"These are risks the US cannot afford to take. We must act now
to protect economic health from serious risk," he added.
Treasury Secretary Henry Paulson said a "bold" move was needed
to restore the financial system's health.
Giving few details, Mr. Paulson said the Bush administration
was stepping in with a plan to remove so-called "toxic debts"
from US banks' balance sheets.
The program, he said, must be "large enough to have maximum
impact". In the meantime, he said that the government would be
stepping up action to increase the availability of capital for
new home loans. Once this difficult period was over, Mr Paulson said, the
Government's next task would be to overhaul bank regulations.
Christopher Dodd, Chairman of the Senate Banking Committee,
said he and his colleagues would need to see the details of
the plan first, but he accepted that quick action would be
needed. "We understand the gravity of the moment," said the
Democratic Senator.
Rescue moves:
Earlier on Friday, the Government announced plans to guarantee
US money market funds, mutual funds that typically invest in
low-risk credit such as government bonds and are often used by
pension funds, up to a value of $50 billion, in a move to further
restore confidence.
"The Treasury and the Fed have finally realized the depth and
systemic nature of the crisis," said John Ryding, an economist
at RDQ Economics.
"We believe that these actions will constitute the wider
firebreak that will contain the crisis."
Mounting fears that the credit crisis is beginning to spread
out through the financial system have rocked shares and
companies recently.
Investment giant Lehman Brothers collapsed last week, rival
Merrill Lynch was bought out by Bank of America, and the US
Government has bailed out insurer AIG with an $85bn rescue
package and state-backed mortgage lenders Fannie Mae and
Freddie Mac.
Boston-based Putnam Investments on last Thursday suddenly
closed a $12 billion money-market fund and announced plans to
return investors' money after institutional clients pulled out
cash despite the fund's lack of exposure to troubled financial
firms such as Lehman Brothers Holdings Inc.
The move, believed to be unprecedented in the nearly $3.4
trillion money-market fund industry, came a day after asset
managers sought to reassure investors in the wake of a massive
pullout from large retail fund Reserve Primary Fund. The run
on that fund caused its assets to plunge in value by nearly
two-thirds and fall below $1 for each dollar invested,
exposing investors to losses of 3 cents on the dollar.
Some Truths About This "Crisis":
"The U.S. is, in dollar terms, bankrupt." stated Dick Young of
Rhode Island in his article, published Thursday, Sept. 18th,
titled; "The Truth About This Crisis"
How did this happen?
"Well, there are $800 Trillion dollars in over-the-counter
derivatives floating around in the market. That's 10 times the
Gross Domestic Product (GDP) of the World. These
dollar-denominated paper assets are likely worthless or close
to it."
“Which means that the dollar is already effectively
worthless.”
US Senator Jim Bunning stated, "The free market for all
intents and purposes is dead in America. The action proposed
today by the Treasury Department will take away the free
market and institute socialism in America."
Raids on Individual Accounts:
Hidden inside the AIG bailout funding package, is a clause
that permits raids on private individual brokerage account
funds to relieve their own liquidity pressures. This
represents unauthorized loans of your stock account assets.
The actual evidence for legalized stock account raids by the
financial firms can be found in recent articles in Financial
Times and Wall Street Journal. So this is not a wild claim.
The September 14th article on the Wall Street Journal entitled
"Wall Street Crisis Hits Stocks" was the first exposure.
The run on US banks are in progress. Washington Mutual alone
could deplete the entire Federal Deposit Insurance Corp fund
for bank deposit coverage. Eventually the FDIC will compete
for US Govt federal money for bailouts and nationalizations.
Eventually, bank deposits will not receive 100 cents per
dollar, in a compromise. Next the bank runs will push banks
into failure, at a time when stock accounts are under raids,
without broad public knowledge.
China Speaks Out:
China's state media today reports on the real reason behind
the Wall Street meltdown and a subject that the mainstream US
media dare not mention - the Federal Reserve's over issuance
of currency - which the Chinese say is part of a wider agenda
to justify increased control over the global economy.
According to numerous Chinese state media news sources today,
the Federal Reserve's continued zeal for propping up the
market by injecting illusory liquidity is part of an agenda to
gain trust and grease the skids for increased government
intervention in financial markets.
"The amount of money that has been put into the market can not
fundamentally save the market," said Xiaolie, adding that the
move was merely part of an agenda to "regain the trust and
justify future further intervention in the economy."
Russia Speaks Out:
A visibly angry Prime Minister Putin addressing the media
during his visit with French Prime Minister Francois Fillon in
Sochi blasted the United States plans for dealing with the
collapse of the Western Banking system by stating, "We all
need to think about changing the architecture of international
finances and diversifying risks. The whole world economy
cannot depend on one money-printing machine".
Alexander Dugin, described as the "New sage of the Kremlin",
advocates the combining of both Russia's nearly $500 billion
and China's 20,000 tons [est.]gold reserves to back a new
gold-backed Eurasian Currency modeled on the Euro, and which
if implemented would `shock' the American dollar to such an
extent that it would cease to exist on International markets.
This report further notes that the United States is already
preparing for such a response from Russia and China by this
past weeks invoking of the Gold Reserve Act of 1934 by the US
Government in a desperate move to protect their money markets
for the first time since the Great Depression, and of which
the vast majority of Americans remain oblivious to the fact
that their personal gold holdings can still be confiscated by
their officials at anytime of their choosing despite the 1975
laws allowing these people to own gold again.
Something Big is Happening:
"I’m convinced the time is now upon us that some big events
are about to occur." said Congressman Ron Paul. "These
fast-approaching events will not go unnoticed.
They will affect all of us. They will not be limited to just
some areas of our Country. The world economy and political
system will share in the chaos about to be unleashed."
"This is indeed frightening and an historic event." "I’m
fearful that my concerns have been legitimate and may even be
worse than I first thought. They are now at our doorstep. Time
is short for making a course correction before this grand
experiment in liberty goes into deep hibernation."
"There are reasons to believe this coming crisis is different
and bigger than the World has ever experienced. Instead of
using globalism in a positive fashion, it’s been used to
globalize all of the mistakes of the politicians, bureaucrats
and central bankers."
"Our huge foreign debt must be paid or liquidated. Our
entitlements are coming due just as the world has become more
reluctant to hold dollars.", stated Ron Paul.
"The central banks of the World secretly collude to centrally
plan the World economy. I’m convinced that agreements among
central banks to “monetize” U.S. debt these past 15 years have
existed, although secretly and out of the reach of any
oversight of anyone—especially the U.S. Congress that doesn’t
care, or just flat doesn’t understand.", said Paul.
"The central banks and the various governments are very
powerful, but eventually the markets overwhelm when the people
who get stuck holding the bag (of bad dollars) catch on and
spend the dollars into the economy with emotional zeal, thus
igniting inflationary fever."
There are two choices that people can make, according to Paul.
"We have already lost too many of our personal liberties
already. Real fear of economic collapse could prompt central
planners to act to such a degree that the "New Deal" of the
30’s might look like Jefferson’s Declaration of Independence.
The more the government is allowed to do in taking over and
running the economy, the deeper the depression gets and the
longer it lasts.
Will the massive financial bailouts push the U.S. into
Depression?
This is no longer a question. Now I am sure it is a well
planned event for our near-term future.
BBC Business Editor Robert Peston said that "the taxpayer
funded bail-out will severely dent the ability of the US to
export its way of doing business to the rest of the world."
But an even bigger risk could be a loss of confidence in the
American government's balance sheet, he said. "This could
ultimately undermine the dollar, push up inflation even more
and raise the cost of servicing debt for the US authorities,"
our correspondent explained.
The ranking Republican on the House Budget Committee said the
U.S. government is headed toward bankruptcy if it stays on its
current fiscal course. “We know that for a fact,” said Rep.
Paul Ryan (R-Wis.) told CNSNews.com in a video interview.
“All the actuaries, all the objective score-keepers of the
federal government, are predicting this.” To back up this
claim, Ryan cited an estimate the government faces a
$53-trillion shortfall to cover the costs of promised
entitlement benefit programs. This entitlement benefit budget
"short-fall" is now evident in every State in the United
States of America.
But remember, this is an election year!
Expect the market volatility, market manipulation, and to
begin to rally up to the election. Expect continued cautionary
news.
- END -
posted by Benjamin Train @ 9:30 AM
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