During
the last few days the mainstream media has been obsessed by Lehman's as
though it caused the financial crisis, when all Lehman's was one crack in the
credit crisis dam that was destined to burst following the August 2007
interbank market freeze when the game was up on the U.S. mortgage backed
securities valuations that bank staff had inflated so as to bank huge bonuses
on fictitious profits. From then began a process of ever larger financial
collapses, starting in the UK with Northern Rock Bank, which I just so
happened to warn of as having a high probability of going bust some 4 weeks
before the event. Though of course at the time I had to mask my language lest
I open myself upto legal problems.
The
truth of the matter is that virtually all of the western banks were bankrupt
as I warned of several times during the preceding 12 months, and most notably
barely a week before Lehman's burst the credit crisis dam ( BANKRUPT
Banks Wiped Out by Tulip Backed Securities) that was an inevitable
outcome given the state of the bank balance sheets that required tax payer
cash in the trillions as the $500 trillion derivatives market continued to
deleverage following the crash of the housing bubbles.
It was
systemic greed through leverage that killed Lehman's and bankrupted the whole
banking system, long gone were the days of leverage of X10 capital, here were
the days of leverage of between X40 and X60 capital which means a loss of as
little as 3% could wipe out the banks whole capital base and hence making the
financial institutions insolvent, the threat of which resulted in depositor /
investor panic as we witnessed with Northern Rock in September 2007. Off
course with investment banks we are talking about hedge fund depositors with
billions that could in a matter of minutes bankrupt the distressed banks and
considering that these hedge funds were also short the banks stock that is
exactly what they did ! i.e. Short the bank stock, Pull the Cash out, and
thus Bankrupt the Bank! We saw this time and time again right across the
globe, Lehman's was not the first and not the last! In fact I warned of this
some 6 months before Lehman's was targeted when Hedge funds first attacked
HBOS, Britians biggest mortgage bank (Halifax
(HBOS) Hit by Hedge Fund Short Selling and Emergency Funding Rumours).
Lehman's
The Real Story
Lehman's
was next inline after Bear Stearns went bust in March 08 which was gobbled up
by its arch rival JP Morgan aided by a $30 billion Fed sweetner, when I asked
the question in March 08 Lehman
Brothers Next Wall Street Bank to Go Bust?
Would
the US Fed Step in to Save a Collapsing Lehman Brothers ?
Well
that would depend on whether the Fed considered Lehman Brothers failure would
result in a cascade of failures amongst its derivatives counter parties.
So
clearly the risk of a potential Lehman's bankruptcy posed to the financial
system was NOT something that was an unknowable event as is now being alluded
to. For governments on both sides of the atlantic had already bailed out
several financial institutions to prevent a derivatives blowout. So the real
story behind Lehman's is not that they did not know what would happen, but
rather why was Lehman allowed to go bankrupt even if they (Paulson, Geithner
et-al) KNEW what would happen!
The
Lehman bankruptcy "story" that virtually all of the mainstream
press has swallowed hook line and sinker goes that Lehman was NOT bailed out
because Paulson could not authorise $25 billion of tax payers money to come
to its rescue, conveniently forgetting that the Fed had just bailed out Freddie
and Fannie a few days earlier which basically resulted in the under
writing of some $5 trillion of debt on which losses were estimated at $500
billion, and that the Fed bailed out AIG to the tune of an initial $80
billion just a few days after Lehman filed for bankruptcy. The reason why
Lehman was cut a drift by the ex-CEO of Goldman Sachs and U.S. Treasury
Secretary Hank Paulson was to aid Goldman Sachs in the clearing the field of
competition and so that Paulson could scare Congress into writing a $750
billion blank check within a couple of weeks, much of that money has since
evaporated into thin air!
That
is the real story of the Lehman sacrifice to aid the bankster's into
defrauding more than a trillion out of the U.S. tax payers by scaring the
politicians into writing blank checks and accepting the transference of toxic
assets from the bankster's onto the tax payers, which has enabled the
bankster's to return to profit and continue rewarding themselves huge bonuses
whilst the consequences of their corrupt practices has resulted in a deep
recession that hit main street as unemployment soars across the U.S. and UK
towards 10%.
If you
listen to the bankster's today, they will tell you it was a huge mistake to
let Lehman fail! when that was the goal all along, for without a scare of
what could happen the bankster's losses / bad debts would NOT have been
nationalised.
That
and the huge liabilities that tax payers have now been saddled with the
consequences of which we will be felt in short order in terms of higher
inflation, higher interest rates and stagnating economies. Yes, its NOT
future generations that will PAY for the bankster bailout and mega-recession
/ depression debt but THIS generation, for the markets react to the current
state of the nations balance sheet NOT conveniently delaying it for the next
generation to grow up and take up the burden!
After
the financial crisis dust has cleared we now have bigger banks that yield
immense power which face less competition and are guaranteed not to fail
regardless of the risks they under take as the governments are effectively
being black mailed into under writing all of their past, present and future
bad decisions as any risk of failure would trigger another financial
collapse. Mission Accomplished for the Bankster CEO's!
Financial
Armageddon Geopolitical Implications
The
real damage has been to what is often called the US Hegemony, the
geopolitical world has entered an increased state of flux much as that which
followed the Great Depression 80 years ago, where it will settle is
uncertain, what I mean by this is where will the power lie in say 5 to 10
years from now ? Clearly not in any single state but rather some new
grouping.
Most
of the world today is obsessed by the rise of China, however there are a
couple of wild cards out there that could result in a changed world view and
those are Russia and Germany. Just as in the past both countries have turned
the geopolitical world upside down, so maybe the financial crisis of 2008 has
set in motion a chain of events that will result in some new World order that
could for instance tear the European Union apart. Especially as German
Reunification is barely 20 years old, perhaps a little history lesson is in
order to remind readers to one of the prime reasons of World War 1 being
German Nationalism due to the fact that Germany at the time was only 40 years
old and was obsessed with unification into a single German identity.
Still
for investors the financial crisis did present a golden opportunity to
accumulate in the mega trends of energy, population growth and emerging
middle classes, in response to which many of the related markets have soared,
except Natural Gas, one of the few remaining golden mega-trend opportunities
that remains depressed as a consequence of the financial crisis.
Revisiting
Financial Armageddon 2008
Sunday
14th September 2008
Frantic
talks during the weekend fail as Paulson states that there will be no Bailout
for Lehman's. The bank is dumped by potential suitors such as Barclays and effectively allowed to go bankrupt.
Stocks
expected to tumble Monday, threatening the start of the next leg of the
stocks bear market.
Monday
15th Sept.
Lehman's
declares bankruptcy, serious risk of default on country party derivatives
result in central banks pumping in $100 billion into the money markets which
follows the announcement of $70 billion on Sunday as they attempt to contain
the impact of Lehman's bankruptcy.
Bank
of America takeover of Merrill Lynch for $50 billion, the worlds third
largest Investment bank to prevent a Lehman's style bankruptcy.
HBOS,
Britain's biggest mortgage bank crashes 30%, after being targeted by
short-selling hedge funds that sought a similar fate for the bank as Northern
Rock. I was probably one of the first to break the news of an hedge fund
assault on the bank as a similar attack of March this year was still fresh in
my mind, therefore had a head start on the scrambling mainstream media that
only started to connect the pieces together some 24 hours later.
The
worlds largest insurer AIG seeks bailout cash, with speculation that the
insurer seeks a loan of between $30billion and $75 billions from the Fed.
Stock
Markets Crash, Dow Jones ends down 504 points.
Tuesday
16th Sept
Money
markets freeze with the interbank rate (LIBOR) jumping to 6.75% due to the
extreme risk of counter party default.
No US
interest rate cut, despite calls and speculation that the Fed could cut by as
much as 50 basis points.
AIG,
the worlds biggest Insurer bailed by the Fed for an initial $85 billion for
an 80% stake in the insurer.
Stocks
bounce on AIG bailout, Dow Jones rallies 142 points.
Wednesday
17th Sept
- HBOS
taken over by Lloyds TSB for £12 billion
amidst a stock price crash of 66% in 3 days. The shotgun wedding was to
prevent another Northern Rock style collapse and nationalisation,
precisely the possibility warned of on Monday. My
analysis called for restrictions on short-selling to give distressed
financial institutions room to breath.
- Gold
as a safe haven soars by historic
one day move of $85 following the news of the AIG nationalisation, and
Lehman's continuing impact on counter parties with no end in sight to
the crisis.
- Russians
shut down their exchanges fearful of a similar collapse to that which
followed the LTCM crisis a decade earlier.
- Stock market
slide resumes as the market lines up the next financial dominos to fall,
investors fearful of capital losses dump financial's. Dow Jones
ends down 450 points.
- Lloyds TSB takeover of HBOS confirmed for
£12 billion ($21 billion) or £2.32 pence per share in a all
stock deal.
- Central
Banks around the world flood the markets with over $250 billion more
cash as the interbank markets freeze sees the money market rate surge to
above 6.75%
- Morgan Stanley the next
big investment bank to be targeted, with expectations of merger with
Wachovia.
- UK FSA announces a ban on short-selling
of financial stocks, I suggested this as a necessary move some 24 hours
earlier. This and the central bank extra liquidity is seen as extremely
bullish on a short-term basis at least, as short covering will lead to a
strong rally as well as speculators jumping on the band wagon.
- US Stocks
soar in late trading following speculation of further restrictions on
short-selling and a huge bailout. Dow Jones ends up 410 points.
Friday
19th Sept
- US Treasury
announces the Mother of All Bailouts - Stocks
soar across the board on the intention to allocate an initial $700 billion
and probably countless trillions more to buy up much of the financial
sectors bad illiquid debt. the UK FTSE rockets higher by 8%.
- SEC also
expands short-selling restrictions to 799 financial stocks, which
contributes to the short-covering rally that leaves the Dow Jones up 369
points.
- Washington
expands the "mother of all bailouts" by guaranteeing money market funds
that invest in high risk instruments like commercial paper
What's
the Answer ?
The
bankster's will NEVER learn or change their ways, after all their prime
consideration is to maximise short-term profits, not to help anyone and
therefore will always be one step ahead of inept incompetent imbecilic
regulators that KNEW what the problem was right from 2006 but FAILED to do
ANYTHING. A possible answer is to heavily tax the banks into a different
business model, a Bankster tax of say 75% on profits over $X billion and
salaries (including bonuses) over $200,000, would put a real cap on bonuses
and result in a change of culture. It would also go part way towards
repairing the balance balance sheets of Britain and America as both countries
are running huge unsustainable deficits as a consequence of the actions of
bankster bailouts which have lumbered each UK tax payer with liabilities of
an estimated £43,000 each that will resolve towards higher inflation
AND interest rates ! Yes we have deflation now but this is very temporary as
a consequence of bad debts forced deleveraging.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is
the editor of MarketOracle.co.uk.and has over 20 years experience in trading and
investing.
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