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The path to
the printing press is a long one. It is used at first to spread credit
indiscriminantly in sustaining commerce and funding financial systems. For
the United States,
that means horribly inefficient usage of credit in commerce, where 5 units of
credit produce one unit of business activity. In the twisted bizarre arena
that is Wall Street, the financial maze they created has imploded as yet
another chapter is written in the standard textbook of boom & bust. They
managed to cause the most powerful deflation storm in eighty years, all born
from the monetary inflation wellspring, no easy feat. The Americans think
they are immune to the immutable laws of economic nature. They dispatched
most of their industry to the Pacific Rim, then Mexico,
finally a more complex mix of Asia with China
the new center. With that exodus went legitimate income. In its place was the
great majority of the USEconomy resting atop a housing and mortgage bubble.
The heretical US
economists, led by the closest thing to Mr Magoo on the planet in the former
US Federal Reserve Chairman, endorsed the plan as not only sound, but
advanced in risk offset price modeling. Imagine Mr Magoo a knight! Now the
entire model is in the process of dissolving, taking down the entire US
banking system, including most lending institutions, into the sewer of acidic
pits, the wasteland of dilution, or the cemetery for bankruptcy.
Long is the
path to the printing press, the ultimate supposed savior of the nation.
Current USFed Chairman Bernanke once said, “But the US
government has a technology, called a printing press (or, today, its
electronic equivalent), that allows it to produce as many U.S. dollars as it
wishes at essentially no cost.” His words are taken out of context,
unfair to him. Sue me! The hidden cost is beyond description as huge, like
ruin of a national financial foundation. It is a device that kills the host,
hardly any solution. When the financial system is totally broken, when allies
are totally betrayed, when investors are totally ransacked, when isolation is
the spoils of current policy riddled with curried favor, the printing press
remains to save the day. What heresy! Usage of the printing press in large
scale volume will earn the certain reward of astronomical gold and silver
prices. The decisions to be made will determine whether a return to
precious metal supremacy is accompanied either first by very high interest
rates and uncontrollable credit derivative meltdowns, or second by suppressed
controlled interest rates and total discouragement of savings from
artificially low interest rates. Systemic meltdown awaits the first path,
while continued pursuit of bubbles the second path. Either way, gold wins!
The spoils will be devastation for the first path, but rationing for the
second path. Both paths require the most dreaded device to be deployed at
the last turn, the printing press. Other alternatives will have been
exhausted.
A tragedy is
in progress. For three years, my premises have centered on foreign-held debt
leading to lost sovereignty, on the inevitable wreckage of the US
banking system (first with insolvency, later with bankruptcy, finally
consolidation and nationalization, and a long drawn out housing bear market
made worse by the extraordinary extension at its peak. That pathogenesis
is on course, in progress still, despite supposed rescues, most being
horribly designed and full of the same broken devices that Voltaire warned
about. Few people think much about the Founding Fathers of the United
States these days. They would be appalled,
even say, I TOLD YOU SO. Thomas Jefferson warned specifically about handing
over the power and authority over money to private banks, stating in clear
terms that if granted, then in time the nation will lose their homes to
bankers. We are there. The brilliant second president crafted the Constitution,
an ignored document shredded by those who prefer war, fear, and private
profit to liberty, free markets, and honest money, while they spout endlessly
about freedom, national pride, and foreign threats. The menace is internal.
IMPERFECTIONS & DECEPTIONS
The Mortgage
Relief Bill just signed into law should be regarded as a first pass at
governmental rescue actions, the first of many. The first bill always
represents the most difficult bill to pass. The succeeding bills will be
easier, since the interference has been removed. The nationalization movement
in mortgage finance has begun. The benefits will extend ranks to homeowners
finally, and not exclusively to the banker elite as seen to the present date.
One should note that the elite, primarily shareholders and bondholders, stand
in first position of priority in this first bill designed toward rescue and
relief. In return for quasi-formal guarantees from the formerly
quasi-government agencies, Fannie & Freddie (F&F) will submit to
strong reins from a newly created regulator. The Federal Housing
Administration will insure up to $300 billion in such mortgage loans, as 400
thousand upside-down homeowners will be lined up for aid, provided loan
originators eat a large helping of red ink. Attached to the legislative bill,
more like snuck in, was a convenient increase of $800 billion to the USGovt
federal debt limit, now at $10.6 trillion.
The bailouts
directed to F&F will require at least $1.5 trillion in my estimation,
once credit derivative losses are revealed down the road. Regard the Mortgage
Relief Bill as a sentinel signal that the USDollar will indeed fall another
20% eventually, thus propelling the gold price to unexpected heights. A
total systemic bank breakdown is close at hand, when the next larger and
broader wave of mortgage defaults occurs. They have nowhere near enough
capital to offset upcoming losses. Each new package of official government
relief measures will be easier to implement, since the crisis has been
recognized. Lawrence Lindsey hates the Mortgage Relief Bill, and went into
great detail as to why. He regards it is another bailout for the Fannie &
Freddie elite, which happens to be what the USFed lending facilities have
been for Wall Street firms so far. The F&F structure remains intact, when
clearly faulty if not a shocking failure. It is still not yet nationalized,
but heading in that direction. The bill preserves the institution without
ensuring its functions. It prevents losses to investors, while saddling the
taxpayer with an unlimited liability. If truth be known, Fannie Mae must be
continued in present form, unless its giant hidden credit derivatives are
revealed, unless its unspeakable fraud is revealed totaling over $1 trillion
in fully accounted tidy form, neatly covered up by the last three
administrations. Imagine your own fully funded slush fund for theft with
impunity. Keep it going! Call it a boon to homeowners, paving the way to the
American Dream. Fannie & Freddie are tour guides, cheer leaders, trail
blazer guides on the path to the printing press. Nothing will betray the
system more than the F&F main event how, even betray foreigners. A risk
actually exists that foreign Sovereign Wealth Funds might eventually own the
F&F, lock stock and barrel. So Jefferson’s warning might be even
worse, than foreign bankers will own the homes lost by the American people.
F&F together own tens of thousands of foreclosed homes. Soon they will
see the light, and begin to rent them for income.
The biggest
intangible loss in recent months has been in bank executive credibility. This
goes parallel to the lost credibility of the central bank at the US Federal
Reserve. Nearly every forecast or economic viewpoint or banking perception
proved to be totally off the mark. Nearly every promise made by John Thain to
investors since he took the helm at Merrill Lynch has been broken. Nearly all
his viewpoints have been incorrect. Yet he keeps on talking. Then there was
CEO Richard Fuld of Lehman Brothers, whose words proved totally off the mark.
Then there was CEO Kerry Killinger of Washington Mutual, whose words proved
totally off the mark. Then there was CEO Ken Thompson of Wachovia, whose
words proved totally off the mark. Then there was AIG head Martin Sullivan,
whose words proved totally off the mark. At least bankers from the top down
through the ranks are consistent. To be otherwise would cause confusion.
MORE BIGGER BANK LOSSES DEAD AHEAD
Opinions are
arriving surprisingly fast onto the analytic scene, that bank losses have not
peaked. In fact, they will be much larger and broader in the next year. Banks
have suffered $480 billion so far in stated losses, a figure that moves like
a clock racking up more red ink each hour. Meredith Whitney of Oppenheimer
believes Wall Street firms have yet to cut operating costs significantly, and
have yet to meaningfully write down portfolio assets in stated losses. These
once powerful firms forecast only a 20% to 25% fall in housing prices from
peak to trough, a delusional viewpoint to use as an accounting foundation,
let alone corporate planning. Check inventory levels and foreclosure figures.
Their only claim to power nowadays is their control of the USGovt, USFed, US
Dept of Treasury, debt rating agencies, regulators, and press networks. Heck!
That is power indeed! To be a banker in the Untied States nowadays requires a
certificate in fraud or stupidity, perhaps both, a firm grasp of heresy, and
surely a degree from the School of Charlatan. Once again, Wall Street
executives have no business except to manage their demise from choking on
their own feces and toxic waste. They are victims of their own fraud and
greed. Their stock and bond issuance has virtually vanished. Their own
corporate stock values are supported by criminal restrictions to shorting
rules, along with intimidation. Some opportunities await the intrepid
investor, as the bank sector has shot its wad in August.
After
raising cash from capital sale to replenish core assets and to revive balance
sheets, Wall Street firms and big US banks will be unable to do so during the
next big round, due this autumn, next winter, and spring. THAT IS WHEN ONE
SHOULD EXPECT NATIONALIZATION OF THE US BANKS, FROM USGOVT BAILOUTS AND TOTAL
ASSUMPTION OF DEBT OBLIGATIONS. This event will coincide with the
nationalization of the US mortgage finance industry (see Fannie Mae &
Freddie Mac) and the US car industry (see GM, Ford, Chrysler). As for the
airlines, look instead for Emirate Airlines and Qatar Airlines to take plenty
of American routes, at top dollar prices, since they have deep pockets and
can obtain jet fuel on the cheap. The trio of banks, mortgage finance, and
car industries will compose the core of the Nationalized USEconomy
foundation. Our turkey leaders will then boast of stability restored, when
actually bankruptcy will be shared, institutionalized, and its bitter fruit
made available for all to sup at the dining room table. One should beware
that nationalization is a highway, a really wide path to the printing press,
wide enough for all to walk, very slowly, and with limited opportunity.
Standard
methods have been used that are totally broken for valuing US banks
generally. The price/earnings ratios do not work, price/book values do not
work, and debt/asset ratios do not work. All fail for the simple reason
that no profits exist, book value is negative, and bank insolvency puts the
third ratio into a truly dark place where continued operation is almost
impossible. A bank does not lend money when it is broke! Instead, it
fakes its solvency and fights to con investors into donating money into a
black hole in exchange for equity without control. Their congame has
blossomed.
Last
midsummer in 2007, in the Hat Trick Letter reports, a warning was given that
prime adjustable rate mortgages (ARM) would begin to default in one year.
That is now, and the fabled Exploding ARMs, called officially Option ARMs,
have indeed begun to default. The schedule of prime mortgage price began the
reset process late last year, but have moved into high ground only this year.
A few aspects are alarming, most importantly their size, at five times
greater in volume than subprimes and Alt-A home loans. Price resets involve
monthly costs rising at least 50% per month. In cases where triggers are hit
for negative amortized loan balances having grown to 10% or 15% above the
original balance, past interest and penalties are stacked atop new principal
contributions to make for often a double or triple in monthly payment
requirements! Default usually results, and for some, that prospect has led to
some to abandon the homes, or even to halt making payments altogether.
In all,
almost a half a trillion$ of ARMs will reset this year, vastly eclipsing the
subprimes. Far too many are defaulting even before any adjustments, enough
to scare the crapp out of bankers! Thoughts of banking system recovery
and stabilization periods are pipedreams. The worst has yet to come, dead
ahead. The bank losses will be at least triple the nearly $500 billion that
has been suffered to date. Few analysts have factored in prime loan
losses, let alone commercial loan losses, both next, both assured given the
sickening rise in defaults. Focus must be given to how the 30-year fixed
mortgage rates are now higher than when the USFed began to cut the funds rate
in September 2007. Take this as a signal of rejection to monetary policy and
failure by the central bank to reverse the risk environment. Meanwhile,
evidence mounts on loan distress. Comparisons can be easily made. The
subprime loans are in the 16% neighborhood on default, setting the standard.
The Alt-A percentage of loans in arrears and the prime loan delinquencies are
high enough to cause alarm to bankers. Bank analysts have noticed, even Jamie
Dimon of JPMorgan. Details of the banking system, reset schedule for prime
adjustable mortgages, foreclosures, peak for bank losses, FDIC watch lists,
FDIC vulnerability, California update, and more are in the August Hat Trick
Letter due out this weekend, possibly Monday.
BETRAYALS GALORE
Eventually
investors who stepped into the previous rescues felt betrayed by huge losses.
They were suckered. See Blackstone. See Citigroup. See Merrill Lynch. Asians
and Arabs have been the principal benefactors so far. They have been burned.
The first long round of bailouts for US banks was not sponsored by the USFed,
but rather by foreign Sovereign Wealth Funds (SWF). These face 40% to 50%
losses. For this privilege they were granted no voting rights, no seats on
the Board of Directors, still second class citizens, yet in the driver’s
seat for the corporate survival of desperate financial firms. On the next
round of bailouts, foreign SWFunds will demand better terms. Heck! They might
eventually demand a seat at the prestigious G-7 Meetings, where finance
ministers for the world’s largely bankrupt Western nations plus Japan
conduct meetings. The last one was a total waste, discussing greenhouse
emissions when the global banking system burned from the Western edges. The
next rounds will surely grow more contentious. Eventually, foreigners will
have had their fill. The Untied States must finally relinquish some
important ground, like granting bank licenses to foreign banks with Chinese
and Arab names. When the US leaders tire of selling control to foreign
entities, they will turn to their trusted self-destructive mechanism. At last
resort, the printing press will be relied upon to restore cash to the
depleted balance sheets. They think it will be money, but it is just paper,
the most corrosive paper on the planet. It is far more corrosive than any
industrial chemical. It kills entire industries, and millions of jobs. It
even kills independent statehood. It opens the door to international
carpetbaggers.
A systemic
failure is in progress, in a painful ultra-slow excruciating process. People
have finally begun to see the failure, often as something terribly wrong in
vague terms. But they are still asleep as to causes and perpetrators. If they
comprehended the depth of the problems, they would refuse to grant further
control to perpetrators of the bank destruction. Deceptive banker reports
still come, like the total charade by Wells Fargo. By extending their
definition of loan default to 180 days or so, from the standard 90 days, they
were able to write off far less in credit portfolio losses. Investors bit
hard on the bait, and bid up their stock by over 20% on that day. What
idiots! Wells Fargo has $84 billion in home equity loans in their portfolio.
They are first to be killed off in home loan defaults, well before the senior
first mortgages.
Bank
insolvency is out in the open nowadays. The trend has become crystal clear,
as successive quarters reveal incrementally larger bank portfolio losses. The
worst lies ahead. A tip of the hat to Nouriel Roubini from New York
University. He has the stones to tell Wall Street that the US banking system
faces between $1 and $2 trillion in accumulative losses. During a recent
interview, the anchors who interviewed him were in minor shock, and did not
dish out their usual cocky disrespect. They might realize that Roubini is 90%
correct for his forecasts placed publicly over the last two years. They might
realize that Wall Street executives and USFed members have been 90% wrong.
On the world
stage, a tragedy has become apparent in recent weeks. THE ENTIRE
ANGLOSPHERE BANK & ECONOMIC SYSTEMS ARE IMPLODING. The built
economies atop housing bubble foundations, the common lethal transgression.
The United States, the United Kingdom (England), Ireland, Australia, and New
Zealand are suffering from critically wounded banking systems, led by housing
markets. This was another longstanding forecast here. The latest nation to
come to my attention for implosion is Northern Ireland, which runs on the
pound sterling currency, being rooted as a British satellite. They have an
even more damaged bank and economic system than Ireland (the central nation
to the south), which is euro-based in currency. Geopolitical implications
from the AngloSphere vicious decline are beyond description, as power shifts
from West to East. The main problem is that military might is centered in the
West, but wealth is centered in the East, while financial institutions are
dominated by the West. Conflicts and compromise comes, even as sovereignty is
yielded.
QUICK CONCLUSION
The Untied States
will soon find itself cornered, isolated, having burned the hands of those
who offered timely aid and rescues. It is heading down a path to nationalize
Fannie Mae, its broken and corrupt insolvent mortgage centrifuge. When just a
few decent sized banks fall, the Federal Deposit Insurance Corp will go
begging to the same USGovt window, one located far lower than any spot in the
dry hot Mojave Desert. The FDIC will be resupplied by more USGovt funds,
maybe even from banks healthy enough to cough up a few bucks. Far more banks
are troubled than the 90 on the FDIC official watch list, which did not
include IndyMac. The amount of uninsured funds in US banks is over $2
trillion. Hundreds of US banks are destined to go bust, according to less
biased bank analysts, given in detail in the August report. The next rounds
will include prime and commercial loans, whose volume will certainly push out
almost $500 billion in more losses. At least double the current bank losses!
The US financial system is a viper pit of interconnected collusion. The
USFed, the Dept of Treasury, Wall Street firms, USGovt regulators, the debt
rating agencies, the Securities & Exchange Commission, the Commodity
Futures Trading Commission, and major financial networks are so tight, that
when they speak, their buttocks squeak, since the nether region is where
their words emanate from.
When the US
runs out of sources of money to tap, runs out of fools, hits the wall on
handing away its national sovereignty, it will resort to the printing press. It
is a device that kills the host, hardly any final solution. Ironically,
USFed Chairman Bernanke has not resorted much to date in its usage for
rescues. He has overseen the ruin of the USFed itself, accepting toxic assets
from the mortgage world. He was won praise for this action. Such is the
penalty for regulatory laxity by his predecessor. He will eventually turn to
the print press that he once boasted about, boasted to be a national
advantage. Instead, it is the noose around the neck of the USDollar, and the
catapult cord for the gold price. Some big bank liquidation events are
planned soon, like in the next several weeks, maybe sooner.
The Boyz
took gold down again, as the USDollar has seen surprisingly resilience. They
want the gold price down as much as possible before the fireworks clouded by
desperation this autumn. The gold price resembles what was seen one year ago,
suppressed immediately before a big push up, a scary push up, a 25% rise. The
financial sector bounce is 95% cooked done finished. Time for gold to take
back the spotlight. In fact, the pendulum has begun to swing from crude oil
to gold. Some might view this transition as a small consolation. Not here.
Jim Willie CB
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