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A hard time came when deciding
upon a title today. “Dead Banks Walking” or “Insolvent
& Motionless Yet Standing” or “Much Ado About No Credit” or “The Bank
Vampires” or “The Primary Dark Syndicates” made
sense. But what came to mind when a comment made by the Jackass in June 2008
on the Vancouver
stage at a Cambridge House Metals & Mining Conference. My words to close
a panel discussion on the banks were “Just wait, in several months
you will see the entire US banking system go insolvent, its stock prices
dwindle to nothing, as it will be diluted into oblivion!” It
happened. The response by the USGovt, the USFed, Wall Street banks, and the
USCongress will result in very little remedy since their first objective is
to keep in place the cover-up to their gigantic fraud, much of which still
eludes the financial press. By the time conditions worsen, rescues will not
be the primary objective any longer. Rather, prevention of collapse will
become the urgent priority. Desperate official actions will result in turning
the corner on inflation, from the so-called deflation toward hyper-inflation.
The gold & silver price will find release. Already, their prices are
disconnected from the USDollar. Gold & silver serve as panic meters,
systemic breakdown meters, monetary meters, and official desperation meters. The
USEconomy has entered an acceleration phase in its breakdown. Gold &
silver are poised to make new highs and not look back. They have responded to
growing monetary disasters. Incredibly powerful events are in the works,
to be unleashed within the next several months. What an exciting yet tragic
time! The Hat Trick Letter analyzes the events, both public and hidden, in
detail.
The USCongressional display of
big bankers this week was a pathetic spectacle. They admitted fault. They
should have genuflected and thanked the USGovt and legal authorities for not
being directed to prison quarters with orange jumpsuits. The spectacle was
reminiscent of the ‘Godfather’ movies when the Corleone family
had the spotlight shined on them for involvement in organized crime. Even the
London
bankers had their more pathetic public apology session. Their failure was
marred by ineptitude and purchase of fraudulent Wall Street bonds, more than
criminal activity. See the video clip for a truly pathetic glimpse (CLICK HERE). The tragic reality is that both New York City and London
are in the process of morphing into financial rust belts (not my original
line). The Wall Street syndicates are not yet recognized as such criminal
entities, but they are far more dangerous and deadly. Most syndicates do not
kill their hosts. They killed the USEconomy. Heck, even the United Nations
drug watchdog group has let the cat out of the bag, announcing that Western
banks have been dependent upon narcotics trafficking money, but did not
mention Afghanistan or New York City.
In fairness, the dispatch of a
large portion of the US manufacturing sector to China was the final blow that guaranteed the death of the
USEconomy. That move left the national economy dependent upon a queer housing
& mortgage bubble for capital and consumption. The dissipation of those
two major bubbles has left the Untied States on the verge of national
failure. If such words seem like hyperbole, watch in horror at the next few
months. The industrial, retail, shipping, housing, and banking sectors are
dying horrible deaths. Next come the vicious cycles that deliver heavy blows
in feedback loops, amply described in earlier articles. Such momentum cannot
be arrested by adding more funny money into the system, setting up more
federal debt, putting some cash into people’s hands, and just hitting
the gas pedal harder on a jalopy that has serious engine and locomotive
problems. Almost no new ideas have come forth.
Martial law looks inevitable,
not due to other attacks on our cities, but rather from economic
disintegration and breakdown. Momentum has become powerful enough to send the
national economy into powerful acceleration toward the abyss. Merely opening
a newspaper testifies to this claim. Just this week, Treasury Secy Geithner
mentioned the word ‘collapse’ in his eloquent yet vacant speech. My
forecasts over the last three years on economic breakdown, banking system
insolvency, endless housing recession, and failed state are all aligned and
in progress, tragically. A special Hat Trick Letter Crisis Update report for
February provides more information on the gnarly subject of martial law, even
a few anecdotes from the field. Many states are rumbling in federal defiance,
citing the Tenth Amendment.
This week, focus on the banks,
the foundation for capital creation, the lubrication for commerce, the source
of most credit, the home for unwanted toxic assets. They are the cancer that
doctors refuse to remove, since the death of the patience seems certain. It
was once said that as the transportation and steel industries go, so goes the
nation. Well, they are shells falling of their own weight nowadays. It was
also once said that as the banking industry goes, so goes the nation. That
covers the core of commerce and finance. Interesting how the US Federal
Reserve is being sued by both Bloomberg News and Fox Business News. The USFed
claims they are protecting trade secrets. Yeah right! The trade secrets
pertain to money laundering, fraudulent bond issuance, influence peddling of
debt ratings agencies, collusion with regulatory bodies, maintenance of
double book accounting, insider trading with JPMorgan & Goldman Sachs,
and financial genocide of hedge funds. Those are trade secrets worthy of
keeping secret and protecting.
DEAD BANKS WALKING
A few weeks ago, a forecast call was made that
the BKX bank stock index was on the verge of breaking down again. It happened
exactly as forecasted, even hit my target. That makes three such forecasts
that occurred. Instead of a detailed chart to notice the exact steps in the
bounce, notice how the BKX index is threatening to break down below its 1994
low that could be called a generational low. The index began on its tracking
back then. Insolvency of the banks cannot be remedied with 0% rates anymore
than a dead body can be resuscitated by ample blood supply. The breakdown in
the USEconomy will next take a toll on the banks, for the umpteenth time. If
proper accounting were used, instead of the mickey mouse approved lunacy
today, the BKX stock index would be closer to its actual true value, zero. As
measures are imposed and policies are ordered to prop up the dead banks,
money will flee the banks and go to GOLD & SILVER.
For many months, an incorrect notion
had been put forth, that the regional banks were in good health, and mainly
the big money center banks were in the death throes. Not so! The regional
bank stock index strongly resembles the BKX, as the economic distress has hit
the entire nation. What is its true value? Who knows? Bring out book
value, which for the big banks is irrelevant. Why? Since the big banks of the
BKX index have a negative worth in the trillion$ from their caved-in credit
derivatives. The regional banks in the RKH index (stock chart shown below)
at least have some salvage value, but not much. Bank failures might reach
1000 on bad loans, according to RBC Capital Markets. This could easily happen
in the next three to five years, almost double the one-year tally at the
height of the Saving & Loan collapse, as losses mount on commercial
property loans next. Most of the bank failures will probably occur at banks
with less than $2 billion in assets as their commercial customers default,
stated in their research report. Gerard Cassidy, an analyst at RBC, said “There
are billions of dollars of losses embedded in the system, and the system has
to flush them out. The people that are going to take the losses are the
taxpayers and bank stockholders, and if regulators say there will not be much
loss to taxpayers, they will be lying… The sooner the bank regulators
can shut down the troubled banks, the faster the industry will get back on
its feet. We are nowhere near the end of this down leg in the current credit
cycle.” The Federal Deposit Insurance Corp has taken additional
steps, hiking its ‘tax’ to member banks and lifting its borrowing
limit from the USCongress.
Check out the following graphic,
which shows market bubbles of valuation for major banks according to
diameters for each circle tied to a big bank. This is a little misleading,
since people will easily deduce value is associated with area of each disk. The
area is proportional to the square of the diameter. Regardless, notice the
colossal reduction in the giants, whose size is now miniscule, especially
Citigroup and Royal Bank of Scotland. Ouch! Too big to fail soon gives way to not that
big at all!
REALITY CHECK
The attempts to revive the banks will lead to
desperate measures. The Obama Stimulus plan is not a good start. It is much
more of the same failed junk tossed into a hasty package, founded on
desperation, called urgent expedience. Little is designed to rebuild the US industrial base, which would provide a strong
legitimate income source. Most economists fail to recognize this missing
piece. The tax cuts are not permanent, thus will change little in spending
propensity. The tax credit for home buyers will lift mainly the homebuilders,
who need to go out of business. The pork amounts to 11% to 13% of the total
spending bill. Little is done to alleviate the high corporate tax burden,
where the US is not competitive. Sorry, but this is just another
spending bill loaded with garbage and a few half-baked ideas that seem
constructive.
By the way, the Aggregator (aka Bad Bank) concept
was a very bad idea and was unceremoniously scrapped, an embarrassment to
Geithner. The entire concept is insane and shows the high degree of
desperation by the USFed. He is already looking like a green kid who
cannot operate without the strings attached to Robert Rubin. The proposed
idea was recognized as stupidity put to paper almost immediately, as
described two weeks ago. The ultimate problem with the vacuum cleaner miracle
worker Bad Bank is that its proper implementation would have destroyed the
balance sheet of the majority of large US banks. So scrap the idea! Meredith
Whitney of Oppenheimer believes “Simply removing ‘toxic’
assets from bank balance sheets will not directly cause banks to increase
lending.” She favors having banks sell their ‘crown
jewel’ assets to cover their own losses. That amounts to liquidation in
my book.
Next we have a bizarre notion put forth by
Treasury Secy Geithner that all banks must submit to a Stress Test on a
mandatory basis. That sounds promising, except that the results probably will
not be made public any more than the disbursal of the TARP funds. Why? Because
the Stress Test will reveal the insolvency of the banks, and vulnerability to
bankruptcy if proper accounting is inflicted upon their assets. That is
what a stress test reveals. See the article on how regulators have invaded
the big US banks (CLICK HERE).
Nearly 100 federal banking regulators descended on Citigroup in New York on Wednesday morning. Dozens more entered Bank of America, JPMorgan Chase, and
other big banks across the nation. These regulators could become the arbiters
of American finance, as the Geithner Stress Test empowers them to decide
which banks are strong enough to survive, and which must accept new bailouts
from Washington with strings. These are not prosecutors or investigators, but
rather accountants and analysts. The financial sector was anticipating far
more than the rookie Geithner delivered last week. The original investments
under the Troubled Asset Relief Program, or TARP, might soon be converted
into bank common equity. Such a move will end the graft, private payoffs, and
satisfaction of foreigner bondholders who (rumored) threatened Wall Street
officials with violence last September. The litmus test might well be a Dow
Jones and S&P500 stock response, as in new multi-year lows. The forward
guidance from 80% of major companies is dreadful.
Karl Marx was an annoying man
with some brilliant thoughts, whose work was like a football that Vladimir
Lenin ran with. If his words prove correct, and the first few tenets seem
right on the mark, then what follows in the Untied States will be anything
but continued freedom. Calling it socialism might be a stretch. He wrote in
“Das Kapital” the words:
“Owners of capital will stimulate the working class to buy
more and more expensive goods, houses and technology, pushing them to take on
more and more expensive debt, until their debt becomes unbearable. The unpaid
debt will lead to the bankruptcy of all banks, which will have to be
nationalized, and the State will have to take the road which will eventually
lead to communism.”
Nobel laureate Joseph Stiglitz hated the Bad Bank
concept designed to rid financial companies of toxic assets risks, since it
would vastly expand the national debt. That amounts to swapping taxpayer
money, as in cash for trash, in the words of Stiglitz. He spoke in a panel
discussion at the World Economic Forum in Davos, Switzerland. He said “You
should not chase good money after bad. We are talking about a national debt
that is very hard to manage.” Stiglitz serves as a professor at Columbia University in New York. The Davos Forum was one of the gloomiest ever, but it did
feature a big spotlight on Vladimir Putin. The blueprint put forth by
Putin should be regarded as the ‘Post-US Blueprint’ and is built
atop a energy foundation with many workable rules. The Untied States and Untied Kingdom are going to soon find themselves outside looking in concerning
global commerce and banking. The Hat Trick Letter Crisis Update addresses and
analyzes the Putin plan.
JPMORGAN EXPLOITS
USGOVT AID
Nothing new here! But details
need some exposure. JPMorgan received its first bailout funding from the New
York Fed of $55 Billion, guaranteed by worthless assets from Bear Stearns, to
prop up its own liquidity position and to buy Bear Stearns stock. JPMorgan
also recently received another $25 billion in TARP payments from the Dept
Treasury. That does not count the $138 billion received from highly
suspicious fresh funds from the USFed in what has been called a RELOAD, from
a decision made by a bankruptcy judge on a Saturday morning before dawn, to
satisfy private Bear Stearns accounts. Focus on JPMorgan executives. Instead
of receiving cash bonuses more easily detected, they received very large
bonuses in the form of Stock Appreciation Rights (SARs) and Restricted Stock
Units. These equity compensation securities are hard to value except by
expert analysts. SARs are very similar to employee stock options, whereas
Restricted Stock Units are very similar to Restricted Stock. These SARs were
granted on 20 January 2009, the day that the JPMorgan stock reached its
lowest in five years. The stock quickly rebounded.
Total value (2/6/2009) of SARs
Granted = $81,405,000
Total value (2/6/2009) of RSUs
Granted = $30,500,000
Total value (2/6/2009)of Grants
to top 15 executives= $111,905,000
These totals greatly exceed
those for the top Merrill executives as yearend bonuses in cash and equity. The
New York Attorney General has begun investigation of Merrill’s
executives for criminal wrongdoing. Merrill CEO John Thain has granted
himself a mere $10 million while at least three JPMorgan executives exceeded
that in equity compensation alone. JPMORGAN IS BEYOND REPROACH, AND SEEMS
NEVER TO BE THE SUBJECT OF SCRUTINY. Why is JPMorgan immune from
investigation? See the probing article with graphs (CLICK HERE).
CITIGROUP & BANK
OF AMERICA ARE DEAD
The charade continues. Both big banks are too
important to the syndicates to fail. They hold up the highly fallacious
fractured foundation to the US banking system, complete with credit
derivative ramparts and illicit gold & silver suppression latticework. The
bizarre props to Citigroup cannot stand any test of scrutiny. The
reorganization into a commercial bank on one side and an investment bank on
the other side is likely soon to result in a pair of bankruptcies. Without
USGovt props, it would be dead. Without influence by Robert Rubin, it would
be let go. Then we have the Citi naming rights up in air and its $400 million
cost associated with the new New York Met Stadium. Bad timing!
In a maneuver possibly more to
deflect public outrage, under public pressure to increase its lending,
Citigroup says it will release $36.5 billion to issue mortgages, to make
credit card loans, and to buy distressed assets from the credit markets. The
decision arrives after the bank received $45 billion in capital from the
USGovt in two installments late last year, not yet used in any visible
manner. In highly dubious promises, CEO Vikram Pandit said, “Our
responsibility is to put these funds to work quickly, prudently and
transparently to increase available lending and liquidity. TARP capital will
not be used for compensation and bonuses, dividend payments, lobbying, or
government relations activities, or any activities related to market,
advertising and corporate sponsorship.” My belief is that funds
are fungible, and Pandit gave a complete list of precisely what TARP funds
have enabled and will continue to enable. After considering $51.2 billion
worth of proposals within its business segments, the bank said it approved
$36.5 billion in total. That includes $25.7 billion in residential mortgages,
$5.8 billion in credit card lending, $2.5 billion in personal and business
loans, $1.5 billion in corporate loans, and $1 billion in student loans.
The Federal bailout has not
fixed Bank of America, according to several industry analysts like David
Henry, Matthew Goldstein, and Roben Farzad. My viewpoint is that BOA was
bailed out in order to shore up a potential explosion in credit derivatives,
no more, no less. They have become a gigantic tank to house toxic assets
owned previously by Merrill Lynch and Countrywide. The entire merger was
hastily cobbled in a time of desperation. The USGovt $138 billion
rescue package of Bank of America is already failing. The bailout has
amounted to little more than temporary medicine to help BOA digest its
acquisition of brokerage giant Merrill Lynch, amidst great controversy. They
could not permit Merrill to fail, so a clumsy merger was arranged that puts
the larger BOA at heightened risk of failure. Worse, the USGovt approach
to rescuing the big banks has been called a Band-Aid, even camouflage, as
opposed to a real solution. My view is that many mergers were ordered by the
USFed and higher powers who remain hidden. BOA will need another $80 billion
to cover imminent losses and to rebuild its capital, estimates Paul J. Miller
Jr., an analyst at research firm FBR Capital Markets. The ultimate costs to
keep BOA afloat will be an order of magnitude greater.
The USGovt, complete with Dept Treasury henchmen
from Goldman Sachs, and compromised USCongress committee wonks, still has not
addressed the underlying problem: Billions of dollars of toxic securities and
loans languish on banks balance sheets. The big banks are flailing, reluctant
to make sharp writedowns, urging accounting boards to exclude mark to market
methods, hiding assets off the balance sheets, anything to buy another day.
In the meantime, the USEconomy suffers from credit seizures and basic
deprivation. Much of the funds authorized for rescues, bailouts, and
nationalizations have been squandered, not by waste, but in fighting credit
derivative fires. These activities are not publicized for many reasons.
Attention is not wanted on the flimsy foundation to the US banks. At tention is not wanted to reveal the location of financial nuclear bombs of
great potential destructive force. One informed contact to the Hat Trick
Letter expects at least $30 trillion and perhaps over $50 trillion to blow up
eventually in credit derivatives, with uncertain consequences. Much has been
discussed of the Credit Default Swaps that insure asset backed bond like
mortgages and corporates. However, given the extreme pressures from near 0%
rates, the Interest Rate Swaps have begun to blow up. The JPMorgan machine
has abused the leverage of IRSwaps to force long-term interest rates down for
a decade. The Bond Vigilantes pulled a disappearing act over that decade. With
fresh fires in the IRSwap Laboratories, the same Bond Vigilantes might
reappear, as rumor has indicated in just the last couple weeks.
The Institutional Risk Analyst
follows such developments like a well-trained hawk. He writes, “By
failing to enforce margin limits on CDS leverage while investing new capital
in Citigroup, Bank of America, and other large banks via the TARP, the Fed
and Treasury are essentially trying to fill up a bucket with a hole in the
bottom… To fix the systemic risk issues with the
CDS market permanently and also provide a much need additional buttress to
the bank rescue efforts by the Fed and Treasury, here is what we would
suggest. First, the Fed and Treasury should prohibit the writing of new
CDS on any financial institutions that is participating in the TARP. Instead,
the Fed and Treasury should interpose themselves as counter-parties for these
names, writing CDS for any and all counter-parties and capturing the revenue
for the US Treasury.” They make other suggestions regarding the
legal configuration of CDS contracts themselves. They claim in summary, more
like an urgent warning, that “Unless and until Chairman Bernanke and
the other regulator are willing to tame the CDS tiger, there will be no
success in bringing stability to the US banking system or foreign banking
markets. And the longer Bernanke & Co refuse to say an emphatic NO to
Goldman Sachs, JPMorganChase, and the other CDS dealers, the financial crisis
affecting global banking institutions will continue to worsen.” See
the analyst summary (CLICK HERE).
MANY HAVE WRITTEN WHEN THE
USTREASURY BOND LOSES ITS SAFE HAVEN STATUS, THAT GOLD WILL RISE IN TURN. FEW
ARE FACTORING IN HOW THE CREDIT DERIVATIVE GRADUAL MELTDOWN WILL LIFT GOLD. IT
IS OCCURRING IN HIDDEN FASHION, AND WILL SURELY AMPLIFY.
Jim Willie
CB
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