The Great Gamble: is the Federal Reserve preparing us for a derivatives nuclear holocaust?

Post Derivatives Apocalypse

MarketSkeptics has published incredible information detailing what is not only fraud by the Federal Reserve, but something that has the very real potential of blowing up the entire financial system on a scale previously unimagined. The information comes almost exclusively from a June 24-25, 2003 Federal Reserve meeting, where it was explained in very clear terms, that the Federal Reserve had actually seriously contemplated using derivative products, specifically put options on US Treasuries, as a means of pushing down long-term rates:

The alternatives that could be adopted while changing only the composition of the balance sheet are listed in the top panel. These include (1) extending the average maturity of the outright holdings in the SOMA, (2) setting explicit ceilings on longer-term Treasury yields, and (3) using derivative instruments.

Let me explain, first, why this may have been more than a theoretical proposition, and second, why it is even important to begin with.

The above excerpt from the 2003 transcript quotes System Open Market Account (SOMA) manager Dino Kos, who was in the process of proposing a series of policy tools that the Federal Open Market Committee (FOMC) could use in order to drive down long-term interest rates. Traditionally, the Federal Reserve only targets the short end of the yield curve, and we are actually taught in economics that central banks are incapable of affecting 10, 20 or 30 year interest rates (no need to go into why right now). I never bought into this argument, and anyone who watched the yield curve flatten, and subsequently invert during the late Greenspan era will find plenty of reason to exercise similar skepticism on the subject.

Now, in reference to Kos’ specific suggestions, points (1) and (2) have already been implemented. “Extending the average maturity of the outright holdings in SOMA” simply means buying a greater share of long-term treasury debt. The Fed has already been doing this for some time. Meanwhile, “setting explicit ceilings on longer-term Treasury yields” simply means that the fed won’t allow interest payments on newly issued US government debt to exceed a specific target, presumably by stepping in as a buyer to fill the demand gap in the treasury market that would otherwise drive rates higher. This is pretty much what the Fed does in the short-term money markets by setting the artificial federal funds rate target. To put this another way, points (1) and (2) are both influenced by the Federal Reserve monetizing the long-term debt obligations of the United States, which is what QE1 and QE2 were all about.

Source: Market Skeptics

Figure 1 – short-term US government debt is replaced with long-term debt

The chart above shows how the Federal Reserve began to unwind its position in short-term government paper in the beginning of 2008, only to expand dramatically its purchase of long-term paper at the start of 2009. The reason for the lull in buying by the Fed that you see during the last three quarters of 2008 is probably a result of natural market pressures driving up prices for US government securities as people were rushing out of riskier assets into the “safer” short-term US treasury market. This would have freed up the Federal Reserve from having to make the type of large-scale asset purchases in treasuries that have subsequently characterized QE1 and QE2. This “freedom” is also reflected in the giant spike that you see for other “credit programs.” The buying of long-term US debt has subsequently taken up an increasing amount of room on the Fed’s balance sheet.

In other words, people were losing interest in holding US treasuries at prevailing market prices. When this happens, the natural effect is for prices to drop, signaling to the government that it needs to raise rates (the yield on its newly issued bonds) in order to compel buyers to purchase more treasuries. In order to prevent this natural rise in rates, the Fed rushed in to make up the difference, serving as a buyer and thus creating artificially high demand for treasuries. This put a floor on prices and worked as a cap for long-term rates. This is what QE1 and QE2 were meant to accomplish.

Ok, so now we have established that points (1) and (2) have already been implemented. This is important to recognize because it makes it all the more likely that point (3) would have, at the very least, been seriously considered as well. Now, we will turn to why the implementation of point number 3 (the use of derivative products) is such a scary prospect.

When Dino Kos proposed the use of derivative products in this 2003 fed meeting, he specifically made reference to the use of treasury put options. Without going into great detail, a put option is basically a derivative product used as a means of selling-short a particular asset. If you buy a put option on wheat, it means that you are expecting the price of wheat to decline, and so you are entering into a bet to that effect. Of course, every trade has a counter party, and so, if you are buying a put option on something, it means that there is someone else on the other side of that trade who is writing the option. This other party, in a free market at least, would be writing the option because he/she expects the price of the underlying asset to rise above the strike-price.

Buying put options on US government debt is essentially a way of selling-short the treasury market. You are basically betting that the price of government debt is going to drop and that yields are going to rise. If the demand for put options on US treasuries is growing, then pressure begins to build on yields. In short, the market for treasury put options is just another way for bond traders to provide an up or down vote on the US credit rating, and thus on benchmark interest rates in the economy. 

As we already mentioned, the Federal Reserve can influence interest rates by buying up US bonds, thus driving up prices and pushing down yields. This is what quantitative easing means. However, the policy becomes increasingly ineffective with every purchase. It stands to reason that if the Fed wants to continue to keep rates artificially low in the face of market sentiment to the contrary, it must find new ways to influence prices. One such way would be through the derivatives markets, specifically using treasury puts. According to Dino Kos:

Alternatively, we could sell put options on longer-term Treasury securities at strike prices associated with desired longer-term yields…[The] ultimate success would hinge on the quantity of options sold—that is, how big a bet the Federal Reserve were willing to make. The more options sold, the greater the chance they would have the desired effect on longer-term rates even if not associated with any policy commitment, either by raising the costs to the Fed associated with options being exercised, or by lowering risk premiums on longer-term rates.

What Kos is saying here is plain as day: issue put options on long-term debt at artificial strike prices that are likely to produce the sort of yields that the Fed is looking for. This is just another way of manipulating the interest rates in the economy. However, Kos recognizes that, in order to have the desired effect, the Fed would need to issue an increasingly high number of these put options. Here is the kicker:

[O]f course the risks to the portfolio, to reserve levels, and of capital losses would rise in equal measure. And an exit strategy for options may not be as straightforward as it seems, even apart from the possibility of their being exercised. Of course, the Desk could stop auctioning new options at any time. But a decision to stop selling more options or not to issue new contracts with later expiration dates as time passes likely would be interpreted in the market as a statement about future policy intentions. The resulting rush to unwind market positions would likely be very disruptive and send yields sharply higher.

So, unlike traditional policies of buying and selling the underlying asset (as is the case when the Fed buys or sells treasuries in order to add or extract liquidity and thus raise or lower the Federal Funds Rate), a strategy of issuing put options to counter parties interested in hedging against an environment of rising rates puts the Fed in a dangerous trap of having to supply ever more derivative contracts in order to suppress the price of long-term yields – the very yields that they are issuing insurance against.

First of all, this is fraud. The Fed is effectively issuing credit protection against itself. That’s like me taking out a $1 million loan and then issuing another $1 million in credit protection against my own default. This is absurd. If I default on my debt, then this means that I won’t be able to make good on the insurance contract either. This is just a fraudulent means by which to borrow more money.

Second, and more importantly, this has the potential to blow up the entire financial system, and I will explain why in as simple terms as I can. If the Federal Reserve is issuing more and more insurance contracts, effectively betting against a rise in long-term yields, this means that it is also increasing its exposure to a fat tail event that would drive rates suddenly higher. In order to prevent a rise in the rates, the Fed can only do one thing and this is to continue issuing more and more put options (insurance contracts against default). However, just like with bond purchases, there is a point at which the issuance of ever more insurance through put options will prove ineffective.

At this point, the Fed would be left with two options. 1) it could start to buy up all the options it has outstanding, which would probably cause hyperinflation and thus a break down in the economy or 2) it could default, in which case the entire financial system would blow up. In either case, the outcome would be a total catastrophe the likes of which none of us can comprehend.

It all comes down to just how involved the Fed is in the derivatives market for treasuries, and if this activity is large enough to scale back without blowing up the entire system. I am not a bond trader and do not monitor this market, so I don’t have any idea if the Fed is actually doing what MarketSkeptics is implying. The guys at ZeroHedge seem to give this scenario a great deal of credibility, and as traders they are in a better position to express an opinion on the matter either way. Still, no one really knows, and the prospect is so apocalyptic in its consequences that even if I had an answer I wouldn’t know what to do with it.

The Fed starts to unwind it’s Maiden Lane II Portfolio of AIG Garbage

Ben Bernanke Terrorizing Congress

The Federal Reserve has started to sell some of the collateralized mortgage debt that it had bought during the financial crisis in 2008 this monday. According to a Fed statement, $1.3 billion of MBS were sold in an auction from the Maiden Lane II portfolio.

Just to clarify, for those who may be unfamiliar with the way in which the Federal Reserve operates, Maiden Lane I, II and III are simply corporate entities that were created by the Fed during the financially turbulent year of 2008 as intermediaries for buying up all the “toxic assets,” from the balance sheets of banks, specifically Bear Sterns and American International Group.

Maiden Lane I was created during the mid-March 2008 crisis involving Bear Sterns, where JP Morgan initially agreed to buy the mortally wounded firm for $2 per share in what was more like a mafia hit-job than a bailout. In order to consent to the deal, JP Morgan’s CEO Jamie Dimon and Chairman Ben Bernanke arranged that the Federal Reserve would set up a special corporation to buy all the garbage that was responsible for dragging down Bear Sterns. Called Maiden Lane I, this corporation would get a direct loan of $28.82 billion from the New York Fed that it would then turn around and use to mop up all the crap on Bear’s balance sheet, essentially cleaning up the place before JPMC took it over for business. Not too shabby…

Maiden Lane II, the sequel, in conjunction with Maiden Lane III were put together a few months after the Federal Reserve’s bailout of AIG during the financial crisis in September of 2008, as a means of further restructuring the government’s financial support of the firm. Because the collapse of AIG happened so quickly, the original bailout of the firm (which in the end totaled at least $170 bln) was conducted through a credit-liquidity facility, in exchange for which, the U.S. government received warrants for a 79.9 percent equity stake in the insurance giant.

What I would like to point out more than anything is a fact that I mentioned in my article on Warren Buffet (An Inconvenient Truth), published late yesterday afternoon. If you read from the Fed’s website, you will see that all the charts and colorful graphs displaying the nominal amount being held by the Maiden Lane corporate entities represent the fair value of the assets in question. Fair value is what the Fed estimates the assets are worth. Par value is what the Federal Reserve actually paid, which is what is often referred to as the “mark-to-model” price, or as I refer to it “mark-to-make-believe.”

Fair value is estimated at $20 billion, while par value is estimated at $39 billion. Which one of those two do you think the Fed paid? You guessed it; it paid par value for the debt. In other words, it paid 100 cents on the dollar for assets that no one was willing to buy at a fraction of this price, and now the Fed is saying that they are worth 50% of what they paid for them. Sounds like a great deal right?

I only mention this because it flies right in the face of everything the Fed and the Treasury were saying in the midsts of the crisis, and that a lot of parrots on the street were regurgitating like mindless bobble heads: that the US taxpayer was actually going to make money from this deal because he was going to buy distressed assets at depressed prices. Warren Buffett, too, was an advocate of this idea:

“If we buy these assets intelligently, the United States Treasury will make money. I mean, it’s borrowing money. It’s just a few percent a year and these assets are better than that…You can explain the fact that these are depressed prices, you know, we think these assets are going to be worth a lot more. And I think that case could be made in certain situations. – Warren Buffett, October 1st 2008

So, considering that the US Treasury was the only buyer in a market full of sellers, exactly how did we end up paying at par for all these garbage loans? Maybe someone can explain to me how a bankrupt company like Goldman Sachs (I’m not trying to pick on Goldman here, this can be any major bank), was able to unload its mortgage backed security paper in the middle of a liquidity crisis, and then buy the paper back only a couple of years later at half the price? Usually, in a liquidity crisis, it is the seller who is forced to take a 50% or more loss no? Oh, that’s right, I forgot that we live under a neo-facist banking oligarchy. My mistake…

Michael Steinhardt Points out an Inconvenient Truth about Warren Buffett

 

Most casual followers of business news in America are familiar with Warren Buffett, and most are likely equally familiar with his decision, a number of years ago, to give most of his money to the Bill and Melinda Gates foundation. It was a decision that garnered him incredible respect, and mummified him in a teflon coating of PR magic that would have left Rockefeller’s Ivy Ledbetter Lee, in utter awe of the man.

Since then, Warren Buffett has come to challenge Uncle Sam, as the most venerated relative in the American family. With infinitely deep pockets, a non-threatening posture and a jolly smile, he is the closest thing to Santa Clause for adults.

Yet, to misquote Abraham Lincoln, “you can fool most of the people most of the time, but you can’t fool all the people all the time.” And so it is in the case of Warren Buffett, and his carefully crafted image. For those of us who have been following Buffett’s career, even from a distance, with any degree of objectivity, it isn’t hard to see that the man is a master manipulator and a true machiavellian.

In 2004, Buffett wrote a small article for Fortune magazine titled “Squanderville versus Thriftville.” It was a magnificent piece, and really the first time that I came in contact with the mind of Warren Buffett. I was in my last year of college at the time, and had just begun the process of unlearning every morsel of nonsense taught by the staff of Keynesians at NYU, who actually thought they were teaching us economics.

Needless to say, Buffett’s words cut like a knife. He was right, and time proved him right.

Yet, as the economy began to sputter, and the markets began to deflate and eventually crash from the fall of 2008 into the spring of the next year, Buffett went from being a harsh critique of deficit spending, low interest rates, and deindustrialization to serving as the “Colin Powell of TARP.” He became the salesman for the bailouts, not just of AIG and the major US banks, but the entire lifestyle of the wall street banker.

Indeed, prior to 2008, Warren Buffett was highly critical of the credit deluge presided over by Chariman Greenspan. He even advocated the erection of trade barriers – he called them Import Certificates – as a last-ditch effort to revive American industry, putting him in the same camp with Goldwater republicans, the likes of Pat Buchanan. But something happened that caused Warren to change his tune, and that something was the opportunity of a lifetime, even for a man in the twilight of his years.

Warren Buffet, wise enough to foresee the credit crisis that took the financial markets by storm, was the most well-capitalized investor left standing in the middle of the gale engulfing the markets. Publicly reciting the old Rothschild adage “you buy while blood is running in the streets,” Buffett swooped in, buying $5 billion in preferred shares of Goldman Sachs, while adding significantly to his position, both personal and on behalf of Berkshire, in Wells Fargo.

The moves came before the house was set to vote on the TARP legislation that was being railroaded down the throat of congress by Paulson and his gang of thugs at the treasury. Buffett made the deal with Goldman, as well as additional investments in GE, Wells Fargo and others under the assumption that TARP would be passed. But it wasn’t; at least, it wasn’t passed on the first vote. The house rejected the legislation, and the Dow posted its largest one-day point drop in history – 777 points.

Buffett wasted no time. He was immediately making the rounds all over mainstream media, from CNBC to PBS, repeating in no uncertain terms, the very dire predicament that he felt the United States was now in.

“You’ve had an economy that’s like a great athlete that’s had a heart attack, cardiac arrest, and the paramedics that have come, [and are] arguing [about] who was at fault, the athlete should have been checking his blood pressure more carefully. The important thing is to apply the resuscitator. It doesn’t help spending time worrying about who is to blame for the patient having the heart attack.” – Warren Buffet, sounding off a day after congress failed to pass the $700 billion bailout

Comparing the American economy to a great athlete was more than slightly disingenuous. Warren had spent the last several years publicly lambasting the government and the Fed for helping to destroy the foundation of American industry. After all, it was squanderville that Buffett was comparing to the USofA, not the astute savers of thriftville. If anything, America was an obese shopaholic, whose cardiac arrest was due to a perfectly forseeable artial blockage.

And yet, despite his very clear warnings about deficit spending and American overconsumption, Warren Buffett quickly and smoothly reversed himself almost on the spot. He went from lambasting congress for running up the national debt, to reprimanding their failure to pass the bailout, saying that it “was the right thing to do,” given that America had just been “hit by an economic pearl harbor.” He even went so far as to say, in a Fox Business News interview, that we were “looking over a precipice” and that “if congress doesn’t help us on this [passing the bailout], heaven help us.”

But it was Buffett’s final appearance on Charlie Rose’s show on PBS, right before the bailout package was finally passed that shows, without a shadow of a doubt, just how shrewd and machiavellian Warren Buffett truly is.

We need to remember that, at this time, the American people were scared shitless. The vast majority of them are financially illiterate, and are dissuaded from learning due to the complex terminology that is used to cover up what is often very basic accounting fraud (case in point, the Repo-105 scam). Therefore, in the same way that millions of skeptical Americans were sold on the Iraq war by Colin Powell’s famous “anthrax vial” appearance at the UN, so too were they cajoled by the soothing, trustworthy and warm familial persona of America’s greatest philanthropist, Warren Buffett.

Buffett’s October 1st, 2008 appearance on Charlie Rose was arguably his finest moment. Condensing all the arguments and smooth talk that he had so skillfully floated out into the mainstream debate in the preceding weeks, Buffett managed to convince a nation of skeptics that, although wall street could not be trusted, he certainly could be. And he was telling us that this bailout just had to be done. Pass the bailout now, he argued, and we can worry about who is to blame for this mess later:

BUFFETT: I said, if they do it – I don’t know who the next Treasury secretary will be. I would say this – I would – they hate this term in Washington, obviously, but I would hand something pretty close to a blank check to a fellow like Hank Paulson…[annexed from a statement made later in the same interview] he’s got the interest of the country at heart.

ROSE: Would you really? A blank check, $700 billion, go spend it.

BUFFETT: Yes. Go invest it.

Go invest it. And that was an important distinction drawn, not coincidentally by Warren Buffett, for as he made clear later in the interview, and in the weeks prior to the bailout, the American people were not bailing out the banks, but rather making an investment from which they would eventually, actually profit:

BUFFETT:  If we buy these assets intelligently, the United States Treasury will make money. I mean, it’s borrowing money. It’s just a few percent a year and these assets are better than that.

ROSE: These people who argue against you will say the assets are worth much more than mark to market says. And therefore, we’re not seeing a reality.

BUFFETT: Well that is the reality, and that’s the reality of what they’re going to sell them to the Treasury for too. You’ll get in a lot of trouble when you start putting fictitious numbers on value. You can explain the fact that these are depressed prices, you know, we think these assets are going to be worth a lot more. And I think that case could be made in certain situations.

But I think to just say, you know, we’re going to say a $1 of cash is worth $2 all of a sudden, you know, it isn’t worth $2; it’s worth a $1 today. I think once you start putting phony figures into financial statements, you can get into a lot of trouble. We’ve seen so much of that in the last 20 years.

So, Buffett was telling Charlie and the rest of the American public that the $700 billion dollars that would be tacked onto the national debt, would be used to buy distressed assets at depressed prices. These illiquid securities (referred to at the time as “toxic assets”) would be temporarily held by the Treasury long enough for the market to recovery, after which time, they would be sold back to the banks at a profit. Sounds good right? But wait, there’s more:

BUFFETT: It could be very tough. Inflation could be a very – is a likely consequence on what’s going on now. Right now, we’re, in effect, making – to some extent, making a choice between future inflation and getting off the floor. And we’re likely to have more inflation in the future as a consequence of the things we do to fight the present situation.

The bailout was going to cause inflation? How could it cause inflation if we were buying distressed assets with the intention of selling them back at a profit? Inflation can only be caused by an increase in the supply of money and credit. If we are lending the banks money on a short-term basis, holding their “toxic assets” as collateral with the intention of selling them back at a profit, doesn’t’ this mean that we are going to be extracting the extra liquidity that we are now pumping in?

In fact, that’s exactly what this means, only Warren Buffett ultimately knew that the American taxpayer was never going to see dollar-one of that money. Not only did the taxpayer not buy the assets at market value, but he actually payed 100 cents on the dollar, meaning that he payed the banks whatever they claimed the assets were worth. Hence the phrase “mark-to-make-believe.”

So, instead of paying market value when we bought them, and getting market value when we sold them, the US government paid whatever the banks wanted when it came time to dish the money out, and now that the banks have been made whole, they are demanding market prices for the crap that they unloaded on our national balance sheet just 2 years prior (the Fed now wanting to sell its MBS is just one example).

And finally, Warren Buffett wanted to assure us that neither he, nor Berkshire Hathaway, had anything to gain from his appearance on Charlie Rose that night.

ROSE: Right. There are those who – you just said you would do it yourself – there are those who believe, and it has been suggested, that this is the time for Warren Buffett to answer the call of his government in a country that’s been very good to him. What are you prepared to do yourself beyond run Berkshire Hathaway well?

BUFFETT: That’s my job. Any time I can be of help to the government, in terms of giving advice – I’ve given a little advice, actually.

BUFFETT: Trouble is it gets when it really counts. But anyway, obviously, I’m here tonight talking about this for that reason. It isn’t going to do anything for Berkshire Hathaway. That isn’t really true.

And there you have it in a nut shell. His job. That’s what it all comes down to. This is what Warren Buffett had been pitching the American people all night, that not only was he someone you could trust, but that it was in fact his job to make sure that the American people got a fair deal. It was his job to make sure that we didn’t get fleeced. One of the greatest American capitalists, who had never run for public office or held a policy post in Washington DC, had effectively anointed himself negotiator-in-chief for the biggest power grab in American history.

So when Michael Steinhardt, came out on national television and called Warren Buffett the greatest “con-job” on planet earth, it offered people in the mainstream a moment to “reflect” (as he put it) on the deeds of a man that will otherwise be remembered, not as an enabler of elitism and financial oligarchy as he rightfully should be, but as a champion of the working man, who served the people more than he ever served himself.

Charlie Rose Interviews Inside Job’s Charles Ferguson

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Dodd will be the First Rat to Jump Ship, not the last

Chris Dodd the Rat

In what CNBC calls a “shocking” revelation, Senator Chris Dodd told CNN on Tuesday that Obama officials were the ones who wanted the language (being referred to now in the mainstream media as the  ”Treasury Loophole”) added to an amendment limiting bonuses that could be paid by companies receiving federal bailout money.

“I did not want to make any changes to my original Senate-passed amendment, but I did so at the request of administration officials, who gave us no indication that this was in any way related to AIG,” Dodd said in a statement released by his office.
Really, there is nothing shocking about this revelation. Chris Dodd heads the Senate Banking Committee, and he was a major cheerleader of the financial community during all these years of excess that have now culminated in economic catastrophe (let’s not forget his cheerleading of Fannie Mae and Freddie Mac taking on a more “proactive” role in assuming collateralized mortgage debt). It shouldn’t shock anyone that he played such a pivotal role in crafting this legislation and that now, as the boat appears in danger of sinking, is preparing for the possibility that he may have to jump ship a bit earlier than he would have liked.
Dodd is a smart guy, and he understands finance. I have heard him speak on issues of banking, and he is no dummy when it comes to monetary mechanics. He also knows that, because he is a prominent senator and spearhead for banking legislation, he is on the front line for receiving any populist backlash that is going to come Washington’s way. This is why, during the recent hearings by the banking committee where the vice-chairman Donald Kohn of the Federal Reserve was present, Chris Dodd demanded that a more “satisfactory” answer be provided regarding the distribution of AIG bailout funds. Low and behold, it was not but one week later that we got a list from AIG providing the names of those firms who received the first $75 of the $170 billion in Fed bailout funds.
Dodd is not the only one feeling the heat. Barney Frank (a.k.a. Mr. Tough Guy), has also been upping the rhetoric and demanding more transparency from the banking sector, as well as from the Federal Reserve. If you want to know if a ship is sinking, always scan the faces of politicians for the early warning signs. The bankers will stick this thing out till the bitter end (they don’t have a choice in the matter), but the politicians are recognizable and electorally accountable, and they don’t want to end up before the “firing squad.”
My guess is that this entire scam is starting to unravel far too quickly for even the bankers to control, and that they are not going to be able to execute the rest of their bailouts in the covert fashion that they have become accustomed to. This means that the Federal Reserve, not the Treasury, is going to have to pick up the slack and start openly buying up everything it can in order to keep the major financial institutions that it is sworn to protect from going bankrupt. What this means in economic terms is that everything that was going to happen, is now just going to happen a lot sooner. The US Treasury market is going to start unraveling faster than most predicted, with prices for long-term bonds being the first to drop, mirrored by a rise in domestic inflation. Although the deflationary pressures are still great, and margin call forecasts tell us that more liquidation is on the way, we cannot say with certainty that the downward forces will overwhelm the central bank’s ability to cover the ensuing losses with monetary credits (i.e. by creating money out of thin air).
This, taken in conjunction with the Fed’s recent decision to monetize another trillion plus dollars of US long-term debt paper, should be taken heavily into account by individuals looking to protect their wealth in both the near, as well as the long-term. If you are completely risk-averse, they you should just buy more of gold now, even at these prices. If you are willing to bear a little bit of risk, as I am, you may be willing to wait this out a bit and see if gold can break at least back down to the mid-800′s level before you start buying. Of course, commodities in general are a great play, but my concern with these investments has always been the inability to hoard the tangibles (i.e. unless you are running a farm, owning futures in sugar is not as safe as holding gold in your hands).
Dodd or no Dodd, this ship is sinking, and unless you wanna be a “Dud” and not a Dodd (sorry, that was cheesy humor) I would suggest you take these warning signs seriously. The Dollar is on its last breath and every financial decision you take from here on out becomes increasingly crucial to your long-term wealth preservation. If you are looking for a dollar rally, I can’t promise you that you will get it, but what I can promise you that what you will most certainly get is a collapse in the American bond market before the end of this year.

The Golden Ratio or the End of Infinity?

Infinity Sign

I’m sure you have all heard about the $165 million in bonuses taken out by AIG executives recently, after all, every major news network is covering it. And why shouldn’t they? After all, it is $165 MILLION, and that’s enough to buy you a sweet vacation home in the Hamptons, a 100 ft yacht with a Microsoft Surface navigation screen, and a few modest commercial properties to live off of for the rest of your life. But what about the $170 billion that AIG as a whole has received since it was bailed out in September of 2008? Doesn’t all that money come from the same place? Isn’t the Federal Reserve just crediting the accounts of AIG’s trading partners who took out insurance on their own derivative debt instruments? What about these firms that are getting this money funneled through AIG? Are they getting bonuses too? Wait…

OK, the mainstream media is so complicit in this scam that it makes me sick to my stomach. There is no left or right. They are all complicit. A few pundits out there do try and make light of this glaring inconsistency, but it gets drummed out by all the noise emanating from talking heads like Wolf Blitzer, Chris Mathews, Bill O’Reilly, etc. The list just goes on and on and on and on and…

But, I should point out that AIG has – after Chris Dodd and Barney consulted with Oracle 2.0 (i.e. Ben S. Bernanke) – released information about where roughly $75 billion of the $170 billion of our money has gone since AIG was bailed out. This number represents less than half of the money we have doled out to the insurance giant, but of this sum, $13 billion has gone to Goldman Sachs (surprise, surprise), another $13 billion has gone to Bank of America ($7 billion of that went to Merrill Lynch), and the list goes on and on and on and on and…

Is anyone sensing a pattern here? Durrr it’s a pattern within a pattern…within a pattern! It’s a fractal!! *GASP* we are being sucked down the black hole of a giant nautilus shell filled with all the paper in the cosmos!!! Ahhhhhhhhh!!!!

Sorry, I just had to do that. Silly, I know, but what else can I do? Maybe one day, years from now, I’ll catch Paulson, or Bernanke or maybe even Barney Frank drinking a caffé macchiato in Piazza San Marco and stop them for a chat. I don’t know what I will say to them, but knowing me it will probably be whatever pops first into my mind. Maybe something like, “don’t you feel like a complete piece of shit?” or “I hate you.” Or better yet, I might try and date one of their daughters! Well, in Barney’s case that won’t work, but can you imagine? Poor kids, they probably have no idea what is going on either. They probably think that daddy goes to work like everybody else and makes his money fair and square. Aw, how cute.

But seriously, can we just get on with the dollar collapse already, because the wait is totally killing me. I just can’t keep watching these accounts get credited with monopoly money. It’s driving me bonkers. Ha, maybe the system won’t collapse as a result of a dollar breakdown, but just from the sheer stress put on excel spreadsheets around the globe! We are going to run out of decimal places!! Maybe my 7th grade math teacher didn’t know what she was talking about after all…

Financial Terror: Made in the USA

Fed Shoots the Dollar - Financial Terrorism
We learned this week that American International Group (AIG) has doled out $165 million in bonuses to executives for the hard work they have put in during the AIG bankruptcy. Even the NY Times, the holy grail of intrepid reporting, which incidentally is also nearing bankruptcy, has come out in support of the bonuses, saying that it’s the best option available to us at this time. Of course, the administration and our new National CEO, Barack Obama, are “outraged” by the paying of these bonuses – simply outraged! In fact, Larry Summers, Obama’s “chief economic advisor” has said that the administration will need to get “creative” in order to recover “some” of $165 million in bonuses.

Who are these people kidding? Honestly, just who the hell do they think they are talking to? These “bankers” and “politicians” with the aid of both ignorant, as well as complicit mainstream “reporters” must honestly believe that this nation of dollar earners and savers is composed of absolute morons. I mean, nothing else could possibly explain the absolute arrogance with which they are engaging in BLATANT theft in broad daylight! The only reason these criminals are getting away with this is because they control the issuance of the monetary standard that we are all forced, both by law and by convention, to use in our daily transactions and liquid savings. Economic relationships and transactions have become so complex that even if we wanted to barter or use precious metals in order to conduct our daily business we would be unable to. In short, the American is being held hostage by the banking system, which is looting our economy as we speak, and it is doing it at gunpoint. We are all being financially terrorized – to quote Max Keiser – and the worst is yet to come. Once the terrorists are finished imploding the entire economy they are going to take all those dollars that they got from the printing presses to buy up everything worth anything, leaving the rest of those still holding dollars to fight for scraps at their local FEMA camp.

Black Hole Incorporated in Delaware

black hole of dollars

After decades of research, physicists have finally proven the existence of Black Holes. It turns out that this monumental discovery has occurred not in some far away galaxy but right here on earth – incorporated in Delaware to be exact. We know very little about this particular black hole, other than that its vortex seems to be emanating from the balance sheet of American International Group (AIG), the largest insurance company in the world. This revelation has sent shockwaves throughout the world of academia and business alike, though it does go a long way in explaining why hundreds of billions of dollars have disappeared right off of AIG’s balance sheet. While visiting capital hill this week, Federal Reserve officials, including both the Chairman, as well as the Vice-Chairman of the central bank, have offered little in the way of explaining how or why this black hole chose to form its vortex within the single most systemically critical institution of the global financial system. Despite this conundrum, officials promise to “take whatever steps are necessary to buffer the gravitational pull currently being exercised by this destructive phenomenon,” including “printing enough money to fill the hole entirely, if need be.” When questioned about the wisdom of such a strategy, since black holes only grow stronger the more “stuff” they swallow, Chairman Bernanke responded by saying “I am a banker congressman, not an astronaut.”