International Forecaster Weekly

Mortgage Failures Will Drive Gold And Silver Buying

Freddie and Fannie are now nationalized, mortgage issuance  will continue as usual, details of the mortgage bank failure, new threats for fiat currencies and new reasons to buy precious metals 

Bob Chapman | September 11, 2008

 We, the taxpayers, through the advice of our peerless leaders in Washington, have just nationalized Fannie and Freddie.  In doing so, we have created the perfect fraud machine, thereby extending the life of one of the biggest Ponzi-schemes of all time, and giving it a lifetime warranty to boot, courtesy of the sheople.

No longer will we see even the slightest trace of private sector accountability for poor business judgment, or of private sector efficiency in the operation of business, although certainly both of these concepts were little more than a joke in the way that Fannie and Freddie were being run as agencies, which are considered as being quasi-governmental in nature.  Now, even the illusion of private sector, quasi-governmental agencies has been cast aside in order to reveal what was really the plan all along, the intentional destruction of the old government sponsored enterprise (GSE) programs through fraud and mismanagement, and the use of insane leverage and risk, in order to pave the way for the creation of a fascist system of mortgage finance which permanently partners our corrupt government with the equally corrupt fraudsters on Wall Street.

This bailout staves off, for the moment, the fire-sale of GSE paper by its big holders, and provides a renewed source of agency paper, and of agency-insured paper, for purposes of absorbing all the excess dollars being produced by massive trade deficits, which are growing by the minute as the dollar continues yet another bogus, PPT-orchestrated rally.  But this time, the agency paper and guarantees get an express warranty instead an implied warranty, as was the case with the former Fannie and Freddie business models.  A fire-sale of GSE paper would have resulted in the repatriation of dollars to the US via the purchase of US assets, which would be highly inflationary.  Much of the fire-sale proceeds would have been rolled into treasuries, reducing their yields to unacceptable levels and pushing investors toward tangible assets like precious metals and commodities.  Also, some of the fire-sale proceeds would have found their way directly into precious metals, because investors are shunning the increasingly negative real rate of return of treasuries, and that is a big Illuminist no-no.  Hence the shortage of physical gold and silver.

The new, fascist Ponzi-Powerhouse will now continue to provide the sheople with fraudulently underwritten mortgages, thus perpetuating the issuance of mortgage loans to those who cannot afford to buy a house in the first place.  That way, Wall Street can continue to earn their big fees, commissions and spreads, and never mind the resulting defaults and losses, since the sheople taxpayers will now take care of that for them. This will enable the dreamers among the sheople to continue to overpay for outrageously bubble-priced real estate, thus extending the decline of the real estate market, and hopelessly flooding it with more inventory than it already has.  Prices must come down so people can afford to buy houses again and so they can once again qualify for fixed rate mortgage payments that won't send them careening into default.   Trying to stop the jingle mail by preventing people from getting into negative equity situations caused by falling prices is not going to work.

People can now see that any attempt to cushion the fall in prices is like trying to catch a falling knife.  Keeping prices artificially high is just another bogus manipulation that will backfire, and further, it will exacerbate an already dire situation by keeping otherwise qualified buyers on the sidelines as inventories continue to mount from ever-accelerating foreclosures.  Until prices come down dramatically, the number of foreclosures will continue to outpace the number of purchases, and we now predict that because of the Fannie and Freddie bailouts, the 30% estimate for the overall decline in prices may have been far too conservative.  We can now see value losses of 35% to 40% across the board, with 50% to 60% losses in the ten former hot areas.   Congratulations idiots!  Over the next four to five years, we could see as much as an entire year's worth of US GDP blown out of our back-ends by real estate losses and by the loss of purchasing power that will be suffered by what little real estate value remains on account of hyperinflation.  All these ludicrous bailouts are going to greatly exacerbate the rate of inflation as the printing presses start flying at mach speed.

The private dealers will be doing overtime trying to unload all the fresh new treasury bonds being created to absorb the trillions in losses that will be suffered and eaten by taxpayers.  Already, both Fannie and Freddie have been authorized to underwrite another $100 billion a piece in mortgage loans to be held by them in their own portfolios.  But that does take into account the toxic mortgage paper that they will guaranty instead of owning it outright, which will be much higher than a measly hundred billion a piece, and without which the mortgage markets would totally shut down.  Of course, the press forgot to mention that, because that is the paper being produced by the fraudsters and their toxic waste fascist-fraud-factory.  That factory pumped out paper products that were going to produce little more than defaults and losses for their sucker-dupe client-investors, who used to have to face the possibility that they were going to have to eat the toxic mortgage securitizations before that privilege was passed on to the taxpayer sheople in the latest scheme to impoverish the US middle class.  Now, the sheople get to eat all the losses emanating from this bogus mortgage paper that will continue to be produced by means of deceitful underwriting, over-appraisals and bogus AAA credit ratings.  Wall street is now singing:  "Ah, fraud without end, amen."

Incidentally, the press forgot something else.  What did they forget?  A zero, that's what.  The Treasury will purchase a billion worth of senior preferred stock in each of Fannie and Freddie, with authorization to acquire up to $100 billion a piece of such senior preferred stock, to ensure that a positive net worth is maintained.  Is this some sort of a joke, because it is certainly laughable?  You might wish to note that one out of every four new foreclosures is a prime ARM loan.  Fannie and Freddie now own, or have guaranteed, over five trillion dollars worth of mortgage loans, and a good chunk of that is not only toxic waste, but prime loans waiting to go bad as people lose their jobs, as borrowers get upside down in their homes, as ARM's reset and as the largest and deadliest of all mortgage loans, known as Option ARM loans, go into thermonuclear meltdown.  And then there are all the many hundreds of billions in toxic waste that will be added over the next couple of years, either by direct ownership or by guarantees.  HELLO!!!  We could be looking at losses from Fannie and Freddie of one trillion - EACH!!!  Put that in your pipe and smoke it!  Do you suppose the bonds we have to create out of nothing for the Fed to monetize in order to pay for the upcoming Fannie-Freddie-Fiasco is going to stoke inflation?  Ya think!

The big losers in the Fannie/Freddie bailout, besides the taxpayers, are the various common and preferred shareholders, who have all just been vaporized.  There will not be any profits for anyone, including the senior preferred shareholders who are now the US taxpayers.  Only stupendous losses are on the way for all but the GSE bondholders as Wall Street continues to buy time so they can continue their rampant system of real estate derivative fraud and keep rates from going up for a little while longer.  Next come the bank failures and the resulting under-funded pensions which were foolish enough to get involved with these investments.  Those losses will go to the under-funded FDIC and PBGC, who the taxpayers will also get to bail out.  As you may recall, the bail pumps on the Titanic did not quite cut it.  And so it will be with the Fannie and Freddie bailouts.  We have to wonder if the fired CEO's will be given, severance pay and bonuses for their outstanding management of Scylla and Charybdis?

As usual, we saw the PPT's manipulative hand, spinning the government's decision to nationalize Fannie and Freddie by boosting markets to make it look like everyone thought it was a great idea, when no one in their right mind, especially the pros, could possibly think that this is some sort of a magic bullet.  Many did not notice it, but the yen had weakened substantially on Monday against the euro, with the yen going from about 151 yen per euro this past Friday to almost 157 in the early hours on Monday, and then strengthening again back down to about 151 gradually near midday before weakening again to almost 154 in the later afternoon.  The yen also weakened against the dollar, moving from about 107 to 108 yen per dollar.  This was done to support the PPT intervention in the markets to put a good face on the gargantuan bailouts.  We have seen them do this over and over again, especially when the Fed makes a decision concerning its funds rates at an FOMC meeting.  The Dow gained about 290 points on Monday, only to lose virtually all of it the next day, showing you that the rally on Monday was bogus.  Everyone knows we are headed for big trouble and the de-leveraging is relentless.  The fane-stream media used Lehman for the excuse on Tuesday's big drop, but little more changed for Lehman other than the fact that someone let slip that the South Koreans were no longer interested in bailing them out, a wise move on their part if that is what they decided.  We all know Lehman is toast, and no one but our corrupt government, through its ever-more-screwed taxpayers, are going to end up bailing them out.  Lehman's situation was hardly a big market-mover, although there is some fear that they could take the whole system down due to the many entanglements they have with many of the big players.  But let's face it, our corrupt government will give them a free meal ticket in the end, because they are an Illuminist company, so what's all the fuss about.  Yellow fever also accounted for some of Tuesday's big drop in the stock markets, as the yen was strengthened once again to keep pressure on gold and silver.

Based on the estimated losses projected thus far for troubled bank failures, that being 78 billion in losses for 117 troubled banks, and based on the fact that there will be some 700 or so total failures, not just the 117 banks our lying government officials have discussed, we project total losses for bank failures at one half of one trillion dollars, which is on par with the subprime derivative losses that have been recognized thus far.  So much for an economic recovery in the financial sector.  Hail, hyper-inflation and treasury monetization.  

Well, gold and silver are under pressure from falling oil prices, and by the perception of support that the Fannie/Freddie bailout will give to the dollar by preventing a GSE bond sell-off and by improving certain aspects of the real estate markets.  And never mind the trillions in sheople bailout money, the monetizations of Treasuries to keep the trillions in deficits and bailouts funded, the hyper-stagflation, the double-digit interest rates that will soon follow, the real estate markets which will continue to tank despite Paulson's bazooka, the negative rates of return on treasuries, the rapidly declining corporate earnings on account of a tapped-out US consumer, the frozen worldwide financial and credit system, rampant worldwide inflation, nations disgusted with dollar pegs, the high likelihood of wars and conflicts,  shortages of physical gold and silver, heavy jewelry and investment demand for gold and silver and the likelihood of a lower Fed funds rate that will be implemented to push up bond values and increase bank spreads in a vain attempt to prevent the insolvency of the fraudsters.  Heck, other than such unimportant issues, why buy gold and silver?

Also powering the dollar rally is the manipulation of the USDX futures market.  Open interest on Tuesday exploded to a new all-time high of 67,239 contracts, shattering the previous record by over 8,000 contracts.  As this transpired, oil hit a low of 101.74 while the USDX moved to a high of just under 80.  The manipulation is almost complete now, as we predicted that a push below 100 on oil and a rise above 80 on the USDX would signal a reversal in gold and silver in a matter of days, or perhaps in a week or two.  With this kind of open interest on the USDX, you can expect to see some dollar support in the coming days.  The dollar shorts are being papered to death just like the gold and silver longs.  We believe that the dollar is being pushed up, and that the precious metals are being pushed down, to raise and to lower the bar, respectively, in preparation for a big Fed cut.  The fraudsters are on the ropes, despite profligate Fed money and credit, and we see the Fed moving M3 up to well over 20% soon.  If they don't, the system will collapse.  The losses are mounting faster than the fraudsters can recover them, and they still aren't lending to one another, so the fractional reserve leverage is not working.  This is a big reason for the Fannie/Freddie bailout also, to stop the bleeding in the real estate markets, and therefore on fraudster balance sheets, not to mention the credit default swaps on Fannie and Freddie that might have imploded as a result.  We wonder what may have happened to the counterparties on swaps written on the Fannie/Freddie stock that just got vaporized.  And all that mark-to-model stuff is about to implode.  Wait until you see what will eventually happen to JP Morgan Chase and their almost $100 trillion in mostly marked-to-model derivative notional value.  It will rock your world!  Meanwhile, the blue light specials are still on for gold, silver and their related shares - SO LOAD UP!!

In order to understand what is transpiring in today’s financial world you have to understand financial history. What you are seeing and experiencing has happened many times in the last thousand years. The upheaval we are in today could well be as bad if not worse than those of the collapse of the Lombard System in 1348 and the fall of the Hanseatic League in the 1600s.

Few want to know what is going on because human nature is opposed to change. Unfortunately those who do not listen will pay in a way they never imagined possible. The failure of a fiat money system is accompanied by extreme social upheaval and eventual economic collapse. What is unique is that this event we are facing is going to be worse than anything experienced in the past.

What is interesting is that economic and financial writers and academics threat these problems in isolation, just studying the corpus. They fail to connect the people and events and why such events occur. They cannot believe people act in concert to bring about such events in order to continue in power and wealth. They so often do not understand the real reason for events.

Historically the only safe haven for assets during these times of economic trouble has been gold and silver. In the last 40 years silver has been considered more to be an industrial rather than a monetary metal. Thus, gold has been considered more the asset of safety.

When we broke over $850 gold we pierced the old 1980 high of $850 an ounce, we began stage 2 of a 3 or perhaps 4 stage bull market. Gold attained $1,033 in March and due to government intervention we have tested the $775-$800 range three times putting in what we see as a trading bottom. At these levels it is probably the best time to invest because you should be able to buy cheaper than in this current zone. This could be the last inexpensive train out of the station. The current debt-based, fiat-money global economy is in the process of collapse. This monetary abomination and its accompanying manipulation will soon come to an end. No fiat currency has ever survived and when it does it will be catastrophic.