International Forecaster Weekly

Too Big To Fail, Too Big To Bail

Bear Stearns gets Fed backed bailout, a debacle for the investment community, Fed resorts to Depression era tactics to soak up the toxic waste of bad paper, a private Fed is behind all the market problems, we have been in a recession hidden by a pumped-up money supply, fiat money now the drug of choice everywhere

Bob Chapman | March 19, 2008

The crux of the dilemma now facing the elites and their precious central banking and gold suppression cartels is that while there are loads of financial institutions that are too big to fail, the worldwide financial system, which includes those institutions, has become too big to bail.  Keep a sharp eye on which of the many potentially troubled institutions get bailed out by the Fed.  The Fed's cherry picking will reveal the identities of their fellow elite insiders within the various components of the financial industry, such as banks, investment banks, broker-dealers, pension plans, insurance companies, hedge funds, etc.  They will be forced to reveal these insiders because they, and all the remaining central banks around the world, are not even close to being big enough to bail out the entire system.  They will only be able to bail out their crucial insiders within the troubled financial system, if they are lucky.  Bear Stearns was a primary US government bond broker and was greatly intertwined with many other institutions in the system in terms of counter-party exposure. This meant a potential thermonuclear chain reaction of failures if Bear Stearns went down, thus threatening the entire system.  That is why they were saved from bankruptcy after they had a run on their assets by lenders and investors, including two huge hedge funds that literally bled them dry, and is why the Fed intervened for the first time since the depression era for an investment banker which is a non-depository financial institution outside of the Federal Reserve banking system.  

Other depression era innovations by the Fed now include Fed discount window loans direct to securities dealers and swaps with investment banks under the new Term Securities Lending Facility of treasury securities from the Fed's general collateral in return for toxic-waste, mortgage-backed securities from the investment banks.  Both securities dealers and investment banks are outside the Federal Reserve banking system, so this is a sure sign that we are now facing desperate circumstances and potential systemic failures that might result from a cadre of non-depository banks and financial companies that are woven together by a mountain of derivatives that no one can understand or comprehend with notional values for debt and principal numbering in the many hundreds of trillions of dollars.

The current bailout of Bear Stearns, whose initials are appropriately BS, which is what they sold to their dupe clients, are the first of many institutional failures to come.  Lehman Brothers could be next.  Its earnings results and those of Goldman Sachs which came out on Tuesday, and which supposedly sent the Dow on another 400+ point rally along with the Fed's rate cuts, are bogus and both firms are still holding piles of toxic waste, illiquid assets and maniacal leverage exposure, some of which we believe may still be hidden in their offshore holdings.  The Fed had to guarantee the $30 billion loan from JP Morgan to BS to keep them solvent until JP Morgan could buy them out for a piddling two bucks a share because BS had nothing else left to offer as collateral other than toxic waste.  What a tragedy for their shareholders, many of whom were their employees.  Many hedge funds have crashed and burned, many others are starting to finally crumble and very soon yet another LTCM debacle, this time on steroids, could hit the markets and send them down in flames like the Hindenburg.  All this happens as the share of foreign buyers of 10-year Treasury Notes ("indirect bidders") plummeted to 5.8%, from an average 25% over the last eight weeks, which is a certifiable disaster.  

The dollar has clearly been abandoned and foreigners are starting to bail from dollar-denominated assets in droves.  This is where bailouts, and the hyperinflationary destruction of the dollar that comes with them, are leading us, along with miniscule bond rates caused by continual flights to "security" as everyone flees in terror due to rapidly deteriorating market conditions caused by subprime fallout, over-leveraged speculation, fraudulent lending and borrowing, lack of oversight, transparency and confidence, frozen credit markets, an out-of-control money supply, profligate borrowing and spending, as well as an economy destroyed in less than two decades by globalization, free trade, off-shoring, outsourcing, unrestrained illegal immigration, insane wars for profit and the rampant inflation and unemployment that come from a completely, totally and malevolently mismanaged economy thanks to the reprobates and sociopaths that run the Fed and our government.   

The Fed is at the nexus of our current financial woes and it is the private Fed, and its Illuminist owners, who are our arch nemesis.  The Fed is our Founding Father's worst nightmare come true.  They fought the Revolutionary War to free us from the British mercantile system and its international banksters who had turned them into their personal wealth-producing slaves, and who together with the Black Nobility of Europe, threatened to put a financial and sociopolitical stranglehold on them by use of the European, debt-based, fiat money system and its inflationary rip-off and burdensome taxes along with a suppressive military regime bent on brutally crushing any form of dissension.  Why do you think our Constitution and Bill of Rights declare that only gold and silver can be used as legal tender for trade and commerce and that we have the right to freedom of speech and the right to bare arms?  The Fed was created in 1913 to once again bring us under this European system of banking and to drag us back, kicking and screaming if necessary, under the domination of the Black Nobility who are still maniacally focused on world domination.  Why do you think the Queen Mum came to the US last year to give Dubya his marching orders?

As reported in the past two issues of the IF, using Shadowstats historical multipliers for inflation instead of using the official version from the Bureau of Lying (Labor) Statistics, the Fed has used the money supply to inflate us out of our wealth and to cover up the intentional destruction of our economy during the Bush-Clinton-Bush triple whammy that has cut our Per Capita Real GDP in half since 1990 while placing our economy, on average, into a mega-recession that has lasted for almost two decades now!  This is why the Very Large Depression will be so severe and protracted, because it comes at the tale end of a virtual two decade recession that has been covered up by an artificially pumped-up money supply, courtesy of the Fed and a profligate, speculative, over-leveraged, and fraudulent financial sector, that have together produced false indications of growth to offset and to hide the contraction in our economy that has been caused by elitist free trade, globalization, off-shoring, outsourcing and illegal immigration.  Our Constitution, our economy and our military are being systematically destroyed so that our sovereignty and freedom can be stolen from us.

The debt-based, fiat money system of central bankers is irresistible to politicians because it enables them to spend money that will gain votes without having to raise taxes that would lose votes. It is in essence a form of habit-forming political and socioeconomic "crack" that once snorted leads to a lifetime of misery and addiction, reducing its victim, in this case our economy, down to a wizened husk.  When the Fed was authorized to sell this constitutionally illegal "crack" to the US public by our reprobate government, it was supposed to use its monetary authority to protect the dollar from inflation and to smooth out the business cycle. The Fed has done neither.  This failure has been intentional, and has allowed them and their cadre of insider corporations, trusts and financial institutions to profit from falsely-created, exaggerated rallies and crashes by knowing when, where and how they would occur, and by investing accordingly.  Since our evil government has guaranteed the holders of Federal Reserve notes as to their validity for use in our commerce pursuant to this understanding about controlling inflation and smoothing out the business cycle, and since the Fed is in breach of this obligation, we as guarantors are released from liability to the Fed and are free to issue our own currency free and clear of all interest charges and based on a gold and silver standard as required by our Constitution.  As far as we are concerned, this breach in the Fed's obligation to dollar holders and to our government as guarantor not only cancels the principal on our fiat money debt, but also obviates the requirement that we pay interest, including any interest that has accrued since the occurrence of the first breach during the Great Depression.  We remind the Fed that issuance of fiat money is a two-way street and that they and their private bank are here at our sufferance.

The Fed has now indirectly acknowledged their failure on inflation because they are offering to exchange their general collateral in the form of treasury securities for toxic waste owned by banks and investment banks in order to avoid pumping more money into the system.  But what impact will this have?  It could backfire.  What does this do to the Fed's own creditworthiness?  What does this imply about the security of reserves deposited by member banks with the Fed or indirectly through established conduits by non-member banks?  What happens when they come due in 28 days?  If they have to roll them over, they are going to run out of general collateral very quickly and then what will they do?  They have already set aside a quarter of their general collateral just to get started.  Two hundred billion is a drop in the bucket like the stimulus package.  We're losing $600 billion just in lost home equity credit withdrawals that were taken out last year that are now virtually nonexistent.  A trillion of injected money and credit over the past eight months has accomplished nothing and has gone nowhere.  Subprime direct losses alone will top one trillion before you even consider the devastating effects of psychopathic leverage that was generated based on this toxic waste collateral and the leverage that is inherent in the fractional reserve banking system.  When the Fed's general collateral dries up, they will have to create more by buying more treasury paper, which is highly inflationary because they have to create money out of nothing to buy the paper.  That is why they are offering it in substitution for toxic waste in the first place - because it cost them nothing to acquire it!  And will these loaned treasury securities be subject, like the collateral they are replacing, to seizure and sale?  If so, you can assuredly expect margin-calls-gone-wild!  Everyone who thought they were going to get screwed due to losses in the value of their collateral, and who withheld hitting borrowers with margin calls to avoid forced sales that would result in further losses on remaining collateral, will declare open season on these borrowed treasury securities.  This would be like throwing gasoline on a raging conflagration!  And if they are not subject to seizure and sale like the toxic waste collateral, then what the freak good are they?!  How will this new Fed parlor trick restore confidence in the system if these assets are only for show on the balance sheets?

Gold's wild ride on Monday to 1027.60 after Sunday's ride to 1130.85 was triggered by a commercial signal failure based on the Bear Stearns debacle which traders figured would send gold on a moon-shot as a safe-haven.  Almost 25,000 contracts of open interest for April gold futures evaporated on Monday.  The cartel was forced to destabilize the Yen Death-Star, causing an eruptive prominence that few in the yen trade are likely to forget and this scorcher burst gold's bubble, knocking it down to below 1000 before it recovered to close just above 1000 at 1002.80 which was still a new all-time closing high.  Then yen dropped to 96.24 as gold hit 1130+.  Now mind you that the yen was as weak as 103 three trading days previous, but since gold first threatened and then crossed the 1000 level last week, suddenly the yen strengthens by 7 yen per dollar, and also by 7 yen per euro, hitting both the dollar and euro zones at once to squash gold in another despicable, yen-hit gold manipulation.  As this occurred, the spot USDX swan-dived to a new all-time low of 70.698 before recovering to close at 71.459.  The market was off big at first due to the yen-hit, but the yen was weakened to 97.39 near the COMEX close to assist in another end-of-day miracle for the general stock indices courtesy of the PPT.  Then comes the short-squeeze on Tuesday as the cartel pounded gold and silver all day, while again weakening the yen to 98.75 near the end of the COMEX close to assist in a 400+ point Dow rally to falsely confirm and show confidence in the Fed's .75% cut in the funds rate and discount rate and the bogus earnings reported by Goldman Sachs and Lehman Brothers which are both in a whole lot more trouble than they are currently indicating in their financial statements.  Once again, it was the yen and the PPT driving the markets up under cover of supposedly positive news.  Gold went down as the funds rate, the prime rate and the discount rate drop .75% - NOW THAT MAKES SENSE, IF YOU ARE IN A TOTALLY MANIPULATED MARKET PRETENDING TO BE A FREE MARKET!!!  We note that the discount rate was previously cut by the Fed when they announced the TSLF by .25%, so the discount rate has actually dropped 1%, giving us 2.25% for the funds rate and 2.50% for the discount rate.  This was .25% less than the market expected and was given as the reason for the substantial drop in gold, silver and resource stocks.  They must take us for cretins.

Large specs are reminded that the 400+ point rally, among other things was yet another short-squeeze aimed at draining value from protective derivatives such as stock index puts that expire this Thursday.  We fully expect that the large specs will sell into the PPT provided strength to take the markets back down and to finance the next precious metals rally.  This is why short-term protective derivatives can be dangerous, but if you can beat the short-squeeze rallies down before expiration, this should not be a problem.  We also noticed that Platinum and Palladium rallied as the monetary metals took a beating, giving yet further confirmation to our earlier speculation that longs on non-monetary metals are being used by the cartel to hedge shorts on the monetary metals and that the South African power problems are a hoax to drive up the non-monetary metals while their shorts on the monetary metals are getting hammered.     

Unfortunately all the problems we have been warning about for years are upon us. That is the bad news. The good news is you all own gold and silver related assets and they will allow you to offset the losses that have been inflected on you by the collapse of our economy and our financial system. We assume as well, expect for your mortgage and vehicles that you are out of debt. The times we are entering into will be worse than you have already imagined. The game is on whether we like it or not.

The Federal Reserve and the US Treasury are attempting to hold the financial system together. Thus far they have been unsuccessful. In fact, the problems are worse than they were eight months ago and they are getting further out of control. The dollar has been abandoned in order to save Wall Street and the bankers, who caused these problems in the first place. The professionals on Wall Street finally realize that it’s the “Working Group on Financial Markets” that is providing the only support holding the stock market up. That is why so many are now switching into the gold, silver and commodities markets. They finally see the implosion and the inevitability of what they face.

What is truly disturbing is that all of this never had to happen. What we are experiencing has been done deliberately by the elitists who control our country, so that they could force Americans, Canadians and Europeans to submit to fascist one-world government. The elitists bought everyone in sight who could be bought including our Congress.