Scandals Signal The Demise of Our Financial System

April 21 2010

The line up goes down the block and around the corner for prosecutions against Goldman Sachs, Sovereign debt looms large, 8 more banks close, scandals in the financial sector continue to erupt everywhere, the public picks up the bills, we face a staggering depression, anger grows against wall street, a plan for permanent bailouts only favors the rich and corrupt.

Criminality reigns and the games go on. We recently saw the games of fraud explicitly displayed by the antics of Lehman Bros. They kept bad assets off the books by dumping them into what is now known as swap 105’s. What is stunning is the SEC was on the scene and new exactly what was going on; as did the NY Fed, guided by our current Treasury Secretary tax cheat Tim Geithner.

Not only are toxic CDOs, ABS and MBS selling for $0.05 to $0.65 on the dollar, but also it has been discovered that many of these bonds did not contain a full measure of mortgages. Most were shortchanged by 5%. The syndicators, mostly brokerage houses, were not happy making obscene profits; they had to cheat the buyer on the sale. The SEC knew this and did nothing about it - as always in the back pocket of major Wall Street firms.

Debt continues to hang over nations in staggering amounts. Those colossal inconceivable sums have to be financed along with new pyramiding commitments, as welfare states continue to expand. This year some $2 trillion must be found and over the next ten years an average of $300 billion must be found each year, just for the US. That is only the existing debt rollover. This year’s fiscal deficit should be about $1.8 trillion to be added and financed. America will be selling debt of about $3.9 trillion in this year alone. Then you can add another trillion for the rest of the world. The big question is where is all this money going to come from? In the US the Fed will monetize and somehow the rest of the world will have to do something similar. All countries are seeing a fall in tax revenues, and high unemployment, which is going to make their task very difficult, and in some cases impossible. The financing of sovereign debt will be a fearful event over the next few years.

We have seen Greece’s problems over the past few months. There are 18 more countries in a similar fix. Every country wants money at only a shade above cost, which is impossible. Interestingly money on world markets has gone into bonds, yet bonds have fallen over the past year. Very little money has flowed in stocks, yet they have hit new recent highs. That is what happens when markets are manipulated.

Those nations that have been complaining about their financial plight have no one to blame but themselves. They listened to the US and UK for seven years pumping up money and credit and living la Dolce Vida, now the bill has to be paid. Greece has been irresponsible for years under socialist governments. Now they demand that what they call racist Germany, bail them out. When we did the interview in Athens two weeks ago we mentioned that Greek PM Papandreou was a Bilderberg and I was very surprised that it was not cut out of the interview. The PM demanded interest subsidies but in reality broke government have little or no bargaining power. Despite these elements of failure in the end Greece and at least 18 other countries will go bankrupt. It is the sovereign debt and the bond markets. Buyers will forego yields and eventually load up on gold as the only hedge remaining. The bond market is the most important investment in the western world and over the next few years it could well collapse under the weight of sovereign debt. Bonds are not safer than any other investment, because governments destroy the principal via inflation making the yield meaningless and those who chase higher yields, like junk bonds issued by governments, are fools. It’s preservation of capital that is important. Holding bonds becomes especially dangerous when economies falter economically. Liquidity then becomes a problem thus nations then must create ever more liquidity. In so doing they create more inflation. That is what one calls a financial treadmill. Trillions are needed to service debt that grows exponentially every minute. This is the core and nexus of today’s crisis.

A massive volcanic plume covering most of Europe forced President Obama to cancel a Sunday trip to Poland to attend the funeral of the nation's president. But the last-minute change left an opening in his schedule, so the president headed to the links for a round of golf instead.

Rep. Judy Burges amended Senate Bill 1024 to include a requirement that Arizona's Secretary of State inspect a presidential candidate's birth certificate before that candidate could qualify for the ballot.

Goldman Sachs Group Inc. said trader Fabrice Tourre, the subject of a Securities and Exchange Commission probe, has been put on paid leave until an unspecified date, a spokesman said.

The latest Friday Night Follies:

April 17, 2010

8 Banks Close in Calif., Fla., Mass., Mich., Wash.

Filed at 12:47 a.m. ET

WASHINGTON (AP) -- Regulators on Friday shut down eight banks -- three in Florida, two in California, and one each in Massachusetts, Michigan and Washington -- putting the number of U.S. bank failures this year at 50.

The Federal Deposit Insurance Corp. took over the three Florida banks: Riverside National Bank in Fort Pierce, with $3.4 billion in assets; First Federal Bank of North Florida in Palatka, with $393.3 million in assets; and AmericanFirst Bank in Clermont, with assets of $90.5 million.

TD Bank Financial Group, a division of Canada's TD Bank, agreed to acquire the deposits and nearly all the assets of the three Florida banks.

The FDIC also seized Innovative Bank, based in Oakland, Calif., with about $269 million in assets; Tamalpais Bank of San Rafael, Calif., with about $629 million in assets; City Bank, based in Lynnwood, Wash., with about $1.1 billion in assets; Butler Bank in Lowell, Mass., with $268 million in assets; and Lakeside Community Bank in Sterling Heights, Mich., with $53 million in assets.

Los Angeles-based Center Bank agreed to assume the assets and deposits of Innovative Bank. San Francisco-based Union Bank is acquiring the assets and deposits of Tamalpais Bank. Whidbey Island Bank, based in Coupeville, Wash., is assuming the deposits of City Bank and $704.1 million of its assets. People's United Bank in Bridgeport, Conn., agreed to assume the assets and deposits of Butler Bank.

The FDIC couldn't find a buyer for Lakeside Community Bank. First Michigan Bank in Troy, Mich., will take over the failed bank's direct deposit operations for federal payments, such as Social Security and veterans' benefits.

The failure of Riverside National Bank is expected to cost the deposit insurance fund $491.8 million. For the other banks, the estimated costs: First Federal Bank of North Florida, $6 million; AmericanFirst Bank, $10.5 million; Innovative Bank, $37.8 million; Tamalpais Bank, $81.1 million; City Bank, $323.4 million; Butler Bank, $22.9 million; and Lakeside Community Bank, $11.2 million.

Depositors' money is insured up to $250,000 per account by the FDIC, which is backed by the government.

Last year, 140 banks failed in the U.S. That was the highest annual number since 1992 during the peak of the savings and loan crisis. The failures last year cost the FDIC's insurance fund more than $30 billion.

Twenty-five banks failed in 2008 and three in 2007.

FDIC Chairman Sheila Bair has predicted that the number of bank failures will peak this year and be slightly more than in 2009.

What we are talking about is all debt instruments from which you should extricate yourself soon if not immediately. Weakness and risk remains in 19 sovereign issues, as well as municipals, and those who are chasing yields in second and third world, emerging, bonds are going to end up getting their heads handed to them. Then there is Goldman Sachs and others such as Merrill Lynch, JPMorgan Chase, Citigroup and others who deliberately sold toxic waste as AAA, when in fact it was BBB, the difference between a 10 and a 4. Then there are all the buyers, such as European and American banks, pension funds and fiduciaries who never took the time to read the bond prospectuses. Then of course there is Paulson and others who shorted these dreadful products. Lots of heads are going to roll and they should. You are about to see a bond crisis unfold over the next few years that will have terrible effects on balance sheets and on investors as well. Diversity won’t help. If you are in bond funds, get out now.

This is another reason why the creation of money and credit cannot end, unless central banks want to deliberately create a deflationary depression. As Richard Russell says just look at that head and shoulders on the US ten-year note, that has been forming for two years. This configuration is telling us some fierce inflation lies ahead. The horrible situation cannot be contained any more than can the severe suppression of gold and silver related assets on the one hand, and the world’s stock markets on the other. The markets are bigger than the Fed or any group of central banks working in concert. That is why gold and silver assets are the only protection you have, your only insurance against catastrophe. Bonds like most all other asserts, as we have been telling you for a long time, could fall 60 to 90 percent in value. All you have to do is look at what happened in the 1930s, and the situation today is 10 times worse than during the great depression. There has never been in history when the profligate creation of money and credit has happened, that the outcome has been any different.

Just the opposite is happening in gold. As we pointed out previously gold is in a reverse head and shoulders, the most powerful of all chart patterns. The current mini-correction will only set a stronger long-term support level between $1,050 and $1,120. This is orderly, normal, bull market that is taking longer to develop, due to the interference and manipulation by the US government and the Federal Reserve. Just remember, they have been suppressing gold and silver since 1988 and the price has still risen from $512 to $1,224.

Scandals continue to erupt everywhere. Who knows how many other brokerage houses and banks were engaged in fraudulent activities. This comes at a time from our viewpoint that the world’s stock markets are way over priced, and continued disclosures, such as at the end of last week, that the SEC knew about Stanford for years, tells us that the SEC will aggressively try to bury Goldman to bring back credibility to the agency, but they won’t go criminal, only civil to cover up what is really going on. At the same time Wall Street and banking are howling about possible legislation to change the rules, under the guise of Financial Reform. The legislation in reality protects the big players with a bigger too big to fail package and eventual nationalization of banks, under a quasi-government – corporate alliance. Just as we saw in Italy and Germany under fascism in the 1930s. That means perpetual bailouts for the rich Illuminists, under the moving force of retiring Senator Dodd, who has been and will continue to be well paid off. Losses will continue and the public will continue to pick up the bills. The well paid off members of the Senate and the House will continue to only see to it that the bankers and Wall Street are protected. They could care less about their constituents or their country. Profits will continue to be privatized and losses heaped on the public. You are seeing the financial and economic death of a nation because they believed this entire scam and didn’t pay attention.

The demise of our financial system as we have known it for some years is well underway. In time markets and economies will collapse because fascism and all other types of socialism do not work. Those at the top will again lose everything, as has happened over and over again across the centuries. This time they have no place to hide and retribution will be swift and nasty and they know it. No one knows, nor will know, the value of anything until they discover that gold is the only real money that owes nothing to anyone. All but one currency, the euro, has no gold back, or backing of any kind.

We are still in the inflationary depression stage that began in February of 2009, and that probably will continue for two or more years. Once this phase ends deflationary depression begins. That will make the inflationary phase look like a walk in the park.

As this unfolds our government exerts more and more control over the American people via tax increases and medical “reform