The Damned Don’t Cry

 

The Damned Don’t Cry

by John Galt

 

Wow. What a month this has been. The start of a new stock bull market, now postponed by that pesky insolvency thing that I’ve been warning about for two years.

Then those dratted politicians daring to question the edicts of the Almighty General Zog, er, Hank Paulson (Zog sounds more intimidating than a nickname of Hanky-Panky) and daring to question a demand for $700 billion per Viagra moment to buy that pesky alleged sub-prime/Alt-A/Prime/Jumbo/Commercial/CDO/CDS/CLO/Auto-loan-securitization/Credit-Card-Securitization/Student-Loan-Securitization/the-Salmon-I-Loaned-To-My-Cat debt load America is carrying so they can create new debt loads to be purchased eight years later by another ignorant bunch of slobs.

Then gold rising almost $100 in a week. Then Oil rising $25 in a day only to fall back to a much more palatable and reasonable $16 plus gain.

Yes, well, I’m just happy the markets are stable and have not crashed and burned yet so I can find a nice safe money market fund to, er, never mind.
Despite popular belief, I am not focused on precious metals, equities or Senatorial song and dance routines. The smart money is and always has been in the corporate, municipal and Treasury bond markets. If anyone does just a wee bit of research, they will find what everyone at those formal dinner parties, you know, the ones schmucks like I do not get invited to, a total disintegration in market stability which indicates a real fear that the big jet liner that Glenn Beck refers to has fortunately not careened into a mountainside. Instead it has plowed into Mount Rushmore and the pilots, Ben and Hank, while free falling through the air are still barking out “please assume the crash position.”

Unfortunately for the United States while the games are afoot, the rest of the world, the smart money, is voting while Congress plays its election year games during this crisis.

The world is not sure if the United States is a ’sure bet’ and the investing community is trying to reconcile the instability in our banking system with a ration investing approach that will enable them to liquidate dollar holdings in a rapid fashion should the worst case scenario erupt. So what is the worst case scenario? Glad you asked. It is all related to the super duper MOAB (Mother of All Bailouts) also known as the biggest nationalization in capitalist history since Castro told the United States to assume the position.

The Final Vote

Despite popular rhetoric, the vote is a 50/50 proposition; yes or ‘yea’ = inflation and no or ‘nay’ = deflation. While this might sound like an over simplified version of events, I think it gets into the crux of reality. Politicians are not the best and brightest souls in the world because if they were they would be running hedge funds making $80 million per year or managing a corporation with enough naked pictures of other politicians with mules to insure they get bailouts and a $10 million per year salary for life. So assuming that the majority of our politicians are that stupid, corrupt or perverted (there’s a reach, eh Barney?) let’s get down to brass tacks. They will jawbone. They will demand concessions as if the Treasury did not anticipate that. They will threaten. Then the Fed and Treasury will grab them by the short hair, set it on fire, then reinsert it painfully to remind them that bankers control their primary arteries of Western Civilization and the votes will occur. Sadly, when this vote occurs, there is a consequence for all of North America. I will skip over the geopolitical implications and get down to some bottom line information as some idiot might make some money off of this, adopt me and prevent my wife and I from stealing a monkey from the Lowry Park Zoo to dance for pencils and pennies.

With that cheery little introduction, a brief explanation to the title of this editorial. The damned do not cry as they are cast into hell for they realize their sins and the pain they are to endure forever. The American economy is on a precipice, but sadly it seems that few beyond the smart money ‘get it’ and even they are shuddering in fear as to the consequences of action or inaction this week. World markets, be they capitalist, semi-capitalist, socialist hybrids or outright Marxist monopolies are voting on America and the actions of its politicians every waking moment of the day and have been for years. The voting was mild for years as the perception was that we could create a new deck of cards to build a new house of cards to support the elephant dancing on the top card year after year.

Until now.

The voting is much more intense and despite popular belief that we are ‘too big to fail’ that voting in our bond markets has major implications for our future. Thus why I present the final vote.

Yea=Inflation

Unfortunately for the American public, your opinion is limited. Despite numerous website proclamations and the voices of the boisterous on mainstream commercial talk radio, this is a decision left to bankers and bankers hold 51.75 of the 52 cards in every deck. The protestations are heard by secretaries, volunteers and clerical staff in every hall of Congress but the reality an adult has to admit is that the control of our economic and political system is summed up by basic mathematical formulas:

Do you listen to the guy with $1,000,000,000.00 or the guy with $2,000.00 ?

Hmmmmm.

So you think you have found 50,000 people with $2,000.00?

Ok, good luck with that one. That buys one politician if you have.
The reality is that our system has introduced a pathetic level of Roman Imperial corruption that would make Caligula, not Bill Clinton, but Caligula, blush.

Now that you have that basic understanding of math, $700 billion is more than you could ever conceive of, let us move forward to the consequences of an unfortunate and justified ‘yes’ vote.

The wording, no matter how you cut it, was for $700 billion “at any one time” to purchase securities. The definition was deliberately vague to infer that illiquid securities were the only ones to be purchased, yet the who defines “illiquid” was not. This could mean that Joe’s Sixpack Massage Parlor and Savings of Newark could submit his double lap dance coupons or Mary Joe Shclupper’s 13.7% subprime paper as an illiquid asset to be purchased by the government and added to the debt.

Of course, Joe’s is probably submitting better paper than Washington Mutual or Citigroup, but hey, who’s that picky?

The proposal is inherently inflationary as it gives discretionary powers to the Federal Reserve and US Treasury to issue new debt obligations, not only as needed, but as desired to “stabilize” economic conditions as they feel necessary. Since the positions in both branches in discussion are political yet tied to the banking substrata, there is no way in hell that paper will not be issued to bail out unfortunate (Ok, irresponsible) gambles by substantive banks in the system.

Considering our current situation where the various types of bonds created in the last five plus years have no assigned valuations other than that of the originating bank, why in God’s name would any bank devalue it’s own assets when selling the paper back to the taxpayer realizing that they can hedge that sale with commodities or a bond issuance from a more stable entity like the U.S. government? In the long run, the underlying assets be it a home or business with a declining market value could go to zero but our government will hold a security against that asset that could be worth thousands of times more than reality which means you and I own garbage. Monetizing assets that are near worthless is one of the most inflationary actions our central bank could take and at this time, considering the differing types of submissions they are wanting to accept, this could be the most inflationary action since the Central Bank in Weimar Germany attempted to monetize the war reparations debt.

Considering the alternative though a “Yea” vote could be the least painful for the American people when all is said and done.

‘Nay’ = Deflation

A no vote on any type of bail out package is the equivalent of throwing a grandmother on top of a live grenade to keep Senator Dodd’s suit from getting messed up. That possibility does exist. There is a level of vitriol, which is justified, as the regulatory authority that has been granted and expanded repeatedly by the House and Senate since 1913 to give the Federal Reserve and Treasury whatever authority it sought  to manage the economy could undermine any efforts to allocate trillions of dollars to stop the bleeding. There are several politicians who understand the inflationary implications of allowing an unlimited flow of monetary creation to begin unabated in an effort to preserve the current system and allow the fox to not only steal the chickens, but the hen house and the farmer’s wife also.

If the political elites vote no, the banksters have the excuse they need to preserve those institutions they wish to by allowing a seizure of all credit and monetary markets, thus crashing the economy almost immediately and bringing any dreams of economic expansion to an end for almost a decade. There will be a massive wave of bank failures as a result and the real estate market would probably experience across the board price declines of another fifty to sixty percent as the lack of credit prompts bankruptcy after bankruptcy. The idea of a deflationary reset should terrify any sane man or woman but if the political class chooses a non-reflationary course of action, it provides cover for the financial world to allow this to happen.

The resulting implosion by such a move would create an unemployment level well over twenty percent in short order, cause thousands of corporate bankruptcies, millions of more individual bankruptcies and put well over half of the construction industry out to pasture for a long time to come. It would also create a political upheaval that will change the face of America forever and the reflationary effort would originate with a wave of government sponsored projects and an expansion of socialism to prevent retirees from suffering more than they have already.

This is a damned if you do something, damned if you do not approach and sadly, either choice puts those on fixed incomes into a box as they will not have sufficient resources to maintain their current standard of living.

The immediate contraction of the money supply also creates a lack of liquidity for state and local governments finally eviscerating the municipal bond market and bringing spending at the local level under control. Unfortunately services, both non-essential and critical for localities would be impacted.

There you have it gang. The choice is there and only those who are prepared will be able to survive. For those of you with more debt than the ability to repay, life will be hell. For those who did not buy essentials for the long term or prepare for a paralysis in financial markets via either deflation or inflation I hope you enjoy your government masters. It is a sad statement that our society has reached this point.

Unfortunately, we, the American people get to witness this and endure history one more time and at our expense.

Welcome to Weimarica.

2008 style.

America Goes Fascist As Government Bails Out The Banks and Nationalizes The Economy

It’s a new day, here in Amerika.  

For the last several weeks, as the mortgage, credit and financial crisis began to spiral out of control due to government meddling, mismanagement and greed – the government stooges who helped grease the playing field for this fiscal collapse in the first place, began to take over failed industries in a not-too-subtle nationalization of the banking, mortgage and credit industries.

With Lehman Bros going broke, in the wake of wreckage from Fannie Mae and Freddie Mac, the government takeover of AIG and the fact the FDIC is going broke faster than a wino in Vegas, it was apparently determined that the greed, sloth and criminality should be rewarded by making the you and I, the U.S. taxpayer and our children PAY for the HUNDREDS OF TRILLIONS OF DOLLARS in debt these institutions at behest of the government, have incurred.

It began with Morgan Stanley, and yesterday culminated in the government announcing it will MONETIZE ALL BAD BANK DEBT.  So in one fell swoop, the U.S. government with the Fed has trashed Free Market Capitalism, Socialized the Debt and are willfully ignoring the moral hazard they have created.

As my friend and fellow contributor John Galt said in response to this:

I said they would monetize and they are.

I said they would commit un-Constitutional acts, and they are.

I said that hyperinflation would occur before deflation, and it is.

I said that somewhere close to 40,000,000 retirees just became wards of the state because their retirements were wiped out and they did; they just don’t know it yet.

I said this disaster would alter our nation forever and it will.

Equities will be destroyed.     

Bonds will become worthless.

Money Market funds will be obliterated.

There is no incentive to save money.

The retirees who trusted the government to keep their money safe and earn a meager 4-5% annual return will be turned upside down by either destruction of their mutual funds or hyperinflation. A 5% return does nothing in the face of annualized inflation in excess of 20,30 or 50%.

Plus the entire tax structure of the U.S. will have to be redesigned.

 

John also warns that the action taken here signals the official end to the Right to Private Property in the United States.  Ultimately, he is correct, because the government will now own everything; your mortgage, your loan, your insurance, your bank.

In short order, America has gone pure fascist.  Not in the manner the Liberal Left had tried to redefine fascism in terms of Religious Conservatism, but TRUE Mussolini-style fascism – where the government runs industry, banking and commerce.

We shouldn’t be too surprised, we’ve been on this course for years, in fact during the 1930’s, the Collectivists at the NY Times and even FDR were enamored of Mussolini’s fascism – and sought to find a way to emulate it here.

Of course the media makes it sound like the greatest thing since Welfare was created by FDR.  Contrary to the headline, THIS IS NOT A RESCUE – it is a TAKEOVER that will be hung on your neck and mine and that of our children to cover:

Citing Grave Financial Threats, Officials Ready Massive Rescue

Lawmakers Work With Fed, Treasury To Try to Restore The Flow of Money

By Binyamin Appelbaum and Lori Montgomery
Washington Post Staff Writers
Friday, September 19, 2008; A01

The Bush administration is urgently preparing a massive intervention to revive the U.S. financial system, including a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.

Congressional leaders gave bipartisan support to the administration’s efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke.

Paulson and Bernanke presented a “chilling” picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.

The plan involves using hundreds of billions of dollars in government funding to buy bad loans, leaving banks with more money and fewer problems, according to two sources familiar with what was said at the meeting.

After the meeting, Paulson told reporters the proposal was “an expeditious solution that is aimed right at the heart of this problem.”

Also last night, the Fed was considering offering backing for money-market mutual funds, which have had massive withdrawals in recent days, said a source familiar with the discussions.

And the Securities and Exchange Commission is considering further limits on short-selling, a practice that allows investors to bet on a decline in a company’s stock price, according to a person familiar with the matter. Critics of the practice say short sellers are driving down the share prices of financial companies, thereby contributing to their destruction.

The government has already tried three times this month to keep money flowing through the financial system. It took over the two largest providers of funding for mortgage loans, Fannie Mae and Freddie Mac. It created a new source of funding for investment banks. And it took over the insurance giant American International Group.

Now the government is contemplating its broadest — and perhaps most expensive — intervention to date.

The urgency has only grown with each successive intervention because the first three tries have not worked. People are withdrawing money from money-market mutual funds. Banks are refusing to lend to one another. Several large financial companies need money to stay in business, including the bank Washington Mutual, which is seeking a buyer.

Regulators and the banking industry are increasingly concerned about customer withdrawals from money-market funds. Crane Data, which tracks the industry, said total deposits in money-market funds fell Wednesday by at least $79 billion, or about 2.6 percent. Financial executives have told government officials in recent conversations that the rising pace of withdrawals is the equivalent of a bank run and that if it continues, it will drain a massive and critical source of funding.

Money-market funds are particularly important because they buy short-term debt, which is used by financial companies and other corporations to finance day-to-day activities.

According to legislative aides, yesterday’s meeting was arranged after Pelosi called Paulson’s office mid-afternoon to discuss the state of the markets. During that call, Paulson asked to meet with Pelosi, Reid and key lawmakers from the banking committees. That meeting took place at 7 p.m. in Pelosi’s office on the second floor of the Capitol.

Paulson and Bernanke did not present lawmakers with a written proposal but are expected to do so by tonight, congressional aides said.

During the meeting, one lawmaker worried aloud that Paulson was asking for “a blank check,” according to a participant. There was also a “healthy debate” about whether this action would finally stabilize the markets.

“They couldn’t answer yes to that question,” the participant said.

Paulson and Bernanke generally have kept Congress at arm’s length as they have sought to deal with the financial crisis. Yesterday, however, after meeting with congressional leaders, they exchanged awkward compliments with the lawmakers at a news conference. Lawmakers had been increasingly critical of the Fed and Treasury leaders for failing to consult with Capitol Hill. The administration will need congressional approval to commit taxpayer money to its new plan.

“We’ll do this as quickly as we can. We’re not talking about a month,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, which would probably review the plan before it went to the House floor.

A hearing on the topic that Frank had scheduled for next Wednesday could now become a legislative drafting session, he said.

Also yesterday, Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, suggested that the government create an entity that would operate much like the Depression-era Reconstruction Finance Corp. — it would buy “equity and possibly secured debt,” providing desperately needed cash to companies while permitting the government to share in any profit.

“The government would get repaid before the others in the financial chain,” Schumer said.

If a plan does move forward, Democrats may try to demand concessions from the suddenly humbled industry, Schumer said, including support for a proposal to permit bankruptcy judges to modify mortgages for distressed borrowers. Currently, judges may set new terms for mortgages on second homes but not on primary residences.

That idea is contentious and has been fiercely opposed by the banking industry. Frank said he would instead demand that banks reduce the number of foreclosures.

Still, it’s not clear that Democrats would insist on such concessions at the expense of passing the plan quickly.

“The costs of doing nothing are enormous,” Frank said. He added that with the recent deterioration in the financial markets, “I think the timetable for something has been greatly sped up.”

Is it not amazing and utterly infuriating that one of the MAIN CULPRITS that caused Fannie Mae and Freddie Mac to collapse by making laws that they give risky loans to their political constituents is the point man on bailing out and nationalizing the economy???

Hugo Chavez could learn a thing or two on how to Nationalize an entire economy from observing our idiots at the Fed and the criminals in Congress.

 

More on this story:

Capitalism Dying by the Hour

The Skylab Economy

The Rescue Mission

Economic Armageddon?

Despite all the warnings from some about the shady Dealers at the Casino tables of America’s stocks, mortgage, bonds and money markets – America was content to ignore the dangers and in pursuit of fast money, let the good times roll.

Except the roll now keeps coming up snake eyes and hundreds of BILLIONS of dollars have evaported into thin air. This week has nearly everyone talking about the economy and the global market collapse underway. Of course the obvious fallout for this coming disaster is going to be the blame game, and it has already begun. I had to laugh in amusement at the comments by Hillary Clinton in last night’s Democratic Debate when she said “If you’re a homeowner who has been at the bottom of this incredible scheme that was established, you’re left holding the bag and you don’t have the house..” when this was the same Democrat party that pushed for and encouraged the banks to make risky mortgage loans to ‘working poor’ and illegal Mexicans.

I guess there’s nothing so typical than for government to encourage a scheme, exacerbate a problem and when the misery begins to be felt, blame the ones they enabled and create ANOTHER government scheme to deal with the effects of the problem.

The trial lawyers are already flapping their wings in prep to take flight in order to feast on the roadkill of America’s economy in multi-billion dollar lawsuits.

I think the only thing we can bank on for sure, is that beyond the lawsuits from new preisthood, we can count on the inept government behemoth will step in at the behest of a screaming dependent populace and make a bad situation an unholy nightmare that takes everything down and leaves nothing but ashes. Like all tyrannical behemoths throwing a total fit, when things begin to unwind – the Elites in power would rather tear everything down leaving absolutely nothing for anyone if they cannot run the show their way.

I guess we may look back on this period of time and consider the final straw breaking the proverbial camel’s back

My freind John has some serious warnings to consider about this market, and these are wise considerations:

BOOM!

During the day someone-according to Frederick Lewis Allen it was thought to have been a bright messenter boy for the Exchange-had the happy idea of entering a bid for a block of stock at a dollar a share. In the absence of any other bid he got it.”

-The Great Crash 1929 by John Kenneth Galbraith

And so as I awaken this morning, do I have a buck to spare? Uh, no. But the quote from the book above indicates what exactly happens during a wide open market panic. There is a misnomer that the powers that be, aka the “Plungers”(PPT), can not stop the momentum of the events we are about to see. The futures are already turning as I type this with an almost 1% swing in the Dow, S&P, and NASDAQ futures yet they are all still down substantially. The “plungers” will spend the next 5 plus hours buying futures in a desperate attempt to stave off a panic or crash on their watch as the scream after the formation of the PPT as a result of the 1987 crash was “never again” or NIMBY. Alas, the problem is that they have no control over Asia to any great extent and the traditional banking powers in Europe in coordination with the PPT can only influence so much for so long. To give you some idea as to the volatility, in just my one hour of being awake this morning the FTSE 100 has swung from down 226 to up 30 plus to back down 40 plus as I type. Will we see the U.S. markets rally? Who knows. There are rumors abound about Federal Reserve rate cuts, banks in trouble, and efforts by the banksters to use the power of their hedge funds to stave off or protect certain sectors in an attempt to hold the line.

They shall inevitably fail.

We might be so lucky to see rallies during the day as in the 1929 and 1987 crashes, yet please, don’t be an idiot. This is not a market for amateurs or people who do not have money to lose. If you understand the concept of trading in a bear market and have day trading experience, have fun as this is your day. If you do not and have the antiquated belief that “buy and hold” is the play of the day, God help you. By the end of today you could easily see a sizable chunk of your portfolio shredded. The brokers are not your friends. Their phones will be mysteriously busy for hours today, the email you send unanswered for days and the protection of their butts first and foremost on their agenda. The smaller platforms which allow you to trade online will probably get smoked today and you might even see some orders executed well below the levels you anticipated or at losses to your account.

The only safety is to be a spectator as I will watch with popcorn and iced tea in hand. History has a funny way of just “happening” as the clock moves forward and the calender flips pages. Those of you too young to have enjoyed disco, polyester jump suits and the 1970’s have to understand that in equity, energy and of course the metals volatility was the mantra of the day. But with internet trading, individual speculation and government sponsored meddling the volatility we during the rest of this month could be a nightmare. There will be bankruptcies from what we witness today. There will be political repercussions. There will be loud, shrill calls for government takeovers to ease the pain. It means nothing. The word is on the street that the first layer of the banking system has issues and those issues will show themselves in due time. IF you would like to check the “rating” on your bank you can go to BankRate to check on the status of your bank and just see how it rates. Watch the local news, read the papers and listen to what is being said by the management. When the entire financial system reaches certain levels of instability, the small community banksters are the first to implode.

So what can we look forward to today? As the title of this op-ed says, “BOOM”, and nothing more. The word “panic” is being used over and over again on Bubblevision and Bloomberg. When the financial media speaks in these terms and tells people to avoid the markets at all cost you can bet your bottom dollar that there are a truckload of sell orders sitting on the desks of the brokerage houses. Mutual fund owners are going to unwind. Small investors who elected to follow the Cramers and Kudlows of the world are going to unload. Foreigners who have been losing everything in Asia and Europe the last two days are going to unload. So regardless of anything our buddy Benron or Hank Paulson who speaks at 8 a.m. this morning wish to say or do, it will have little effect as the markets do not trust our central bank. Faith has been lost and that is not to be restored with $100 billion in intervention nor a 75 point basis cut in the Fed Funds rate and discount rate. I think it is also safe to say at this point that the dollar will be sacrificed to keep the artificial price on equities in place. The Fed may not move today into this panic, but you can bet that the author of Helicopternomics will fire up the rotors and destroy the traditional economic models that a lot of traders wagered trillions on. Despite the efforts and news today, promises of stimuli, and breast beating of the politicians, none of this matters to a family where the husband and wife watched their jobs get exported overseas and the ability to meet the terms on their Option ARM loan which is resetting. Homes will continue to be lost. Banks will be forced to write down trillions. The implosion will be so total, so complete that when the average uninterested observer finally realizes what has happened we will be well into the next depression.
You will see denial. You will hear the President. You will witness pompous political asses marching in front of cameras all night long as the markets gyrate. Remember the safest soundest strategy and remember the warnings we have been giving about the J.I.T. inventory system, the Ponzi scheme known as our financial markets, and the games the government has been playing with our statistical reports which the world uses for raw data to trade. All of the lies and manipulation have to come home to roost and that egg is about to be laid. The famous headline is so appropriate for what we shall witness.

As today, no matter the efforts, the lies and the manipulations we shall see, the smart money is gone and only those who hope and prayed this day would not come(due to their own financial interests) and those who will get religion on the floor of the exchange shall be engaged today. I worry more about the little old lady conned by the major brokerages to invest in stocks and funds she had no business in. I worry more about the people who piled monies into 401K’s because their corporate financial benefit’s advisers are more concerned about inflating their company’s own stock rather than investing in safety for the future of the employees. And I really worry that the spin we will see all day long will give us all major cases of whiplash.

Have your neck braces ready folks.

The day, the first of many, we have warned of, begins today. Below 1200 on the S&P cash market is the darkness. If we break that today, I see little if any technical support until we reach the 1030-1070 range. That’s just a historical observation and if we hit my prediction from the December 28th program and do it in one day, you can dispose of a lot of other predictions I made.

Because it’s:

What I worry about, is in our weakness – which one of our enemies will try and capitalize on it and do us even greater harm?

The world is in a period of momentous change and upheaval – which always happens when civilizations change hands.