Want to Know How Washington’s Latest Scam Affects You?
Apr 3rd, 2009 | By James Dale Davidson | Category: Abundance
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The Obama Depression: Last Thursday was a truly amazing day. The Financial Accounting Standards Board (FASB) approved a partial set aside of mark-to-market accounting rules that force banks to value their assets at market prices. Jettisoning these rules will allow banks to substitute their own whimsical projections for market prices in valuing assets in their sell accounts. It may seem like an arcane issue. But as we forecast in Crisis Strategy Alert, The only real measure of protest came from the chairman of the Federal Home Loan Bank Board’s Office of Finance, Charles Bowsher. He resigned over concerns that the new accounting gimmicks will allow banks to ignore market prices on “hard-to-value securities.” Financial ‘guru’ Jim Cramer chose the occasion of FASB’s new rules to announce “the end of the Depression” on CNBC. According to Cramer, the depression ended on March 9, when Citigroup and other banks bellowed out the news that they had been profitable in January and February. A substantial stock market rally, led by financials, ensued – proving that the Obama administration is a lot more cunning than I initially gave them credit for. How Obama and Geithner Rigged Stocks to Rally As I pointed out in a recent issue of Crisis Strategy Alert, Silly me. I was thinking of amendments to Obama’s counterproductive policies of raising taxes on investment returns. Little did I imagine what has now become clear: Obama and his Treasury secretary rigged the stock market to rally by pumping billions of tax dollars into major global banks behind our backs. Remember the big fuss about the bonuses paid to executives of AIG Financial Products division (AIG-FP)? The ones who were promised the moon and the stars if they would stay put in Greenwich, Connecticut, and unwind hundreds of billions of dollars of default protection they had sold? Of course you do. Congress fulminated about it for a week. Radio talk show hosts talked of lynching. And a distinguished member of the Senate Finance Committee smoothly suggested that AIG’s bonus babies should first return the money and then commit suicide. A congressional hearing even grilled, AIG’s CEO, Edward Liddy, about the scandalous bonuses, which the House of Representatives ultimately voted to confiscate with a 90% retroactive tax. (Liddy took the job for a dollar a year as public service. This didn’t spare him Congress’s staged wrath.) You remember all this fuss and fury? It was hard to miss. But the whole hullabaloo was merely political theatre designed to keep an easily scammed public from inquiring too closely into just exactly how AIG FP came to lose so many billions of tax dollars so quickly. Treasury Secretary Geithner was no doubt not only aware of the AIG bonuses issue, but also counted on the furor absorbing the all the attention the public had to spare over AIG. This allowed Team Obama to get away with one of the most ambitious plans of stock market manipulation in history. Banks’ Dirty Little Secret The dirty little secret of Citigroup’s profit turn around in January and February (and a similar turn around at JPMorgan Chase and Bank of America) is that it was force-fed into the banks coffers by intentionally ham-handed unwinds of credit-default swaps written by AIG FP. See, AIG was losing money intentionally These huge transfers funneled through AIG to banks – a scam to ramp bank earnings at taxpayer expenses - were far more egregious than the piddling sums involved in AIG bonus scandal. But few noticed, thanks to the bonus sideshow. All this, of course, was done with the full knowledge and connivance of the Treasury secretary. AIG FP unwound about 40% of its portfolio at a loss of $62 billion. This implies that another $75 billion is still to be laundered back into banks through AIG. This is part and parcel of a pillaging of the ordinary Americans for the benefit of a handful of big banks that will become the historical legacy of the “Obama Depression.” |
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Obama Is the New Hoover Many people have suggested an analogy between Obama and President Franklin D. Roosevelt. FDR used his first 100 days to launch the New Deal and was later given credit in the popular imagination for ending the Great Depression. (In fact, the Great Depression bottomed early in Roosevelt’s first term but dragged on during for the duration of the 1930s.) Obama came to office with a depression that was still unfolding. And it is nothing less than fantastical to think that the unwinding of the leverage cycle could have bottomed on March 9, as Jim Cramer would have us believe.
Obama is more likely to be remembered as a modern day Herbert Hoover. (Hoover, by the way, was a pioneer in the use of Teleprompters – a technology that Obama uses to a greater degree than any previous president. The hallmarks of Obama’s depression are:
This cynical looting will protract and deepen the depression. How the “Geithner Gang” Will Steal Your Money Its next installment will be Tim Geithner’s cunning plan to create public-private partnership (PPIP) to buy what were once known as “toxic” assets but are now to be known euphemistally as “legacy” assets. When you solve all the algebra, the private funds that will participate in this clever exercise in enriching insiders will risk only 8% of the money involved. They stand in line for 50% of the profit. If that sounds like it is too generous to the private fund managers who will be picked to participate, you have swallowed the bait. See, I believe this is also a cleverly staged misdirection. The real intent of this program is not that the private fund managers profit, but that they are specially selected to collude in paying over the odds for toxic assets. There are three tip-offs to this cynical ploy. The first is that although the Obama administration has tried to clobber the GM and Chrysler bondholders, it has insisted that the bondholders of banks be protected. This is so that insider-trading profits on bond holdings can be used to subvene the loses the selected fund managers will take when they bid way above market for the toxic assets. With only 8% of the bid actually coming from their pockets, they can be quite happy to mark-up toxic assets to artificially high prices. For example, say these private funds are looking mortgage-backed securities banks bought at 100 but have since been written down to 75 (to reflect that only 70% of the underlying mortgages are still being serviced). Rather than try to buy the toxic securities at 35 (this would give the fund managers a decent shot at profiting, while also exposing the banks as insolvent) the fund managers will be in on the gag – they will bid 80. And instead of having to take a writedown, the banks will book surprise profits on the transfer of the toxic assets to the public-private partnership. Later, when everything sorts out, the securities will only prove to have been worth 40 cents on the dollar. The public-private partnership will take a 50% loss. But since only 8% of the capital belongs to the fund managers, they will lose only 4% on the purchase of the toxic assets at deliberately inflated prices. Behind the PPIP’s Smoke and Mirrors How will the administration compensate fund managers for losing some of the money they put up? They will make sure that their private partners make their money back on the bonds of banks, as well as on their own huge portfolios of toxic securities. And here is another tip-off to the scam being played upon the public. When the Treasury released its application to become a fund manager in the PPIP, one of the main requirements was that firms already have at least $10 billion in toxic securities of their own under management. No firm without at least $10 billion in toxic securities can even apply Why is it crucial that they have $10 billion in toxic securities? Because when these firms overpay for toxic assets, they will be rating up the value of their own And the more toxic assets they hold, the higher the bid they can be induced to make, knowing that you and other taxpayers will foot most of the losses in this charade. The third powerful hint that the Obamanites do not really intend to obtain “better price discovery” is that some zombie banks have been busy using TARP money to buy more Obama’s Cunning Program Contrary to what many believe, the scam is not, as the Wall Street Journal It’s quite the opposite: a select group of hand-picked firms will consciously overpay Cramer’s wrong. The depression did not end on March 9, 2009. It will continue for a long time, thanks to Obama’s cunning program for funneling trillions of dollars from the pockets of ordinary Americans into the coffers of his banking cronies. James Davidson Editor, |
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