by Bob Chapman
Originally posted: August 8 2009
Were the bailouts even constitutional? Looming threats upon USA credibility, bond values, interest rates and hyperinflation, TARP should have bailed out the people, swap arrangements are smoke and mirrors, markets will devalue the dollar, moral hazard has already deeply damaged the nation.
THE STARTING POINT FOR ALL ANALYSIS of the ongoing bailout orgy that is currently being used in crony capitalist fashion to transfer wealth from our middle class to the Illuminati and their transnational conglomerates is whether these bailouts are authorized by the US Constitution. The answer is a resounding NO!!! Nothing in the Constitution could ever be interpreted in any manner that would in any way allow the conversion of our quasi-capitalist republic into a Marxist-fascistic police state, which is the last thing our Founding Fathers had in mind. How can our government simply hand over fiat money created out of thin air, which in itself totally violates the provisions in our Constitution dealing with the issuance of money, to whoever they deem to be too-big-to-fail?
The very idea of such targeted bailouts violates every precept upon which our nation was founded, and our Constitution in no way allows the bailout of any private person or business entity, especially where this creates special privileges to be given to a chosen few “anointed” entities at the expense of our citizens in general. Regulation of interstate commerce does not mean doling out crony capitalist bailouts, which amount to nothing short of the implementation of feudalism under the Puppet Master oligarchs of our Shadow Government. Regulation would mean fining and jailing these criminals and allowing them to fail so better run companies can acquire their assets via liquidation to be supervised by regulators. You reap what you sow in this nation. You do not reap profits for yourself and have everyone else pay for your losses. That is pure poppycock detritus.
But where is our redress? We have a President who is a usurper pushed into office by the Puppet Masters in another violation of our Constitution; we have a bogus Congress beholden to the Puppet Masters for the filling of their campaign coffers in a political system where elective offices are bought and sold based on wealth instead of ability and integrity, and we have a Kangaroo Court System where the judges know not to bite the hands that appointed them, lest their skeletons be released from their closets or worse. Our regulators, who are in on almost every scam and public rip-off (i.e. the Madoff debacle), look the other way or issue chump change fines without requiring any accountability.
The only redress left now are forceful public demonstrations, and if the President and Congress still turn a deaf ear, then there is always the Second Amendment, which is the option which we predict will eventually be used to create a change in our government from total corruption back to public service. Obama wanted “change,” and that is what the American people are going to give him, not what he is going to give us. And let’s also make that perfectly clear to the Illuminati, whose boots Obama daily licks like a slobbering dog.
When the subprime/credit-crunch debacles first unfolded, we took the position that there should absolutely be no bailouts because such things are illegal, unfair, immoral and flagrantly unconstitutional. You do not mess with private contract rights, or dole out special privileges to a chosen few on a whim, lest you become known as just another Banana Republic. We are a nation of laws and legal precedents. You don’t throw out hundreds of years of legal precedent by subordinating secured bondholders to unsecured creditors, all with the blessing of our Supreme Kangaroo Court and its nine numbskulls, who are appropriately dressed like Darth Vader, and then expect any other nation in the world to take you seriously.
Our nation has lost any modicum of credibility and integrity, and the only nations who continue to deal with our government are the ones whose governments are even more criminal than ours is and/or who are caught in a “dollar trap.” This fact alone is enough to kill the bond markets. This total disregard of the law and of legal precedents creates tremendous risk in the minds of foreign investors, and that means higher interest rates, and lower bond values, both public and private. And never mind the coming hyperinflation! We deserve to have the dollar lose its reserve status and to have our treasuries rated as “junk” bonds based on the actions of our leaders alone, much less the state of our economy. No contract is sacred anymore. They just make up the rules as they go along.
When we recommended against bailouts, we initially were referring to the subprime borrowers who lied on their applications and never should have been given mortgages in the first place. Bailing out failed financial institutions was the farthest thing from our mind because it was simply unthinkable. Instead, we have seen subprime borrowers given token help and watched in horror as the failed Illuminist financial institutions were given the key to Goldman Sachs South and its Treasury Department. We watched slack-jawed as the United States of America became the “Crony Capitalist Bailout Nation.” If anyone is going to be bailed out, it should be the taxpayers and not the elitist transnational corporations and financial institutions who park their foreign profits offshore and don’t pay any taxes on those profits! COME ON!!!
But the bailouts of “anointed” Illuminist companies have served one purpose very well. They have provided us with the smoking gun that proves the existence of the Illuminist agenda which we discuss in every issue of the International Forecaster. What do we mean by that? As Joan Rivers would say: “Let’s talk.”
Let us first say that the only sensible solution to all the ongoing debacles, other than an immediate purging of the economy which is what we recommended because it would minimize the pain of financial excess and maximize the speed of recovery, would have been to correct the defaults that were causing the various real estate and other credit derivatives to lose value. The defaults could have been corrected by making the loans current or even by paying them off altogether. The math is totally obvious. Anyone with a high school diploma, a calculator and Internet access could have figured it out.
Yet apparently the people with 1600 combined SAT scores, Ivy League diplomas and many years of Wall Street experience apparently could not figure this out. Do you really believe that? If so, you are incredibly naive. You probably also believe that the psychopathic leverage, moronic lending standards and outlandish ratings on bonds and derivatives were the product of mistakes, greed and poor judgment. Again we say: COME ON!!!
Moral Hazard (noun)
• S: (n) moral hazard (economics) the lack of any incentive to guard against a risk when you are protected against it (as by insurance) “insurance companies are exposed to a moral hazard if the insured party is not honest” Source: http://wordnetweb.princeton.edu/perl/webwn?s=moral%20hazard
Yes, the underlings were simply doing as they were told to get their million dollar bonuses even though they knew that what they were doing seemed very imprudent, but the people at the top, from the upper tier of the Illuminist cabal, knew exactly what they were doing. The top dogs created the framework for the underlings to work in. That framework was intentionally and fatally flawed by maniacal leverage, rampant fraud and total lack of any meaningful regulation. Even a minor problem could be magnified into a major issue via excessive leverage.
And any major problem could, by that same excessive leverage, be magnified into a catastrophic financial meltdown that would destroy the US economy, and even the world economy. You have to kill off the old system utterly, so you can install your fascistic police state and one world government in the ensuing chaos, and that is exactly what is happening right under your nose, right before your very eyes. Does God have to club you over the head from His throne in Heaven to get you to take notice? Get a freaking clue, America!!!
Now, let’s look at some numbers. According to mortgage loan servicers handling 64% of all first liens, they were managing $34 million loans totaling $6 trillion dollars of which two thirds were prime loans. That would make the average mortgage somewhere in the area of $175,000. If we add in the other 36% of first liens, and assuming the same overall average principal for these loans, we would have a total of about 53 million first liens with an average of $175,000 per mortgage. The TARP money was 700 billion dollars. That means we could have completely paid off 4 million mortgages, or cut 8 million mortgages in half whose borrowers would then be able to easily refinance with their high newfound equity.
And Realty Trac tells us that from 2005 to 2008, inclusive, about 7.5 million properties had foreclosure notices of default, orders of foreclosure and/or notices of sale served/filed against them. There is a lot of double counting there because multiple filings could affect the same properties in different years and not all properties go to foreclosure, but it does give us an outside/maximum figure for loans in serious default. All those mortgages could have been cut in half with the TARP money and saved from foreclosure, and refinanced down to affordable payments.
What would such a bailout have meant for America? Bear Stearns would still be here, Lehman Brothers would still be with us, AIG and the insurers would have manageable claims and still have decent ratings, all the subprime lenders would be solvent, all the Wall Street legacy investment banks and commercial banks would still be functioning and would not have become penny stocks, municipal bonds would be selling like hot cakes, the Dow might be past 14,000, most people would still have their jobs, pensions would be flush, the real estate market would still be sledging along, and the world economy would still be humping.
And we haven’t even touched the $787 billion of pork from the stimulus plan, or the two trillion dollars that the Fed doled out to both foreign and domestic banks and that is still unaccounted for! With those funds we could have paid off everyone’s general purpose credit cards (one trillion), cut another 8 million mortgages in half (700 billion), and still had over a trillion left over to take care of the defaulted car loans, student loans, commercial mortgages and future residential mortgage defaults! Even the foreign banks could have been saved!
Why would this be so? Because if the defaults were cured, the de-leveraging of the big commercial and investment banks, which were, and still are, leveraged at a rate of about 50 to 1, would not have become necessary, at least not right away. This need to de-leverage to absorb losses when they occur by banks that are leveraged at 50 to 1 is what makes a trillion dollar problem into a 50 trillion dollar problem, and this is where we are headed when the Derivative Death-Star ignites and/or banks are forced to mark-to-market again. All this pain could have been avoided by the curing of loan defaults.
Would it have been fair to bail out the liar loans? Of course not. This drips of moral hazard. But would you rather bail out the bankster-gangsters instead? Is it more fair to do what our government has done for the criminals on Wall Street? Heaven forbid! And besides, the bailout of the liar loans would have automatically bailed out the bankster-gansters in any case!!! Do you mean to tell us that the geniuses of corporate America, Wall Street and Goldman Sachs South could not figure this out? Again we say: COME ON!!!
But it gets even better. We are told by our government bean counters that they think it will take about $24 trillion to bail out the so-called too-big-to-fail banks. So let’s have some fun with this money. In the private sector, we have $13.8 trillion in household debt, $11.1 trillion in business debt, and $17.2 trillion in debts of financial institutions. We could take the $24 trillion and totally pay off all household and business debts. That means the financial institutions would collect all that money and use it to pay off their debts as well. The whole system could have been de-leveraged and the derivatives canceled by regulators. Would we have hyperinflation as a result of all this bailing out? Of course! And some deflation as well. But would you rather go into hyperinflation debt free, or in hock up to your ears? You’re going to get hyperinflation whether you get bailed, or the banks get bailed. And if you get bailed, the banks automatically get bailed. And for those banks that were totally careless, they would get to fail and be absorbed by the thousands of good banks who would jump at the chance.
Large amounts of pain are being inflicted on you needlessly while the criminal Illuminati and their nefarious bankster-gangsters get bailed out, thus sucking all your blood out like a vampire squid wrapped around the face of humanity, as Goldman Sachs was recently described by Matt Taibbi. This is why all the efforts to cure defaulted loans have been half-hearted at best, and non-existent at worst.
The Illuminati know that this is the best cure for the sheople, so we most certainly can not have that. Else, how could they form their Orwellian one world police state of feudality and become lords of the universe over their future serfs? This whole bailout bonanza for financial criminals is the smoking gun. This is irrefutable evidence that the leaders of corporate America, Wall Street and Goldman Sachs South are venomous traitors who want to enslave you and put you and your posterity into bondage forever!
The percentage of occupied living units in the US that were owned as opposed to being rented was about 62% in 1960. All the shenanigans with Fannie and Freddie and the loosening of loan standards so that anyone breathing could have a mortgage has caused that home ownership percentage to fluctuate in an upward trend with the ebbs and flows of various real estate bubbles since that time, with a peak of almost 69% in 2005.
If we were to trend back to 1960’s 62% ownership, some five million owners would have to become renters again. We see this as inevitable, and it may get much worse as we move into the most disastrous state of the US economy in our nation’s entire history. With long-term unemployment at over 20%, which could double if the Illuminati have their way with the ridiculous bailouts of bankster-gangsters, and with hyperinflation on its way, we could see the percentage of home ownership easily drop to 55%, or even less.
We also see prices for housing potentially reverting back to the levels that existed at the beginning of the 1990’s, which is before profligate expansion of money and credit by the Fed began in earnest as the totally criminal Clinton Administration got underway in 1993. That wild-eyed monetary expansion by the Fed has distorted asset values across the board, and has grown worse with time to cover over the destruction of our economy via free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration.
Foreclosures, coupled with much higher interest rates on account of hyperinflation and elevated risk, could potentially become bad enough to reduce the median house price to 120,000 as it was in 1991, when the real estate market was partly cleansed. The deflation could get even worse as our government fires up the subprime market for another round of rampant fraud which could extend defaults even beyond 2012. Then there is the deflation in the aftermath of hyperinflation. It is just too terrible to even contemplate where this whole thing could go.
In our last issue, we reported that trailing P/E ratios using GAAP principals for calculating earnings were really 761, not the reported 24 or so that was obtained without taking write-downs into account. With a trailing P/E ratio of 761, the stock markets would have little, if any, value. Again, it is too ugly to even contemplate. The next leg down in this bear market is going to be a killer.
The Illuminati are attempting to start back up where they left off when Meredith Whitney cut them off with her exposure of Citigroup’s toxic waste, but this time it is the taxpayers who are at risk on account of continuing government bailouts of so-called too-big-to-fail legacy banks. To accomplish this recommencement of the subprime and other derivative fraud, they have their losses held at bay with bogus mark-to-model bond and derivative values while Buck-Busting Ben lends them interest-free money which they are parking with the Fed at interest, investing in treasuries, and/or pouring back into the stock and derivative markets.
This is where all the green shoots are coming from, namely, from money created by printing press prestidigitation out of thin air by Bernanke that is being invested by Illuminist financial institutions instead of being loaned to consumers. The dollar volume in the stock markets far exceeds the money coming out of money markets, so dollar volume and stock prices are being greatly exaggerated as a result of all this profligate money and credit.
This is yet another reason why the Fed stays silent about what institutions received all the money and credit that it has loaned out. That would enable canny investors to trace the stock market volume to its real source, being digital dollars provided by the Fed to keep the sucker’s rally going. This rally mirage will come back to haunt anyone who stays in the stock market, other than owning gold and silver related shares.
Meanwhile, as all this transpires, in yet another parlor trick, Bernanke is exchanging dollars created out of thin air by the Fed for other fiat currencies also created out of thin air by foreign central banks in various currency swap arrangements. This keeps foreign banks out of US credit markets whenever they need dollars to settle transactions, such as oil purchases and credit default swap settlements. These swapped dollars are also used by foreign central banks to purchase treasuries in order to support the dollar and US treasury bond values, which of course helps to maintain the value of their own existing dollar-denominated reserve assets in US treasury and agency paper. These swap arrangements are how the Fed is able to maintain the near zero interest rates in US credit markets which are crucial to Illuminist banking profits.
These swap arrangements are little more than smoke and mirrors economics. They have to keep swapping, or interest rates in US credit markets will rise, treasury values will plummet, and the Fed will be forced to monetize more treasuries to counteract these trends. These swaps swell the amount of dollars held by foreigners, which will come back to haunt us later when these foreigners implement big dollar bailouts and create a dollar carry trade. This flood of dollars back to our shores will be the atmosphere that leads to dollar devaluation. The repatriation of dollars from foreign central banks alone is more than enough to create hyperinflation, much less all the money and credit sloshing around in our national economy already as our government miscreants deficit-spend us into oblivion. The swaps are being used to sterilize dollars, delaying the inevitable so they can continue to milk the system as long as possible.
The Illuminati may well pull the plug on the stock and oil markets to chase money into dollars and treasuries to save those markets again, which are the seat of Illuminist power, and to help fund an FDIC bailout of what could be hundreds of billions from hundreds of bank failures that would be tallied up during the upcoming bank holiday where the small fry will once again be culled out so the big bankster-gangsters can eliminate the competition and acquire their accounts and assets for pennies on the dollar. The bank holiday would be used as the excuse for the PPT to withdraw its support from the stock markets, letting them crash under their own weight by virtue of countless negative fundamentals.
Congress is going to grant authority for the issuance of $500 billion in treasuries to fund the FDIC bailouts, and it is the Fed’s hope that the flush of liquidity from the PPT’s crashing of foreign and domestic stock and oil markets into dollars and treasuries will reduce the amount of those FDIC bailout bonds that the Fed will have to monetize. Precious metals will undoubtedly become beneficiaries of this flushing out as well. This will be the dollar and bond markets’ last hurrah, and will pave the roads leading to devaluation of the dollar, and to the greatest bull market in gold and silver of all time. The next leg up will make up for all the big profits that have eluded newer investors in precious metals thus far. The best is yet to come. Buy your tickets now, and make sure that you’re already on the train when it leaves the station!