Archive for November, 2011
$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months
by Tyler Durden
While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest everreported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world’s financial institutions to the BIS for its semi-annual OTC derivatives report titled “OTC derivatives market activity in the first half of 2011.” Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.
What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows. Because derivatives in addition to a core source of trading desk P&L courtesy of wide bid/ask spreads (there is a reason banks want to keep them OTC and thus off standardization and margin-destroying exchanges) are also terrific annuities for the status quo. Just ask Buffett why he sold a multi-billion index put on the US stock market. The answer is simple – if he ever has to make good on it, it is too late.
Which brings us to the the chart showing total outstanding notional derivatives by 6 month period below. The shaded area is what that the BIS, the bank regulators, and the OCC urgently hope that the general public promptly forgets about and brushes under the carpet.
Try not to laugh. Or cry. Or gloss over, because when it comes to visualizing $708 trillion most really are incapable of doing so.
Total outstanding gross market value by 6 month period:
There is much more than can be said on this topic, and has to be said, because an increase of that magnitude is simply impossible to perceive without alarm bells going off everywhere, especially when one considers the pervasive deleveraging occurring at every sector but the government. All else equal, this move may well explain the massive surge in bank profitability in the first half of the year. It also means that with banks suffering massive losses, and rumors of bank runs and collateral calls, not to mention the aftermath of the MF Global insolvency, the world financial syndicate will have no choice but to increase gross notional even more, even as the market value continues to get ever lower, thus sparking the risk of the mother of all margin calls: a veritable credit fission reaction.
But no matter what: the important thing to remember is that “they are all hedged” – or so they say, a claim we made a completely mockery of a few weeks back. So ex-sarcasm, the now parabolic increase in derivatives means that when the bilateral netting chain is once again broken, and it will be (because AIG was not a one off event), there will simply be trillions more in derivatives that no longer generate a booked cash flow stream for the remaining counterparty, until at the very end, the whole inverted credit0money pyramid collapses in on itself.
And for those wondering what the distinction is between notional and
Notional amounts outstanding: Nominal or notional amounts outstanding are defined as the gross nominal or notional value of all deals concluded and not yet settled on the reporting date. For contracts with variable nominal or notional principal amounts, the basis for reporting is the nominal or notional principal amounts at the time of reporting.
Nominal or notional amounts outstanding provide a measure of market size and a reference from which contractual payments are determined in derivatives markets. However, such amounts are generally not those truly at risk. The amounts at risk in derivatives contracts are a function of the price level and/or volatility of the financial reference index used in the determination of contract payments, the duration and liquidity of contracts, and the creditworthiness of counterparties. They are also a function of whether an exchange of notional principal takes place between counterparties. Gross market values provide a more accurate measure of the scale of financial risk transfer taking place in derivatives markets.
Well, no. It is logical that the BIS will advise everyone to ignore the bigger number and focus on the small one: just like everyone was told to ignore gross exposure and focus on net… until Jefferies had to dump all of its gross PIIGS exposure or stare bankruptcy in the face; so no – the correct thing to say is “gross market values provide a more accurate measure of the scale of financial risk transfer” if one assumes there is no counterparty risk. Because once the whole bilateral netting chain is broken, net becomes gross. And gross market value becomes total notional outstanding. And, to quote Hudson, it’s game over.
As for the largely irrelevant gross market value, which is only relevant in as much as it will be the catalyst which will precipitate margin calls on the underlying notionals, all $700+ trillion of them:
Gross positive and negative market values: Gross market values are defined as the sums of the absolute values of all open contracts with either positive or negative replacement values evaluated at market prices prevailing on the reporting date. Thus, the gross positive market value of a dealer’s outstanding contracts is the sum of the replacement values of all contracts that are in a current gain position to the reporter at current market prices (and therefore, if they were settled immediately, would represent claims on counterparties). The gross negative market value is the sum of the values of all contracts that have a negative value on the reporting date (ie those that are in a current loss position and therefore, if they were settled immediately, would represent liabilities of the dealer to its counterparties).
The term “gross” indicates that contracts with positive and negative replacement values with the same counterparty are not netted. Nor are the sums of positive and negative contract values within a market risk category such as foreign exchange contracts, interest rate contracts, equities and commodities set off against one another.
As stated above, gross market values supply information about the potential scale of market risk in derivatives transactions. Furthermore, gross market value at current market prices provides a measure of economic significance that is readily comparable across markets and products.
And here again, what they ignore to add is that the measure of economic significance is only relevant in as much as the world’s banks don’t begin a Lehman-MF Global tango of mutual margin call annihilation. In that case, no. They are not measures of anything except for what some banks plug into some models to spit out a favorable EPS treatment at the end of the quarter.
Expect to see gross market value declines persisting even as the now parabolic increase in total notional persists. At this rate we would not be surprised to see one quadrillion in OTC derivatives by the middle of next year.
And, once again for those confused, the fact that notional had to increase so epically as market value tumbled most likely means that the global derivative pyramid scheme (no pun intended) is almost over.
Read the entire article HERE.
Earlier this morning the anti-gold brigade was foaming in the mouth on the news that the German central bank had for the first time in a year sold gold. As it turns out they were half right: the bank indeed sold gold: a ‘whopping’ 150,000 toz or about $250 million worth… But not in the open market, and not even to natural buyers of physical like Sprott and everyone else not infatuated with voodoo theories of infinite repoability of debt. They sold it to the German ministry of Finance… to mint commemorative coins. Coins which we are now confident will be promptly mopped up by the general public. Following the sale Germany will be left with a modest 109,194,000 troy ounces, enough to allow the country to gladly tell Europe to do some anatomically impossible things and to fall back to a hard asset baked currency if and when it should so desire.
Germany has lowered its gold reserves for the first time in almost a year, selling 150,000 troy ounces in October while central banks of developing economies continued to beef up their bullion holdings in a bid to diversify their foreign reserves.
Bundesbank, the central bank of Germany, reduced its reserves to 109.194 million ounces in October, from 109.344 million ounces in September, according to International Monetary Fund data seen by Dow Jones Newswires.
A spokesman for Bundesbank confirmed 150,000 ounces of gold had been sold to the Ministry of Finance to mint commemorative coins. The last time Germany’s reserves were lowered was in December 2010, when the Bundesbank reduced total holdings by 27,000 ounces, from 109.371 million ounces.
This simply means that any fears of the demise of the Bundesbank’s gold are greatly exaggerated:
“There is no reason to start speculating about the future of German gold reserves,” he said. “The German gold reserves are there for the impartial Bundesbank…There is no reason to change that.”
The Bundesbank spokesman told Dow Jones Newswires that all gold sold by the Bundesbank since 2004 had been only for the minting of commemorative coins.
Germany is the world’s second-largest official gold holder, with about 71% of its foreign reserves held in bullion, according to the World Gold Council. The only country with higher reserves is the U.S., at 261.499 million ounces.
As for the others…
Other central banks added to their reserves. Russia, a regular buyer from its own domestic market, continued its program of gold accumulation, lifting its reserves by 627,000 ounces to 28.005 million ounces.
Kazakhstan also reported significant additions in a second consecutive month of gold buying. Its reserves totaled 2.366 million ounces at the end of October, up from around 2.265 million ounces in September.
Recent purchases by the official sector have helped drive gold prices higher, because those purchases absorb supply and boost market sentiment.
“Day to day, gold is still trading against the dollar, but in the long run, this is very gold-positive,” said VTB Capital Andrey Kryuchenkov. “Central banks are diversifying, and it has intensified to a rate that nobody had expected.”
So while everyone is obviously seeing the writing on the wall, various theoretical economists who would be broke 10 times over in the real world if they put their money where their mouth is continue to preach what nobody cares about:
Read the entire article HERE.
Another example of why you should choose physical gold and silver rather than the paper counterpart. These derivatives are simply way too over leveraged and when the music stops someone is going to be left without a chair and the one sitting will most likely be JPMorgan or Goldman Sachs. And don’t expect the government to do anything about it. Lawrence Lepard describes the heist below:
By Lawrence Lepard
November 18, 2011
Imagine you are Ben Bernanke, or on the Board of Governors of the Federal Reserve. The time frame is July and August of 2011 and the price of gold is on a tear. Commodities inflation has been persistent and is breaking out everywhere. Your prediction that inflation “is contained” and is a “temporary phenomena” are beginning to look absurd. What do you do?
Simple. Hint that QE3, the primary drive of inflation, is coming and then fail to deliver at the September FOMC meeting. That takes care of the price of gold and the gold stocks. Ah, but those pesky commodities speculators keep making money and trading against what you want the markets to do. So what is to be done there? Hey Jon Corzine, how about you tank the largest broker for the small commodities punters in the world, and we let them twist in the wind? That will serve them right. Teach them to bet against the government approved scenario.
Think it did not happen? Well think again. All of the pieces fit. It sure is convenient that all those commodities speculators are now out of the box. Also, who will want to speculate on commodities in the future given customer funds are no longer protected. Furthermore, commodities speculators are not a very “All American” group. From the authorities point of view they can say: screw them, who will feel sympathy? Hell, James Bullard, Fed Governor, in an interview on CNBC yesterday said the MF Global collapse proves that the system works. Yes it does Jim, for you. Personally, I have $90,000 at MF Global and I would like to have my honestly earned money returned. Unfortunately, the odds of that happening any time soon seem slim. In part because when MF Global entered bankruptcy the judge appointed a Trustee whose law firm has done substantial work for JP Morgan, a deeply interested party. We will probably never find out what happened here. But for those of us whose eyes are open the results speak for themselves.
This whole mess stinks to high heaven. I am with Gerald Celente, if the largest commodity broker in America can go bankrupt and nothing is done, then where can you put your money and expect it to be safe? I, for one, do not accept that Jon Corzine is stupid enough to lever up MF Global 40:1 and use the proceeds and customer money to bet on European sovereign debt. This was a hit, pure and simple. That is why there is no resolution to the problem, and it is just another example of the deeply corrupt US political/financial axis. It may take money away from a bunch of commodities speculators, and it may cool down the perceived inflation, but it is just another hole in the dike which is The US Financial System. A dike whose life can probably now be measured in months, not years.
Read the entire article HERE.
by Matt Taibbi
November 10, 10:07 AM ET
Federal judge Jed Rakoff, a former prosecutor with the U.S. Attorney’s office here in New York, is fast becoming a sort of legal hero of our time. He showed that again yesterday when he shat all over the SEC’s latest dirty settlement with serial fraud offender Citigroup, refusing to let the captured regulatory agency sweep yet another case of high-level criminal malfeasance under the rug.
The SEC had brought an action against Citigroup for misleading investors about the way a certain package of mortgage-backed assets had been chosen. The case is very similar to the notorious Abacus case involving Goldman Sachs, in which Goldman allowed short-selling billionaire John Paulson (who was betting against the package) to pick the assets, then told a pair of European banks that the “designed to fail” package they were buying had been put together independently.
This case was similar, but worse. Here, Citi similarly told investors a package of mortgages had been chosen independently, when in fact Citi itself had chosen the stuff and was betting against the whole pile.
This whole transaction actually combined a number of Goldman-style misdeeds, since the bank both lied to investors and also bet against its own product and its own customers. In the deal, Citi made a $160 million profit, while its customers lost $700 million.
Goldman, in the Abacus case, got fined $550 million. In this worse case, the SEC was trying to settle with Citi for just $285 million. Judge Rakoff balked at the settlement and particularly balked at the SEC’s decision to allow Citi off without any admission of wrongdoing. He also mocked the SEC’s decision to describe the crime as “negligence” instead of intentional fraud, taking the entirely rational position that there’s no way a bank making $160 million ripping off its customers can conceivably be described as an accident.
“Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?” And this: “How can a securities fraud of this nature and magnitude be the result simply of negligence?”
Rakoff of course is right – the settlement is nuts. If you take Citi’s $160 million profit on the deal into consideration, what we’re talking about then is a $125 million fine for causing $700 million in damages. That, and no admission of wrongdoing.
Just imagine a mugger who steals $70 from some lady’s wallet being sentenced to walk free after paying back twelve bucks. Magritte himself could not devise a more surreal take on criminal justice.
It gets worse. Over the last decade, Citi has repeatedly been caught committing a variety of offenses, and time after time the bank has been dragged into court and slapped with injunctions demanding that they refrain from ever engaging the same practices ever again. Over and over again, they’ve completely blown off the injunctions, with no consequences from the state – which does nothing except issue new (soon-to-be-ignored-again) injunctions.
In this current case, this particular unit at Citi had already been slapped with two different SEC cease-and-desist orders barring it from violating certain securities laws. Here’s a summary from Bloomberg:
The commission already had two cease-and-desist orders in place against the same Citigroup unit, barring future violations of the same section of the securities laws that the company now stands accused of breaking again. One of those orders came in a 2005 settlement, the other in a 2006 case. The SEC’s complaint last month didn’t mention either order, as if the entire agency suffered from amnesia.
The SEC’s latest allegations also could have triggered a violation of a court injunction that Citigroup agreed to in 2003, as part of a $400 million settlement over allegedly fraudulent analyst-research reports. Injunctions are more serious than SEC orders, because violations can lead to contempt-of-court charges.
But the SEC avoided the issue of the 2003 injunction by charging Citi with a different type of fraud. But, as Bloomberg points out, it probably wouldn’t have mattered much if they had accused Citi of violating the 2003 injunction, since the bank had already done that once and not been punished for it:
In December 2008, the SEC for the second time accused Citigroup of breaking the same section of the law covered by the 2003 injunction, over its sales of so-called auction-rate securities. Instead of trying to enforce the existing court order, the SEC got yet another one barring the same kinds of fraud violations in the future.
So to recap: a unit of Citigroup, having repeatedly violated the same laws and having repeatedly violated the SEC’s own cease-and-desist orders and injunctions, is dragged into court one more time for committing a massive fraud.
And what does the SEC do? It doesn’t even bring up Citi’s history of ignoring the SEC’s own order, slaps the bank with a fractional fine, refuses to target any individuals, allows the bank to walk away without an admission of wrongdoing, and puts a cherry on the top by describing the $160 million heist not as a crime, but as unintentional negligence.
BRING OUT THE SOFT CUSHIONS! The SEC gets rough with Citigroup.
Imagine a car thief who, when caught driving a stolen Lexus, tells the police he simply stepped into the wrong car and drove off by mistake. Now imagine he tells the same story when, two years later, he’s caught screaming over the GW bridge in a stolen Mercedes.
Then, two years after that, he’s caught on the Cross-Bronx Expressway blasting the stereo in a boosted 7-series BMW. Cops ask him for an explanation. “I must have gotten in the wrong car by mistake,” he says, shrugging. And the cops buy the story and send him home without a charge.
That’s roughly what we’re dealing with with this SEC action. To extend the metaphor just a little further – let’s say that BMW wasn’t even the only car he accidentally drove away that day, but the cops didn’t bother with the others. In the latest Citi case, the $700 million fraud was just one of many dicey CDOs marketed by that unit of Citi. But the SEC chose to address just that one case in its settlement.
Rakoff quite correctly took issue with all of this. From Jonathan Weil’s Bloomberg piece:
“What does the SEC do to maintain compliance?” Additionally, [Rakoff] asked: “How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of prior consent judgments?” We’ll see if the SEC finds any.
Rakoff gained some notoriety a few years ago when he rejected as inadequate an SEC settlement with Bank of America, which was accused of misleading shareholders about the size of the bonuses paid out by Merrill Lynch, the investment bank BofA was in the process of acquiring. Rakoff dismissed the original $33 million fine as “half-baked justice,” although he eventually approved a $150 million fine.
The amazing thing about the wave of corruption that has overtaken the financial services industry is that most of it couldn’t happen without virtually every player at every level signing off on these deals. From the ratings agencies to the law firms to the accounting firms to the regulators to the bank executives themselves, everybody had to be on board in order for a lot of these fraud schemes to work.
Judges are a part of that picture, and too often, members of the bench sign off on dirty deals made between banks and regulators when the law says that such settlements must be “fair, reasonable, adequate and in the public interest.”
It’s great that Rakoff is behaving as any decent human being would and rejecting these disgusting settlements. But equally disturbing is the fact that more judges haven’t done the same thing. Are people with backbones really that rare?
by Adam Taggart
November 10, 2011, 10:14 pm
Turd Ferguson is a funny guy.
But there’s one thing this irreverent, acerbically goofball forecaster is stone-cold serious about: the need to build personal exposure to the precious metals.
For him, it’s a straightforward mathematical certainty that the global economy must collapse under the weight of the excessive (and exponentially compounding) credit amassed over the past several decades. The debt is simply too large to be serviced.
As a growing number of analysts (including Chris) are predicting, Turd sees the replacement of the world’s current monetary regimes as the endgame to this story. And he believes we are watching that endgame unfold in real-time now.
In this interview with Chris, Turd discusses his reasons why gold and silver offer the best prospect for preserving wealth through the coming devaluation of world currencies, despite his strong conviction that the markets for these metals are heavily price-manipulated.
In fact, it’s precisely due to this manipulation that Turd is able to predict short-term price movements in gold and silver as confidently as he does:
Believe me, if you looked at my trading account and looked at my success in trading corn, or soybeans, or crude, or something like that: I make choices just as badly as the average guy. The reason why I am successful in forecasting gold and silver is because they are manipulated.
Because once you understand that the bullion banks, particularly JPMorgan in silver, are in there trying to stack the deck in their favor, then you use some simple technical analysis. And you begin to see where they’re going to act, where they’re going to place some sell orders to try to start cascading waterfall selling by tripping stocks. It’s not real hard. I mean, its pretty basic stuff. But once you admit to yourself that if this does take place, it makes forecasting where price is going pretty easy…
We see this quite often where the prices of gold and silver – they decline rather sharply after hours, after COMEX trading hours, on the Globex because volume is so thin there. A little bit of money thrown at the market – any new paper shorts can have a rather dramatic impact…
And that is where the manipulation has a lasting impact. And you can’t get that money back… And it takes a whole bunch of new buy orders, a whole bunch of new speculative longs and commercial longs to come in and bid it back up to where it was before that raid. And so, they’re always going to be in there. Again, I guess the ultimate question is at who’s behest are they doing this? But, nonetheless, they’re in there controlling price, managing the assent, if you will, to create this illusion that there’s still confidence in the dollar, that all is well. And that it’s okay to go buy a new car.
Turd sees the precious metals as a true barometer of the dollar’s devaluation as the Fed pursues its policy of negative real interest rates — which is challenging for the average consumer to see, when the dollar may strengthen on a relative basis versus other fiat currencies and the government-published CPI is artificially low. In his opinion, the government is well aware of the signaling function of the PMs, and therefore feels it needs to manage their ascent in as drawn-out and orderly a process possible in order to prevent the frogs in the pot (i.e., the citizenry) from noticing that the water is getting a lot hotter.
The important mission here, in Turd’s mind, is to realize that the economic reality we have come to accept as “normal” is over, and to take protective action. And once you have done so, to try to help those around you wake up to that fact — a major challenge, as most people don’t want to think about it, and the entrenched status quo powers are aggressively marketing that ‘return to normalcy’ is just around the corner:
The last thing I would add to that, Chris, and one that’s challenging, and I’m sure you’ve seen this too in working with your subscribers is where we are headed is unlike anywhere where we’ve been, at least in recent memory. I mean, there may be some octogenarians out there that remember what it was like before the Great Depression and during the Great Depression and before World War II. But it’s a world like that where we’re headed to.
All I’ve ever known, all my friends and family, even my parents really have ever known is this hegemonic United States that was the world power, and provided the world’s reserve currency. And we could print as much as we wanted to, and then export the inflation to all the other poor staff that had to – took our dollar. And so we bought their cheap stuff. And those days are over, and it’s a really hard concept.
If you haven’t had personal experience with something else, it’s a really hard concept to get your arms around. That the United States isn’t going to be this huge economic and military superpower. Just because it always has been doesn’t mean that it always will be. And as we talked about, the numbers and the fundamentals suggest that it’s not always going to be.
And so you got to kind of prepare yourself that tomorrow’s not going to be like today, that we’re in a new paradigm. And try to intellectually figure out, okay, how do I survive and prosper in this new world knowing that it’s coming? And that’s what we try to do. I know that’s what you try to do. And it’s our job, Chris, to try and help as many as we can.
Click the play button below to listen to Chris’ interview with Turd Ferguson (runtime 47m:19s):
Read the entire article HERE.
An audit of the Federal Reserve has revealed that the privately owned Federal Reserve secretly doled out more than $16 trillion in zero interest loans to some of the largest financial institutions and corporations in the United States and throughout the world. The non-partisan, investigative arm of Congress also determined that the Federal Reserve acted illegally. In fact, according to the report, the Federal Reserve knew their financial transactions were illegal and provided conflict of interest waivers to its employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans. The report is evidence that reveals major securities fraud in the embezzlement of $16 trillion by the Federal Reserve. Securities fraud and embezzlement are both felony criminal offenses.
Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted. Embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done without their knowledge or consent. U.S. Code TITLE 18 > PART I > CHAPTER 31 – EMBEZZLEMENT AND THEFT § 644. Banker receiving unauthorized deposit of public money
Whoever, not being an authorized depositary of public moneys, knowingly receives from any disbursing officer, or collector of internal revenue, or other agent of the United States, any public money on deposit, or by way of loan or accommodation, with or without interest, or otherwise than in payment of a debt against the United States, or uses, transfers, converts, appropriates, or applies any portion of the public money for any purpose not prescribed by law is guilty of embezzlement and shall be fined under this title or not more than the amount so embezzled, whichever is greater, or imprisoned not more than ten years, or both; but if the amount embezzled does not exceed $1,000, he shall be fined not more than $1,000 or imprisoned not more than one year, or both.
$16 trillion is 10 times more than what the U.S. Congress authorized and Bush ($700 billion) and Obama ( $787 billion) signed off on. The Federal Reserve was only authorized by Congress to disburse $1.487 trillion in federal tax dollars in bailouts. The Federal Reserve embezzled another $14.5 trillion.
The Congressional report determined that the Fed secretly hide most of the embezzled money into their own banks. The rest the Fed unilaterally transfered trillions of dollars to foreign banks and corporations from South Korea to Scotland. Foreign banks and corporations which the Federal Reserve bankers had a personal financial interest or stake in.
The report reveals that the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in federal money from the Fed – conflict of interest. Moreover, JP Morgan Chase served as one of the clearing banks (money laundering banks) for the Fed’s emergency loans programs (aka – embezzlement schemes).
In another disturbing finding, the Government Accountability Office said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given federal funds. One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it would have exposed the Fed’s conflict of interest and major securities fraud in the embezzlement of $16 trillion.
The investigation also revealed that the Fed outsourced most of its embezzling to private contractors, many of which were rewarded with extremely low-interest and then-secret loans.
The Fed outsourced virtually all of the operations of their $16 trillion embezzlement scheme to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. For their part the same firms also received trillions of dollars in Fed loans at near-zero interest rates. Morgan Stanley helped the Federal Reserve banker launder embezzled $trillions into AIG.
A more detailed Government Accountability Office investigation into corruption charges, securities fraud, embezzlement, money-laundering and conflicts of interest at the Fed was due on Oct. 18. The Sanders Report on the GAO Audit on Major Conflicts of Interest at the Federal Reserve
Did you know that the $14.5 trillion the Federal Reserve embezzled (US Congress only authorized $1.487 trillion) could pay the entire U.S. national debt – $14.346 trillion. To avert default the U.S. government need only to seize the assets of the Federal Reserve banks (the big six U.S. banks collectively hold about $9.399 trillion in assets) and get back the $trillions that the Federal Reserve illegally embezzled and money laundered to their foreign banks and corporations.
The U.S. government can recover $trillions from the Federal Reserve and their banks through asset forfeiture. Asset forfeiture is confiscation, by the State, of assets which are either (a) the alleged proceeds of crime or (b) the alleged instrumentalities of crime, and more recently, alleged terrorism. Proceeds of crime means any economic advantage derived from or obtained directly or indirectly from a criminal offense or criminal offenses. Crimes committed by the Federal Reserve banks against the United States and its people include; conflict of interest, securities fraud, embezzlement, fraud, money laundering, hoarding, profiteering, larceny, racketeering . . .
In 1982, a criminal forfeiture provision was enacted as part of the Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, which provided for the forfeiture of all property over which the RICO organization exercised an influence.
The Money Laundering Control Act of 1986 added new felony provisions at 18 U.S.C. § 1956 for the laundering of the proceeds of certain defined “specified unlawful activity,” as well as prohibiting structuring transactions under 31 U.S.C. § 5324 (with the intent to evade certain reporting requirements). The law also added civil and criminal forfeiture provisions at 18 U.S.C. §§ 981 and 982 for confiscating the property involved in money laundering.
According to the Legislative Guide to the United Nations Convention against Transnational Organized Crime and the Protocols Thereto, “Criminalizing the conduct from which substantial illicit profits are made does not adequately punish or deter organized criminal groups. Even if arrested and convicted, some of these offenders will be able to enjoy their illegal gains for their personal use and for maintaining the operations of their criminal enterprises. Despite some sanctions, the perception would still remain that crime pays. . . . Practical measures to keep offenders from profiting from their crimes are necessary. One of the most important ways to do this is to ensure that States have strong confiscation regimes”
Top 10 Banks in the United States
As of Mar. 31, 2010.
Source: Federal Reserve System, National Information Center.
According to United States Code, TITLE 12 CHAPTER 3 SUBCHAPTER IX § 341. Second. states that the U.S. Federal Reserve Banks can be dissolved today by “forfeiture of franchise for violation of law.” Securities fraud and embezzlement by the Federal Reserve Bank is cause for immediate forfeiture and imprisonment of the Federal Reserve and its bankers.
List of banks involved in the $16 trillion + securities fraud and embezzlement
The Federal Reserve Bank of New York provides an up to date list of “Primary Dealers” obligated to implement the Federal Reserve fraud and embezzlement scheme. http://www.newyorkfed.org/markets/pridealers_current.html
“Primary dealers serve as trading counterparties of the New York Fed in its implementation of (Fed) monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed‘s trading desk with market information and analysis (non-public stock market information – aka insider trading) helpful in the formulation and implementation of monetary policy (so that the Fed can profit from this insider information). Primary dealers are also required to participate in all auctions of U.S. government debt (acquiring wealth generated from the transactions of the illicit funds – aka money laundering for the Fed) and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders. (the New York Fed is stating who they are working for – on behalf of its foreign official account- holders)”
List of Primary Dealers (Fed’s money laundering banks. Listed in alphabetical order only.)
Bank of Nova Scotia, New York Agency (the third largest bank in Canada. Opened New York Agency in 1907)
BMO Capital Markets Corp. (the fourth largest Canadian bank)
BNP Paribas Securities Corp. (Paris, France)
Barclays Capital Inc. (London, United Kingdom)
Cantor Fitzgerald & Co. (United States)
Citigroup Global Markets Inc. (CIA drug money laundering bank, United States)
Credit Suisse Securities (USA) LLC (Zurich, Switzerland)
Daiwa Capital Markets America Inc. (Tokyo, Japan)
Deutsche Bank Securities Inc. (Frankfurt, Germany.)
Goldman, Sachs & Co. (United States)
HSBC Securities (USA) Inc. (founded in Hong Kong, headquarters London, United Kingdom)
Jefferies & Company, Inc. (United States)
J.P. Morgan Securities LLC (United States)
Merrill Lynch, Pierce, Fenner & Smith Incorporated (United States)
Mizuho Securities USA Inc. (Tokyo, Japan)
Morgan Stanley & Co. LLC (United States)
Nomura Securities International, Inc. (Tokyo, Japan)
RBC Capital Markets, LLC (a Canadian investment bank, part of Royal Bank of Canada)
RBS Securities Inc. (Royal Bank of Scotland Group)
SG Americas Securities, LLC (United States)
UBS Securities LLC. (Zürich & Basel, Switzerland. Rothschild controlled. The Rothschild family hold the popes purse strings from this bank – the keys of the Vatican is a predominate part of their logo.)
All of the above named banks (includes both U.S. and foreign banks) money launder the over $16 trillion (U.S) that the Federal Reserve embezzled. These banks money launder the Fed embezzled U.S. Tax Dollars in three steps:
1) the illicit funds are introduced into the financial system by “placement”,
2) the “Primary Dealers” carrying out complex financial transactions in order to camouflage the illicit funds (“layering”), and
3) they acquire wealth generated from the transactions (loans, mortgages, stock market trading) of the illicit funds (“integration”).
All listed banks are controlled by the European Central Bank (Rothschild family) which controls it all for the Vatican, which is headed by the Nazi German Pope. All are working to enslave the World under a New World Order, aka Fourth Reich, aka Fourth unHoly Roman Empire.
Read the entire article HERE.
Interview by James Turk
The Gold Report
November 7, 2011
A war-mongering U.S. government could be less than 18 months away from decimating the last 5% of value left in the dollar, says Richard Maybury, the author of the U.S. & World Early Warning Report. Until some new exchange-traded-fund-like basket of natural resources provides a store of value, this “juris naturalist” has some advice about how to protect your wealth during the coming collapse.
The Gold Report: Richard, last month, you made a presentation at the Casey Research/Sprott Inc. “When Money Dies” Summit entitled “The War that Will Kill the Dollar.” You explained that the corrupting influence of power had sent our country’s leaders shopping for war, disregarding Westphalian respect for sovereignty and hastening the collapse of society. What are the signs that we are reaching a critical point? And, is there any way we can change course?
Richard Maybury: You can see the signs very clearly in the Middle East and North Africa. The Federal government is involved in several wars there that have nothing to do with America. One of the best examples is Libya. U.S. officials are taking credit for Moammar Gadhafi’s death just a year after they were bragging about having tamed the threat. Now Libya is a mess. It will very likely be taken over by some sort of Islamic government that isn’t going to be very friendly to America.
TGR: Why do we, as a country, do this? If it’s not going to end well for us, what’s the economic or political reason to get involved?
RM: The U.S. government gets into wars in far corners of the world that have nothing to do with America because the leaders like getting into wars. That is how presidents achieve greatness in the history books. A president has no prayer of going down in history as great unless he has won a war. Look at Mount Rushmore. All four presidents featured there won wars. That seems to be the number one criteria historians use for deciding whether someone is a great president. It constitutes an automatic incentive to go out looking for wars.
TGR: What is the incentive for the American people to go war shopping?
RM: Nothing. It’s absurd. During the First Gulf War, people had a tremendous good feeling about going to war with Iraq. They would come home from work, order a pizza, sit in front of their TV sets and watch the war like it was a football game. War became a form of entertainment.
TGR: Is there anything we could do to incentivize our presidents to act peacefully?
RM: I doubt it very much. People go into politics because they seek political power. Once they get the power, they naturally want to use it on somebody. What is the point of having power if you can’t use it? So, no matter what kinds of controls you put on, future presidents will find a way around it.
The ideal situation would be one where war is used as a last resort. Westphalian sovereignty, a set of agreements dating back in the 1600s, established the precedent that the European powers would only go to war in self-defense. You had to have a clear and present danger before you could go to war. And, even then, it was supposed to be the last resort. That was the basis of international law up until this year. That isn’t to say that the Westphalia treaties weren’t violated a lot of times, but they helped. After Iraq, Serbia and now Libya, it is pretty clear that the policy is we can just go out and hit anybody we want for any reason we want as long as we believe the other guy is up to no good.
TGR: If this is the new reality, then let’s talk about some of the economics around it. War is expensive. You have pointed out that since the Federal Reserve was created in 1913, the dollar has lost 95% of its buying power. You said, “War destroys currencies.” It usually leads to governments printing more dollars to pay for guns and tanks. How much debt and overprinting can the country take before the velocity of economics, which is something that you also talked about in association with how quickly dollars are exchanged, catches up with reality and the dollar loses that last 5% of its value?
RM: Velocity refers to the speed at which money changes hands, and it is a measure of money demand. When people don’t really want the money, they start trading it away faster, trying to get their hands on things they do want, things that have value that they trust. The cost of this war in the Islamic world will continue going up. At some point, it’s going to be a major contributor to people losing what confidence is left in the dollar and people all over the world will start dumping it. This is a psychological thing. It’s about emotions, so it is hard to pinpoint when they will lose all confidence in the dollar.
TGR: What would it look like if that last 5% were gone? Are we talking about hyperinflation? Are we talking about banks collapsing? Are we talking about bartering? What would it look like?
RM: We are talking about all of that. It would be chaos. We saw it in Zimbabwe when the Zimbabwean dollar became worthless because the government printed so many that people wouldn’t accept them anymore. The country experienced enormous runaway inflation where prices were rising 50% a day before the Zimbabwe dollar collapsed.
It would probably start with someone somewhere in the world selling off his dollars and begin trading them for whatever it was he had confidence in. The foreign exchange value of the dollar would fall. Other people would notice; they would get scared and start selling their dollars. The foreign exchange value of the dollar would drop more. This process would continue until you have panic around the world to get out of dollars. Americans would be the last ones to get involved. We are always the last to know what is happening to America. Suddenly Americans would wake up one morning and find that a gallon of milk that cost $4 the day before costs $6 today. The next day they would find that it costs $12. And the next day they would find that it costs $36. That is when Americans would realize that they are in deep trouble; their dollars are about to become worthless.
TGR: Of course the Fed wants to avoid that scenario. You describe yourself as a follower of Austrian economics made famous by the Nobel laureates Friedrich Hayek and Ludwig von Mises. They describe financial systems as complex processes run by billions of constantly changing individuals rather than something that can be manipulated from a central point, which seems to be what is being attempted right now. If that is the case, what will be the outcome if the central government tries to force a more Keynesian control of the flow of money?
RM: They will mess it up even worse than they already have. The world has been living under Keynesian economics since 1971 when Nixon took the dollar off the gold standard. John Maynard Keynes was a semi-socialist. He believed that the way to fix the economy was to print a whole bunch of dollars and dump them out there. This has been standard procedure for the past 40 years. All currencies have been dropping in value during that time. Another round of quantitative easing (QE) could further speed the rate at which the money circulates, something that has the same effect as increasing the supply of dollars, creating a larger demand for goods and services and having an inflationary effect. I think Fed officials are dropping hints about the next QE because they are trying to cause velocity to rise, a secret QE if you will.
TGR: What if the stealth QE campaign doesn’t work? What form might a real QE3 take?
RM: It is hard to tell what they will do. One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity. The term fine-tuning is used sometimes. Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else. They think they do, but they don’t. They just bounce around from one attempt to control things to the next, making a mess of the country. The economy is not a machine. It is people, human beings. It is a biological system, not a mechanical system. But, the government treats it like a mechanical system, so they are always making mistakes.
TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this? What are the opportunities? Natural resources? Commodity equities? Where can we be safe other than putting that $100 bill under the bed?
RM: Well, I wouldn’t put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.
Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil.
TGR: In your Early Warning Report Newsletter, you predicted that gold will top $3,000/ounce (oz), silver will hit $50/oz and oil will exceed $300/barrel. Gasoline will go to $9/gallon. When will we see these rises? And what will be the catalysts that take them there?
RM: The next QE, which I expect to come along no later than March, could set off a flight from dollars. Then we could see those predictions realized within 18 months.
TGR: You said that once we have had this loss of the entire value of the dollar and people are looking for another way to trade, money could be based on some collection of metals with currency acting as a receipt for the tangible gold, silver, platinum and whatever else happens to be in that basket. What would that transition look like? How painful would that be? How would it be orchestrated?
RM: It doesn’t have to be painful. The markets are moving in that direction. People trade exchange-traded funds (ETFs) for practically everything now. I can envision a mutual fund or an ETF that is a collection of various things. It could be gold, silver and platinum. It could have oil in there. It might include Swiss francs. It could even have various patches of real estate. The ETF itself would then become a currency, not because anybody has it planned that way, but because the markets will see that there will be a demand for something that is a non-dollar asset that is easily tradable and seen as a store of value. There would probably be hundreds of these baskets of assets at the start. Some would work better than others would; the less workable ones would shake out. You might wind up with maybe a half dozen ETFs or mutual funds that are baskets of various assets circulating in the world. They would essentially become the currencies.
TGR: Would investing in ETFs now be a good way to prepare?
RM: No. I don’t know of any that are arranged that way. It may be a while until somebody catches the idea and decides to give it a try.
TGR: What about the precious metal equities? Would that be a good way to prepare?
RM: Yes. There are lots of good precious metal stocks. I own quite a few. That is another way to protect yourself. However, be sure to deal with a broker who really knows natural resources. You have to have some skill in picking those stocks. It’s not like going down and buying a gold coin where you just walk into the coin dealer and tell him I want a handful of American Eagles or Canadian Maple Leaves. You really have to know what you are doing when you are buying gold stocks.
TGR: Any final thoughts you want to leave with The Gold Report readers?
RM: The world has changed. When you look at the news and you say to yourself, “My God, America isn’t what it was; the world isn’t what it was,” have the confidence to know you are right. We are probably not going back to what America or the world was anytime in my lifetime. Therefore, you want to start learning everything you possibly can about this new condition and adapt to it.
TGR: Thank you for sharing your thoughts.
RM: Thank you, JT. I appreciate being here.
by Tyler Durden
11/05/2011 22:49 -0500
Going back to the annals of brokeback Europe, we learn that gold after all is money, after the G-20 demanded that EFSF (of €1 trillion “stability fund” yet can’t raise €3 billion fame) be backstopped by none other than German gold. Per Reuters, “The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves — including foreign currency and gold — would be used to increase Germany’s contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion).” And who would be the recipient of said transfer? Why none other than the most insolvent of global hedge funds, the European Central Bank.
Also, in addition to gold, the ECB had set its eyes on that other “fake” currency that DSK had succeded in protecting throughout his tenure, all his other undoings aside, “The Welt am Sonntag newspaper, citing similar plans, said 15 billion euros would come from special drawing rights (SDR) that the Bundesbank holds.” Naturally, these discoveries prompted a prompt and furious rebuttal from the very top of German authorities: “Germany’s gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in Cannes,” government spokesman Steffen Seibert said. The WSJ adds, “A plan to have the International Monetary Fund issue its special currency as a powerful weapon in Europe’s efforts to contain the widening euro-zone debt crisis was blocked by German Chancellor Angela Merkel, according to a report in a German newspaper.”
There are three observations to be made here: i) when it comes to rescuing insolvent countries, Germany is delighted to sacrifice euros at the altar of the 50-some year old PIIGS retirement age; ask for its gold however, and things get ugly; ii) the Eurozone, the ECB and the EFSF are dead broke, insolvent and/or have zero credibility in the capital markets, and they know it and iii) due to the joint and several nature of the ECB’s capital calls, while Germany may have had enough leverage to tell G-20 to shove it, the next countries in line, especially those which are already insolvent and will rely on the EFSF for their existence once the ECB’s SMP program is finished, may not be that lucky, and in exchange for remaining in the eurozone, the forfeit could well be their gold.
WSJ brings details on how German SDRs would be used as a temporary (temporary as in European financial short selling ban, and temporary reduction of initial margin to maintenance for everyone to appease MF Global clients) backstop for Europe:
The idea of using SDRs to fight financial contagion isn’t new. When the collapse of Lehman Brothers in 2008 unleashed a financial crisis, the G-20 in 2009 approved a $250 billion SDR allocation to help backstop efforts to fight the spread of the crisis.
The European Central Bank has been buying euro-zone bonds in an effort to keep borrowing costs of weakened members from exploding. But the ECB’s efforts are considered by some experts to be outside of its central mandate to maintain price stability. And the ECB has said that its special measures – buying euro-zone debt — should be temporary and limited in scope. That is another reason why some people are advocating the IMF play a greater role in propping up weakened euro-zone members and become the lender of last resort.
Speaking to reporters at the close of the Cannes summit, Merkel indicated that G-20 leaders agreed in principle that the IMF and EFSF could work together, but the summit could not agree on any specifics.
“We have an interesting process ahead of us and the discussion is not yet concluded,” she said.
Reuters brings more on the the logical German reaction to the EFSF and ECB’s extortion attempts:
“We know this plan and we reject it,” a Bundesbank spokesman said.
Seibert said several partners had raised the question in Cannes whether SDRs could be used to strengthen the EFSF but Germany had rejected this plan and discussions at Monday’s Eurogroup on Monday would not discuss this topic.
The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposition but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.
Why will it be debated? Because when at first you don’t succeed, try, try again. Germany may be crossed off the list, but here is who is next in order of appearance. Sooner or later, Europe will stumble on that one “leader” whose gold is less valuable than their political stability, because after all, a “united”, “EMUed” Europe has the biggest MAD trump card of all.
Read the entire article HERE.
Friday, October 28, 2011pm
What do you get when the producer of the world’s reserve currency takes on too much debt? Nothing less than the end of the US Treasury-based monetary system.
So says Eric Janszen, economic and financial market analyst and proprietor of iTulip.com. In chronicling the decline of the global economy over the past decade, Eric has formulated a framework called the “Ka-POOM” theory, which endeavors to understand how the immense run-up in global debt will be resolved.
In short, it looks at the credit bubble that began in the early 1980′s, started accelerating in 1995, and has now reached epic proportions. The amounts are so staggering at this stage that Eric believes it is too politically undesirable to let natural market adjustments clear them away — the magnitude of the deflationary pain this would create is simply unacceptable for politicians looking to get re-elected. The only other available option is to service these debts via a dramatically devalued currency. Hence the key role the Fed is playing today.
The Fed is at the epicenter of this process, intervening heavily to keep the natural corrective market forces at bay. In this, it has a dual strategy. The first is to keep asset prices high (i.e., fight asset deflation), which it is doing by keeping interest rates historically low. The second is to keep wage and commodity costs under control, which it primarily does via devaluing the currency (maintaining a “weak dollar”).
And, of course, through its intervention, the Fed is doing all it can to keep the current financial system in place to perpetuate the process for as long as possible. The end result is a fundamental shift in risk from Wall Street to the taxpayer.
So the big question is: How long can this last? Is there a point at which confidence in the system breaks and market forces finally overwhelm the intervention?
Eric’s answers: “Much longer than most people expect.” And “Yes.”
First off, as the most important central bank in the world, the Fed has supernormal powers. In theory, it can expand its balance sheet infinitely. Its ability to absorb massive amounts of new liabilities is theoretically limitless, much of which can be easily concealed from an accounting standpoint.
And since the US is both the world’s largest economy, as well as the provider of its reserve currency, other countries are compelled to support the current regime. A mortal crack-up in the US economy would deliver undue pain to all its trading partners, so they continue to buy Treasuries in sufficient amount to fund US economic activity.
But that’s not to say they’re happy about it. And here’s where attention should be paid (and where the importance of gold comes in).
For much of the past century, the United States comprised approximately 54-58% of the global economy. Today, its share has shrunk down to about 18%, meaning its relative importance to the global system has diminished.
Issuing the world’s reserve currency is a privilege that must be continually earned through transparency and sound stewardship — qualities the US has flagrantly lacked in the past several decades as it has been blowing asset bubbles and running trillion-dollar deficits, via incurring massive debts and increasing its money supply tremendously. So, even as they continue to support the current Treasury-backed monetary regime, the world’s central banks have begun hedging their exposure.
After several decades of being net sellers, the world’s central banks became net buyers of gold in the second quarter of 2009. As Eric puts it:
There was no Plan B in the global monetary system when it switched over to the US dollar reserve basis for global monetary reserves. The only fallback is gold, gold is the only reserve asset that central banks hold other than dollars, and to some extent euros, but it is mostly gold. So gold is the fallback. So what I thought was going to happen is that over time, gradually, that there would be an increase at some point in gold holdings by central banks as they hedged the marginal increase and the number of Treasury bonds that they needed to hold as a result of conducting trade with the US and also simply maintaining the US economy through low interest rates and providing sufficient investment to continue to offer the US government.
So what is very interesting to me is [that] starting in the second quarter of 2009, right after the financial crisis, is when global central banks became net buyers of gold, which to me indicated that they had as a group, determined that it was time to more seriously hedge their dollar assets, even as they continue to buy Treasury bonds to increase their hedging.
Before that, there were effectively two teams: There were the buyers, who were countries like India and Russia and China, and the sellers, which are most of your European countries. And that structure of the gold market occurred and was maintained until the second quarter of 2009, and it shifted to a much broader base increase in the number of governments participating in the gold market, including Saudi Arabia, Mexico, and other allies of the United States.
Eric sees this move by central banks, of positioning themselves closer to the door, as a natural step to the inevitable endgame here, which is the dissolution of the US Treasury dollar-based monetary system. Due to entrenched special interests, politics, escalating commodity scarcity, and other factors, he does not see the US taking necessary corrective action before confidence in the solvency of the US and its currency collapses.
As such, Eric advises investors position themselves into gold and assets that take advantage of rising rents and energy prices.
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Read the entire article HERE.