October 08, 2009

Night terrors

Writing a late night note to a friend:

Dear [censored], sorry to have been so MIA. Haven't been able to blog much, or write email much either. Behind on various things, for some reason. It's [redacted] (see Obama style manual, re: CIA IG Torture Report). Here's my overall take: Barney Frank,
and Ben Bernank they're all in the tank for my bank,
and yours. And the reason is simple: we never did solve the basic problem. All those mortgage-backed securities are still sitting in vaults in various places, many now transferred to the Federal Reserve, which is carrying a gigantic balance sheet -- over $2 trillion, almost 3 times where it was 2 years ago. Schiff, Chris Martenson, others all come at the problem from different angles, but they end up at the same place. The housing bubble burst, and it meant a huge loss in equity across the board, trillions wiped from the national asset column, and made MBS fall drastically in value - how far down, we don't really know, because the Fed has done everything it can to conceal the true extent of the damage. It offloads billions in these derivatives from the banks and from Fannie and Freddie. It prints money to buy them from the banks, then the banks buy Treasuries. Then often the Fed turns around and buys the Treasuries back from the banks. Foreign investors are being bought off too, by buying their Agency debt (Fan/Fred) with printed money, which the foreign central banks (FCBs) use to buy Treasuries, thus enabling the Treasury/Fed to print more money based on the creation of debt. It is all a gigantic shell game purposely kept very confusing, circular and opaque in an effort to conceal the enormous scope of the problem. Since the banks were lending at about 10-1 versus reserves, their real losses out there in the vast expanses of exurban America, greatly exceed their actual capital. But the Fed is conspiring with the big banks to hide the true extent of the losses by never allowing a real market for MBS. As Martenson says, it's the sound of one hand clapping. If the Fed never allows us to see how much money has been lost, do the losses even exist? Meanwhile, Ron Paul and now this rising superstar Alan Grayson are all over Bernanke with this demand for an audit. This is a nightmare. Can you imagine what will crawl out from beneath the rocks if they do an audit? The true extent of the games being played? Barney Frank and others look like they're in on a conspiracy, it has, to the populist mind, the look of vast D.C.-Wall Street Cabal, but in truth they're just deathly afraid of the Mother of All Bank Runs. It would be the end of the economy, the dollar, the country. If the public finds out that BofA, Wells, Citi, Chase are all just Zombies, completely broke, and they find out that the FDIC is also broke (which it is, after 97 bank failures so far), panic will set in. And here comes commercial real estate to add to the problems of bad debt, along with the shadow inventory being held off the market by the banks in a desperate attempt to provide flotation devices for the underwater loans. It's completely, totally FUBAR. I personally think Bernanke has done an amazing job to hold this thing together with his three flashing shells. But is he just postponing the inevitable? Can you actually hold all this debt off the books forever and pretend it doesn't exist? I seriously doubt it. Really, really do. Guess I'll post this as a blog, too, huh?

1 comment:

  1. hammerud6:37 AM

    Pretty depressing. I am of the opinion that central banks and fiat currencies (Keynesian economics) are the root cause of this calamity. Economic systems built on fiat currencies are built on sand, and when the storms come, as we are witnessing, collapse comes. Economic stability that can weather, and possibly avoid a storm, requires a sound currency. As a Christian, I do know that Scripture places great emphasis on "just weights and measures." We need move to that. I heard last week that using gold and silver (as opposed to just gold) to back a currency provides that stability.