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She does not know the half of it. Dimon, of JPM, let slip that the ultimate cost of the Bear Stearns mugging was just over $600 billion. Since JPM's liability was limited to just under $30 Billion, guess who is shelling out the rest! No one even is talking about this. The numbers are so huge. There are so many of them, coming so fast, that no one has a handle on this disaster.

http://tw.youtube.com/watch?v=mbD62gNi9WE

Peter Schiff interview: http://dissentradio.com/radio/08_09_24_schiff.mp3



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Posted to Salon:

McCain's campaign was going down in flames as the Collapse and Depression II moved front and center. Who cares what an admitted economic illiterate has to say about the economy? A Debate about foreign policy cannot be limited to non-economy matters. It takes Dollars to maintain an Empire.

This is an opportunity for McCain to claim the key role in saving the country. It fits perfectly into his life's "Hero" Script.

Our problem is that if he holds the Key to our Salvation, the Almighty better arrive in a big hurry.

Unfortunately this also fits the "Emergency, Chaos, We are Postponing the Election" scenario.

Also, Obama knows nothing about the Collapse of Empire. No one alive today does. The last time this happened the Eastern and the Western portions of the Roman Empire separated. One had hard money. The other did not. The one with hard money lasted another 1000 years.

Bear in mind:

No election, no legitimate Federal Government. The degree of legitimacy we afford it depends entirely on the choices you and I make.

A worthless dollar, if worthless here at home, means no SS payments, no pay for the military, no pay for Federal Law enforcement. Voila. The thugs are unemployed.

Effective government devolves to the State level, where the Constitution proclaims it belongs. How will we respond when law and law enforcement is entirely up to the States, when what little is left at the Federal level just mouths empty exhortations? That too is up to you and to me. The first challenge is with what local currency do we enter into transactions with each other.

Welcome to a world of personal choice and personal responsibility. When you take back your country you really do get to make some big decisions.
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Links:

Germany says US Financial Dominance is over. http://www.gata.org/node/6676 Note that this one fits the scenario that Russia, China, Japan, and Germany, perhaps with others, have come up with a game plan to insulate themselves to the extent possible from the US collapse, and in the process liquidate and colonize the US, with the help of the same scoundrels who got us into this mess, for the money. So much for patriotism.

The FED begging bowl, also known as the auction facility, began as $30 billion every two weeks. It has reached an average of $188 Billion every day. http://www.gata.org/node/6679

Even so, et tu WAMU, the largest bank failure in history could not wait for Friday night. http://www.gata.org/node/6678 JP Morgan Chase is the trash can. This domino will be a boon to sign makers.

Note that the FDIC would itself be insolvent were it to take over WAMU directly. This way the funds are syphoned through the FED begging bowl and you will never know how much is for WAMU.

There is a great deal that none of us will ever know unless and until someone remarkable, perhaps a forensic archeologist, spends time combing the middens for coprolites.
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Largest bank failure in history couldn't wait for Friday night

Sal

Please keep me up to date on whatever you learn. I assume they will need their staff to continue business as usual.

Dumpsters ultimately get full. There were indications starting with Labor Day Weekend that JPM could not handle much more, either for internal administrative reasons, or because of on or off books considerations, or just for image purposes.

JPM is very much at the center of the insolvency crisis and the mechanisms used to manipulate all the markets. As a consequence it has the largest derivatives book of any bank in the world. It appears to be the only one that does not have to "mark to market" and the only reasonable explanation for that is the existence of a secret Executive Order issued via Negroponte exempting it "in the national interest" from all the Government Agency accounting requirements, bank, Sarbanes et al, SEC and so forth. In other words, JPM effectively is an arm of the Government Cartel. It is part of the Coercive Sector.

I use the word Cartel because if you want to understand what is going on you need to think beyond "Government" in the civic sense we all learned in school. That is why the identity of the Current Occupant whom we are allowed to elect appears less and less meaningful - a Puppet, a Spokesperson in Chief with his own spokesperson, a Cheerleader, a B Movie Actor, a Lawyer (not much difference), a "hero" who dropped bombs on people he could not see and whose family imbibed obedience to authority with their mother's milk - never someone with actual principles.

You could think in terms of a beast with tentacles, but I think it's more useful to think in terms of the Coercive and the Voluntary Sectors. Then you slot into the Coercive Sector many corporate, philanthropic, environmental and other organizations that perhaps even think of themselves as "Private" and like Obama, and call for "volunteers," but which either employ coercion or rely on coercion to accomplish their goals or their members' goals.

If you do that, and really think about it, you will discover that the Coercive Sector is pervasive, the truly Voluntary Sector, small.

Before this bailout debate is over I suspect they will tell us all that if we say NO the economy will crater, we won't be able to defend ourselves from Terrorists, starvation will be at the door, the gasoline stations will be out of business, and that only a vote FOR the bailout is a vote in support of the troops. Some of that may be true, though not because we say NO.

No matter what happens, in my book the alternative either is the same outcome, or worse. Better to take our medicine now.

Karl


On Sep 26, 2008, at 2:13 AM, Sal Casuccio wrote:

Well, what's ironic is that Washington Mutual was founded as the Washington National Building Loan and Investment Association on September 25, 1889 in Seattle after the fire burned down the city.

JP Morgan/Chase ceased the largest independent bank on its 119th birthday.

What a damn shame - this whole thing.

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HERCULES! WHERE ARE YOU!

Splat: Where does the number 700 come from? I'm afraid to guess, but here it is.

We know from a slip of JPM CEO Dimon's tongue that the cost of the Bear Stearns mugging was $600 Billion! That figure appears nowhere else, but it does explain why the FED's balance sheet is trash and they need to manufacture new T-Bills to shore up the FED. New T-Bills, in turn, require yet another increase in the debt limit. This assumes, of course, that they are half honest over there, a big assumption.

We also know at least in times of stress the approach is to act now and catch up with remedial legislation to make legal what's already been done. The lady gets to put her robes back on and be an honest woman. That's High Finance. Always has been, even when my Dad worked on the periphery of that world.

So, I wonder. Is the whole 700 for AIG? Paulson wants complete discretion and no disclosure.

I know. The numbers boggle the mind. But consider. The characterization of credit derivatives as insurance seems relatively benign, and is misleading. They have some peculiar characteristics.

First, both parties book a profit immediately. In your world and mine one has to be lying. In the Fairy Tale World of High Finance these are contracts with which everyone is a winner! The Princess gets two handsome husbands by kissing just one frog! Mutual profitability is one reason all the major companies used them to "smooth" those marvelous earnings that kept beating expectations by a penny a quarter for years on end. No wonder everyone wanted to be a party or a counter party. "Win Win" takes on new meaning.

Second, the underlying disaster has nothing to do with the total of outstanding derivatives that provide the "insurance." When Delco went down the derivatives written against a default of Delco bonds exceeded the total of Delco bonds outstanding, and exceeded the total by orders of magnitude. These are pure speculative bets, and the game is more lucrative than the games in Las Vegas. You get to book profits as you go. You don't even need to hold the actual bonds. Heck, that means you get the handsome princes and don't need to bother with a frog at all! There are fees all around, for the lawyers, for the bankers, for the cascading "reinsurers" who become counter-parties down a daisy chain for smaller fees, and so forth. While the music played no one worried about balance sheets or ability to perform. No one worried about financial STD. Those dinners at Delmonico's were scrumptious.

Third, there are two different values for each contract. The first is "mark to computer program" book value, not "mark to market" because there is no market and never has been one. That's what "hard to value" and Level 3 assets mean. Listen carefully to all those experts telling you how they are going to solve the problem. Invariably they want the new "mark to market" rules suspended. Here's why:

When Merrill touched off the insolvency crisis by grabbing collateral from two Bear Hedge Funds and actually, horror of horrors, trying to sell it they discovered the bids dropped quickly, first to 40%, then to 10%, then to ZIP, of that book value. Voila. Every bank was insolvent. Someone at Merrill got confused and tried to live the Fairy Tale in real life.

Which brings us to the second value, "notional" value. What makes these contracts WMD's is not the fact that there is no market. No market merely is the TNT, the bunker buster. Once the bunker is busted one counter-party fails. That in turn, places a real "performance value" loss on the balance sheet of the other, momentarily surviving party. Don't ask me why this is. I don't fully understand, but Sinclair says that's the way it works and he's more experienced and closer to the nuclear core than am I. It's on the balance sheet. It's got to get off. It can't get off without a BOOM at the value of performance nominally expected no longer possible. This means that a default by Delco of, say 100 Million, triggers leveraged (50 to 1) performance requirements for, say 5 Billion, and if as a result another counter-party fails that triggers leveraged performance requirements on all the outstanding contracts to which it is a party, and on down the line.

This would explain Dimon's 600 Billion figure for the cleanup of Bear. It explains why no one understands the numbers. It explains why Lehman going down triggered AIG going down. It explains why the numbers AIG needed initially gyrated all over the place. And it would put a figure of 700 Billion just for AIG in the ballpark.

And all of this assumes that there are some underlying assets somewhere, an assumption that is in doubt at least as far as the fantasy collateral underlying Fannie and Freddie guarantees is concerned. (That's a scandal not yet in the public consciousness.)

WOW!

Paulson must be feeling very helpless for a kid who for years optimistically tossed horse manure in the air looking for a pony, only to find himself in those famous Augean Stables, looking in vain for Hercules. http://en.wikipedia.org/wiki/Augeas

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Corruption, Whispers, Receivership - Consequences of the Fascist Business Model whiich Clinton implemented and Bush II carried to extremes.

Jim Willie is angry: http://www.freebuck.com/articles/jwillie/080924jwillie.htm_p

Interview: http://www.contraryinvestorscafe.com/broadcast.php?media=134 with excellent perspective.



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"Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion -- when you see that in order to produce, you need to obtain permission from men who produce nothing -- when you see that money is flowing to those who deal, not in goods, but in favors -- when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you -- when you see corruption being rewarded and honesty becoming a self-sacrifice -- you may know that your society is doomed."

… Something to Reflect On: Ayn Rand -- circa 1959


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. http://solari.com/blog/?p=1605#more-1605 for a comment that gets to the heart of the mortgage syndication fraud.

Seems they did see this coming, month ago! http://georgewashington2.blogspot.com/2008/09/white-house-admits-it- drew-up-bailout.html

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From Dude:

FRIDAY, SEPTEMBER 26, 2008

Unprecedented Jump in Monetary Base
Since 1975, the Fed has only allowed the Monetary Base to rise by 2% or more over a reporting period (2 weeks) 3 times.

In Dec. 1999, fearful of Y2K problems the Fed allowed the MBase to rise by 2.89%
In Sept. 2001, following 9/11, the MBase rose by 6.4%
Last week the Monetary Base rose by 8%
One more point of comparison: The MBase rose by 1.3% during the Crash of 1987.

Y/y change in the MBase, which had been growing at roughly 2%, just jumped to 10.9%.

Operation Helicopter Drop is well underway.


WEDNESDAY, SEPTEMBER 24, 2008

The "recession avoiding" bail-out doesn't exist
Federal Reserve Chairman Ben Bernanke bluntly warned Congress on Tuesday it risks a recession, with higher unemployment and increased home foreclosures, if lawmakers fail to pass the Bush administration's $700 billion plan to bail out the financial industry. ABC News

"Nonsense," says the Dude, in response to Bernanke's views.

The causes of the current economic malaise, which will deepen in the coming quarters, regardless of the policy response, are large external debts combined with large and growing deficits.

The bail-out merely shifts the form of the resolution process from a sequence of private sector bankruptcies to a more generalized inflation as private (or semi-private in the case of Fannie Mae and Freddie Mac) sector corporate imbalances become nationalized.

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