Our Engineered Meltdown: End of the Beginning

Lehman building

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. - at Lord Mayor’s Luncheon following the victory at El Alamein in North Africa, London, 10 November 1942

In today’s spin doctored media maelstrom can China be more truthful than the United States? The following will uncover some reasons why CBS, Bernanke, the Fed, and other members of the power Elite are lying to you. We will then explore the mechanics of how a total Fed collapse can happen. And we’ll end with a review of how a stronger police state is being formed.

Official speeches to assure investors and prop up the markets have routinely come ahead of financial disasters. In January of 2008 Bush said the economy was “strong and solid.” That was the worst January open the Dow ever saw (see story). The same thing happened this last January with a hope filled new administration, and a new worst opening–ever. Here is part four of: Our Engineered Market Meltdown.

Notice the Timing

The timing of events during the last several days should be frightening, but the message in the U.S. is, “Don’t worry, be happy!” Do not underestimate the power of what China has said. This is unprecedented:

President Obama and his new government have adopted a series of measures to deal with the financial crisis. We have expectations as to the effects of these measures. We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried. - 03/13/09

On Friday China questions the “full faith” of the U.S. dollar. What this means is they will not bail out the U.S. with non-stop purchasing of , the blood of the financial body.

The Chinese prime minister, Wen Jiabao, spoke in unusually blunt terms on Friday about the “safety” of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to offer assurances that the securities would maintain their value. ()

On Sunday Bernanke does the first national interview a Federal Reserve chairman has ever done in 96 years. He says everything is fine and we’ll be back to business as usual by the end of the year. Then on Wednesday the Fed announces they will buy Treasuries until the end of days. So…

  1. China warns about the financial stability of the U.S.
  2. Bernanke goes on national television
  3. Says he’s from Main Street, just like you and me
  4. Then boldly lies about the economy

Three days later…

  • FOMC announces a final push of a desperate crisis management plan
  • U.S. dollar sees its ever
  • Fed is now matching all of China’s $1 trillion in Treasuries

CBS: A Tool of the Elite

What 60 Minutes did with Ben Bernanke is upsetting. It’s the same tactic that was used with Hank Paulson on . These are puff pieces hero worshiping the architects of financial Armageddon.

A shill is an associate of a person selling goods or services or a political group, who pretends no association to the seller/group and assumes the air of an enthusiastic customer. The intention of the shill is, using crowd psychology, to encourage others unaware of the set-up to purchase said goods or services or support the political group’s ideological claims. Shills are often employed by confidence artists. The term plant is also used.

Dan Rather had been with CBS for decades and was one of the most familiar faces in American journalism. He refused to be a shill and was working on exposing G.W. Bush.

Eight weeks before the 2004 presidential poll, Rather broadcast a story based on newly discovered documents which appeared to show that Bush, whose service in the Texas Air National Guard ensured that he did not have to fight in Vietnam, had barely turned up even for basic duty. ()


He was fired by the network the day after the 2004 election. The war quietly went on and media criticism of Bush dropped. Now that his administration is gone Rather is suing CBS for $70M. This is a prime example of how compromised the national media is. Do not expect the truth from them.

What needs to be understood is we are seeing the mask of the system having peeled back. The reality is ugly, evil, and incomprehensible to the average citizen. AIG employees recently received a security memo warning them not to identify themselves to the public. So what do the Elite do? They humanize deceit and try to paint collusion as incompetence. They want the public to mistake strategy for incompetence. None of this is accidental. It has been planned for years. This crash was engineered and won’t end until it’s end game time. The end game is a new global banking monopoly.

What Fascism Looks Like Today

Paulson and Bernanke

It’s a simple theme. Crash the market then monopolize it. Argentina was forced into selling their sovereign natural resources to international corporations at mafia discount prices. The U.S. is now selling it’s financial sovereign resources at mafia discount prices. Don’t think so? Paulson and Bernanke forced the remaining major banks to sign off on a fascist takeover of the country’s largest independent banks. From Frontline’s :

NARRATOR: Then on Sunday, October 12th, something extraordinary. Paulson personally called the CEOs of the nation’s nine largest banks and told them to come to his office the next day at the Treasury building. Sheila Bair from the FDIC was there.

NARRATOR: The nine CEOs sat in alphabetical order across the table from Paulson and Bernanke.

JON HILSENRATH: You have Wells Fargo all the way at the end and you have Bank of America more towards another end. And you have, basically, the icons of Wall Street who are showing up.

NARRATOR: Paulson said the entire banking system was in deep trouble.

SHEILA BAIR: It was serious. It was somber. And the government did most of the talking.

JON HILSENRATH: It was made clear to these nine very powerful CEOs when they sat down at the table that this wasn’t a negotiation.

NARRATOR: Paulson hoped one bold act would boost the nation’s confidence in the banks and get them lending again, a direct infusion of cash.

MARK LANDLER: And then he basically came out and said it: “We want to take a stake in the largest banks in the country.”

NARRATOR: Paulson and Bernanke were offering each of the banks tens of billions. The government would become a major stockholder.

MARK LANDLER: And that then set off a pretty lively discussion.

DAVID FABER: Some of them were, like, “I don’t want the money.” But it was, like, “You’re taking the money.”

SHEILA BAIR: The government was very assertive. Treasury was very assertive on why the program was there, why they needed to take it with all the conditions.

DAVID FABER: “Here’s the plan. Here’s what we’re doing. Here’s what we need you to do. You’ll get the money in a few weeks.”

NARRATOR: Paulson gave each man a single piece of paper spelling out the conditions.

MARK LANDLER: Before they had to leave town that night, they were told, “Return this document with your signature on it.” And all nine of them did so.

NARRATOR: Paulson would spend $125 billion that day. Moral hazard was a thing of the past.

Bernanke Buys Bonds

Don’t forget that the Federal Reserve System is a private central bank. They are not the government and they do not represent American citizens. In fact they own the government’s ability to make currency. And they own you and me. It’s called debt slavery. The more debt they loan the more power they have. However, there is a major flaw in this fiat money system. To prevent a total collapse of the system the Fed is now purchasing debt on a massive scale. Depressions end when debt is finalized. The majority of debt hasn’t been wiped out, but transferred to central banks. Can an economy grow when a central bank controls the country’s GDP?

From David A. Rosenberg, BofA/MER’s North American Economist ():

So, as the Fed’s balance sheet now expands to represent nearly 25% of GDP, we no longer have to ask the question as to whether or not we are just like Japan, for that is what the BoJ balance sheet looked like after the central bank embarked on its quantitative easing program nearly a decade ago.

The additional $1.15 trillion in announced purchases is likely to boost the balance sheet well in excess of $3 trillion, especially if you also include the recently expanded TALF program size of $1 trillion (there is also talk that the Fed is going to expand the TALF program to include distressed assets – in the press statement, it did say “the range of eligible collateral for this facility is likely to be expanded …”).

For the traders who watch DIA, SPY, and QQQQ there is a telling lack of volume in the recent rally. There appears to be an abandonment of index ETFs by major institutions. This seems to make sense with the Fed supporting bonds over equities.

How Shadow Banking Works

Shadow Banking

Many people have been fascinated by GTM’s story on How to Trade a PPT Day. One of the sticking points is where the money comes from to push the markets up so violently. The following is an amazing explanation of PPT mechanics. Understanding this will help you understand why the Fed is in trouble.

These are excerpts from by Matthias Chang, former Political Secretary to the Prime Minister of Malaysia:

The repo market is the market whereby all financial institutions (regulated and unregulated) invariably go to obtain financing to meet reserve requirements, bridging finance, to lend or purchase securities, to hedge and or to invest on short-term basis.

It used to be that mainly US Treasuries (bear this in mind at all times) were used as security for Repo transactions, as it is considered as most secure i.e. as good as cash since it is backed by the credit of the US government!

This requirement is no longer the case. More of this issue later.

A deliver-out repurchase agreement is where securities are delivered to the cash lender for custody in exchange for cash.

A tri-party repurchase agreement is similar to a deliver-out repurchase agreement, except that the security is placed in the custody of a third-party entity. The third-party ensures that the security meets the cash lender’s requirements and provides valuation and margining services. This is the primary form of repurchase agreement for securities dealers in the United States. Bank of New York and JP Morgan Chase are the two main custodians or clearing banks in the US and supervise the vast majority of the tri-party repos. Bear this in mind at all times.

Okay, one quick note here. Lehman Brothers used JP Morgan for tri-party repos. Two weeks before their collapse JP Morgan issued a $5 billion collateral call on Lehman, who stalled for time. The next week JPM demanded a $5 billion all cash redemption from LEH. Between Sept 11-12th Lehman refunded $8 billion in cash. On September 15th they were out of business. (see Gasparino, Charles. “Losing Lehman.”Trader Monthly, Nov/Dec 2008.)

Repos can be of any duration but are most commonly over-night loans. Repos longer than over-night are called Term Repos. There are also Open Repos which are transactions which can be terminated by both parties on a day’s notice.

The largest players of repos and reverses are the dealers in government securities. There are about 20 primary dealers recognized by the Fed which are authorized to bid for new-issued treasury securities for resale in the market. The dealers are highly leveraged, 50 to 100 times their own capital. To finance the purchase of treasury securities, the dealers need to have repo monies in large amounts on a continuing basis. The institutions that supply such huge funds in the repo market are money funds, large corporations, state and local governments and foreign central banks.

How the Final Crash Might Happen

Financial Armageddon

A killer tidal wave in the Atlantic is possible, but what Matthias Chang suggest will have a similar effect:

Recall that I had mentioned earlier that Federal Bank of New York and JP Morgan Chase were the primary clearing banks for repos.

The banks’ quarterly financial reports show that as of Dec. 31:

  • J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.
  • Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.
  • Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.
  • HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.
  • Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totaling nearly $64 billion, below the banks’ combined reserves of $104 billion, but total future risks of about $109 billion.

The Fed’s rescue of Bear Stearns through JP Morgan was not so much to save the former but rather to shore up the “clearing system” of the repos for which JP Morgan Chase and the Bank of New York were the main pillars. One of the functions of a “clearing bank” for repos is to value and match securities tendered for cash borrowings. If Bear Stearns securities are now valued as junks, the integrity of JP Morgan and Federal Bank of New York as clearing banks in this market is as good as zero! And bearing in mind that the five major investment banks in the US rely heavily on the repo market for their funding, any gridlock in this part of the shadow banking system would tear wide open the entire banking system, including the traditional counter-part.

Hence, the FED intervention by the creation of the Primary Dealer Credit Facility (PDCF) which was in effect the backstop for all investment banking using tri-party repos!

This was what Bernanke said:

We have been working with market participants to develop a contingency plan should there ever occur a loss of confidence in either of the two clearing banks that facilitate the settlement of tri-party repos.

The inherent weakness of tri-party repos is that the counter-party risks of billions worth of funding agreements are shouldered by essentially two players – Federal Bank of New York and JP Morgan Chase.

  1. Panic swept across the entire repo market.
  2. No securities were considered safe enough for repos except US treasuries.
  3. Fundings in the repo market grind to a halt.
  4. Market players withdrew funds and began hoarding treasuries.
  5. The rest who own structured products were slaughtered.

As has been observed, the Fed intervened aggressively to check the run on the repo market. Various measures were taken, but in my view the most dangerous was the widening of the collaterals which the Fed was willing to accept to secure funding of the players in the repo market. The Fed also intervened by lending a huge chunk of its US treasuries in exchange for junks to facilitate credit expansion.

In the result, what happened was that the Fed’s present balance sheet of approximately $2 trillion is made up mostly of junk securities.

The Fed is no different from banks in that confidence in the quality of its assets is critical and that if and when the market recovers, there is in fact a market for the junk assets that it took on to unravel the gridlock in the financial markets.

Remember Bernanke has stated numerous times the financial system depends on confidence of the participants. China loudly stated their lack of confidence last week.

When Joe Six-Packs realizes that the Federal Reserve Note is not even secured by US treasuries and or the FED has real tangible assets, but its balance sheet is littered with junks and toxic waste, there will be a run on the Fed i.e. when Americans and foreigners no longer have faith in the Federal Reserve Notes as “money”.

Nouriel Roubini declared:

The process of socializing the private losses from this crisis has already moved many liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued.

In my opinion, the Fed has already become “unglued”. Whatever guarantees given to secure the indebtedness of CitiGroup and others to prevent a run on these banks are useless.

What Will the End Game Look Like?

Minnesota National Guard Soldiers with the 1st Combined Arms Battalion, 194th Armor stand guard to assist police in maintaining order during demonstration Sept. 1, in St. Paul, Minn. The demonstrators were protesting during day one of the Republican National Convention. (Photo: Master Sgt. Edwin Holt)

David Rockefeller, Jr. and his contemporaries at the , , and want to see their global banking monopoly solidify before they die. These are internationalists working to destroy nation-state identity. The daily operations of these groups is to marginalize all threats against the power Elite.

In 2002 authored his autobiography Memoirs and states:

For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as “” and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.

And what they’ve been working on has been taking too long to materialize. Therefore expect a large 9/11 type catalytic event that will use to force compliance. Failure of any of the key central banks would also bring this about.

We will probably see the emergence of a stronger police state in the U.S. if their propaganda methods, like using Bernanke on CBS, continue to fail. We already saw mass arrests made during the RNC and DNC. And we’ve seen wave after wave of protests moving west out of Eastern Europe. Some people look at this as class warfare between the Haves and the Have-Nots. It is possible their accelerated plans will cause a new movement in the U.S. where a power struggle between an enlightened citizenry and the corrupt will take place. The reality is Earth has finite resources with exponential population growth. Something inevitably has to give under the current scarcity based system.

The United States House of Representatives has met in seven times since 1825. The most recent closed session was held on March 13th of 2008 to discuss classified details of the during debate on the .

Rumors leaked from that session warn of civil unrest, financial collapse, and protective measures for members of Congress. Several members have since spoken out against bully tactics and threats used by Paulson. He warned members of Congress that if the bailout bill wasn’t passed the U.S. would face total economic collapse and civil riots.

Another current issue to understand is the move to change the . After the U.S. Civil War it was illegal for the federal government to use the military for law enforcement. This stems from the British occupation and garrisoning of troops in civilian homes during the American Revolutionary War. After the LA Riots and Hurricane Katrina there have been power struggles to allow the U.S. Military to act as law enforcement on domestic soil. These have been thwarted, but there is a new concerning development. From the :

Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.

But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.

They may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack.

From the ACLU on the U.S. Army’s domestic deployment:

Well, you need to start with the Posse Comitatus Act, enacted in 1878 and it actually makes it a crime for the military to perform civilian functions within the country, unless there’s an explicit act of Congress.

As they say, it’s a slippery slope, and once you start going down the path of having the military deployed in the U.S. it gets harder to draw the limit. And again, it’s not the military, it’s the way that the military might be used by people to avoid certain protections, and certain civil liberties — for example, crowd control is an example how this could be used — how it could be wielded in ways that are dangerous, and that’s why it’s important to, before you take any step, so we know what the threat is, because it’s hard to go back once the line has been eroded.

This line of thinking might seem paranoid, and sure that could be the case. However, these are very real possibilities. The global financial system is closer than it’s ever been to a system wide collapse. For investors it’s probably wise to heed the grey line in .


The New York Times March 13, 2009

The Observer, Sunday 28 December 2008

Fed Chairman Discusses Recession, Financial Rescues And Recovery In Wide-Ranging 60 Minutes Interview
March 15, 2009

How Did It Happen and What are the Ugly Consequences?
by Matthias Chang

Monday Oct. 27, 2008

Posted by indglass on May 21, 2008

By: Maria Bartiromo, Anchor | 06 Feb 2009

David A. Rosenberg

Army Times, Sep 30, 2008

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Day Trader / Journalist Market manipulation investigator

Viewing 5 Comments

    Your take is well noted and I will certainly keep it in mind as things continue to unfold. Thankyou for taking the time to write this - it is no small job.

    From my vantage point, however, I don't find a global conspiracy theory is what's really going on here. The best way I can find of describing what I think is going on is what I'll call a 'shark infested waters' theory. In this metaphor, the sea contains a vast number of foolish creatures of various sizes and abilities, continually outdoing each other reaching new lows of decision-making un-glory. In this sea are also sharks and vicious predators of various sizes - the likes of Rockerfeller being some of the bigger ones. But their powers and abilities to orchestrate a globally coordinated conspiracy is forever limited by the greed, corruption and nasty-ness of the other sharks whose cooperation is required to execute such a conspiracy.

    The preparations and attempts to turn the US into a police-state are manifestations of the more powerful fools (such as politicians) simply making preparations to protect their own skins rather than to take part in some coordinated conspiracy to enslave the masses.

    However, irrespective of whether your theory or mine is the correct one, both lead down quite similar paths.... so to some extent our differences are academic.

    Once again, thanks for sharing your views.
    Great article!!! You wrote "David Rockefeller, Jr. and his contemporaries at the Bilderberg, Council on Foreign Relations, and Trilateral Commission want to see their global banking monopoly solidify before they die." My thing is why do these groups want to control everything and make the country a bunch of robots? It doesn't make sense
    What do men with power want? More power.

    Thanks for the notes everyone. I wasn't sure how this would be received, but the positive feedback really makes me feel like today is a good day.
    Just wanted to thank you for an excellent post. Well thought out and put together, thank you for your efforts, I will pass this on to friends.
    Thanks for combining the colored threads in this financial meltdown tapestry. I have been researching Rep. Paul Kanjorski's, House Financial Services Committee, statement that on 9/15/08 Paulson and Bernanke told the committee that on 9/11/08 there was a run on MM to the tune of 550 billion, and that is was one of the major causes of the systemic meltdown in banks. Then it appears there was another run on Lehman between 9/15 thru 9/18.

    Thanks for your analysis, I found it to be useful.


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