I do not pretend to know what many ignorant men are sure of. -Clarence Darrow

This is the biggest block in our series on market manipulation.  We’re working toward an answer.  How do international banks manipulate the markets to service the U.S. war debt?  Make no mistake about the crash on Thursday.  That was no “fat finger” trader or an “M” accidentally being a “B” nonsense.  Unless you hear “international banks” and “leverage” and “unwind” in the same sentence, it’s not a valid explanation.  It takes hundreds of billions to make a wave in the equities market like that.  It was the fastest point drop in the history of the market.  Only something an international bank is capable of.  The rest of us are just trying not to drown in their wake.

How to Lose Money Betting the Market Will Crash on the Day it Crashes

If George Carlin could have designed an ETF it would be FAZ.  Maybe even with the same name.  It’s an ultra bear’s dream come true.  A way to profit as America circles the drain with financial Armageddon banker zombies roaming the streets while cities burn.  FAZ is a stock that can make +15% while the banks crash -5%.  You’d think it was the perfect stock to trade last Thursday.  It’s one of the fewer and fewer ways a retail trader can profit during a market crash.  There’s a catch.  The crash locked out anyone trying to exit with profit. By the end of the day, if you bought FAZ right before the crash, you actually had a loss.

How could this happen?  NASDAQ is the market maker for retail brokers in FAZ.  They control the bid/ask and retail orders go through them.  The problem is NASDAQ froze all exits on FAZ until the market closed.  They canceled trading in 256 names.  What is suspect is FAZ, and many other frozen stocks, are not on that list. The only way to exit FAZ was to sell in the after hours market on Thursday or wait for Friday’s open.  Essentially, Thursday’s crash created a no-bid market for FAZ and many other stocks.  How do you get zero bids on a stock that trades 165M shares in a day?

Max Keiser, the man who invented high frequency trading (HFT) source code, explains:

Remove all the buy orders that you control (since HFT traffic is 70% of the order flow, if you simply pull your HFT buy orders, you remove a huge chunk of the market – in a heartbeat – leaving a sudden price vacuum). If you wanted to scare congress to vote the way you wanted them to vote – a congress that is directly invested in stocks trading on the exchange and ETF’s tied to the prices on the exchange – just pull your buys. When they do what you want them to do–replace your buys. If you want to make the market go up–pull your sell orders. It works both ways. (It’s all detailed in my Virtual Specialist Technology patent–how to make markets in an ‘infinite inventory environment.’) (Huffington Post)

Keiser is describing a perpetual cash machine for market manipulators.  We’ll cover that later in this story.  Another method to lockout FAZ is this:

• A swap blows up
• The counterparty exposed to the swap blows up
• All swaps in that tranche are frozen
• The market crashes
• ETFs trading those swaps are locked out

The over-the-counter derivatives market could be a contributing reason why FAZ wouldn’t sell on Thursday.  Most ETFs are derivative products that mimic an index, which happen to trade on stock exchanges.  So you have an unregulated OTC instrument moonlighting on a regulated exchange.  If a swap blows up (as the Euro made a new low) it would logically effect ETFs.  Virtually none of the stock ETFs trade in equities.  They don’t own baskets of stocks.  They own baskets in swaps and futures contracts.

Fidelity has been marketing some 20 ETFs which their clients can trade for “free.”  How many of their clients got bent over a barrel this week?  The fine print is full of escape clauses.  These things aren’t insured and there’s no recourse if the exchange or the product fails.

Euro and Swaps

We’re facing a perfect storm loss/loss scenario from hedging activity.  It’s the same AIG shell game, just played on a different street corner that no one is watching.  It took people nearly a year to catchup and understand what subprime mortgage blow ups were doing.  Last week gave us a new bomb ripple in the subbasement of international banks.

Eurodollars are deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S., allowing for higher margins.

The Eurodollar futures contract refers to the financial futures contract based upon these deposits, traded at the Chicago Mercantile Exchange (CME) in Chicago. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money it intends to borrow or lend in the future.  Each CME Eurodollar futures contract has a notional or “face value” of $1,000,000, though the leverage used in futures allows one contract to be traded with a margin of about one thousand dollars. Trading in Eurodollar futures is extensive, and the market for them tends to be very liquid. The prices of Eurodollars are quite responsive to FED Policy, inflation, and economic indicators.

CME Eurodollar futures prices are determined by the market’s forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. The settlement price of a contract is defined to be 100.00 minus the official British Bankers Association fixing of 3-month LIBOR on the contract settlement date. For example, if 3-month LIBOR sets at 5.00% on the contract settlement date, the contract settles at a price of 95.00. (source)

On Thursday LIBOR hit  0.373% the highest since last August.  On Friday it hit 0.428% while the Euro crashed to a 14-month low against the dollar.  The gigantic interest rate swap market is based on LIBOR.  When the spread jumps 14% overnight someone is taking a massive hit. This concept is to today’s market what subprime was to the crash in 2008.  Let’s explore why derivatives are so important.

As the unregulated derivatives market grew the money that was in equities left for greener pastures.  Basically, the U.S. stock market is like the post-apocalyptic landscape in the movie Terminator.  It’s wounded, illiquid, and controlled by Skynet’s hunter-killer HFT drones who prowl for resistance money.  On Thursday the computers drove the market into a no-bid situation that blew out tons of retail money.  In the vacuum of the program trading nuclear blast Skynet computers, doing one million orders per second, jumped into the void making billions of dollars at our expense.

Swap Market Size

The European derivatives market is a complex mass that’s difficult to understand.  This is precisely why you never get an explanation about it from the media–until it’s too late.  Let’s go through some basics.  This is the largest cash market in the world.  It is growing exponentially as European governments fall. And it can take the U.S. equities market down with shock and awe.

NYSE Euronext European derivatives products ADV in April 2010  increased 51.5% compared to April 2009

NYSE Euronext U.S. cash products handled ADV in April 2010 decreased 26.6% compared to April 2009.  Year-to-date, U.S. cash products handled was down 34.3% from prior year levels.

NYSE Euronext U.S. matched exchange-traded products decreased 42.8% compared to April 2009.   Year-to-date, NYSE Euronext U.S. matched exchange-traded products was 45.9% below prior year levels. (source)

Money is flowing out of U.S. equities and ETFs and into European interest rate swaps.  It’s now the biggest game in town.  The following graph shows who the main players are in OTC derivatives, which are mainly interest rate, commodity, and currency swaps.

Large firms like Goldman Sachs are taking on more risk while smaller firms are cutting back.  Right now 41% of all swaps are backed by $USD.  This is a massive market that can react violently to ripples in interest rates.

The global equities markets are currently worth $45T.  Roughly half the value prior to the 2008 crash. That money did not come back. Compare that to amounts outstanding of OTC single-currency interest rate derivatives by currency (source):

Notional amounts outstanding
Euro $160,646B
US dollar $154,167B

Gross market values
Euro $6,255B
US dollar $6,473B

2009 Interest rate futures
N. America $600T
Europe $550T

The Number of Collateral Agreements in use in the OTC derivative market grew 14 percent over the past year. (source)

What are Swaps

Essentially, it’s the revamped bond market from the ’80s.  Instead of being long Euro bonds the banks turn them into insurance contracts at reduced cost and risk.  If you can borrow Euros cheaply and think the Euro is going up, and LIBOR will stay low, you sell that interest rate swap, or currency futures swap, or options swap, or you name it.  There’s dozens and dozens of ways to game the market with swaps.

In an interest rate swap, each counterparty  agrees to pay either a fixed or floating rate denominated in a particular currency to the other counterparty. The fixed or floating rate is multiplied by a notional principal amount (say, USD 1 million). This notional amount is generally not exchanged between counterparties, but is used only for calculating the size of cashflows to be exchanged.

The most common interest rate swap is one where one counterparty A pays a fixed rate (the swap rate) to counterparty B, while receiving a floating rate (usually pegged to a reference rate such as LIBOR).

At the point of initiation of the swap, the swap is priced so that it has a net present value of zero. If one party wants to pay 50 bps above the par swap rate, the other party has to pay approximately 50 bps over LIBOR to compensate for this.

The interest rate swap market is closely linked to the Eurodollar futures market which trades at the Chicago Mercantile Exchange.  (source)

How LIBOR is Created

Each cash desk in a contributor bank has a Thomson Reuters application installed. Each morning between 11.00 and 11.20 [London time] an individual at each bank, typically the currency dealer, takes their own rates for the day and inputs them into this, which links directly to the fixings team at Thomson Reuters.  Banks cannot see each others’ rates as they submit, only after final publication.

This was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other. This became increasingly important as London’s status grew as an international financial centre. More than 20 per cent of all international bank lending and more than 30 per cent of all foreign exchange transactions now take place in London. (source)

Greek Netting

There’s tons of white papers presented to the Fed’s board of directors (prior to 2008) that say risk in swaps is low because it’s a new market and nothing has blown up yet.  This was an interesting statement:

The interest swap market has been increasingly taking on a benchmark role in the broader fixed income market that had previously virtually been the exclusive domain of U.S. Treasury debt securities. Given its greater prominence for the financial markets as a whole, the question of assessing the ability of the swaps market to continue to function without major impediments–such as heightened concerns about counterparty credit risk–when other (less liquid) markets are disrupted gains special significance. (source)

Here’s where Greece comes in.  It’s been on the verge of bankruptcy for two years, but was able to maintain a reasonable credit rating until last week.  Much of the swap market is built on the assumption of equal liquidity.  A practice called “netting” is used to mitigate risk.

Netting: Rather than exchanging fixed and floating payments on the dates specied in the swap contract, the values of the two payments are netted, and only the party with a net amount due transfers funds to its counterparty. (source)

This is good in theory, but the reality is most firms rehypothecate.  Basically they take all the money that netting is supposed to protect and often bet it against that same contract as a hedge. Division A does one thing and Division B bets against it, and neither knows.  Such was the case with AIG blowing up.  In the case of Goldman Sachs, they know and decide to commit fraud anyway.

Rehypothecate:  Involves the re-use of securities delivered. A dealer receiving securities as collateral may re-use the same security, to collateralize its own exposure with its counterparties for example. In the case of cash collateral, rehypothecation involves either using the cash received as collateral to buy investment securities, or to lend on to others, or to collateralize other derivatives exposures.

Forty-four percent of all respondents and 93 percent of large dealers report rehypothecating collateral.  Over 80 percent of collateral is in the form of cash deposits. (source)

Counterparties depend on the solvency of each other.  That solvency is put into question when the cash deposits are used to place more bets.  Risk is layered on more risk.  Then when a credit rating is dropped it triggers termination clauses.  This creates a run on the banks.  This happened in the mortgage backed securities market a couple years ago.  It’s a perfect example.

What Blow Ups Sound Like

One of the best authors on bond market blow ups is Michael Lewis.  He just wrote a great article in Vanity Fair about Michael Burry, the first man to short subprime.   Here’s an excerpt.

On June 14, 2007  the pair of subprime-mortgage-bond hedge funds effectively owned by Bear Stearns were in freefall. In the ensuing two weeks, the publicly traded index of triple-B-rated subprime-mortgage bonds fell by nearly 20 percent.

Just then Goldman Sachs appeared to Burry to be experiencing a nervous breakdown. His biggest positions were with Goldman, and Goldman was newly unable, or unwilling, to determine the value of those positions, and so could not say how much collateral should be shifted back and forth. On Friday, June 15, Burry’s Goldman Sachs saleswoman, Veronica Grinstein, vanished. He called and e-mailed her, but she didn’t respond until late the following Monday—to tell him that she was “out for the day.”

“This is a recurrent theme whenever the market moves our way,” wrote Burry. “People get sick, people are off for unspecified reasons.”

On June 20, Grinstein finally returned to tell him that Goldman Sachs had experienced “systems failure.”

That was funny, Burry replied, because Morgan Stanley had said more or less the same thing. And his salesman at Bank of America claimed they’d had a “power outage.”

“I viewed these ‘systems problems’ as excuses for buying time to sort out a mess behind the scenes,” he said. The Goldman saleswoman made a weak effort to claim that, even as the index of subprime-mortgage bonds collapsed, the market for insuring them hadn’t budged.

What this Means

See the parallels here?  Subprime bonds fell 20% creating a squeeze on credit.  We have LIBOR rising which is putting a squeeze on–basically everything. Instead of power outages we have lockouts and canceled orders.  The same ridiculous excuses are given to obscure reality.  Fat fingers with Bs and Ms?  Thursday’s crash is wake up call for complacency.  However, it’s being sold as an opportunity for dip buying.

The stock market is a perpetual cash machine for international banks (IBs).  It’s a game invented in the 1700s by London stock manipulators (see story).   Make the market go parabolic, then crash it to pay off war debt and protect Treasuries.  Dr. Ellen Brown has one of the best explanations for what’s going on:

The Wall Street Ponzi Scheme

The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top.

The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.

The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up.” (source)

First time home buyer credits are now expired.  The Fed can’t lend money for free indefinitely.  Soon the U.S. will be forced to raise cash.  The Fed will have to raise the prime rate and it will stress the system.  Unless prime dealers (IBs) unload their leverage without tanking the market.  This is the cornerstone.  Banks are levered up on low interest rates. Those swap positions have to unwind without creating cascading sell-offs.
Much of the recent rally was short covering.  New highs on very low volume.  That’s not new money buying up the market.  We know European derivatives volume is up 50% and U.S. stocks and ETFs are down 50%.  The 2010 rally was a short squeeze used to cover real distribution by large banks.  They have to unwind before interest rates are raised.

Think GLD is Safe?

There’s one last concept that is important in this pyramid.  People invested in GLD/SLV in lieu of owning the real metal are directly exposed to blow ups in the OTC derivatives market.  Another no-bid scenario like Thursday could wreak havoc in commodity ETFs.  This is a partial list of the major ETFs that were locked out:

Earlier Sunday, Nasdaq OMX announced it has canceled trades made Thursday in 12 additional stocks in which prices were at least 60% above the prior number, or at least 60% less than the earlier price. The additional names mostly included exchange-traded funds and notes, following estimates of 4,000 canceled trades across nearly 300 symbols previously announced. (MarketWatch)

The largest gold ETF is GLD with their vaults sitting in London.  It’s run by a mining consortium, backed by HSBC London, and Bank of NY Mellon as trustee.  Between 1999 and 2002 Gordon Brown sold 60% of the UK’s gold reserves at $275 an ounce.  The year he sold that final ounce the World Gold Council formed. It’s difficult to find out exactly who they are.  It reads like the early history of the Council on Foreign Relations.

So GLD is sponsored by World Gold Trust Services, LLC, or WGTS, which is wholly-owned by the World Gold Council, or WGC, a not-for-profit association registered under Swiss law. The Sponsor is a Delaware limited liability company and was formed on July 17, 2002.  Two years later they create GLD investment trust, formed on November 12, 2004.  The closing price on GLD that year was $44/shr.

The Trust Indenture was amended on November 26, 2007 to reflect the transfer of the listing of the Shares to NYSE Arca.  The close that year was $83.  Today it’s at $118 with a gain of 275% in six years.  In the same period, since Gordon Brown sold his last ounce, gold has gained 440%.

Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust (NYSE:GLD), jumped nearly 20 tons to a record 1,185.787 tons on Thursday. Year to date, however, (GLD) holdings has gained just 50 tons. (Reuters)

They sucker retail investors by marketing GLD as the paper equivalent of owning real gold.  This is a misconception held by gold/silver ETF owners. In GLD you need to own $11.8M in shares to convert the certificates into deliverable gold.  With SLV the number is $850k. The primary banks holding GLD/SLV use it for collateral to short COMEX futures. How many GLD owners know their position is bet against them in a leveraged market? Their $1 in GLD can turn into $15 COMEX shorts suppressing the price of gold.

The indisputable conclusion is that these three banks dominated the market to the extent they represented two thirds of the entire net short position of the commercials and as such they controlled the price of gold which is illegal…

When the derivative positions of the banks are examined it becomes clear that JPMorgan Chase and HSBC together dominate the market. In 2008 they held close to 100% of the entire bank derivatives market in gold and precious metals.  -Adrian Douglas

How JPM Crashed Silver

The manipulation of SLV is more egregious, due to a smaller market, and primarily done by JP Morgan.  The DoJ is in active anti-trust investigation of JPM right now, which they named publicly (source).  JPM has a reported $70T in silver derivatives shorting their own product (SLV) which has a value of $5.2B. During the Bear Sterns take down JP Morgan bought control of Bear’s silver positions. Silver was nearing $21/oz. and about to bankrupt Bear with their short position.

Andrew McGuire, an independent London silver trader, became a whistleblower on silver manipulation.  In March, just prior to a CFTC hearing on gold/silver position limits, he and his wife were victims to a hit and run driver in a London shopping district.  They survived and the perp was caught after a high speed chase.  Testimony was given of this being an assassination attempt. Few details have been published.

McGuire wrote numerous emails to the CFTC warning and explaining how gold/silver manipulation worked during the February low.  He had evidence that JPM and HSBC were driving out long call option holders (source).  The above chart shows a 20% drop in SLV in the two weeks during McGuire’s warnings.  Here is an excerpt:

Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.

Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.

Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.

Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be “invited” on board, which will further add downward pressure.

The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?

Only if a market is manipulated could this possibly occur.

I would ask you watch the “market depth” live as this event occurs and tag who instigates the move. This would surly help you to pose questions to the parties involved.

This kind of “not-for-profit selling” will end badly and risks the integrity of the COMEX and OTC markets.

I am aware that physical buyers in large size are awaiting this event to scoop up as much “discounted” gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.

Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk. (source)

JP Morgan controls 80% of the world’s gold and precious metals derivatives.  Through monopoly control of the market they took silver under $15/oz.  JPM is the custodian for SLV, the silver exchange-traded fund.  People who own shares in SLV think they own certificates representing silver for delivery.  This has been proven to be a fraud.  JPM does not have the actual silver deposits for delivery.  What they have is $70T in silver derivatives.  Nothing real is exchanged.  At one point, COMEX silver short contracts totaled twenty times the value of the world’s entire silver supply. (source)

Conclusion

Hopefully this lengthy article placed some bricks in alignment.  Bricks that form the foundation of the ongoing Wall Street pyramid scheme.  We learned that the U.S. stock market is illiquid and run by computers that can crash it faster and farther than ever.  We learned that ETFs designed to profit from those crashes don’t work.  They don’t work because they’re based on interest rates products so massive the slightest spike causes market instability.  We also learned that gold and silver products, used for such protection, are manipulated by the very same banks selling them.

There are two main power structures in the U.S.  The formal power resting in D.C. and the real power resting in NYC.  Most people are unaware of how the real power structure works.  We’re talking about shadow banking, the Council on Foreign Relations, old money families, corporations profiting off terrorism, secret global meetings, etc.  Policies and programs designed to squeeze credit and game the system in every way imaginable.

It is a mistake to look to the formal power structure for solutions.  Fundamental problems can never be resolved in that system.  It’s a total illusion to depend on a corrupt political system to solve problems it is complicit in creating. The solution is to attack the real power structure.  Their power can be marginalized.  The more people educate themselves and their friends the less that power is held over us.

Illegal manipulation of capital markets is done in concert with central banks to suppress precious metals, which supports a “strong” dollar.  It’s part of the larger matrix of control in Western finance.  A staggering amount of arbitrage, naked shorts, and other cross trades are designed to support the velocity of credit.  When that velocity nearly stopped in 2008, and credit dealers issued margin calls, it brought the financial system to the edge.

We are living with the same power structure America fought for independence against.  Sam Adams, John Hancock, and much of the Continental Congress were at times violently opposed to New York stock jobbers, the Crown’s money influence, and international bankers.  They did everything they could to insure fellow citizens would not be owned by international banks.  How would they respond to, “We’re all borrowed up.”

Today confirms the theory that international banks will begin to delever and unload positions ahead of a Fed rate hike.  The following was written by GTM on Sunday April 18, 2010 (source).

The SEC has been sitting on the GS indictment for nine months. They finally decide to release during market hours on a Friday OPEX–curious. Was this done to mask distribution?

On Thursday [04/15/10] GS traded 7M shares and on Friday it was 100M. Compared to GOOG that did 6M and 12M or BAC’s 240M and 590M. C had 1.8B shares traded on Friday. Citigroup and Bank of America stock are looking more and more like war debt service vehicles.

A working theory is major banks are being used to service the U.S. debt. Primarily the war debt created by an expanding corporate empire. In 1720 England used stock in the South Sea Company to offload its war debt on the investing public. It was the first major financial scam to coin the term “bubble.”

Read more here:  Where the New PPT Hides

International banks (IBs) are now sitting on $1,200T in interest rate swaps. That’s $1.2 quadrillion dollars. It has peeled back $300T from last year. A squeeze on JPM alone could bankrupt the system. There is not enough free credit in the world to deliver on their $70T swap positions. There’s also not enough silver in the world to deliver on the total COMEX silver short position. It represents 100% of the total visible and recorded silver bullion in existence (source).  Owners of silver futures alone could squeeze the world’s largest bank by demanding delivery. Think of it. A new Sons of Liberty movement could once again stick it to New York stock jobbers. People could squeeze JPM just by asking for delivery on their silver. That’s a nightmare scenario for them. Why give you something real, with real value, when we can convince you to trade it for worthless paper instead.

Everyone is now learning how JPM illegally manipulates the precious metals market to suppress inflation. How about GS and their monopoly control of the stock market. Goldman Sachs is behind 1 out of every 10 trades on the NYSE. Is it unreasonable to think they would manipulate equities in the same way?

The Fed can’t lend money for free indefinitely. Soon the U.S. will be forced to raise cash. The Fed will have to raise the prime rate and it will stress the system. Unless prime dealers like JPM, GS, MS, UBS, etc. unload their leverage without tanking the market. This is the cornerstone to understand. Much of the recent rally is short covering. Look at the short % of total float on major names. Many stocks are near 20% short. We’ve seen higher highs on very low volume. That’s not new money buying up the market. It’s basically a short squeeze that can be used to cover real distribution by the IBs. They will have to unload somehow before the rates are raised. There’s a strong connection between this concept and silver manipulation. Friday’s selling was a warning that distribution is taking place.

Notice today’s crash happened right after 2:30pm where a halt would not happen.  Now active traders need to be aware of upcoming PPT action.

A 6:1 negative day (or greater) has not reversed in the last five years without PPT intervention. In order to bet on something like that, the market has to be making a scary new low. If we revisit January lows start looking for a PPT day that can reverse the most obscenely negative NYSE A/D.

Review of what is required:

* Market at new lows/breaking point
* Relatively high VIX
* High CBOE Put/Call Ratio
* Major pressure on the Financials [banks -20%]
* Negative NYSE Internals [worse than 5:1]
* Political pressure
* Fear/Panic

Read more here: Anticipating PPT Days

Review of NYSE Cicuit Breakers:

http://www.nyse.com/press/circuit_breakers.html

How Treasury Auctions Work

09:15 am : Though typically overlooked, participants will take note of a $24 billion 7-year Treasury Note auction, which is scheduled for this afternoon (1:00 PM ET). Given the weak showing in Wednesday’s 5-year Note auction, participants speculate that investors’ risk appetite may be changing.

Last night’s Frontline interview with Paul O’Neill:

Can the United States government go bankrupt?

Not in the classical sense, but we could get ourselves into a position where people won’t take our paper anymore. And that’s a really desperate position to be in when we’ve killed the idea of good faith and credit of the United States. That could destroy our society as we’ve known it.

Can’t we just turn the printing press on?

Nope, because at some point people will prefer to have broken pieces of glass than federal money. … Look at the German economy in 1923. People got paid twice a day in Germany in 1923, because if they waited to spend the money that they were paid at lunchtime at dinnertime, the money wouldn’t be worth anything.

And so people were actually willing to pay all of their money, a wheelbarrow full of money, for a broken piece of shiny glass, because the broken glass was worth more than a wheelbarrow full of money. We don’t want to get there, but semi-modern societies have gotten there.

You imagine we could get there?

No, because I think we’re smarter than that, and I don’t think we’ll let it come to that. But the answer to your question is, if we don’t do something, we could get there, yeah.

The United States has a AAA rating, just shines in the night. Could we lose that?

Eighteen months ago Citigroup had a AAA rating. Could they get there?

A bank isn’t the United States government.

No, I know, but you’re asking a very radical question: Could the federal government lose its AAA rating? And the answer is yes. We dare not let that happen, but the answer is yes.

If we keep going in a straight line, the answer will be yes?

Yeah. I don’t know how we dodge the bullet if we don’t change where we’re going. …

U.S. One-Month Bill Rate Negative for First Time Since December (Bloomberg):

Treasury 10-year yields have risen for the last five days as the U.S. sells a record $98 billion in securities this week to revive the economy. The note pared earlier losses after a government report today showed the world’s largest economy shrank the most since 1980.

For the time being, fears of supply have pushed up longer- term yields despite the Fed’s buyback program. The 10-year yield has retraced more than half of last week’s 47 basis point decline when the Fed said it would buy Treasuries.

The Treasury is selling $98 billion in notes this week as part of President Barack Obama’s efforts to boost government spending to revive economic growth. Debt sales will almost triple this year to a record $2.5 trillion, Goldman Sachs Group Inc. forecast. The firm is one of the 16 primary dealers required to bid at government auctions.

UK government bond auction comes up short:

Britain experienced its first incomplete auction of government bonds in almost seven years on Wednesday, potentially dealing another blow to Prime Minister Gordon Brown’s plans to resuscitate the faltering economy.

The bank has been buying bonds from banks to provide liquidity to the financial system.

Brown was further undermined on Tuesday by King, who warned that Britain may not be able to afford new expensive stimulus plans, noting that the country’s budget deficit is expected to swell dramatically due to the economic crisis.

Shore Capital analyst Tim Morgan said the government’s overall cash requirement, including the money needed to redeem previous gilt issues, could hit 240 billion pounds.

Morgan said that Britain was running a risk of a “debt vortex” in which markets lose confidence in the ability of the UK taxpayer to meet future obligations.

“It is by no means clear that this required sum can be realised, less still that it can be raised in sterling and at current low interest rates,” he said. “The only sure way to avert debt vortex risk would be to unveil major cuts in future public spending.”

My speech to Gordon Brown goes viral:

“Every British child is born owing around 20,000 pounds. Servicing the interest on that debt is going to cost more than educating the child.”

Last night’s Frontline interview with David Walker:

Let’s start with public debt. … Give me a sense of just how bad this is.

The national debt, as we speak, is about $10.5 trillion. But the real problem is not that number. … The number that we need to be focusing on is the total federal financial hole; that’s the total liabilities in unfunded promises for Social Security and Medicare. As of the end of 2007, which is the latest set of financials that we have right now, it was $53 trillion. That’s $455,000 per household. Median household income in America is less than $50,000 a year.

What’s clear is that, while the numbers aren’t final yet for the year ended Sept. 30, 2008, for the first time in the history of the United States, the federal financial hole exceeded the total net worth of all Americans. … So we could confiscate every dime of the net worth of every American household — including Warren Buffett, Bill Gates and every other billionaire — and we wouldn’t fill the hole.

And guess what? The hole is getting deeper more rapidly than our net worth is going up. In fact, net worth has been going down because of decline in home values and because of decline in the markets. So we’re in a deep hole, and we’d better start figuring out a way that we’re going to climb out.

Conclusion

The sobering reality is even if the U.S. manages to avoid a serious depression the looming unfunded anvil of Medicare and Social Security entitlements hangs over the country.  This may keep some of you up at night, but this is not a problem that lacks solutions.  If it is not dealt with before it becomes another managed crisis then it’s a massive problem.  What is clear is the U.S. has mastered the art of instant gratification while ignoring future threats to stability. What Americans seem to have forgotten is we own the country. This is our money and our future. No child should be born a debt slave. And no one deserves to be a slave at the expense of their education.

"The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States." - Mission Statement

The following story was first published here at GTM in July 2008 when no one heard of Tim Geithner. He’s now about to take control of the U.S. Department of the Treasury. It is important to understand some of his past history. This is a history beyond tax evasion and public lies, even though his weasel-like behavior is consistent. The point is, Tim Geithner knew a market crash was coming and kept silent. Perhaps it was to allow his connections in JP Morgan and Goldman Sachs to profit and gain power. If I personally knew such things I’d be dead or too compromised to publish this.

There is one man who knows:

Last September The Washington Post showed how Geithner will become Paulson 2.0: In Crucible of Crisis, Paulson, Bernanke, Geithner Forge a Committee of Three

The media is now beginning to blame President Obama for socializing the monetary system. This is a myopic diversion from the truth. The system was designed to fail before Obama had any power. The U.S. financial system was gutted when Phil Gramm, his wife, and Tim Geithner (along with their minions) removed safety measures built into the financial matrix. In a few short years they tore down what took decades to build. See story.

Regulations used to be in place to prevent exactly what has happened. Gramm re-wrote the law and UBS made a quick buck, along with Gramm as their chief lobbyist. Geithner’s job when he took office at the NY Fed was to supervise counterparty risk in the derivatives market. That was five years ago. This man had oversight of a market twice the size of the U.S. economy. Can he now be trusted with your retirement money?

Using Crisis to Monopolize Fed Control [July 2008]

One topic retail investors hardly read about is the over the counter derivatives market. Credit default swaps between banks and hedge funds is one of the prime drivers causing the Wild West scene in financials. There is a ton of paper floating through the system with unknown market value. The results of this practice can be read on the front page of any financial paper today.

There is a theory that the PPT is fighting for their life against naked short selling and similar tactics used in the OTC market. It must be infuriating for them to pump nearly a trillion dollars of liquidity into the market to see it driven lower.

Enforcing the law to ensure proper short selling isn’t the only way the PPT is attacking the market and hedge funds that drive it. The New York Fed is pushing forward on July 31, 2008 with the next leg of a master plan. They are working to completely reform global OTC derivatives markets into a single central counterparty (CCP). This will put market control in the hands of 17 banks. Two prime brokers in the US market are Morgan Stanley and Goldman Sachs. Both are firms tightly linked to Washington.

Why OTC Paper Have Vast Unknown Values (See Chart!)

What is the Derivatives OTC Market?
“Credit derivatives have been perhaps the most important and successful financial innovation of the last decade.” (Acharya and Johnson)

Markets for credit derivatives have helped banks create synthetic liquidity in their otherwise illiquid loan portfolios. For example, Citigroup had distributed a large portion of its exposure to Enron through issuance of credit-linked notes at regular intervals (in the two-year period preceding default of Enron). The final effect of Enron’s collapse on the balance sheet of Citigroup was as a result small compared to the size of its loan exposures to Enron.

[This is a simple explanation of course. The real explanation is this market is so complex it’s beyond the comprehension of many insiders.]

Who Benefits? (from Gary Aguirre 2006)

Hedge funds execute up to 50% of the daily trading on the New York Stock Exchange. They also do 70% of the trading in the US distressed debt market, US exchange-traded fund market, and the convertible bond market.

Who also profits from hedge funds? The people they pay above market commissions to. Investment banks collected $15 billion either directly from hedge funds or because of them, producing $6 billion in profits.

Aguirre states, “For individual firms, hedge funds were critical to last year’s [2005] performance. They produced one-quarter of Goldman Sachs’s profits, estimates Guy Moszkowski of Merrill Lynch, and only a slightly smaller slug of Morgan Stanley’s returns.”

Times Change But Tactics Do Not

There is a potentially a predatory form of trading by hedge funds in the credit derivatives market: “It was the hedge funds creating a credit event by forcing the bond price down and trying to get the rating agencies to downgrade the company to benefit themselves: they were scaring everyone into selling.” (Henry Snedel, December 5, 2002, in Deals and Deal Makers, Wall Street Journal)

J.P.Morgan was offering $209,000 to buy credit default protection on a $10 million loan to Altria Group Inc.’s Philip Morris tobacco unit and was offering to sell that same contract to anyone for $221,000 – a difference of 5 percent – according to Bloomberg data. On the same day, J.P.Morgan was offering to pay $9,000 to sellers of protection on $10 million of newspaper publisher Gannett Co.’s debt while charging $21,000 to anyone who wanted to buy the same protection, a difference of more than 100 percent. (Bloomberg Markets “Credit Swaps, High Risks Few Rules” June 6, 2003)

Fed Preps for a CCP (from the NY Times –> Feb. 2007!)

Timothy F. Geithner took the helm of the Federal Reserve Bank of New York in 2003. High on Mr. Geithner’s to-do list is understanding and monitoring the $26 trillion credit derivatives market — twice the size of the United States economy — the fastest-growing financial market there is.

Even the heads of some of the world’s biggest banks seem overwhelmed by the size and complexity of credit derivatives. “It makes my head swim,” said Kenneth D. Lewis, the chief executive of Bank of America.

Mr. Geithner’s job, when he is not working on monetary policy, is to make sure they are prudently managing that risk.

When Mr. Geithner arrived at the New York Fed, E. Gerald Corrigan, a former Federal Reserve president himself, suggested that he look at the conclusions of the Counterparty Risk Management Group Report, the report compiled after Long-Term Capital. Mr. Corrigan thought it might be useful to look at those risks in the context of the rise of private money and the rapidly transforming credit markets.

In 2004, Mr. Geithner’s staff conducted an extensive review of counterparty risk. But rather than dump its conclusions on the industry, he chose to stay behind the scenes while encouraging Mr. Corrigan to reconvene the group. In January 2005, Mr. Corrigan brought together a group that included some of the most senior executives on Wall Street. Six months later, the group produced a report that made 47 recommendations on issues from the very technical to the philosophical.

Central to the report’s findings were shocking weaknesses in the way credit derivatives were being assigned and traded around without any sense of who owned what. The so-called “assignment issue” was simple: credit derivatives were negotiated by two parties, say JPMorgan and Goldman Sachs. But banks were “assigning” the contracts out to others — like hedge funds — without telling each other. It was a little bit like lending money to a friend who is really rich who in turn lends it to her deadbeat brother and fails to mention it.

“It violated the first and most sacred principle of banking: know your counterparty,” Mr. Corrigan said.

Standards were set, and backlogs came down sharply…The industry felt triumphant about being part of the solution. It was a classic “collective action” problem solved: the industry had set an abysmally low standard and no one would budge for fear of losing business, so someone had to move everyone.

Improving the processing of credit derivatives was only the first step. Soon after, he initiated a comprehensive examination of stress-testing, looking at how banks measure and test exposure to certain market players and market risks in different kinds of conditions, like the failure of one major firm.

When Long-Term Capital Management tottered on the brink of collapse in 1998, the credit markets in the United States were controlled by such a small number of institutions that the New York Fed had to make calls to 14 Wall Street banks to try to resolve the crisis. Today, the number of institutions would be vastly higher.

“The fact that the banks are stronger and risk is spread more broadly should make the system more stable,” Mr. Geithner said. “We can’t know that with certainty though. We’ll have a test of that when things next threaten to fall apart.” Regulators struggle to imagine what the shock could be, but do know that the reaction will be far different from crises of the past.

[Odd the Fed had no idea they would soon be swamped with debt obligations from mortgage backed securities after spending so much time on OTC market mechanics?]

What the Last CCP Meeting Determined (from Reuters)

Among the issues agreed upon were more automation and standardization of derivatives trade processing, and the development of a central counterparty, or clearing house, for credit default swaps, the Fed said. Central clearing houses, which backstop trades done by all participants, lower the risk that the failure of a single major market player can have a domino effect on markets and thus pose a systemic risk.

The proposals would cover a range of OTC markets, from equities, interest rates and foreign exchange to commodities. The 17 firms at Monday’s meeting represented more than 90 percent of credit derivatives trading.

Who Are Some of the US Banks?

[Two years after “problem solved” the Bank for International Settlements in March 2007 warned of the following Bear Stearns scenario.]

Glaring Weakness (BIS report)

The report concludes that, since 1998, the clearing and settlement infrastructure of OTC derivatives markets has been significantly strengthened. But further progress is needed in some areas:

• market participants should identify steps to mitigate the potential market impact of replacing contracts following the closeout of one or more major participants.

In addition, as the market infrastructure moves further in the direction of centralised processing of trades and post-trade events, several issues will assume greater importance:

• providers of essential post-trade services for OTC derivatives should provide open access to their services and should aim to achieve convenient and efficient connectivity with other systems

Markets for OTC derivatives are generally are less liquid than markets for exchange-traded derivatives, and traditional procedures for a CCP to handle a default may not be effective. When a participant defaults, the CCP terminates all of its contracts with the defaulting participant. The traditional procedures for handling a default, which are used by CCPs for most exchange-traded derivatives, call for the CCP to promptly enter the market and replace the contracts, so as to hedge against further losses on the open positions created by termination of the defaulter’s contracts. But if the markets for the contracts cleared by the CCP are illiquid, entering the market may induce adverse price movements, especially if the defaulting participant’s positions are large. Consequently, the application of traditional default procedures to illiquid OTC contracts may entail significant risk to the CCP.

Prime brokerage is a service offered by banks and broker-dealers to buy-side investors (typically hedge funds), and is built around financing funds’ positions and facilitating clearing and settlement of their trades. Traditionally, prime brokerage involved financing and securities lending services used by market participants taking long or short equity positions. Over time, the services extended to fixed income and foreign exchange markets. Most recently, a form of prime brokerage known as OTC derivatives prime brokerage has been developed and marketed almost exclusively to hedge funds.

Potential Fallout From a Fed Driven CCP (from RGE Monitor’s London Banker)

One such plan that strikes me as worrying is a master plan for reforming global OTC derivatives markets toward a single central counterparty (CCP). The planners are the big institutions that provide leadership to these markets – the New York Fed and its core constituency of top tier derivatives dealers. They have been meeting for some time, at least four occasions that have been disclosed, and are now rolling out their plan for centralized clearing of OTC derivatives.

One doesn’t have to be a conspiracy theorist to see that it is sensible for this small coterie to plan and execute a long term strategy that promotes their collective self-interest. It stands to reason that they would rather be more powerful than less powerful, more profitable than less profitable. It is not unreasonable to suggest that one means of preserving power and profits requires imposing “solutions” to each “crisis” that institutionalize their influence over markets they dominate.

Tim Geithner, president of the New York Fed, is the godfather of this plan. Geithner recently hosted a meeting for the chosen seventeen shareholders of the CCP at the New York Fed to push the plan into realization, setting a deadline for proposals of July 31st that leaves no scope for opposition or alternatives.

While I am happy to concede that there are real risks that are unaddressed in OTC derivatives markets, I am less happy to embrace a solution which would institutionalize huge power to manipulate these markets in the hands of banks which are themselves core dealers and prime brokers in these markets, accounting for 90 percent of trades.

If these seventeen banks, or a smaller subset of these banks, were to collaborate rather than compete, then they would be in a position to manipulate prices, manipulate credit, manipulate leverage, and manipulate margin calls for every traded commodity and every market counterparty. That would allow them to dictate who gains and who loses over time in these ill-transparent and under-regulated markets. If that manipulation were only exercised periodically and unpredictably, they would have very little risk of ever being challenged, investigated, prosecuted or sanctioned.

Think of the possibilities if such infrastructure were in unscrupulous hands. A target country would find their export commodities devalued until their resources were sold at bargain prices to the “right” multinational owners. A target counterparty would find their credit constrained at just the time when margins were raised or collateral devalued, making them a takeover patsy at a knockdown price and guaranteeing a swift profit to the lucky acquiror.

The Geithner CCP proposal strikes me as mandating a casino where the seventeen dealers at the seventeen tables own the casino, control credit, control the odds, control the deal and can determine who wins and loses. If your only choice is to go from one rigged dealer-owned table to another rigged dealer-owned table run under common management, that isn’t much of a choice.

Sources:

More CCCP Than CCP – Danger of a Rigged OTC Casino
by London Banker
Jul 11, 2008
NY Fed: dealers, regulators agree on OTC reforms
Reuters
Mon Jun 9, 2008 6:06pm EDT
Calm Before and During a Storm
New York Times
by Jenny Anderson
February 9, 2007
ISDA 23rd Annual General Meeting
International Swaps and Derivatives Association, Inc.
Vienna
April 15-17, 2008
New Developments In Clearing And Settlement Arrangements For OTC Derivatives
Committee on Payment and
Settlement Systems
Bank for International Settlements
March 2007
Insider Trading in Credit Derivatives
Viral V. Acharya and Timothy C. Johnson
May, 2005
Pass the Parcel-Credit Derivatives
The Economist
January 18, 2003
Testimony of Gary J. Aguirre, Esq.
Before the United States Senate Committee On The Judiciary
June 28, 2006
http://www.ny.frb.org/aboutthefed/orgchart/geithner.html

President Meets with Working Group on Financial Markets

Fact Sheet: December 2007 Marks Record 52nd Consecutive Month of Job Growth

“I had quite a fascinating and productive meeting with the President’s Working Group on Financial Markets, chaired by Secretary Paulson. I want to thank the members for working diligently to monitor our capital market system, our financial system. And while there is some uncertainty, the report is, is that the financial markets are strong and solid. And I want to thank you for being diligent. This economy of ours is on a solid foundation…”

What is the Working Group on Financial Markets?

Executive Order 12631 — Working Group on Financial Markets

By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:

(1) the Secretary of the Treasury, or his designee;

(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;

(3) the Chairman of the Securities and Exchange Commission, or his designee; and

(4) the Chairman of the Commodity Futures Trading Commission, or her designee.

(b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.

Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:

(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and

(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.

Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.

(b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.

(c) To the extent permitted by law and subject to the availability of funds therefor, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.

Ronald Reagan
The White House,
March 18, 1988.
[Filed with the Office of the Federal Register, 11:23 a.m., March 21, 1988]

Treasury’s War Room

These quiet meetings of the Working Group are the financial world’s equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government’s reaction to a crumbling stock market would have a critical impact on investor confidence around the world. (Fromsom)

In fact, as Ambrose Evans-Pritchard of the U.K. Telegraph notes, Secretary of the Treasury, Hank Paulson has called for the PPT to meet with greater frequency and set up “a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis. The top brass will meet every six weeks, combining the heads of Treasury, Federal Reserve, Securities and Exchange Commission (SEC), and key exchanges.”

“The government has a real role to play to make a 1987-style sudden market break less likely. That is an issue we all spent a lot of time thinking about and planning for,” said a former government official who attended Working Group meetings. “You go through lots of fire drills and scenarios. You make sure you have thought ahead of time of what kind of information you will need and what you have the legal authority to do.”

In the event of a financial crisis, each federal agency with a seat at the table of the Working Group has a confidential plan. At the SEC, for example, the plan is called the “red book” because of the color of its cover. It is officially known as the Executive Directory for Market Contingencies. The major U.S. stock markets have copies of the commission’s plan as well as the CFTC’s.

“We all have everybody’s home and weekend numbers,” said a former Working Group staff member.

The Working Group’s main goal, officials say, would be to keep the markets operating in the event of a sudden, stomach-churning plunge in stock prices — and to prevent a panicky run on banks, brokerage firms and mutual funds. Officials worry that if investors all tried to head for the exit at the same time, there wouldn’t be enough room — or in financial terms, liquidity — for them all to get through. In that event, the smoothly running global financial machine would begin to lock up.

This sort of liquidity crisis could imperil even healthy financial institutions that are temporarily short of cash or tradable assets such as U.S. Treasury securities. (Fromsom)

[This might explain the often seen cash infusion, or massive buying of index futures, after 2:30pm.]

According to John Crudele of the New York Post, the Plunge Protection Team’s (PPT) modus operandi was revealed by a former member of the Federal Reserve Board, Robert Heller. Heller said that disasters could be mitigated by “buying market averages in the futures market, thus stabilizing the market as a whole.”

Some Say the PPT Doesn’t Exist (from John Mauldin)

Every time the market drops and then “mysteriously” rallies, knowing individuals look at each other and nod, seeing the handiwork of the PPT.

Let’s say it straight out. The plunge protection team does not exist. It is an urban myth. Let me step by step prove it does not exist, and see if we can learn something in the process.

Art Cashin, of CNBC fame, and one of the real veterans of the markets, who has seen it all, wrote me the following very clear thoughts:

Trading desks do arbitrage program trading for a fraction of a percent on a trade. Any attempt by the Fed to manipulate the market would just make a lot of money for hedge funds and trading desks.

The amounts of money required to attempt such a manipulation would be huge. We are talking tens of billions of dollars if there was a true collapse going on. The collective size of the trading community in the world (hedge funds and “prop” desks – a prop desk is a proprietary desk for an investment bank or broker-dealer) is in the multiple hundreds of billions. It would require the willingness to lose billions of dollars every time you took the plunge, so to speak.

If the Fed or Treasury or some slush fund did buy stocks, it would inject liquidity or more total money into the financial system or money supply. Since the Fed openly manipulates the money supply every day in transactions that everyone can see, in order for the Fed to hide the activity of the PPT, they would have to take out liquidity by selling treasury notes. Otherwise, the numbers at the end of the day or week would not add up, and someone would notice. But if they were taking out liquidity and the money supply did not go down, then someone would know something was up. You can’t hide these numbers, unless you can get a lot of clerks at the Fed and elsewhere to agree to lie.

[Maybe not a lie. As Spock once said, "An omission." They stopped publishing M3 in March 2006. This is three years after Mauldin called it a myth.]

How To Hide PPT Action (from Mike Whitney)

This may explain why the Federal Reserve mysteriously decided to stop publishing its M-3 report. Since the Fed is the “main resource” for buying averages in the futures market “the money is injected into markets via the New York Fed’s Repo desk, which easily showed up in the M-3…. Without the useful resource of M-3”, Robert McHugh, Ph.D.says, “we need to find other tools to monitor when the PPT is likely to intervene, and kill shorts.”

What PPT Action Looks Like (from Minyanville)

Wall-Streeters and the media have called those who claim the government intervenes in the stock market ridiculous. They’d better. If it were ever found out that Washington does intervene in the market, all remaining confidence in the integrity of markets would be lost.

Tuesday morning in Europe when UBS (UBS) announced it would write down $19 billion and Deutsche Bank (DB) made similar pronouncements, both stocks were down big and the market was indicated much lower. That was the same day Lehman Brothers (LEH) was supposed to sell $3 billion in preferred stock to raise much needed capital. Imagine Lehman trying to get that deal done in such a messy tape.

Then all of a sudden those stocks began to turn. Along with the market, they closed higher on the day. Futures steadily rose all morning and methodically ended at the highs of the day. U.S. stocks saw one of the biggest rallies of the year. LEH not only got its deal done, but the stock rose so much the firm decided to grant another $1 billion in stock to its most loyal and secret investors.

It’s all highly convenient things turned out this way. The markets went from potential disaster based on fundamentals to a rip-roaring rally just when the government and banks needed it. It’s also highly suspicious.

But the pundits don’t do a very good job of debunking all the ancillary evidence of such intervention. Their main argument is that there’s no way to hide stock market buying by the government. That argument is very flimsy; there are many ways to hide it.

How about all these “loans” the Federal Reserve is making to dealers. There could easily be an arrangement that looks like a simple loan but in fact indemnifies the dealer from losses on any assets purchased with the proceeds of the loan. Just look at the deal the Fed made with JPMorgan (JPM) in buying Bear Stearns (BSC).

The Fed said it was taking control of $30 billion of a BSC portfolio, but not buying those assets, as currently the 1913 Federal Reserve act doesn’t permit such an action. However, the Fed is the the residual claimant, so it’s apparent it effectively has equity even if it won’t admit it. Overall, the Fed appears to be using any legal or structural manifestations necessary to accomplish what it wants to do despite what the Federal Reserve Act actually permits it to do.

How To Stage A PPT Bull Run

The editors of the New York Times summarized the feelings of many market-watchers who were baffled by this odd recovery:

“The torrent of bad news on housing is only worsening, with a report yesterday that new home sales for January had their steepest slide in 13 years…Manufacturing has already slipped into a recession, with activity contracting in two of the last three months. How is it then that investors took Mr. Bernanke’s words as a “buy” signal?”

Robert McHugh, Ph.D. has provided a description of how it works which seems consistent with the comments of Robert Heller. McHugh lays it out like this:

The PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline; need to be prevented by a rally already in flight. To get that rally, the PPT’s key component — the Fed — lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer’s account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop. These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today’s prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy — and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, and sidelines money from Hedge Funds, Mutual funds and individuals’ rushes in to join in the buying madness for several days and weeks as the rally gathers a life of its own. (Robert McHugh, Ph.D., “The Plunge Protection Team Indicator”)

According to Michael Edward: (“The Secrets of the Plunge Protection Team” Rense.com)

“Since 911, there have been at least three major long-term stock market rallies. In all 3 instances, when the markets opened all the indexes began to quickly plunge. In each incidence, by early afternoon the markets were brought back from the brink of collapse to the surprise of everyone, including historical analysts….An event that should have sent markets spiraling downward was the Enron, et al, unprecedented corporate accounting scandals. Yet despite this, an unprecedented across-the-board markets rally began on July 24, 2002. Once again, the European Press called it a ‘PPT rally.’”

The Danger of Free Market Intervention

Edward goes on to say that outside the US it’s “no secret” that the market is being manipulated. He cites an article in the UK Guardian on 9-16-01 which states, “that a secretive committee… dubbed ‘the plunge protection team’… is ready to coordinate intervention by the Federal Reserve on an unprecedented scale. The Fed, supported by the banks, will buy equities from mutual funds and other institutional sellers.”

Kenneth J. Gerbino put it like this in his recent article “The Big Sell Off” on kitco.com:

Latest figures from the Bank of International Settlements: $8.3 trillion of real money is controlling $313 trillion in derivatives. That’s 38 to 1 leverage. These figures are just for the over – the – counter derivatives and do not include the global exchange traded derivatives in currencies, stocks and commodities which are another $75 trillion.”

“$8.3 trillion of real money is controlling $313 trillion in derivatives!”

This illustrates the sheer magnitude of the problem and the economy-busting potential of a miscalculation. That’s why Warren Buffett calls derivatives “financial weapons of mass destruction.” If there’s a fire-sale in hedge funds or derivatives, there’s nothing the Plunge Protection Team or the Federal Reserve will be able to do to stop a meltdown. The market will crash leaving nothing behind.

Conclusion (from Bob Chapman)

Treasury securities are also used to fuel the Fed’s repo pool which is used to power the PPT’s market manipulations by making tens of billions of dollars available on a moment’s notice. The Fed creates money out of nothing to buy treasuries from the primary dealers, who then use the sales proceeds to fund the operations of the President’s Working Group on Financial Markets which assists the elitists in stealing from you on a 24/7 basis. The dealers offer to buy these securities back from the Fed within a month or less in what are called repurchase agreements. Thus, this “funny money” is shoveled back and forth from the Fed to the primary dealers and from the primary dealers back to the Fed as needed whenever the Illuminati deign that financial assistance for manipulation of markets is needed.

Treasuries are therefore the engine which drives this fraudulent scheme, a scheme that is completely illegal because the authority granted in Reagan’s Executive Order creating the PPT is exceeded beyond all belief in what one day will be exposed as the greatest abuse of financial power by US government officials in the history of our country. Because of this blatant illegality, Buck-Busting Ben and Hanky Panky Paulson deny that the PPT does anything but meet occasionally to brainstorm pending issues.

Sources:

Executive Order 12631 — Working Group on Financial Markets
March 18, 1988
Stock Market Manipulation – The secret maneuverings of the Plunge Protection Team (PPT)
by Mike Whitney
The Key To All Market Analysis
by Bob Chapman
July 5 2008
President Meets with Working Group on Financial Markets
Market Manipulation Under Veil of Secrecy?
Minyanville
Apr 03, 2008
Plunge Protection Team
by Brett D. Fromson
The Washington Post
Sunday, February 23, 1997; Page H01
NYSE Announces Third-Quarter 2008 Circuit-Breaker Levels
June 30, 2008
http://www.nyse.com/press/circuit_breakers.html
The Plunge Protection Team
by John Mauldin
April 05, 2003

May you live in interesting times
May you come to the attention of those in authority
May you find what you are looking for
-Ancient Chinese Curse

This is part one in series of articles that will explore the big picture and drive towards the purpose behind the “crisis” in the financial world. Our goal is to better understand how we are being manipulated, marginalized, and controlled. These theories need polish so please be patient with me as I dig for the truth.

Deregulate and Crash

So what is the truth behind the global market meltdown? We are approaching the end of the monetary system as we know it. All our hard work and belief in laws designed to protect us and our savings have been compromised, deregulated, and sold to the benefit of a few corporations. Think Enron for banks. Remember Senator Phil Gramm from our last story? He’s the guy who deregulated California’s energy trading market which put PG&E into bankruptcy. Thousands of people’s retirement money was vaporized. He has done the same thing to the banking industry. Even more retirement money is being destroyed right now.

Logic dictates the needs of the many outweigh the needs of the few or the one. However, this is not true for people in the Elite ruling class. They own you.

The mainstream media will not discuss the root cause for several reasons. One, their job is to protect the illusion of a democracy that supports a free market economy. Two, the media is owned by corporations benefiting from wage slavery. Three, truth can lead to civil disobedience en masse and there are not enough FEMA detention centers for that. If you are not aware of these facilities please look it up. The government can legally use the US military to arrest you and detain you.

Working hypothesis (to be further explored):

• Crisis has been engineered to monopolize the global free markets.
• Crisis has been used to push fascist legislation through the US Congress.
• The Treasury Secretary has unprecedented power with no oversight or transparency.
• A group with connections to the Bilderbergs and Council on Foreign Relations is working to centralize world currency and banking.
• Our fiat money system is near systemic collapse as the US dollar approaches a reserve valuation of $0.00.
• All major outstanding US debts are being nationalized.
• The goal is to nationalize all debt, create a vehicle to service the debt, then destroy the vehicle.
• *That vehicle could be the US Federal Reserve System.

Who Are the Puppet Masters?
Here are some key members of the Bilderbergs managing the US credit crisis (from the Official 2008 Bilderberg Participant List):

Alexander, Keith B. Director, National Security Agency
Bernanke, Ben S. Chairman, Board of Governors, Federal Reserve System
Daschle, Thomas A. Former US Senator and Senate Majority Leader
Geithner, Timothy F. President and CEO, Federal Reserve Bank of New York
Gigot, Paul Editorial Page Editor, The Wall Street Journal
Graham, Donald E. Chairman and CEO, The Washington Post Company
Paulson, Jr., Henry M. Secretary of the Treasury
Rice, Condoleezza Secretary of State
Rockefeller, David Former Chairman, Chase Manhattan Bank
Rose, Charlie Producer, Rose Communications
Schmidt, Eric Chairman of the Executive Committee and CEO, Google
Wolfowitz, Paul Visiting Scholar, American Enterprise Institute for Public Policy Research

Listen to a BBC story on the group.

The point of highlighting these individuals is to show key players who are compromised and leveraged. They had foresight of the impending collapse, are on record for being warned about it, and have kept silent. This is key to understanding why the collapse was engineered and for what purpose.

Like a game of musical chairs banks are being removed from the party and soon the music will stop. The failure of the current banking system could be used as a reason to enforce a new global regulatory body. This body might be a reincarnated version of the Federal Reserve System with greater centralized power. The Fed was initially created in secret meetings by powerful old money families at Jekyll Island, just like the Bilderbergs met in secret last June.

This type of future should conjure images of Orwell’s 1984, Bladerunner, and Minority Report. We all have the authority to stop this. We don’t deserve to be owned by a banking corporation that uses our own money to subvert our civic freedoms.

How Far Can a Dollar Go?

There is a theoretical ceiling on debt and leverage that can be entered into the money supply. Many banks traditionally are supposed to maintain a 10% reserve. For example (from Wikipedia):

Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the change in excess reserves of $90 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000), e.g.$100/0.10=$1,000.

The solution presented to Congress is to exacerbate this problem by creating more debt, which can theoretically lead to complete failure. I’m not a banker or economist, so please help enlighten me if this is wrong.

This is a great review of the history of US currency:

Where is Money Going?

Our current fiat money system is based on scarcity which has created competition, greed, and war. If it is designed to fail it won’t matter where you put your money. Gold ownership can also be outlawed, as it was with the Gold Confiscation Order:

It required all persons to deliver on or before May 1, 1933 all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of Executive Order 6102 was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. Because of this forced immediate sale of gold to the Federal Reserve at the government set price of $20.67 per ounce, this Executive Order is often referred to as the Gold Confiscation of 1933. Shortly after this forced sale, the price of gold from the treasury for international transactions was raised to $35 an ounce; the U.S. government thereby devalued the U.S. dollar by 41%. This price remained until August 15, 1971 when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus abandoning the gold standard.

The system could finally crumble along with mass disillusionment. People will then realize all their time and effort securing money, or a safe future, was completely futile.

Please watch the following documentary. It’s one of the best you’ll ever see. Zeitgeist Addendum beautifully explains how money is created and the critical flaws of this system:

In the long run this could be the greatest thing to happen to modern civilization. It could lead to the end of wage slavery. Or it could lead to a stronger police state. It probably won’t happen this year or next year, but we’re closer than we’ve ever been. Ending the debt-based monetary system depends on the overall consciousness of the world’s citizens.

People have to wake up and stop enabling the system. Every $1,000 in your bank account is leveraged into $10,000 to build out the US Empire. People need to stop blindly supporting the military. The US no longer has a citizen army. Think Vietnam dissention. We have what Noam Chomsky calls, “A mercenary army of the disadvantaged.” This army is key to an expanding empire. The Elite will not allow citizens to interfere with global monopoly. Watch the Battle in Seattle for proof. The Elite will soon push for the Amero or some other form of credit, which will lead to a more aggressive police state.

The Future for US Citizens?

We haven’t seen any serious bankruptcies yet, which should eventually come in waves as all the credit/debt unwinds. We might see this in a few months. The media is ignoring this very real possibility. It is the Fed which is preventing massive bankruptcies. How long can their shell game continue through artificial support of a corrupt monetary system?

When more people realize how they have been abused by a system that is run by an Elite class, at the expense of the majority, they will demonstrate.

Here is how a local government recently prepared for peaceful protesters:

The “Battle in Seattle” WTO Ministerial Conference of 1999: