Just then the ship took a slight but definite plunge – probably a bulkhead went – and the sea came rolling along up in a wave, over the steel fronted bridge, along the deck below us, washing the people back in a dreadful huddled mass. Those that didn’t disappear under the water right away, instinctively started to clamber up that part of the deck still out of water, and work their way towards the stern, which was rising steadily out of the water as the bow went down. It was a sight that doesn’t bear dwelling on – to stand there, above the wheelhouse, and on our quarters, watching the frantic struggles to climb up the sloping deck, utterly unable to even hold out a helping hand.”
-Charles Lightoller, Second Officer aboard Titanic

Nearly 100 years ago to this very month the unthinkable happened. The “ship that could not be sunk” did so in such a manner it tore the very fabric of reality. Shortcuts were made in the design to maximize profits. These shortcuts were known to the men responsible for the tragedy. Some had warned about the doomed ship, but they could not be heard over the trumpets extolling its historic soundness. Such is the way of man.

Warning Before the Cruise

Trying to figure out what the financial end game is, beyond simple Armageddon, is probably impossible. Right now many conflicting issues don’t make fundamental long-term sense. This is a very complicated maze. However, being lost inside while searching for enlightenment seems a worthy task.

So here we are today, facing such a disaster on a scale unimaginable to people living in 1912. Once again shortcuts known to the men responsible will cause pointless deaths. That’s right, people will die. After Argentina’s 2001 financial crisis a gross majority of the country’s dead were children. Not unlike the Titanic’s third-class kids.

One of the most poignant aspects of the Titanic’s sinking was how the band played on until the final end. This is such a fitting analogy for several reasons. The first is the ship was redesigned down to minimum regulations. This did not leave enough life boats for every man, woman, and child. Secondly, many of her passengers refused to accept the fact the ship was sinking. Keep this in mind as we walk through reports of how badly damaged our financial behemoth is, and how poorly it is regulated (see story).

Much of what you’re about to read is complicated. So complicated it goes beyond the means of this lone author. This story has been sitting for weeks, not knowing exactly how to tell it. Please be patient and sort through it as you may.

Today’s Iceberg

We are on the cusp of another critical seizure in capital flow. An event that might sink the ship. If one of the major banks, or someone like Greece (who is on the verge of bankruptcy), becomes insolvent we’ll see a domino effect of collapses. There was a digital run on the banks last September which nearly froze the credit system. Liquidity is so tight now another run has even greater probability of breaking the system. There is more and more debt chasing fewer and fewer real dollars. Current policy makers believe there is no ceiling to short-term debt creation, baring a collapse. Their formulas tell them the Fed can print money indefinitely, because the Fed is ultimately capitalized. Others are convinced we will learn what the ceiling is before this decade is out.

The Titanic sinking took 2h:40m. The well informed passengers didn’t know for over an hour. Half the critical period was spent in denial. Our financial ship is crippled, but still making power. We all know it has been fundamentally damaged. What we don’t know is the crew jumped ship with the best life boats. Meanwhile we’re up on deck listening to the music play. This is beyond criminal. And most of the unfortunates are stuck down in steerage with no way out. History shows the ship was doomed to sink no matter what was done. If not that year, then another. The lesson learned was how to save the people. Maybe this info will help you save someone.

Where is the Liquidity

One of the logic traps is trying to figure out who is responsible for the system failing. A shark infested waters theory makes it nearly impossible to determine which predator struck first. Did the Fed engineer this. Did prime brokers manipulate the Fed first. Was there collusion to whip every last dime out of debt slaves. Who knows. Let’s look at what we do know, which they thankfully publish in plain sight.

Liquidity is to the capital markets what oil is to an engine. The engine is running out of oil. Even PPT Mobil 1 has performance limits. Here are some of the mechanical issues. Who else is watching the volume seize up on SPY, DIA, and the Qs? These are fundamental stocks with fundamental volume issues.

A lack of liquidity is one of the underlying reasons volume is leaving equity markets.  Liquidity is what gives us an orderly market less prone to price shocks, gap opens, and blatant manipulation.  Margin calls, collateral requirements, risk, and uncertainty has taken much of that liquidity away. Funds have blown up, prime brokers don’t exist in the same space anymore, and capital has made an exodus out of equities into derivatives. Money is moving out of the regulated markets into the unregulated markets. It is lack of regulation on insane amounts of leveraged credit that brought us here.

Thanks to Zero Hedge for their amazing investigative work:

The Capital Markets Liquidity Index subcomponents:

• The Capital Markets US Treasury Bill Index CPMKTLTBI
• The Capital Markets Short Term Large Certificates of Deposit Index CPMKTLCD
• The Capital Markets Commercial Paper Index CPMKTLCP
• The Capital Markets Agency Discount Notes Index CPMKTLDN
• The Capital Markets Banker’s Acceptance Index CPMKTLBA
• The Capital Markets Short Term US Treasury Bond & Note Index CPMKTLTBO
• The Capital Markets Short Term US Federal Agency Index CPMKTLTA
• The Capital Markets Short Term US Corporate Investment Grade Bond Index CPMKTLCBO

Goldman Monopoly

GTM’s (prior story) on how the tri-party repo system works is critical to understand. Since many of the banks funding that system are gone, or incapable of funding, one big shark is left in the lagoon–Goldman Sachs. How do you trade a market when a single entity controls a large and growing share of the daily volume? Goldman Sachs is running about one out of every ten trades on the NYSE.

The FINANCIAL — The New York Stock Exchange, a subsidiary of NYSE Euronext (NYX), on April 9 released its weekly program-trading data submitted by its member firms. The report includes trading in all markets as reported to the NYSE for Mar. 30-Apr. 3.

The data indicated that during Mar. 30-Apr. 3, program trading amounted to 32.6 percent of NYSE average daily volume of 3,343.7 million shares, or 1,089.0 million program shares traded per day.

“Program trading encompasses a wide range of portfolio-trading strategies involving the purchase or sale of a basket of at least 15 stocks,” NYSE reports.

In all markets, program trading by member firms averaged 3,389.9 million shares a day during Mar. 30-Apr. 3. About 32.1 percent of program trading took place on the NYSE, 0.8 percent in non-U.S. markets and 67.1 percent in other domestic markets, including Nasdaq, NYSE Amex and regional markets.

Goldman Sachs is one of 15 major program trading participants. This is one of many examples of GS increasing their stake in a shrinking space. Their principal program purchases of 850 million shares representing 81% of all traded shares, more than half of all NYSE reporting firms principal trades. Program trading accounts for 33% of all NYSE daily volume, and GS runs 30% of those trades.

Dark Pools and Iceberg Orders

That was just Goldman’s share of program trades on a regulated exchange, which doesn’t reflect the vast unregulated market. Dark pools have roughly 10% of all shares traded in the US cash equities market. Dark pools are not public markets. It’s a method to match trades outside of the public eye, and also do what would be illegal transactions in a regulated market. They can be used to reduce market impact when trading large orders. Dark pools of liquidity became very popular prior to the 2007 market top. Firms with buy ratings on stock XYZ could dump shares with little impact. Imagine how important they are today in an illiquid market. Dark pools are also used to game the public market. Trades like iceberg orders can show a 10,000 block sale as a 100 block print.  Read about the basics here.

Guess what bank holds the #1 spot in the dark pool arena? Goldman Sachs and their Sigma X pool, which transacted 156.3 million shares in February 2009. All the dark pool numbers in this data are single-counted. Morgan Stanley recently complained about market participants overestimating dark pool volumes–not so. February had a record number of dark pool transactions. This makes sense in a less than liquid public market doesn’t it. Of that record volume GS controls 15% of it. More evidence of Goldman Sachs having monopoly advantage in a wounded illiquid market. Predators like Goldman need equally skilled competitors to maintain balance of the system. Last summer GTM suggested this might happen (see story). The “crash the market to monopolize it theory” holds more water now.

Where Reality Sinks

As of last December, there is $1,400T (yes that’s quadrillion) sitting in interest rate swaps, mostly split between N. America ($775T) and Europe ($555T). This OTC market dwarfs the cash equities market. It’s hard finding exact global market figures, but NYSE Euronext is $31T. They move more than one third of global stock volume. The regulated U.S. stock market is roughly 2% of the size of the unregulated global derivatives market.

The picture is a decent representation of just how massive the unregulated derivatives market is.  It is not properly scaled for 2009, which is more akin to the Titanic next to a dingy.  Not only is this market massive, it has been growing at a reckless pace, is highly leveraged (over 400:1 in many cases), and is extremely complex.  Critics say the total 2008 derivatives markets value of $1,566,655 billion is misleading, because the number is notional.  Meaning it isn’t real money, but credit agreements between two parties where the principal is never exchanged.  Wasn’t that what AIG was doing in a perfectly safe manner?

Can we also assume a good chunk of those swaps are waiting for the Fed to raise rates? If this is true, we’re in a very precarious situation. On one hand the Fed has to print money until the end of days, and on the other roughly 75% of the world’s total liquidity is trading swaps on the rates. Note: This is a rough educated guess based on BIS numbers.

Some of the big boys in derivatives are using it to play catchup in lieu of their massive recent losses in equities.  The risky trades AIG was doing are still going on. And they’re being placed at an accelerated rate. Some are looking for a slam dunk when rates go back up.  That is not a guarantee and there is a ridiculous amount of levered credit expecting this to happen.

Also, the tri-party repo system has broken down. This might be the prime reason of lower intraday stock market volume, and what appears to be institutional abandonment of index ETFs like DIA/SPY/Qs.  The main entities which loaned money for margin trading, like JP Morgan, are in collections mode. It’s possible the Fed has run out of capital or the need to fund temporary open market operations. These funds are often used to trade index futures. The lack of TOMO activity this year is very curious. The PPT might be fundamentally ineffective for now. Then again they are not necessary during stock rallies. Time will tell.

Life Boats and End Times

Read Deepcaster’s summary of the shadow banking system for new doors to open and explore. You will be in shock. Seeing the actual numbers is madness. JP Morgan had $91 trillion in derivatives as of Sept. 2007. What do they have now after taking on Bear Sterns, which was naked shorted into oblivion before they could offload much of anything.

Each American household owes $455,000 on the U.S. National debt of $53T (pre-TARP). What’s the math on $1.5Q divided into massive global job loss, rampant inflation, and a doubling of the money supply every four years? How does a system that functions purely off the backs of debt slaves work when the slaves stop earning or can’t pay their debts? This feels like a mega tsunami is just offshore. And the guy who works the monitoring station got hit by a bus.

The financial industry is fundamentally doomed. Anticipate a large scale event that uses shock doctrine to control and manipulate people’s minds. Since WW II the ability to master groups and make them susceptible to brainwashing has been perfected. A massive bank collapse could be the catalytic event used to marginalize and control societies in a new direction.

Part 2 Thoughts

Last week John Stewart interviewed Elizabeth Warren. She is the Harvard Law professor (and bankruptcy expert) who chairs the Congressional Oversight Panel for TARP. Stewart asked, “So in your mind the banks don’t see this as a come to Jesus moment?” Watch the show and maybe you’ll be curious about when that day will come.

The next installment in this line will cover the Fed and their manipulation of “free market” liquidity. We’ll explore TOMO/POMO funding, gold manipulation, and PPT charts. There is a way to use TOMO data to go back in SPY volume and say, “See! This is where they pumped money into the market.” It is very time consuming, but it will be done.

Sources:
Greece on the Verge of Bankruptcy
By Manfred Ertel
BusinessWeek April 7, 2009
Why Some Dark Pools Are Increasing Their Volumes
By Nina Mehta
Traders Magazine March 13, 2009
OCC’s Quarterly Report on Bank Trading and Derivatives Activities
Fourth Quarter 2008
Market Intervention, Data Manipulation Still Accelerating
http://news.goldseek.com/GoldSeek/1214722800.php
http://www.finchannel.com/index.php?option=com_content&task=view&id=34403&Itemid=2
http://www.bis.org/publ/qtrpdf/r_qa0903.pdf#page=108
http://www.nyse.com/pdfs/PT041609.pdf

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. -Sir Winston Churchill 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. -Wen Jiabao 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 Treasuries, 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. (NY Times)

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 3rd biggest one-day decline 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 Frontline. These are shill journalism 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. (Guardian UK)

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

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 its 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 Inside the Meltdown:

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 (a great read):

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

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 The Federal Reserve is Bankrupt 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

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 Bilderberg, Council on Foreign Relations, and Trilateral Commission 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 David Rockefeller, Sr. 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 “internationalists” 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 shock doctrine 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 Sons of Liberty 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 closed session seven times since 1825. The most recent closed session was held on March 13th of 2008 to discuss classified details of the Foreign Intelligence Surveillance Program during debate on the Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2008.

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 Posse Comitatus Act. 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 Army Times:

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 Picture of the Year.

Sources:

China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries
The New York Times March 13, 2009
CBS newsman’s $70m lawsuit likely to deal Bush legacy a new blow
The Observer, Sunday 28 December 2008
Ben Bernanke’s Greatest Challenge
Fed Chairman Discusses Recession, Financial Rescues And Recovery In Wide-Ranging 60 Minutes Interview
March 15, 2009
The Federal Reserve is Bankrupt
How Did It Happen and What are the Ugly Consequences?
by Matthias Chang
ACLU on the U.S. Army’s domestic deployment
Monday Oct. 27, 2008
As America Collapses US Government Secret Plans Revealed
Posted by indglass on May 21, 2008
BofA CEO Lewis: Bank Will Not Need More TARP Funds
By: Maria Bartiromo, Anchor | 06 Feb 2009
http://www.marketwatch.com/news/story/paulson-meet-us-bank-heads/story.aspx?guid={C3A179AE-940F-44DB-B3E5-434EFC87D1EA}
http://www.pbs.org/wgbh/pages/frontline/meltdown/etc/script.html
https://www.gpcresearch.ml.wallst.com/common/emaillink/pdf.asp?SSS_33E1CD86723A60F4C774F41FC5F2027E&pdf=pdf/Bernanke_buys_bonds.pdf
David A. Rosenberg
Brigade homeland tours start Oct. 1
Army Times, Sep 30, 2008

What is infuriating to many people is the SEC’s response to being called out by Ackerman.  They deflect, diminish, and claim executive privilege. Their response makes perfect sense when one understands the SEC is in bed with those who are gaming the system.  What’s also upsetting is this is a rerun.  The Senate met exactly one year ago to talk about the same issues! Last year GTM published two pieces from SEC whistleblower Garry Aguirre:

How Manipulators Game the Market

Our Engineered Meltdown: SEC Evidence

After having watched this video consider the following.  There is evidence of foreknowledge the crisis management team knew a crash was coming and allowed it to happen.  Gary Aguirre was fired from the SEC (right after a promotion) while investigating John Mack, just prior to his CEO appointment at Morgan Stanley.  This is an excerpt from one of his letters to the Senate.

Gary Aguirre memo to Senate Banking Feb. 13, 2008

Courtesy of: InvestigatetheSEC.com:

Re: Hearing on the of State of the United States Economy and Financial Markets

Dear Chairman Dodd and Ranking Member Shelby:

As the current credit crisis unfolds, investors and the public must rely upon your Committee to uncover its causes and scope. Your hearing on Thursday, The State of the United States Economy and Financial Markets, offers an opportunity to question those regulators who are responsible for protecting the capital markets from this evolving crisis. I respectfully submit there are two key questions that penetrate to the core ofthis crisis:

1) Why did counterparty discipline fail?

2) Why did the SEC stop an investigation three years ago that could have averted the subprime crisis?

I will try to put these questions into sharper focus with the context below.

Where is the SEC?

Over the past two months, the Wall Street journal, the New York Times, Reuters, CNBC and Forbes have all asked a single question: where was the SEC on subprime debt? Significantly, three years ago, the SEC was conducting an investigation that could have averted the subprime crisis. The investigation focused on Bear Stearns’ evaluation of subprime debt, the core issue in the current crisis. The investigation reached a point where Bear Stearns was told it would be charged. Then, for no known reason, the investigation was switched off. A recent Wall Street Journal article suggests that the effective prosecution of the Bear Steams case might have averted the subprime crises.

The Bear Steams investigation is stunningly similar to the SEC investigation of Pequot Capital Management which I headed. Like Bear Steams, the Pequot investigation appeared to be advancing towards a filing. Like Bear Steams, senior SEC management decided to halt the investigation. Like Bear Steams, the SEC was later forced to focus on the underlying abuse, but only after that abuse grabbed media attention. In Bear Steams, the underlying abuse was overvalued subprime debt. In Pequot, the underlying abuse was widespread insider trading by hedge funds.

We know why the Pequot investigation was stopped. According to a joint report by the Senate Judiciary and Finance Committees, a major investment bank, Morgan Stanley, retained an influential attorney who intervened at the highest level of the Division of Enforcement to stop the investigation. The two Senate committees concluded that senior SEC officials gave preferential treatment to a member of Wall Street’s elite and then fired the lead investigator (me) when he questioned that decision. None of the senior SEC officials who derailed the Pequot investigation were ever disciplined. Was the Bear Steams investigation stopped in a similar way? Did another influential attorney, hired by Bear Steams, place a call to a high-level official at the SEC?

Your Committee has oversight jurisdiction of the SEC. The SEC’s mission is to protect the capital markets and investors. It had a chance to protect the capital markets from the current subprime crisis three years ago, when it was investigating whether Bear Steams overvalued subprime debt. Why did the SEC call a halt to the Bear Steams investigation? Who made that decision?

Sincerely,

Gary J. Aguirre

Many of us right now want to be “realistic” and believe the financial system will correct itself. The optimist in us, with a lifetime of programming, thinks things will get back to normal. The market will right itself over time, like it always has. The truth is our financial system has been so fundamentally damaged we will never return to what we once thought was normal. Watch the following three documentaries and you’ll better understand why this is true.

Reliance on Foreign Capital
Before we get to the films I’d like to expand on a few ideas to ponder while you watch. One is reliance on foreign capital. During the election the issue of the United State’s reliance on foreign oil was hammered over and over. None of us heard scripted speeches on the reliance of massive foreign capital. A reliance that drove Americans to fight England and its corrupt banking system in the American Revolutionary War. Guess what country is #1 in external debt right now. So how did the US fall so far of the path of its national heritage?

Part of it is blind disregard to fundamental systemic threats. The threat of $150 oil has been well known for decades. Only once $150 oil became a reality was the threat real. Do we have to wait for a total collapse of the global financial system in order to deal with a $53 trillion U.S. national debt. Many people want to know, “How can this be happening to the richest country in the world?”

Here’s one theory. In 1972, during his first year as director of the Council on Foreign Relations, Zbigniew Brzezinski wrote:

Nation state as a fundamental unit of man’s organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state.

Just How Much Money Can They Print?
The documentaries do an amazing job of explaining how money creation works. Everyone knows the U.S. Treasury has been printing money 24/7 for years. What no one really knows is just how long they can add dollars to the system. What is the ceiling to debt creation? Fundamentally, there is a limit based on bank reserve requirements. Also, print too much and hyperinflation enters the system.

During one of the financial crisis grill sessions Congressman Ron Paul asked Chairman Bernanke:

So my question boils down to this. How in the world can we expect to solve the problems of inflation, that is the increase in the supply of money, with more inflation?

Here is a possible answer. The U.S. Treasury with the backing of the Federal Reserve and World Bank are on the path to bailout the entire system. For the U.S. the plan is: Nationalize all debt that is a systemic threat or go bankrupt. The Fed is on the verge of eliminating minimum bank reserve rates. So basically taking them from 10% to 0%. We touched on this issue in a prior story.

Theoretically when 10% of a bank’s credit is held in reserve there is a limit to how much they can loan. When this rate goes to zero there is no limit. The final stop is thus bankruptcy. So this means an all or nothing push to preserve the fiat money system backing the dollar. It’s rally or fail time.

Films and Quotes
The following three videos do a masterful job at explaining the banking system. They explain how fiat currency works, how a reserve banking system functions, and the problems with these systems. Included are some amazing quotes from each film. Look for future articles here at GTM about the Bank of International Settlements and some more solid numbers addressing the theory of “Rally or Fail.” This concept will be expanded upon for sure!

Video Number One: I.O.U.S.A.
Made by David Walker / Jan. 2008

“Many are starting to ask: Where would the U.S. Government turn if it needed a bailout?”

“The only issue that is more severe than this would be the idea that an Islamic fundamentalist would get his or her hands on a nuclear weapon and use it against us. Beyond that there is nothing that is more severe than this. This issues represents the potential fiscal meltdown of this Nation. And it absolutely guarantees, if it’s not addressed, that our children will have less of a quality of life than we had. That they will have a government that they can’t afford.” -Sen. Judd Gregg (Senate Budget Committee)

“We are trying to consume more than we produce. We can do that in the short run, but over the long run it is of course impossible. Without savings there is no future.” -Alan Greenspan (Fed Chairman 1987-2006)

“The Vice President basically told me, ‘We don’t have to worry about deficits.’ Which I got to tell you was really a shock to me… I think we only need to look at the fate of other countries that lived beyond their means for a long time. You inevitably get into trouble. When you get extended to the point that you can’t service your debt you’re finished.” -Paul O’Neill (Sec. of the Treasury 2001-2002) [mentioned in a prior story]

“The first Baby Boomer will reach 62 and be eligible for early retirement social security Jan. 1, 2008. They’ll be eligible for Medicare just three years later. And when those Boomers start retiring in mass, then that will be a tsunami of spending that could swamp our ship of state, if we don’t get serious.” -David Walker (U.S. Comptroller General 1998-2008)

Video Number Two: Money Masters
Made by Bill Still and Pat Carmack / 1996

Prior to his death published in the NY Times:
“These International bankers and Rockefeller-Standard Oil interests control the majority of newspapers and the columns of these papers to club into submission or drive out of public office officials who refuse to do the bidding of the powerful corrupt cliques which compose the invisible government.” –Theodore Roosevelt

On the day the Federal Reserve Bill passed:
“This act establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed… The worst legislative crime of the age is perpetrated by this banking bill.” -Rep. Charles August Lindbergh

One year after the passage of the Federal Reserve Bill:
“They know in advance when to create panics to their advantage. They also known when to stop panic. Inflation and deflation work equally well for them when they control finance.” -Rep. Charles August Lindbergh

“Increased capital requirements put an upper limit to fractional reserve lending.” -Bill Still

“Our banks cannot loan more and more money to buy more and more time before the next depression, as a maximum loan ratio is now set. It means those nations with the lowest bank reserves in their systems have already felt the terrible effects of this credit contraction as their banks scramble to raise money to increase their reserves to 8%. To raise the money they had to sell stocks, which depressed their stock markets, and began the depression first in their countries.” -Bill Still [refering to Japan which we'll cover in the next article]

Video Number Three: Zeitgeist Addendum
Made by Peter Joseph / Oct. 2008

“We were seeing how very important it is to bring about, in the human mind, the radical revolution. The crisis is a crisis in consciousness. A crisis that can not anymore accept the old norms, the old patterns, the ancient traditions.” –Jiddu Krishnamurti

“Society today is composed of a series of institutions… Yet, of all the social institutions we are born into, directed by, and conditioned upon there seems to be no system as taken for granted and misunderstood as the monetary system.” –Peter Joseph

“The real deception is when we distort the value of money. When we create money out of thin air. We have no savings, yet there is so called ‘capital’.” –Rep. Ron Paul

“New money is always needed to help cover the perpetual deficit built into the system, caused by the need to pay the interest. What this also means, is that mathematically defaults and bankruptcy are literally built into the system.” –Peter Joseph

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.” –John Adams (President of the United States)

“The majority of the people in the United States have no idea that we are living off the benefits of a clandestine empire. That today there`s more slavery in the world than ever before. And then you have to ask yourself, ‘Well if it’s an empire, then who’s the emperor?’… We do have what I consider to be the equivalent of the emperor, and it`s what I call the Corporatocracy… At the very top of the corporatocracy you really can`t tell where the person`s working, for a private corporation or the government, because they’re always moving back and forth. So, you know, you’ve got a guy who one moment is the president of a big construction company, like Haliburton, and the next moment he’s Vice President of the United States.” -John Perkins

“We can either have Democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both. ” -Louis Brandeis (Supreme Court Justice)

“It’s not politicians that can solve problems. They have no technical capabilities. They don’t know how to solve problems. Even if they were sincere, they don’t know how to solve problems. It’s the technicians that produce the desalinization plants. It’s the technicians that give you electricity, that give you motor vehicles, that heat your house and cool it in the summertime. It’s technology that solves problems, not politics. Politics cannot solve problems, because they are not trained to do so.” -Jacque Fresco

“This tendency to blindly hold on to a belief system, sheltering it from new, possibly transforming information, is nothing less than a form of ‘intellectual materialism.’ The monetary system perpetuates this materialism not only by its self preserving structures, but also through the countless number of people who have been conditioned into blindly, and thoughtlessly upholding these structures, therefore becoming ‘self-appointed guardians of the status quo.’ Sheep, which no longer need a sheep dog to control them, for they control each other by ostracizing those who step out of the norm.” -Peter Joseph

What we are trying, in all these discussions and talks here, is to see if we cannot radically bring about a transformation of the mind. Not accepting things as they are! But the understanding, to go into it, to examine it, to give your heart and your mind with everything you have. To find out a way of living differently. But that depends on you and not somebody else. Because in this there is no teacher–no pupil. There is no leader. There is no guru. There is no master–no savior. You yourself are the teacher and the pupil. You are the master. You are the guru. You are the leader. You are everything! And to understand is to transform what is. -Jiddu Krishnamurti

References:
http://www.iousathemovie.com/
http://www.themoneymasters.com/
http://www.zeitgeistmovie.com/
http://abcnews.go.com/Politics/Vote2008/Story?id=3839318&page=1

Here is evidence of foreknowledge the crisis management team knew a crash was coming and allowed it to happen. This is from Gary Aguirre (SEC whistleblower see story) who was fired for investigating John Mack prior to his CEO appointment at Morgan Stanley.

Gary Aguirre memo to Senate Banking Feb. 13, 2008

Courtesy of: InvestigatetheSEC.com:

GARY J. AGUIRRE
By Facsimile or Electronic Mail

February 13,2008

Senator Christopher Dodd
Chairman
United States Senate Committee on
Banking, Housing and urban Affairs
728 Hart Senate Office Building
Washington, D.C. 20510

Senator Richard C. Shelby
Ranking Member
United States Senate Committee on
Banking, Housing and urban Affairs
110 Hart Senate Office Building
Washington, DC 20510

Re: Hearing on the of State of the United States Economy and Financial Markets

Dear Chairman Dodd and Ranking Member Shelby:

As the current credit crisis unfolds, investors and the public must rely upon your Committee to uncover its causes and scope. Your hearing on Thursday, The State of the United States Economy and Financial Markets, offers an opportunity to question those regulators who are responsible for protecting the capital markets from this evolving crisis. I respectfully submit there are two key questions that penetrate to the core ofthis crisis:

1) Why did counterparty discipline fail?

2) Why did the SEC stop an investigation three years ago that could have averted the subprime crisis?

I will try to put these questions into sharper focus with the context below.

In essence, the nation has two capital markets: one market is semi-transparent and semiregulated; the other market is opaque and unregulated. The semi transparent market appears on balance sheets. It is subject to SEC regulations requiring disclosure. It includes investment banks and public companies that regularly file SEC forms disclosing their financial operations.

The opaque market has its own players and its own playing field. The players are hedge funds-also unregulated and opaque-and the proprietary desks of investments banks. As investment banks own more and more hedge funds, their players also become unregulated and opaque. The playing field is the over-the-counter derivatives and instruments, such as subprime debt, which are off the balance sheets.

The opaque market is experiencing geometric growth. The notional value of the derivative market has increased fivefold since 2003, from around $100 trillion to over $500 trillion. Likewise, hedge funds are having the same geometric growth in assets under management and in sheer numbers. The SEC predicts the assets under managements by hedge funds will grow from $2 trillion to $6 trillion by 2015. Hedge funds currently dominate the trading markets around the world-with only $2 trillion in assets. It is hard to envision the extent to which they will control the markets when their assets grow to $6 trillion, all operating in the shadows.

Hedge funds love to play with the most dangerous forms of derivatives-credit default swaps (CDS). There are now $42 trillion in CDS. These guarantees differ little from gambling. The potential rewards for insider trading are nearly unlimited, as is the negative impact on the capital markets.

After the Great Crash, Congress enacted legislation designed to make our markets transparent. The same legislation created the Securities and Exchange Commission. As money flows from the regulated market to the unregulated market, we are now recreating the conditions that existed immediately before the Great Crash.

The investment banks and hedge funds have come up with a new principle for protecting the capital markets. It is called counterparty discipline. Translated, it means: “Trust us.” The term is tossed around as if it were natural law in the financial markets, much like gravity in the physical world. In reality, counterparty discipline is a slogan, a myth, which has been sold to regulators by investment banks and hedge funds so they can operate in the shadows without regulation.

We hear about counterparty discipline during Congressional hearings from those who wish the opaque, unregulated markets to grow. During financial crises, the same folks talk less about “counterparty discipline.” Indeed, we are only told that it “eroded” without explanation why.

In fact, the theory of counterparty discipline reverses reality. When the markets are moving upward, optimism is high. It is a cliche, but nevertheless true, that upward trading markets are driven by greed. All of our major investment banks, with the possible exception of Goldman Sachs, failed to detect that subprime debt was a time bomb. Why did counterparty discipline fail the investment banks in their moment of need? I respectfully submit this question should be posed to the three regulators who are testifying on Thursday.

Over the past two months, the Wall Street journal, the New York Times, Reuters, CNBC and Forbes have all asked a single question: where was the SEC on subprime debt? Significantly, three years ago, the SEC was conducting an investigation that could have averted the subprime crisis. The investigation focused on Bear Stearns’ evaluation of subprime debt, the core issue in the current crisis. The investigation reached a point where Bear Stearns was told it would be charged. Then, for no known reason, the investigation was switched off. A recent Wall Street Journal article suggests that the effective prosecution of the Bear Steams case might have averted the subprime crises.

The Bear Steams investigation is stunningly similar to the SEC investigation of Pequot Capital Management which I headed. Like Bear Steams, the Pequot investigation appeared to be advancing towards a filing. Like Bear Steams, senior SEC management decided to halt the investigation. Like Bear Steams, the SEC was later forced to focus on the underlying abuse, but only after that abuse grabbed media attention. In Bear Steams, the underlying abuse was overvalued subprime debt. In Pequot, the underlying abuse was widespread insider trading by hedge funds.

We know why the Pequot investigation was stopped. According to a joint report by the Senate Judiciary and Finance Committees, a major investment bank, Morgan Stanley, retained an influential attorney who intervened at the highest level of the Division of Enforcement to stop the investigation. The two Senate committees concluded that senior SEC officials gave preferential treatment to a member of Wall Street’s elite and then fired the lead investigator (me) when he questioned that decision. None of the senior SEC officials who derailed the Pequot investigation were ever disciplined. Was the Bear Steams investigation stopped in a similar way? Did another influential attorney, hired by Bear Steams, place a call to a high-level official at the SEC?

Your Committee has oversight jurisdiction of the SEC. The SEC’s mission is to protect the capital markets and investors. It had a chance to protect the capital markets from the current subprime crisis three years ago, when it was investigating whether Bear Steams overvalued subprime debt. Why did the SEC call a halt to the Bear Steams investigation? Who made that decision?

Sincerely,

Gary J. Aguirre

CC: Members of the U.S. Senate Committee on Banking, Housing and urban Affairs.

1 Michael Siconolfi, Did Authorities Miss a Chance To Ease Crunch?–SEC, Spitzer Probed
Bear CDO Pricing in ’05, Before Backing Away, Wall S1.J., Dec. 10, 2007, at C1.
2 Id.; Gretchen Morgenson, 0 Wise Bank, What Do We Do? (No Fibbing Now), N. Y. times,
January 27, 2008, at 1; Karey Wutkowski, SEC Chief Awaits Final Senate Report on Pequot,
Reuters News, February 9, 2007; http://www.cnbc.com/id/22706231/site/14081545/; and Liz
Moyer, Credit Crisis: Where Was The SEC? Forbes.com, Feb. 6,2008. Available at
http://www.forbes.com/2008/02/05/ sec-cmos-banking-biz-wall-cx 1m 0206sec.html.
3 Michael Siconolfi, Did Authorities Miss a Chance To Ease Crunch?–SEC, Spitzer Probed
Bear CDO Pricing in ’05, Before Backing Away, Wall S1.J., Dec. 10,2007, at Cl.
4Id.
5 Senate Report No. 110-28 (2007), at 684 Available at
http://finance.senate.gov/sitepages/leg/LEG%202007 /Leg%20 110%20080307%20SEC.pdf.

One story you will not see in the major media is how and why J.P. Morgan and Goldman Sachs might be the only ones left standing. That’s assuming JPM and MS merge back together. It was the Glass-Steagall Act which broke them up, but thanks to incumbent agenda and Phil Gramm that’s no longer an issue since it was repealed in 1999.

Morgan Stanley’s CEO is John J. Mack. Due to his White House connections he is now in position to lead Morgan Stanley through a period of financial turbulence which was planned for and anticipated by a select group of insiders.

GTM posted in June Gary Aguirre’s whistleblower testimony about Mack (from Wikipedia and MarketWatch):

Aguirre said that he was fired from the SEC on September 1, 2005 because he was aggressively pursuing the investigation and wanted to interview Mack about the findings. According to Aguirre, his efforts to talk to the politically well-connected Mack were blocked by senior SEC officials. This allowed Mack enough time to secure his position as CEO of Morgan Stanley. Had he been investigated in mid 2005 by the SEC, Mack would not have been a viable CEO candidate for Morgan Stanley.

This is stuff that gets people shot, like the O.K. Corral. Our theory is a market crash has been orchestrated or organically allowed to happen. Read our story on the OTC market and you can clearly see how safeguards were prevented by the New York Fed. Like a good ‘ole Western shootout the hedge funds are the ranchers and the large banks are the money men. Some will be sacrificed, but the key families/banks will remain in play. You get the ranchers to kill each other off then snap up their property. Compare the stocks of JPM/MS and GS to the other financial players.

Read our three most popular articles and you will be able to see who is pulling the strings and why they knew this would happen. When you dig into the history of the main players you will find a common thread of prime relationships: social, financial, and political.

For instance, Hank Paulson was Chairman/CEO of Goldman Sachs and on the board of governors of the International Monetary Fund which is closely tied to the Rockefellers who have the Rockefeller Center at Dartmouth where Paulson went to school. They also owned Chase Manhattan Bank which merged with JPM after Phil Gramm paved the way. They sit on the Senate Finance Committee and have guys like Timothy F. Geithner of the New York Fed in their personal think tank called the Council on Foreign Relations.

Guess what corporations sit on that board? That’s right, Goldman Sachs and JPMorgan Chase.

If you’re interested in solar power and free energy you’d be pleased to know General Electric and Big Oil are there too. See our story on who is gaming the solar market.

Like the late great George Carlin said, “It’s a Big Club, and you ain’t in it.”

The point is nothing happens by accident, so be mindful of what you are officially sold as the truth.

The following snippets are from GTM’s three most in-depth articles. Please read the stories and connect the dots for yourself.

Front Running A Systemic Market Crash: PPT Style (posted in July)

“$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.

How Manipulators Game the Market (posted in June)

There are roughly 400 key hedge funds linked to illegal activity. In total 11,500 hedge funds have $1.2 trillion under management. Overall, it’s not a big chunk of change. However, that money has a very high cycle rate. Hedge funds execute up to 50% of the daily trading on the $21 trillion 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.

Using Crisis To Monopolize Fed Control (posted in July)

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.

How to Rig Shareholder Meetings

Is it wise to buy and hold corporate stock long term? Here is an example of how the system has changed. This is evidence to the illusion of corporate democracy.

The following story was reported by Bloomberg. In 2005 the Securities Transfer Assoc. audited 341 NYSE listed companies that had corporate contests. It was looking to see how naked short selling, which creates counterfeit shares called failures to deliver, influence fair voting practices for shareholders. In all 341 cases they found more votes cast than shares registered. Those ballots were stuffed full of FTDs, and the outcome of the votes were manipulated by firms holding fake shares–in all 341 cases!

This is illegal hedge fund activity sanctioned by the SEC. They fail to recognize any hedge fund fraud or manipulation against other market participants from 1979 until 2004. Recently most of the enforcement action has been PIPE cases, more on that later.

Using fake FTD shares effectively gives hedge funds a +5% stock owner interest without the requirement of disclosure. This is a crime against the retail investor on a mass scale. There have been 1,000 companies pushed over the edge in the last 10 years from these tactics.

During this time the SEC said FTDs did not exist on a large scale. They stated people who complain about naked shorting are paranoid investors who simply lost money. When Reg Sho became law the existing FTDs floating in the system were grandfathered. This was due to the SEC’s concern about “creating volatility where there were large pre-existing open positions.” The effect was to shield the illegal behavior of the firms creating FTDs. The Columbia Journalism Review discovered this and worked for six months to publish an expose. They were immediately placed under extreme pressure by Wall Street firms. Eventually one night, while in a bookstore, the author was approached and told his 4-year-old would be killed if the story ran. That was the end of their investigation and the story was killed.

Who Runs the SEC?

Much of the following information is from Gary Aguirre’s Senate testimony. He is a former SEC investigator who was fired while investigating an insider trading scheme that pointed to a US official of the “highest level.” He became a whistleblower and we can now glimpse inside the Wall Street collusion machine.

Four of the SEC’s top seven officials quit within two weeks of each other after Aguirre’s testimony. This fact was never reported in the financial press.

Prior to this scandal The Nation published a web only story about President Bush’s insider trading of Harken Energy stock:

“Bruce Hiler, the associate director of the SEC’s enforcement division, who wrote a letter to Bush’s attorney saying the investigation was being terminated, now represents former Enron president Jeff Skilling in matters before the government. Richard Breeden, the SEC chairman at the time, was deputy counsel to Bush’s father when he was Vice President and was appointed SEC chairman when H.W. Bush became President. James Doty, the SEC’s general counsel at the time, helped W. Bush negotiate the contract to buy the Texas Rangers. Bush used the proceeds of his sale of Harken stock in 1990 to pay off a loan he took out for a minority stake in the baseball team. Doty has said that he recused himself from the SEC’s two-year probe into Bush’s sale of Harken stock.”

How Hedge Funds Leverage Power

So what are some of the tactics hedge funds will threaten to kill to protect? Let’s look at the power of their leverage in the market. Mutual funds collectively manage $9.2 trillion. The bond and equity markets are more than $40 trillion. Globally, $90 trillion of financial assets are under management.

There are roughly 400 key hedge funds linked to illegal activity. In total 11,500 hedge funds have $1.2 trillion under management. Overall, it’s not a big chunk of change. However, that money has a very high cycle rate. Hedge funds execute up to 50% of the daily trading on the $21 trillion 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.

The Economist stated, “At a time when mutual and pension funds have become ever more reluctant to pay the traditional five cents a share for trades, hedge funds pay up to four times that amount if in the process they can receive good ideas or particularly effective execution.”

The SEC projects the hedge fund asset base will increase from $1.2 trillion to $6 trillion by 2015. 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.”

How to Time the Markets: You Cheat Is How!

Most people are familiar with insider trading, and how unfair it is to retail investors. “This species of fraud has an easier target and a far greater potential to disrupt the capital markets. Its victims have no connection with the hedge fund. They are random victims. Much like the victims of a sniper, they never knew what hit them,” says Aguirre.

The United Kingdom’s Financial Services Authority states “insider trading is now institutionalized” because of the flow of tips from investment banks to hedge funds. The FSA “had uncovered signs of insider dealing at almost a third of British M&A deals, with possible culprits including traders at hedge funds and investment banks.”

A great example is the recent failure of Bear Sterns. The Tuesday prior to BSC’s collapse of Monday March 17^th, the stock was trading at $65. A single entity purchased 30,000 put options at the $30 strike. A total of 55,000 put options traded at that strike for an average cost of $0.15/contract or $825,000. Contracts did not exist under $25 at that time.

These put options expired on March 20, so that left only seven trading days for a catalytic event to occur. By Friday that week BSC stock closed at $30. Then on Monday it opened at $3.18/share. The 55,000 March 30 puts cost $825,000 and netted a profit of $137.5 million in less than a week.

What many people don’t know is the massive daily collusion between hedge funds, banks, and brokers. Many of them have a relationship that allows for late trading activity.

The SEC found that 25% of brokerage companies allow late trading. Late trading occurs where a hedge fund puts in a trade after the 4 p.m. cutoff, but gets the pre-4 p.m. price. Aguirre states, “Some of those brokers who helped hedge funds pilfer mutual fund accounts were the brokerage arms of large investment banks like Bear Stearns, Merrill Lynch, and CIBC.”

According to Time Magazine, “Academics estimate that late trading costs investors $400 million a year and market timing $4 billion to $5 billion.” According to The Wall Street Journal, “[H]edge funds…reaped the lion’s share of gains from the [unlawful] trading.” In March 2005, the SEC was investigating 400 hedge funds for their participation in this scam.

Hedge funds could not skim mutual fund accounts without help. “Thirty percent of the brokerage firms the SEC surveyed helped clients mask market-timing trades, either by breaking up big orders or creating special accounts to hide identities. And 70% of the brokers said they were aware that some of their customers were timing the market.”

The PIPE Case
Over the past year, the SEC has brought three cases for a new type of hedge fund fraud that victimizes other market participants. All three involved a very specific form of insider trading. The facts follow the same pattern. A public company decides to raise money by making a private placement of its stock with the intent to register the stock a few months later. This is commonly known as a private investment in public equity or PIPE. A hedge fund agrees to purchase stock through the placement. The hedge fund also knows that the public announcement of the PIPE will depress the market price of the stock. Knowing that, the hedge fund shorts the company’s stock and covers it with the private placement for a quick and sure profit. In executing the short, the hedge fund acted on material nonpublic information and violated the securities laws.

Resources:

Corporate Voting Charade

By Bob Drummond

http://www.rgm.com/articles/FalseProxies.pdf

Gary Aguirre PBS Interview:

http://www.pbs.org/now/shows/315/whistleblowers.html

Gary Aguirre former SEC investigator. This is his whistleblower testimony:

http://judiciary.senate.gov/testimony.cfm?id=1972&wit_id=5485

If you haven’t seen Overstock’s CEO Dr. Byrne give this presentation it’s fantastic.

http://www.deepcapturethemovie.com/

George Bush and Harken Energy

http://www.thenation.com/doc/20020722/leopold20020718