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Learn from Geithner and Profit from the Next Big Financial Crisis

Stock-Markets / Credit Crisis 2015 May 14, 2015 - 09:41 PM GMT

By: ...

Stock-Markets Peter Krauth writes: Former Treasury Secretary Tim Geithner was as close as it gets to the epicenter of the 2008 U.S. financial crisis.

Together with Treasury chief Hank Paulson and Fed boss Ben Bernanke, he presided over the crisis at the Bush administration, which let the conflagration get out of control. He then led the Obama administration's response.

As such, Geithner allowed the country's big banks to become wards of the state (which they are to this day) that can suck up and spit out taxpayer money as they see fit. Banks can make massive bets and, if they lose, no problem – they're financed by the taxpayers.

Geithner "Fit the Shill"

Yes, Basel III and Dodd Frank and MiFID require more capital, but they're all run by regulators who will someday work for banks. Oh, speaking of which….

Geithner's policies set the lending standards that would eventually support the rapacious private equity barons who would hire him, Warburg Pincus, in a tedious example of the government-Wall Street revolving door.

But what is probably worse: he was instrumental in setting the stage for the next crisis which, in his own words, is going to happen.

You can prepare for it. But first a little background…

As a shill for the establishment, Geithner was ideal.

After being anointed an appropriately pedigreed Dartmouth grad, he was groomed by secretive consulting firm Kissinger Associates, then joined the Treasury's International Affairs Department in 1988. Later, he was an attaché at the U.S. Embassy in Tokyo, then after a couple of promotions, became undersecretary of the treasury for International Affairs under Rubin and Summers – the two men who had the most to do with the disastrous dismantling of financial regulation at the end of the Clinton years. Sadly, both of these men appear to have had considerable influence on him.

More famously and more recently, Geithner served as president of the New York Fed and vice chair of the FOMC, working to reduce the capital that banks were required to hold. He had a hand in the rescue and eventual sale of Bear Sterns, and supported Treasury Secretary Hank Paulson when he decided to bail out AIG after allowing Lehman to fail just two days earlier.

During his hearings, Geithner proved unable to pay his taxes, despite using the $50 Quicken program upon which he relied. Nonetheless, despite this clear evidence that he was unfit to oversee the Treasury and the IRS, Geithner was named Treasury Secretary under Obama, succeeding Paulson.

Today, his legacy is littered with financial roadkill.

Geithner oversaw disbursement of $350 billion of the original $700 billion of TARP bank bailout funds Congress passed. Especially controversial were bonuses paid to AIG executives after the company received over $170 billion in bailout money from the federal government.

Worse yet, banks that had AIG insurance contracts against losses were fully paid out even though the market value of those contracts was considerably lower at the time.

During Geithner's confirmation hearings, he claimed the new Obama administration saw China as a currency "manipulator," which of course is not unlike the pot calling the kettle black.

Geithner was outspoken in his opposition to extending the Bush tax cuts for wealthy Americans, thinking that they would sock away rather than spend the savings. Also, Geithner fought hard regarding the fiscal cliff to increase the 2013 debt limit, playing chicken with Republicans over their unwillingness to increase taxes on the wealthy.

But perhaps most frightening of all is what Geithner is saying lately…

Here's Your Safe-Haven Investment

CNBC recently interviewed Geithner. If you haven't seen it, it's worth the watch, if only for an accurate representation of hubris.

The way I see it, Geithner did get one thing right by saying "There's been a tremendous loss of confidence in public institutions and in government." What he fails to acknowledge is that he and his comrades were instrumental in that. He even admits that in the next crisis, the next Treasury Secretary will go back to Congress asking for several hundred billion dollars to bail out the banks.

Seven years after Geithner, Bernanke, and Co. "saved" the global financial system, worldwide debt has exploded from $142 trillion to $200 trillion.

New banking laws were supposed to protect us from "too big to fail" financial institutions, yet banks have merged to become larger than ever. And the nuclear risk of the derivatives bubble has gone essentially unchecked.

Last July, Fed Chief Janet Yellen told IMF head Christine Lagarde that regulating the shadow banking system – hedge funds, private equity, and derivatives – is "…something that is an enormous challenge." "We simply have to expect that when we draw regulatory boundaries, and supervise intensely within them, that there is the prospect that activities will move outside those boundaries and we won't be able to detect them, and if we can, we won't have adequate regulatory tools," Ms. Yellen said. "That is a huge challenge to which I don't have a great answer."

Isn't that reassuring?

In fact, risks to the global financial system have become both more numerous and more intense.

So what will the government do the next time? Will you be better prepared than the last?

Consider that the next crisis could well mean a total crash in faith in fiat money as we know it.

It's frightening to contemplate that our children and grandchildren will read and reflect on the last and the next financial crises with disdain and disgust. They'll wonder how the central planners could have allowed and even encouraged such massive bubbles to inflate, and how we allowed them free rein.

But more importantly, they'll look at the asset classes that will survive those crises, and either thank you for owning them, or wonder why you didn't. And sociopaths like Geithner will be largely to blame.

Gold remains the single best holding to provide such protection. It's the only asset that's spanned millennia to be accepted as money, without simultaneously being someone else's obligation. And for American investors, there's a way to achieve gold exposure offering instant geopolitical diversification with a single purchase. The Sprott Physical Gold Trust (NYSE: PHYS) holds gold bullion that is fully allocated and stored at a secure third-party location in Canada, subject to periodic inspection and audits.

Right now, PHYS shares trade at a -0.35% discount to net asset value. But there are other compelling reasons why PHYS is better than other gold ETFs.

  • No Middle Man: Unlike most gold ETFs, no levered financial institution stands between investors and the physical gold. This means no risk of financial loss in the event of bankruptcy or nationalization of the financial institution.
  • Lower Taxes: U.S. investors who hold shares for at least a year pay capital gains tax at a rate of only 15% versus the 28% rate for most precious metals ETFs and physical gold coins.
  • Ability to Trade in Shares for Physical Gold: Investors who hold a required minimum amount can redeem units for physical gold bullion on a monthly basis. Gold bars can be delivered by the custodian almost anywhere in the world via secure armored transport.

According to Geithner, the next financial crisis won't be like 2008. In that he's also right. It's going to be much worse.

But remember, this isn't rocket science. When the next crisis hits, gold's going to explode higher. It's simply the most solid insurance you could possibly hold. Just ask yourself if you honestly own enough of it before you, your children, and your grandchildren only wish you had.

Source :

Money Morning/The Money Map Report

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