Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Gaza Death Cloud Hangs Over Sheffield Eid Festival 2014 at Millhouses Park - 1st Aug 14
Israels Final Solution of Turning Gaza Concentration Camp into a Grave Yard - 31st July 14
US Failure: Unintended Consequence - 31st July 14
Stock Market Breakdown! - 31st July 14
Echoes Of The Great War – Only An Echo In The Elite Mind - 31st July 14
This is Bad News for U.S. Economy and Stock Markets - 31st July 14
The Important Impact of This “Secret” Gold Agreement - 31st July 14
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Fed and Bank of England Shell Games to Bailout Insolvent Banks

Companies / Credit Crisis Bailouts Jan 18, 2009 - 11:46 AM GMT

By: Mike_Shedlock

Companies Best Financial Markets Analysis ArticleThe US banking system is insolvent. I gave 25 reasons on Wednesday, July 23, 2008 in You Know The Banking System Is Unsound When....
1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.


22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back. Many things have transpired since then. I could easily list another 25 reasons. But the fact of the matter is the insolvency can now easily be seen by anyone who bothers to open their eyes.

Washington plots next step after aid to Citigroup and Bank of America

Inquiring minds are reading Washington plots next step after aid to Citigroup and Bank of America .

Washington was last night considering fresh plans to clean up the US banking system's deteriorating situation.

In an attempt to restore confidence within the battered financial sector, the incoming Obama administration and the Federal Reserve are discussing a range of options, reported to include a government bank that would buy up toxic assets. Funded by taxpayers, the “bad bank” would buy the assets blocking the system and instead place the risk of holding them on the government.

An announcement could be made within days of Barack Obama taking office as President on Tuesday.

The news emerged after one of the most dramatic days on Wall Street, yesterday, during which the US Government threw a lifeline to Citigroup and Bank of America that could leave American taxpayers on the hook for up to $373 billion (£254 billion).

Citigroup announced that it would split itself in two, while Merrill Lynch, which was taken over by Bank of America (BoA), reported a $15.3 billion loss for the fourth quarter. BoA made its first quarterly loss for 17 years.

The drama began when the US Government acted to put a floor under BoA's plunging share price by agreeing to inject $20 billion into the group and to underwrite losses on a further $118 billion of its most toxic assets. The $20 billion injection will come from the US Government's $700 billion Troubled Assets Relief Programme and will make the Government the bank's largest shareholder, with 6 per cent. Any money that the Government pays to cover losses on the $118 billion portfolio of toxic assets that it has guaranteed will be funded separately by the American taxpayer.

Aggregator Bank Idea

Bloomberg is writing Paulson, Bair Raise ‘Aggregator Bank' for Toxic Debt .

The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders' balance sheets.

“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

“They need to do something dramatic,” said Harvard University Professor Kenneth Rogoff, a former chief economist at the International Monetary Fund. He is a member of the Group of Thirty counselors on financial matters, a panel that includes Treasury Secretary-designate Timothy Geithner and Lawrence Summers, incoming director of the National Economic Council.

The FDIC, which has authority to take “any action” with insured deposit-taking firms deemed necessary to counter “adverse effects on economic conditions or financial stability,” could also play a role.

‘Capital Cushion'

“We think by leveraging TARP funds in this way, you could have a significant capacity to acquire troubled assets,” Bair, who is set to stay on under Obama, said today. Officials could “require those institutions selling assets into this facility to contribute some capital cushion themselves.”

Call To Do "Something Dramatic"

Notice the call to do "something dramatic" by Kenneth Rogoff, a former chief economist at the International Monetary Fund. We are in this mess because Greenspan did something dramatic in 2002, namely slashing interest rates to 1% fueling the biggest property bubble the world has ever seen.

However, it was not just the Fed, that is to blame. China and Japan were in on it too, lending money to the US at ridiculously low interest rates to keep their export machines running. Congress was in on the act, willing to build bridges to nowhere and throwing money at anything that yapped for a handout.

The net effect of those actions led to the creation of bubbles in housing, commodities, commercial real estate, and consumer consumption, all of which have now burst.

Those responsible want still more "dramatic actions" to keep the bubble alive. We have already seen too many dramatic actions misfire already, including of course of course Bush squandering $trillions on a war in Iraq on grounds of weapons of mass destruction that did not even exist.

Good Bank, Bad Bank Shell Game

The aggregator bank idea is nothing more than a shell game with a twist. I wrote about such shell games once before in Super SIV Bailout Plan Doomed To Fail .

Don't Ask - Don't Sell

  • The plan boils down to this: Don't Ask - Don't Sell.
  • Don't Ask what the asset is worth.
  • Don't Sell or you will find out and not like the result.

Paulson's Super SIV idea did indeed die on the vine, in failure.

The idea now is to separate out all the bad assets and place them under one shell in a don't ask, don't sell plan, keeping the good assets in a good shell, and pretending the bad shell does not exist. The "twist" is that taxpayers will be on the hook for most of the assets hidden under the bad shell, footing the bill over time.

Somehow this scheme is supposed to inspire confidence.

World Banking System Is Insolvent

It is not just the US banking system that is insolvent. Many nations banking systems are insolvent, including the US, UK, various Eurozone countries, China, and others.

Please consider a £200bn UK Plan To Save Banks From Bad Debt

The taxpayer will be forced to underwrite up to £200 billion of bad banking debt under a government plan to take control of assets belonging to Britain's major high street lenders, The Daily Telegraph can disclose.

In an attempt to restore confidence within the financial sector, the Treasury will tell the banks of its plan on Saturday. It aims to announce details of the rescue package publicly early next week.

The bad bank plan has climbed the political agenda in the past couple of weeks as the Government has become aware of the extent of the lenders' bad debts.

Sources said that a bad bank would have to take on about £200 billion of toxic assets. That would take the Government's total commitment to solving the banking crisis to almost £1 trillion in taxpayers' money that has either been spent or pledged.

That equates to about £33,000 per taxpayer. The total sum is equivalent to more than two-thirds of Britain's annual GDP of £1.4 trillion.

As well as creating a bad bank, the Government is planning to use Northern Rock as a "good bank" which can dramatically increase lending to individuals and businesses.

Northern Rock As The Good Bank

Note the massive irony of proposing Northern Rock as the "Good Bank". Northern Rock was nationalized early in 2008, at taxpayer expense, after an examination of its books revealed a £53Billion Hole In Its Mortgage Portfolio , over 70% of that portfolio, was not even owned by the beleaguered bank, but by a separate offshore company.

Brown urges banks to come clean over bad assets

With that backdrop, on both sides of the Atlantic, Brown urges banks to come clean over bad assets .

Prime Minister Gordon Brown told British banks Saturday they must own up to the extent of their bad assets amid more reports his government could launch a fresh bailout of the struggling sector.

In a Financial Times interview, Brown did not rule out the possibility that banks could get a further injection of taxpayers' money after big names including Royal Bank of Scotland (RBS) were bailed out last year in a 37 billion pound recapitalisation.

His comments came after shares in RBS and Barclays plunged Friday after US giant Citigroup announced an 8.29 billion dollar fourth quarter loss and Bank of America got a 20 billion dollar state bailout.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," Brown told the Financial Times.

"We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with."

Officials are reportedly working on plans to buy banks' bad assets -- exacerbated by some consumers and businesses' inability to pay their debts as the credit crunch bites -- and place them in a "bad bank", or to underwrite the toxic assets.

The BBC said the government would next week announce an insurance scheme which would allow banks to pay a fee and have their bad loans underwritten by the taxpayer up to a point. The industry reportedly has some 200 billion pounds of bad assets.

Brown's Fee Scheme Ripoff

Check out that "Fee Scheme" ripoff plan of Gordon Brown. I can guarantee you upfront that if it is approved it will work something like this: For a 1-5% "fee" taxpayers will be on the hook for 95-99% of the losses.

Stop Wasting Taxpayer Money

A recent US poll shows Americans overwhelmingly say federal bailout has not been effective and majority want the government to stop providing money to banks. Please consider Americans on bailout: Stop spending

The government's financial bailout for troubled banks has not worked so far, a majority of respondents to a national poll say, and six in 10 don't want Washington to spend more money on the rescue.

Sixty-one percent of those questioned in a CNN/Opinion Research Corporation survey released Friday oppose providing more government money in the financial bailout. There are some supporters, however -- 38% said the government should provide more assistance to ailing banks and other financial institutions.

Most of the 1,245 adult Americans who were questioned for the poll were surveyed before Thursday's Senate vote to release the remaining $350 billion in the financial bailout program.

"One reason for the opposition to more money being spent may be that more than eight in 10 said that the first $350 billion of taxpayer money for the bailout didn't work," said CNN Polling Director Keating Holland. "Only 14% say that the money accomplished what it was supposed to do."

US taxpayers oppose these ripoffs, shell games, and schemes that will bail out the greedy and the incompetent at their expense. If a poll of UK taxpayers was taken, I suggest it would show similar results.

Nonetheless, Keynesian clowns on both sides of the Atlantic think they can solve these problems by squandering taxpayer dollars. It won't work for the simple reason it is impossible to spend one's way out of a crisis, when the crisis was fueled by reckless spending and lending in the first place.

The root cause of this mess is a combination of fractional reserve lending, free lunch policies in Congress (Parliament, China, etc), and unsound currencies back by nothing, coupled with micro-mismanagement of interest rates by Central banks around the globe.

Instead of addressing the root cause of this mess, governments everywhere are playing various shell games while taxpayers foot the bill.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

1776 again
18 Jan 09, 23:39
LETS FIRE THE FED ! AND THEIR BROTHERS WORLDWIDE

It's time that we realized the FED is the cause and the problem; elected officials are the front men for the shysters, who are the winners of the interest on all the debt they are creating.

That is why the Treasury and Fed and our collective government will not listen to the citizens of this country, who have enough sense to know they are being screwed. They just can't discern the ins and outs of the intricately crafted Grand Shell Game.

There is a bill of Ron Pauls' to effectively fire the FED, and we should get rid of the same shysters that have gotten rich by their duplicity and shell games in every country around the world, in concert. The central bankers around the world and the one-worlders that tie into the IMF, UN, BIS, World Bank are the masters of it all. We have been duped on a daily basis for a century, since 1913.

There is a bill of Ron Pauls' to effectively fire the FED, and we should get rid of the same crimials that have gotten rich by their duplicity and financial/political games in every country around the world, in concert. The central bankers around the world and the one-worlders that tie into the IMF, UN, BIS, World Bank, etc. are the masters of it all. They copied the first central bank of England which began in 1694; look where it has gotten the world in 2008.

History does repeat !


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014