Vigilant Investor

On top of explaining the how’s and why’s, Paul asks the valid question: why don’t we ask those who predicted this was coming with near exact prescience to provide us the solution?

Who predicted this? Those with an understanding of the Austrian School of Economics, like Ron Paul and your editors here at Vigilant Investor.

Note Bernanke’s wiggly answer on fighting inflation — defining inflation as prices rising vs. the printing of money. Absent is any acknowledgment that stock and bond prices are massive beneficiaries of inflation.

JPMorgan Chase & Co. became the biggest U.S. bank by deposits, acquiring Washington Mutual Inc.’s branch network for $1.9 billion after the thrift was seized in the largest U.S. bank failure in history.

Customers of WaMu withdrew $16.7 billion from accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said late yesterday. WaMu’s branches will open today and depositors will have full access to all their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said on a conference call.

This is really no surprise to anyone.  WaMu has been in an identifiable death spiral for well over a year, during which its stock price plummeted 95%.  About 6 weeks ago the sign of desperation was visible in its comparatively high CD rates vs. its competition — always a sign of desperation (let that be a warning to you!).  It was facing $19 billion mortgage losses.  When it’s credit rating was dumped to junk, that was it. At seizure time, its stock traded after hours at 45 cents.

The bigger news is that David Bonderman of private equity group, TPG, just lost its $2 billion cash infusion from earlier this year.

On the other hand, JPMorgan just bought a ton of bank branches for its new bank holding structure on the cheap.  With bailout in the air, it would seem the House of Morgan (at least 1/2 of it) is still alive and well, thriving through collapse, buying assets on the cheap — living up to its historic reputation.

Another sobering interview from Marc Faber. Marc was one of the few who predicted this mess was coming years ago, and he was laughed at by others supporting the mainstream view that all was well.  Don’t buy the excuse “nobody saw this coming.”  It’s folks like Faber who should be listened to for solutions to this crisis, not the boneheads who 1) didn’t have a clue it was coming;  2) participated in its creation; and 3) are now claiming to have all the answers for how to fix it when the fixes look more like a) what caused the problem; and b) that the FIX is in!

Bank depositors don’t have to care one wit about how their deposits are managed, at least so long as they run their accounts under the $100,000 FDIC guarantee per bank.  After all, the FDIC has never failed to honor a claim, so there’s no need to worry for them.

Taxpayers, on the other hand, had better watch out.  Already banks with $42 billion in assets have failed this year.   Some analysts believe by the end of 2009, about 100 U.S. banks will fail at a cost of more than $800 billion.

Weep for the taxpayer.  This is the moral hazard Congress bestowed on him back in 1934 when the FDIC was created.

Anyone who caught even a sliver of yesterday’s hearings in the U.S. Senate on the proposed Treasury bailout of the mortgage-backed securities market knows that the current financial crisis is far from over. Suddenly all sorts of previously unthinkable catastrophes seem possible.

The total collapse of the global financial system is one thing — everyone at Davos in January saw that coming. But the shrinkage of the Goldman Sachs Group Inc. bonus pool is another. Whatever else the Treasury achieves it must know that if the employees of Goldman suffer any sort of pay cut, it will be judged to have failed. And our country may never recover… Continue Reading »

Here’s a list of material worth a review in today’s news. Continue Reading »

Rogers is always worth listening to… He’s another one of the few sober enough to see the problems nearing long before they imploded.  True enough, bailouts don’t solve the real problems — they make them worse by throwing good money after bad.

James Grant is perhaps the best fixed income guy around.  He’s one of the few who called this fiasco before it happened, so let’s see what he’s got to say about one of our biggest worries: the future of the dollar in the eyes of foreign lenders:

CRITICS of the administration’s Wall Street bailout condemn the waste of taxpayer dollars. But the taxpayers aren’t the weightiest American financial constituency, even in this election year. The dollar is the world’s currency. And it is on the world’s opinion of the dollar that the Treasury’s plan ultimately hangs…

No other nation ever had it quite so good. Before the dollar, the pound sterling was the pre-eminent monetary brand. But when Britannia ruled the waves, the pound was backed by gold. You could exchange pound notes for gold coin, and vice versa, at the fixed statutory rate.

Today’s dollar, in contrast, is faith-based. Since 1971, nothing has stood behind it except the world’s good opinion of the United States. And now, watching the largest American financial institutions quake, and the administration fly from one emergency stopgap to the next, the world is changing its mind… Continue Reading »

One thing is for sure: When it comes to the exceptionally profitable partnership between big banking (investment, corporate or retail) and government, a system that allows the benefits of printing money out of thin air to be bestowed onto the select few, its beneficiaries will always fight tooth and nail to avoid being correctly fingered as the real cause behind the massive economic distortions and collapses such money printing causes.  (Also known as booms, bubbles, and busts.)

Hence, bogeymen and scapegoats are needed to deflect blame for the inevitable consequences of inflationary central bank monetary policies.   Ironically, the financial sector beneficiaries of the massive amounts of easy money that kicked off this bubble imbibed so heavily that they grew exceptionally drunk and reckless with their profits.  That helped create perhaps the most massive distortion ever on the back of the real, genuine economy, which was still struggling from prior distortions in previous cycles, such as the dot-com extravaganza 10-years ago.  That the collective accumulation of parasitic, phony economic activity should collapse is a welcome sign — a sign that the host is finally shaking off the waste so it can get back to productive growth.  Unfortunately, given the severity of the situation, the productive economy is being dragged down along with the phony one.  Much like a cancerous tumor, the phony economy has grown its own capillaries deep into the healthy tissue of the productive economy, and it will be painful process cleansing the healthy economy of malignancy, enabling genuine growth to once again take place.

But the pain is already obvious.  The dislocations were already clear on Main Street, where the compounding malignancies (which also include a deteriorating business and tax environment thanks to other government meddling) had crippled the manufacturing sector (sending it offshore), creating the Wal-Mart model as the most efficient.  In its wake are massive, wealth wrecking deficits.

Collapsing along with it all is the value of the most important asset most American families own: their homes.  That’s now being followed by their 401k values.  Being asked to foot the bill for an $800 billion bailout of the financial sector, let’s just say the rabble have been roused.  Rasmussen polling shows only 7% of Americans think the currently proposed Wall Street bailout is a good idea. Many are angry with Wall Street and Washington for allowing this to happen, although we might argue their anger is already well deflected toward the symptoms rather than the deeper, root problem deserving 95% of the blame.

Hence, let’s take a look at where that anger is being deflected, and why that’s missing the point.  Here’s a list of scapegoats being lined up to take the blame, with explanations for why you should not be sucked into believing they are the cause of our problems when, in some cases, they are actually part of the solution!  Continue Reading »

From where will the money come?

This one’s been circulating around the emails of Wall Street.

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH
A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS
HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800
BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE
MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY
REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU
MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT
IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE
FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN
THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER
SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A
RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE
FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT
NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO
WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION
FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND
WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT
THE FUNDS.
YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

Faber hits the nail right on the head.