US Bank Collapse?

[Dan.Linehan]

I read today that United States banks are leveraged as high as 40/1 -- 40 times the amount of fictitious money in circulation and savings as there is value in hard assets.

This will eventually lead to a banking collapse, as far as I understand it. Bear Sterns was the first domino, but a 30 billion dollar loan was granted to avert disaster. The second domino will fall within a few... weeks? Months?

Thoughts? Has anyone prepared for this? What will the collapse gap be?

[Old Soul]

Can you post your source ? is it relaible

[Dan.Linehan]

This is the source of the 40-1 leverage quote, in reference to Lehman Brothers and Bear Sterns.

I would say it is highly reliable. The article specifically calls out Bear Sterns a week before the collapse. This was written March 10th:

Shouldn’t they be eliminating their dividends to conserve capital? I'm sure that it wouldn't make many of their shareholders happy, but it would certainly allow them to stay solvent longer. In my opinion, there will be one or more (possibly many) financial institutions that go under during this credit unwind, there just can’t be enough rescue capital to keep them all from peril. To wit, when I look at the Lehman Brothers' (LEH) balance sheet and see it levered 40 to 1, I wonder how on Earth did anyone allow it to get that leveraged? Consider that Lehman has four times as many ‘Level 3 Assets’ (those that are ‘hard to price’) as it does capital. Hard to price in my book equates to ‘hard to sell’.

Perhaps the most interesting part of all of this is that Lehman recently announced a share repurchase of 100 million of its shares for a cost of $5 billion or so. At the same time, it floated a preferred stock deal at 7.95% and issued billions of dollars of new debt for itself. This occurred just as the firm's mortgage and other debt related write-downs began that will likely run into the tens of billions of dollars. In other words, rather than de-leveraging, it's adding leverage. I guess this is why my firm is short Lehman debt.

The same goes for Bear Stearns (BSC) and many others. To prove the point, what do you think would happen if Lehman and Bear were told by regulators to sell its ‘hard to price’ assets? I find it highly doubtful it would be able to sell them and hence, this leads me to question their solvency. What about the other $600 billion of assets on Bear's balance sheet? Could it sell them? Doubtful. The reason is that everyone else owns the same type of securities and the company is being instructed to sell, yet cannot.

So the ‘daisy chain ‘has started whereby when one firm is forced to sell, it must ‘mark to market’ which means everyone else who owns the same security has to mark theirs down as well. Wouldn’t one conclude that firms like Lehman should have been shrinking its balance sheet over the past year? Of course, but lo and behold, its balance sheet grew by over 30% year over year.

Bear Sterns "unexpectedly collapsed" six days later, March 16th.

[escapee]

There is nothing worry about (sarcasm), The Fed will rescue all failing banks with more free credits dumped from the sky.

The Austrian thought of economy
The War on Recession - Llewellyn H. Rockwell, Jr. - Mises Institute

So it is with the Fed. It sees stocks falling, credit markets under pressure, unemployment rising, investment falling. But rather than conclude that all these factors represent a bubble, it has the opposite response: keep the bubble inflated at all costs!

It's time that we question the very foundations of this war on recession. The recession is a regrettable but inevitable backlash against a boom that was not justified by the fundamentals.

That last phrase is the critical thing. I am not saying that the recession is the price we pay for economic growth. Boom times are fabulous times, provided that they are rooted in sound fundamentals. And what are those? Essentially it is this: the timeframe of investment must match the timeframe of society at large. If people are long-term oriented and saving money, resources become available for investment in the future. When production is completed, there are consumers to buy. But if no one is saving money and there is no sound store of capital, there are no resources to invest — unless, of course, the Fed creates that money. The money the Fed creates is wholly illusory, a fiction of investors' imaginations. It will vanish when the economy wakes up to reality.

FSU Editorial: "How Debt Money Goes Broke" by Steven Lachance 12/12/2005

The US is now in a fundamentally different position than it was in 1930 or Japan was in 1990. Aside from a dearth of domestic savings, its vulnerability is compounded by a current account deficit. There is no buffer and no margin for error. Thus, when interest charges, now $2 trillion per year and accelerating, overtake annual debt growth, now $3 trillion and decelerating, liquidation will immediately trigger cascading cross-defaults. Without domestic savings to mobilize, the Fed cannot facilitate the expansion of government debt to fill the breach and simultaneously hold down interest rates. It cannot win the battle to keep debt growth greater than interest charges, the precondition for the viability of a debt-based monetary system. Once started, cascading cross-defaults consume all debt within an economy. The Fed has only two options: institute a new monetary system with a new currency or return monetary authority to the market and shut down.

[Dan.Linehan]

Originally Posted by escapee

There is nothing worry about (sarcasm), The Fed will rescue all failing banks with more free credits dumped from the sky.

Sarcasm aside, I think most people do assume that the Fed has the ability to bail out banks when they go under. This is not the case. The Fed does not have enough assets to bail out large banks.

Here is the balance sheet of the Fed for March 20th, this week. Note the total size. Its only one third that of Citigroup’s balance sheet.

And Citigroup is just one bank among many that could fail.

[escapee]

Can't the Fed just create money ( discounted emergency loan ) out of thin air in response to possible bank runs ?

Federal Reserve System - Wikipedia, the free encyclopedia

Lender of last resort

The Federal Reserve has the authority and financial resources to act as “lender of last resort” by extending credit to depository institutions or to other entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy.

Through its discount and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals. Longer term liquidity may also be provided in exceptional circumstances. The rate the Fed charges banks for these loans is the discount rate (officially the primary credit rate).
[15]

I guess nothing will stop Mr Ben from rescuing the banks, nothing ... But will it be done at the expense of dollar and also merely inflating the bubble for a more damaging, painful and lasting future bust ? that's a big question mark ...

Ben Bernanke agreed that the Fed had made the Great Depression worse, saying in a 2002 speech: "I would like to say to Milton [Friedman] and Anna [J. Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

[Power]

This was Inevitable...

They knew it back in the 1930's, but they kept the public ignorant about it.

To illustrate what I mean.... I highly suggest you to watch this clip and you will understand how it works and you too wouldn't be surprised.

Forget all the reasons/debates because of this and that. This is the main root of the problem. Click on this link

[Dan.Linehan]

I've seen the "Money as Debt" series, great videos.

My question remains though: Has anyone prepared for this? How?

What would happen tomorrow if you woke up and all the banks were closed?

[Barcs]

^I'd be pretty happy because all of my debt would be gone.

[{aspiring_to_clarity}]

Sheila Bair, FDIC chairwoman, reassures bank customers - Mar. 24, 2008

I make no statement as to the validity of these assertions, but just for info...

[Dan.Linehan]

The Fed could try to cover bank losses by printing more Dollars, but this would result in a drastic weakening of the currency. A weak US Dollar be a precursor to the adoption of the Amero.

[Brutha]

The Fed could try to cover bank losses by printing more Dollars, but this would result in a drastic weakening of the currency. A weak US Dollar be a precursor to the adoption of the Amero.

Not really. If the US Dollar is weak and in danger of falling, Canada has no interest in having a shared currency with the US. You need a stable exchange rate to fusion to currencies.

On the other hand if the US (the genereal opinion amoung the voters) came to the conclusion that the system on which the dollar is build (debt based) is bad, that might be the reason to say goodbye to the dollar.

[escapee]

Two third of Canadian economy is tied to US, 85% of Canadian exports are going to the state. An extremely weak dollar will not be the interest of Canada. So Amero is definitely on table, A commodity backed Amero or even dollar is also a possibility when the international community loses confidence on paper. Remember country like China has a trillion of foreign reserve ( 70% - dollar ) , and they would not be very happy to trade with another worthless version of paper money should the worst happen.

China should 'pick right time' and buy gold, government economist says | Gold Anti-Trust Action Committee

BEIJING -- China should buy more gold at the right time as part of a strategy for diversifying its $1 trillion in foreign exchange reserves, a prominent government economist said in remarks published on Wednesday.

China expected to buy gold and platinum but wait for lower copper prices - International Herald Tribune

Of China's $1.3 trillion (€900 billion) in cash reserves, nearly 65 percent is in U.S. Treasurys and only 1.6 percent is in physical gold, said Bill Reynolds, investment adviser and commodity specialist with Wellington West Capital.

"This past year — rightfully so — their belief that the U.S. dollar was and will continue to devalue ... has had the Chinese government and others continuing to purchase gold," Reynolds wrote in an e-mail. "This, along with a more liberal Chinese government, which has allowed the citizens to now purchase more luxuries, such as jewelry."

The Worldwide Crack Up Boom, According to Ludwig Von Mises

Ludwig von Mises Institute - Homepage

The following is a possible outcome (the worst of all) beside the hyperdeflationary depression due to continuous weakening of dollars/paper money and rising commodity price around the world. Anyone involves in construction/ manufacturing knows that the surging of steel price has hurt the business ( including ours )

What is a "Crack-Up Boom?" Von Mises explains (with thanks to Ty Andros for reminding us):

"'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'

"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

[Lunatic]

What alot of you guys don't realize (or at least haven't mentioned) is that almost all major banks are controled by the same very small group of people. This is their way of combining them into one large bank. Not only that but those few people who are in charge of the banking system, are also pushing to get Canada, Mexico, and the United States, using the same currency.

If you do some research you will find that almost 95% of all banks in this country are run by the same group of people. They are the major stockholders, or officers in almost all banks. The board of directors of Chemical Bank are also on the board of directors on: JP Morgan Chase, Citigroup, Capital Group, Chase Manhattan, Federal Reserve Bank of New York, Exxon Mobil, Verizon, NYNEX, CBS, Federal Reserve Bank of Dallas, Federal Reserve Bank of Chicago, British Petroleum, Microsoft, Pepsi, Merck, At&t, Comcast, and there's a lot more. Too many to list.

The point to all this? These "failures" are not failures at all. This is the strategy of the very wealthy. Bear Stearns ended up selling for $60 per share less than it was trading a week before. That's no accident. It was a way for the gov't to allow a merger that it would have never allowed if Bear Stearns wouldn't have been in so much "financial trouble". Not only did they ALLOW it, they FINANCED it!

Keep this in mind also. 5% of Americans hold 95% of American dollars.

[Dan.Linehan]

Originally Posted by Lunatic

This is their way of combining them into one large bank. Not only that but those few people who are in charge of the banking system, are also pushing to get Canada, Mexico, and the United States, using the same currency.

Originally Posted by Lunatic

This is the strategy of the very wealthy. Bear Stearns ended up selling for $60 per share less than it was trading a week before. That's no accident. It was a way for the gov't to allow a merger that it would have never allowed if Bear Stearns wouldn't have been in so much "financial trouble". Not only did they ALLOW it, they FINANCED it!

I agree with everything you've said.

Buy why? What is the motivation? Why merge? Why consolidate currencies? Towards what ends?

[Jennihul]

Bushie and Dickie know the Dems are going to win this election. If there is a "recession" or a "collapse" it is a spite move on their part and don't doubt they personally have all their ducks in a row to come out on top even if they no longer rule the country/free world.

Jennifer

[SmartAlx]

Originally Posted by Dan.Linehan

I agree with everything you've said.

Buy why? What is the motivation? Why merge? Why consolidate currencies? Towards what ends?

To reconsolidate the economy so they can steal a vast sum of money from us. The great depression did not destroy any money. It moved the money from the masses to the powerful. Some of the rich sold off their stocks and bought gold. Then the market crashed and they sold their gold and multiplied their fortunes 10 or 100 fold.

Restructuring the economy would enable the rich to do this again.

Also, a common currency is the first step towards creating a North American Union, ALA EU, which would eventually take precedence over the constitution.


You have to admit it: the rich are TRYING to drive our country into the gutter. It's a power grab. They have all of the money. Now they want all of the power.

[Still Growing]

Originally Posted by Dan.Linehan

Sarcasm aside, I think most people do assume that the Fed has the ability to bail out banks when they go under. This is not the case. The Fed does not have enough assets to bail out large banks.
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And Citigroup is just one bank among many that could fail.

The Fed can print money but the question is "Should they and would they?"

Lets not forget that the Fed is owned by privately held banks that can swoop in and buy out the failed banks for pennys on the dollar and then roll the banks into their personal portofolios.

Theoretically the Fed is the backer of our currency and the shareholder banks are supposed to have the backing to support the USD. I don't see these private banks selling off their assets to prop up the US Currency.

And before you doubt the Fed is not private. Look up the Federal Reserve Act of 1913 and also on the Fed's website. They are private.

[schola]

I just finished Ron Paul's new book. He talks a little bit about money and banking at the end.

Now I am reading "The Collapse of the Dollar" by James Turk and it is very interesting so far. I recommend both books.

[Dan.Linehan]

The Megabubble is waiting for the new president in 2009 to burst.

That's the theory anyway. I hope it waits that long.


Government's 'numbers racket' is about to blow up in our faces - MarketWatch

Be forewarned: No matter who's elected president, America will soon see a massive statistical curtain pulled back, exposing a con game of historic proportions. And when that happens, you and I will suffer another ear-splitting global meltdown, bigger than today's housing-credit crisis, dragging us deep into a recession and bear market for years.

[Dan.Linehan]

One more article from yesterday on this.


Fed pause promises financial disaster

In the process, the Fed has pushed the dollar further down and accelerated inflation in energy and food prices, causing oil prices to race from US$70 per barrel to $126 per barrel, and food prices to levels that have resulted in malnutrition and riots.

Given that money policy works with a lengthy and variable lag, accelerating energy and food prices are the delayed effect of significant interest cuts and money expansion since August 2007. The indication is that inflationary expectations have become entrenched and strongly footed in world markets.

Hang on to your hats people. I hate to say it, but the collapse is coming... soon.