Jim Willie: Banking System Collapse Approaches Climax


Richard Moore

 Give me enough balloons, it will fly!


Bailout Fixes Nothing, Banking System Collapse Approaches Climax

Take all your money out of the bank. Take six months living costs minimum, take small bills for food and gas purchases and large ones for rent or mortgage payments. Do not talk about it. If you have teens, don’t tell them. Do not let them see where this money is hidden. Install a dead bolt on your clothing closet and use a key. When you go out, lock bedroom door and that closet door. WHAT YOU WON”T need: ATM CARD, CHECKS. They’re extinct. LEARN the secrets of PREVENTING THEFT.

Bankers will tell you that banks are safe, you’re insured. They even volunteer
to FDIC-INSURE twice the ordinary 100k. They’ll guarantee 200k. But why they
did that was —so that you wouldn’t REMOVE that second hundred thou from
their bank, if it was in there. Fractional banking practices are such that the bank
could not give one in ten of its depositors their cash back. So you go get yours.

See the thing is, bankers lie. Not because they have a little vault full of your money.
No. But because they DON’T. They lent that money twenty ways til Sunday.
They are getting the interest from twenty other guys, maybe two hundred others,
but your money is gone. And they have lent the interest from the other twenty or
two hundred to another several hundred people. So they never had any money.
What they had was folks making mortgage payments but now the bank is out
all that. The bankers are trying to fix their cash flow problems with your life savings.
They surely would NOT tell you things are shaky cuz they DO NOT
want you to pull the money out of their vaults where it isn’t.

Bernanke stated over a year ago that the mortgage problem was
contained. At that time, he lied. He knew when he said it that he was lying
But then, he is always lying. If his mouth is moving, he is lying. 

I found this online: The bond crisis is absolute, broad, deep, and all-inclusive, enough
to kill the US Treasurys after it kills the US banking system.
The heart attack signals are with the LIBOR spreads over
UST reasurys, the money market, the TED spread (Treasury versus EuroDollar),
and short-term USTreasurys. Charts resemble heart attacks and EKG
electro-cardiogram monitors. Many details appear in the October Hat Trick
Letter report just posted. The bank runs have begun in earnest. Nevermind
the big banks for a moment. The smaller ones are entering seizures. The
small and medium sized cities are also entering seizures. Here are two
stories, one about a city and another about the bank holiday coming.
The writer went on to tell us he had a communication  from a friend in
Seattle: “I was talking to my neighbor last night. He
is in finance in the county government, King County (Seattle). He said there
are some very secretive budget talks being held, very hush, hush.
Apparently, the county has lost around $200 million of taxpayer money in
toxic paper investments , with huge implications on the budget. He says he
is not privy to the details, but he is taking a 10-day vacation starting
today, because he has nothing to do since everything is in flux.”

This from a friend in Atlanta with strong banking connections: “ Reliable
word that Bank of America branch managers just received a letter or memo
from the USFed instructing them to perhaps be ready for a one-week universal
shut-down of the banking system , including access to checking accounts,
savings accounts and credit cards. Reliable word has it that BofA bank
branches received a shipment of signs last week, reading “WE’RE SORRY, BUT

So the banks are in need of a respite, a break, a holiday. They need to
shore up their positions. Economists and bankers avoid revealing the
consequences of extended absence of short-term credit supply. Imagine all
the supply chain DELIVERY routes being interrupted for lack of short-term
credit, certain to interrupt the supply of food, gasoline, building
materials, basic household wares, simple hardware, and more. The short-term
credit would certainly also disrupt payroll streams for companies, inventory
supply for retail chains, durable goods purchases by consumers (like washing
machines & refrigerators), the maintenance of basic machinery (like cars,
trucks, computer, communications), even cash dispensed at ATMachines.

The Senate passed the Wall Street bailout bill, by a 3:1 majority. Some
sweeteners like tax cuts and raising the limit to $250k on individual
accounts for bank depositors helped. Some people might think that finally
the banking system can at last receive some meaningful fixes. Call me a
killjoy, but this will accomplish next to nothing as a banking system
remedy. It is more a paper seal to Wall Street corruption than to ANY
solution. If passed by the House, as is likely, it puts an epitaph on the
American badge of legitimacy. A decade of fraud has been underwritten,
sanctioned, and sealed. Even foreigners might smile at the new & improved
bill. Their impaired bonds can participate in the redemption process. The
only trouble is they might have to accept hot shiny USTreasury Bonds in
return, of certain questionable value.

Still the bill must be viewed as a giant paper net to catch a giant
locomotive train, one that derailed and then went over the mountainside
cliff 500 meters above and is hurtling downward with acceleration. Gravity
is a *****, and so is momentum! One should not doubt for a second that it
will do much to halt the downward trajectory. One should remember that debt
solutions accomplish nothing in providing remedy for debt abuse and damage
inflicted by broken debt contraptions. Nothing is fixed, only accounts have
been shifted and names have been changed. THE BANKING SYSTEM PROCEEDS ALONG
ITS OWN CLEARLY DEFINED PATHOGENESIS, with great momentum and power, which
no human devices can interrupt. The next shock will be why the bill has not
fixed the banking system as Mini-Fuhrer Paulson claimed it would. The other
next shock is why Wall Street will need another $700 billion within a year.
The other other next shock is how much the AIG and Fannie Mae “INVESTMENTS”
a la nationalization will each cost the USGovt conglomerate an unexpected
extra $trillion. The bailout yesterday enables Wall Street executives to
retire more comfortably, even as some seek asylum or face exile.

The irony of the lifted depositor insurance is that big financial
conglomerates can now raid the private accounts worth over $100k now, with
government coverage in the bankruptcy courts. The October Hat Trick Letter
contains some multi-sided evidence of USFed open license to use subsidiary
accounts toward the aid of liquidity strains. What constantly leaves me
shaking my head is how intelligent people continue to attribute fair
spirited motives to the system, when it resembles a crime syndicate more
each year. The reason why it resembles one is that it IS a crime syndicate
operating under the USGovt roof. There are three crime syndicates operating
under the USGovt roof, the others identified in the report this month. Each
has had a profound financial effect on the nation, as in killing its host .

One can make a fine balanced and credible argument that the Fannie Mae
bailout package represented an aggregate parallel of the simple Trenton New
Jersey home loan fraud. The parallels are argued, with conclusion being the
USGovt bailout was tantamount to abandonment by the mafia gangsters, who
walked away from the $250k loan on the $50 crack house dilapidated property.
Parallels are disturbing, as Wall Street and USGovt players fill out the
example carried to the aggregate. The other Fannie Mae fraud is the simple
bond certificate counterfeit, just plain paper printing without bother of
Wall Street involvement. That fraud helped to run up the total Fannie Mae
fraud past the $1 trillion mark. Given the sleazy guys who ran Fannie Mae,
and all the protection run for it by politicians averse to reform, the fraud
was quite easy. Who would want to question a shiny Fannie bond, a device
which powered the great housing boom?

A new role seems to have come to the Federal Deposit Insurance Corp. They
are the newest brokers on Wall Street, the new investment bankers, raiders
true to the name. They do not protect depositors any more than Christopher
Cox at the SEC protects stock investors. The FDIC has minimal funds, most
likely co-mingled with the USTreasury anyway, just like the Social Security
Trust Fund. The measly $45 billion lying around in the FDIC fund would not
cover more than one or two decent sized banks, or one Washington Mutual or
one Wachovia. So what does Sheila Bair do in response? She defends Wall
Street, avoids liquidation by dead banks, and steers them to the JPMorgan
chop shop and slaughterhouse. A great arbitrage results, as JPMorgan obtains
bond assets for nothing, and can sell them to a stupid captive customer, us

In doing so, several things happen:

• JPMorgan obtains the entire corporate asset kit & kaboodle for next to

• deposits are used to help the JPM asset ratios

• bond assets can be sold to the USGovt bailout fund

• senior bond holders for the dead banks are screwed, receiving a pittance

• dangerous credit derivatives are placed in the JPM Garbage Can

• the Wall Street Consolidation Plan continues.

The Big 3 Banks are JPMorgan, Citigroup, and Bank of America. Just how on
earth can Citigroup even consider acquiring Wachovia? Buy it with what?
Citigroup is insolvent. That does not stop the Wall Street firms from
spreading their cancer. Besides, King Cox has a plan, to remove ‘Mark to
Market’ asset accounting rules. Poof! The US banks are solvent again. Only
trouble is they become Walking Zombies. Couple this desperate policy change
with short stock restrictions, and the Third World Finances label fits even
better, from lack of credibility. The new Wall Street I-Bank is on the
scene. The modern FDIC might make Michael Milken proud, the junk bond king
from Drexel Burnham. By the way, he only served two of his ten years in
prison. Wall Street does have its privilege. The Wall Street investment bank
model is dead & buried, with the door slamming shut by Goldman Sachs
changing its coat to read bank holding company.

The group likely to initiate lawsuits is the senior bond holders to the
broken banks. They should have entered an orderly procedure led by the FDIC.
They face ruin when they should salvage something. The FDIC sets up banks to
be raped. The label of pimp is too generous and connotes too much respect.
To think that Sheila Bair at the FDIC is being praised for her leadership
lately is enough to make a bond holder vomit. These mergers are nothing but
disguised ‘Chop Shop’ rapes. At least the FDIC receives fees. JPMorgan
donated $1.9 billion to the FDIC cause. By the time the dust clears after
the locomotive crashes, three giant hollow monoliths were be standing, a
tribute to Manhattan, in the Big 3 Banks. Their glass and aluminum fittings
might be in much better shape than the World Trade Center though. It is
doubtful that they possess any gold bullion in basement vaults. Let’s hope
the third of these buildings does not suffer a structural sympathy, only to

Clearly they are AIG with its raft of Credit Default Swaps, and Fannie Mae
with its raft of mortgages and their bonds. Fannie also has a scad of
Interest Rate Swaps. As explained in past Hat Trick Letter reports, the
quarterly bills payable to JMPorgan and Goldman Sachs might be considerable
on these swaps. The USGovt swallowed two really big ugly hairy hungry
tapeworms, that will possibly each cost an extra $1 trillion in unplanned
expenses. Actually, my guess is the figure might be conservative. A year
ago, when clowns like Bernanke and harlots on Wall Street were estimating
the entire mortgage fiasco would result in $100 to $200 billion losses, my
figure was $1.5 to $2.0 trillion. As the time bombs go off, they will do so
in dribs & drabs, actually giant dribs & giant drabs. The costs will take
esteemed senators in the august body of the USCongress off guard.

An interesting thought came to me tonight as the Senate Bailout Bill was
written. Actually, more sinister than interesting. The Fannie bill, the AIG
bill, and the Wall Street omnibus bill might have been greased by private
bribes. Imagine the hefty $138 billion paid to JPMorgan by the USFed,
ostensibly from counterfeit Dept of Treasury hotmoney, during the Lehman
Brothers failure and confusion, approved by Bankruptcy Court judge James
Peck in Manhattan, all executed in pre-dawn during the weekend. Sorry,
wanted to paint the background accurately but succinctly. If the 74 senators
were each given $2 million in a basic traditional bribe, located safely in a
Cayman Island account, then the total cost to JPMorgan would only be $148
million, in the neighborhood of 1 part in 1000 on that disgusting
under-the-table handout of $138 billion. It makes good business sense in a
day and age when rules mean nothing, when preserving the system is
paramount, especially when BS bylines can be spouted about helping the
common man.

Those talking perpetual campaign managers known as USCongressional members,
they like to talk about “the fact of the matter” a lot, as thought they have
some innate ability to recognize facts. Here are some facts. A broad and
deep run is occurring on US banks, small, medium, large. Banks rely upon
deposits and bank equity (stocks and bonds) to supply themselves with
capital. The bank runs strip banks from their ability to continue
operations, at a time when their stocks have cratered. Stock price declines
of over 70% and 80% are common, the norm, not the exception. Insolvency plus
illiquidity means bankruptcy, without benefit of time extensions. As
Meredith Whitney (the intrepid bank analyst from Oppenheimer) said in a
recent interview, “There are a ton of regional banks that also face a
similar predicament.” She correctly forecasted much bank distress, and
expects a flood of FDIC activity to deal with failing banks.

Europeans have also lost respect for the US financial leadership, public
statements having been made by the German Finance Minister Peer Steinbrueck
to the effect that the United States has lost its geopolitical leadership
mantle. A powerful reversal in investment flow endangers the US bond
markets. Private flow of money resulted in the movement of $92.9 billion out
of the US in July, after $46.8 billion entered the nation in June. A
profound new trend is in place, whereby the three major continents of North
America, Europe, and Asia are bringing home money. With a US budget deficit
easily eclipsing the $1 trillion mark this coming year, demands for
USTreasury sales will be left wanting, as USTBonds will be left on the
table. The money printing machines will be the main recourse, as US$
monetary inflation will enter at least one and maybe two new gears in higher

Either way, foreign US$-based bondholders face big losses. The
nationalization demands will quickly force the issue of USTreasury Bond
default. Bear in mind that now 52.7% of USTreasury debt is held by
foreigners, and that proportion is fast rising. At yearend 2007, a hefty
$9.4 trillion in US$-based securities were in foreign hands, as in liquid
assets, easily divested. Risk to foreigner reserve accounts grows. They
recognize their risk of becoming bagholders of greatly damaged debt paper.
Amidst this pressure and isolation, the US Federal Reserve might simply
resign its contractor position with the USCongress. After all, their balance
sheet is decimated. It is not unlimited. It does have creditors.

The gold price will respond, as the USDollar faces a trashing. On the other
side of this storm, characterized paradoxically as a USDollar rally at a
time of truly devastated fundamentals, the USDollar will get trashed. To
this end, a shocking admission came from New York City mayor Michael
Bloomberg. He is a bit of a maverick, speaking his mind. He actually stated,
“The next cause for concern in the battered US economy is whether there will
be buyers abroad for the nation’s billions in debt.”


The US Dollar is at extreme high risk. Since its bounce in July, behavior
is erratic, volatile, and fully dependent upon central banks and market rule
changes. The US$ money supply had been steadily growing at a 15% growth
rate, give or take. Expect it to surpass 20% soon, and the US$ to reflect
the debased currency from a flood of supply. The United States will be the
first nation to cut interest rates, from desperation financially and
economically. Other nations will eventually follow, but not right away. The
effect few talk about regarding the mammoth nationalization and bailouts
underway is the powerful jump in price inflation, along with currency
debasement. Both are inevitable, sure to lift the gold price in powerful
steps. The isolation of the US in geopolitical circles, the utter shock at
failed leadership witnessed the world over, the widely perceived national
bankruptcy will translate into shunned USTreasury auctions and outright
divestment of US$-based assets. The only buyers will be central banks. The
USDollar is at very very very high risk of serious declines, exactly like
the US stock markets.

A trump factor has entered the room. THE US DOLLAR & GOLD WILL SOON RESPOND

The Wall Street bailout bill fixed nothing in bank system structure and integrity and function, as problems remain intact —tragically. The United States controls the world reserve currency in the USDollar. In Hat Trick This late summer, my analysis stated that gold must make a difficult transition from an anti-US$ trade to a hedge against
monetary inflation, a hedge against realized price inflation, and a hedge against geopolitical risk, even a national US banking collapse. Some movement has been made on the transition from the tunnel vision anti-US$
trade. One should keep focus on how the US official lending rate at 2.0% is more than 3% below the current suppressed Consumer Price Inflation rate. So money is actually free for those who can access that rate.

The USDollar increasingly is being defended by market interference
mechanisms of the worst and most egregiously shameful order, such as

a) restrictions to short financial stocks, even though they are insolvent
and more illiquid by the week,

b) calls to eliminate ‘Mark to Market’ accounting of bank assets , and

c) the trusty Plunge Protection Team devices used to prop up stocks, bonds,
and the US$ itself.

The major currencies are all at risk actually. One contact with
international connections recently wrote me, “The US$ will drop to 2.00
against the EUR not before long. And then the EUR will crash shortly
thereafter.” Many fine analysts expect the USDollar to suffer a severe
markdown as the recent US nationalizations and bailouts are fully digested.
Their forecasts would coincide with the notion that the USTreasury Bond
suffers a severe market interruption like a suspension or possible default,
but then later the euro is victimized by new global gold-backed currencies.
This is a very possible scenario.