Nationalization of The US Banking Industry Is Underway Via Increased TAF And Repos
Monday, March 10, 2008 1:50:43 AM
Mick P writes that "the Federal Reserve has decided to acknowledge that the Banking system is in total disarray and is now unable to meet its own obligations. Some of you may remember I referred to the banking cartel as being "sub-prime". I also pointed out a couple of weeks ago that the Banks no longer have any capital reserves that are usable. In other words all capital is now employed in current leveraged positions. Losses in those positions that result in margin calls, requiring more capital, are now being met by the Federal Reserve through repos (repurchase) and the TAF (Term Auction Facility). As the stock markets slid into further losses on Friday the Fed announced new measures to attempt to bolster the cash at hand for the banks.
Let me make one thing abundantly clear, this is NOT an attempt to save indebted US citizens, Funds, Hedge Funds or any other Capitalist Venture. This is a major bailout of the whole US fiat monetary system. It is designed to save the current banking structure of the USA and by indirect means support the world banking system. No country is immune (except Zimbabwe, whose currency might appreciate against the dollar) that uses a leveraged fiat monetary system.
Back to the Federal Reserve and its new measures aimed at keeping leveraged trading in all markets possible and that all but officially announced it is now the Bank of Last Resort. There were 2 statements on Friday, the first concerns the TAF, the second related to the repo markets, covering both temporary and permanent operations. We had a warning that conditions are deteriorating as mentioned last week and now the Fed has been forced to take action.
We have conclusive proof that Fed is attempting to drain cash from the economy to support rates (and indirectly the $) whilst pumping funds directly into the balance sheets of the banks. Therefore the whole series of measures are not to deal with a liquidity issue but are to combat a breakdown in the capital reserves of the banks and a freezing/tightening/collapse of the credit markets.
US banks are being nationalized, temporarily, whilst they attempt to take cash away from all sectors of the economy, by either de-leveraging positions or calling in all debt owed to them on the flimsiest of excuses. Any non-performance in debt servicing by either Corporations or private citizens, for whatever reason, will result in immediate and swift foreclosure and an asset grab. I expect most credit lines to be withdrawn and limits imposed on the size of cash transfers and withdrawals in the very near future. All of these actions are to bolster bank reserves and the Fed itself believes this will take a minimum of 6 months. Some believe that is not enough. Kansas City Fed Pres. Hoenig called for the TAF to be made permanent.
It should be noted that if you use leverage or margin to trade markets, be prepared for that facility to be curtailed or withdrawn completely, forcing you to close your positions. Why would this occur? To enable further deleveraging and reallocation of capital and it's a very effective way of removing private investors from the markets. The Financial Institutions (FI) are in pain, they wouldn't like to have to move cash in the direction of private investors."
Lets assume that this is true, and that the currency traders perceive it as such, I would think that they would drive the Euro and Yen much, much higher and the US dollar much much lower which would sink the US stock and US Treasury Bond market places.
And so, I started looking back through Mick P's previous articles on Safehaven.com, and found this comment in his March 3, 2008 article:
"I cannot state this more forcibly. If the Fed decides to keep increasing repo sizes or if the Fed increases repos and keeps TAF at the same current level, a full blown run on the $ is certain. If the Fed raises TAF to accommodate (swap) the increase in repos, the result is the same.
The Fed must immediately reduce either the repos or the TAF amounts (or both) to retain any credibility of inflation fighting and to assure the markets that the US Bank of Last Resort is not allowing a bailout of financial firms at the expense of Corporate America and its citizens.
For those who think a run on the $ would be inflationary, think again. The pressures placed upon the financial system would be overpowering. It would collapse, within hours. A fiat system without access to credit would result in instant depression. It doesn't matter how "expensive" assets are if you cannot buy them. For instance, taking account of Fed Pres Poole remarks, the opportunity has arisen were speculators can start to look at shorting GSE's and the $.
The Fed is playing an incredibly dangerous game and I suspect it is about to be called after going "all in"."
I reproduce the following information from my article, Repeal of The Glass Steagall Act Has Produced The Highly Leveraged Investment Imbroglio That Is Just Now Starting To Unwind:
The CFR is The Sovereign in North America's commerce, investment and governmental activity and endeavors.
The CFR, through its agents, primarily Sanford Weill, Bill Clinton and Robert Rubin repealed the Glass Steagall Act.
The repeal was the foundation, that is the keystone, that provided for non transparent financial manipulation and use of leverage to revolutionize the activities of investment beginning in 1999, to amass huge fortunes for the investment bankers who designed, marketed and oversaw the use of leveraged investments, and to generate awesomely speculative endeavors at hedge funds, which have gone unregulated by government oversight.
The repeal has produced an oligarchy of power and elite, in intertwined media, retail banking, investment banking, home mortgage sectors, via interwoven board of director memberships of the Federal Reserve, corporations and government administration, extending into the the White House, via secretary of the Treasury Paulson, former executive of Goldman Sachs.
And the repeal enabled leverage, to be conceived, deployed and expand, not only in the residential mortgage sector, but a host of other sectors as well, such as, municipal bonds, and derivatives such as credit default swaps.
Investment leverage snapped this last week with the $20 Billion Carlyle bond fund experiencing margin calls, where risk was multiplied by 33 to 1, that is, the underlying assets represented only 3% of the portfolio value; and those assets were illiquid, thinly traded issues: it was reasonable that this fund would be the first of many countless to break causing a sharp sell off in the finance, real estate and banking sectors as investments were sold at fire sale prices to meet the margin calls.
And now, to the aid of illiquid banks (and most likely insolvent banks) comes a rescue by the Federal Reserve in expanded TAF
in the near future, as there is a greater unraveling of investments, there is likely coming a 'continental response', to provide security and prosperity, under the provisions of the SPP, which has its origins in the activity of CFR's Robert A. Pastor, instructor at American University.
So likely soon, the CFR will be providing the remedy for a crisis it created.
The result of implementation of the SPP's provisions will be a state corporate combine of elite stakeholders actively ruling in principles of security and prosperity over the resources and people of the North American Continent.
The investment application is that one invest one's investment wealth in gold at Bullionvault.com; and that one buy gold with one's retirement wealth by investing in the gold ETF, GLD; and that one obtain margin credit
1) to sell the 30 Year US Treasury Bond,
buy RYJUX> 50%.
2) to sell the emerging markets; as now the Yen Carry Trades will finally start to unwind as there will be disinvestment from the BRICS, Brazil, Russia, India and China as well as the US Stock Market; we will soon see EUR/JPY that is FXE:FXY, fall from it's recent sky high 160 level.
buy EEV> 10%.
2) to sell the financial sector,
sell IYG and UYG> 10%.
3) to sell the reits and real estate sector
sell RWR and URE> 10%.
4) to sell the banking sector,
sell KCE and KBE> 10%.
5) to sell closed end municipal bond funds,
sell BTA, VGM and CXE> 10%.