Bob Chapman | July 16, 2008

What you are witnessing is the acceleration of a complete systemic breakdown of the US and world financial systems and economies. It is happening right before your eyes. It is in your face. The Scylla and Charibdis of real estate finance, Fannie Mae and Freddie Mac, which are currently in possession of, or have insured, over 5 trillion dollars worth of mortgages, a good portion of which are nothing but toxic waste, have imploded and will now be nationalized in the most egregious example of moral hazard in the history of the world. As this socialism for the rich transpires, IndyMac Bank has gone up in smoke. This is the second largest bank failure in US history and the largest such failure in over 23 years. Adding insult to injury, 10% to 20% of the FDIC's insurance reserves have just gone up in smoke along with IndyMac just as the hundreds, and what may eventually turn out to be thousands, of bank failures that are anticipated get started in earnest. What does that leave for future failures if only one bank failure wipes out a fifth of the FDIC's reserves? Next up on the chopping block may be Downey, First Federal, Wachovia and Washington Mutual, which are not small fry by any means. Mattresses and freezers may soon be the savings vehicles of choice for those who can't afford a home safety vault as Depression Era mentality becomes the psychology du jour.

If you keep more than $100,000 in any bank account, or if you keep anything of value in a safe deposit box at any type of bank whatsoever, you are simply an idiot. You should use any cash you now have to pay off debt, including credit cards, car loans and mortgages. Then your cash becomes someone else's problem. Trying to keep loans open so you can pay them with inflated dollars doesn't work when your dollars get vaporized by losses suffered by profligate banks or you lose your job due to the implosion of our economy, which, by the way, is a lock. Better to take money earning one or two percent and apply them to debts bearing much higher rates. Keep your emergency cash at home. The excess should be invested in gold and silver of which you take physical possession. Swiss government bonds denominated in Swiss francs are cheap to buy and can cover your larger blocks of cash if you are sufficiently affluent.

We have told you repeatedly that the Illuminists care only about the suppression of precious metals and the viability of the bond market, which is their source of power, and the current proposed bailout of the twin titans of complete and utter financial death and destruction is the penultimate proof of our assertion. These titans of disaster will not be reformed, but instead our government plans to give them equity injections in the form of preferred stock to be "owned" by you the taxpayers through your Treasury Department and/or loans through the Fed's discount window to be supported by US treasuries as collateral. This is supposedly a temporary arrangement of 18 months, but come on, so were the Fed's various facilities for the bailout of the bankster fraudsters, which will be extended indefinitely or at least until the system implodes. The government is not fooling anyone with such foolish drivel and poppycock, as demonstrated by default swaps on US government debt, which more than doubled from 9 to 20 basis points after the announcements by Hanky Panky and Buck-Busting Ben, something which has never happened before in our entire financial history. Yields on treasuries increased even as people were fleeing the stock markets to buy those treasuries, with the Dow tumbling to as low as 10,827.71 on Tuesday before getting yet another miracle rally from the PPT. Normally, flight to treasuries drives yields down, but not this time. Hanky Panky Paulson says these supposedly temporary forms of relief have been set up in advance so he can have a bazooka instead of a squirt gun, thereby giving the market assurance against the collapse of Fannie and Freddie by heading off market panic, but the only bazooka we see is the one being pointed at the US taxpayer who will be taxed and inflated into oblivion as a result. This is nothing less than doomsday for the US middle class, the final rip-off and destruction of both their retirement plans and real estate through hyperinflation, dollar destruction, and the eventual destruction of the real estate markets when the twin titans of financial devastation finally implode and the taxpayers are left holding the bill. If they didn't think they needed this relief in earnest, it would not have been forthcoming! They are only delaying the inevitable.

Who are the winners and the losers in this scenario? It should be pretty clear that Scylla's and Charbdis's stockholders are the losers, and that eventually their stock will be diluted to mere pennies per share by gargantuan government equity injections as losses mount geometrically, basically rendering Fannie and Freddie stock either worthless or nearly so. The big winners are obviously the bondholders of Fannie and Freddie debt, who get a nice bailout like the bondholders of Bear Stearns when they should be taking huge losses for under-pricing what should have been obvious and monumental risk in an organization leveraged at anywhere from 60 to 1 to 200 to 1, which is the type of leverage normally reserved for suicidal madmen and psychopaths. And who are the bondholders? Gee, what a coincidence, as it turns out they are central banks around the world, including those in the US, China and Japan, which each own hundreds of billions in both of the twin titans of financial murder and mayhem. As we said, all the Illuminists care about is the support and viability of the bond markets. The stock markets along with 300 million US citizens can drop off into a bottomless pit and into the fires of hell for all they care.

Aren't you just brimming with excitement at the thought of becoming an unwilling "preferred" shareholder in a toxic waste, real estate Ponzi-scheme leveraged at 200 to 1?! And how will the equity injections be funded for this preferred stock purchase, and where will the collateral for the Fed loans come from? Why, they will come from "brandy new" treasuries created out of thin air by the US Treasury that will then be handed over to the Fed. In the case of the equity injections, these treasuries will be immediately monetized in order to boost Fannie's and Freddie's capital positions, leading to further and immediate aggravation of what is now already hyperinflation and further undermining the dollar. And what will happen to all the treasuries that were created out of nothing to serve as collateral for the Fed's loans to Scylla and Charibdis? These treasuries will be monetized to cover losses as they accrue, losses which will occur rapidly and geometrically as our economy and real estate markets implode. Another possibility is that these treasuries might be exchanged for toxic waste held by the various bankster fraudsters through the Fed's Term Securities Lending Facility for primary dealers and/or its Term Securities Auction Facility for investment banks and brokerage houses. Now wouldn't that be the ultimate in slime-ball financing if the Fed used Fannie's and Freddie's collateral as if these treasuries were part of the Fed's general collateral? Hey Congress, better jump on that one - and we mean pronto!

You must not allow these reprobates and sociopaths to steer our country in this direction. Fannie and Freddie, like the Wall Street bankster fraudsters, must be allowed to fail, and their various shareholders and bondholders must suffer the consequences. Otherwise, we have only been pretending to have markets that are run on capitalist principles. What Paulson and Bernanke are proposing is the next step toward an evil, corporatist, fascist system of government which consists primarily of governmental partnerships with elitist transnational conglomerates where moral hazard is the market mantra, a system which would have made Hitler and Mussolini green with envy. The Illuminati want to consolidate their power by bailing those they want to survive, and by allowing those they want to destroy to fail. The failures which they allow to happen will be absorbed by surviving elitist companies, consolidating their power into fewer and fewer entities for easier and tighter control over resources and production. The Illuminati also want a far greater grant and centralization of regulatory power in the Fed, or in any successor organization, which they might create if they decide to kill off the Fed with all the toxic waste from Fannie, Freddie and the Wall Street fraudsters. Any such replacement organization will be a super entity that makes the Fed look like a paragon of virtue, and the excuse given for its creation will be a cessation to all the corruption, turmoil and abuse of which the owners of the Fed, or of the new super entity, have themselves been the main cause. This is the Hegelian Dialectic on steroids. Create the problem and suggest the solution. And if the solution suggested is not desired by the people, stuff it down their throats anyway but whatever cunning and deceit is necessary in true Machiavellian fashion.

Everyone should listen to Jimmy Roger’s latest lambasting of the US government and the Fed regarding the Fannie-Freddie bailout and the bank failures. He is the only source of truth in the fane-stream media. He is like a breath of fresh air in an arena full of nothing but hot air, and we commend him for boldly speaking the truth. How much longer he will be allowed to make such television commentaries is hard to say, but the longer the better.

Well, all this excitement has sent gold and silver to much higher levels as we predicted, and now the cartel is back to their old tricks as they clutch their chests and reach for their nitroglycerine pills. Up go gold and silver as the dollar crashes, and just like clockwork, the yen goes ballistic and oil nosedives. The liquidity drains are now wide open as the yen has been strengthened since early last Friday by 3 yen per dollar and by 3.5 yen per euro. Protective derivatives such as stock index puts, yen calls and oil shorts that we have recommended are now doing their stuff again to keep the specs from having to liquidate their metals to meet margin calls on carry trade positions. Oil has been blasted big time as the Illuminist banks have been forced to give up some of their speculative gains to hit precious metals, which is JOB ONE at the Fed and for the cartel. It would be interesting to see whether any of these banks acquired a greater short position in oil just before the takedown. Monday's sell-off is now giving the dollar some support as is cheaper oil, and the markets are rallying on Tuesday due to the two big drops in oil prices over the past two days as well as huge boosts from the PPT and "massaged" balance sheets that were better than expected for Wells Fargo. This won't last, and the dollar is headed for 67-68 after breaking 72 over the past two days. Support at 72 cannot go on in the face of 1.8% monthly PPI (21.6% annualized), 1.1% CPI (13.2% annualized), nationalizations of Fannie and Freddie and bank failures such as IndyMac, which is just the beginning. Get ready for some more wild action as the undisputed King of Currencies reigns supreme while economies implode around the world and threats of war and conflict continue to abound.