Sunday, January 17, 2010
Bank of America - Target for Destruction
It's no secret that the privately held, unconstitutional Federal Reserve banking cartel was formed to keep American banking power concentrated in New York. When it used to matter (during the reign of the supposedly infallible FBUS and SBUS), NY was geographically closest to the original central bank scam and global oppression king pin, the Fed's mother Bank of England.
Nearly a century after becoming the latest, tired U.S. incarnation of that same, age-old, crooked-banker lineage, the "modern" Federal Reserve Bank of NY is now a walking ghost laden with worthless assets. But this unattractive lot of self-proclaimed foreign royals still maintain their original deadly objective: to destroy the rogue, Carolina-based Bank of America, and any other homegrown American bank dumb enough to challenge its inbred and worm-eaten, monarchical currency printing monopoly.
First, the Federal Reserve impaired BAC with Countrywide's oozing subprime sludge. Soon, we'll find out how the Red Coats intend to finish them off.
...could be interesting.
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How about Wells Fargo? They are not part of the "club" either, not to mention they have tons of rotting CRE, as well as leftover Wachovia sludge.
ReplyDeleteAgreed, the Fed has those crazy eyes.
ReplyDeleteFDR - Do you believe that the banks will have to ever mark their assets to market? I have the market trading at about a 15 p/e and believe this to be high for a recession. I would think that we will head lower, but unless companies like AAPL start seeing sales slow then we may dissapoint the bears and bulls. It appears that corporate profits have little to do with unemployment because 80% of people are still working and getting paid more because there is more money and now less people fighting for it.
ReplyDelete"FDR - Do you believe that the banks will have to ever mark their assets to market?"
ReplyDelete"Marking" implies there is no need to raise cash. That isn't the case anymore. The ultimate mark to market is a forced sale.
I'm trying really hard to understand what you write, but in most cases I'm completely lost.
ReplyDeleteYour comments about BA & Goldman going bankrupt make no sense to me. I just don't see how the FED will allow them to go bankrupt.
Who would force the sale?
ReplyDeleteBanks will mark to market when Obama reaches into their pockets again.
ReplyDelete"Banks will mark to market when Obama reaches into their pockets again."
ReplyDeleteThat's an excellent point, taxing assets is a clear path to discovery of losses.
"Who would force the sale?"
ReplyDelete39 withdraws per 1 deposit.
That's the problem with keeping a 2.5% fractional reserve ratio.
"Your comments about BA & Goldman going bankrupt make no sense to me."
ReplyDeleteDid it makes sense that GS said if poor people didn't give them $320B (the AIG bailout was to relieve GS impairment) they would instantly collapse and the entire financial world would come to an end?
And what makes you think the Fed isn't bankrupt too? They are, you know.
The Fed is a private corporation used to raking in hundreds of billions per year in rip offs. When the economy forces them (via an abrupt end to borrowing) to mark down the wholesale rate for new cash to 0%, they go broke, fast.
Really fast.
what does it mean for the fed to go bust as a bank? how can there be a run on the fed? (who would make the run, since it has no retail deposits?)
ReplyDeleteWhat do you think about the Dubai bailout being cut in half? Did you hear about that?
ReplyDeleteAnother subject. I just cant' understand why Kraft would insist in buying Cadbury? Are people that addicted to chocolate during depressions?
chocolateMan
Alot of your themes look good on paper and can be found in any college text book. In reality liquidity is all that matters. I still believe the market will trade to 11500 in the next month or so then correct to 9000 then rally to 12500 before entering P3. Trading is a whole lot different than macro investing, but the goal is to make money off the market regardless of direction, and doing this requires not just a text book example of deflation and how it should play out in the end, but rather everything in between. Just follow the liquidity and you can have a much larger pile of cash to get short with and much better prices. You have been short since 8000 called 9500 a point we would never cross, well we are at 10700 and about to really get going. This is not because things are better but rather liquidity being pumped into paper assets. Sure you can continue selling with imaginary money and never run out of points to short from, the same way someone could write a blog about buying everyday and in 100 years say I told you so. I believe in everything you say, your timing is just poor from a trading stand point.
ReplyDeleteFDR wrote: "39 withdraws per 1 deposit.
ReplyDeleteThat's the problem with keeping a 2.5% fractional reserve ratio."
I interpret the above to mean "runs on the banks".
There's a huge problem with that thesis that is the result of the modern economic world.
Suppose someone withdraws all of their money from the bank. What do you think they'll do with it?
If they put it into treasuries or some other instrument like that, then it essentially becomes unavailable to them for normal use until they transfer it back to a bank account or take it as physical cash. During the Great Depression, people took physical cash.
They were able to take physical cash without any significant drawbacks. At that point in time, cash transactions were not only commonplace, they were the default. Someone who took their money out of the bank in the form of physical cash was able to put it to great use. Most transactions were local in nature: you'd buy something from the local grocer, or from the local hardware store, or the local furniture store, etc. The fact that most transactions were face to face meant that cash was relatively easy to use for most transactions.
By taking physical cash and keeping it for themselves, individuals removed money from the banking system, and the banks collapsed in large numbers as a result.
So what's different about today? Simple: everything depends on electronic transactions. Yes, it's still possible to use physical cash, but it is very unusual to do so. And there is good reason for that: much of the commerce that happens today happens over the internet. And to engage in that commerce, you have to use a credit card or a debit card. Some online vendors will accept bank routing numbers. But regardless, there is always a bank involved. If someone uses a credit card, they have to pay the credit card company back somehow. Are they going to send physical cash to the credit card company? Hardly. That would be risky, to say the least.
So getting back to the question of what someone who takes his money out of this bank is likely to do with it, the answer should be obvious: he's going to put it into a different bank! It's the only way he'll be able to make real use of it in today's world. If he decides to go with physical cash, he'll be paying higher prices and at the same time sacrificing convenience and availability of goods. Some people will be willing to make that sacrifice. Most won't.
So if a bunch of people withdraw all their money from a bank, which represents a run on that bank, that bank run will represent an influx of cash for all the other banks. And suddenly, the run on banks becomes a zero sum game in the banking industry.
No, if the banking system goes down, it won't be because everyone is taking their money out at the same time.
"Suppose someone withdraws all of their money from the bank. What do you think they'll do with it?
ReplyDeleteIf they put it into treasuries or some other instrument like that, then it essentially becomes unavailable to them for normal use until they transfer it back to a bank account or take it as physical cash."
You got it kcb. There is no question that about $1T/month is gushing into Treasuries.
If you have money (I mean real money) you have no choice but to withdraw everything and put it in Treasuries. Nothing else carries unlimited insurance, and ALL banks are in IMMEDIATE danger of failure. An A rated bank like Frost has totally unmanageable, perilous, precipitous 20X leverage. A D- rated bank like Citi has already failed but it takes a long time to extinguish $3T in (previous) deposits.
Note, the private FDIC (the "C" stands for private corporation) has failed too. They have $15T in insurance obligations and they have a negative balance. BUT even if the FDIC was still relevant, they have no influence whatsoever on the money that's pouring into Treasuries, which was, on average, millions of dollars over the FDIC insurance limit anyway.
To answer the second part of your question: you are exactly right. EVERYTHING is electronic, including Treasury redemptions of up to 100% of your unlimited Treasury balance. It is 100% liquid, and available for immediate withdraw from ANY bank that is still standing.
That is exactly why I recommended EVERYONE move to 100% Treasuries immediately, in late 2007 with the at Dow 14k.
It's not too late.
...but it will be too late, soon enough...
ReplyDeleteLike all insurance, the only hard rule is that you cannot obtain it once you need it.
There are a number of problems with your thesis on the banks.
ReplyDeleteThe first is the assumption that almost all of them will go under. The only reason that would happen is if they owed someone else a lot of money and were forced to pay. They won't go under simply as a result of failing to abide by some arbitrary accounting rule: the rule will simply be changed, just as the method of accounting used to value the foreclosed assets they hold was changed.
The second is that the influx into treasuries represents a significant risk to the fractional reserve banks. I dare say most of that influx is from money market accounts and other investment instruments, not FDIC-backed deposit accounts. But if you have data showing a rush to the exits from deposit accounts, I'd like to see it.
The third is that the money that is flowing to the treasuries, even if it is coming from deposit accounts, represents the bulk of the money in those accounts. I dare say it doesn't. The vast majority of people do not have hundreds of thousands of dollars or more in their bank accounts, and they outnumber the people who do have that kind of money by tens of thousands to hundreds of thousands to one.
And finally, I cannot help but note the irony that you are arguing that everyone should put their money into treasuries because, well, everyone's putting their money into treasuries! In other words, you're encouraging people to take the very action that you believe will cause the failure of the majority of the banks, because you believe the banks will fail as a result of people heeding your advice! This is both self-fulfilling prophecy and self-referential logic. Is what you're arguing for here not the same as recommending that everyone invest in a security because that security has an influx of investments already and therefore is well on its way up? Follow the herd?
And now for the fatal flaw in your recommended approach: treasury redemption works only so long as the U.S. government is considered "solvent". Your thesis has also been that the Fed will not continue to lend to the USG, which will cause the USG to become insolvent.
Good luck getting your treasuries out then! That is a point that you constantly seem to ignore for some reason, and I'd be very interested in seeing how you address it.
If you're really concerned about your financial assets and the possibility that nearly all the U.S. banks will collapse, would you not be better off putting them into a foreign bank in a country that doesn't have the banking problems that the U.S. banking system has? There surely must exist some such bank somewhere in the world, and such a bank or system of banks would clearly grow quite strong with the resulting influx of currency. It would have the not inconsiderable advantage of preserving your assets in the face of an insolvent U.S. government.
Quite frankly, I do see the small possibility that the banking system as a whole will collapse as you predict, but I remain skeptical. This ain't the 1930s.
Another thing of note: what makes you believe the U.S. government won't seize treasury funds for its own uses when it's on the ropes?
ReplyDeleteI recall you describing which type of treasury to purchase for insurance purposes but can't for the life of me find your description of it.
ReplyDeleteIf you put it in an article, could you link to it from the front page (basically, put it in with the rest of the "please read me first" articles)?
If you haven't put it in an article, could you please do so and link to it in that "read me first" section?
Thanks.
Correct me if I am wrong, but did someone just make a theoretical argument hinging completely on the basis of it "being very unusual" to do the opposite? Haha, I guess the price of oil going from 150 to 35 and the GOV giving out trillions like lollipops at the doctor's office happen all the time.
ReplyDeletehttp://www.youtube.com/watch?v=rSjK2Oqrgic
FDR wrote: "The Fed is a private corporation used to raking in hundreds of billions per year in rip offs. When the economy forces them (via an abrupt end to borrowing) to mark down the wholesale rate for new cash to 0%, they go broke, fast."
ReplyDeleteThey go broke because their expenses are really huge. I mean, mind boggling. Why, it's enough to make them wish they could print money ... oh, wait ...
And those expenses, why they're ... um ... what, exactly?
They go broke because they've loaned out a bunch of money to the banks and the banks can't pay it back? Oh, noes! Whatever will they do? Why, they might have to downgrade from their personal 747 to a Gulfstream. That would be truly terrible. It's a shame they can't just create the money out of this air ... um ...
Sorry, FDR, I don't buy it. It's impossible for the entity that prints the currency to go bankrupt, by definition, unless it's intentionally trying to appear bankrupt.
"And those expenses, why they're ... um ... what, exactly?"
ReplyDeleteLike I've said before, mostly hookers and blow.
"Sorry, FDR, I don't buy it. It's impossible for the entity that prints the currency to go bankrupt, by definition, unless it's intentionally trying to appear bankrupt."
ReplyDeleteThe Fed can't print money, which is exactly why we're in a depression. They don't want to kill their golden goose; they can't help it, because they are totally incompetent.
Please re-read the Read Me First: Can the Fed Print Currency?
FDR wrote: "The Fed can't print money, which is exactly why we're in a depression. They don't want to kill their golden goose; they can't help it, because they are totally incompetent."
ReplyDeleteYour "can the Fed print currency" answers the question of whether or not the Fed can print currency, but the answer you plainly state contradicts the answer that you give via explanation.
That is, you blatantly state that the Fed can't print currency, but in your explanation you say that this is exactly what they do when buying treasury bonds.
Which means that yes, the Fed can print money/currency.
Regardless, you forget which entity is actually in control. That entity is the Fed. If the Fed actually wants to print money, it will print money, and they will command the federal government to make that legal if they can't already do it legally.
I've seen you say multiple times that they're incompetent. People who are incompetent are incapable of controlling the most powerful government on the planet for a century, but those who run the Fed have done precisely that. The evidence of their incompetence is entirely lacking. Worse, your own statements contradict that assertion: you state that the depression is intentionally engineered by the Fed. If they were truly incompetent, then the depression wouldn't happen, but they've got you convinced that it will happen. That doesn't suggest incompetence, it suggests quite the opposite.