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Enter Cede & Co II; The Fed Is Now Backstopping $25 Trillion In DTCC Cleared Credit Default Swaps

Tyler Durden's picture


And you thought the $23 trillion in backstops for the financial system was bad, you ain't seen nothing yet. Earlier today, the Depository Trust & Clearing Corporation, best known for its Cede & Co. partnership nominee which is the holder of virtually every single physical stock certificate in the known universe, and accounts for over $2 quadrillion in stock transactions per year, announced that "the Federal Reserve Board had approved its application to
establish a DTCC subsidiary that is a member of the Federal Reserve
System to operate the Trade Information Warehouse (Warehouse) for over
the-counter (OTC) credit derivatives.
" With this approval the DTCC is now the de facto legally accepted
global repository for over-the-counter credit derivative transactions. Simply said, the Federal Reserve is now the guarantor behind all CDS transactions that clear via DTCC, which would be pretty much all of them (sorry CME, you lose). The total bottom line in terms of gross notional? 2.3 million contracts with a gross notional value of $25.5 trillion. When the next AIG implodes, and the CDS market is once again facing annihilation in the face, who will be on the hook? You dear taxpayer, that's who.

The new Fed-endorsed organization will settle CDS obligations in all currencies and process credit events. It will also include all OTC credit derivatives traded worldwide, and will be regulated by the Fed and the NY State Banking Department and will be overseen by other US and International regulators.

To be sure, the net notional CDS amount, which is what counterparties would be on the hook for in the case of an orderly unwind of the financial system, is materially lower than the gross total. Yet, as systemic unwinds are never orderly, gross tends to become net in those occasions when Lehman bonds go from par to 10 cents in the span of 24 hours. Should systemic risk flare up again (and this time Europe will be both shaken and stirred, thank you Mr. Hazard... Moral Hazard), and fiat-based market values quickly catch up with fair values (which in our ponzi economy can easily be calculated: they are all zero).

The actual organization that will soon be in need of a bailout, is the Warehouse Trust (there's that word again) Company, which in turn will operate the DTCC's Trade Information Warehouse, and will begin operations “once certain organizational conditions have been met, which are expected shortly." Presumably, the TIW, which has been in operation for just over one year, is somehow supposed to inspire confidence that the DTCC has an idea of everything that goes on in the quadrillion + CDS Market. "The release of this information has been an important step forward in
helping increase transparency in the marketplace. More detailed
information on individual firm trading has been made available
confidentially to regulators around the world with the consent of
market participants.
" Oh great, at least someone has information to the confidential information.

What all this implies is that basis spreads will likely compress very shortly, once counterparty risk becomes a thing of the past and all systemic risk in the biggest derivative market out there (ex IR swaps) is fully backstopped by the Federal Reserve. It will also guarantee the DTCC monopoly status when it comes to CDS trading as nobody will desire to transact and/or clear elsewhere.

We shudder to think if the Fed grants DTCC with exclusive status for IR and FX swaps as well, and the associated $600 trillion notional outstanding.

And from an insider, we know that the company will be funded and commence operations by March 1.



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Wed, 02/10/2010 - 16:42 | 225496 deadhead
deadhead's picture

Perhaps it would be a good idea to share some of this risk with the FDIC??

Wed, 02/10/2010 - 17:14 | 225551 Kitler
Kitler's picture

Looks like they are merely completing their plans to transfer all the risk they created to the citizens of the United States of America through any and all avenues possible.

I'll bet the sheeple are really going to be up in arms about this one... Ha ha ha!!

The downside unfortunately is that if they keep this up there will be nothing left for US to steal.

Wed, 02/10/2010 - 17:32 | 225579 anarkst
anarkst's picture

There's nothing left already.  Balance sheet for the United States of America private/public is (-).  Game over.

Wed, 02/10/2010 - 17:43 | 225601 Kitler
Kitler's picture

You forgot "double or nothing" and "do-overs".

Wed, 02/10/2010 - 18:05 | 225646 Hephasteus
Hephasteus's picture

I'm not broke yet. I still have the full faith and credit of the AMERICAN PEOPLE. Soon be said while dodging bullets.

Wed, 02/10/2010 - 19:23 | 225779 Problem Is
Problem Is's picture

Tax Revolt

All the Sheeple:  "No pay tax. 4 legs good...  Two legs, Blank-dick-fein, Dimon BAAAADDD...


Wed, 02/10/2010 - 18:20 | 225680 inflationary (not verified)
inflationary's picture

yes, this crisis will get much worse. march lows to be rboken. currently reading:

Wed, 02/10/2010 - 18:26 | 225688 Anonymous
Anonymous's picture

spam alert!

Wed, 02/10/2010 - 16:43 | 225498 Bam_Man
Bam_Man's picture

That's pronounced "Seedy & Company", right?

Wed, 02/10/2010 - 16:46 | 225512 J.B. Books
J.B. Books's picture

Pretty much say it all for me...  I'm the middle monkey

J.B. Books

Wed, 02/10/2010 - 16:56 | 225516 Anonymous
Anonymous's picture

"gross notional value of $25.5 trillion. "

Big deal. When are you gloom and doomers gonna come to grips with the fact that Zimbabwe Ben has this all under control? Don't you understand the way Ben rolls by now? He can create $25 trillion quicker than you can say "Weimar Republic".

Besides, all Ben really has to do is threaten to create that $25 trillion out of thin air. The mere suggestion will be enough to send holders of worthless paper worldwide into paroxysms of ecstasy, and thus nip any potential crisis right in the bud. Preferably the day before a quadruple witching Friday. Gotta keep those radical put-option-buyin' enemies of the state honest.

Wed, 02/10/2010 - 17:25 | 225567 Kitler
Kitler's picture

You speak the truth. Ben indeed has everything under control and running according to plan. (Well someones plan!) Is there anyone else better suited to fill in those pesky financial black holes he created with electrons and green ink? Thought not.

Wed, 02/10/2010 - 17:32 | 225580 Missing_Link
Missing_Link's picture

You're right!  How silly of me.  Once you said "Weimar Republic," I remembered how well that experiment ended up.  Nothing bad can possibly happen from this point forward.

Wed, 02/10/2010 - 17:54 | 225624 Oracle of Kypseli
Oracle of Kypseli's picture

Can someone please explain why gold price does not punish Ben and Company?

Wed, 02/10/2010 - 18:02 | 225640 SWRichmond
SWRichmond's picture

Because the "gold price" is the price of paper gold contracts traded on CRIMEX / London, which can be settled in paper and not real metal, and we're already seen that an infinite supply of paper is available to those who are fighting to maintain the fiat / bankster regime's power.

Buy physical, take delivery.  When the exchanges run short of real physical metal, then the price of physical and paper gold will start to diverge in a way that can't be ignored.

Wed, 02/10/2010 - 18:10 | 225662 illyia
illyia's picture

Yes, but it's too complicated and political.

The short answer is - it will.

Of course, by then many things won't matter so much.

Wed, 02/10/2010 - 18:01 | 225638 Psquared
Psquared's picture

Don't forget, the hyperinflation of the Weimar Republic ended with a currency reset. As Bill Murray would say, "soooo, I got that goin for me."

Wed, 02/10/2010 - 16:59 | 225520 carbonmutant
carbonmutant's picture

Does that make the DTCC more powerful than China?

Wed, 02/10/2010 - 17:04 | 225530 Anonymous
Anonymous's picture

Why would a clearing/trade information house be on the hook in the event of another Lehman implosion?

(The AIG implosion is a poor example, since the US taxpayer ended up paying for that even without this new Information Warehouse).

Wed, 02/10/2010 - 17:04 | 225531 cougar_w
cougar_w's picture

It's a clearing house. How is anyone on the hook for anything? What did I miss? The bigger problem might be maintaining their independence from the FED. We don't want any bubble-blowing in the halls of the DTCC.

Wed, 02/10/2010 - 18:19 | 225678 Assetman
Assetman's picture

Good point... I'm left wondering what I missed as well.

It might imply if JP Morgan in a CDS transaction can't get a counterparty to pay up in the multiple billions, the DTCC can use the Fed as a backstop to "clear" the transaction-- so JPM can book their gain at taxpayer expense.

Of course all this is being done before volatility really starts hitting the fan in the FX and interest rate markets.

The gross notational is a vast exaggeration of what is on the hook.  More likely it is only $2-$4 trillion at risk.  That the new "drop in a bucket".


Wed, 02/10/2010 - 18:38 | 225707 cougar_w
cougar_w's picture

That's an interesting angle; the FED making good on gambling losses. But I guess they did that with GS v-v AIG...

But that was a one-time deal pulled off in a smoke-filled back room while everyone was too busy hand wringing over an anticipated financial meltdown. Surely they could not now institutionalize that as a practice, could they? Wouldn't somebody ... well notice?

Oh ....

Okay maybe we are screwed.


Wed, 02/10/2010 - 21:20 | 226004 Assetman
Assetman's picture

As a consolation, I'll admit I'm really grasping at straws here.  After looking at follow-on comments, I'm not far off from Tyler's interpreation. 

There's some really good refutes, though.

Wed, 02/10/2010 - 17:05 | 225537 trav7777
trav7777's picture

Look...I told the douchebags on TF this and I'll say it here:  if YOU won't borrow, the gov't will do it for you.  CREDIT MUST GROW

Wed, 02/10/2010 - 18:06 | 225650 inflationary (not verified)
inflationary's picture

Big deal, it's not like we was charging for it. The 1979 revolution WILL be rewritten tomorrow, the opposition will storm the parliment or something of that magnitude.

currently reading: this pales in comparison to real crisis!

Wed, 02/10/2010 - 18:35 | 225705 nedwardkelly
nedwardkelly's picture

Flag this shit as junk and ban this clowns ass

Wed, 02/10/2010 - 19:08 | 225755 B9K9
B9K9's picture

Trav, you're absolutely correct - Keynes 101: substitute public aggregate demand for private de-leveraging.

There's only one problem - the high water mark for that strategy was 1/19/10. We don't need to have any actual reductions in public spending in order to get the deflationary ball rolling; we only need to see the rate of increase decline.

That's why Nov '10 is going to be such a watershed event. It won't effect anything really radical like ending the Fed, whacking the criminals at GS/MS, et al, but it will achieve one very important distinction: it will be the final nail in fiscal/monetary expansion. So that will be that in terms of re-inflating the bubble.

And if we actually get serious about 'deficit' reduction ie austerity measures, look out debt-deflation tsunami.


Wed, 02/10/2010 - 17:07 | 225539 ShankyS
ShankyS's picture

"And thus socialism was born" it will say in the history books. Hell, if I am not nistaken isn't the DTCC one of the most controvercial and secretive players out there?

Wed, 02/10/2010 - 17:18 | 225558 Anonymouse
Anonymouse's picture

I have dealt with DTCC twice in my career, trying to track down a missing payment to a European investor.  It was a nightmare, as they won't talk to the manager, the trustee, or the investor.  The only person they recognize are the nominees on either side of a transaction, and getting them is a nightmare.

It turns out the mistake was on DTCC's part, but it took about 4 days and 50-60 man-hours to track it down.

So, at least in that sense, they are very secretive

Wed, 02/10/2010 - 20:07 | 225860 Rainman
Rainman's picture

......secrecy is the perfect wedding partner for the Fed. A marriage made in hell.

Wed, 02/10/2010 - 17:07 | 225541 George Washington
George Washington's picture

TD:  Great catch... great analysis.

Wed, 02/10/2010 - 17:11 | 225548 RhoRhoRhoBoat
RhoRhoRhoBoat's picture

This post holds no water whatsoever.  There are two massive assumption flaws:

(1) "Simply said, the Federal Reserve is now the guarantor behind all CDS transactions that clear via DTCC"; Any bank or financial institution can become a member of Fed Reserve system.  Your local community bank probably is.  Backstop?  Dont think so.  Backstop here?  Absolutely nothing indicates that.

(2) DTCC can or will blow up, creating the apocalypse: they are not the counterparty to these swaps, only the information processor.  Worst worst worst case scenario? Trade data is unavailable for a few hours.  Kinda like what happens at NYSE every now and then.

Wed, 02/10/2010 - 17:17 | 225556 Tyler Durden
Tyler Durden's picture

Let me explain what holds water: you are Goldman, you have $100 million with AIG as counterparty. AIG fails. You have only collected 50 million in var margin but are owed another 50 million due to intraday valuation shortfall (net/gross equivalency) based on bond prices, etc. Before, you would push for systemic restoration, and taxpayer funding to keep AIG propped up. Now, you don't care, cause the DTCC, via the Fed, will make you whole. Counterparty risk removed.. as it the middleman.

Wed, 02/10/2010 - 17:32 | 225577 Daedal
Daedal's picture

"It is expected that in the new company, the Trade Information Warehouse for credit derivatives will become subject to a collaborative global regulatory scheme involving interested regulators in Europe as well as the U.S. The new trust company will also establish a subsidiary in Europe to facilitate the offering of regulated Warehouse services in Europe."

Wed, 02/10/2010 - 17:42 | 225598 Anonymous
Anonymous's picture

I don't agree with this. CDS clearing should work just like the futures exchanges. MTM capital should be posted to Goldman if they are net positive, and debited from AIG if they are net negative. This is the benefit of central clearing.

Wed, 02/10/2010 - 18:51 | 225727 jm
jm's picture

Isn't a central clearing structure what screwed CME's plans?

Wed, 02/10/2010 - 18:34 | 225703 Anonymous
Anonymous's picture

Wrong. DTCC is just an information repository. ICE Trust is the CDS clearinghouse. Been operating for over a year.

Wed, 02/10/2010 - 19:48 | 225822 Anonymous
Anonymous's picture

a little bit more than a repository but not a full blown death star CCP.

Wed, 02/10/2010 - 19:43 | 225809 Anonymous
Anonymous's picture

I think you're confusing the warehouse with a CCP service.

DTCC is offering matching pre-settlement, lifecycle event management and central settlement links to CLS for the cash flows associated with the contract terms and various credit or other events triggering a payment.

These are true OTC's, bi-laterally contracted (or in the case of novation following strict protocols on handling the process) and so DTCC is not "the middleman" between two counterparties. The CCP's (various) are also linking up to leverage the process platform. Margining in any of these CCP's is wholly independent of DTCC. In any true ISDA bi-lateral arrangement it's going to be counterparty to counterparty negotiating disputes. BTW...have you read ISDA's dispute resolution proposals recently? Worth a look.

The point of the DTCC repository is to provide a central place for the Fed or any other regulator to request transaction details. DTCC is simply expanding their service portfolio because they have the infrastructure to do it well and connectivity to the CCP's, CLS, SWIFT etc. It's just smart engineering, not a diabolical plot.

All this ominous overtone stuff isn't helping anyone's argument about other aspects of the OTC market that require attention. The processing efficiency in OTC land was primitive at best before the Fed started banging the table on confirmations in 2005. At that time there was probably 60% uncompared trades greater than 90 days. Think there was no risk there? There have been millions lost due to screw ups on the ops side which btw distorts the portfolio rec's and in turn create collateral calc problems.

Of course the Fed blew past the bigger issues on naked CDS writing etc. That's another angle.

Anyone who works in or has been around the business understands that automation, even in "the back office" is always a plus. Dealers hate electronic matching, transaction reporting, trade repositories etc. These improvements all shed light on the detail and level of business being conducted.

In any case, your premise is factually incorrect so while I share your ire at the excesses and oversights, this is not something to lose sleep over.

Love your work here and have learned a whole lot. In this instance, hope I help inform the debate.

Thu, 02/11/2010 - 00:20 | 226218 calltoaccount
calltoaccount's picture

The DTCC avows neither it nor subs is responsible for actually settling securities trades or enforcing "good delivery" settlement requirements-- even though they assumed the responsibilty from and on behalf of the SEC. ( the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities”. (Section 17A (a)(2), 1512 U.S.C. 78q-1(a)(2). 

They assumed the responsibility and then simply disowned it. 

Does your interpretation suddenly make them liable for actually settling a securities transaction?  That could certainly put a crimp in the stock counterfeiting profits of their Wall St. financial industry owners.

Wed, 02/10/2010 - 17:47 | 225560 SWRichmond
SWRichmond's picture

Warehouse Trust is to DTCC as AIGFP is to AIG.

Edit: No one wants CDS "regulated", they only want them paid at par without a lot of whining from the taxpayers.

Wed, 02/10/2010 - 17:14 | 225552 Anonymouse
Anonymouse's picture

For a great (fictional) example of how our entire economy is dependent on DTC, read "Debt of Honor" by Tom Clancy.  It has been several years since I read it, but the gist of the plot is that terrorists (or was it some renegade Japanese) introduce a bug in the DTC computers that completely erase all records of shareholders.  It brings the world economy to a halt instantly and creates more chaos than any nuke would.

(spoiler alert)

As a bonus, the book ends with 9/11-like attack on the Capitol during the State of the Union.  It was published in 1994, showing just how prescient Clancy can be.

Wed, 02/10/2010 - 18:20 | 225681 Kitler
Kitler's picture

Problem solved by a 'do-over' as I recall.

Wed, 02/10/2010 - 19:44 | 225812 Anonymous
Anonymous's picture

They never shut down on 9/11.

Thu, 02/11/2010 - 00:06 | 226198 Anonymouse
Anonymouse's picture

That plane went down in PA before it could get there.  Sorry if the whole plane-crashing-into-a-building-just-like-9/11 was too abstract a connection for you

Wed, 02/10/2010 - 17:17 | 225557 Don Smith
Don Smith's picture

Hang on, how is the custodian liable for the counterparty?  Am I missing something?  I can't sue Scottrade if a seller fails to deliver on a trade, can I?  I can't sue the NYSE... I have no recourse in an options trade with the CBOE, do I, if the counterparty fails to deliver?

Wed, 02/10/2010 - 17:36 | 225587 Anonymous
Anonymous's picture

The OCC guarantees all trades done on the CBOE.

Wed, 02/10/2010 - 17:59 | 225630 RhoRhoRhoBoat
RhoRhoRhoBoat's picture


Wed, 02/10/2010 - 18:07 | 225654 jm
jm's picture

The point is that in a (possibly) not so limited set of circumstances, you will not pursue recourse with the counterparty, but with an entity who has potentially assumed the role of insurer to the transaction.

No counterparty will screw the Fed, of course, but the structure enables the Fed some discretion regarding how to deal with counterparties... in extreme distress.  

Wed, 02/10/2010 - 17:33 | 225582 Anonymous
Anonymous's picture

Yeah Tyler you're off here bud. DTCC is a clearing house. If goldman has positive MTM in their favor, there is someone with negative MTM who has been collecting it and posting it to Goldman. Just like futures VM. Don't see the added risk here other than its competing with the CME who would surely be more responsible due to their profit-making nature.

Wed, 02/10/2010 - 17:37 | 225588 buzzsaw99
buzzsaw99's picture

I would prefer to pay GS the extortion money up-front as opposed to having them wreak havoc before they can collect.

Wed, 02/10/2010 - 18:12 | 225656 ZerOhead
ZerOhead's picture

GS would not be satisfied with just an up front payoff. Havoc is what they do best and they expect to get paid handsomely for it.

On the other hand... wouldn't it just be cheaper to buy off the whores we vote into office (and thus our own government) ? What would that cost... $5 to $10 billion perhaps? Shit!!!... that's less than $30 bucks a head... of course that would also be illegal...

Wed, 02/10/2010 - 17:41 | 225597 ghostfaceinvestah
ghostfaceinvestah's picture

Technically it is not the "taxpayer" at risk when the Fed is involved, it is anyone who holds USD.

Some of us taxpayers have moved most of our wealth out of USD, meaning the hit will be limited to near-term future income.

Wed, 02/10/2010 - 18:02 | 225639 Euro Dude
Euro Dude's picture

It's just a clearing house. There's no backstop. Who would ever be a clearing house or exchange if they had to take all this liability?

Wed, 02/10/2010 - 18:12 | 225664 BlackBeard
BlackBeard's picture

China's on the hook bitches!!! woot~

Wed, 02/10/2010 - 18:18 | 225677 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I think we're all in it together, matey.

Wed, 02/10/2010 - 19:31 | 225796 BoeingSpaceliner797
BoeingSpaceliner797's picture

China's on the hook?  The country that tears up contracts that don't work out for them?

Wed, 02/10/2010 - 18:15 | 225669 Anonymous
Anonymous's picture

I love reading zerohedge daily. I'm a physician and none of my colleagues get this stuff. I try to attempt an understanding. It is truly scary. What I'm trying to understand is that in today's Fed release by creating "a reverse repo, the Federal Reserve sells a security to a counterparty with an agreement to repurchase the security at some date in the future. The counterparty's payment to the Federal Reserve has the effect of draining an equal quantity of reserves from the banking system."

My question: Could the date in the future just continue to be pushed forward? Would mark-to-market be suspended on this reverse repo?

Thu, 02/11/2010 - 01:24 | 226298 Anonymous
Anonymous's picture

Doc, go read Warren Mosler stat :o)

Wed, 02/10/2010 - 18:17 | 225675 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

This is "Calvinball" at its best!

Wed, 02/10/2010 - 18:43 | 225718 cougar_w
cougar_w's picture


Wed, 02/10/2010 - 18:21 | 225683 Anonymous
Anonymous's picture

TD, what's the big deal? It's only money.

Wed, 02/10/2010 - 18:26 | 225687 johngaltfla
johngaltfla's picture

Holy flirkingschmidt!

Basically they are offering to monetize any and all losses and let the citizens of the U.S. eat shit sandwiches to accomodate the club and insure their shareholders do not get raped for playing Keno instead of the old investing models which were too slow and steady for their tastes.

Hi, my name is Ben Bernanke and I see your fire is running a little low. Let me back my tanker full of gasoline up to it and dump 500 gallons on it to fire it up.

Wed, 02/10/2010 - 18:31 | 225698 Anonymous
Anonymous's picture

Tyler, I think you have this wrong. I do not think this means the DTCC Warehouse is being guaranteed by the Fed, just overseen by. ICE Trust is Fed chartered as well as regulated by the NY Banking Commission, but clearly not guaranteed by. Sorry to say, but you may need to retract this...

Wed, 02/10/2010 - 21:54 | 226049 calltoaccount
calltoaccount's picture

" just overseen by."  

Yeah.  Just like the DTCC is overseen by the SEC in it's stock counterfeiting activities.

DTCC assumed responsibility (via the SEC) to be securities transaction counterparty-- but when securities (naked shorted and otherwise) go undelivered, says it has no authority to actually "settle" transactions by seeing to the actual delivery of that which was sold by the seller.  Wall St. wholly owned and operated DTCC is a total flim flam, just like its feckless, bought and paid for overseer, the SEC.  




Wed, 02/10/2010 - 18:42 | 225717 Yophat
Yophat's picture

ARROYO GRANDE, Calif. (MarketWatch) -- Wake up investors. Are you prepared for the economic anarchy coming after a global-debt time bomb explodes? Are you thinking outside the box? Investing differently? Act now -- tomorrow will be too late.

Start by looking past the endless cable skirmishes between Rush, Glenn, Bill and Shawn versus Harry, Nancy, Ben and Barack. Look way past the insurgency bonding Sarah and her diehard Tea Party revolutionaries with Ron Paul's Neo-Reaganite ideologues, Fat-Cat Bankers and the Party of No, all planning a massive frontal assault on the 2010 elections, hell-bent on destroying the presidency. All that's the sideshow.

The Big One is coming soon, bigger than the 2000 dot-com crash and the 2008 subprime credit meltdown combined. A huge market blowout. And as Bloomberg-BusinessWeek predicts: "The results won't be pretty for investors or elected officials."

After the global-debt bomb explodes don't expect a typical bear correction followed by a new bull. Wall Street's toxic pseudo-capitalism is imploding. Be prepared for a massive meltdown. Yes, already the third major bubble-bust of the 21st century, triggered once again by Wall Street's out-of-control Fat Cat Bankers. And it's dead ahead.

This is no joke, folks. Are you prepared? Or preparing? Will your family survive in a post-apocalyptic world, when anarchy is rampant in America? Look at Washington, Wall Street and Corporate America today. You know it's already begun.

You are witnessing a fundamental breakdown of the American dream, a systemic breakdown of our democracy and our capitalism, a breakdown driven by the blind insatiable greed of Wall Street: Dysfunctional government, insane markets, economy on the brink. Multiply that many times over and see a world in total disarray. Ignore it now, tomorrow will be too late.
Not a war about ideology, but an economic game-changer

This is a war to control 299 million American taxpayers. A war waged by the "Happy Conspiracy" Jack Bogle profiled in his 2004 "Battle for the Soul of Capitalism," a war machine of Fat Cat Bankers, CEOs, 42,000 mercenary lobbyists and a Congress held hostage to unlimited campaign donations. Their conspiracy has been waging this war against Americans for decades, long before the Supreme Court exposed their dirty secret.

Yes, your enemy is that "Happy Conspiracy:" It has degraded into a pseudo-capitalism with no conscience, no sense of the public good, hell-bent on controlling America's mind, your money and the global markets for its own selfish ends. And eventually it will trigger the game-changing global-debt bomb, the third global meltdown of the century that finally ignites the Great Depression II, plunging us into an era of anarchy.

Investors keep asking: "If it is coming, how do I invest? Buy gold? Commodities? Hedge? Short trading? TIPS? Hoard cash? Buy and hold? Lazy Portfolios?" What if the Dow sinks below 5,000? Maybe the worst-case scenario recently predicted by Bob Prechter: A deeper plunge to the 1,000 range? Imagine a global depression, a bear market dragging on for decades: "How do I protect my family? Can I ever retire? What do I invest in? How can anyone prepare?"
How America's two classes are preparing for a descent into anarchy

As America descends into anarchy your family's survival and your ability to retire will depend on which of America's two economic classes you belong to out of our total of roughly 300 million citizens:


"Average Joe & Jane" Americans: You're one of 299 million Main Street Americans. Average income is $50,000, only 10% of the average bonuses paid to Wall Street's Fat-Cat Bankers. Or you're already one of America's 20% underemployed ... maybe on food stamps ... maybe among the 47 million with no medical insurance ... your retirement assets are about $50,000, a year's survival. And you are "mad-as-hell" you're not working "inside" the "Happy Conspiracy."

"Happy Conspiracy" Insiders: You're one of the lucky million or so elite Insiders in the "Happy Conspiracy." You may work for a Fat-Cat Bank that American taxpayers bailed out last year so you pocketed a 2009 bonus gift of somewhere between $600,000 and $10 million. Maybe you're a Corporate American CEO. Maybe you're on the Forbes 400 list. Or you're a U.S. Senator.

Here's how these savvy Insiders are preparing: In his 2008 best-seller, "Wealth, War and Wisdom," hedge fund manager Barton Biggs, a highly respected Insider in the "Happy Conspiracy," advised rich insiders to expect the "possibility of a breakdown of the civilized infrastructure."

His advice: Make tons of money. Buy an isolated farm in the mountains. Protect family against the barbarians: "Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson."
How Wall Street insiders will treat Main Street in 'The Anarchy'

And when the barbarians do come, firing "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Imagine a scene like Port-au-Prince after the quake. Biggs is no radical anarchist, he's an establishment Insider, a great guy. We both arrived at Morgan Stanley about the same time. Biggs remained 30 years, was Morgan's chief global strategist. Ten times Institutional Investor magazine put him on Wall Street's "All-America Research Team."

True, he did hedge his prediction of the coming anarchy. His odds: 1 in 10. But in an early 2009 Newsweek article, "A Generation of Destruction: Throwing money at the problem and propping up greedy banks is like trying to put out a fire by pouring gasoline on it," Biggs teased us with a bleak scenario: "Great cycles of wealth creation have usually lasted about two generations, or 60 years. Inevitably, unequal riches corrupt and create envy, and they are always followed by a generation of enormous wealth destruction."

Warning: By vastly understating the risks while his Insiders prepare for the coming anarchy, Biggs is quietly misleading and disarming the rest of America.

Wed, 02/10/2010 - 23:41 | 226161 Anonymous
Anonymous's picture

We, myself and several other Marines, started preping 3 years ago, buying a farm in sparsely populated country.
2 of us were raised on a farm, so no transition problems..
As we worked the farm, we discovered
more Marines in the area, including an anti-terrorist
trained Marine.We now have quite a community, just the kind
that Celente talks so much about these days
I have been reading Biggs for many years, greatly enjoying "HedgeHogging"
Biggs radio and TV interviews are also quite good
Biggs surprised me by his breakdown scenario
He also reinforced my fundamental beliefs.
As Europe plays out, the above scenario has become more
The article above is very good, except for the part
where he talks about "shooting above their heads"
Thats ridiculous, liberal PC nonsense
Needless to say, we won't be shooting above their heads,
we will be shooting AT their heads and will do our best
to make sure no one gets away. Probably spike them to
the trees to serve as a warning too. Thats reality.....

Thu, 02/11/2010 - 10:51 | 226586 Anonymous
Anonymous's picture

What's funny is when you spike them to the trees as a warning,
and you come back several days later and some hungry somebitch done stripped the good meat from the carcass.

O well. At least a fellow american ate, eh?



Thu, 02/11/2010 - 13:41 | 226899 Yophat
Yophat's picture

LOL Nothing more scary than a group of hard chargin' devil pups!!!

Thu, 02/11/2010 - 13:48 | 226921 Yophat
Yophat's picture

Little insight to the war on the middle class -

Many parts of the economy are slowly recovering, but when it comes to health insurance costs, the worst appears far from over.

With increasing numbers of people losing coverage because of unemployment or relying on low-paying government health programs, hospitals and doctors are passing on more of their uncompensated costs to patients with private insurance.

Also, rising prices for medical care continue to outpace inflation. And the pools of people with individual health insurance policies have become sicker — and more expensive to treat — as healthier and younger people forgo coverage to save money.

All of these factors add up to higher insurance rates for everyone, industry experts say.

The problem is taking center stage now that Anthem Blue Cross has unveiled rate increases of up to 39 percent for its 800,000 individual policyholders in California.

The premium increases, which will take effect March 1, far outpace the increases of 10 percent to 25 percent seen in previous years among most insurers offering individual policies.

Wed, 02/10/2010 - 18:51 | 225728 Yophat
Wed, 02/10/2010 - 19:16 | 225764 badtimes (not verified)
badtimes's picture

It will only get worse...good articles:

Wed, 02/10/2010 - 20:14 | 225875 MarketTruth
MarketTruth's picture



Wed, 02/10/2010 - 19:24 | 225785 Shameful
Shameful's picture

My's like staring into a black just consumes everything and nothing remains...I'm honestly stunned by this. I thought there was some limit on moral hazard, truly moral hazard has become infinite if I'm reading this right, and God I hope I'm not.

Wed, 02/10/2010 - 19:29 | 225792 BoeingSpaceliner797
BoeingSpaceliner797's picture

Thank God the Fed is backstopping, in any way, gambling contracts which should probably be illegal.  "Here, let me sell you some insurance against default.  You don't own the underlying asset?  No biggie; I don't have the ability to pay in the event of default." 

Sure sounds like fraud to me, in both directions; let's backstop it.   

Wed, 02/10/2010 - 20:01 | 225847 Anonymous
Anonymous's picture

This may be a stupid question, but what's the deal with ICE now days? I was under the impression that they were winning much of the market share in CDS clearing.

Wed, 02/10/2010 - 20:15 | 225878 MarketTruth
MarketTruth's picture

Where is Chumbawumba???? i think now is the time for his post...

Wed, 02/10/2010 - 20:39 | 225932 Anonymous
Anonymous's picture

Nice story, Tyler


Wed, 02/10/2010 - 21:20 | 226005 DavosSherman
DavosSherman's picture


Wed, 02/10/2010 - 23:31 | 226151 Tic tock
Tic tock's picture

The presence of the FED between counterparties - difficult to argue against given the possibility for the need to intervene in the light of perceived risk. I suppose in this way the FED will have near perfect information.

Could also be a convenient vehicle to park any transactions the FED has made which may - under an audit  - appear as non-comittent with its prior role. ?.

...but it's a bucket to the inferno.. the risk is perceived on the basis of real 'social' fundamentals! -like laws and basic price structures.. the inferno is inflation, the current world of banking arbitrage is still going to carry on chasing increasingly leveraged 'bets', that is 'inflation' in a sense of the word. 

It's a very risky move, we need to consolidate and shore-up the Treasury. 


Wed, 02/10/2010 - 23:49 | 226167 Anonymous
Anonymous's picture

Explain why the fed is on the hook?

Thu, 02/11/2010 - 00:10 | 226207 sethbru
sethbru's picture

I see this as their "solution" to "too big to fail". To placate the masses, they will allow large financial institutions to fail in the future, yet they will still backstop their underlying debt and securities (but not the shareholder equity).

Thu, 02/11/2010 - 01:45 | 226319 cocoablini
cocoablini's picture

The US can't backstop all those derivatives-it's just going to say it can. Plus, all that toxic derivative trash(which is basically just a bunch of asset classes created out of thin air-like carbon credits) always needed a clearing house to FIND the goddamn counterparties. When Lehmans blew up, they fired everyone and then the stupid government had to hire people back to read the counterparty unwind list-basically in an excel doc. There was no formal way to even determine who was the counterparty. It worked fine,like a poker table, until everyone ran out the door and no one knew who owed what to who.

All this crap should be illegalized and unwound-or written off worthless. Greenspan and that hosebag Robert Rubin made sure banks could create asset classes and money supply at will. If the banks needed billions more in reserves-well, shit, just make an asset class worth billions-out of thin air.

Thu, 02/11/2010 - 11:15 | 226614 Anonymous
Anonymous's picture

yeah Tyler. U might have gotten 'a little over ur skiis on this one'... I doubt the Fed is going to backstop the OTC derivatives market in a formal manner... More likely they will b acting in a form of oversight and the Warehouse Trust will b working in a CCP role, or will b working closely with the other CCPs.

Fri, 02/12/2010 - 11:32 | 228399 Anonymous
Anonymous's picture

Why are these credit swaps even allowed to continue on? Knowing full well what problems AIG swaps and others created. Why are we letting this mob operation get worse. No one can hold enough capital to pay these bets off so in my humble opinion they should all be made null and void. What am I missing?

Fri, 02/12/2010 - 14:22 | 228762 Anonymous
Anonymous's picture

You are missing that CDS are DESIGNED to work like black
holes that suck up every bit of mass that has value in existence in the universe and they are working perfectly. The consequence of the eventual financial meltdown anticipated by the other posts will be the 'creditors' (banks in Europe and US) taking title to US assets like national parks (good for mining), energy grids, government buildings, homes via FNA/FREDDIE mortgages, and whatever else they want. Read Micheal Hudson on Iceland. That's the model, boys and girls.

Mon, 04/19/2010 - 10:27 | 307873 Tom123456
Tom123456's picture

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