This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied

Tyler Durden's picture

When Henry Paulson publishes his long-awaited memoirs, the one section that will be of most interest to readers, will be the former Goldmanite and Secretary of the Treasury's recollection of what, in his opinion, was the most unpredictable and dire consequence of letting Lehman fail (letting his former employer become the number one undisputed Fixed Income trading entity in the world was quite predictable... plus we doubt it will be a major topic of discussion in Hank's book). We would venture to guess that the Reserve money market fund breaking the buck will be at the very top of the list, as the ensuing "run on the electronic bank" was precisely the 21st century equivalent of what happened to banks in physical form, during the early days of the Geat Depression. Had the lack of confidence in the system persisted for a few more hours, the entire financial world would have likely collapsed, as was so vividly recalled by Rep. Paul Kanjorski, once a barrage of electronic cash withdrawal requests depleted this primary spoke of the entire shadow economy. Ironically, money market funds are supposed to be the stalwart of safety and security among the plethora of global investment alternatives: one need only to look at their returns to see what the presumed composition of their investments is. A case in point, Fidelity's $137 billion Cash Reserves fund has a return of 0.61% YTD, truly nothing to write home about, and a return that would have been easily beaten putting one's money in Treasury Bonds. This is not surprising, as the primary purpose of money markets is to provide virtually instantaneous access to a portfolio of practically risk-free investment alternatives: a typical investor in a money market seeks minute investment risk, no volatility, and instantaneous liquidity, or redeemability. These are the three pillars upon which the entire $3.3 trillion money market industry is based.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of these three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to "suspend redemptions to allow for the orderly liquidation of fund assets." You read that right: this does not refer to the charter of procyclical, leveraged, risk-ridden, transsexual (allegedly) portfolio manager-infested hedge funds like SAC, Citadel, Glenview or even Bridgewater (which in light of ADIA's latest batch of problems, may well be wishing this was in fact the case), but the heart of heretofore assumed safest and most liquid of investment options: Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was "absolutely" safe money, a back office person will get back to you saying, "Sorry - your money is now frozen. Bank runs have become illegal." This is precisely the regulation now proposed by the administration. In essence, the entire US capital market is now a hedge fund, where even presumably the safest investment tranche can be locked out from within your control when the ubiquitous "extraordinary circumstances" arise. The second the game of constant offer-lifting ends, and money markets are exposed for the ponzi investment proxies they are, courtesy of their massive holdings of Treasury Bills, Reverse Repos, Commercial Paper, Agency Paper, CD, finance company MTNs and, of course, other money markets, and you decide to take your money out, well - sorry, you are out of luck. It's the law.

A brief primer on money markets

A very succinct explanation of what money markets are was provided by none other than SEC's Luis Aguilar on June 24, 2009, when he was presenting the case for making even the possibility of money market runs a thing of the past. To wit:

Money market funds were founded nearly 40 years ago. And, as is well
known, one of the hallmarks of money market funds is their ability to
maintain a stable net asset value — typically at a dollar per share.

In the time they have been around, money market funds have grown
enormously — from $180 billion in 1983 (when Rule 2a-7 was first
adopted), to $1.4 trillion at the end of 1998, to approximately $3.8
trillion at the end of 2008, just ten years later.
The Release in front
of us sets forth a number of informative statistics but a few that are
of particular interest are the following: today, money market funds
account for approximately 39% of all investment company assets; about
80% of all U.S. companies use money market funds in managing their cash
balances; and about 20% of the cash balances of all U.S. households are
held in money market funds.
Clearly, money market funds have become
part of the fabric by which families, and companies manage their
financial affairs.

When the Reserve fund broke the buck, and it seemed like an all-out rout of money markets was inevitable, the result would have been a virtual elimination of capital access by everyone: from households to companies. This reverberated for months, as the also presumably extremely safe Commercial Paper market was the next to freeze up, side by side with all traditional forms of credit. Only after the Fed stepped in an guaranteed money markets, and turned on the liquidity stabilization first, then quantitative easing spigot second, did things go back to some sort of new normal. However, it is only a matter of time before the patchwork of band aids holding the dam together is once again exposed, and a new, stronger and, well, "improved" run on the electronic bank materializes. It is precisely this contingency that the SEC and the administration are preparing for by "empowering money market fund boards of directors to suspend redemptions in extraordinary circumstances to protect the interests of fund shareholders."

A little more on money markets:

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds, in the United States, are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must maintain a weighted average maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements.

Ironically, the proposed change to Rule 2a-7 seeks to make dramatic changes to the composition of MMs: from 90 days, the WAM would get shortened to 60 days. And this is occurring at a time when the government is desperately seeking to find ways of extending maturities and durations of short-term debt instruments: by reverse rolling the $3.2 trillion industry, the impetus will be precisely the reverse of what should be happening, as more ultra-short maturity instruments are horded up, leaving a dead zone in the 60-90 day maturity window. Some other proposed changes to 2a-7 include "prohibiting the funds from investing in Second Tier securities, as defined in Rule 2a-7. Eligible securities would be redefined as securities receiving only the highest, rather than the highest two, short-term debt ratings from a requisite nationally recognized securities rating  organization. Further, money market funds would be permitted to acquire long-term unrated securities only if they have received long-term ratings in the highest two, rather than the highest three, ratings categories." In other words, let's make them so safe, that when the time comes, nobody will have access to them. Brilliant.

The utility of money market funds has long been questioned by such systemically-embedded financial luminaries as Paul Volcker (more on this in a minute). After all, what are money markets if merely an easy, and 401(k)-eligible option to not invest in equity or bonds, but in "paper" which is cash in all but name (maybe not so much after the proposed Rule change passes). And as money markets account for a huge portion of the $11 trillion of mutual fund assets as of November (per ICI, whose opinion, incidentally, was instrumental in shaping future money market policy), $3.3 trillion to be precise, and second only to stock funds at $4.8 trillion, one can see why an administration, hell bent on recreating a stock-price bubble, would do all it can to make money markets extremely unattractive. In fact, the current administration has been on a roll on this regard: i) keeping money market rates at record lows, ii) removing money market fund guarantees and iii) and even allowing reverse repos to use money markets as sources of liquidity (because we all know that the collateral behind the banks shadow banking arrangement with the Fed are literally crap; as we have noted before, we will continue claiming this until the Fed disproves us by opening up their books for full inspection. Until then, yes, the Fed has lent out hundreds of billions against bankrupt company equity, as we have pointed out in the past).  Money Markets are the easiest recourse that idiotic class of Americans known as "savers" has to give the big bank oligarchs, the Fed and the bubble-inflating Administration the middle finger. As you will recall, recently Arianna Huffington has been soliciting all Americans do just that: to move their money out of the tentacles of the TBTFs. In essence, the money market optionality is precisely the equivalent of moving physical money from TBTFs to community banks in the "shadow economy." Because where there is $3.3 trillion out of $11, there could easily be $11 trillion out of $11, which would destroy the whole concept of Fed-spearheaded asset-price inflation, and would destroy overnight the TBTFs, as equities would once again find their fair value. It is no surprise then, that the current financial system, and its political cronies loathe the concept of Money Markets, and have done all they could to make them as unattractive as possible. Below is a chart of the Net Assets held by all US money market funds and the number of money market mutual funds since January 2008:

Obviously, attempts to push capital out of MMs have succeeded: after peaking at $3.9 trillion, currently money markets hold a two year low of $3.27 trillion. Furthermore, the number of actual money market fund operations has been substantially hit: from 2,078 in the days after the Lehman implosion, this is now down to 1,828, a 12% reduction. At this rate soon there won't be all that many money market funds to chose from. While the AUM reduction is explicable through the previously mentioned three factors, the actual reduction in number of funds is on the surface not quite a straightforward, and will likely be the topic a future Zero Hedge post. Although, the impetus of managing money when one can return at most 0.6% annually, and charge fees on this "return" may be missing - the answer may be far simpler than we think. Why run a money market, when the Fed will be happy to issue you a bank charter, and you can collect much more, risk free, courtesy of the vertical yield curve.

Yet what is strange is that even with all the adverse consequences of holding cash in Money Markets, the total AUM of this "safest" investment option is still substantial, at nearly $3.3 trillion as of December 30, a big decline yes, but a decline that should have been much greater considering even the president since March 3 has been beckoning his daily viewership to invest in cheap stocks courtesy of low "profit and earning ratios" (that, and the specter of President's Working Group on Financial Markets). Could this action, whereby investors will no longer have access to money that historically has been sacrosanct and reachable and disposable on a moment's notice, be the last nail in the coffin of money markets? We believe so, however, we are not sure if it will attain the desired effect. With an aging baby boomer population, which would rather burn their money than invest in the stock market again and relive the roller-coaster days of late 2008 and early 2009, the plan may well backfire, and result in even more money leaving the shadow system and entering such tangible objects as deposit accounts (at community banks, of course), mattresses and socks. And speaking of the President's Working Group...

The Group of Thirty

When discussing the shadow economy, it is only fitting to discuss the shadow decision-makers. In this regard, the Group of 30, is to the traditional economic decision-making process as the President's Working Group is to capital markets. Taken from the website, the self-description reads innocently enough:

The Group of Thirty, established
in 1978, is a private, nonprofit, international body composed of very senior
representatives of the private and public sectors and academia. It aims to
deepen understanding of international economic and financial issues, to explore
the international repercussions of decisions taken in the public and private
sectors, and to examine the choices available to market practitioners and policymakers.

The Group's members meet in plenary sessions twice a year with select guests
to discuss important economic, financial and policy developments. They reach
out to a wider audience in seminars and symposia.  Of most importance
to our membership and supporters is the annual International
Banking Seminar.

Sounds like any old D.C.-based think tank... until one looks at the roster of members:

  • Paul A. Volcker, Chairman of the Board of Trustees, Group of Thirty, Former Chairman, Board of Governors of the Federal Reserve System
  • Jacob A. Frenkel, Chairman, Group of Thirty, Vice Chairman, American International Group, Former Governor, Bank of Israel
  • Jean-Claude Trichet, President, European Central Bank, Former Governor, Banque de France
  • Zhou Xiaochuan, Governor, People’s Bank of China, Former President, China Construction Bank, Former Asst. Minister of Foreign Trade
  • Yutaka Yamaguchi, Former Deputy Governor, Bank of Japan, Former Chairman, Euro Currency Standing Commission
  • William McDonough, Vice Chairman and Special Advisor to the Chairman, Merrill Lynch, Former Chairman, Public Company Accounting Oversight Board, Former President, Federal Reserve Bank of New York
  • Richard A. Debs, Advisory Director, Morgan Stanley, Former President, Morgan Stanley International, Former COO, Federal Reserve Bank of New York
  • Abdulatif Al-Hamad, Chairman, Arab Fund for Economic and Social Development, Former Minister of Finance and Minister of Planning, Kuwait
  • William R. Rhodes, Senior Vice Chairman, Citigroup, Chairman, President and CEO, Citicorp and Citibank
  • Ernest Stern, Partner and Senior Advisor, The Rohatyn Group, Former Managing Director, JPMorgan Chase, Former Managing Director, World Bank
  • Jaime Caruana, Financial Counsellor, International Monetary Fund, Former Governor, Banco de España, Former Chairman, Basel Committee on Banking Supervision
  • E. Gerald Corrigan, Managing Director, Goldman Sachs Group, Inc., Former President, Federal Reserve Bank of New York
  • Andrew D. Crockett, President, JPMorgan Chase International, Former General Manager, Bank for International Settlements
  • Guillermo de la Dehesa Romero, Director and Member of the Executive Committee, Grupo Santander, Former Deputy Managing Director, Banco de España, Former Secretary of State, Ministry of Economy and Finance, Spain
  • Mario Draghi, Governor, Banca d’Italia, Chairman, Financial Stability Forum, Member of the Governing and General Councils, European Central Bank, Former Vice Chairman and Managing Director, Goldman Sachs International
  • Martin Feldstein, Professor of Economics, Harvard University, President Emeritus, National Bureau of Economic Research, Former Chairman, Council of Economic Advisers
  • Roger W. Ferguson, Jr., Chief Executive, TIAA-CREF, Former Chairman, Swiss Re America Holding Corporation, Former Vice Chairman, Board of Governors of the Federal Reserve System
  • Stanley Fischer, Governor, Bank of Israel, Former First Managing Director, International Monetary Fund
  • Philipp Hildebrand, Vice Chairman of the Governing Board, Swiss National Bank, Former Partner, Moore Capital Management
  • Paul Krugman, Professor of Economics, Woodrow Wilson School, Princeton University, Former Member, Council of Economic Advisors
  • Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Economics, Harvard University, Former Chief Economist and Director of Research, IMF

and, of course:

  • Timothy F. Geithner, President and Chief Executive Officer, Federal Reserve Bank of New York, Former U.S. Undersecretary of Treasury for International Affairs
  • Lawrence Summers, Charles W. Eliot University Professor, Harvard University, Former President, Harvard University, Former U.S. Secretary of the Treasury

and many more. Given the choice of being a fly on the wall at a G7 meeting or that of the "Group of 30", we would be very curious to see who would pick the former over the latter. These are the people, whose "reports" and groupthink determines the financial fate of the world: their vested interest in perpetuating the status quo is second to none. Which is why we read with great interest a recent paper from the Group of 30: Financial Reform, A Framework for Financial Stability, released on January 15, 2009, deep in the heart of the crisis. While the paper has enough insight for many, non-related posts (we are already working on several), we will focus on the policy recommendations presented for money market funds.

Money Market Mutual Funds and Supervision


Recommendation 3:

a. Money market mutual funds wishing to continue to offer bank-like services, such as transaction account services, withdrawals on demand at par, and assurances of maintaining a stable net asset value (NAV) at par should be required to reorganize as special-purpose banks, with appropriate prudential regulation and supervision, government insurance, and access to central bank lender-of-last-resort facilities.

b. Those institutions remaining as money market mutual funds should only offer a conservative investment option with modest upside potential at relatively low risk. The vehicles should be clearly differentiated from federally insured instruments offered by banks, such as money market deposit funds, with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV. Money market mutual funds should not be permitted to use amortized cost pricing, with the implication that they carry a fluctuating NAV rather than one that is pegged at US$1.00 per share.

The phrasing of "with no explicit or implicit assurances to investors that funds can be withdrawn on demand at a stable NAV" should be sufficient to whiten the hairs of every proponent of money markets as a "safe" investment alternative. Yet what the SEC has done, is to take the Group of 30 recommendation, and take it to the next level: not only will funds not have explicit assurance of any kind vis-a-vis funding, but in fact, the redemption of said funds would be legally barred upon "extraordinary circumstances."

Rule 22e-3

From the SEC:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.

Lots of keywords there: "fiduciary", "impose hardships" but most notably "permit us to take steps to protect investors." Uh, SEC, no thanks. We can protect ourselves. Your protection so far has resulted in the Madoff scandal, the BofA fiasco, billions in insider trading profits and not one guilty person, who did not manage to escape unscathed with merely a wrist slap in the form of some pathetic fine. With all due respect, SEC, any proposal that involves you acting to "protect" us should be immediately banned and any further discussion ended.

Especially in this case: what the SEC is proposing is simple - the entire market structure has been converted to a hedge fund. When investors hear the word "suspend redemptions" they envisioned a battered, pro-cyclical, leveraged, permabullish hedge fund, that suddenly "found itself" down 30, 40, 50 or more percent, and to avoid instantaneous liquidation, had to bar redemptions. Forgive us, but is the SEC confirming that the entire market is now one big casino, one big government subsidized hedge fund, where as long as things go up, all is good, but the second things take a leg down, just like any ponzi, nobody will be allowed to pull their money? Maybe Madoff should have created the same redemption suspension: his fund would still be alive and thriving, now that the government has become the biggest ponzi conductor of all time. And nobody would have been the wiser. But instead, the Securities and Exchange Commission, in discussions with the Group of 30, Barney Frank, and any other conflicted individuals who only care about protecting their own money for one more year, has decided, in its infinite wisdom, to make money markets a complete scam. And this is the gist of regulatory reform in America.

Conclusion

At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that "price discovery" occurs all at once, and at the very same time. And all too often, investors "discover" they were lied to, as the emperor, in any fiat system, always has no clothes. Just like in September 2008, when the banks were forced to look at each-others' balance sheet and realize that there are no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs are the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman's FICC trading axes would have resulted in the "Ice-Nine'ing" (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman's EPS. But we will never know. What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of "last fool in", holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.

h/t Geoffrey Batt

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bugs_'s picture

Way to go TD.

Our dollars in MMF have been "virtualized"

and are no longer really ours.

Rainman's picture

Our Masters have concluded that puny returns are insufficient to unwind the sheeple's newly found cash saving habits. Therefore, it is necessary to impose risk on the timid and skeptical.

Get out there and buy a Kindle, a house or a car.....or else.  

Anonymous's picture

Would this play to AU's advantage?

I know of wealthy people who are disposing of assets, closing businesses and patriating all their $$$ to gold. They plan to live very simply, travel, declare their income to the IRS at what it is (just barely below the taxable rate which extracts from them), and live on savings until this thing either collapses or sorts out.

This gov't doesn't regard your hard-earned savings as your sacrosanct possession, and mandates that it be put at risk. However there are few acceptable risks anymore, and the currency really can't be trusted.

We are in a financial no-mans-land, and only a fool would layer on greater chains to bind him down by playing by THEIR rules anymore.

ATG's picture

Try getting gold through a metal detector,

or suffer the haircuts and frauds on paper gold.

Non starters both.

Cash just beginning to awaken as king...

http://www.jubileeprosperity.com/

 

Anonymous's picture

Not everybody is an idiot enough to be living in the United States. And just in case you didn't know, GOLD IS AVAILABLE ALL OVER THE FUCKING WORLD.

Ripped Chunk's picture

"GOLD IS AVAILABLE ALL OVER THE FUCKING WORLD."

Must be watching one of those "limited edition gold coin" infomercials at 3:00 AM. (personally, I was tuned into "riches in real estate" myself)

MORON

Anonymous's picture

Ugh.

Lehman never rivalled goldies in FI trading....the world is not a giant conspiracy theory, son

nicholsong's picture

I agree. But there are interesting stories out there regarding gold. Like this one: Pak has gold reserves worth trillions of dollars

Careless Whisper's picture

 

@ATG  The Federal Reserve was created in 1913 and one of its "missions" is to influence monetary conditions in order to stabilize prices.

LOL

Compute for yourself, inflation since 1913;

http://www.usinflationcalculator.com/ 

DosZap's picture

This was a bit of a shocker, the comment...............

Trillions?, how about using some of it to come out of the Stone Age.

In HIS times,

"Silver, was as plentiful as stones in the streets"..............similar sounding.

On the Topic, are these dudes TRYING to start a RUN?.

Personally TD, I appreciate the heads up................

Anyone here????, your opinons on Perth, as a vehicle to offshore it, legally, allocated only.

Anonymous's picture

I agree with you but those new body scanners sure do look convenient to preventing you flying (for now restricted to airports) with anything substantive...

MsCreant's picture

It's like they are hemming us in and corraling us, isn't it?

carbonmutant's picture

I'm reminded of the Aesop's fable of the Lion and the Lamb.

"I see many tracks going in, I see none coming out"

chumbawamba's picture

Another bullshit FUD turd.  You seem to drop a lot of them around any discussion of gold.  You're so obvious it's painful.

Have fun wiping your ass with your paper monetary instruments when your heroes pull the plug.

I am Chumbawamba.

Anonymous's picture

Could not have said it better.

Rusty Shorts's picture

@ATG,

 

Try getting cash through a metal detector dip-shit... it has to do with the metalic filament in the security strip inbedded in the larger bills, get enough of them together in one spot and the signal that is returned from the detector can be picked up.

 

I am not Chumbawamba.

Anonymous's picture

The fact that Goldman Sachs re released their book, one year after it’s original copyright date of Sept of 2008, in response to conspiracy theories, proves that the theories have some validity. It’s suspicious enough that the book, a 100 years in the making, was released just one month before the stock market crash. Yes, in the newly revised “Introduction” chapter, Goldman Sachs uses the word conspiracy. I am thrilled that the few of use that wrote on the subject had such an impact that Goldman Sachs found it nesscecary to re release their book.
They also added a last chapter entitled “A Perfect Storm” of course after they could see how Paulson’s inspired plot to crash the markets, and then loot the US Treasury played out. This new last chapter (released one year later) is preceeded by a chapter entitled “Before the Storm.” How cute is that? “Before the Storm” and a “Perfect Storm.” Well get this.
The 1st version came out one month before the stock market crash, and so them using the title “Before the Storm” many months before the crash, making Goldman look a hell of a lot smarter than anyone else. And the fact that they used the word “Before” in the heading of the last chapter of the book, insinuates that they are planning to re release their book after the crash?
“The Partnership,” 1st version in 2008, released months before the market crash, is Goldman Sachs feeble attempt to rewrite history, and to prime us on what to believe about the upcoming crash, and lastly to paint a fabulous picture of the last 100 years of Wall Street with Goldman Sachs as King.
One only needs to read the last chapter “Paulson’s Disciplines” to get a feeling of the idea of how this man could of went to the White House to be Treasury under Bush with a pre meditated plan to loot America for $700 billion.
Or read the following chapter “Before the Storm,”on Lloyd Blankflien, Paulson’s successor, where they confess their profits of 3 billion dollars betting against sub prime in 2007, while their main man Paulson is at the White House, as Treasury under Bush, acting like he didn’t see the real estate thing coming? I guess if sub prime loans, were to be the scapegoat, might as well get heir side of the story out in print first.

Anonymous's picture

The people have the power to stop the FED dead in it's tracks.

We need to organize our OWN banking holiday.

Maybe the last business day of the quarter or on $th of July,

We all show up at the bank and demand our money.

The concept of de-leverage really packs punch at Wall Street.

Lets force the issue now, thereby hopefully having more control over the out come of the situation.

Because the people are "Too Small To Fail" we will over comer the money men some day. It is profitzied.

TD, why are you still in the game?

Patrick the Painter

Anonymous's picture

RE: The fact that Goldman Sachs re released their book, one year after it’s original copyright date of Sept of 2008, in response to conspiracy theories.......

As I was trying to say above:
Goldman Sachs uses the word "Before" in the title "Before the Storm" for the last chapter in the book "The Partnership: The Making of Goldman Sachs.

The stock market crashes one month after the release date of the first version. One year later, Goldman Sachs re releases the book, except they add a new last chapter, entitled "The Perfect Storm."

It makes it seem as though they knew the stock market was going to crash. The new version is in paper back and is only $20 versus the $40 for the first version. They realy want you to own a copy of this "new history."

ViVi Goldman Sachs

Anonymous's picture

Bravo. Further to that dissect the events. A money market fund with 750 million in Lehman commercial paper broke
the buck when Lehman couldn't make good on the loan.
At that point the Fed could of stepped in to backstop
the trade they chose not to letting Lehman go. Bernanke claimed they had no authority to step in that's a lie. They had the authority the argument is Bernanke and Paulson needed to create a sense of urgency in Washington to get them to pass the bailout. Only it backfired it cost us much more in the long run. Barclays claims they passed
on buying Lehman because the fed wouldn't guarantee the
risk like they did with the shotgun marriage of Bear and
JP Morgan Chase. I have been in the debt capital markets
for over two decades and I have never seen anything like
what has gone on in this country in the last two years
it is a disgrace.

DosZap's picture

Just don't try getting anything close to 10 Lge thru............

Their is a legal way to get Gld out  anyone noticed how hard it is to find Krugs of late?.

They are not legal tender..........so, I see no reason / way they can stop you from carrying out what you want.(if I am incorrect, pls correct me).

mnevins2's picture

ATG, I see that "the usual suspects" are irate and attacking whenever their "holy grail" of G-O-L-D is questioned.

I've given up with this crew in regard to this subject. They never provide "light," just heat, profanities and insults.

In truth, I indeed enjoy their wits and comments. They are a bright group of individuals. But the rage and personal attacks upon those that question the deity of gold leaves me shaking my head and cold.

Perhaps my comments will engender the typical reply, but I hope not. I'd appreciate, from them, their using words and intellect to enlighten and educate.

I'd REALLY appreciate a "how-to" on their plans. Who are they (I don't want names, but generalities regarding age, family structure, income, geographic region, employment, approx holdings in pm) and how/why, in their specific predicament, they believe that their "plan" would benefit all of us.

Me? 50, two teen-age children, $100,00+, midwest suburb, finance - and have more than a little in regard to assets.

ZH provides me (and thousands more) with provocative, extremely intelligent and informative information. I am grateful. I then turn to the comments and find a lot of trash.

MsCreant's picture

I am having a hard time behaving, but you are right, I should. Curious, is that your income, or you and your significant other. For instance you ask me and I am 60+, but then, I would not think to answer my husband's income as my own, but if I did, that jacks "us" up some. He earns his, I earn mine, I don't need him for that. Maybe some day. Hope not.

Here is the other one. Are you better than me if you earn 100+ and I only earn 60+? Is that the point of getting this info? Does that mean you have some greater authority than I do in thinking about these things?

What if I have benefits too? Should I go over to the side and calculate those too and scurry back over here with that total? And will you then go to the side and do the same?

I bet I sound ugly, and this seems to be some of the trash you don't like. But I am honestly curious. What if I am unemployed and living off my PMs? Am I not entitled to have a voice in this conversation?

I mean to confront you like I'd confront a friend.

And I am open to it that I have missed something and that you are not acting classist with this post.

mnevins2's picture

Dear MsCreant, I believe that age is important because it provides a lot of perspective and context.

For instance, if one is 28, with kids, works at a major bank - versus someone at 60+, no kids, then, yes, I think that comments regarding "heading for the hills" (as a silly example) or "refusing to pay the mortgage" or whatever - then the difference in circumstances is important.

Regarding income, to simplify, my wife and I are indeed one unit. Always have been and, I presume, always will be. This maximizes efficiencies and simplicities.

Income in this thread can also relate to pm holdings - sort of. Many posters say "buy gold" and then talk about taking the next paycheck and picking up a couple of more ounces. This differs from someone who has personally stockpiled hundreds of ounces (or more).

I don't personally care about the "next paycheck" person and their ideas and motivations (no offense), but I absolutely wish to know what "Chumbawamba" or GK. They appear to have a serious conviction about pm's and I'd very much like to know their thoughts and plans - with some context.

Bottom line, we benefit (I believe) from the wonderful research, insight and prose of ZH. Many of us are quite concerned with what we perceive to be a financial house of cards - which, we believe, is benefiting a few over the many. I know finance and I know history, but my ignorance is also vast. I wish for enlightenment from ZH and the many posters, who, collectively (and, of course, individually), are at level much higher than mine.

We truly DO NOT know what the future will bring, but let's challenge and educate rather than insult and trash. Thanks. MsCreant - I WANT your voice - and others.

 

 

 

Anonymous's picture

" let's challenge and educate rather than insult and trash."

Fuck off, asshat.

Anonymous's picture

Please, oh please, make the math problems harder. It's gettin all Yahoo up in here!

dark pools of soros's picture

+ 42/6^[(766*45-(87+9+(-9/88))/9222)+.2255*666]

 

chumbawamba's picture

In a nutshell (because my education took years, so you can't expect me to give you the important background to my argument in one posting, or even several) this system is fucked.  Our debt-to-GDP ration is well beyond what other empires experienced just before their collapse.  Our central bank is monetizing thin air to pay off the financial blackholes created by unregulated/out-of-control over-the-counter derivatives that are valued at well over $600 trillion globally, and our government is planning to borrow every last unit of currency under the moon in order to keep from falling into a fiscal abyss.  How the hell does anyone expect this is going to turn out anything but very, very badly?

There are now literally tens of trillions of dollars of liabilities stretching from here on decades into the future.  Our debt-based monetary system means these liabilities will only increase in cost and interest as time goes on.  From where are the revenues going to come?  The pace of productivity and wealth creation in this nation will have to inflate accordingly.  How is this going to be accomplished?  Do you have any answers?  Does anyone?

We took a quantum leap from billions to trillions--a thousand-fold increase--in our economic discourse.  It follows then that our GDP will have track this increase to keep up with the new normal.  Again, from where are the revenues going to come?  Are they going to be conjured up again like magic, so that we go from trillions to quadrillions as the new new normal?  Or are you going to be expected to magically increase your productive output 1000 times to make up the difference, along with every other American (including children 1 and older, since we’ll also be needing more manpower for the job, way more than we have even if you include the illegals)?

WHO IS GOING TO PAY FOR ALL OF THIS?

The answer never comes.  Oh yeah, this is simple to solve, they say.  They'll just "add liquidity" to the market, then "drain it", as if this was just a matter of doing the dishes, and all the complaining and fussing and fearing and loathing and hemming and hawing was all just a matter of no one wanting to pony up to the sink to actually do the deed.  But no, that’s just a cheap distraction.  So the question remains:

WHO IS GOING TO PAY FOR ALL OF THIS?

I’ll tell you who: Us.  As in you.  And I.  And MsCreant.  Or at least those of us that are silly enough to file and pay taxes (I don't know about you two, but I do not submit to extortion, otherwise known by the letters I-R-S).  And how many people like me do you think there are now?  Probably just a relative few.  We're the "out there" nutballs.  We're the ones that make wild-eye predictions of economic collapse and social chaos to follow.  We're the ones who get pooh-poohed.  Until the government keeps pulling shit like this.  Then we grow in numbers.  The disgusted; the disenfranchised; the disaffected.  We find each other, learn from each other, and spread the wisdom.  We watch as the government creeps upon our God-given freedoms like a depraved predator, one after the other, picking them off until one day we’ll be left naked and defenseless.  But we prepare, and in the meantime we keep introducing new people to the mouth of the rabbit hole.  And if you’re courageous, and intelligent, you’ll go in.  And the deeper down the rabbit hole you go, the more you realize that real money—gold and silver—is the answer.

As more people discover the answer, the dollar takes one step closer to irrelevancy.  Once it reaches that point, you have hyperinflation.  Once the dollar enters hyperinflation the game is over; or rather, it just begins.  But then that's a matter of perspective :)

Will the dollar cross that line of confidence?  After all of my study, I sincerely believe it will and am convinced beyond a shadow of doubt about that conviction.  I’ve been waiting for someone to come along and explain how I’m wrong about this.  Despite my rhetoric, my eyes and mind are open.  Convince me.  Anyone?

In short: follow Austrian school of economics.  I'm not saying they have ALL the answers, but so far it seems they have pretty damn nearly all of them.

I am Chumbawamba.

dogbreath's picture

Chumba,

 

In regard to other failed empires:

I noticed that all of them; Rome, Byzantium, China(1910) had bloated, disobedient, corrupt bureaucracies of eunuchs. Thios contributed to their downfall.   Britian(1945) differed perhaps in that it was broke and could not maintain it extensive colonies.  I have never gotten the impression they were corrupt but if they aren't eunuchs they are queer. 

David449420's picture

Eloquent, and said far more concisely than I could.  And I am not an American, but a close neighbor.

The only thing that I am not 100% clear about is if precious metals are the be all & end all solution to weather the coming GLOBAL storm.  And it IS going to be GLOBAL, not just the US.

 

 

 

chumbawamba's picture

Gold, Guns, Garden.

Self-sufficiency.  Self-respect.

Self, Family, Community.

Damn, it's almost a haiku, but not :)

I am Chumbawamba.

web dizajn's picture

Democracy legitimizes this government aggression because the violence is sanctioned by a majority of voters web dizajn

merehuman's picture

Damn it CHUMBAWAMBA,   you write nice. Good flow, like straight from the heart.   Meanwhile we wait

for the shoe to drop , and the axe to fall

and i know its gonna hurt us all. Already has. At 59,this grown man has tears in his eyes. Empathy so sucks

 

Anonymous's picture

How much of this perspective is just you getting old? YOu're 59, after all. There isn't much "future" left for you old boomers, so maybe, just maybe, you are confusing your narcissistic tendencies with the end of the world when really it is just the end of a generation? Let go, for crissakes. Grow up (finally) and realize that the world cannot revolve around YOU forever.

MsCreant's picture

Projecting some issues ya got with mom and dad?

merehuman's picture

Let go he says, having no idea who I am . I let go years ago. 

By the way, growing up is the ability to encompass a larger view. From my perch i see many tent cities and a people with little hope of a positive future.

I see hunger amongst many and recall how ones teeth chatter uncontrollably.  At night many keep walking as they literally cannot sleep.  Been there, done that and well remembered it is.

Having been poor repeatedly I have a ton of sympathy. This is not about us old fucks. We had ours and our glad of it. But age has taught us and so has  suffering. Its not for us we cry ,fear or worry, its our children and you and yours.

If, at our advanced age we have no sympathy or empathy then we havent lived

Anonymous's picture

Hey hey you guys I'm getting out the firehose to break
up the fight. Remember something ideas are essentially
genderless and ageless a good idea is a good idea. This
is meant to be a forum for everyone to voice their
opinions #181711 remark can only be construed as a cheap
immature shot. If you in reality are younger be patient
you to will be older soon enough. Meanwhile where were
you raised in a barn? If you set forth something intelligent rather than insulting people maybe they would listen rather than rolling their eyes and deleting you.
Trades on gone against you today putting you in a cranky
mood?

Anonymous's picture

You write well, but you sound just like my father, who is all doom and gloom and no answers. BTW, how do we achieve hyperinflation when we're in the midst of a massive credit de-leveraging cycle? Or are you talking a decade from now?

SWRichmond's picture

You and anon181711 just above (you?) sound just like my best friend's son, who is all sniping from the shadows, intergenerational bitching, and no answers.  Chumba has answers in his post(s), you just don't see them.   

As for the hyperinflation, try this: what happens to the currency when the credit deleveraging is so massive that it takes the sovereign debt with it?

WaterWings's picture

Funny thing about most critics! It's easy to take swipes when you have nothing unique to contribute to the conversation.

chumbawamba's picture

Hyperinflation is a psychological event.  Credit de-leveraging is a derivation of the direct cause of hyperinflation, which is confidence--or rather a lack of it--in a currency.

I am Chumbawamba.

Arco's picture

So you ignore the excess capacity argument? 10% + unemployment. And rather than gold, wouldn't you suggest we just leverage up on fixed debt to purchase inflation adjusting assets? I mean isn't that going to help us more than gold which you really can't do much with but store somewhere...

dark pools of soros's picture

if everything goes to hell then the wasteland will be all gold guns and garden - but there still will be very rich enclaves that will keep the game going.  You can see it now..  the Detroit's will spread and the Silicon Valley's will shrink and become even more inclusive.

 

This game can go on a while but we all know from history that this stuff usually leads to wars but now seems a bit different.. it seems that there is a chance that it will be a global oppression where the people are not cast versus each other but rather all cast off together into their own country's abyss 

Anonymous's picture

Just out of curiosity what did you study? For how long
and where? Could you give me a back of the envelope
explanation of the Austrian school of economics and how it
will solve the present dilemma in this country? I am a
graduate of UCLA began my university career at 16 years of age. Studied Political Science Theory. That's my background your turn.