Lehman Brothers

Amid the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that the American people understand that the Fed is at the very heart of our economic problems.  It is a system of money that was created by the bankers and that operates for the benefit of the bankers.  The American people like to think that we have a "democratic system", but there is nothing "democratic" about the Federal Reserve.  Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy.  There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth.  The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin.  The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately.  The following are 25 fast facts about the Federal Reserve that everyone should know...

Gold and silver futures surged 2.1% and 3.6% respectively and the dollar fell on the open in Asia prior to determined selling which again capped precious metal prices. Analysts and media attributed the price gains on the withdrawal of Larry Summers from the race to be the new Fed Chairman, leaving Janet Yellen as the new frontrunner.

Mere months after the subprime mortgage market brought down Lehman Brothers in 2008, Richard S. Fuld Jr., the bank’s former chairman and CEO, referred to himself as "the most hated man in America.". As IBT's Lisa Mahapatra notes, Fuld wasn’t wrong. He’d played fast and loose with a lot of people’s money, lost it all and was the perfect scapegoat for all of America to pin its economic troubles on. Back in 2007, when the subprime mortgage market first began to stumble, in an email to the bank’s then chief strategy officer David Goldfarb, Fuld wrote, "I agree we need some help - but the Bros always wins!" His words, Mahapatra adds, were the opposite of prophetic. When Lehman Brothers collapsed, it took Fuld’s career down with it. And he wasn’t the only one - former Chief Operating Officer Joseph M. Gregory and former Chief Financial Officer Erin Callan haven’t worked in finance for years now...

Anniversaries and celebrations of past historic events are part and parcel of our everyday lives. We celebrate to remember and to grow up, to change and to learn from what happened.

Significant monetary stimulus, the end of fiscal austerity, a booming housing market, a cheap dollar, record corporate cash balances... BofAML warns - if the US economy does not significantly accelerate in coming quarters, it never will. Crucially, they note, asset prices will not do as well in the next 5 years, no matter what the “nouveau bulls” say. Central banks will be less generous, corporations less selfish. And when excess liquidity is removed it will get "CRASHy" as we discussed previously. In the meantime, five years after Lehman, Wall Street has soared, but Main Street has soured.

Five years after the collapse of Lehman Brothers triggered the largest global financial crisis since the Great Depression, outsize banking sectors have left economies shattered in Ireland, Iceland, and Cyprus. Banks in Italy, Spain, and elsewhere are not lending enough. China’s credit binge is turning into a bust. In short, the world’s financial system remains dangerous and dysfunctional. Worse, despite years of debate, no consensus about the nature of the financial system’s problems – much less how to fix them – has emerged. And that appears to reflect the banks’ political power. Unfortunately, despite the enormous harm from the financial crisis, little has changed in the politics of banking. Too many politicians and regulators put their own interests and those of “their” banks ahead of their duty to protect taxpayers and citizens. We must demand better.

Until six days before Lehman Brothers collapsed five years ago, the ratings agency Standard & Poor’s maintained the firm’s investment-grade rating of “A.” Moody’s waited even longer, downgrading Lehman one business day before it collapsed. How could reputable ratings agencies – and investment banks – misjudge things so badly? Regulators, bankers, and ratings agencies bear much of the blame for the crisis. But the near-meltdown was not so much a failure of capitalism as it was a failure of contemporary economic models’ understanding of the role and functioning of financial markets – and, more broadly, instability – in capitalist economies. Yet the mainstream of the economics profession insists that such mechanistic models retain validity.

The collapse of Lehman Brothers, the risk of other large important banks failing in the coming months and the still significant systemic, macroeconomic, monetary and geopolitical risk of today shows the vital importance of real diversification and an allocation to physical gold.

Starting with the day Lehman Brothers collapsed, Bloomberg Businessweek examines the financial crisis as it affected the lives of the people who created it, tried to stave it off, protested it, profited from it, and lost everything to it.

Gold prices fell sharply again just prior to European markets opening, in aggressive selling which saw gold quickly fall from $1,355/oz to $1,343/oz at 0754 GMT. Support at $1,360/oz was breached overnight and gold should now test support at $1,320/oz.

Since 2003, we have consistently said that silver was likely to surpass its real high in the coming years. The gold silver ratio is likely to trend lower and revert to its long term average and its geological ratio of 15 to 1 as a huge amount of silver has been used in industrial applications in recent years.

What perhaps Minsky couldn’t conceive of was the point at which debt, deficits and interest rates would go to such extremes that the creation of credit itself, which was and remains the heart of capitalism, would be threatened. No longer might the seventh inning stretch lead to a Coke, some “Cracker Jacks” and the resumption of the old ballgame. Instead, zero-bound interest rates and debt/GDP ratios in a majority of capitalistic economies would begin to threaten, not heal, the nature of finance and investment in the real economy. Investors, leery of not only overleveraged investment banks such as Lehman Brothers, but overextended countries such as Greece, Cyprus and a host of Euroland lookalikes would derisk as opposed to rerisk as per the Minsky model. As well, with interest rates close to the zero bound, investors in intermediate and long term bonds would become dependent on Big Bank to do their bidding. When that QE buying power became jeopardized via tapering and the eventual ninth inning conclusion of asset purchases, then the process of maturity extension and the terming out of historically modeled corporate lending was prematurely threatened.

This week will see the end of August trading and September is, along with November, one of the strongest months to own gold. This is seen in the charts showing gold’s monthly performance over different time frames - 1975 to 2011, 2000 to 2011 and our Bloomberg Gold Seasonality table  from 2003 to 2013 (10 years is the maximum that can be used).

Thackray's 2011 Investor's Guide notes that the optimal period to own gold bullion is from July 12 to October 9. During the past 25 periods, gold bullion has outperformed the S&P 500 Index by 4.7%.

Just as natural selection selects for traits that improve the odds of success/survival in the natural world, Economic Darwinism advances people and policies that boost profits and power within the dominant environment. If there was one phrase that summarized the current malaise, it would be "The Federal Reserve's 20-year policy of easy money created an environment virtually assured to select bankers, bureaucrats, educators, and elected officials who least understood the consequences of a credit crisis." In other words, a hyper-financialized environment of near-zero interest and abundant credit rewarded those people and policies that succeed in that environment.

If SocGen is right in its just released oil price forecast in a "Syrian war world", then the global economy is about to undergo an apoplectic shock the likes of which have not been seen since the summer of 2008, when Lehman brothers had to be taken under to generate the deflationary shock sending crude from $130 to $30 in the matter of days. The French bank's forecast in a nutshell: "Base case scenario: $125 for Brent. We believe that in the coming days, Brent could gain another $5-10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started. In our base case, we assume an attack begins in the next week. Upside scenario: $150 for Brent If the regional spill over results in a significant supply disruption in Iraq or elsewhere (from 0.5 – 2.0 Mb/d), Brent could spike briefly to $150." And if indeed 2008 is coming back with a vengeance, the next question is who will be this year's unlucky Lehman Brothers?