MARKET MANIPULATION – PART OF THE OBAMA GAME PLAN??

As a long time market follower I am observing what is happening in the market with interest (and agony!). I have watched other downturns (2001, 1998, 1987) and read about others (1929). We all know that market panics are part factual and part psychological. In other panic periods, CNBC and other press outlets would roll out industry leaders such as Warren Buffett to calm the public. Where is the leadership today? Sure we have problems but remember the root of the problem – mortgages. Even if we recognize that banks made stupid loans, deadbeats took on mortgages that they had no intention on repaying, and property values were inflated, there is still a real asset with some value behind each of these mortgages. It is not like bubbles where they were selling air or tulips!

I ask myself why we are not hearing voices calling for calm. Do the powers that be want to see this crash? Or wait, I forgot which candidate they are supporting in this election. So, I starting search the internet for information on prior crashes. I came upon an interesting article written in November 1998 by Paul Krugman for the NYT around the time of the Asian Market Crisis. It is interesting food for thought. I am linking the entire article but I will post some highlights here (emphasis added):

“ . . . today's financial markets are so vast that it seems hard to believe that any individual or group could have the power to manipulate prices. When the occasional accusation of financial conspiracy is heard -- when, for example, Malaysia's Prime Minister blames the machinations of Jewish speculators for his country's problems -- the reaction of most observers is skepticism, even ridicule.”

“But even the paranoid have people out to get them. Little by little, over the past few years, the figure of the evil speculator has re-emerged. George Soros played a definite role -- though probably not a decisive one -- in the forced devaluation of Britain's pound sterling in 1992.”

“One answer is that deregulation and information technology have combined to make financial markets more ''liquid.'' That is, they have made buying and selling easier than ever before. As a consequence, aggressive speculators are able to leverage themselves -- to take bets far larger than their capital. Long-Term Capital Management -- the hedge fund whose de facto failure rocked markets a few weeks ago -- apparently leveraged a few billion dollars of its own money into more than a trillion dollars of assets. That's almost four times as large as the value of the whole Hong Kong stock market. Suddenly, the idea that a handful of big players could manipulate national financial markets doesn't look that implausible after all. “

“Perhaps most important, when economies rather than mere companies are at stake, speculation can sometimes be a self-fulfilling prophecy, producing a crisis that justifies the market's low opinion. If Hong Kong's currency and political system remain stable, stocks in its companies will be worth a lot. But if a run on the currency causes that stability to wobble, they will be worth much less. So, faced with a sufficiently large play against Hong Kong, those not part of the conspiracy may not rush in to buy cheap Hong Kong stocks; they may conclude that the play against the economy is on the verge of success, and sell all the faster. Or at least that's what Hong Kong's Government feared, and given the way this global financial crisis has spread, who can say with confidence that it is wrong? “

“Of course, maybe it doesn't matter what Donald Tsang or the public in general thinks; maybe the free movement of international capital is too important to restrict, and occasional manipulation of their markets is simply part of the price small countries must pay.”

So we know markets can be manipulated. Who would benefit from such manipulation today??

http://query.nytimes.com/gst/fullpage.html?res=9F0CE5DC113FF93BA35752C1A96E958260&sec=&spon=&pagewanted=1

RATS will do anything to gain power over peoples’ lives. They are completely responsible for the energy crisis in the US. Investors Business Daily had a nice article outlining Pres Bush’s proposal to fix the energy clear back in 2001.

‘Energy has enormous implications for our economy, our environment and our
national security,” President Bush said in proposing the plan. “We cannot
let another year go by without addressing these issues together in a
comprehensive and balanced package.”

That was in June 2001 - more than seven years ago.

His words came just after he first proposed a comprehensive energy bill that
included 105 separate steps the U.S. could take to boost its energy
supplies. It was something he promised repeatedly while campaigning for the
presidency in 2000. He kept his promise. His first plan included, among many
other things:

New drilling for more oil and gas and new refineries.

Building of nuclear power plants.

Revamping the U.S. electricity grid.

$10 billion in tax breaks to help push energy efficiency and alternative
energy.

The fact is, these are remarkably similar to the plans that economists, oil
experts and energy wonks say need to be put in place today in order to end
our oil crisis.

Yet, those proposals went nowhere - not approved in 2001, not in 2002, not
in 2003, not ever. Bush tried repeatedly to get something through Congress.
He pleaded. He tried to cut deals with Democrats. It didn’t work.

A New York Times headline from August 20, 2003, sums it up: “Ambitious Bush
Plan Is Undone by Energy Politics.”

That’s an understatement. Instead, Democrats ridiculed Vice President Cheney
for meeting with oil industry representatives to craft U.S. energy policy -
and for insisting on finding more oil.

They had no plan themselves, mind you - apart from massively expensive
global warming initiatives that would force Americans to lower their
standard of living to Third World levels by spending as much as $800 billion
a year to cool Earth.

Yet, if Bush’s plan had been put in place in 2001, we’d have replaced
millions of barrels of oil, billions of tons of coal and untold trillions of
acre feet of natural gas with clean, safe nuclear power.

We’d be pumping millions of barrels more of oil, creating thousands of
American jobs, cutting prices and saving literally hundreds of billions of
dollars every year -money that today goes to line the pockets of the Saudi
royal family, Venezuelan petrotyrant Hugo Chavez, Libyan leader-for-life
Muammar Qadhafi and Vladimir Putin’s Russia.

When the Democrats took control of Congress in 2007, and oil was $50 a
barrel and corn $2 a bushel, House Speaker Nancy Pelosi and Senate Majority
Leader Harry Reid promised an energy plan. We’re still waiting for it.
Today, crude oil is $134 and corn is $6.50.

It’s pretty clear who’s to blame: Congress. In fact, House and Senate
Democrats have obstructed any progress in America ‘s fight to regain some
semblance of energy independence.

A nice excerpt from http://www.kitco.com/ind/Laird/sep172008.html
that shows where we are headed and why. The manipulation was blowing up the bubble; the pop was inevitable.

No incentives in traditional brokerage business

Since there was very little or no incentive for stock brokers and financial geniuses to gain an income stream from commissions that dropped to pennies a trade, they naturally applied their financial genius to creating the biggest piles of money, securitized credit, which even at ridiculously low commissions, generated hundreds of billions of dollars in commissions a year for brokers and the financial cowboys.

Then, these geniuses figured out that they could make more money by creating a Credit Default Swap. This is merely an insurance policy that is bought against someone’s bonds, and for a very modest fee, someone like AIG would guarantee it against a default.

And, why did AIG not get any private money to bail them out this week? Because, they had issued an unfathomable $440 billion of these guarantees in recent years, and made lots of money signing all this up….

But then, we all know that asset backed securities, derivatives, and bonds are all turning to garbage now, and so, AIG is sitting on one hell of a big pile of financial liabilities as all their CDS are now coming due for payment. So, in a short time, AIG becomes insolvent. And that is what happened in this particular credit storm this mid Sept 08.

And Lehman too had the same problems. And, most banks, insurance companies, and brokers, worldwide, are into these kinds of complex securitized financial derivatives, to the tune of an estimated $1000 Trillion as of now! (One Quadrillion). These numbers are derived from the Bank of International Settlements, the BIS. If just 5% of these go bad, the world has a loss of an entire year of GDP!

So, in this huge credit party, basically the entire wealth of the world is leveraged something like 20 times the entire worlds GDP of 60 trillion. Uhm, we have a serious problem here folks!

Throwing hundreds of billions a day out

Considering that the Fed just this week put out about roughly $80 billion Monday, $65 billion Tuesday providing market liquidity (really taking the worthless bonds and such as collateral from the now bankrupt financial world), and $85 billion late Tuesday trying to save AIG (which will fail anyway) that comes to a cool $230 billion of losses out there that the US taxpayer just assumed, and in only 2 days!

Then, of course we know the ECB and the BOJ and every other central bank put out another roughly $100 billion of liquidity themselves in that two days…Russia just loaned its 3 biggest banks $44 billion…

And, we can say that cumulatively, since August of 07, the world central banks have put out roughly $2 trillion and counting if you add up everything they are doing, in essentially bailout out all this bad paper. There is only one problem. There is $1000 Trillion of it out there. And it’s going bad very fast. And, the central banks realize there is NOTHING they can do to stop this.

Why do you think the Fed was resisting bailing out AIG so much, till they realized it’s either do that, or see a cascade of massive financial bankruptcies worldwide?

This is all called deleveraging by the way.

Insoluble interlinkages

Now, another insoluble problem that presents itself, aside from $1000 Trillion of deleveraging, is the fact that these financial derivatives are all interlinked. That means that, unless one major player is bailed out, everyone else goes bankrupt, just like pulling on a big ball of string.

Just to show you an example of these complex interlinkages, consider the Credit Default Swaps. First, the financial industry creates lots of securitized debt and financial instruments. These are the derivatives. Then they create the CDS to ‘insure’ against the derivatives failure. The only problem is, for someone like AIG, since they greedily issued $440 billion of CDS to every financial institution imaginable.

The other institutions were thinking they ‘hedged’ their risk on their side, but then when AIG goes under, now all those people lost their ‘insurance’. That’s the end of our financial world because AIG put out so much of those CDS. And, they are indeed too big to fail. So, the Fed inevitably had to bail AIG out.

Inevitable deleveraging

Now, I don’t want to scare you, but the entire point here is that this deleveraging problem is insoluble. At some point, the end comes, and the Fed and ECB and BOJ and everyone else knows it. The party is about done. The only question is when.

The ONLY solution is to wipe out all debts worldwide and start over. And we know that lots of financial interests don’t want that to happen.

Imagine a new world

Now, I want you to imagine a new world. In this world, everyone in debt, GM, AIG, you, the nations with big national debts – imagine if all that is zeroed out.

Would not economic activity start screaming? Would not the world enter a period of unprecedented economic prosperity, for probably another 65 year prosperity boom?

Now, of course, some of you are laughing at this proposition. But that is exactly what happens in a Great Depression. Everyone goes insolvent, often currencies collapse, and national debts effectively wiped out. After all the economic carnage, a new era begins.

So, we are right on the cusp of this. But first there is a little ‘work’ to be done.

When do they finally give up?

Now then. Since I believe it is impossible to stop this deleveraging (debt destruction effectively) then I am quite sure the world’s central banks are going to finally let go. It’s just this time, the Fed blinked on AIG. But this is gonna happen.

If continuing efforts are made to prevent this deleveraging, the entire population of the world will be turned into debt slaves. Hell, they already are anyway, which is why economic activity is falling as we speak, and tax receipts are falling. The end of our 63 year post WW2 prosperity boom is here.

Tax deferred accounts?

IF the world central banks insist on bailing out the bad capital, they will run gigantic deficits. They will eventually be forced to raise taxes. It’s impossible. This is one reason we have been talking about the idea to subscribers that maybe tax deferred savings are not quite what they are cracked up to be.

Basically, when the central banks and each nation realize they are going insolvent too, they will raise taxes on those ‘tax deferred’ accounts by the time you want to pull out the money. So, I’m fairly sure that you’re going to pay a lot more taxes on that pile of money than you think. If the world economy was not collapsing, then that would not be the case. But it is the case

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