Lawsuits, the Cadaver & Gold

The principal missing piece in the grand American mosaic of banking destruction, corrupt collusion, fraudulent bonds, Wall Street control, suppressed regulators, compromised ratings agencies is JUSTICE and REMEDY. Foreign entities are aghast as the lack of prosecution, remedy, and removal from positions of power, as policy continues to be set by the participants responsible for the structural failure and prevalent fraud. Their actions are reaching climax levels. The climax of the Wall Street strangehold is the confiscation of the TARP funds to date. However, whatever has not been nationalized is subject to lawsuits during disconnection. The pattern of human behavior indicates that lawsuits can spawn additional lawsuits, and quickly control is lost. Two major lawsuits have the potential to change the landscape. Curiously, neither receives much publicity. Then again, the press seems somewhere between subservient and compromised anyway. They have failed to shine many lights on much of any developments until after the damage is done, sometimes resembling video tabloids.

The USFed might be vulnerable. Could it be that the US Federal Reserve will face a growing expanding escalating lawsuit that finally is heard before the US Supreme Court? Give it a 50-50 chance, but this really needs a Vegas line. They are behaving and reacting much like a syndicate. One well connected contact claims their days are numbered. Stonewall tactics by the USFed on disclosed disbursement of TARP funds continues, despite court challenges. The USFed has begun to take on some curious similarities to a shady syndicate central clearinghouse. It refuses to disclose which banks received bond swaps, and refuses to reveal what assets it accepted as collateral. One can only suspect gross impropriety. Before long, RICO Laws against racketeering might be invoked. The word has been mentioned in the press by one particular Congressman. Recall. The Racketeer Influenced & Corrupt Organizations Act of 1970 has been a powerful legal weapon to prosecute crime syndicates and to confiscate their ill-gotten assets.

FEDERAL RESERVE CHALLENGED IN LAWSUIT

Bloomberg filed a lawsuit under the Freedom of Information Act on November 7, requesting details from the USFed on Congressional TARP fund confiscation and disbursement. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The USFed operates as a contractor agency. The Bloomberg lawsuit is Bloomberg LP vs Board of Governors of the Federal Reserve System, 08-CV-9595, US District Court, Southern District of New York (Manhattan).

Incredibly, with shock to many, the USFed will continue to withhold internal memos as well as information, under the defense that they protect trade secrets and commercial information. TRADE SECRETS BY AN AGENCY HIRED TO MANAGE THE DOLLAR AND TREASURYS SOUNDS SO DIVORCED FROM REALITY AS TO BE DESPERATE. That is quantum levels more preposterous than defying the USCongress when it pursued accounting of the gold status owned by the nation. Anger has erupted within the USCongress. The USFed appears to be hiding information so as to shield suspected corruption, as its public response cites 'substantial multiple harms' being avoided. Harm to whom? Is this Nixon all over again citing 'Executive Privilege' to conceal crimes and misdemeanors? The USFed is scared and on the defensive. The Board usually does not go into such detail about its position. Lee Levine is from the law firm Levine Sullivan Koch & Schulz. He said, "This is uncharted territory. The Freedom of Information Act was not built to anticipate this situation. That is evident from the way the Fed tried to shoehorn their argument into the trade secrets exemption."

This case is worth watching, but strangely receives very little attention. It could be a landmark case that provides scrutiny and clear definition to the nation's financial purse strings. My conjecture is that the USFed is intent on hiding numerous transactions that hide the tracks of openly debated Wall Street corruption in bond redemption, with powerful motive to avert international lawsuits, and a pervasive desire to prevent grassroots solutions since mortgage bond securities have very little legal standing in legitimacy. WE ARE WATCHING THE DENOUEMENT OF THE BIGGEST BOND FRAUD IN MODERN HISTORY.

USFed Chairman Ben Bernanke and Treasury Secy Henry Paulson said in September they would meet demands for transparency in a $700 billion bailout of the banking system. They seem to have lied. Both the antagonists and the USFed might soon realize that a battle has been waged, one against what increasingly resembles a crime syndicate.

Can you say Supreme Court? Could a test come of the national financial sovereignty? If the case reaches the highest court, it will likely be stuck on its front steps. IMPLICATIONS TO STABILITY AND SECURITY OF MONEY ITSELF INVITES A HUGE HIDDEN GOLD MOTIVE. A CANCER IS GROWING UNDER THE USDOLLAR AND USTREASURY BONDS, WHOSE ALTERNATIVE IS CLEARLY GOLD.

BIG QUESTIONS FOR GOLDMAN SACHS FAMILY

Anyone who has missed that the profound influence by Goldman Sachs leadership at the Dept Treasury has contributed to the destruction of both the USEconomy and US banking system is simply asleep since 1992. Has anything gone right in the USEconomy or US financial system at the conclusion of a presidential term with Goldman Sachs men in cabinet posts? Treasury Secy Paulson has pulled off a successful Coup d'Etat to usurp power, by means of assumed prestige, claimed expertise, naked intimidation, and clever contract language. His defiant yet slippery Kashkari has been pointman for the stonewall effort. Does anybody notice that the name Kashkari is close to Kash & Karry? Goldman Sachs needs a better light shined on it. Here is a good start. Today, Moodys debt rating agency downgraded Goldman Sachs corporate debt to A1, and gave a negative outlook. Their credit default swap rate implies it is junk!

Permit a sidetrack here. USFed Chairman Bernanke has been so busy playing with his alphabet soup, that he forgot to drop any helicopter money at all to the Main Streets of America. This was his main selling point for hire, if not his main job description. Instead, he drains funds from the private mainstream banking system in order to pour those funds into Wall Street firms. The press networks constantly repeat that Bernanke is flooding the system with liquidity. Yet he is only flooding Wall Street balance sheets and enabling executive bailouts in a process managed by Goldman Sachs.

Hank Paulson is treated with kid gloves by the media networks. He is really the wrong messenger for the entire Wall Street mortgage related bailout. Paulson was one of the five executives who went to the Securities & Exchange Commission in 2004 to plead for permission to lever upward the Wall Street firm businesses even more, like to 30:1 or 40:1 ratios. Without any question, he was an architect in the crisis. That he controls disbursement of funds is testimony to a level of blindness in any checks & balances.

AS PRESTIGE WEARS OFF ON GOLDMAN SACHS, GOLD WILL FILL A VACUUM. There are reasons why the Goldman Sachs gold short position in Tokyo has dwindled to nearly zero in the last two years. Goldman might be secretly going long gold, in my view, just like they went short the mortgage bonds just a couple years ago. THE WALL STREET ELITE MIGHT SOON TURN ON A DIME AND GO LONG GOLD, WHEN THEY PULL THE SWITCH AND IGNITE REFLATION IN ORDER TO PREVENT A SYSTEMIC COLLAPSE.

CITIGROUP LAWSUIT

Citigroup is in hot water in three key ways: general urgent need for bailout, revealed motive for timing of bailout, and a potentially damaging lawsuit. The legend of Robert Rubin is being shattered and ruined. This man has misplaced his icon status. His career as a legendary currency trader was followed by a ministry post that saw a path of vanished gold during a failed Strong Dollar Policy and a tech telecom stock bust, then followed by a ruined Citigroup from risk gone wild after pursued deregulation. It seems unbridled competition without regulation breeds destruction. The broad strokes of the big hastily crafted $322 billion bailout deal for Citigroup has many components, most steeped in corporate failure, deep insolvency, and bad decisions.

The entire rescue package seems a drop in the bucket, compared to the $2300 billion in assets on the Citigroup balance sheets, much of which are soured. Friedman Billings Ramsey estimated independently that Citi needed $160B in fresh capital to turn solvent. This deal is patchwork, hastily cobbled and arbitrarily applied. It leaves them still insolvent. Future rescue will obviously be needed. The secret motive for protecting the credit markets from a Citigroup total bust and liquidation was their heavy involvement in credit derivatives. They are the second biggest player. Explosions in credit derivatives would result in a sequence of Hiroshima bombs, one triggering another, all much bigger than Lehman Brothers, probably extending to other Wall Street basement chambers.

JUST WHY WASN'T CITIGROUP LED TO THE SLAUGHTERHOUSE OF BANKRUPTCY AND THE VATS OF LIQUIDATION? First, their mortgage bond and related leveraged security portfolio would cause a problem 10x bigger than Lehman Brothers. Second, their credit derivatives book would set off several Hiroshima bombs, with uncertain outcome of spread darkness. Third, their failure would very likely ignite fires, explosions, meltdowns, bank failures, and ripple effects that could possibly bring down the entire banking system in the United States.

A federal lawsuit has been filed against Citigroup for an alleged complex cover-up of toxic securities that resulted in huge losses, and thus severe shareholder losses. THIS CASE SEEMS TO HAVE TEETH, WHICH MIGHT LEAD TO SEVERAL OTHER MAJOR LAWSUITS AGAINST WALL STREET FIRMS. Named in the lawsuit were Director Rubin, ex-CEO Chuck Prince, Vice Chairman Lewis Kaden, along with the current and previous CFOs. In all, over $120 billion in shareholder value was wiped out. Rubin himself cleared $30.6 million, Prince $26.5 million, in stock sales. A Ponzi scheme is claimed, wherein Citi purchased repackaged unmarketable leveraged mortgage securities known as Collateralized Debt Obligations, but hid their toxic exposure off the balance sheet in shell corporations. Rubin and other named executives sold a total of $150 million in personal shares at a time when they allegedly benefited from undisclosed inside information.

THIS LAWSUIT HAS THE POTENTIAL TO ATTACK THE LEGITIMACY OF HIDDEN BALANCE SHEETS. Such hidden assets falsify the corporate valuation itself, a gigantic affront to any claim of a fair market, let alone a free market. Off balance sheets have become executive playgrounds at best, and the scene of the fraud crime at worst. An investigation filed by law firm Kirby McInerney cleared the path for the lawsuit, which has taken the new form of a blanket investor lawsuit. Wall Street firms are extremely vulnerable to lawsuits, damages, and remedy, like restitution repurchase of fraud-ridden bonds. Look for the system to be flooded with class action lawsuits in 2009. Wall Street firms, what is left of them, might be forced to buyback much of their toxic bond waste. This could become a motive for nationalization of mortgages!!!

IF WALL STREET FIRMS COME UNDER SEIGE, THEY MIGHT LOSE THEIR GRIP ON THE GOLD SUPPRESSION AT A TIME WHEN THE COMEX GOLD IS ALREADY UNDER SEIGE.

MADOFF LAWSUITS NEXT?

The largest Ponzi Scheme fraud case ever to be prosecuted in the United States has just been announced. Bernard Madoff Investor Securities is charged in a $50 billion fraud case by the Securities & Exchange Commission. He is the former chairman of the Nasdaq stock market, which enabled him to attract huge investment funds and to fend off wide scrutiny on his methods. His BMIS firm had partners with Goldman Sachs and Merrill Lynch. He faces up to 20 years in a federal prison, and up to a trifling $5 million fine, 10 thousand times less than his fraud.

The Ponzi Scheme snared numerous influential well-heeled groups, both charity organizations and foreign investors, including some extremely wealthy people. It appears that at least $15 billion of wealth, most concentrated in southern Florida and New York City, has vanished. Complications come from the fact that much income tax was paid by investors when the gains were total illusions. Numerous complaints had been filed against Madoff in the past, but the SEC took no action. Madoff apparently conducted his own trades, managed his own books, and permitted no independent audits. Renewed criticism has come to the SEC, for once more being asleep at the monitor. Isn't that what the elite pay the SEC to do? Recall that when a mid-level SEC officer a couple years ago attempted to run an investigation against a top executive at a major Wall Street firm, he was fired almost immediately by the SEC. The SEC has forgotten its investigation role, ever since ex-Wall Street heads have been in control of the commission.

The Madoff case pushes the door open even wider for more lawsuits against the elite bastions of Wall Street. GOLD SHOULD BENEFIT FROM BOTH TARNISHED IMAGE OF THE US$ KNIGHTS OF THE SQUARE TABLE, AND GRADUAL LOST FOREIGN SUPPORT FOR A CRIMINAL CULTURE IN THE US FINANCIAL DISTRICT. In time, numerous sacrificial lambs will be offered up, some of surprising identity and lofty status.

BLOOD TRANSFUSIONS TO A FINANCIAL CADAVER

For a concise disturbing insightful interview, see the iTulip article entitled "Major US Banks Worse Than Japan's Zombies" (CLICK HERE) as the anonymous industry insider Dr Banker is interviewed. The guest claims the massive blood infusions have failed to revive the defunct banking system. "The transfusions usually take two to six months, and typically six months or so after the crisis is over, are gradually withdrawn over a period of several months to return total money in the system to pre-crisis levels. My theory is, and I admit not everyone will agree with it, is this: the patient is dead… They can keep the intravenous tube hooked up to a pint bottle or a 100-gallon drum of blood, but it does not matter if the blood is not circulating through the patient, so he can take it in… Note that many smaller banks that do not operate as part of the Fed system are working just fine… The reason: Credit Default Swaps. It is now well understood that CDS are at the root of today's financial crisis... CDSwaps certainly killed [the patient] but removing them is no cure." Dr Banker went on to explain how in the last ten years, Credit Default Swaps alone have sustained the US banking system. Their liquidation would require the writedown losses of between $5 and $10 trillion. See the transfusions in the chart below. Bank loans are not forthcoming. The banking system is defunct. So hundreds of billion$ have been pumped into major US banks, yet they remain comatose. Is their condition dictated by the orders NOT TO LEND or victimized by mortal wounds?

The entire AIG takeover by the Dept Treasury with USFed loans was intended to place the acidic AIG losses from Credit Default Swap contracts under the watchful guidance and management of JPMorgan. They wanted CDSwaps out of public view. The AIG blowups now do their damage under the USGovt roof, at federal expense, with much reduced publicity, thus preserving this incredibly paradoxical USDollar rally. AIG has to date received $205 billion in three tranches, without any enforceable demands to executives. Expect about 40 to 50 more tranches, and at least $2 trillion more in seemingly endless AIG bailout backstops in the next few years. Maybe AIG will face some lawsuits soon.

HERE IS THE KEY QUESTION, ASKED AND ANSWERED MANY TIMES BY ROB KIRBY (see www.kirbyanalytics.com). If AIG blew up, why didn't JPMorgan? If Citigroup blew up, why didn't JPMorgan? They had tremendous overlap in book of business. Whatever happened to Citi's mortgage book and CDSwap book would have happened to JPMorgan 3x bigger, louder, and more damaging. The answer is very complex. They manage the 'Garbage Can' and operate in an alternative universe.

THE PLIGHT OF STATES

The whole is made from the sum of its parts. The states suffering the worst economic and fiscal damage seem to be California, Michigan, Ohio, Florida, and Nevada. On a percentage basis, New York and Arizona face the worst fiscal deficit gaps, over 20% of budget, but California's is the largest in size. The National Conference of State Legislatures estimates that the 50 states face $97 billion in shortfalls over the next 18 to 24 months. They cannot expect little from the USGovt, which has been negligent so far.MAYBE A FEW STATES CAN INITIATE SOME LAWSUITS AGAINST THE USGOVT FOR NEGLIGENCE !!! My eye is trained on California, which has motive to attempt to print money. They stand in gray area with IOUs issued for the second time. They once were usable as legal tender on a limited basis. A WIDER MOVE TO PRINT GOLDEN STATE DOLLARS COULD PLACE THE USDOLLAR OVER A PSYCHOLOGICAL SINKHOLE.

DOLLAR DEATH RALLY COMES TO END

The USDollar has rallied for three months, based upon a massive liquidation of trades that have as their basis a short in USTreasury Bonds, and based upon massive payouts to Credit Default Swaps for failed corporate and mortgage bonds. Talk about a bizarre platform. The top of the USDollar rally was called in my November Hat Trick Letter, and so far so good. Other foreign currencies are sure to suffer blows and endure downward spirals, but the USDollar rally might be largely done. Imagine Uncle Sam doing a drunken dance atop the bar at a Western saloon before falling, the floor granting him a merciful broken neck. The next blows will come from the march toward 0% in the Fed Funds rate, a procession impossible to put in any favorable light. This is the badge of shame for USFed Chairman Bernanke to wear. He has had 16 months to work his magic, to lower interest rates, to flood the system with phony money. All he has done has been to flood Wall Street firms with money, and starve Main Street and its many resident banks, draining them with colossal issuance of Cash Mgmt Bills. His actions to date have been very consistent with a possible agenda of the masters, TO ENABLE THE CONSOLIDATION OF FEDERAL RESERVE BANKS. They are brimming with reserves, lending next to nothing, and might be preparing grand acquisitions of assets intentionally pulled down in price.

NEXT IS THE DISINTEGRATION OF THE USECONOMY, a process already begun. The financial sector was never supposed to lead any economy, but rather serve it toward capital formation and functional lubrication. The complete and total thunderous crash of the financial engineering apparatus and haphazard risk pricing models has set the USDollar up for collapse. The only thing that would breathe new Frankenstein life into it would be another major failure of a New York financial firm. One might be orchestrated soon. The current rally this autumn was a fakeout.

The fundamentals of the USDollar are mired in failure. The banking system is insolvent, yet flush with cash. The households in America with mortgages are 18% insolvent. The housing prices are actually accelerating downward still! The jobs wagon just rolled over a cliff, as one million monthly job losses are likely by summertime. The retail chains face major shutdowns, as many Big Box tenants cannot pay the $300k/month rent. The car industry has lost three of its four wheels. The eradication of the United Auto Workers union seems the obvious agenda, which if not permitted, will result in untold job losses throughout the biggest vertically integrated factory and financial network in the nation. Newspapers and websites are seeing their ad revenues slowly vanish, sure to lead to job cuts. Major universities and colleges are forced to find a way to continue without the benefit of rising endowments, thereby forcing job cuts and construction pullbacks. The hidden risk is the gigantic sinkhole of insurance firms, which endure liquidation, thus exposing thousands of companies to shutdowns from basic lack of required coverage and violation of covenants.

The USTreasury Bill bubble is soon to lose its luster, tarnished by chronic near 0% offered yields. The 6-month USTBill yield is now between 25 and 30 basis points, with even lower yields for shorter maturities. Such absurdly low Japan-like yields are more an incentive to exit at the top by foreigner investors than an incentive to attract funds for support of expanding bailouts and rescues. USTreasury supply requirements will lead to exhaustion. The investment community will seek an alternative in gold, especially when all cylinders will be fired up to produce inflation. The policy makers are inching toward the inevitable decision to nationalize mortgages. By summertime, a panic will enter the picture. In the next few months, the disintegration of the USEconomy will shock many experts, but not Hat Trick Letter subscribers. The downward spiral will soon be labeled as much different from a garden variety recession, as dysfunctional breakdown will best describe it. The growing panic will motivate a movement into GOLD for safe haven. The COMEX gold fireworks should light up the skies long before July Fourth.

 

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

"You seem to have it nailed. I used to think you were paranoid. Now I think you are psychic!"

    (ShawnU in Ontario)

"Your analysis is of outstanding quality, the best I have read. In particular, as a person on the spot, I can confirm the accuracy of your bleak assessment of our prospects in the UK."

    (JanB in England)

"Your unmatched ability to find and unmask a string of significant nuggets, and to wrap them into a meaningful mosaic of the treachery-cum-stupidity which comprise our current financial system, make yours the most informative and valuable of investment letters. You have refined the 'bits-and-pieces' approach into an awesome intellectual tool."

    (RobertN in Texas)

"Your reports scare the hell out of me every month, probably more so over time, since so many of your predictions have turned out to be very accurate. I am afraid you might be right that by the end of 2008, we are in a pretty severe situation, with civil unrest and severe financial stress on Main Street."

    (GeorgeC in Minnesota)

 

 

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at [email protected]