27 September 2008

Hank needs trillions so bailout can't work

The actual number of fiatscos needed to keep the U.S. financial system running is in the multiple trillions of fiatscos, NOT the $700 billion that Congress is "only" proposing to spend. If anything less than multiple trillions of fiatscos is supplied, then we continue sliding into "Great Depression II"

In order to make an irrefutable case for this premise, I will construct an approximate timeline which will prove that the Fed and Treasury's efforts to fight the credit collapse was quickly overwhelmed, leading to today's need for multiple-trillions of fiatscos.

And here it is:

Timeline of events leading to Fed/Treasury becoming overwhelmed:

March 16th, 2008: Bear Stearns collapses. The Fed steps in and starts with all the "TAF-like" programs including:

TAF, TSLF, PDCF, and even "Fed, LLC" and immediately begins to pump in multiple tens of billions of fiatscos into the Wall Street "Shadow Banking System". (I will give total numbers below for all Fed and Treasury programs). The Fed starts accepting VERY suspect and undisclosed "assets" from Shadow Banking system in exchange for fiatscos and Treasuries.

Between March 16th and July 17th: Fed continues to pump in tens of billions more fiatscsos into Shadow Banking System and taking on more suspect "assets". During this time, Fannie, Freddie and FHLB continue to grow their balance sheets,accepting more and more suspect loans and creating MBS.

July 17th:Fed and Treasury realize that GSEs are failing. Hank and Ben go to Congress and Hank demands "Bazooka". Says he won't need to use it.

Between July 17th and Sept. 7th: Fed continues to expand "TAF-like" programs and even adds "Fed, Euro Swap" to mix in a desperate attempt to keep system from collapsing.

Sept. 7th: Fannie, Freddie and FHLBs officially fail. Treasury steps in, effectively nationalizes them, and immediatly starts pumping in fiatscos. Yet, (and this is an important point) doesn't use the whole "Bazooka" amount to do so.

Sept. 8th thru Sept 18th: As predicted by Ras on Sept. 8th, the ENTIRE financial system begins to implode, with literally every single Wall Street bank and major derivatives player failing outright. Ben and Hank spend this whole time-period performing various bail-out maneuvers, including the desperate "Fed, AIG" prop job for the Shadow Banking System--mostly through the Fed--which begin to strain the Fed's balance sheet and to the breaking point.

Sept. 18th/19th: A run begins on the $4 trillion money markets. The Fed once again steps in and offers a blanket guarantee to the ENTIRE money market segment and even goes so far as to offer NON-RECOURSE loans against ABCP.

And at that point, the Fed's back is broken, because they committed approximately $500 billion of the Fed's $900 billion balance sheet to:


...and yet, the credit and derivatives collapse continued unabated.

Now, let's quickly discuss the Fannie/Freddie/FHLB "Bazooka" issue.

Hank Paulson had the authority to shoot an $800 billion slug of fiat right into the heart of the credit collapse AND also had just effectively nationalized the GSEs.

So, here's the point:

If in fact the problem was "ONLY" 700 billion fiatscos AND was only mostly limited to MBS paper, then Hank would have just had the GSEs start snapping up all the dead MBS and the Treasury would have paid for it. Right?

Simple as that.

However, at the point that the Fed became overwhelmed and the credit/derivatives collapse continued unabated, it was at then that Hank KNEW the problem was now measured in the trillions of fiatscos range and was far beyond just MBS, but also included every exotic CDO, CDS and who-knows-what-else exotic derivatives instruments. Because, and this is the important point:

The Fed and Treasury had ALREADY thrown, or committed to throwing over ONE TRILLION FIATSCOS at the collapse, and there was STILL no sign of the collapse abating and in fact, was ACCELERATING!

And for further proof that the meltdown had gotten completely out of control, let's turn back to the Sept.18th/19th money market meltdown and quickly discuss that situation:

Think about how horrid the ABCP market had to be if the Fed was compelled to step in and give NON-RECOURSE "loans" to the money market funds for this trash. ABCP should be the most liquid commercial paper out there because it is NOT ONLY of very short duration BUT ALSO because of that "AB" part which means it is BACKED BY A FRIGGIN' "ASSET"!!! So, if this seemingly safe, liquid market can't be accessed by the money market funds to stave off the panicked bank run, then how bad must have been the tens-of-trillions of fiatscos other derivatives markets?

...which only reinforces the point in spades that the credit markets were (and still are) in absolute seizure.

(Ras Summary and Conclusion: Take off your tin-foil hats and put down your little pitchforks and torches because there is NO "False flag" situation going on here.

And this isn't about trying to save the couple of hundred million in bonuses for Hank's buddies on Wall Street--although to be fair, I will concede that Hank DID make a vain attempt at doing that as a side benefit.

Instead, this is about events so quickly getting away from Hank and Ben's respective Treasury and Federal Reserve systems that they are now scrambling to get the authority to have the U.S. taxpayer step up and, in reality, bail THEMSELVES out (the taxpayer's 401k/IRA/McMansion), because if this collapse cannot be overcome with TRILLIONS of fiatscos of reflation/monetization/nationalization of the entire Shadow Banking System (as well as the traditional banking system), then we really DO proceed straight to "Great Depression II".

(Side note:) Regarding the Fed's efforts during this collapse, I have to give Ben Bernanke credit to this point. For, he is actually attempting to somewhat protect the integrity of the Fed and the U.S. fiatsco by--so far--only making these kinda dubious "loans" and accepting very suspect and undisclosed "collateral" for them.

However, it is apparent that Ben and the Fed are NOT yet willing to resort to the "Final Option" which would be for the Fed to literally outright monetize all these multiple trillions of fiatscos of destroyed debt and derivatives positions. I'm NOT saying that the Fed won't ever ultimately choose to do so, but they clearly are NOT doing that at this point.

So, in conclusion, I believe I have made an irrefutable case that what actually transpired was that the credit and derivatives collapse has spiralled out of control so quickly that the Fed and Treasury wereliterally overwhelmed by the sheer size and speed of it.

So it's gonna come down to this:

Either multiple trillions of fiatscos from somewhere (either the taxpayers/debt enablers or the Fed, or some combination of all three) are pumped into the failed financial system in a desperate attempt to revive it, and we stave off"Great Depression II" for a few more weeks or months


We proceed directly to "Great Depression II" and massive liquidation of out entire financial and economic system.

And that is why Hank and Ben are demanding "Infinite Fiat" to fight this collapse.

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