28 September 2008

rasipedia - The mad monk on the scromage ahead


Table of Contents:

Section 1: The correct fiatsco amount (currently as of 9-26-08) of the "Hanktator Act" bailout bill

Section 2: Timeline of "Fannie/Freddie Big Bang" leading to worldwide, systemic financial collapse

Section 3: What will happen if the "Hanktator Act" is not enacted

Section 4: The four questions that were never asked during the Congressional hearings on the "Hanktator Act"

Section 5: Layman's explanation of the systemic, worldwide financial collapse

Section 6: Special section: The Fed's unprecedented move to backstop the entire $4 trillion money market fund sector

Section 7: All government and central bank efforts to date to combat the systemic global financial system collapse

Individual Sections of the Rasipedia:

Section 1: the correct fiatsco amount (currently, as of 9-26-08 and subject to change at any moment) of the Hanktator Act":

According to WSJ blog, found here:

How long will this limitation last before being DC wakes up and figures out it will cause instant "Great Depression II"?

...the "Infinite Fiat" provision of the "Hanktator Act" has been removed and the text changed to the following:

"4. Funding Authority

a. Treasury Secretary's request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed

b. final $350 billion is subject to a Congressional joint resolution of disapproval"

...which translates to:

NO LONGER a rolling pool, whereby TRILLIONS of fiatscos worth of dead assets would have been launderd through and the losses handed to the taxpayer.

Now, Congress will "dole out" the fiatscos to Hanktator, with accountiblity along the way having to be shown by Hanktator to his overseers on Capitol Hill.

(Ras Note):If this new provision is allowed to stay in the bill, then it's "Game Over" instantly for the world's financial system because multiple trillions of fiatscos are needed to try to resurrect all the failed players holding the dead "assets". So, look for this provision to be changed.

Otherwise we are scroomed.

And Hanktator knows it.

Section 2: Timeline of "Fannie/Freddie Big Bang" leading to worldwide, systemic financial collapse

In order to help put into context the swiftly-moving events surrounding this systemic, worldwide financial collapse, below is a timeline of the "Fannie/Freddie Big Bang" that touched off the derivatives implosion, which is why so many instituions failed simultaneously, worldwide.

To wit:

Timeline of "Fannie/Freddie Big Bang" CDS implosion, leading to current total, systemic, global financial collapse:

1. September 7th, 2007: Treasury takes over the failed Fannie and Freddie and FHLBs.

2. September 7th, 2008: All counterparties to the multiple tens-of-trillions of fiatscos of CDS positions are instantly vaporized. (They immediately start failing that very week).

3. September 8th, ISDA issues an emergency press release confirming that there are huge (but undisclosed) amounts of CDS trades outstanding on Fannie/Freddie debt. Calls for emergency conference call with Federal Reserve New York in attendance

4. September 8th to present: The failed gamblers scramble to construct a list of the failed trades.

5. September 16th: The Fed, feds, and ISDA step in and try one last ditch attempt to make a market in all the destroyed derivatives positions during the emergency "ISDA Sunday Swap Meet", which is a complete, abject, utter failure

6. Immediately after this failed "Sunday Swap Meet", the following players instantly are ruined (but not all topple over immediately) :

a. Lehman Brothers
b. Merrill Lynch
c. AIG
d. Morgan Stanley
e. Goldman Sachs
f. (Update): WaMu topples less than three weeks later

And the Grand Total of just the top financial institution failures so far:

1. Fannie Mae failed ($2.5 tril.)

2. Freddie Mac failed ($2.5 tril.)

3. FHLB system failed ($1.3 tril)

5. Merril failed (.8 tril)

4. Lehman failed ($.7 tril)

5. AIG failed ($500 bil. in CDS)

6. Goldman Sachs effectively failed ($2 tril)

7. Morgan Stanley effectively failed ($1.5 tril)

8. WaMu failed ($300 billion)

Sub Total: Approximately $12.3 trillion

Time-frame: Approximately three weeks.

But also vaporized, were virtually every:

1. Hedge fund
2. Pension fund
3. Insurance fund
4. Mutual fund
5. Money Market fundboth in the U.S. and in all other major countries, worldwide.

Sub Total: Who knows? Probably trillions more

ALSO vaporized, and even more dangerously so:

1. Some percentage of the $62 trillion credit default swaps market

2. Some percentage of the $650 trillion overall derivatives markets

Sub Total: Who knows? I don't even want to guess anymore.

Section 3: What will happen if the "Hanktator Act is not enacted

Not passing the "Hanktator Act" will cause the near instantaneous collapse of:

1. All bank accounts by 95%

2. All 401(k)/IRA/mutual fund/money market fund by the same amount

3. Collapse of all McMansion prices by at least 70%

4. No more car loans or other loans for five years, or at interest rates that would be outrageously expensive.

5. A virtual guarantee that tens of millions would be thrown out of work

However, even when the "Hanktor Act" is passed, these horrid events probably won't be prevented, just delayed for a few weeks to months.

Section 4: The four questions that were never asked during the Congressional hearings on the "Hanktator Act"

The four questions that were never asked during the Congressional hearings on the "Hankzooka Act" are:

1. Of WHAT exactly do all these instruments consist? (Categorically: MBS, CDOs/Squareds/Cubeds, CDS, other derivativtes)

2. Exactly WHO is holding them?:

3. WHAT are the actual, verifiable, CASH FLOWS on the instruments that the destroyed financial sector are trying to foist on the American taxpayer?

3.(a) WHAT is a reasonable estimate of the "worth" of these assets, based upon number 3 above?

4. WHAT "assets" has the Federal Reserve accepted in exchange for the fiat/Treasuries flung under the various "TAF-like" programs? From WHOM has the Fed accepted these "assets?" WHAT is the cashflow from these "assets?" At WHAT price did the Fed value these "assets"? Will the Fed be swapping these "assets" back out to the players with whom they did these deals? (And then will the players be dumping these assets onto the Treasury under the "Hanktator Act"?)

(Ras): Four simple questions. The truthful answers to which would instantly collapse our entire economy and financial system even more so than it already has.

Which is why we haven't heard them asked, nor will we hear them answered.

Section 5: Layman's explanation of the systemic, worldwide financial system collapse

Layman's explanation of our situation:

1. The current "Ponzi Pyramid of Death" monetary system is crumbling.

2. Right now, virtually every single large bank, medium-sized bank, hedge fund, pension fund, mutual fund, money market fund, stock broker and insurance company has failed or is failing. All the phony paper they have been trading back and forth is virtually worthless.

3. Somewhere between $10-$20 TRILLION (estimates are hard to make due to the opaque nature of the derivatives markets) in debt and derivatives "value" has been wiped off the books of the above-mentioned players.

4. The players are failing left-and-tight. ALL of the biggest, oldest Wall Street banks, plus the largest insurance company plus the two largest mortgage companies (Fannie and Freddie), plus the entire money market, plus the largest S&L, allfailed in the span of three weeks. The rest of the thousands of institutions worldwide are mortally wounded will be toppling over soon.

5. Governments and central banks worldwide have already pumped approximately $5 trillion collectively to date to fight this systemic, sychronized, worldwide, complete, utter collapse. So far, their efforts have failed.

6. At this point, the fight will continue to the death. During these next few weeks, months, and even years the "economic convulsions" between the "Ponzi Pyramid" debt collapse destruction-deflation and government and central bank reflation/monetization/nationalization efforts will rage, with the back-and-forth battles getting wilder and wilder, until:

7. The entire world is plunged into financial demise, with the people of all the nations suffering mightily. "Great Depression II" will ensue for the next five to ten years.

8. During this time, if the world doesn't blow itself up in all the wars that will surely follow, tens of millions of people in the U.S. are going to learn to fear debt and living beyond their means. This is a good thing.

9.Eventually, hopefully, the U.S. pulls through in one piece, the people's stock, bond, and housing assets are decimated, many have lost their jobs, but we all learn discipline, humility and sobriety and as a result, our national character grows.

10. We come through chastened and humble. Exactly what we need.

Section 6: Special section: The Fed's unprecedented move to backstop the entire $ trillion money market fund sector

The Fed's unprecedented move to backstop all Money Market funds:

First, a link to the Fed's "Interim Final Rule" on their loaning to the failed financial institutions enough fiatscos to try to revive the moribund ABCP scheme:

But we''re not desperate or anything. We just thought we''d do this outta the blue, on a Friday morning, because we weren''t very busy

Now, the KEY phrase from this document is this (with my emphasis added):

"To reduce liquidity and other strains being experienced by money market mutual funds, the Federal Reserve System adopted on September 19, 2008, a special lending facility that enables depository institutions and bank holding companies to borrow from the Federal Reserve Bank of Boston on a NON-RECOURSE basis if they use the proceeds of the loan to purchase certain types of asset-backed commercial paper (ABCP) from money market mutual funds (ABCP Lending Facility)."

Did you catch that part about "non-recourse"?

Do you know what that means?

Well, it means that when--not if--the ABCP the institutions hand the Fed in return for freshly-flung fiatscos goes bad, then THE FED WILL JUST EAT THE LOSS AND NOT, I REPEAT NOT, TRY TO RECOVER THE FIATSCOS FROM THE INSITUTIONS!!!

Section 7: All government and central bank efforts to date to combat the systemic, global financial system collapse

Government and CentralBank efforts from March, 2008 to present to fight Financial Collapse:

The sum, fiatsco-wise and in terms of actual actions, of the efforts of the various TPTB branches to fight the debt destruction convulsions and the related costs incurred to do so (so far).

To wit:

Federal Reserve efforts undertaken in the last one and one-half years to fight the credit collapse:

1. Dropped Fed Funds rates 325 basis points, some of these moves being surprise rate cuts.

2. Also pounded down discount rates by similar amounts and means.

3. Created unprecedented, even borderline Constitution-contravening, multi-hundred-billion fiatsco TAF, TSLF, PDCF,"Fed,LLC", "Fed, AIG", "Fed Euro-swap" programs Then, extended time-frames, amounts and frequency of many of those programs.

4. Instituted the stunning "Fed-FDIC" program on Friday, September 19th, whereby the Fed backstops ALL money market funds (total fiatsco exposure amount: over $4 trillion by itself), accepting worthless ABCP paper with NO-RECOURSEto try to stop a run on the funds by panicked bagholders.

5. Accepted hundreds and hundreds of billions (and now perhaps trillions) of fiatscos of totally dead "assets" from failed Wall Street firms and will not disclose what those "assets" are, nor from whom they were accepted.

6. Offered JPM "sweatheart loan" as part of Lehman liquidation

7. Suspended "Rule 23(a)", allowing commercial banks to fling fiatscos to their failed investment banking arms

8. Began outright purchases of Agency debt on Friday, September 19th

9. Allowed Goldman Sachs and Morgan Stanley to--with no waiting period--change from investment banks into commercial banks. Changed "rules" so that Morgan Stanley can continue to perform investment banking functions. Changed the "rules" regarding minority ownership of these giants

10. Did a special $25 billion "TAF" to Goldman and Morgan

11. Raised "SOMA" account credit limits by 25% from $3 billion to $4 billion

(Total liquidity/reflation/monetization effort costs on the part of the Fed):

Hundreds of billions of fiatscos, to literally trillions of fiatscos, depending on how much more fiat they are willing to fling to prop the money market funds and other failures, but I will only estimate $1.25 trillion so far.

(Ras): That is one impressive list of accomplishments by the Fed in their battle against the debt destruction convulsions. Breaking all previous rules, precedents and protocols, the Fed is well on its way to playing out Bernanke''s promised "Roadmap to Weimar" as laid out in his famous 2002 speech:

"Deflation: Making Sure it Doesn''t Happen Here".

However, these stunning, creative, and even nefarious moves on the part of the Federal Reserve don''t represent the total effort by TPTB to stave off economic collapse.

Far from it.

Next we will focus on the Treasury/Administration/SEC/FDIC gang''s efforts and see just what rabbits they have pulled out of their collective hats. Trust me, they have produced an entire litter of "reflation bunnies" in their attempts to keep this collapsing system intact.

And here they are:

Treasury/Administration/Congress/SEC/FDIC efforts:

1. Congress proffered "Economic Stimulus Checks for Sheeple" program of $150 billion

2. Treasury floated various failed "Super SIV" programs before turning to the "big gun" efforts described below

3. Treasury (Hank Paulson) demanded, and received, from Congress an $800 billion (so far) "Bazooka" to nationalize Fannie, Freddie, FHLBs.

4. Within six-weeks, Hank used that bazooka to take over the GSEs, injecting an initial $200 billion into these fallen frauds and also instituted a Federal Reserve-like function of monetizing GSE MBS. Also, offering "liquidity" for MBS

5. Treasury pulled off two emergency funding Treasury auctions totalling $200 billion to give Federal Reserve more ammo to fire at collapsing financial institutions worldwide

6. Treasury demanded "Hanktator" emergency legislation from Congress, giving Treasury literally dictatorial powers over the entire financial system. Further demanded authority to keep shuffling dead assets from Wall Street banks into government (and taxpayer''s) lap

7. Treasury/FDIC/SEC rranged "shotgun weddings" between failed Wall Street banks, commercial banks and major mortgage originators

8. On Friday,September 19th., Treasury announced they were turning the GSEs loose to once again start snapping up dead MBS from the failed financial system

9.The FDIC quietly allowed banks and S&Ls to practice "foreclosure forebearance" which gives these failed institutions the authority to pretend that all their deadbeat real estate loans are "performing". Also, have quietly shut down or married off failed banks (And are just beginning this last effort, with perhaps thousands more to go.)

10.The SEC ruled that "Short-Selling Seditionists" are a financial threat and released a 799-member "untouchable" list of failed financial institutions which cannot be shorted. This action came after a smaller version of same was instituted in July. Have continually added to this list, including many non-financial stocks.

11. The FDIC arranged an unusual THURSDAY NIGHT takeover of WaMu, dealing off its deposits to JPM. Additionally, and no surprise at all, WaMu's derivatives positions were also transferred to JPM.

12. FDIC decided that the collapse of WaMu did NOT constitute a "Credit Default" therefore no CDS payments need be triggered. This is a HUGE event because the FDIC just basically negated ALL CDS contracts, in my opinion.

What kind of monkey wrench this will throw into the $62 trillion CDS machine/monster (now having shrunk an alarming $4 trillion in a very short time, as noted by ISDA) is anybody's guess. But MY guess is that this maneuver could result in chaos in the CDS markets because the players were operating under one set of rules and now those rules have been thrown out the window.

For instance, how does one value CDS contract where they have bought "protection" on an underlying instrument and, even when a "credit event" as spelled out in the contract (assuming there IS a contract, which is always "iffy" with these CDS gamblers) that protection is arbitrarily declared "null and void" by the regulators?

We shall shortly see how this sudden shifting of the rules plays out going forward.

(Total nationalization/stimulus/reflation effort costs on the part of Treasury):

Estimated $2.3-plus trillion so far, with open-ended commitment going forward.

(Ras):Once again I have to confess pure,unbridled shock and awe at the impressive array of weapons that this particular branch of TPTB has amassed--and used--in their battle against the evil forces of deflationary debt collapse convulsions.

Yet, despite outlining the above massive and unprecedented steps taken, we''ve not yet completed our quest to document all TPTB''s powers and programs undertaken to date.

Let us do so now:

Congressional efforts:

1. Passed the proposed $150 billion "economic stimulus" program suggested by Treasury/Administration

2. Passed the "Save the Homedebting Sheeple Act" with an estimated cost of $300 billion (but will surely be much more)

3. Then tacked on the "Bazooka" provision to allow Treasury to nationalize Fannie/Freddie for another $800 billion (so far)

4. Are currently wrangling with passing the afore-mentioned "Hanktator" act, giving Treasury unprecedented dictatorial powers over the failed financial system and perhaps multiple-trillions of fiatscos to do so.

5. Just passed $25 billion aid to auto manufacturers

(Total stimulus/reflation effort costs on the part of Congress, avoiding double-counting costs already attributed to Fed/Treasury above):

$300 billion to $1 trillion.

(Grand Total ALL Reflation/Nationalization/Monetization Costs to Date, U.S. only):

Approximately $ 4 trillion. So far.

(Grand Total ALL Reflation/Nationalization/Monetization Costs to Date, worldwide):

Approximately $ 5 trillion. So far.

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