Too big to bail

from Lemetropole Cafe

Have you ever cared for live plants before? If you have, then you know that as the plant grows and becomes mature it will lose some leaves. They turn brown, start to droop and given time they will fall off. It is always helpful to "clip or cut" these dieing leaves off so that the main plant doesn't get "life" sucked out of it trying to support dead growth. No matter how much fertilizer you use, leaves will be shed and can never be brought back to life. This is natures way with plants AND business, governments have clearly forgotten this and believe that none of the "big leaves" should be allowed to die.

This is the current case with AIG. AIG is apparently so big that if they get clipped the whole plant will go terminal. This is apparently the case with GM, Citi, Bank of America, Fannie and Freddie, etc.. In reality, the "plant" is capitalism, the "trunk" is actually the Federal Reserve and by default JP Morgan. I believe that the "next attack" will be directed at JP Morgan. They so far have not confessed to the horrendous losses that others have taken. This "genius" on their part would be believable IF and only IF, they were not reporting the huge profits during the bubble buildup phase. If they were leaning against the wind back then, they would not have reported the huge and continually growing profits that they had. It was obvious by their P+L statements that they were not contrarians, they were leaders of the pack.

President Bush signed an executive order back in 2002 or '03 that basically said "no company will need to report a loss if it was incurred in the interest of national security". I believe that this executive order is why JPM was able to throw caution to the wind and build up it's derivative book into the $ trillions while doing the Fed's bidding. It is this situation that very well could be the last straw. Were the current situation to be turned toward JPM, I believe the Fed would be powerless to come to their rescue if for no other reason, THEY ARE TOO BIG! They have so far stayed "above the fray", for me, this has been far too curious and can only be explained in my mind by the executive order.

We may or may not ever see the real deal as to what happened behind the scenes of the greatest financial orgy and fraud of all time, we will surely see the aftermath effects. The chart of the Dollar [Fed] and the chart of JPM should in my mind, join at the hip here and move in lockstep in the direction of their true values. No matter what legislation, court order, or executive order has been spewed forth by government, true value is true value and the market WILL eventually sniff it out and make a true judgment.

The global financial system has become so intertwined that not even the smallest leaf can be allowed to fall to the ground. Lehman's failure showed just how only one "leaf" hitting the ground can shake the whole tree. Not that keeping them alive would have changed anything but it did demonstrate just how fragile the entire system was. Bill Murphy coined the phrase "TOO BIG TO BAIL", and that is exactly where I think we are now. There are just too many huge and over leveraged financial institutions for the Fed and Treasury to keep feeding and propped up. The financial storm has now certainly reached land and the wind and rain is howling in London and Washington D.C. not to mention everywhere else on the planet. This is it, this is 1930 all over again except many times worse because global governments have stepped into the fray with their fiat currencies and are in the process of being swept away.

For those that have Gold and metals related assets, times will be tough and society ugly. For those without, well, they will be without and I believe they will have to start over again from zero. None of this had to happen and in fact would not have happened had we followed the rule of law set forth by the Constitution, money MUST be either Silver or Gold. Our founding fathers were not stupid people and certainly saw 200 years ago what could [would] happen if the money were to become false. Many were farmers and knew that deadwood must be cut to preserve the tree. It amazes me that with all the so called progress we could be back in the financial stone age one day soon.