Oh, Say, Can You Still See?
Part 10: Hey Buddy, Can You
Spare a Trillion?

By Dr. Russell McDougal

Dear Reader,

You are being stolen blind.  We are still on the topic of bailouts as they are now in progress.  Bulls eyes are being drawn on your pocketbook.  You’ll feel a lot better if you at least scream “bloody murder.”

Again, these bailouts are real estate centered but they’ve now infected the banking sector.  Freddie and Fannie were highlighted last week as major bailout players.  Let’s now see what the bankers have been up to.

Banks are suffering massive losses as you can see from the Banking Index chart:

There are several underlying reasons for this carnage.  Banks helped inflate the real-estate bubble by lending to anyone who resembled a mammal.  “Liar loans” and interest-only mortgages hit the scene.  Weird mortgages were used to entice borrowers to participate in the American birthright of home ownership.  The Fed provided historically cheap money.  Accounting gimmicks were commonplace.  Greed led to unfathomable leverage being commonplace, as banks packaged mortgages into bonds and sold them globally.

This is now all unraveling, and it’s not just from “sub-prime” real estate.  Bank collateral is plummeting as real estate prices continue to fall.  The traditional cushion required for mortgages was bypassed.  These weird mortgages are now being introduced to reality.  Leverage is now going in the opposite direction as intended.

The savings and loan crisis of the late 1980s and early 1990s cost, at bare minimum, more than $160 billion.  That won’t get your shoes shined in the current fiasco.  We’re told “government” bailed out more than 1,000 institutions back then, but you know full well it was Jane and Joe who picked up the tab.

Here are a few banks and financial institutions currently in trouble and needing a helping hand: Citibank, Goldman Sachs, Merrill Lynch, J.P. Morgan, WaMu, Bear Stearns, Wells Fargo, Countrywide Financial.  That is by no means a complete list.

Some folks are debating whether Freddie and Fannie will be bailed out by taxpayers if necessary.  I believe it’s naive to think that they won’t be.  It is also naive to believe that those most closely associated with the Fed won’t be bailed out, some how, some way.  See the listed banks above.

One way banks are being bailed out is through more cheap money provided by the Fed.  Isn’t that what caused this mess in the first place?  The Fed has a new auction process set to transpire every two weeks “as long as necessary.”  These are loans for compromised banks with the hopes that they can do something good with it this time.  (See the GATA article.).  Translation: The money in your pocket and your dollar-denominated assets have just been cheapened.

The Fed is accepting the sub-prime and other failed entities as collateral and monetizing them.  Remember, they can create more money from used razor blades if they so desire.

In one of the strangest ironies of all, U.S. banks are being bailed out by foreign entities.  China has brought in $5 billion for Morgan Stanley.  Requests have been made for help from Japanese banks.  Chinese Saudi parties are also participating.  I guess some of the excessively created dollars in foreign hands will be allowed back home.  This has the appearance of “back-room” deals.  It also means that foreign interests will own more and more of crucial U.S. enterprises.

In just the past quarter, $60 billion in rescue money has come to banks … with more to come.  Banks are now regularly in the nightly news.  This isn’t going away any time soon.  The banks may survive, but it will cost you.

The Resolution Trust Corporation was used in the S & L crisis in the 90s as a method of crony bailouts.  Be on guard for RTC Part 2.  Apparently when you see the word “trust” in the title of a government-sponsored entity, it’s time to hold onto your wallet.  See the Social Security “Trust” Fund.

Real estate and banking bailouts are portrayed as being essential for the consumer.  Don’t believe it.  The little guy will only be thrown a bone.  Bailouts are the ultimate process of finding out exactly who is too well connected to fail.  Those who committed the original fraud go unpunished.

Estimates for mortgage and banking woes are as high as $2 trillion.  This will be largely a taxpayer-funded rescue plan, one way or another.  As much as possible will be hidden from public view.

You can rest well assured the “government” will bail out the failing banks.  That means you and me in the end.  The Fed is the mechanism but it’s much more than that.  Don’t think of the Fed as simply doing the will of the government, because the government primarily does the will of the Fed and Fed cronies.  Look at the list of Fed owners.  Keep an eye on the list of banks in process of being bailed out.  Hmmm.

Little wonder the monetary metals - gold and silver - have been on the move.

Invest Resourcefully,

[Ed. Note: Dr. Russell McDougal has dedicated years of study and investing in the natural resources exploration sector. During that time he has closed out DOZENS of gains of 500%... 1,000%... 2,000% and more! Currently he is sitting on multiple thousand percent winners, including one stock that is up a whopping +5,000%. And for a select group of investors, Rusty has agreed to share his secrets of success... and his top stock recommendations. Click here to learn more... ]

Market Watch

Is It Time to Buy?

By Charles Delvalle

In the past month, the Dow Jones went up only five out of the 14 trading days and dropped by 1,200 points.  But if there’s blood on the streets, that means you should buy, right?

Back in 2001, the Dow Jones dropped 28 percent in about five months.  So far, the Dow has dropped 23 percent.  It seems that a bottom is fast approaching.  When it does, the rally that follows should be quick and dramatic.

If you want to be a hero and try to call this market bottom, make very small buys to make sure the market is heading higher.  If it pans out, then make your bigger bets.  But just be aware that this market is still trending down.

So you shouldn’t expect the market to keep going higher forever.  Make sure to keep very tight stop losses and use these rallies to find good short-sell points for the weakest stocks.

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