Oh, Say, Can You Still See?
Part 13: Other Bailout Players

By Dr. Russell McDougal

Dear Reader,

Surely you know by now … you are being stolen blind.  The pungent stench of bailouts is in the air.  Some of them will be official and some “unofficial.”  There are a few more bailout players you need to recognize and then we’ll wrap up this series.

If you’ve read all of the previous 12 articles in this series about the Fed, banks, and bailouts, you likely know global finance is little more than a freak show at the present time.  It is being held together with Band-Aids and bubble gum.  You also know considerably more than those who rely on the mainstream media.  A new monetary order commeth, and we need to make sure it’s light years more honest than the one crumbling around us.

Let’s now look at other bailout participants.

Bond Insurers-

Other bailout players include Wall Street bond insurers.  Failing real estate schemes and leveraged mortgage bonds have brought these companies into the picture.  Small companies, such as ACA Capital (ACAH, OTC), are used by much larger investment banks (Goldman Sachs or Merrill Lynch) to insure against bond losses.  Municipal, mortgage, and other bonds have received higher-than-normal credit ratings because of this “insurance” relationship.  Here’s a self description from the ACA website:

“ACA Capital is a holding company that provides asset management services and credit protection products to participants in the global credit derivatives markets.”

Needless to say, the bond and derivative insurers are taking a pummeling.  ACA has a market cap of $20 million and insures mortgage portfolios worth well over $20 billion.  That’s a mismatch and ACA just lost more than $1 billion in the most recent quarter.

Large Wall Street firms, like Bear Stearns, own ACA in size.  Standard & Poor’s recently cut ACA’s credit rating to a CCC level, otherwise known as “junk.”  Click here for more.

Banks, investment houses, and individuals own bonds that were supposedly insured against failure.  The insurance is not there but the failure is.  This is one more blow to the banking system.

The esteemed Jim Willie recently reported on ACA, “If ACA loses ‘AAA’ rating, then possibly $60 billion in CDO (packaged deals) bonds will be forced onto bank balance sheets in the banking sector generally.”

ACA has lost this AAA rating.  Willie also states that ACA is frequently called a “garbage can” where elite Wall Street companies can hide their losses from regulators and the public.  Merrill Lynch, Bear Stearns, and other NY banks are attempting to come up with a “rescue” plan for ACA.

There are other companies that insure mortgage bond packages and derivatives.  See MBIA, Ambac Financial, and Financial Guarantee Insurance.

All of these companies are under scrutiny for cuts in their ratings.  They have to raise capital and are thus on the bailout radar screen.  Failed debt and derivatives are being passed around like hot potatoes.  It’s likely that the vast majority of what is transpiring is arranged beyond public scrutiny. See my piece on derivatives from two weeks ago.

Bank of America just paid $4 billion in stock to buy troubled Countrywide Financial Corp.  Both companies have been under extreme duress due to the debt and derivatives crisis.  It is not uncommon that such arrangements are dictated “from above.”  What this did for the combined company’s overall derivative picture is anyone’s guess.

Whether bailouts are official or unofficial, the taxpayer or shareholder picks up the tab.  The DC/Wall Street gang operates on the premise that what the public doesn’t know won’t hurt them.

Bank Deposit Insurance-

It’s hard to talk about banking problems and bailouts without mentioning the government-sponsored FDIC program.  As you know, this entity helps protect our various deposits held within banks.  It is woefully under-funded.  It has, in the past, had the right to borrow funds directly from the U.S. Treasury.  We all know it will be bailed out in a heartbeat should something go wrong.

Offshore Money Centers-

A real wild card in the bailout scenario is some of the offshore money centers, specifically in the Caribbean.  The main advantages of registering in the Cayman Islands, for example, are the low tax structure and secrecy.  Does it bother you that there are now at least 8,000 hedge funds in just the Caymans?  The Cayman Islands is the world’s fourth largest money center with deposits at $1.4 trillion. 

If a domino falls in the Caribbean and no one is around to report it … does it still topple over the linked dominoes?

Money laundering and drugs also go hand in hand with Caribbean money centers.  Might as well add derivatives to that toxic mix.  Read John Perkins’ Confessions of an Economic Hit Man for further illustration.

Scapegoats-

How about scapegoats?  Yes, definitely.  One corporate entity can be loaded with the failed positions of several others and sacrificed.  The loaded structure becomes defunct but the others live on.  All the operators get golden parachutes as rewards for their white-collar crime.

You’ve now seen an anatomy of whom and what bailouts are about.  They are not harmless.  They affect you whether or not you are aware of them.  Unfortunately, they exemplify all that is wrong with our present decayed system of crony capitalism.  We are in an age of bailouts.

Inform and protect yourself.  I will present a summary of these 13 articles next week and then we’ll move on to other topics.  Thanks for reading!

Invest Resourcefully,

Rusty

P.S. It’s a good time to review JFK’s “Secrecy Speech” in which he stated, “That is why the Athenian lawmaker Solen decreed it a crime for any citizen to shrink from controversy.”

[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

What is Jim Arguing?

By Charles Delvalle

Last week I wrote an article about Hillary Clinton that got back some spirited responses.  Here is one of my favorites from Jim T.:

Dump this "Charles" guy.  He is an imbecile.

It is ELEMENTARY knowledge that the American stock market does substantially better under Democratic presidents than under the inherited wealth party.

The definitive study was by Santa-Clara and Volkanov in the Journal of Finance in 2002.  The effect is very large and stable over decades.  Many other studies have addressed this well known effect in more fragmentary fashion.

Please tell Charles to stop masturbating this settled issue, if you make the mistake of keeping him on.

Dear Jim,

Thank you for your spirited comments, although I never like being called an “imbecile.”

I have to wonder which article you’re even referring too, though.  The article you commented on said nothing about the stock market doing better or worse under a Democrat.  All I was saying is that I’m not very excited about Hillary or her policies.

In essence, you’re arguing an uncontested point.

And that study you looked into … well, one of its most important findings was that social mood dictates elections.  So if we’re in a recession around an election, society tends to favor change (is it any wonder why Barack Obama is doing so well right now?).

This is socionomics – the theory that the stock market is a barometer for society’s moods.

So forgive me for “masturbating” this issue further.  It’s just that I wanted to clarify exactly what I was saying in last week’s article.

Now hopefully my bosses won’t side with you, or I’m getting a pink slip!

If you enjoy IDE's daily investing advice, you'll definitely be interested in checking out our sister publication, Early to Rise. Each morning, you'll get powerful wealth-building advice covering real estate, entrepreneurship, personal finance, marketing, and much more.
Sign-Up for Early To Rise today!