By: Jim Willie CB, Ph.D., GoldenJackass.com/ GoldSeek.com
Few observers make the connection, but the current LIBOR scandal is a middle inning of two important events. The first is the demise of the Western banker leadership crew. The executives from the most powerful banks will be last to be deposed, all sharing an ethnic strain. The second is the open fracture of the Western financial system. Over the past few years, to be sure a great many people have grown tired of Jackass descriptions of corruption within the banking sector and financial system in general. Well, hear this: TOLD YA SO! The London Interbank Offered Rate scandal will erupt into an uncontrollable firestorm, hitting one chamber and then the next, with rapid contagion. The Bank of England and the US Federal Reserve are both implicated, but they will skate until the end game. They control the prosecutors and the news networks. Few yet connect the LIBOR rigged prices to the important parts of the financial kingdom run by the harried banker elite. The supposedly informed experts point to the rigged low rates for adjustable rate mortgages, for credit cards, and for student loans. Only the ARM rate is important among these, since it kept and housing bubble going. If truth be told, the LIBOR anomalies have persisted since late 2008. The intrepid first class forensic bond analyst Rob Kirby linked the sordid trails and mismatched discrepancies of the LIBOR to the JPMorgan monster, the US Federal Reserve syndicate ring leader, and the USDept Treasury (haven for Goldman Sachs lieutenants). See his 2008 article on Financial Sense (CLICK HERE). Regulators have done nothing for four years. It was not fully appreciated at the time, like it might be today. The LIBOR should match the settled EuroDollar contract, but it has not for years. The evidence for price rig has been glaring for years. The big banks have skimmed the difference for profit for years. Imagine selling milk or concrete with a variation in price at the wholesale level, enabling vast profits from skimming. It has been permitted for the big banks, a grand blemish on an already scarred sector.
Anyone with a solid intelligence quotient, a curious manner, and a suspicious streak can detect the recent trail. The MFGlobal client account thefts were a coming out event for the corruption. The JPMorgan margin calls on various positions had become an acute problem. They were very short on cash. With the upcoming December 2011 gold & silver delivery notices adding strain to the near breakpoint, JPMorgan made a decision. They stole the MFGlobal client accounts. They reneged on all precious metals contract delivery. They put all the to-be-delivered metal in their own account. Mission Accomplished, the catch phrase for unspeakable colossal permitted corruption in the USGovt and US financial markets. The losses in May by JPMorgan in the sovereign bond and Interest Rate Swap arena provided the Prima Facie case for the MFGlobal thefts, showing deep losses that will escalate over time. The officials at JPM have been telling scattered truths over the course of the last several weeks. They admit at times that their profound losses are tied to Interest Rate Swaps, which experienced analysts and traders can tell are for defense of the USTreasury Bonds and their entirely unwarranted 0% yield.
LIBOR CONNECTED TO INTEREST RATE SWAPS
The annual now chronic $1.5 trillion USGovt deficits must be financed. They should be financed at a Spain-like 7% yield. The two nations have equally wrecked finances and an equal unemployment rate. But doing so would be far too disruptive. But doing so would be far too costly. But doing so would take away the wellspring of cheap money for the speculation. The big banks enjoy a brisk carry trade off the USTreasury curve that makes easy profits. No other industry is granted such risk free profits. So enter the IRSwap to generate an artificial USTBond rally from a phony engineered flight to safety. The thought of a flight to the safety of massive uncontrollable USGovt toxic debt pit is laughable on its face. The LIBOR price rig has enabled virtually free funds for the IRSwap that supports the vast 0% USTBond tower.
The next connection will soon be revealed. The IRSwaps are fed by the deep source fountain of LIBOR, at virtually free cost. It bears repeating. Too much attention is given to the adjustable rate mortgage feeder process. Not enough is given to the derivatives that are abused by the financial sector in unregulated shadow systems. The big banks have sold too many multiples of Credit Default Swap insurance, to the point that both counter-parties are dead. No net neutrality is a reflection of reality. Too legless swimmers do not rescue each other in the deep waters. They both drown, just like the bank parties involved. However, the big story is the Interest Rate Swap contracts, those arbitraged long-term bond swaps versus short-term bond swaps that enable free money to finance the levers that control the long maturity for the USTBonds. Anyone who believes the TNX fell from 3.6% in 2011 to under 1.8% was from a flight to quality is either drinking Wall Street kool-aid or duped by their marketing flyers or captivated by media propaganda or just plain stupid. The vested interest in watching the 10-year USTBond yield go into ultra-low territory is all very understandable. Many financial asset prices depend upon a low benchmark bond yield.
But the reality is that foreign creditors abandoned the USGovt debt auctions. The reality is that primary dealers to those auctions found themselves stuck with inventory. The reality is that an avalanche of USGovt debt supply could not be handled with absent demand. The reality is that the USGovt borrowing costs required, if not demanded, ultra-low yields to prevent a worse explosion in deficits. The only true aspect of the flight into USTreasurys is that the European sovereign bonds have turned toxic. But the Europeans are far more likely to purchase German Bunds, and they have, driving their yields lower than the USTBonds. Some arbitrage has pulled the two to almost equal, evidence that IRSwaps are at work in the Bund backyard. The story will come out soon enough, how the LIBOR rate was rigged extremely low in order to facilitate management of the ultra-low 0% Fed Funds rate, and to enable the IRSwaps to do their magic in keeping down the long-term USTBond yield. The LIBOR has been and continues to be the feeder system for the IRSwaps that enforce the 0% and 1.5% yields on FedFunds and TNX. The factor is mentioned on financial networks with quick passing and no emphasis. They still sell the flight to safety rubbish story.
FASCIST BUSINESS MODEL FLOURISHES
The Fascist Business Model is not just showing its bitter fruit after the Bush II Admin came to office in 2001. It is flourishing in a climax of failure. The model does not simply permit financial crime. It encourages it. It promotes it. It rewards it. The higher powers organize it and run it. The result is not simply tolerated financial crime. It enables financial crime to flourish. The USAttorney General office sits on its hands. The Commodity Futures Trading Commission sits on its hands. The Securities & Exchange Commission sits on its hands. The financial press ignores the crime, or minimizes it, or explains it away. They all pay lipservice to enforcement of regulations and securities fraud. The outcome is a mindnumbing episode of financial fraud, theft, and collusion that the nation has never witnessed in its entire history. The outcome is an extreme strangle of the nation around its financial neck. In Jackass writings over the last several year, the word 'corruption' has appeared many times in almost every public article. That is because corruption appeared in every direction the trained eye was cast. For some articles, the word appeared over 20 times, and deservedly. My attention to corruption is steadfast and consistent. Corruption is Wall Street's calling card. It will bear the epitaph of the nation.
The Fascist Business Model practices brought the nation the Too Big To Fail rationale that permitted insolvency and corruption from syndicate strongholds. Worse, the practiced model has brought the United States as a nation to the doorstep of systemic failure. The ripening LIBOR scandal is an extension of the MFGlobal theft and a close cousin to the deep JPMorgan losses. The entire US and London financial structure is collapsing. Instead of perceiving the European sovereign bond problem as having a related plague in the US and UK, the arrogant bankers preferred to conduct business as usual with IRSwap props of the fake USTBond tower. They preferred to rig the LIBOR channel that feeds the derivative pool, which include the all-important IRSwaps for maintaining the 0% artificial world. They preferred to point to the United States as different. It is not different. It is rotten from the inside due to 0%, whereas Southern Europe is rotten from the outside, manifested by the 7% alarm level.
The following stories, themes, and factors all serve as symptoms of corruption and failure. The failure is in part a result of the corruption. The corruption is intertwined with grotesque inefficiency, since the best in class do not prevail. The corruption sidetracks capitalism to reward the corrupt while inhibiting the successful and efficient. The most connected and thus corrupt not only prevail, but they rule. The following stories, themes, and factors are the handiwork of the US and London banker elite. The list is long but in no way complete, as the criminal activity is laced throughout the entire system. They will someday appear on indictment lists. To date the court rulings have almost all featured non-admission of guilt or any culpability, only details on settlement for the charges to go away. That greases the civil lawsuits away from continued awards. Regard such deals as fascist justice, more queer fruit. The decay of the nation is best seen not in economic output but in ethics. To be sure, the USEconomy is mired in a powerful recession that has extended for almost five years. The true protection from the systemic criminality is obtained and secured by owning precious metals, best in bullion bars and coins.
NAKED SHORTS ON PRECIOUS METALS
For two decades the bank cartel has been selling Gold & Silver futures contracts without collateral. They are exempted from regulatory action and prosecution, as part of some absurd position in national security. The practice covers the USGovt gold treasure, long gone, gutted, pilfered. On February 29th of this year, JPMorgan alone sold a full year of global silver mine output in a single hour. This is obscene. Compared to several years ago, the Big Four US banks have twice as big naked short contract position for precious metals. Refer to JPMorgan Chase, Citigroup, Bank of America, and Goldman Sachs. They all have pretty logos. They are not making America stronger. They are extending the criminal financial structures and their lifespan, giving room for zombies to roam. They enable a fiat USDollar currency to continue longer, despite the absent faith and trust no longer held in it globally. A parallel takes place, like with the Alpha Group for naked shorting Canadian mining stocks through their handy outlet Canaccord. If individuals attempted to naked short any futures contracts, they would be prosecuted and tossed in prison, their assets confiscated. The criminality is vast. The true protection from toxic paper contracts and paper certificates is obtained and secured by owning physical precious metals, never in paper form of any kind. Best in bullion bars and coins.
QUANTITATIVE EASING & OPERATION TWIST
The magnitude of bond purchase is astronomical, best described as Weimar-like. The printing of USDollars on electronic devices for the purpose of buying USTreasury Bonds that the world no longer demands in order to cover the gargantuan USGovt debts is out of control. The entire process is obscene and loaded with deception. The public and investment community is told repeatedly of a flight to quality and safety. There is neither quality in a Weimar rag known as the USTBond, nor safety in a junk bond with $1.5 trillion in annual deficits put to securities each year. The USFed does not have in its charter any feature to purchase 70% of the total sale of USTBonds in 2011, for instance. Operation Twist is a grand lie, a deception to cover the monetization of all 30-year USTBonds ever issued. It is a deception to enable foreign creditors to dump unwanted long maturity USTBonds, in favor of very short-term USTBills. The foreign creditors are eager to let the clock run out and have these bonds mature. Think exit. If corporations were to issue bonds without the demand of buyers, and float them in the market like a huge tributary from a toxic river, they would be prosecuted and their executives tossed in prison. The criminality is vast. The true protection from the hyper monetary inflation is obtained and secured by owning precious metals, best in bullion bars and coins.
MORTGAGE MARKET LAWSUITS & OBSCENITIES
The entire housing bubble was made possible by broad and deep corruption of every conceivable process within mortgage finance. People were approved to purchase homes without verified income. Home loans were approved without down payment. Homes were approved for sale without proper appraisal. Interest rates assigned to loans were often linked to corrupted LIBOR rates. The Wall Street banks shoved the income stream from a given mortgage into multiple securitized bonds. They covered their tracks with the MERS title database, intended to facilitate the frequent sale of property and more importantly the bonds tied to their income streams. The MERS lacked legal standing though, and their entire process was fraudulent. The court cases in several states discarded bank claims on foreclosure, with rulings that a