Ber-Nutty's "Wealth Effect" or "Bubble"

Phil Grande
Posted: Jan 10, 2011 9:53 AM
Ber-Nutty's "Wealth Effect" or "Bubble"

What the government and CNBC don’t want you to remember is that we’re approaching the 2 year anniversary of when Hank “repulsive” Paulson, Timothy Geithner, and Ben Ber-Nutty manipulated the accounting rules of the country’s five largest banks. Just as Enron had done, they switched from mark to market to mark to model, in order to hide the insolvency of the banks.

In February 2009, by using the Enron playbook, a speculative and fraudulent stock market rally was created. Ber-Nutty secretly shifted all of the losses derived from the subprime mortgage debacle from the balance sheets of the five insolvent banks, onto the Fed’s balance sheet. With 0% money, the banks profited from speculating in stocks and commodities while showing no losses from subprime mortgages. And with no losses to offset their profits, the banks reported big earnings while their stock prices soared, leading to huge corporate bonuses. The stock market would rocket to the upside on speculation and short covering, because the market always follows the lead of the banks.

Because of mark to model, the banks’ stocks went up 400% in just a few weeks. To raise cash, the banksters “cheated” by issuing a secondary stock offer to the public. For Obama, this created a much needed stock market rally going into the mid-term elections, whereby he could claim that the stimulus was working and that the economy was in recovery. By creating the “wealth effect” of higher stock prices, Obama hoped to entice Americans to spend more money in order to create jobs. He also wanted to keep the Democrat's majority in the House and Senate.

Then came November, when Obama got shellacked. The economy, the housing market, and employment were still in decline. On top of that, Summers, Emanuel, and Romer abandoned Obama after just 18 months. Panicked over the resignations, and left with only Geithner and Ber-Nutty to head the plunger team (the President’s Working Council on Markets), Ber-Nutty introduced another round of quantitative easing (QE2) to cover up a jittery economy and bad monetary policy. The result has been a continuation of the stock market bubble that started in August.

You would think that the market would reflect all of this administration’s failures. Instead, because of QE2, the market is in a speculative boom, which does not accurately represent the fact that corporate earnings have been achieved through lay-offs rather than better top line earnings and increased market share. It doesn’t reflect the fact that home prices in our top 20 cities are still falling, or that the unemployment rate still stands at 9.8%. This, after trillions of dollars have been thrown at the economy via TARP and stimulus.

Quantitative easing can be credited for one thing: creating a speculative stock market boom. The bubble being created will continue for as long as the Fed decides to keep printing money, but it cannot last. The market should continue to rally for the time being, but the next crash will be greater than the dot con and lending con combined. It will be greater than in 2008. But, as Jim Rogers said, it will be held off “as long as there are enough trees to make the paper for the money to be printed.”

The SEC, in order to protect Goldman Sachs, J.P. Morgan, and the other three shadow banks from failing, allowed them to place their computers alongside those at the NYSE for the purpose of high frequency trading. This occurs when the normal supply or price discovery, is over-ridden by a massive injection of fake trades by the banks. In doing so, they lift the market-making (stealing) capacity of the exchange out of the hands of the people and into their own.

Remarkably, Goldman Sachs lost money on only 19 trading days out of 263 in 2010. And the money they made was enormous. The firm booked a daily profit of more than $100 million on 131 trading days... which is almost ten times the number of $100 million days in 2004. What are you nuts? Even during the rough and tumble days of 2008, Goldman still managed to amass an implausible record of success by booking a daily trading profit 63% of the time, and racking up $100 million profits on 90 straight trading days. Who said crime doesn’t pay?