Turd Ferguson: Beyond The Pale

Turd supplies a timely reminder to us all that no matter what happens Quadzilla is alive and well and ready to rumble. Quadzilla was the name a good friend of mine gave to the 1.4 Quadrillion USD in derivative notional value that exists globally. That is 1000 trillion for those unfamiliar with a quadrillion. If a mere fraction of these derivatives are asked to perform, as in the example supplied below by Turd, a global financial apocalypse will result. We have a debt problem people, where debt cannot be repaid.

A failure to repay debt triggers credit default swaps and other over the counter derivative products that hedgers hold as protection against default. Then the sellers of these insurance vehicles are swamped with claims they never had the ability to pay in the first place, let alone now in a highly impaired state that they find themselves in. Then as they are busted, their parties that own their debt or claims must show the mark against their balance sheets, which then triggers further defaults and credit default swaps, and so and so on.

The only thing that stands in the way is the Fed and a printing press. It is not a matter of if it is a matter of when. Will the world’s governments and central banks stand pat and allow Quadzilla to roam the earth free? Or will they contain this doomsday monster with trillions in ledger book money, satisfying the need for nominal money? I know the answer, you must convince yourself that you know the answer.

Banks and governments care nothing of real value or real money. Their concern is nominal money and the balancing of a ledger. They are not concerned with how much of what money will buy. That is our concern as people who must live in a real world where food must be put on the table. Spenders who have no savings care little for real money because they do not have the need for something that maintains value over time. They can use nominal money as long as the flow of it is sufficient and the value can be maintained long enough to exchange it for something they need. The only people hurt by nominal money required to keep Quadzilla caged is the savers, the ones who seek to warehouse their excess productivity in something that maintains real value. These people are crushed if their saving are in the form of nominal money paper.

Fortunately for our government, the Fed, and the spenders, there are precious few savers that have real savings in need of protection. Most of the giant or mini-giant savers have already transferred their wealth into gold, leaving the ignorant ones who are investing on paper or are locked into pension funds invested in paper. These will be the ones who carry the rest of the world on their backs as their value locked in paper will be transferred over into gold. The new global monetary system based on gold as the premier reserve asset will be constructed with the savings of these poor misguided people. The spenders and debtors will shrug their shoulders and say “wow, I’m glad I didn’t have any savings to lose.” The banks are going to say “wow, so sad. At least I was paid in full and my balance sheet is healthy and ready to leverage.” Government is going to say “wow, that is unfortunate. But the needs of the many outweigh the needs of the few, thanks for being patriotic Americans!”

Freegold is coming for no other reason than to keep Quadzilla at bay and give the majority of people want they want and need.

Beyond The Pale

Wednesday, October 19, 2011 at 10:27 am

I was going to write about this yesterday but got sidetracked by the CFTC stuff. I could not wait any longer to post it because, frankly, this story is far more important.

First, a little background. In 2008, Bank of America (which was already struggling based upon its nonsensical purchase of Countrywide Financial) was coerced by The Fed into purchasing Merrill Lynch. Merrill, that bastion of U.S. investment banking, private banking and retail financial services had been essentially run into the ground by its previous CEO, Stan O’Neal, and its current CEO, John Thain. Merrill’s potential derivative and Credit Default Swap (CDS) losses were staggeringly high and the firm was on the verge of imploding.

{CDS Primer: A credit default swap is exactly as the name implies. It’s an insurance policy that a creditor purchases against the default risk of the debtor. For example, Party A carried default risk of Party B because Party A owns some of Party B’s bonds. To insure against default of Party B, Party A buys a CDS from Merrill Lynch at a price that isn’t even close to reflecting the true risk being passed on to Merrill. If Party A has $100,000,000 in Party B’s bonds and then B defaults, A loses its $100MM. However, Merrill is so confident of B’s financial strength that they take on the entire $100MM in potential liability, often for just a paltry 2-3% premium. So, Party A pays $3MM to insure their default risk through an unregulated insurance policy, issued by Merrill Lynch. Merrill now is on the hook for the entire $100MM should Party B default.}

In walk The Bernank, Paulson and Geithner with a plan: Have BoA buy Merrill! It should have been clear to everyone paying attention at the time that this would never work. TPTB were only trying to buy time in a desperate attempt at holding the current system together. Well….time is up!

The counterparties to Merrill”s $53,000,000,000,000 (yes, that’s $53T!) in CDS are getting antsy that they’ll never get paid for their side of the “bets”. So, to shore up the impression that BoA will be able to pay off any of the losing CDS bets, BoA has transferred the liability of the CDS from their Merrill subsidiary to their regular, U.S. banking subsidiary. By doing this, BoA has essentially pledged as collateral the $1,000,000,000,000 (yes, that’s $1T!) in retail deposits it currently has on its books.

So, if just 2% of Merrill’s CDS exposure gets “exposed”, the $1T in regular, average Joe savings accounts that BoA holds will get wiped out. Of course, all banking accounts at BoA are “insured” by the FDIC. And just who is the FDIC? The federal government. And how will the federal government come up with $1T in new money to reimburse the BoA depositors? Well, I think you know the answer to that one. (By all means, listen to that fool Gartman and sell all of your gold and silver right now!)

That this blatant criminal action is allowed by the Fed should come as no surprise. It was their idea for BoA to buy Merrill in the first place! Of course they’re going to look the other way and stick the taxpayer with the bill. What would you expect them to do?

So, first up, here’s a link to the Bloomberg summary from yesterday. Written with the usual, MSM flair:


For a more complete summary, I defer to the “George Washington Blog” that you can find through ZH. I don’t subscribe to all of “George’s” theories and often I find his posts to be a bit hyperbolic. Not is this case, however:


The current financial system and, by extension, global geo-political stability hangs by a thread. Sadly, it no longer seems a question of “IF”. It has become a matter of “WHEN”. Please continue to prepare as the process of the coming “reset” is wholly unpredictable and dangerous. An ancient Chinese proverb suggests “may you be blessed to live in interesting times”. Some blessing. In the end, we’ll find that the true blessing had been to live in peace and solitude, instead.   TF

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