This is not change, Karl Denninger speaks out, in defense of the American tax-payer… No You Can’t!
Obama: The Market Is Issuing You A WARNING
Karl Denninger at Market Ticker
Put the kids away – this is not going to be pleasant.
I’m done Mr. President.
You stood in front of the American Public and lied through your damn teeth. You claim that America faces a "catastrophe" if we don’t pass your bill – but its not YOUR BILL, its Pelosi’s and Reid’s bill – a bill full of PORK and BS.
I’m tired of the lies, America is tired of the lies, and we the people are not going to sit still for it any longer.
You promised us change. This is what we got for "change":
Your Treasury Secretary, Geithner, cheated on his taxes. He was caught. He then failed to pay the other two years of tax for the same thing he got caught doing, until you told him you wanted him to be the tax collector. But that’s not the worst of it. No, the worst part is that when Bear Stearns got in trouble he, as the head of the NY Fed, knew full well that The Federal Reserve intended to open the discount window to investment banks THE VERY NEXT DAY and yet this fact was NOT disclosed to Bear Stearns, forcing them into a merger they would not have otherwise consummated. THOUSANDS OF AMERICANS LOST THEIR JOBS AS A DIRECT CONSEQUENCE OF TIM GEITHNER’S AND BEN BERNANKE’S INTENTIONAL CONCEALMENT OF THIS MATERIAL FACT. Here is the quote from the NY Times:
"But the night that Bear signed the original bid, the Fed opened what’s known as the discount window to companies like Goldman Sachs and Lehman Brothers – oh, yes, and to Bear, too. Except that the Fed didn’t tell Bear that it planned to open the window when it was signing its deal with JPMorgan.
Had Bear known it might have access to the discount window – a crucial source of liquidity – it might have been able to hold out for a couple more days or at least had enough leverage to seek a higher bid. But the Fed clearly preferred the original bid."
You WISH The Internet wasn’t around to hold your butt over the pot of hot oil and dunk you on this one. Sorry Mr. President, NO DICE.
GEITHNER MUST RESIGN NOW; HE IS UNFIT TO HOLD THE OFFICE TO WHICH YOU APPOINTED HIM. PERIOD.
We dealt with George W. Bush playing "disaster capitalism" with us for more than eighteen months. Now you’re doing it. Nice try, no donut. I have been writing for close to two years in The Market Ticker about the fact that The Fed, Treasury and the former administration were directly responsible for this mess through various machinations such as "23A Exemption Letters", Paulson’s entreaties to remove leverage limits and the OCC’s move (including asserting federal preemption in court!) to preempt state regulation of subprime and ALT-A mortgages. You’ve put forward plans to address exactly none of these frauds and yet they are the root of the problem.
Further, you can’t claim to "not know" because as a Senator your office got copies of my petitions, faxes, and other communications. 
Your constituents from Illinois asked me to send thousands of petition signatures over those two years, and you did get them. Don’t run a grand line of BS on America that this all "came out of nowhere" and "it was all Bush’s fault." That’s nice political theatre but it is also a grand lie.
America has a confidence problem with the Capital Markets. So does the rest of the world. That problem exists because of the outright fraud and idiocy that has been undertaken and permitted by all levels of our government, including the Executive. These frauds included knowingly using bad model data to "rate" securities, shopping ratings, shorting securities you’re selling to your own customers in the next room (without telling them you think they’re overvalued, of course) and getting "23A Exemptions" so you can lever up your exposure to failing parts of your business, thereby creating systemic risk where it did not already exist. Go have a look Mr. Obama – there are literally dozens of "23A Exemption" letters now on file with The Fed. Virtually all of these institutions, if not all, have either failed or received public support, yet exemption from safety and soundness banking regulation has made their plight worse and their drain on the taxpayer more onerous. You have done exactly nothing to address this outrage nor is there any reason to believe you will.
These "exotic financing products" were not bought Mr. President – they were sold by so-called "professionals" who knew full well that the borrower could never complete the original term as contracted. Yet the firms who packaged up these securities and sold them knowing this fact remain in business, their executives remain in the corner office and they siphoned off $70 billion in bonuses from the first half of the TARP. You have done exactly nothing to disgorge those funds nor have you directed the FBI to bring indictments or brought pressure to remove these individuals from their positions. You have not revoked one banking charter from any of these firms despite the fact that these practices are the precise reason we are here.
These same firms have literal trillions in off-balance-sheet securitizations that remain undisclosed and opaque. You have taken no step to force their consolidation back onto the balance sheet, nor have you announced any intention to do so. These conduits and SIVs are literal ticking financial nuclear weapons and they will explode as defaults continue to increase.
You continue to pretend that these firms "need some help" and "need a backstop." Increasingly it is becoming clear to market observers such as Nouriel Roubini, FT’s Wolf, myself and others that the fact is that these firms are and have been bankrupt and you are conspiring with others to intentionally deceive the public by refusing to demand that regulators and examiners to go in, do their jobs, and report the true capital levels of these companies – an act that would result in their immediate seizure by the FDIC.
You believe you can pull the wool over Americans’ eyes with your new "TARP II" and "TALF" programs. The truth is that you intend to use Treasury and Fed credit to allow hedge funds to make obscene profits while essentially all risk of loss is born by the taxpayer, shifting off these bankrupt firm’s liabilities TO US while the executives and firms continue to operate!
This is yet another outrage and is nothing more than an attempt to shift the liabilities of BANKRUPT institutions that have become insolvent by their own hand and acts to The American Taxpayer. 
Now let me explain what is almost certain to happen if you are foolish enough to let Taxcheat Timmy pull this garbage.
See, these assets really are trash. Yeah, right now they are kicking off cash flow. For now. But they’re impaired and while their coupon will pay for a while they will ultimately default on their face value and recovery is pennies (and in the case of synthetics, zero) when they do.
So what happens here is that you provide 95% non-recourse financing. Sir Hedge Fund buys a buttload of this garbage having only 5-10% of the face at risk, and that’s all they need to put up as well, since the government is going to provide the financing – as a "no recourse" loan (presumably very cheaply.) They get a 6-7% coupon which means that in one year they’re covered, and in two they’re making money like a madman, up 200% or more on their original risk capital.
But what happens when these instruments default?
Treasury is sitting on several trillion in backstops and financing of loans to cover "assets" that are in fact worth zero. It winds up eating the entire face value, while the Hedge Funds have made off with all of the coupon money in the meantime!
The risk here is that Treasury is backed into a corner due to ramping yields and perhaps even inability to roll over this debt at all and we find ourselves forced into immediate cash accounting as a nation. This in turn causes the instantaneous cessation of Social Security and Medicare payments, as that is the only bucket big enough to cover the shortfall.
Do you really want to go down that road Mr. President, because that is precisely what’s at the end of it, and it may be only a year or two out!
If you think nobody beyond your vaunted administration has figured it out YOU ARE WRONG.
If you think Americans will pay taxes to an institution that intends to knowingly allow Hedge Funds to make hundreds of billions of dollars in profit while sticking the taxpayer with upwards of $2 trillion in losses and destroying all entitlements in a few years’ time I suggest you have a mental examination and get your lithium dose adjusted.
Your approval rating and in fact American’s tolerance of this blatant fraud, theft and chicanery is about to go straight down the toilet.
If you have an interest in having a successful Presidency (not to mention any chance of a second term or even a stable, sound America to be President of) you must immediately do all of the following:
- Revoke ALL of the so-called "23A Exemptions." Bernanke issued them, you need to direct him to revoke them. Safety and soundness of the banking system must come before any one firm or group of firms. There are literally hundreds of banks that are perfectly sound. There are also a bunch of big campaign contributing banks that are bankrupt and have been for the last eighteen months. Americans know this – the secret is out and its time to quit LYING.
- Send in the examiners. Yeah, I know, you’re talking about "stress tests". Uh huh. Let’s have those examinations now and forevermore in the future be public information. If a bank wants to operate under our laws and have the privilege of fractional reserve banking, they can open their books and examinations at all times to the public. Period.
- No more conduits, no more SIVs, no more games. If your "assets" are worth 20 cents on the dollar today that is their price. If that makes you insolvent then you are – period. We have an FDIC and we have the authority to "cram down" failed institutions for a reason. Use it.
- Send in the cops. The actions of major institutions up and down the line since this crisis began in mid 2007 and in the years leading up to it is at best grossly negligent and at worst felonious. We the people are done with being the patsies of a handful of thieves and frauds enabled by the 535 crooks in our Capitol. STOP IT NOW and start jailing the crooks or be judged as one of the felons. Your choice.
We are approaching yet another market implosion just like the one in September and October.
While it may come today or tomorrow, I wouldn’t take that bet. In fact, I expect that people will "rejoice" that you didn’t wipe every common stockholder’s equity stake in firms like Citibank, Bank America and Goldman Sachs – even though you should. Because I expected you to do the wrong thing, I actually bought some Citibank stock a short while ago. Were you to do the right thing my position would be worthless. It should be worthless. I’ll bet it’s not – at least not immediately (and that I’ll make a profit as a consequence of your idiocy.)
When and if this dislocation comes, however, it will destroy what is left of the American Banking System, it will expose that Bernanke has over one trillion dollars of garbage on The Fed’s Balance Sheet, and that in turn will destroy the international market for United States Treasury Debt.
In the best case we wind up like Japan and have a bunch of zombies sucking up capital and doing nothing of value for our economy. In the worst case we get much higher yields in the bond market and the near-immediate bankruptcy of hundreds of midsize and larger firms, including virtually all financial firms in the S&P 500 and DOW, along with all major multinationals that have a captive financing function.
The Government cannot backstop it all. If you try the government fails outright. The market is bigger than you, it is bigger than The Fed, it is bigger than Treasury. You are subservient to The Market, not the other way around. Go ask Bill Clinton about The Bond Market when he tried to ramrod his Hillarycare plan through and what the reaction was. That’s 1/100th of what you’re about to experience.
If Bernanke tries to "cap" yields into such a dislocation (he has threatened to) he will cause everyone who owns Treasury debt to tender it to him with the consequence that he will be forced to print five trillion dollars in "new money". This will result in an eighty percent devaluation of the dollar almost instantaneously; gasoline will go to $10/gallon, Milk to $15/gallon, a loaf of bread to $10 and a hamburger at McDonalds will likewise be $10. Due to global wage arbitrage wages will not increase; this will as a consequence immediately render 50% or more of Americans homeless, hungry and jobless. What do you think happens next Mr. President?
The disease in our financial system is lying, too much leverage, outright fraud and hidden bankruptcy – all of it perpetrated through and with the explicit permission of government agencies including Congress, The Executive and The Fed. We have lived beyond our means through fraud for nearly 20 years and this is no longer possible. As a direct consequence, trust has been destroyed and private capital has fled our credit markets and will not return so long as these diseases remain in the system.
Hiding the facts cannot cure the disease; the excessive debt must be defaulted; you cannot fix it by transferring where the leverage goes, such as to Treasury or The Fed. The liars and frauds must be exposed, charged and locked up, not protected and bailed out. Standards of living will contract and people must learn to live within their ability to earn, including the government, irrespective of politicians that think they can promise to borrow ever-increasing sums forever.
President Obama, this next crash in the markets, if it occurs, is your sole responsibility.
It will come as a consequence of your policies where you intend to try to shift the BANKRUPT institutions’ losses to The Taxpayer – a debt that America cannot finance and which foreign governments and investors WILL NOT cover.
I’m well-aware of the Washington DC policy called "kick the can" but the can is now full of cement and if you think you’ll get through your term before this all comes home to roost you are, to be polite, nuts.
You must stop the stupidity and you must stop it NOW.
The game of obfuscation and literally violating investors both foreign and domestic as a consequence of fraud countenanced by our government is over.
Both Americans and foreigners know about the lying and fraud; it is pointless to continue to dissemble and obfuscate as you are merely making a fool of yourself.
If you do not understand this and are being led by your "advisers", many of whom are the very people who advocated the changes in policy over the last 20 years that brought us here, you need new advisers, and you need them today.
By tomorrow it may not matter, and it will certainly be your fault.
