Beyond The Pale

Wed, Oct 19, 2011 - 10:27am

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

About the Author

turd [at] tfmetalsreport [dot] com ()


Oct 19, 2011 - 11:56am

They just "lifted and shifted"

All of the stinky doodoo they created over the past 15 years...

From: The EE's "balance" sheet

To: Yours and Mine

Elegant in its simplicity and all so quick n' easy when you own all the players on the board, eh? Please never mistake the fact that we are and have been living under a multi-generation criminal conspiracy.

If by now anyone is still in doubt over the way the world really works and who pulls the strings, I'm sorry to confirm the suspicion that they're hopelessly lost in denial and mired in the mental inertia of Cognitive Dissonance.

What Does Cognitive Dissonance Mean?
The unpleasant emotion that results from believing two contradictory things at the same time. The study of cognitive dissonance is one of the most widely followed fields in social psychology. Cognitive dissonance can lead to irrational decision making as a person tries to reconcile his conflicting beliefs.
cris artaud23
Oct 19, 2011 - 11:58am

No such thing as a dumb question

And I think that is just one of MANY things JPM et al can do, and will do.

We are dealing with sociopathic entities.

They do NOT act in good faith.

Yesterday's "victory" was nice, but in the end, probably pyrrhic.

The only language they understand is money. Act accordingly.

RaptorKarl joe rocker
Oct 19, 2011 - 11:58am

Most checking accounts are non-interest bearing

Most checking accounts are non-interest bearing.

For example, up until this July, this was mandated by Regulation Q for business checking accounts.

Oct 19, 2011 - 12:01pm

Another great thread/Buffet and the WH

Some of the "deals" that happened back then were extraordinary. I'm pretty sure it would blow our minds if we knew the real numbers and liabilities.

The big banks aside, just look at what Buffet has been able to accomplish within the system as a quasi- private/public citizen and the access he's granted for being allowed to plow huge blocks of money into banks in a bid to exude confidence in "the system".

The trade off for him is that he allows his name (brand) to be used in conjunction with whatever the Obama WH needs it for. This arrangement blows my mind and it's so obvious, yet Buffet is portrayed as this kind and benevolant "Uncle Warren" within the MSM and the cozy relationship never gets called out. Ever.

Oct 19, 2011 - 12:06pm

Not with a Bang, but a

Not with a Bang, but a Whimper: Bank of America’s Death Rattle

Oct 19, 2011 - 12:06pm

Banks won't foot the bill for this

Yes, banks pay into FDIC to cover bank closings and guarantee depositors. And, in difficult periods, the banks see their payments rise.

However, don't make the mistake of thinking banks will bail out Bank of America or others. There is a pittance in FDIC money compared with bank deposits.

The government is involved, so you shouldn't be surprised that this is little different than Social Security, Medicare, etc. etc. etc. Or private pensions, for that matter.

The promises to pay and/or make good, far outstrip the resources to do so. If it hits the fan, the government stands as the make-good entity, which means creating money out of thin air to do the job.

Oct 19, 2011 - 12:06pm

Tweet FDIC

! I just tweeted: @FDICgov How can the FDIC be put on the hook for BofA's bad bets? This must be stopped! #OWS Please read and RT

Oct 19, 2011 - 12:08pm

@ mcbryde

My take on the miners is, there is a policy of quell the bullish sentiment in the PM sector. As a result mining stocks are bashed and gold and silver move violently up and down in a range. That is don't make them too cheap to encourage buying and don't let them rally to encourage the momentum play. This is the policy as time is being bought.

Oct 19, 2011 - 12:09pm

And like Cher once said...

"the beat goes on"

That's ok, Turd warned about this last night. It should not be coming as a shock. Things will get worse before they get better. If we can "Own" that idea, we'll all make it across the burning rope bridge to safety.

Scary? Hell yes. But the only crossing over a very deep gorge. Face it.

Oct 19, 2011 - 12:09pm


Ha!The FDIC is bankrupt and it has been looted time and time again. If I am not mistaken it has run in the red for around 30 months and the only few months it stepped out just ever so briefly was due to TAARP and QE supplementations.

If a panic were to ensue, (lets hope that doesn't happen) I would hope that most Turdites here were wise enough to have control of their own FRNs with most of it diversified and hedged into "real" assets. (PMs among them obviously) Trust FDIC, no thanks. Be that as it may I have no desire to stand in a que that wraps around the block to get my paper fiat then have my photo taken for future generations to giggle and anguish over. No Thanks. I will take control (to the best of my ability) of my own FRNs and assets.


Oct 19, 2011 - 12:15pm

Submitted by Fortinbras on

Submitted by Fortinbras on October 19, 2011 - 11:09am.

Hey Shill - how do you play your inverses, straight up or with options? Also, do you choose RWM over TWM because of the leveraging?

I have played with SKF, TWM and EEV a LOT over the last few months.


I too mess with EEV from time too time. Yes with options 70% of the time, but will have a go at it strait up from time to time when Option are boring me. Such as recently :)

With options due to the current market forces I am considering Butterfly spreads on a few moves real soon. Maybe with SLV. Really trying to figure out why metals are down today considering all the news that came out today and yesterday is pretty much inflationary.

Money it seems is afraid too move JMHO.

Eric Original
Oct 19, 2011 - 12:15pm

Agnico Eagle

You guys see the news on AEM today? Utter disaster. Maybe that explains the whole sector today.

Oct 19, 2011 - 12:23pm

Some  harsh language there

Some harsh language there Eric...

Considering the safety of the Company's employees, and the integrity of the mine's infrastructure and that of the surrounding area, the decision was made to "stop production indefinitely"

Oct 19, 2011 - 12:25pm


I know if Fortinbras is on here that Af/Pak just perked his ears up. I totally mistaken that your over in that region? I either have you mixed up with another poster or I'm right. Just wondering.

Oct 19, 2011 - 12:27pm


harsh language, by Eric?

LOL - where?

I would've said something like, 'unmitigated fucking nightmare for employees and shareholders alike'

I feel badly for both.

Oct 19, 2011 - 12:29pm


Wow...that was some kick to the gut news release right there.

Imagine if you actually worked at that mine? Double kick

Oct 19, 2011 - 12:31pm

@Shill... thanks...

... and I'm doing the same.

Oct 19, 2011 - 12:31pm


1st time the site Turd

Agnico is a disaster. I don't fault the company...they have to protect their employees, but a huge disappointment nonetheless. The thing that is most upsetting is how the entire sector gets crushed because of this. I also agree with the statement made earlier that the miners sense danger in the gold and silver prices. I think it is safe to say that when equities begin their next leg down miners, gold and silver will be taken down as well. Good for buying physical...but extremely painful when sitting in the miners

Oct 19, 2011 - 12:34pm

Obama 'speechless' after teleprompter theft!

Obama 'speechless' after teleprompter theft!

Funeral services to be held on Halloween for missing teleprompter!

Video unavailable
Oct 19, 2011 - 12:37pm

@DPH re: Af/Pak

It's me... I'm "home" in the FL panhandle right now, but just got back about 10 days ago. All my work is in Eastern/Central Europe/Russia, Central Asia (mainly Af/Pak... lived there for 2.5 years) and now parts of Africa (been to Libya twice in the last 120 days).

As for Af/Pak, what we've done over the last 10 years is basically just push the problem from AF into Pakistan. The ISI was "happy" for the last 20 years when they could keep their proxy fighters across the border in AF, but we've shoved the $hit into their yard and they aren't happy about it. We haven't fixed anything and we won't unless we are willing to stay there for about 100 years (literally, will require generations of change), just pushed the problem across another "line drawn by white guys 100 years ago". ;)

SRV - ES339
Oct 19, 2011 - 12:37pm

OWS now has it's battle cry!

Well said Turd... as I commented on George's post, OWS now has it's single demand. Remove the derivatives cancer in the banking system... ban them all (bank profit is the only motivation for them... they do not serve the public in any way).

Unwind, and end them all... NOW!

Oct 19, 2011 - 12:38pm

ClubfoolishRead the link


Read the link Eric posted, then look at my post. You see the little copy and paste I did?

The harsh language BY AEM NOT ERIC!

Oct 19, 2011 - 12:39pm

good one...

A doctor from U.K. says:
"In U.K. the medicine is so advanced that we cut off a man's hand; we put them into another man, and in 6 weeks he is looking for work.

The German doctor comments:
"That's nothing, in Germany we take part of the brain out of a person; we put it into another person's head, and in 4 weeks he is looking for work."

A Russian doctor says:
"That's nothing either. In Russia we take out half of the heart from a person; we put it into another person's chest, and in 2 weeks he is looking for work.

The U.S. doctor answers immediately:
"That's nothing my colleagues. You are way behind us.... ... In the USA about three years ago we grabbed a person from Kenya with no brains & no heart....we made him President of the United States , and now....... the whole country is looking for work!

Oct 19, 2011 - 12:41pm

double bottom on Au

You can see it now at noon at $1642-ish. Not sure how long they'll let it run.

I'm not seeing the same thing in silver at noon. It seemed to follow golds reaction at $1642 and is following it, for now.

Oct 19, 2011 - 12:45pm

Life in pictures

I find myself able to understand better when I draw pictures to represent the situation / parties / process. The printed, marked up, charts from TF are one reason I am able to follow along with you extra-ordinarily smart folks.

Given that, would it be possible to create a picture representation of CDS? I tried to draw it in my notebook, but failed given the complicated name swapping.

Oct 19, 2011 - 12:52pm


Nice to hear from you.

Am I totally mistaken or are you in the military in any way, shape or form? I was left with the impression you are. I recall talking to you a bit on a Saturday a.m. months ago and talking about some of this stuff regarding Af/Pak.

It was either through our posts that day or similar one's I had with a military member in Af/Pak around that same time that I'm confusing you with. Or I'm right.

A simple yes or no or "can't say" would work. Not trying to pry.

Clubfoolish Shill
Oct 19, 2011 - 12:53pm

@ Shill

I did read the entire article (before I replied earlier).

I still don't see 'harsh'.

So, I guess this is one of those times where the blog text doesn't match the intent of the author...or I'm maybe misinterpreting what you mean by harsh vs what I might mean by that word.

Ok, no problem - moving on.


Oct 19, 2011 - 12:56pm
Clubfoolish Shill
Oct 19, 2011 - 1:00pm

peanut butter

turns out peanut butter was a FAR better investment during 2011 than silver.

: )

I've had over 30 jars of corn-syrup-free PB (Peter Pan is the best) stocked up, bought at 2 for 1 prices, for most of this year. Will get more every time I see it 2 for 1 - if ever again!

That and coffee and tuna fish (all 2 for 1).


Oct 19, 2011 - 1:02pm


They're basically insurance policies, with standardized boilerplate terms. If you have an insurance policy, it has a cash value associated with it. Combine that with standardized policy terms and you have something that you can trade with other people.

There's nothing wrong per se with a CDS, except that inevitably when a D happens, the counterparty usually doesn't have the $ to pay for the D in the terms of the CDS policy. So basically it's just fraud for the most part (CDF), although to be honest every insurer has that motivation - to take your premiums and give none of it back when you actually need it. Or they'll pay out, but then they'll take it all back again and then some with jacked up rates. Nice way to make a living, I suppose. Has to beat working, I imagine.

Why did they need these CDFs anyway? Without them, the CMOs wouldn't have been rated high enough to be bought in any significant quantity. Basically, it was all just a highly structured way of lying to people who had more money than brains.


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