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 20, 2011 - 5:54am

Late 2010 I believe but still

Late 2010 I believe but still very astute.

Video unavailable
Oct 20, 2011 - 6:41am

Chinese to allow bond issuance later this year

Oct. 20, 2011, 6:22 a.m. EDT

China to allow local governments issue own bonds

By Chris Oliver

HONG KONG (MarketWatch) -- China has approved a trial plan that will allow local governments to issue their own bonds, enabling access to debt markets at a time of mounting loan distress, according to reports from the region. The Ministry of Finance said Thursday the municipalities of Shanghai and Shenzhen as well as the provincial governments of Zhejiang and Guangdong, have been given the go-ahead to issue three-year, and five-year bonds, beginning later this year, according to reports.

Oct 20, 2011 - 6:44am

Euro boosted on EFSF guidelines report

Oct. 20, 2011, 6:41 a.m. EDT

Euro boosted on EFSF guidelines report

By William L. Watts

T FRANKFURT (MarketWatch) -- The euro reversed early weakness versus the U.S. dollar Thursday, trading higher after draft guidelines for the operation of the recently revamped European Financial Stability Facility, or EFSF, were revealed in a news report. Dow Jones Newswires, citing a draft document, said the guidelines would allow the EFSF to buy debt directly from countries issuing new bonds or on the open market. Purchase decisions would require an application and approval by the Eurogroup Working Group and the EFSF board, meaning decisions would be made quickly by European Union bureaucrats rather than via a political process, the report said. The euro /quotes/zigman/4867933/sampled EURUSD +0.40% turned higher versus the dollar and changed hands in recent action at $1.3819, up 0.4%.
RaRaRasputin ¤
Oct 20, 2011 - 7:47am

Mods - getting malaware notifications

when trying to log in, about

​Thought you might want to check it out when you awake.


RaRaRasputin RaRaRasputin
Oct 20, 2011 - 7:49am
Oct 20, 2011 - 8:36am


stay with me

volume spike

lOOk @ that miDDle finger on the 1min

Oct 20, 2011 - 8:41am

No POMO today - down day?

Futures up this morning...

No POMO Mo Problems?

Oct 20, 2011 - 8:56am

Good Morning!

I see the market is having the same drastic effect on everyone again this a.m. (few posts) and you've all just about had enough...right?

A contrarian indicator if there ever was one. Don't let your guard down and look away.

The usual 9:00 a.m. smackdown to commence shortly.

Oct 20, 2011 - 8:57am
Oct 20, 2011 - 9:03am

gOOd one SS

That is much better question than may aPPear at first blush. gOOd on ya bro.

Oct 20, 2011 - 9:09am

Silver Futures Bullish


"If one believes that confidence in fiat currencies and in "governments is or will be ascendant from now on, then the time to be involved with precious metals has passed and it is time to convert precious metals into the paper mediums of exchange or buy “stuff” with them.

We don’t believe that right now, how about you? "

"Under these extraordinary COT conditions, when so much of the bullish firepower has been swept out of the futures market (and is therefore at the ready to return at the first sign of a new uptrend) – when even after a huge exodus of speculators we can document the apparent reticence of the commercials to take on more downside bets - when indeed one class of commercial traders now holds the largest net LONG position in years – and after all that, with the price of silver still sporting a $30+ handle, it is most definitely a sign that the normal Big Sellers of silver futures are not, repeat not confident in the price of silver falling all that much farther. If their positioning in futures is any guide, we have to note that the Big Sellers have very strongly and decisively positioned for the opposite."

Oct 20, 2011 - 9:12am

Doesn't look good for Jason Hommel now does it?

You blew it bigtime dude. Yucko. Yes we should hold off on final judgement until the thing is settled, but by all appearences this man needs serious help, immediately.

There is NEVER an excuse or justification for a man to do what Jason is accused of. NEVER.

Oct 20, 2011 - 9:12am

the bottom is near

New article by JS Kim. Not news to most but for those that need some reassurance, sit tight for a few more weeks and


Randolph and Mortimer Dukes

Oct 20, 2011 - 9:19am

Just noticed.... BSD has 1776 h/t's!

A great number for a great patriot

Oct 20, 2011 - 9:31am

Innocent until proven guilty

Regarding Jason Hommel, we cannot rush to judgement. NONE of us know the real facts. We merely have reports.

What he is accused of is reprehensible; nevertheless we must remember he has only been accused and not convicted, and there may well be an agenda behind the accusation.

Particularly when child endangerment or abuse is involved, an accusation in and of itself can lead to a visceral emotional reaction against the accused. That is why unsubstantiated accusations of that sort are so malicious.

Remember the Duke lacrosse case.

Things are often not as they appear. Let the courts work it out. Condemn only when you are on sure footing.

Oct 20, 2011 - 9:35am

Piers Morgan asked Cain

why he likes wearing his 'gold tie' a lot during his interview last night on CNN.


He said (not verbatim), 'I like gold, we should never have gotten off the gold standard.'


I thought that was interesting.



Oct 20, 2011 - 10:01am

New Thread

Hey everyone: Turd has started a new thread

Oct 20, 2011 - 11:57pm


Donate Shop

Get Your Subscriber Benefits

Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

Key Economic Events Week of 4/22

4/22 10:00 ET Existing Home Sales
4/23 10:00 ET New Home Sales
4/25 8:30 ET Durable Goods
4/26 8:30 ET Q1 GDP first guess

Key Economic Events Week of 4/15

4/16 9:15 ET Cap Util and Ind Prod
4/17 8:30 ET Trade Deficit (Feb)
4/17 10:00 ET Wholesale Inventories
4/18 8:30 ET Retail Sales (March)
4/18 8:30 ET Philly Fed
4/18 10:00 ET Business Inventories (Feb)
4/19 8:30 ET Housing Starts and Building Permits

Key Economic Events Week of 4/1

4/1 8:30 ET Retail Sales (Feb)
4/1 9:45 ET Markit & ISM Manu PMIs
4/1 10:00 ET Construction Spending (Feb)
4/1 10:00 ET Business Inventories (Jan)
4/2 8:30 ET Durable Goods (Feb)
4/3 9:45 ET Markit & ISM Services PMIs
4/5 8:30 ET BLSBS