I don’t like the word ‘globalization.’

I don’t like the way it sounds.

I don’t like the way it tastes, or feels or smells.

It evokes a world of human misery ruled by some unseen Orwellian tyrant that promotes the glories of “The State” and an obligatory global authority that is, “For the Good of All.”

But that doesn’t mean that globalization of the planet’s economy is some kind of media fiction. It is not.

As a new financial crisis roils through the PIIGS (Portugal, Ireland, Italy, Greece and Spain), the perilous ramifications for U.S. investors are disturbingly real.

Many look at the riots currently sweeping Greece (and soon to be visiting the rest of the pig farm) and think it has little or nothing to do with Joe the Plumber. But the global economy originated on our shores and we could no more prevent its reciprocal flows than the city of New Orleans could have stopped Hurricane Katrina.

The Rockefeller-Rothschild banking cartels of the 18th and 19th centuries sank their fangs into the financial juggler veins of Western Europe and then, in the early 20th century, America. These countries now find themselves piteously buried in debt from which the banking Cosa Nostra exacts trillions in interest, and exercises political control of most of the governments of earth.

One need only look at the Faustian drama now playing across the American media, which is centered on America’s $14 trillion debt. Both sides readily agree: “The debt limit must be raised.”  They are only arguing now on the terms to do so.

So immersed is America in the grip of federal dependency, that the government cannot even bring itself to stop borrowing.

The play is actually a tragedy, not a drama, since the interests of America are subjugated to the lenders.  If America were a corporation, the bondholders would take a haircut and learn not to lend to a government addicted to the power to spend, or it would declare bankruptcy and “reorganize.”

The Global Financial Crisis of 2008-09, which was targeted at the United States, was a stunning success from the viewpoint of those that caused it (see www.crisisbydesign.net), and it is, of course, still very much with us.

The second act of this play is now being played out in the PIIGS – those countries most buried in debt.

The leading glutton, the country now sucking France and Germany into a plan to handle their fiscal insanity, is Greece, though they are not alone.

The financial crisis in Greece, and her sisters of the fiscal swine, affect American investors in the following way:

The big banks in Europe have purchased debt from the PIIGS.

That means that Portugal, Ireland, Italy, Greece and Spain have spent far beyond their income and, in order to cover the shortfall, have issued government bonds to cover the soaring deficits.

The banks in the healthier European countries have purchased well over a trillion dollars worth of these bonds: French banks have $385 billion worth of government debt from the PIIGS; British banks have $349 billion worth of this debt. The Netherlands has $184 billion worth of it, Belgium has $135 billion and Germany a cool $524 billion.

All tolled, banks in the healthier European countries own roughly $1.5 trillion worth of government bonds from the PIIGS.

“So what?” says Joe. “Those banks want to buy that junk, that’s their problem.”

Not really.

If globalization has a focus, it is international finance. And here is how the oh so pathetic bonds from the PIIGS wind their way into the portfolios of American investors

Money market mutual funds are investment vehicles where many U.S. citizens park their cash. These funds buy the debt of governments and corporations. They collect interest on these bonds and other IOUs, take a fee, and pay their investors some interest. These days those rates are pitiful at best.

But here’s the “smoking gun.” In order to increase the rates that these money market mutual funds pay their investors, many of them have been buying the commercial paper (corporate IOUs) from the banks of Western Europe.

Oops.

In fact, according to Grants Interest Rate Observer the five largest U.S. money market mutual funds have about 41% of their assets in banks of Western Europe.

Just to be sure the connection is clear, the scenario is as follows:

European banks are loaded with roughly $1½ trillion dollars worth of government debt from the pig farm.

The five top US money market mutual funds have roughly 41% of their assets tied up in the commercial paper of European banks.

Bottom line: Money in these money market mutual funds could be at risk.

An important note: money market mutual funds are not the same as the money market accounts that you open at your bank. While the names of these investment vehicles sound similar, and they operate similarly, this study was done on the money market mutual funds, not the bank money market accounts.

The FDIC insures money market accounts that investors open in banks, not funds in money market mutual funds.

If you like the convenience of a money market account and have such an account with a mutual fund, I would suggest moving it to a money market account at an FDIC insured bank.

Not rocket science.

Keep your powder dry.

John

Since the beginning of the Global Financial Crisis, I have had several requests to do reviews of the financial strength of several banks. In the course of some of these assessments, I have found that the bank I was examining was in trouble, or heading for trouble and I recommended another.

During the last few years the condition of the banking industry in this country has continued to deteriorate. You can imagine this graph in your head:

2006, 0 bank failures;

2007, 3 bank failures;

2008, 25 bank failures;

2009, 140 bank failures;

2010, 157 bank failures;

2011 is doing better so far with only 48 bank failures to date.

However, the number of institutions on the FDIC’s problem bank list is the highest as far back as my records go (1990) at 888. This means 11.7% of the country’s banks are on the problem list. And banks have been falling like flies. There are only about half the number of banks in the United States today (7,574) as there were in 1990 (15,158).

As you can see, the industry has also been consolidating. In fact, just four banks now control about a third of the deposits in the U.S. The Big Four are Bank of America, Wells Fargo, JP Morgan Chase and Citibank.

In years gone by, I have, on occasion, recommended Wells Fargo or JP Morgan Chase. But these banks no longer warrant positive ratings.

In fact, the most current analysis reveals that Bank of America, JP Morgan Chase, and Wells Fargo are all rated D+ or worse by Weiss Rating, one of the premier bank rating firms. These banks are specifically labeled “Weak” by Weiss, meaning the “…weakness could negatively impact depositors or creditors.”

And Citibank is only one step up at C, meaning “fair.”

What can be done about this?

1. What difference does it make, you ask? The government will cover me. Well, okay, but did you know the FDIC is currently broke – they are show a deficit of $1 billion as of March, 31, 2011. They do have a $500 billion dollar credit line with the Treasury but their fund is upside down.

Also, these are the size of banks that during the financial crisis, were said to be too big to fail. Would that happen again if the financial crisis returns? Perhaps, but perhaps not.

2. If you bank with these – or any – banks, keep your deposits below the ensured amount ($250,000 per account holder.)

3. If you need a major, multi-branch bank, use Citibank.

4. If you want to check out your bank, you can go to www.bankrate.com or www.weissratings.com

These sites rate by a star rating system (1-5) at bankrate, or a letter grade at Weiss. This will give you a general indication. These ratings are helpful, but they are, for the most part, snap shots of a particular point in time – they don’t consider long term trend. Bank rate costs nothing, Weiss does not charge for the grade, but charges a modest fee for a more detailed analysis.

5. If you want a professional analysis of your bank’s financial strength and a recommendation for a new one if yours is “weak”, let me know. I charge for this service (the analysis takes time and I have to pay for data base research). Fees are $250 for an analysis of your bank and another $100 to research and recommend a new bank (if this is needed).

Keep your powder dry.

John Truman Wolfe

Scott Rasmussen is one of the country’s foremost pollsters. In my opinion he is the best.

Rasmussen is smart: he surveys “likely voters,” as opposed to just those of voting age. He conducts a daily presidential tracking poll in which he tracks the approval and disapproval – essentially the popularity – of President Obama.

He conducts this poll every single day.

The President’s poll numbers and popularity have essentially been falling almost from the day he took office. However towards the end of last year, when Obama agreed to extend the Bush tax cuts, his poll numbers started to improve. This lasted a couple of months and then they slowly turned against him again.

His popularity got an expected spike when Bin Laden was killed. But this did not last long as the President could not keep from talking about himself as part of the operation. Folks  got fed up with the litiany of “Me”s and “I”s in his telling of the story. The American public does not like braggarts.

Subsequently, his poll numbers were just kind of hanging out – not good, but not terrible either. Then Obama’s unpopularity worsened rather dramatically last week, and has continued to do so for the last week, approaching his lowest ratings ever.

At first, I thought it was Weinergate, that disgust at the Congressman’s bent proclivities had spilled over onto the public’s opinion of Democratic Party and up the food chain to the Chairman of the Party himself, namely BHO.

But the Weinergate timeline and the increase in Obama’s unpopularity don’t coincide exactly. The Weiner show started towards the end of May and was essentially over by the time Obama’s unpopularity started spiking.

So what was the cause of this rather dramatic increase in the President’s unpopularity over the last week or so? It wasn’t good to start with, but if this trend continues – stick a fork in him, he’s done.

There are what appear to be easily understood reasons for this: Despite the pathetic attempts by the White House to spin the economic news of the day as a recovering economy, America is in a wrenching economic downturn that could turn ugly at the drop of a hat, or the downgrade of US debt (which should, in fact, already have happened).

It was just announced that the real estate market has now declined more deeply than it did during the Great depression. This has affected every homeowner in the nation.

The unemployment rate ratcheted higher last month despite the government having spent $109 billion dollars over the last two and one half years paying people not to work.

Let’s just say there are several in Congress that are several electrons short of a molecule.

Memo to the House of Representatives and the United States Senate: you get what you incentivize.

My gas bill last month was higher than the national debt of Guatemala. Okay, not quite, but it was higher than the mortgage payments on my first home.  We have two cars. It now costs about $65 to fill each – $130 a week – $520 a month. For gasoline!

Our Nobel Peace Prize winning President is now fighting 4 – count ‘em, 4 – wars. U.S. troops are still dying in Iraq, the Afghan War is now the longest in American history. It has cost hundreds of billions of dollars and, much more importantly, the lives of 1623 Americans. Meanwhile, we are bombing Moammar Gadhafi back to the Stone Age because…because…he’s an evil bastard. And the Obama Administration is conducting a secret, illegal war in Yemen. The President apparently received his Nobel Peace Prize for bowing to the King of Saudi Arabia and giving a speech in Cairo.

Well, the guy can give a speech, I’ll give him that. But as my brother, Dick, says, “Talk’s cheap, action’s my game.” And the light is dawning on the American public that Barack Hussein Obama comes up wanting on the action side of the ledger.

Even helicopter Ben Bernanke’s suppressing interest rates to zero and pumping hundreds of billions of dollars into the economy like some demented Johnny Appleseed, has not turned things around.

Meanwhile, the man plays golf; his wife wears designer clothes and travels to Europe at taxpayer expense. They host lavish parties at the White House where artists gush and sing their praises. All of this is in the context of millions of Americans desperately looking for work and struggling to keep their homes out of foreclosure.

One gets a sense of The Beverly Hillbillies meet Marie Antoinette.

Still, I can’t tell which specific act spiked Obama’s unpopularity to new heights. Much of this has been going on for some time, so why the sudden spike?

One intelligent political observer with whom I am in touch has ventured the assessment that it is a combination of these things. That these factors have now coalesced like some political perfect storm and have turned on Obama like with the Wrath of Kahn. That may be, but that doesn’t account for the spike in unpopularity on June 10th.

So, if you have an opinion, let ‘er rip.

Keep your powder dry.

John Truman Wolfe

A Credit Default Swap (CDS) is a fancy name for a financial instrument that is really nothing more than a bet on whether a loan will be repaid or not. They are wagers placed by bankers and other pinstriped bookies made in an enormous floating casino with virtual crap tables in the U.S., Europe, Asia, and the Middle East.

In the simplest terms, credit default swaps are wagers as to whether or not some entity – a government or a corporation – will repay a loan in the manner in which they have agreed.

Governments and corporations borrow money by issuing bonds, which are promises to pay – IOUs.

Here is a simple example of how a CDS might work: The country of Greece (like virtually all governments on this debt ridden planet) spends more than it rakes in in tax revenues. To cover the short fall, it borrows. It does this by selling government bonds of one kind or another.

These bonds are backed by the “good faith and credit” of the government. The good faith and credit of the government rests on its ability to tax its citizens.

To make the purchase of the bonds a more secure investment, an investor is likely to purchase a credit default swap, which guarantees the repayment of the bonds from the seller of the swap, should the government default.

The investor pays a fee to the issuer of the swap, much like an insurance premium.

While it acts like insurance, a credit default swap isn’t an insurance policy – not technically. It is an agreement, a guarantee, issued, for example, by a bank or an insurance company, to pay the amount due to the investor if Greece defaults. Kind of like a co-signer. This transfers (swaps) the risk from the government to the entity issuing the guarantee. (Thus the name, Credit Default Swap).

But the betting doesn’t stop there. Oh no.

New bets are now made by others on the original swap. In other words, bets are made on the bets. And then bets are made on those bets and… it is a towering pyramid of wagers on whether or not some debt will be repaid.

Goldman Sachs, the unethical, but obscenely profitable New York investment bank, decides to place a bet that the Greek government will have a hard time repaying its bonds and, in fact, won’t repay them as promised.

Another bank, let’s say Deutsche Bank, the German financial giant, takes Goldman’s bet. A credit default swap is born. Goldman may have some Greek bonds to protect, or maybe it’s pure speculation.

(Would Goldman leak information to the financial press that the Greek economy is actually in worse shape than it appears so they can win the bet and pocket a few billion? Nah.)

Still others can place bets on the Goldman / Deutsch Bank swap. Bets like these, where the gamblers have no interest in the underlying security, are called “Naked Swaps.”

This market is a ginormous, pyramiding Ponzi scheme. The face value of outstanding credit default swaps globally is currently about $30 trillion. That’s trillion with a “T.”

A major market for credit default swaps in recent months has been the PIIGS – Portugal, Ireland, Italy, Greece and Spain. These are the hobos of Europe hanging out in the back streets of Frankfurt with their tin cups extended to the European Central Bank. The cost of default swaps in these countries has skyrocketed recently.

As Bloomberg noted on November 29, 2010:

“The cost of insuring against default on Portuguese and Spanish government debt soared to record-high levels as an aid package for Ireland failed to reassure investors the region’s debt crisis will be contained.”

As the full extent of their fiscal insolvency comes to light,  the premium on the credit default swaps of the respective countries climbs. In other words, the cost of “insurance” to protect an investor from one of these governments defaulting increases as country’s solvency decreases.

All of which brings us to this statement issued by The Committee for a Responsible Federal Budget on May 27, 2011:

Trading of credit default swaps (CDS) insuring U.S. treasuries has doubled in the last year in response to fears over our inability to deal with our debt and deficit problems in addition to fears about lawmakers not raising the statutory debt ceiling to avoid a U.S. default.

….

Increased trading suggests a higher level of fear over U.S. default on its debt obligations….Average daily trading just jumped to $490 million last week from $10 million the week prior, putting the U.S. at fourth most traded among those tracked by DTCC — up from 633rd!

This is a staggering turn of events – a further indication of the country’s fiscal free-basing. You can see the increase in the cost of credit default swaps on U.S. debt (Unheard of!) on the chart below.

(The chart was published at www.Clusterstock.com, but was created by Markit, www.markit.com – the definitive source of information on credit default swaps.)

What does this mean to you and me?

It means interest rates must rise. I say this knowing that helicopter Ben Bernanke, is doing everything he can with the awesome power of the U.S. Federal Reserve bank to keep rates down. Congress keeps spending money it doesn’t have. The Treasury turns around and borrows the money to cover the spending.

And who is buying Uncle Sam’s IOUs? Benny and the Feds. The Fed is feasting on federal debt like a pack of hyenas on the fiscal carcass of the American Republic.

Meanwhile, the Chinese, with $3 trillion in reserves, have been dumping U.S. debt like a bad habit. This will spread as time goes on, and Benny and the Feds will not be able to stem the tide of rising rates.

Unless or until, the United States Congress can get its financial house in order, America’s position as the world’s leading economic power will continue to erode.

This is so obvious a five year old can see it. Yet there are those in Congress who actually believe that it is the government’s job to “take care of people”: to feed them, house them, to look after their mental health and to provide them money when they don’t work. They hold this frightening concept of government without any regard for the solvency of the entity that is supposed to pay for it all.

It is economic Seppuku, but they are apparently oblivious to the knife that they are sliding into the body of the nation.

To say that America is at her seminal crossroads is now a hackneyed cliché. Yet, nothing could be truer.

If your elected officials don’t understand this, you should burn the phone and fax lines until they do.

Meanwhile, in the not too distant future, I expect interest rates to rise; I expect precious metals to resume their bull market trend, and I expect that Congress (the Senate, really) will kick the budget ball down the road for others to confront unless we can change their collectivist minds.

Keep your powder dry.

John Truman Wolfe

There was an article in The Washington Times, written by Bill Gertz on February 28, 2011.

The title of the article is Financial terrorism suspected in 2008 economic crash. http://www.washingtontimes.com/news/2011/feb/28/financial-terrorism-suspected-in-08-economic-crash/

There are two sides to this article – a plus and a minus.

The strength of the article lies in the fact that it has the guts to explore a report, done for the Pentagon, that offered several possible scenarios in which countries, groups or entities could have intentionally caused and / or exacerbated the financial crisis of 2008.

Looking at the crisis as a possible act of economic terrorism, the article opens the door to the possibility that the financial crisis didn’t “just happen.”

In other words, there is a certain confront of evil here that is usually missing in the main stream media.

The problem with the article is that it forwards a hypothetical agenda that leads people in the wrong direction. Let me explain. The article is based on a report, written in 2009 by a Pentagon contractor, which was called “Economic warfare: risks and responses.”

To quote the news article, “While economic analysis and a final report from the federal government’s Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: ‘outside forces,’ a factor the commission did not examine.”

But the “outside forces,” it names are simply suspects that are possible “financial enemies.” According to the report, these include Middle Eastern states, Islamic terrorists, members of the Chinese military and perhaps Russia, Venezuela, or Iran.  But this is all conjecture.

The report looks at the possibility that some of these countries or groups (enemies all) could have been involved in acts of economic terrorism during the financial crisis.

Eh…excuse me; this is supposed to be high level military intelligence?

The one solid fact in the article is that covers the ground that there was some manipulation of the stock market during the height of the crisis which helped drive the stock market down faster and deeper than could have possibly have happened otherwise. But this data has been well covered elsewhere.

Unfortunately, the report by its very nature is a mis-director because those that it suggests as perpetrators are wrong targets. And this kind of high level “report” causes people to go chasing these bad hats for something, which in this case, they didn’t do.

As has been made clear in a Crisis by Design, the orchestration of the financial crisis was conducted by the Bank for International Settlements. It was international bankers that pushed America to the brink in order to install itself and as the planet’s “Global Monetary Authority.”

So while this article has the plus point of suggesting that there were active, causative factors in creating the financial crisis, it offers a cadre of all too predictable military and political enemies to the altar of media trial, conviction and execution.

The financial crisis was created. And let’s be clear: the entity behind it, The Bank for International Settlements, is still working to consolidate its power over the planet’s finances.

We will continue to expose the machinations of the BIS and offer solutions that will help restore the global financial system to one that will benefit mankind, not a self-anointed few.

Keep your powder dry.

John Truman Wolf

The duplicity of this administration has long since ceased to be a surprise to me.

The President has flip-flopped on a jaw-dropping number of issues; saying one thing in his honey-coated eloquence, and completely reversing himself at some future point out of political convenience.

The press, still mesmerized like groupies at a Bono concert, simply overlooks the chorus of broken promises covering everything from closing Gitmo, to lobbyist access, Cuba, Immigration reform, Iraq, campaign finance reform, ad nauseam.

But it isn’t just BHO that leaves a litany of broken promises in his wake. Consider the recent statement by Baby Face Timothy Geithner, which borders on the bizarre.

At a speech before the Council on Foreign Relations on April 26th, 2011, the G-Man said, “Our policy has been and will always be, as long, at least, as I am in this job, the strong dollar is in our interest as a country. And we will never embrace the strategy of trying to weaken our currency to gain economic advantage at the expense of our partners.”

Caution, if you are drinking milk, and laugh as hard as I did at that statement, it may come gushing out of your nose.

How this guy can look anyone in the eye and say this while the dollar has become a doormat on international currency markets under his “leadership” is an invitation to a front row seat in theater of the absurd. He has, in fact, done virtually everything in his power to weaken the dollar as evidenced by the Greenback’s descent from the king of currencies into the rough-and-tumble casino of international finance.

To prolong the comedy routine, on April 27, Fed Chairman Bernanke – the Bud Abbott to Geithner’s Lou Costello – said at a first ever Federal Reserve press conference, that the Federal Reserve was following a” Strong dollar policy…” and that the Fed’s policy, “…will lead to a strong and stable dollar because of US economic fundamentals.”

And with this last touch of preposterousness my friends I leave you with a President and his two top economic quarterbacks who have now become the Larry, Moe and Curly of American political speak.

There is an article in The Daily Bell, published on April 23 entitled,  IMF Austerity is Headed to America – Watch Out!

The article is written by the newsletter’s editor Anthony Wile.

The Daily Bell is an economic/political newsletter.

Wile’s warning that an IMF based austerity program is coming to America might sound out of the realm possibility to some, but in my opinion it is the exact scenario that is being planned by the Bank for International Settlements and the IMF.

As I have made clear in Crisis by Design the Untold Story of the Global Financial Coup, what is going on in the world of international finance is entirely orchestrated. The conductor sits in Basel, Switzerland in the form of the Bank for International Settlements.

The purpose of the financial crisis was to take down the U.S. and the U.S. dollar as the stable point in international finance and replace them with the a Global Monetary Authority – a body governing all planetary finance. That monetary authority has been established in the Bank for International Settlements and the dollar is falling like a rock off a tall building.

The financial crisis which hit the United States in 2008 and roiled the U.S. economy through 2009, was Act I of a staged play. The economic crisis that is rolling through the P I G GS right now (Portugal, Italy, Ireland, Greece and Spain), is the second act.

Act three will see another financial crisis in the United States whereby the United States government will wind up going cap-in-hand to international bankers. It will  occasion the IMF taking greater control of U.S. fiscal policy by either dictating to our Secretary of Treasury or Congress in exchange for loans or loan guarantees or strengthening the dollar.

This may sound out of the question to some at this time. But it is my very considered opinion that at some point in the not-too-distant future, the United States will have to turn to the IMF and/or the Bank for International Settlements for some form of financial aid.

Congress and other industrialized nations must put some form of control – some kind of checks and balances – over these international bankers if we are going to regain responsibility for our American way of life.

The headlines of an article in yesterday’s Market Watch says, IMF Bombshell: Age of America Nears End.

http://finance.yahoo.com/banking-budgeting/article/112616/imf-bombshell-age-america-end-marketwatch

This article covers a report by the International Monetary Fund that predicts the end of what they call “The Age of America.” The IMF says that China will overtake the American economy in 2016.

The fact of the matter is that the data and statistics cited by the IMF are flawed.

But this does not dismiss the fact that the Chinese economy is growing at a much more rapid rate than the American economy and if we do not change the way in which we are operating our economy, and stop the annual trillion dollar budget deficits, the Chinese economy will indeed surpass that of America.

But that is not the point of this blog post. No, the point of this post is that this story is IMF black propaganda about the U.S. The point of Crisis by Design the Untold Story of the Global Financial Coup is that the financial crisis was created in order to take down the US and the US dollar as the stable point in international finance and to replace them with a “Global Monetary Authority.”

Those of you that have followed my writings and/or this blog, know that in fact a Global Monetary Authority was put in place in April of 2009. That’s a done deal. But America still clings to economic leadership.

The significance of this statement issued by the IMF is not the phony facts and figures. No, it’s that the article is consistent with the IMF’s jihad, along with the Bank for International Settlements, to destroy the dollar and America as an economic power by putting out this kind of black PR.

And that’s what it is. This is Black Propaganda that aimed at driving home the message that America is on her way out.

Let be honest here, we have brought this on ourselves. We cannot continue to enjoy any semblance of economic prosperity or, for that matter, be the strongest economy in the world with trillion-dollar-per year budget deficits. But the point I am making here is that the IMF is doing everything it can PR-wise to create the impression that America’s best days are behind her. We need to restore fiscal sanity to Washington government to ensure that that is not the case.

Keep your powder.

John Truman Wolf

THE GREEK BANKRUPTCY

Meanwhile, the Athenian addiction continued.

The country finally hit the wall about a year ago, at which point there was a real potential that the nation of Pericles was going to declare bankruptcy.

What does this mean? It means that Greece had reached the point that they could no longer pay the interest on their debt – their bonds.

Markets roiled as Greece went cap in hand to their brethren in the European Union, “Buddy, can you spare a billion?”  The Eurozone countries bitched, protested and criticized, and in the end, along with help from the IMF, coughed up $146 billion.

It wasn’t altruism, mind you. No, no. This was pure self-interest. The situation in Greece had helped to drive the value of the Euro down 15% during the first six months of the year. (George Soros, the Dorian Gray of international finance, must have been orgasmic.) The bailout halted the fall.

If Greece had gone bankrupt, the Euro would have become a doormat on international currency markets and Eurozone economies would have descended into some kind of fiscal horror show.

But it wasn’t just the sky-diving currency that got them to pony up: European banks including those in France, Germany and Switzerland held over $200 billion dollar’s worth of Greek debt. Just like their good ole’ Uncle Sam, with banks at risk, Greece became “too big to fail.”

THE GREEK TRAGEDY GOES GLOBAL

The deeper problem is this: it isn’t just Greece. In what can only be described as one of the world’s more disgusting acronyms, Spain, Ireland and Portugal have now been included in the fraternity of the financially fallen, which is referred to in the financial press as the PIGS (Portugal, Ireland, Greece and Spain). Italy is often included which expands it into PIIGS. Some include Great Britain, which makes it PIIGGS. Still, a pig by any other name….

The following lead from the May 6, 2010 issue of World Politics Review is one of countless articles exposing the fact that the deficit ridden PIIGS could bring down the economies of Europe.

With last year’s swine flu scare already a distant memory, the risk of a new epidemic is spreading across Europe. This time the fears have to do not with the H1N1 virus, but with the debt contagion facing Europe’s PIIGS: Portugal, Ireland, Italy, Greece and Spain. With each of these countries carrying high debt-to-GDP ratios, financial markets are growing increasingly skeptical that Greece’s debt crisis will be successfully quarantined within its borders.

No surprise really when one considers that 15 of the 16 zone members have used swaps to “manage” their debt.

A UPI story of November 13, 2010 states,

“The BBC said Irish officials were holding preliminary discussions with the EU about getting assistance from the European Financial Stability Fund. Officials estimated the country would need a bailout of $82 billion to $110 billion.”

Irish officials denied that they were seeking a bailout until the EU agreed to cough up $115 billion on November 29^th so that Ireland could follow in the footsteps of their Hellenic brethren – the debt needle inserted deeply in the fiscal vein while the country goes slowly unconscious.

IMF, drug dealers to the world.

The point here is not Ireland, or Greece, for that matter.

Greece was representative of a larger problem in the PIIGGS. But the problem in the PIIGGS is representative of the entire planet – a world mired in a vast interconnected Ponzi scheme of more than a $1.1 Quadrillion dollars of derivatives, $600 trillion of which are interest rate swaps – a scheme that is so vast, even the people who built it have lost control.

American banking is not immune. U.S. banks have $216 trillion in derivatives: JPMorgan, $81 trillion, Bank of America, $38 trillion, Citibank, $29 trillion, Goldman Sachs, $39 trillion, HSBC North America, $3.4 trillion, Wells Fargo, $1.8 trillion; this according to the Office of the Controller of Currency’s quarterly report for the first quarter of 2010 and the March 30, 2009 article Geithner’s Dirty Little Secret by William Engdahl. Historically, 60% of derivatives are interest rate swaps. Do the math.

(Note: the derivatives market consists, to large degree, of bets on other people’s bets. A swap is made [which is really a bet on which way interest rates will go, or whether a country’s bonds will be repaid, etc.] and then other people and institutions bet on which way the swap will go, and then others bet on that bet and others bet on…. In short, it’s a colossal Ponzi scheme operating as a global casino, built on hot air and greed. So, lots of people are betting a derivative will go one way and a corresponding number are betting the opposite. If all of these bets were called at the same time, many would cancel each other out. If all of the bets on bets are washed out, the actual money at risk is about 20% of the face value of the derivatives market. Still, we are talking about trillions.)

Which brings us back to what is truly driving the actions of the Fed, the International Monetary Fund and the Bank for International Settlements.

Perhaps you have noticed that the Federal Reserve (which we remind you, is owned by the major New York banks, not the U.S. government) has kept interest rates at zero for the last two years.

What happened to the banks who bet on low interest rates using interest rate swaps? They made billions in profit. Why? Because they arranged to receive fixed rates from borrowers (cities, states, universities) in exchange for floating rates. The floating rates were tied to the Federal Reserve’s Fed Funds rate, which was lowered to zero due to the “financial crisis.”

Consider the fact that the financial crisis seems to have missed JPMorgan, who made about $5 billion in profit on interest rate swaps during the first 9 months of 2008, the very heart of the crisis.

Goldman Sachs made similar profits on these swaps as did Wells Fargo, to name a few. Of course, the cities, counties and states that took the other side of these bets on the advice of investment bankers to protect their bonds, got slaughtered. But let’s not be too harsh on them. According to Goldman Sachs’ CEO, Lloyd Blankfein, following his testimony before Congress, he’s just a banker “doing God’s work.”

We love you, Lloyd.

But here’s the problem.

The majority of the more than a half quadrillion dollars in interest rate swaps are held mainly by banks.

Stay with me here.

With rates at zero, what’s the only way they can go?

That’s right, up.

And what will happen to those banks with trillions of dollars of interest rate swaps in their portfolios when rates start to climb?

The planet is drowning in a multi-trillion dollar game of banker baccarat, whose players will suffer massive losses when rates reverse.

Will the Fed warn Goldman and JPMorgan about a coming increase in rates so that they can dump their swaps on some other drunk in the casino? Perhaps, but to whom do you sell trillions of dollars of hot air after someone has stuck a pin in the balloon?

And at this point, this isn’t entirely up to Bennie and the Jets. The U.S. Government went $1.4 trillion in debt last year and recorded a $1.3 trillion deficit this year.

Which means?

Which means that for China, Japan or the tooth fairy to buy our Treasury Bills now, rates will have to rise. China is not drinking Tim Geithner’s Kool Aid. And the U.S. government will have to raise rates at some point to entice others to buy our fiscal waste. If we don’t raise them, the market will force them up.

Not, says Ben, on my watch. The Bald One just announced he was going to buy $600 billion dollar’s worth of U.S. government debt starting immediately. Ben calls the Alice in Wonderland money injection, “Quantitative Easing.” This is the second round of quantitative easing- the first one was an unqualified disaster – so this one is now referred to as QE2.

Sounds like a Steven Spielberg-created alien robot.

Ben is nothing if not brilliant. If he takes to the presses and buys Timmy Geithner’s debt he doesn’t have to rely on his comrades in the People’s Republic of China to buy it. Rates will stay low. And the trillions of dollars of interest rate swaps – which are owned by the same people who own his bank – will be safe.

Ben could be up for a Nobel Prize.

Except that’s not what happened. Finance ministers from around world issued statements implying that Ben was smoking something. And as noted by Mike Larson, of Money and Markets, some of the key U.S. government bond yields not only didn’t go down, they soared.

And what did our bankers, the Chinese, do? The Chinese credit rating agency, Dagong Global, downgraded the debt of the United States citing, “…the detrimental effects of the QE2 plan and the U.S.’s sizable debt load.”

Oops.

A final thought.

What if, just what if, monetary systems were based strictly on products and real estate values.

Currency would not be paper, based on government dictate, and it wouldn’t be based on gold (though a gold-based currency would be better than fiat, the price of gold can be manipulated.)

The money in circulation would represent the goods and services available to be purchased. There would be sufficient money to buy what was available to be bought. The more productive a country, the more money it would have.

You couldn’t pull a Federal Reserve prank and inflate the currency or deflate it for that matter, which is what causes roller-coastering economies.

There are details to work out: It would take an annual survey of actual GDP, and the currency in circulation would have to be adjusted annually to correspond with actual products. But think about it: a monetary system based on actual products.

Meanwhile, keep your powder dry.

John Truman Wolfe

Copyright ©2010. John Truman Wolfe. All Rights Reserved.

References:

Revealed: Goldman Sachs’ mega-deal for Greece http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece

Is Titlos PLC (Special Purpose Vehicle) The Downgrade Catalyst Trigger Which Will Destroy Greece? http://www.zerohedge.com/article/titlos-llc-special-purpose-vehicle-downgrade-catalyst-trigger-which-will-destroy-greece

Eight Financial Fault Lines Appear In The Euro Experiment!

http://www.marketoracle.co.uk/Article17332.html

Sultans of Swap – Explaining $605 Trillion of Derivatives!

http://www.safehaven.com/article/15906/sultans-of-swap-explaining-605-trillion-of-derivatives

Goldman, Greece and a Troubling Tango http://www.nickdunbar.net/?page_id=298

London firm was created to route cash by Carrick Mollenkamp http://online.wsj.com/article/SB10001424052748703791504575079903903971986.html

Goldman Sachs Transactions with Greece http://www2.goldmansachs.com/our-firm/on-the-issues/viewpoint/viewpoint-articles/greece.html

Eurozone approves massive Greece bail-out http://news.bbc.co.uk/2/hi/8656649.stm

Ireland’s Fate Tied to Doomed Banks by Charles Forelle and David Enrich http://online.wsj.com/article/SB10001424052748704506404575592360334457040.html

Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire http://www.bloomberg.com/news/2010-11-10/wall-street-collects-4-billion-from-taxpayers-as-swaps-backfire.html

The ideas and suggestions contained in this article are not intended as a substitute for consulting with your financial adviser. Always check with your own legal, financial or investment adviser before making investment decisions.

Neither the author nor the publisher shall be liable or responsible for any loss, injury or damage allegedly arising from any information or suggestion in this article. The opinions expressed in this  article represent the personalviews of the author. Past performance is no guarantee of future results and no guarantees are made – experessed or implied.

In short, Goldman converted ten billion dollars of Greek debt that had been purchased with U.S. dollars and Japanese yen into debt that could be repaid in Euros. However, in creating this “currency swap”, they used a fictitious value for the Euros which lowered the reported amount of Greek debt by billions.

The structure enabled Greece to owe billions to Goldman in a currency deal without having to report it to the European Union as a loan, which is clearly what it was. Turns out using the Alice in Wonderland value for the Euro wasn’t illegal, just deceptive as hell.

Having cut the deal, Goldman’s covert loan needed to be paid. Greed never sleeps. And since the faux currency swap was not officially a loan, Goldman had to have some way to get repaid other than “loan payments”. To wit, the pirates of pinstripe go on a Hellenic treasure hunt and wind up commandeering the rights to a few of the country’s income-producing crown jewels — airport fees, the national lottery and toll road income.

Pericles, where are you?

Securing the rights to the tax revenues, they wrap the repayment into an interest rate swap. (Don’t go to sleep on me now, I’ll explain).

Greece had previously issued some bonds and had to pay the bond holders a fixed rate of interest of 4%. So, as their part of the swap, Goldman agreed to pay Greece a fixed rate of 4%. In return, the government of Greece agreed to pay Goldman a floating rate.

The exact amount Greece had to pay Goldman is not known. However, what is reported is that Goldman received a rate in excess of LIBOR (the rate set in the UK that banks charge each other for short term loans) + 6.6%.

The rate was floating, not fixed, but note that even if LIBOR was zero – 0% – (which it wasn’t) Goldman would be paying Greece 4% but would be receiving 6.6%. The absolute worst they could get, then, was an annual profit of 2.6% on a deal for $10 billion in bonds ($260,000,000).

But that’s not really enough to push those year-ending Goldman bonus babies to the Hamptons. Oh no, not by a long shot, because Goldman also picked up a fee to arrange this charade of about $300,000,000.

In summary, Goldman arranges what appears to be a currency swap for Greece, which is really a loan that doesn’t have to be reported to the EU as such.

In so doing, Greece pushes its existing debt back to the future, is accepted into the European Union, gets yet another loan, and still has access to the debt needle.

Goldman gets a fee of $300,000,000 for setting the deal up and ongoing revenue from an interest rate swap estimated at $260,000,000 a year from government owned assets.

Yeah, Baby!

Of course, the story doesn’t end there. But then you knew that, didn’t you?

ENTER THE NATIONAL BANK OF GREECE

In 2005, Goldman apparently, and we say, “apparently” as all of these figures are a matter of news reports, not official Goldman records, having received their eye-watering fee and having recouped about a billion dollars from the interest rate swap (which is what they were reportedly out-of-pocket on the deal), sold the balance of the deal to the National Bank of Greece.

At this point, Goldman is out of it; Greece has joined the European Union and it now owes the balance of the off-balance-sheet loan of about $9 billion to their homies at the National Bank of Greece.

All is well…well, that is until 2008 and the eruption of the Global Financial Crisis.

THE HELLENIC SWAP

As the planet’s financial system started to go into the DTs, the European Central Bank did what all central banks do at such times, they went to print mode. They structured a program designed to pour billions of Euros into the European banking system.

The National Bank of Greece wanted some of that cheap coin. They could borrow it from the European Central Bank (ECB) and lend it out at handsomely higher rates. Yum, yum. But to get it, they had to pledge some collateral to the ECB, collateral they didn’t have.

What they did have was the income stream from the government tax revenues that they had purchased from Goldman three years earlier. There was just one problem, the European Central Bank would not lend to them on that deal. They needed to pledge some bonds.

It’s midnight in Athens. From the roof of the headquarters office of the National Bank of Greece we see a gigantic spot light beaming an enormous image of a dollar sign into the Mediterranean sky, a la the Bat Signal.

The next morning, the Humvee is back with Julia, baldy and their Blackberries. Goldman goes into closed-door session with representatives of the National Bank of Greece and the Treasury officials of the Hellenic Republic. At this point, the Greek government owes the National Bank of Greece about seven billion dollars.

Goldman channels Houdini yet again. They create and execute what has come to be called “The Hellenic Swap.” And if you want to see some sleight of hand on the stage of international finance, watch this, because this kind of fiscal alchemy is going on 24/7 around the planet with governments large and small.

In December, 2008, Goldman arranges an interest rate swap between the Greek government and the National Bank of Greece (The Hellenic Swap).

THE HELLENIC SWAP

Under the terms of this arrangement, the Greek Government (the Hellenic Republic) is to receive fixed-interest payments from the National Bank of Greece of 4.5 % on $6.96 billion dollars.

In return, Greece agrees to pay the National Bank of Greece an interest rate of LIBOR + 6.6% on that amount of money. LIBOR was .8% at the time, making the Greece’s interest rate 7.4%. This rate could fluctuate but could never go below 6.6%.

As can be seen, the National Bank of Greece makes a profit of 2.9% on this swap (about $201,000,000 a year). Nice.

Except the National Bank of Greece doesn’t keep the swap. Not exactly.

Shortly after setting up the interest rate swap between the government and the bank, Goldman sets up an entity in London called Titlos, PLC. The name isn’t important, but what they do is. Titlos is what is called a “Special Purpose Vehicle (SPV).” That means it is a legal entity that was set up for the sole purpose of conducting a financial transaction.

Titlos issues $6.96 billion worth of notes on which interest is payable.

Titlos then trades the notes to the National Bank of Greece in exchange for their rights to the Hellenic Swap. It so happens that the notes issued by Titlos are the same amount as the balance of the loan that Greece owed the bank ($6.96 billion).

Greece now owes Titlos the $6.96 billion and is paying the Goldman created shell the 7.4% interest while receiving a fixed rate of 4.5%.

Titlos receives money, takes an administrative fee and the 4.5% that it must pay Greece, and pays the balance to the National Bank of Greece which services the interest due on the notes.

And Shazam! The National Bank of Greece now has bonds that it can pledge to the European Central Bank so they can borrow some of that cheap money and lend it dear. In essence, Goldman has become a Central Bank creating money out of thin air.

We love you, Goldman.

(Two years later, when the country is on the verge of financial collapse, Goldman issues a statement downgrading the National Bank of Greece saying, “Greece faces both a liquidity and, potentially, a solvency problem. While we believe that, individually, Greek banks tend to be well-run, the problems they face are outside their operational control.”)

Isn’t that sweet?

Part III to follow shortyl