(snip)"THE BASEL BOYS LOWER THE BOOOOM
The Basel 2 accounting rules are not discussed much in the financial press. This refers to Basel Switzerland, home of the Bank for Intl Settlements. My deep seated suspicion, more like incrementally reinforced conclusion, is that the powerful Swiss bankers have begun the process of receivership. They are forcing through the bankruptcy process in an international pull of the rug from under the corrupted US banking system. They have taken steps partly motivated by the global contamination of US mortgage bonds into the world's banking system, which must be addressed. The first step in the process is more proper full accounting of the horrendous damage done to US banks, principally Wall Street banks. Basel 2 requires banks to maintain an 8% minimum on capital ratios versus debt. In England, the capital ratio has fallen to 2.5% (ex goodwill) compared to 5% in year 2000. York University professor Peter Spencer is chief economist of the ITEM Club. He asks, "How on earth did the Financial Services Authority [of England] let this happen?... Brown hadn't a clue what he was doing." The reference to Lord Brown pointed to changes pushed through in 1998 as Chancellor of the Exchequer, which caused the defacto cash and liquid assets to collapse from post-war levels above 30% to near zero. The UK Current Account deficit is at 5.7% of their Gross Domestic Product, more than that of the US. The effect of the Basel 2 Rules on US banks in recent months are to force massive bond losses to come onto the balance sheets. Shrinking asset backed commercial paper coincides. One really must wonder if the objective the United States was to kill the banking systems, enabling Swiss control, with the British system collateral damage.
In the course of packaging mountains of securitized bonds, filled with mortgages and related derivatives like credit default swaps (insurance policies against loan portfolios) and interest rate swaps (contracts shifting risk from short-term to long-term), Wall Street firms were caught holding their own enormous inventory. Domestic institutional investors and finally foreign institutional investors halted their purchases. Additionally, private equity investors, akin to Blackstone, halted their purchases. Wall Street big banker brokers were left holding hundreds of billion$ in damaged asset backed bonds before they were fraudulently sold to investors.
Thus, the Wall Street firms choked on their own fecal securities held in inventory, unable to sell them. The old saying of "Do not defecate where you work" holds true. Wall Street firms were selling acidic lethal bonds, as the game stopped and investors wised up. Now Basel is forcing, along with US regulators, the process of taking the dreadfully damaged asset backed bonds and CDO bonds onto the Wall Street balance sheets, where they are absorbed and felt painfully. The initiators of the fraud might actually suffer the greatest financial losses of all, since they were doing a grandiose volume of packaging and sales. That is justice. They earned gigantic fees in the process. The entire drama of proved fraud will be interesting to observe. Some investors have begun the lawsuit process. See the Barclays lawsuit of Bear Stearns. The game is on, and will not relent. A Special Report is to be posted for the January Hat Trick Letter on lawsuits and fraud. Unfortunately, the rescue programs have been very slow to take root, partly because the USGovt and Congress do not wish for Wall Street firms to benefit from bailouts. They deserve criminal prosecution instead, complete with heavy fines and prison terms. The climate will be mixed with confusion, shock, anger, and desperation when the first Wall Street bank goes bankrupt. My forecast is that the first Wall Street bankruptcy will not be Citigroup, but rather Bear Stearns. The lawsuits will overwhelm them. Their cash infusion in exchange for capital stakes will be inadequate to cover writedowns and set aside funds to litigation and lawsuit awards. The Citigroup bankruptcy will occur next year, with a possibility that a huge breakup of the conglomerate will coincide with bankruptcy restructuring of ailing subsidiary businesses so as to conceal their bankrupt condition. Other Wall Street firms will be the subject of great debate and controversy within rumor mills, since wider recognition will come that most are bankrupt. Other big lawsuits are also in progress. Class action lawsuits are only beginning. Their insolvency will lead to further problems on cash flow, enough to freeze them and force bankruptcy notices."(snip)
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