Turn Stock Market into a Ponzi Scheme: The Easy Way

Today, Goldman Sachs comes out with an upgrade of Capital One bank and Wells Fargo.
The Banks rally 5%. Broad market rallies 1.5%.

[UPDATE: 10/18/2009 Two weeks after the revelation (below), stocks as measured by S&P 500 went straight up for 10 business days, gaining a total of 5% additionally. All conclusions below are confirmed. The only deviation I found was Bank of America reporting $2B Q3, 2009 loss, quite honest, huh. If you are still in stocks like I am, be cautioned!]

After a huge 50-60% run up of the stocks since March 12 2009, you'd think stocks are up for a correction. After the house selling Summer high, you'd expect banks are up for a rough Fall and Winter. After banks hiding their liabilities off the balance sheet a-la Enron, you'd think someday they'll have to show their 'toxic' hidden assets and account for them.

After the top contrarian trend-forecasting stars Dent, Celente, Prechter, and others are seeing an imminent downturn of the stock market, nope, it keeps going up.

But no, the day of reckoning ain't coming just yet. Why not?

I'm following the broad stock market more closely than usual because I found some extra stocks in my Roth IRA that I never sold. It's been 10 years since I seriously looked at the portfolio. It is basically all S&P 500 and guess what, it hasn't made me but a few percent profit after 10 years! Counting for true inflation, it's lost a lot.

Back to the topic. Stock Market a Ponzi Scheme? Madoff reincarnated on a huge scale? And it is easy to turn Stock Market into a Ponzi Scheme? What do you mean Matt?

For the longest time I couldn't understand why, in 2007, establishments such as Washington Mutual were still offering subprime loans to folks even though the subprime market was collapsing all around them. They are in the business of subprime loans and they don't see the calamity has already arrived? Strange. But it is possible to understand why now.

At the last week's IMF meeting, Janet Tavakoli, an expert on structured finance and derivatives, said (quote credit: prisonplanet.com):

Wall Street gave mortgage lenders large credit lines (similar to credit card debt) and packaged the loans into private-label residential mortgage backed securities (RMBS). Most of the RMBS was rated “AAA” … But many RMBSs were backed by portfolios comprising risky fraud-riddled loans. Most of the “AAA” investment was imperiled, and subordinated “investment grade” components were worthless. Wall Street disguised these toxic “investments” with new value-destroying securitizations and derivatives.

Meanwhile, collapsing mortgage lenders paid high dividends to shareholders (old investors) and interest on credit lines to Wall Street (old investors) with money raised from new investors in doomed securities. New money allowed Wall Street to temporarily hide losses and pay enormous bonuses. This is a classic Ponzi scheme…

A large share of certain banks’ tax-subsidized profits is due as reparation to unsophisticated investors, the U.S. taxpayers...By the end of 2006, public reports of implosions of large mortgage lenders eliminated CEOs’ plausible deniability. By January 2007, many (including me) publicly challenged the failure to account for losses. Instead, toxic securitization accelerated in the first half of 2007—classic malfeasance as a Ponzi scheme collapses…

Bottom line, in order to keep the Ponzi scheme running, it has to accelerate in the final stages. That is a sure sign of it being ready to collapse.

How to turn stock market into a Ponzi scheme? Easy. Couple of steps:

- Banks hide toxic assets off the balance sheets
- Mainstream Media publishes great outlook from well known names on how great the banks are doing (Goldman Sachs example, the bank books are looking great if you remove off-balance-sheet assets)
- Mainstream Media touts "Recovery"
- The FED keeps the rates at about 0% keeping bank loans expenses practically at zero
- The government allows printing of Trillions of Dollars through bailouts and stimuli packages, mostly going to the banks who turn around and play with the cash in the stock market
- The government publishes heavily doctored data on unemployment, so it doesn't look as bad as it is.

Well there are maybe a few more steps needed but you get the picture. And I can't give you more details, I'm not working at Wall Street!

Banks are "looking pretty", and "everyone knows", the way the banks go stock market goes.

However, remember, it is a Ponzi scheme. It is based on taking money from Peter and giving it to Paul. There is no value created or consumed. Eventually, this Ponzi scheme Stock Market will pop. But it may go (much) higher before it pops. And you and I won't know when that will be, because it is not you and I who are running the Scheme.

So if you are invested in a stock market, watch your investment carefully. It may rise substantially before it pops. If you have no patience and have better things to do, get out of the market and buy back at half the value or less. Or don't buy back, ever.

Thomas Jefferson: Bills or Bonds?

Federal Reserve Bank of Chicago, Modern Money Mechanics: "Commercial banks
create checkbook money whenever they grant a loan, simply by adding new
deposit dollars in accounts on their books in exchange for a borrower's
IOU.", p. 19. "The 12 regional reserve banks aren't government institutions,
but corporations nominally 'owned' by member commercial banks.", p. 27.

The Rothschilds' favorite saying who along with the Rockefellers are the
major Illuminati Banking Dynasties: "Who controls the issuance of money
controls the government!"

Thomas Jefferson in 1802 in a letter to then Secretary of the Treasury,
Albert Gallatin: "I believe that banking institutions are more dangerous to
our liberties than standing armies. Already they have raised up a money
aristocracy that has set the government at defiance. If the American people
ever allow private banks to control the issue of their currency, first by
inflation, then by deflation, the banks will deprive the people of all
property until their children wake-up homeless on the continent their
fathers conquered. The issuing power should be taken from the banks and
restored to the government to whom it properly belongs." "The modern theory
of the perpetuation of debt has drenched the earth with blood, and crushed
its inhabitants under burdens ever accumulating". ~ Letter to the Secretary
of the Treasury Albert Gallatin (1802) and later published in The Debate
Over The Recharter Of The Bank Bill (1809)

Let's illustrate what Thomas Jefferson meant:

Start and End Dates of Past U.S. Recessions Orchestrated by Banksters

Source: National Bureau of Economic

Thomas Jefferson to Richard Henry Lee, 1779. ME 4:298, Papers 2:298: "It is
a cruel thought, that, when we feel ourselves standing on the firmest ground
in every respect, the cursed arts of our secret enemies, combining with
other causes, should effect, by depreciating our money, what the open arms
of a powerful enemy could not." Later, Jefferson used stronger language and
denounced the institution as "one of the most deadly hostilities against the
principles and form of our Constitution." Some have said that Jefferson did
not favor a strong central bank. What he did not favor was the delivery of
our monetary system into private hands to be run for private profit.

"The money powers prey upon the nation in times of peace and conspire
against it in times of adversity. The banking powers are more despotic than
a monarchy, more insolent than autocracy, more selfish than bureaucracy.
They denounce as public enemies all who question their methods or throw
light upon their crimes. I have two great enemies, the Southern Army in
front of me and the bankers in the rear. Of the two, the one at my rear is
my greatest foe. [As a most undesirable consequence of the war...]
Corporations have been enthroned, and an era of corruption in high places
will follow. The money power of the country will endeavor to prolong its
reign by working upon the prejudices of the people until the wealth is
aggregated in the hands of a few, and the Republic is destroyed." -
President Abraham Lincoln

In December 1921, the American industrialist Henry Ford and the inventor
Thomas Edison visited the Muscle Shoals nitrate and water power projects
near Florence, Alabama. They used the opportunity to articulate at length
upon their alternative money theories, which were published in 2 reports
which appeared in The New York Times on December 4, 1921 and December 6,
1921.

Objecting to the fact that the Government planned, as usual, to raise the
money by issuing bonds which would be bought by the banking and non-banking
sector -- which would then have to be paid back with money raised from
taxes, and with interest added -- they proposed instead that the Government
simply create the currency it required and spend it into society through
this public project.

This is also the Prosperity proposal.

Thomas Edison made it plain in the following excerpt from The New York
Times, December 6, 1921 issue ("Ford Sees Wealth In Muscle Shoals"). Here,
the reporter is quoting Edison:

"That is to say, under the old way any time we wish to add to the national
wealth we are compelled to add to the national debt.

"Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and
so do I, that for the loan of $30,000,000 of their own money the people of
the United States should be compelled to pay $66,000,000 -- that is what it
amounts to, with interest. People who will not turn a shovelful of dirt nor
contribute a pound of material will collect more money from the United
States than will the people who supply the material and do the work. That is
the terrible thing about interest. In all our great bond issues the interest
is always greater than the principal. All of the great public works cost
more than twice the actual cost, on that account. Under the present system
of doing business we simply add 120 to 150 per cent, to the stated cost.

"But here is the point: If our nation can issue a dollar bond, it can issue
a dollar bill. The element that makes the bond good makes the bill good. The
difference between the bond and the bill is that the bond lets the money
brokers collect twice the amount of the bond and an additional 20 per cent,
whereas the currency pays nobody but those who directly contribute to Muscle
Shoals in some useful way.

" ... if the Government issues currency, it provides itself with enough
money to increase the national wealth at Muscles Shoals without disturbing
the business of the rest of the country. And in doing this it increases its
income without adding a penny to its debt.

"It is absurd to say that our country can issue $30,000,000 in bonds and not
$30,000,000 in currency. Both are promises to pay; but one promise fattens
the usurer, and the other helps the people. If the currency issued by the
Government were no good, then the bonds issued would be no good either. It
is a terrible situation when the Government, to increase the national
wealth, must go into debt and submit to ruinous interest charges at the
hands of men who control the fictitious values of gold.

"Look at it another way. If the Government issues bonds, the brokers will
sell them. The bonds will be negotiable; they will be considered as gilt
edged paper. Why? Because the government is behind them, but who is behind
the Government? The people. Therefore it is the people who constitute the
basis of Government credit. Why then cannot the people have the benefit of
their own gilt-edged credit by receiving non-interest bearing currency on
Muscle Shoals, instead of the bankers receiving the benefit of the people's
credit in interest-bearing bonds?"

DATES OF RECESSIONS AS ORCHESTRATED FOLLOW:

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