WASHINGTON, December 10, 2012 – Do you remember the news warning you of impending financial disaster prior to the stock market crash of October 2008? Of course not, there was nothing to hear.
Nor will you hear anything about our next crash until it is far too late.
There were of course several individuals who tried to warn the masses. The “economic experts” who literally laughed at these few voices of reason are, in many cases the same ones you are still taking advice from on the nightly news. Good luck with that.
The unspoken motto of big business is this: Private profits – public losses.
This was made public in a big way with the TARP, which spent $431 billion dollars of taxpayer money to cover the losses of many private companies. Private profits - public losses, too big to fail, whatever you want to call it, we as taxpayers pay the price when they gamble and lose.
A little publicized ruling of the 7th Circuit U.S. Court of Appeals, on August 9, 2012, made it legal for banks to quite literally steal your deposit. Sentinel Management Group, Inc. was an investment manager that marketed itself as a “safe place” for customers to deposit funds, specializing in segregated accounts.
Unlike a normal bank account, which uses 90 percent of deposits to make investments, a practice known as fractional reserve banking, segregated accounts are, by definition, not leveraged in that way. If you deposit 100 dollars, the institution retains your full 100 dollars, kept separate (segregated) from the company funds to protect the depositor from liability due to mal-investment or even bankruptcy of the institution.
The court ruled that the $312 million, taken from segregated accounts and used as collateral against investments that the firm made, was not done with “intent to defraud” and therefore had no obligation to the investors.
This ruling basically cleared PFGBest of the $200 million they stole, and MF Global of the $1.6 billion that they stole.
If that were not bad enough, it paved the way for the nearly $3 trillion in privately owned US money market funds that you, the reader, probably have a piece of, in 401K, pension, or other types of accounts, now have no recourse if your money was gambled and lost.
Of course, had their gambles paid off, as a holder of a segregated account, you would not expect to see a profit, since your money was never at risk, right?
Private profit - Public loss at its finest.
KKR & Co. L.P. (formerly known as Kohlberg Kravis Roberts & Co.) is one of the largest multinational private equity firms in the world. They specialize in leveraged buyouts, garnering the nickname “The Barbarian at the gate”. They have made history twice by completing the largest buyouts in history, first in 1989 of RJR Nabisco, followed up by the buyout of energy giant TXU in 2007, which remains the largest leveraged buyout to date.
This company, which deals in transactions of very large numbers, ($45 billion for TXU) has recently done a very unusual thing. Private equity firms have historically maintained a very exclusive mentality in regards to direct investments in the equities. Basically, if you did not have millions to invest, don’t bother asking.
KKR recently announced two new investment funds, with buy in as low as $2,500, available for purchase through Charles Schwab. Published reasons for this sudden change in their business model are to increase revenue through the fees associated with asset management. Some speculate a far more nefarious reason.
Given the political backlash of the latest “Too big to fail” taxpayer bailouts, how likely do you think the government printing up a couple trillion dollars to bail out the next round of failures would be? Losses need to be made public, so what better way to spread the losses than to open up risk to millions more investors?
KKR is not the only one following this new business model. Carlyle via Goldman Sachs and Providence Equity Partners via Morgan Stanley are only a couple of those following suit. For the time being, these funds require a much larger minimum investment, but still significantly lower than “normal”.
Large equity firms spreading out risk to millions more investors is somewhat troubling by itself, but not necessarily worthy of doom and gloom predictions.
But what about when risk mitigation by the big-boy companies is coupled with the flight from equities from the other half of the equation, the big-boy investors?
Dennis Gartman, investor and publisher of The Gartman Letter, a daily financial trading commentary written for the past 30 years, has completely exited equities.
Lord Jacob Rothschild, of the Rothschild banking dynasty, has placed a $200 million dollar bet on the collapse of the Euro. A collapse of the Euro would almost certainly trigger a worldwide recession at best, with depression being the more likely scenario.
Billionaire investor George Soros recently sold off 420,000 shares of Citigroup, 701,400 shares of J.P. Morgan and 120,000 shares of Goldman Sachs. He also purchased $130 million of gold.
Another billionaire investor, John Paulson, recently spent more than $700 million on gold.
According to Forbes, Carlos Slim Helu is the richest man in the world, with about $69 billion in holdings. He recently purchased another gold mine for $750M.
Several unknown investors made an enormous silver purchase from COMEX on Friday, October 12, prompting brinks deliveries in excess of 4 million ounces of physical silver.
In October 2008, the USS NYSE hit an iceberg. The first class passengers are plying the steerage with cheap champagne while filling lifeboats with gold and silver. It is up to you … go down with the ship, or wake up to the world around you and do what you can to protect yourself and your family.
Japan and the Euro-zone seem to be in a race to collapse, but regardless of which topples first, it will create a worldwide crisis. When that happens, it will be too late to act. Educate yourself and take precautions to protect your wealth. Being prepared for an event that never happens would not be the end of the world. Not being prepared in the event that this does happen, could very well be the end of your world.
The obvious question is “when?” History predicts the crash will be in October, following suit with the crash of 1929, 1987 and 2008.
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