By John Galt
August 8, 2007
On March 18, 2005, Rob Kirby wrote one of the best articles warning everyone about what the future of our markets might entail titled “Pirates of the Caribbean”. Unbelievably, the mainstream media could have picked up this story and exposed potentially one of the greatest financial stories of our time, but thanks to the historical gyrations and long predicted exposure to the fantasy known as “the greatest real estate market in American History” (NAR’s words, not mine) plus American Idol 19 (or whatever), it was ignored. Now we might have finally started to see the cannonballs pierce the myth of the greatest story never told. Many of us bloggers and amateur commentators have long whispered and speculated that these island nations investing many multiples of their GDP in U.S. Treasury instruments and corporate bonds were actually part of the proverbial Plunge Protection Team. Well, this week, if you actually read the news instead of having Kwazy Kramer scream it at you, the dirty little secret is out somewhat, and the Black Pearl is taking on water fast.
“Bear Stearns Caymans Filing May Hurt Funds’ Creditors” was the headline flashing across Bloomberg this morning, yet it seems it always takes us historian types to tie the big picture together. If you click on the link and read the article, you will see this one key sentence:
“The local monetary authority estimates that three out of four hedge funds globally are incorporated in the western Caribbean islands.”
So what does this mean to the average investor? Not only can the big houses do what they want with your money, at the alleged direction of the government and Fed, if they lose your money, too bad, so sad and have a nice day. Instead of traditional bankruptcy laws applying, the Bear Stearns funds, per the Bloomberg article, filed in the Caribbean because the judiciary there usually favors management in bankruptcy proceedings. Now let’s all take a big, deep breath and think. On huge downdraft days, there is “sudden” movement in the S&P cash futures just before the open to produce and trigger the program trades to create the perception of a rally. On days where the U.S. Treasuries look like they are going to be taken out and flushed, sudden rallies appear out of nowhere to save the day. When the big financial houses suddenly see their stocks plunge as pension funds, mutual funds and those five individual investors left in the nation crazy enough to play the casino sell them off, suddenly it looks as if these houses are buying each other’s stocks, but it always seems to point to the hedgies. Basically it sounds like they have a license to do whatever they want with your money (that’s right, a lot of retirement programs are invested in these hedge funds and creative financial instruments) and if they make a mistake, they are protected not only from your legal action but United States government regulations. Not to mention if one of the “big ones” that are “too big to fail” starts to fail, your tax dollars will be used to refund your money at ten cents on the dollar if you’re lucky.
And now, as absurd as this sounds, every computer modeled investment which is in trouble, every tranch of the artificially invented CDO’s start to go into a realistic price tailspin, we see that the big investment banksters still refuse to mark these products to market to give the investing public a hint as to just how hollow the Black Pearl is. Well, she’s taking on water boys. There are mortgage lenders shutting down on a daily basis and the ones with any sense or stability are going back to traditional qualifiers to stop this nonsense in it’s tracks. The questions the banksters never input into their bug ridden Vista machines is this; what happens if inflation is higher than the numbers used for the calculations? What happens if the average person elects to eat instead of make their credit card, auto or housing payments? What happens if all the illegals who signed their names with an “X” on the mortgage applications for the $725,000 home in suburban Denver elected to go back home because they found out two years later that the jobs were drying up and not paying as much? More importantly, just how many foreclosed homes can you stack on the deck of the Black Pearl before she sinks? And lastly, what happens when the Black Pearl gets blown out of the water by the Chinese financial navy because the Congress elected to start a currency war an