Palast: Did Fabulous Fabrice Really Cause the Financial Crisis

Here is a reminder from Greg Palast, who is one of those rarest of creatures, the investigative journalist, about what caused the last financial crisis, and the source of the criminogenic environment that is likely to be a major contributing factor to the next.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

"...In August 2007, hot-shot hedge fund manager John Paulson walked into Goldman Sachs with a brilliant plan to cash in on the US housing crisis.

He paid Goldman to announce that Paulson would invest a big hunk of his fund's wealth, $200 million, in securities tied to the US mortgage market’s recovery. A few lucky investors would be allowed to give Goldman their billions to bet with Paulson that Americans would not default on their home mortgages.

It was a con. Secretly, Paulson would bet against the mortgage market, hoping it would collapse – making sure it would collapse. All he needed was Goldman to line up the suckers to put up billions to be his "partners".

It was Goldman’s and Paulson's financial version of Mel Brooks' The Producers, in which a couple of corrupt theatre producers schemed to suck investors into a deliberate flop...

What did the Feds do to Paulson? He received... a special tax break.

Am I defending the Fabulous Fabrice, the French-fried scapegoat? After all, he was just along for the ride. But he was deeply thrilled to carry water for the Bad Boys. And the charges against him are merely "civil", meaning he won't get jail time even if found guilty.

And what about Goldman, whose top brass knew of the entire game? The Securities and Exchange Commission did fine Goldman for its duplicity – a sum equal to 5 percent of the cash Goldman got from the US Treasury in bail-out funds.

After Goldman’s con became public, its CEO, Lloyd Blankfein was hailed as a visionary for offloading mortgage-backed securities before the shit hit the finance fan. Blankfein hailed himself for, he said, "doing God's work". God did well. Blankfein’s bonus in 2007 brought his pay package to $69 million for the year, a Wall Street record.

Rather than prison or penury, Blankfein was appointed advisor to Harvard University’s business and law schools.

So here’s the lesson all Harvard students are taught: If you can't do the time, don't do the crime... unless your booty exceeds a billion."

Read the entire piece by Greg Palast here.

Make no mistake. The world is watching-- with increasing revulsion.

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars, and [think] nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people [or] counterparties in transactions.

They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

...But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy.   I have waited for four years,  five years now,  to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems."

Jeffrey Sachs

Gold Daily and Silver Weekly Charts - Rally Up to the 50 DMA For Option Expiration Week

Gold got an early start last night and cracked through the 1300 barrier with some energy, and moved higher into the close today.

As a reminder, this week Thursday the 25th is an option expiration for the precious metals at the COMEX.

Today was obvious short covering and a reflection of the oversold condition and the commensurate tight physical supply situation after a protracted bought of price manipulation on paper.

So what next. I think it would be too much to expect the markets to turn instantly honest.  

Next week begins the important August delivery period, and we must keep a steady eye on supply.

The chart shows the first legitimate bottom formation that we have seen in some time, with a 'slanting W' formed and working, at least so far.  There was intraday commentary on this here.

The sahibs of India are continuing to try and dampen their people's enthusiasm for buying gold. I suspect that the people will give such maneuvers the small amount of attention that they deserve.

David Stockman says he expects a financial dislocation and a flight to gold.

So let's hope for the best, but brace for antics.

And as always, fulfill your oaths.

Stand and deliver.

SP 500 and NDX Futures Daily Charts - A Drift Higher on Fumes

Earnings are certainly nothing to cheer the markets. And they are not.

One has to wonder how much these jokers have left to keep pumping this up higher. It has come quite far already, and probably a bit too far for its own good.

Market technicals (commonly known as shenanigans) can conceivably take it higher in a short squeeze if the specs come in too hard and too early, but it does not appear that the fundamentals justify the prices here.

VIX has sunk to recent lows again.  It may remain here for some time, and even drift a little lower.  But as insurance it looks a little more attractive now.

Its all the Fed, all the time.

Developing Gold Bottom: A Closer Look At a Short Term Excess of Power

"The banks have essentially been told by the Federal Reserve they're allowed a certain number of sins. Just not as many as there used to be."

Brad Hintz, Wall Street Reshapes Commodities Market to Fend Off Regulation


"The severity of the Russian winter has been greatly exaggerated."

Napoleon Bonaparte

Here is a closer look at the gold bottom that everyone and their brother was rushing to call last week, so they could claim prescience. 

As a reminder this is an option expiration week for the precious metals on the COMEX, and next week begins the August delivery period.

I have also included an update to the weekly silver chart, for inquiring minds who wish to know.   Silver is following gold on this upsurge.  A confirmation of the rally by silver is important.  If silver confirms the breakout, it will most likely gather significant momentum as its volatility engages the short squeeze.  But the physical silver supply situation is not as compelling as gold has been, although the seeds were sown when the pricing started to curtail mining activity more significantly.

Banks who take funds and guarantees from the Fed at a subsidy have absolutely no business trading the markets for their own profit without significant restraints and transparency, if at all.   The reasons for the prohibitions of Glass-Steagall should be apparent, once again, to all but the most craven servants of big money and the excesses of power.

As I have said several times over the last several weeks, every time that the COMEX dealer inventory has fallen to record lows like this, it has marked an intermediate trend change that in retrospect proved to be significant.

The drawing down of physical inventory available for delivery is one of the surest signs of a price manipulation gone too far.

And for the first time in this waterfall decline since the German people had the temerity to ask for the return of their national gold from the NY Fed, we see a legitimate chart formation that could mark a significant bottom in price.

Note the 'slanting W' which is a term I coined some years ago for a certain type of bottom in a price decline.  The most important feature was the successful retest of support at 1280, and the subsequent breakout above the top of the W today.

We could see a retest of support or two, and there is the more difficult resistance to be encountered from 1340 to 1360, which also includes gold's 50 day moving average.  This is an area of prior support where a potential double bottom failed in the face of a relentless paper selling attack some time ago. I suspect that while it achieved it's purpose, it was 'a bridge too far.'

To put it more simply, taking gold below 1340 was a terrible strategic error, most likely done with nothing but short term greed in mind.   

It may even mark the beginning of the decline and fall of the famed mistress of Wall Street derivatives and commodities manipulation, one way or another.

Sometimes there is no greater justice than when the powerful get their own way. They tend to do foolish things like engaging in a protracted winter war without arranging for adequate supplies, assuming that by their actions the supplies will become available.

The measuring objective of this particular chart formation is about 1450 or so.  There will be additional macro formations to look at on the chart which we will discuss as they develop further.

There is little doubt that the market mischief makers may have another go or two at this down the road.  It will be interesting to see how far their arrogance takes them.   

Of paramount importance is the physical supply.  The damage done to the real market structure for gold by this paper exercise should not be underestimated.   There are great things occurring, in quiet and largely unmarked, in the global markets.