Saturday, July 12, 2008

The Financial Frankenstein is On The Loose

I don't usually like to cut and past entire articles, but this one was just too good:

From Elliott Wave International: The Financial Frankenstein is On The Loose

Everything you've heard and read about Fannie Mae/Freddie Mac this week (and for weeks to come) is rubbish. That is, unless you keep one thing in mind:

Fan/Fred is bankrupt. Yes, B-A-N-K-R-U-P-T.

While I'm at it, please remember this as well: The politicians and policy pooh-bahs who say Fan/Fred is "too big to fail" are actually acknowledging that The Monster has failed ALREADY. I could write a lot of words about how corrupt these two institutions have been over the past decade -- multi-billion dollar scandals that paid multi-million dollar bonuses to executives, via accounting abuses on a scale that required 1,500 consultants to sort out. The Monster sends swarms of lobbyists to protect itself in Washington and swarms of money to both parties via soft-money contributions. It has a multi-million dollar budget to pump up its "image," but will not hesitate to squelch unflattering research -- such as the Federal Reserve study which showed that Fan/Fred does "not appear to have substantially increased homeownership or homebuilding."

Years and years of corrupt behavior produced layer and layer of congressional and regulatory "oversight." Yet today, The Monster mocks its creator more loudly than ever.

It has become a financial Frankenstein. And should anyone be surprised? The Monster received its artificial life from the government. It grew to its extraordinary strength and size because the government endowed it with artificial advantages (the implicit promise of a bailout which allowed borrowing at lower rates and lending at higher ones). And its creator (the government) could and did boast of how it did the world a favor, because its Creation "stimulated mortgage lending" and "madehomeownership possible for more families."

The Monster's "favors" now look increasingly like a ravishing of the entire financial landscape. But unlike the monster in the Frankenstein movie, the government cannot kill the Fan/Fred monster: pardon the mixed metaphor, but the Fan/Fred monster is a parasite that cannot be killed without also risking the life of the host, namely the entire banking and financial system.

It's time to look after your own financial portfolio and future -- indeed, the amount of time left for investors to do so appears to be growing shorter. We can help -- Bob Prechter and the analysts here at Elliott Wave International saw the problems with Fan/Fred coming years ago. Click here to see what we see now.


Anonymous said...

If they get bailed out, how soon will the average person on the streets suffer the effects of hyperinflation? Can we expect that by this time next year, for instance?

Anonymous said...

do you really think hyperinflation will hit the states?

Randy said...

Depends on events and how quickly it is implemented. (Next year: Not out of the question -- foreigners really own the key to this question. Will they continue to hold their MASSIVE dollar holding if it tanks?)

Again, as Stated previously, the Gvt has two choices:

Let them fail: putting a nail in the housing coffin and inviting a deep depression.

Or ...

Bail them out with taxpayer money ... doubling public debt overnight ... busting the government's finances... and gutting the value of U.S. Treasury securities.

If the Gvt tries to absorb the impact of this disaster, investors will likely dump their Treasury securities creating an avalanche of falling Dollar Value.

Foreign investors will then run for the dollar cashing door with their ~$6 Trillion -- causing the dollar to crash.

If the dollar does crash or quickly loses a large portion of its value then YES is the answer.


Anonymous said...

The government has no choice but to bail out Fred/Fan - to the detriment of us all. The worth of the dollar will spiral down, a loaf of bread and other essentials will double every week, there will be looting of grocery stores by normal law abiding citizens, the police will start disappearing to their own homes and families, and then martial law sets in. And Bush is worried about the results of the IMF exam? He made sure that the results of THAT wouldn't come out until he was out of office, though THAT will be a 'walk in the park' with what will transpire before the end of the year.

Make sure you have tradable goods and a place to go and/or defend. Life as an American will be as it was 200 years ago.

Virgo said...

Hi Randy! Been reading your blog for about a month now. Saw most of the video's you recommend. I'm 25 yrs. old and just started learning about the economy about 2 months ago. They don't teach this stuff at school and most people I talk with, whether 25 or 72, have no real inkling as to what is happening with our economy or how money works. The reason I started researching the economy is because my husband and I had a plan to buy our first house in 2011 with about 150,000.00 cash. Yes, I know. Seems impossible but I figured out that we could save about 40 grand a year.(We live in a tiny apt. and rent is $345 a month, and we have absolutely no debt (no credit card debt, no car loans, no student loans). Together we make about about 60K after taxes. The more I learn about our imploding economy the more I freak out. As of today we have about 30K saved up and after reading Peter Schiff's book, Ron Paul articles,, your blog, and many other things, I have decided to go along with Peter Schiff and took 25K out of our savings account and and bought gold, silver and other currencies. Yesterday I read an article on SafeHaven by Magambo Guru (funny, funny man) about how Perth Mint is dumping silver they are suppost to be holding for investors unto the market! And another article stated the provision in the horrific Patriot Act which allows for seizure of gold. And another article said that the Euro may sink with the dollar (unlikely?). So my question is this: Nothing seems safe. You are very educated on these issues. What are you doing with your money? Seriously, I'm having nervous bowels trying to figure this stuff out. Please help! Also, if you don't mind- keep in mind that I'm young and I was NEVER taught this stuff- actually I didn't have a single economics class in high school or college- everything I learned about not being in debt comes from being born in another country which does not have credit so people have to buy everything for cash, the Bible "Debt is Slavery" and Dave Ramsey "Debt is Stupid"(although he doesn't have a clue as to the real economy)- so could you elaborate about how the Federal Reserve creates money? I know, I know, they literally print money and give it to the government. Ok, but is this after the government runs out of people/ countries to borrow from and the reserve makes up the difference? If all of our (unconstitutional) income tax goes to pay interest on the gov. debt, how does the gov. pay out on securities that mature? Does it borrow from the Fed again? So this seems like a never ending cycle of debt and how did Bill Clinton balance the budget? Did that just mean that the gov. debt was not increasing but staying suspended at some astronomical number? And, are you stocking up on food? I'm thinking of stocking up on things we eat anyway b/c even if there is not an immediate collapse it looks like food is going to get a whole lot more expensive. Sorry for being so wordy but I don't know anyone in my life who has a freaken idea about anything that is going on. Thanks Randy!

Randy said...


You are to be commended for your actions thus far. keep it up.

Not investment advice, but 2011 is probably a good target date to work towards for buying a home. That $150K home you are looking for will likely be under $100K by then while the $25K in gold/silver and currencies you purchased will likely be worth $75K or greater. Hell, you may be able to purchase the house outright with just that.

How Federal Reserve Creates Money

Money as Debt Part 1 (Make sure you watch all 5-parts)

Bill Clinton didn't "actually" balance the budget -- he reigned in spending significantly which reduced federal deficts (actually creating a positive surplus), but we were so far in the red already, it would have taken many, many years to eliminate our debt. His efforts would have "eventually" eliminated our federal deficit, but fell by the wayside when we had big Bush tax cuts and then started a new war. See Chart --
Budget Deficit/Surplus

Stocking up on food is probably not a bad Idea... Not to frighten you more than you already are, but you might want to get a gun also.


Maslow’s Hierarchy of Needs and the U.S. Economy

US Economic Outlook 2008-11+

All the best