Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…
First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in US history at that time. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later. And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years.
Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. Tyco, Adelphia, Peregrine Systems…also made headlines for their acts of fraud and mismanagement.
A few years later, Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets. With net equity of $11.1 billion supporting $395 billion in assets, Bear leveraged itself up to an astonishing 35-to-1.
And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high.
Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in US history. L.B. succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.
And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.” He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.
Moving on to the largest US government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”
Topping off our list of the infamous debacles of the decade is Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors…
By now you are probably wondering… What’s bigger than all these debacles? He’s covered the major frauds and scams of the past decade – what could possibly be left?
To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”
Here are a few clues…
Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”
– Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.
Ben Bernanke claimed on February 28, 2008, “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…” Henry Paulson added on July 20, 2008, that “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”
– Since the recession started in December, 2008, 144 banks have failed.
Paulson informed us on April 20, 2007, that “All the signs I look at show the housing market is at or near the bottom.”
– The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.
Ben Bernanke announced on June 20, 2007, that “[The sub prime fallout] will not affect the economy overall.”
– Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.
Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:
We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the “blunder that will plunder” the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.
Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the US government is doing to the dollar. Nothing else even comes close.
This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.
Yet, what is the guardian of our economy and money telling us now?
“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).
This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.
Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of “if,” but “when.”
Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.
The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.
So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?
For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.
for The Daily Reckoning
Having worked on his family's gold claims in California and Arizona, as well as a mine in a place to remain nameless, Jeff's research and writing skills are utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report.
Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage.
When will the citizens say enough is enough? Washington D.C. should be nuked.
C’mon Mike, nuking D.C. is clearly excessive force and may take the good out with the bad. A guillotine is more personal and will send a lasting message to future leadership.
This very excellent article expresses my personal thoughts. Blood in the streets is inevitable–the trick is going to be CYA. Not enough room in this post to fully cover the subject of surviving the coming turmoil. Precious bullion will be handy until food becomes more critical than a medium of exchange. Good reading in the book, “The Road”.
I’m looking forward to the New America that arises from the ashes, and I hope that I’m alive.
You can delete and the truth about hoarding will still be the same.
Well, that was the plan. If you want to remain as the only superpower in this world, at least you need to do the followings :
– keep the armada afloat.
– keep “peaceful” arm forces abroad
– keep the 4 Tigers in active form.
– keep sending abroad monetary aid
– keep absorbing foreign import
If you don’t have a strong military, your subordinates view you as a “sick cat”. If you don’t pamper your 4 lovers, the 4 will say “goodbye my love”. If you abolish monetary facilities, your subordinates will not take your instructions and point the fingers on you.
All in all; money..money..money…it is a richman’s world !!!
Your domestic economy can never generate the huge sum. So, you have to go worldwide tapping fund and keep it rolling. That is economy of the 21st century.
Sadly, many a folk not in your camp, and, they have fallen prey to you scheme. They have missed and deprieved off everything that they were offered under the sky.
On the bright side, i’ve never been wealthier. Of course i don’t live in america (or europe for that matter)
I totally agree with the writer…..I’m 80 and remember the life we did during the last “Great Depression.”
Bottom line, you..”….can’t but a slice of gold between two pieces of bread” and, gold is a finite resource.
We’ve been printing dollars 24/7 since the ’87 crash; I thought we would have learned our lessons from the ’91 banking crisis and left some of those corrupt banks go down the tubes of “restructuring.”
But, alas, we haven’t learned the lessons of the past; we did not; and we have left the coyotes already stuffed with the chickens (taxpayer money) deal with the aftermath of this mess.
Disregard history and you (we) shall pay dearly and we will…
Good article. You say:
Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.
What’s understood as monetary base here and how is it calculated?
It IS International businesses and not American bussiness! There is no such thing as these Corporations being American. Even the word American applys to nations/States from South America to Canada. Our President is only a pupit for their use. But so is all presidents in civilizations!
If the dollar goes ka-put how will the value of gold be determined and how would you spend it? As for me, give me paid for farmland to grow food for my family and extra food to trade! During the last recession farmers did not have much folding money but they had barter money and did not go hungry.
this was by far the most motivating article that i have ever read. i don’t think that my eyes have ever been more open than what they are right now. its amazing how what we as a society hears, is not what is actually going on behind closed doors.
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