The Beginning of the Current Bubble and Scams:

The world markets are in a huge frenzy over a phantom “recovery” that defies all logic. The current rally started in March from the 666 level in the S&P after Citigroup CEO Vikram Pandit and Bank of America CEO Ken Lewis said ‘if you don’t count our loses, we are making money’. They might not have worded it exactly that way, but that was essentially what they said. Anybody that works in a fee-based industry makes money if you don’t count their losses. The losses were all the writedowns on their ridiculous balance sheets that are still – even after the Fed hosed them on to the taxpayer – on their books. There is no way to clean those balance sheets when they have multi-trillion dollar notional derivative exposures (see table below for data from the Office of the Comptroller of the Currency) on relatively very little assets. I realize these products are not delta one, but anyone who works in derivatives knows that these banks were never really hedged, especially not against the gap risk, which was realized at immense levels the last few years. And when was the last time you hear a bank talk about the costs to stay hedged? Basically, there is no way all of these banks are not completely insolvent to the tune of multiple trillion dollars. Of course, the Fed is keeping them alive –as the Fed is a private institution owned by the very same banks it is regulating. The board members of the Federal Reserve banks are all from the major banks. Everyone will remember Mr. Friedman from Goldman Sachs who, despite being on the board of the NY Fed, was allowed by the current Secretary of Treasury Timothy Geithner (henceforth called little Timmy) to buy GS stock right before the Fed bailed them out and used AIG as a scapegoat (after god’s representative on earth Blankfein being the only private person present at a Fed and Treasury meting on the AIG meeting) to funnel tens of billions of dollars to mainly Goldman and a small portion to a few others. (Those few others got whatever they got after Goldman got the bulk because it was impossible to just give it to Goldman without complete scrutiny by the public or possibly one of the other banks blowing the whistle on that scam.)

The market celebrated in the overly volatile days around the March bottom the comments by the CEOs of bankrupt banks who many times stated that there was nothing wrong with them. Mr. Market seems to have a short memory about all the things these guys said over the last few years and how a lot of them were just plain wrong. After there was a little ignition, there was a futures led jump in the markets for the next few weeks where we saw some entity support the markets through futures transactions – which became ever more evident at any possible weakness in the market – and the markets kept rallying. It felt as if the plunge protection team was at work heavily manipulating the stock markets in addition to their usual work of manipulating the gold market. Goldman in the same period increased their principal to ridiculously high levels becoming a big portion of the trading in the US markets and in the meantime making a bunch of money on the taxpayers’ dollar. One wonders maybe they knew of the ploy, so went with it without fear and even if in a legal way, they manipulated the market as they knew the big guy was there to help them if need be.

This is the story of how the current bubble started.