Tax & Financial Consulting Services
Paulson: U.S. "days away" from meltdown!
WHEN PAULSON AND BERNANKE FINISHED PRIVATELY BRIEFING CONGRESS, "THERE WAS DEAD SILENCE IN THE ROOM FOR FIVE TO 10 SECONDS. THE OXYGEN WENT OUT OF THE ROOM."
-- Senate Banking Committee Chairman Christopher Dodd
HERE'S WHY WASHINGTON'S $1 TRILLION BAIL OUT IS LITTLE MORE THAN A BAND-AID ON A MASSIVE WOUND...
WHY MORE THAN 1,000 BANKS ARE STILL IN DANGER OF COLLAPSING NO MATTER WHAT WASHINGTON DOES...
WHY SCORES OF HOUSEHOLD-NAME COMPANIES ARE STILL AT RISK FOR HUGE STOCK LOSSES OR EVEN BANKRUPTCY...
Dear G&G readers,
It was a surreal moment: Senator Christopher Dodd told ABC’s “Good Morning America” that Treasury Secretary Paulson and Fed Chief Bernanke had just informed Congressional leaders “We’re literally days away from a complete meltdown of our financial system.”
Things got even scarier when he told CNN, “There was dead silence in the room for five to 10 seconds. The oxygen went out of the room.”
No wonder Congress is falling all over itself to pass the $700-billion bailout bill to buy toxic mortgages!
Combined with the $25 billion spent to bail out Bear Sterns, $100 billion each for Fannie and Freddie and $85 billion for AIG, Washington has now pledged more than $1 TRILLION to fight this crisis so far — and still, it’s only the beginning:
Yesterday, Paulson announced he’s adding another $50 billion to ensure the money market funds. He’s also expanding the bailout to include car loans, credit card debt and more.
And Democrats in Congress are clamoring for hundreds of billions more for a second economic stimulus package, for a bailout of homeowners at risk for losing their homes and more!
And still — even if Congress gives Paulson everything he asks for and more — there’s still one, glaring, “inconvenient truth” nobody’s talking about ...
None of these unprecedented actions are
enough to end this massive debt crisis!
1. They do little to guarantee that more financial institutions won’t fail: Sure — Washington is going to buy toxic loans from the institutions that invested in them. But don’t think for a moment banks and other companies are going to get top dollar for the poison in their portfolios.
Although the details of the bail out are still sketchy, it’s clear that Washington will pay a deeply discounted price for that bad paper. That means the financial institutions that own those lousy investments are still going to take huge losses.
And in many cases, those losses are likely to be large enough to push many of these teetering firms over the brink.
My forecast: Despite this massive, historic, unprecedented bailout, you will still continue to see a chain reaction of bank failures and corporate bankruptcies.
2. They do little to slow the explosion in mortgage defaults that caused this mess in the first place: With the economy slowing, unemployment surging, home values still plunging and monthly payments on six million adjustable rate mortgages set to rise, the tidal wave of mortgage delinquencies and defaults we’ve seen so far is almost certain to grow larger, not smaller.
As Senator Chuck Schumer (D-NY), chairman of the Joint Economic Committee, told FOX News Sunday, “If you don't solve the mortgage crisis, you're not going to solve the financial crisis.”
3. They do nothing to address the $180-trillion derivatives time bomb at U.S. commercial banks: Thirty years of deregulation have allowed a parallel financial system to arise in America in which more than $180 trillion dollars in derivatives are held and traded by U.S. banks with scant government supervision or accounting.
The truth is, no one has any idea of the magnitude of the deleveraging ahead or the size of the debts that will ultimately have to be written down!
4. They do virtually nothing to cause lenders to end the credit drought that’s spreading the contagion to other sectors: To survive, banks are desperately raising credit requirements...slashing lines of credit for corporations and spending limits on credit cards...turning down all but the most highly qualified borrowers.
And that’s what’s causing so much pain at companies making products that consumers buy on credit: Autos, home improvement products, electronics and other high-end merchandise.
BOTTOM LINE: As massive as it is, the Paulson-Bernanke plan can’t even begin to resolve this crisis. In fact...
This $1 trillion bailout virtually guarantees
this crisis will spin wildly out of control!
Look: Until last week, the White House projected that the 2009 federal deficit would be $482 billion. Now, just with the bailouts announced and proposed so far, Congress is tacking on 1 trillion to that number, or even more.
That means plunging prices for Treasury notes and bonds plus soaring interest rates. And that, in turn, means rapidly rising payments on ARMs —a coup de grâce for millions of homeowners who are barely clinging to their homes as it is.
It also means the recession will be deeper and longer than it otherwise might have been. And it means scores of U.S. companies that manufacture and sell products requiring consumer credit will be hit even harder.
My recommendation is unchanged: As I've told you from the outset of this crisis, every time the government attempts to fight this, it spurs a temporary rally, giving you a golden opportunity to sell any stocks you still have.
And it’s also the very best possible opportunity to position yourself for huge gains as the crisis continues to spread — with hedging investments like Gold & Silver, inverse ETFs and Foreign Currencies.
Click on link for "Diversification" conference call:
Events are unfolding so fast, you need to take action soon...Hundreds of investors are already using the startling revelations and recommendations I delivered in this timely Diversification Briefing to help insulate their wealth and profit in the next phase of this great credit crisis...hope you are to!
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Tax & Financial Consultant, RFC
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"Whenever you find yourself on the side of the majority, it is time to pause and reeflect." Mark Twain
LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. G&G Associates gets paid a commission from a membership purchase at www.publicgold.com/gngpreciousmetals.