a chess game, the bankers called 'checkmate' against the EU political leaders
on Friday May 5th, 2010. Two days later in an urgently called weekend meeting
the EU finance ministers hurriedly announced the biggest bailout in history.
Most people take more than two days to buy a car, but the frightened EU officials
were pressured into reacting before the Asian markets opened Sunday evening.
This is eerily the same scenario we saw on the eve of the US $700B TARP ratification,
the Bear Stearns takeover, Fannie /Freddie Conservatorship, AIG Bailout etc..
A coincidence - Yeh right!
How was this pressure applied? Who has such power? Who won and who lost? As
I explained in "Extend & Pretend:
Shifting Risk to the Innocent", it is all part of the dynamic new market
strategy of Regulatory Arbitrage. You had better learn how the game is played
or you will be toast.
For a complete unabridged version of this article with slide presentation
Points - Commentary
"Look at what Soros did to the Bank of England in 1992 - he went after
them, they had a finite amount of dollars, he was selling sterling and
taking the dollars, and they were buying the sterling and selling the dollars
to defend the peg. All he had to do was sell more than they had and he
wins. But he needed real money to do that.
Today you can break a country, you don't need money you just need
synthetic euroshorts or CDS. A trillion dollar bailout: Goldman can
create 10 trillion of euroshorts. So it just dominates whatever governments
So basically Goldman can create shorts faster than Europe can create
Jim Rickards CNBC 05-10-10
Former LTCM General Council
Prior to the May 5th, 2010 Flash Crash where the DOW dropped a record 1000
points in a matter of minutes, I wrote in "Extend & Pretend:
Shifting Risk to the Innocent" why this was going to happen. The market
reacted in a perfectly predicted fashion and was the result of the same parameters
that caused the 1987 record one day market drop. In 1987 it was caused by Portfolio
Insurance and today it is about Dynamic Hedging (son of Portfolio Insurance).
Yes, High Frequency Trading (HFT), and Dark Pools are involved, but only to
the extent that they are part of the continuous refinement of the Dynamic Hedging
Hedging is a key tool in applying political pressure, which is critical to
the success of the three step process I will refer overall to as Regulatory
The Flash Crash came on a day when the Dow was already down nearly 300 points,
Greek rioting pictures were on all TV channels and the markets over the previous
week had given up all the year-to-date gains. At the May 7th EU summit meeting
however; it did not escape EU leaders that the sell-off the day before came
with the early polls from UK elections that signaled a potential minority party
win by the Conservatives. The poll results spooked the market since this and
critical German elections in North Rhine-Westphalia on Sunday could potentially
make EU leadership a lame duck and further spook financial markets. The EU
leaders felt so forced to take action that they arguably violated (expect
it to be challenged in German courts) the EU constitutional agreement.
EU has invoked the "exceptional circumstances" clause of Article 122 of the
Lisbon Treaty to beef up the EU's balance of payments fund from €50bn
to €110bn. The money can be used to bail-out countries within the eurozone
for the first time. This is a "Euro Bond" by any other name, evoking the German
nightmare of an EU debt union." (1)
"... a battle of the politicians against the
markets. I am determined to win"
German Chancellor Angela Merkel
"...unfounded off-the-wall suggestions and speculation"
EC President Jose Manuel Barroso
"...confront speculators mercilessly ... know
once and for all what lies in store fro them"
French President Nicolas Zarkozy
is pretty scary that EU leaders felt they had to go to such an extent to demonstrate
action. They were running scared due to a well crafted international banking
The pattern has become so consistent and predictable that I am able to
flowchart the steps.
Let me briefly outline how the Regulatory Arbitrage strategy works. For those
that may argue that international banks are not that well coordinated to implement
such a strategy, then you might want to view this process in a bigger context
of what modern day international banking has evolved towards, by the simple
imperative of the pursuit of profit maximization and the advancement of technology.
It is today's version of Adam Smith's 'invisible hand'.
THE INSIDIOUS PROCESS OF APPLYING PRESSURE
I detailed in 'Extend & Pretend: Shifting Risk to the Innocent' the central
elements of Dynamic Hedging, Capital and Regulatory Arbitrage. Each has a specific
role to play in the process of applying pressure towards the ultimate goal
of shifting risk from private hands to public hands. This risk is assumed as
part of a "Risk-On" strategy via high levels of leverage to generate trading
profits and investment fees. These high risk speculations which would be classified
in previous years as pure speculation need to be turned into investments. The
way you turn a speculation into an investment is to remove the risk.
When you gamble in a casino you are speculating. The risk is high and against
you. To make gambling an investment is about reducing the risk. If you could
'card count' which the casinos ban, you decrease your risk. But it is still
speculative. If you had weighted dice on the craps table you could also reduce
risk, but there would still be an element of speculation. If you fixed the
roulette wheel so you knew where it would stop, you are no longer gambling
- you are 'investing'. To have a high probability outcome that is known in
advance is investing. The international banks are turning gambles into investments
by the following process of guaranteeing an outcome. In less polite circles
and street parlance it is referred to as 'rigging the game'.
"Chess players think 3-4 moves ahead. Chess Masters not only anticipate
their opponent's moves but force them to make specific moves that guarantee
See Slide Presentation: Tipping
THE CLASSIC TELL TALES OF PRESSURE
David DeGraw reports at Amped
the aftermath of Goldman Sachs' public flogging before the world in Congress,
and while under investigation, on the very day that Congress was voting on
the "break up the too big to fail banks" amendment and cutting behind the scenes
deals to gut the audit of the Federal Reserve, the stock market had its greatest
sudden drop in history, plummeting 700 points in ten minutes - shades of September
29, 2008 all over again.
If you recall, back in September '08, as Congress was voting down the first
bailout, the big banks made the market plunge a record 778
points in one day. Fear and panic then led Congress to pass the bailout.
Trillions of our tax dollars, the money that we desperately need to keep
our society functioning over the long run, then went out the window and into
the pockets of the very people who caused the crash.
What happened on September 29, 2008 will go down in history as one of the
greatest acts of terrorism ever.
9/29/08 proved that when you have so much power concentrated in the hands
of a few, you can manipulate a computer algorithm and make the market and
economy go whichever way you want it to go. So on 5/6/10, just as the power
of the big banks was again threatened on the floor of the Senate and a deal
on auditing the Federal Reserve was being negotiated, in came a sudden and
unprecedented ten-minute 700 point market drop, a precision-guided High Frequency
Trading (HFT) attack to show Congress who's boss.
If you think the massive sudden drop happened because one lowly trader hit
one wrong button, if you actually believe that the entire stock market can
plunge because of one mistaken key stroke by a low-level trader, you are
stunningly naïve. I hate to burst your bubble, but this was a
In a market where 70% of all trades are executed by computer algorithms via
High Frequency Trading (HFT), Goldman Sachs has the power to make the market
crash or rise at will. (2)
Tyler Durden reports at Zero
dominance of the NYSE's Program Trading platform, where in addition to recent
entrant GETCO, it has been to date an explicit monopolist of the so-called
Supplementary Liquidity Provider program, a role which affords the company
greater liquidity rebates for, well providing liquidity, and generating who
knows what other possible front market-looking, flow-prop integration benefits.
Yesterday [5/6/10], Goldman's SLP function was non-existent. One wonders -
was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among
the main reasons for the market collapse....
... here is the most recently disclosed NYSE program
What is notable here is that of the 1.4 billion in principal shares, or
shares traded for the firm's own account, Goldman was the top trader by a
margin of over 100% compared to the second biggest program trader.
We have long claimed that Goldman is the de facto monopolist of the NYSE's
program trading platform. As such, it is certainly the case that Goldman was
instrumental in either a) precipitating yesterday's crash or b) not providing
the critical liquidity which it is required to do, when the time came. There
are no other options." (3)
Max Keiser who has written and authored Program Trading and HFT computer algorithms states:
6th was an unequivocal act of domestic financial terrorism in America. A day
that will live in infamy.
To scare the lawmakers, themselves large owners of the very banks and stocks
that they are supposed to be regulating, a financial Weapon of Mass Destruction
was put to their head and they acquiesced.
As the inventor of the continuous double-auction, market-making technology
(VST tech. US pat. no. 5950176) that is referenced 132 times by program trading
and HFT patents since 1996, I can tell you that Goldman, JP Morgan and the
gang simply pulled the 'buys' from their computer trading programs and manufactured
a crash. And when the coast was clear, and it was clear the politicians were
not going to vote for anything that would break up the 'too big to fail'
banks; all the 'sells' were pulled from the computers and the market roared
This is a Manchurian Candidate market where program trading bots start the
ball rolling in whatever direction Wall St. wants the market to go - and then
hundreds of thousands of day-traders watching Cramer on CNBC jump on the momentum
bandwagon and commit the crime for the Wall St. financial terrorists, who then
say, 'It wasn't us, it was 'the market!'" (4)
David DeGraw reports at Amped
Friday, the next day, after the "break up the too big to fail banks" amendment
was soundly defeated by a 61 to 33 margin in Senate and a deal was struck to
eliminate key provisions from the audit of the Federal Reserve bill, Goldman
was meeting with the SEC to work out a settlement in their case against them.
Once again, Goldman proves that crime pays. Welcome to the New
Mafia World Order
Other than the two major operations carried out on 9/29/08 and 5/6/10, we
must also recall a smaller attack on January 21st and 22nd of 2010, when
Obama had a press conference and came out in favor of the Volcker
Rule, which would have limited these HFT and "proprietary trading" schemes.
At that time, the market dropped 430 points. Soon after this attack, all
follow-up talk on the Volcker Rule faded away and this reform has not been
seriously addressed by Obama since then.
The bottom line: the United States has been taken over by a financial terrorism
network. Let's face it, we are all hostages of these financial terrorists
and their puppet politicians would rather be in on the scam than defend our
interests. If these terrorists don't get their way at all times, they have
the power to throw their tremendous weight around and turn millions of lives
upside down in a matter of minutes and, as they have shown, they have no
hesitation in executing that power, no matter how many millions of lives
They set off this crisis with a wave of bombings in their initial Economic
Shock and Awe
campaign two years ago, resulting in massive devastation
THE EURO BANK BONANZA
The "Speculators" made huge profits on the CDS run up, followed by horrendous
profits on the plummeting Sovereign Debt Rates. If this isn't enough, they
then profited on financing the whole bailout including getting the ECB to accept
repos on questionable assets from the banks. (5) Alarming?
Spain...Greece...these are all last week's news based on CDS trading patterns.
Indeed, this week (Wednesday 05-05-10 )
saw the biggest trade unwinds
of all top 1000 CDS entities (including all corporates) precisely in these
three names. As the PIIGS implosion is finally being appreciated by everyone
and their grandmother, the "speculators" are booking massive profits: the net
cover/rerisking in Portugal and Spain was a massive $500 million net notional
unwinds in each in the week ended April 30. Also known as taking profits. Greece
and Ireland were also in the top 5, so as we have repeatedly claimed, the market
will no longer make the news in Club Med. So where will it? No surprise there
- the UK, France and Germany. The smartest money in the world is now actively
betting the core of the eurozone is where the next CDS blow up will take place. With
a stunning $630 million, $558 million and $370 million in net notional derisking,
France, UK and Germany are the top three most active recipients in negative
bets in the prior week,
not just in sovereigns but in all names
The greatest non-sovereign
derisker in the last week? Goldman Sachs,
with $175 million. Nuff said. Yet a tangent on the UK: last
week the UK saw $443 million in net notional derisking
. This week the number
is even higher: $558 million. There is now over $1 billion in net risky bets
made that the UK may not last. And Zero Hedge's outside bet to be the first
core country to blow up, thanks to its massive PIIGS exposure, France, finally
made the top spot in net derisking, with $629 million in net notional, or 189
contracts. The smart money is now massively betting that Europe's core is done
for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta
can not be far behind. (6)
less publicized but crucial part of the deal is the move by the European Central
Bank to start buying not only government bonds of hard-pressed countries like
Greece, but private assets as well. This move--a total reversal of longstanding
policy--mirrors the action of the U.S. Federal Reserve. Since the crash of
2008, the Fed has purchased more than $1 trillion in mortgage-backed securities--aka:
toxic assets--as part of its endless transfusion of cash to U.S. banks. Now
the European Central Bank is doing the same to keep European banks afloat.
(And not just European banks: U.S. banks are deeply tied to their European
If this hasn't alarmed you, add the fact there is strong evidence that the
international banks have
been short the Euro throughout this whole process and continue to be short.
If recapitalizing the International banks was an objective, the European Crisis
has answered those prayers.
IT MAKES NO SENSE
After the $146B Greek Bailout was announced and prior to the nearly $1T EU
bailout the NY Times reported:
is not a bailout of Greece," said Eric Fine, who manages Van Eck G-175 Strategies,
a hedge fund specializing in currencies and emerging market debt. "This
is a bailout of the euro system.
" Solutions are also not easily forthcoming. "In
the end, we're all saying we don't know how to deal with it," said Dirk Hoffmann-Becking,
a bank analyst with Alliance
in London. "We don't know how the channels work, or where the
problems will pop up next." (8)
The above activities are as much a shift
in modern Capitalism as a strategy of the global banks. When you make
capital cheap and ubiquitous as we have over the last fifteen years, it changes
investment strategy and behavior. It is more profitable today to speculate
than make long term wealth generating investments such as factories and production
which would create jobs. Long Term investments come with delayed profits
and on-going risk. Speculation can be shifted to Investment by reducing the
risk of the speculation. There are a number of ways of doing this. Risk is
reduced by 'stacking the deck' or as in a carefully strategized chess game,
by forcing your opponent to make specific moves that delivers the banks the
game winning checkmate.
The only way to protect yourself from this money printing 'speculative' game
is through the purchase of the only asset that is not someone else's liability
- Physical Gold and Silver. It however should be seen as an insurance play
versus an investment since it protects your wealth versus realistically increasing
it. In today's Kondratieff winter, protection should be considered the goal.
those who have had the foresight to realize that in the currency devaluation
race to the bottom, the only winners will be non-dilutable precious metals
(and not industrial gimmickry and bets on China's excess capacity like copper...well,
maybe with the reverse alchemy exception of lead), we salute you. In fact,
so does the market: the S&P is now down 8% year to date when expressed
in ounces of gold. Because while central banks can monetize, sterilize
(whatever that means), and dilutize that last remnant of the dying Keynesian
religion, the FRN and its equivalents around the world, gold is untouchable,
and increases in value with each desperate attempt to save a failed economic
The Cover pages of all German newspapers - "there
(1) 05-11-10 ECB
risks its reputation and a German backlash over mass bond purchases Telegraph.co.uk
(2) 05-10-10 High
Frequency Terrorism: How the Big Banks and Federal Reserve Maintained Their
Death Grip Over the United States Amped Status
(3) 05-07-10 Where
Was Goldman's Supplementary Liquidity Provider Team Yesterday? A Recap Of Goldman's
Program Trading Monopoly Zero Hedge
(4) 05-10-10 maxkeiser.com
(5) 05-06-10 Numerous
European Banks And Re/Insurers Identified With Tens Of Billions In Greek Failed
Repo Exposure Zero Hedge
(6) 05-06-10 The
CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland Zero
(7) 05-11-10 Rescuing
Greece or the banks? Socialistworker.org
(8) 05-04-10 In
and Out of Each Other's European Wallets NY Times
(9) 05-11-10 It
Is Getting Ugly Quick In Fiat Land: S&P Now Down 8% YTD In Non-Dilutable
Terms Zero Hedge
(10) 05-04-10 Greek
Rescue Package Insufficient Will Need More Money Zero Hedge
For the complete research report go to: Tipping
Points - Commentary
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The previous Euro Experiment article: 8
Financial Fault Lines Appear In the Euro Experiment!