I had a dream last night. I dreamt that this past week on bubble vision 2, CNBC ran an expose entitled Hedge Fund Hallucinations. Well, I must admit, whenever I think of hedge funds and hallucinations - not only do I think of lousy wizards pushing and pulling levers behind curtains, but the notion of 'waking up some place that doesn't look like Kansas' always seems to come to mind - but let's not get ahead of ourselves, ehhh?

In this nightmare, I mean dream, no less than 4 Nobel Laureates worked for a hedgy called STCM [Short Term Capital Management]. As I recall, the fund in my dream had this 'dream team' [pun] of 4 Nobel laureates because the management intuitively knew that 'size was wise' and the name -- STCM - well, why don't you just ask anyone if they've ever heard of a hedge fund that invests for the long term? [Size does not matter, does it?]

So, anyway, this hedgy employs unimaginable leverage [that no one can even imagine who would be so silly to lend them so much] and makes this outrageous bet on foreign debt and gets 'caught' the wrong way around - in a 'perfect storm' known as a debt default. A liquidity crises ensues before a private corporation masquerading as a Government Central Bank intervenes in the whole affair and sweeps the real machinations of what happened 'under the carpet'. [lender of last resort or retort?

In the dream, STCM had an investor or client known as the Bank of Ipaly. The Bank of Ipaly had a 100 million investment in the hedge fund. What the world never understood was that the Bank of Ipaly also has gold on its books at 35 bucks an ounce. The Ipalians were so smart, they made their investment to the hedge fund "in kind" - using 100 million worth of their gold [which they still valued at 35 bucks an ounce]. So, in essence, the market value of their investment in STCM was really 10-fold [plus some] what was advertised. But using this accounting trick, no one was the wiser! This was so brilliant -- agents acting for other Central Banks caught wind, couldn't resist - and did the same!

So then, the team of Nobel Laureates [being the bright lights that they were] sold all the Bank of Ipaly's and other's gold and had many billions in cool hard cash. With those proceeds they leveraged themselves into other paper assets that didn't do so good [that would be the foreign bonds mentioned above]. The funny thing, STCM never "appeared" to be leveraged to the extent that they really were - to most of their legit bankers [yup, there are some] -- because they had sold all this gold [which no one in the public ever understood they had] to raise cash. This kept all but the most knowledgeable of their financial advisors [like the ones who sold all that gold] in the dark - that is until the foreign bonds defaulted. You see, once the bonds defaulted, then the hedge fund's lead bankers [Silverman Socks and J.P. Horton] were more than willing to share fault [all the paper losses] with all involved. So does Horton give a who? The gold short was of course secretly absorbed [taken off the books] by the private corporation that masquerades as a Government Central Bank, because they were actively and surreptitiously rigging the world price of gold and wanted to live to fight another day [kinda like Rocky Balboa?]. Don't worry folks, the dream keeps on getting better!

In The After Math or Prelude to the Afternoon of a Financial Farce

The implosion of this hedgy was dealt with in an extremely secretive manner since crooked officials needed cover to remove and hide the gold short. The 'cover' they chose was that intervention was required to prevent systemic threats to the global financial system. This lame excuse almost worked! The Nobel Laureates and management of the hedgy were sworn to secrecy and would never speak the truth - that's for sure - being given the choice of their silence or lifetime jail terms or worse. But then anecdotal evidence surfaces that the bailout of STCM was really as a result of 'a massive gold short'. This gets pointed out on page 29 of a research report titled, Not Free [Cause Nothing Is] prepared by an Investment firm called Stott Securities.

The revelation of this gold short would expose a long practiced regime of rigging the world gold price by the private corporation that masquerades as a government central bank - hence something had to be done - but what?

Officialdom decides to employ their minions to deride the credibility of all who oppose them. They employ the media to tacitly assist in this regard. The corporate media is more than happy to oblige because, heck, they're running businesses too!

Tune in next week for the Conclusion of: The Anatomy of a Fictional Hedge Fund Collapse.