A MIDAS theme for many months is that what our big banks and...

A MIDAS theme for many months is that what our big banks and many other financial entities are facing is TOO BIG TO BAIL. As each week plays out, that scenario is looking more likely … and more and more investors are coming to that same conclusion.

Citi needs the government for more money. AIG needs another $60 billion. The share price of Bank of America is back in the weeds and their CEO Ken Lewis won’t give the info the NY Attorney General wants about the exorbitant Merrill Lynch bonuses paid right before their merger. One financial company after another is a mess.

Speaking of messes, some more input on that arena, including JPM, from a completely new source, WHICH confirms what has been brought your way for some time from contributors to this column. Here she goes (some copy has been edited out to protect the sources, a Café member and someone else who has BEEN THERE)…

As to JPM (J. P. Mortgage?), I spent five hours with a guy from a peer institution who told horror stories and wrote a summary for limited distribution (pasted below). His explanation of JPM is compelling and consistent with your own. I believe he was being fully truthful...

…How did we go so far off the tracks? He offered a few nuggets that seemed to explain the credit bubble. To reiterate, there really was no adult supervision. The guys putting these packages together certainly had some sense that they were crazy but nobody said stop. Government regulators being paid $100k couldn't tell guys making $20 million to take a hike. The senior managers loved the money flows. Cubicles--millions of cubicles--were staffed with engineers, chemists, physicists, and mathematicians from the best colleges in the country with no knowledge of the history of markets, fat tails, and past human follies, only how to financially engineer.

Several critical mutations occurred over time:

1. The average career age in the business is something like 7 years. A twenty year veteran is a very old man. The creators of these new-fangled products understood the toxicity at some level. As they retired, however, the next generation of twenty somethings had zero sense of risk. They were simply told which button to push and which lever to pull to make money. Nobody was driving the cab at all.

2. The money overwhelmed the system. It was like when the computers gained consciousness in Terminator. The money pushed all regulations aside. It bought deregulation, politicians, and anything else necessary to keep the money machine growing. Nobody dared yell stop because so damned much money was being made.

3. Greenspan became a believer--he lost consciousness....

So where are we now, and where are we heading? This is the bad part: I thought I was the pessimist. Sheesh. He was describing a system infected by flesh eating bacteria. Every day looks more dire than the previous day. The solutions being proposed look feeble, and the Fed looks both powerless and confused. The good bank/bad bank model that lit up the market yesterday was suggested to be flawed because the good banks would turn bad soon thereafter. When asked about seemingly stable local banks, he suggested they too would become infected.

I expressed shock that JPM not only didn't bring the system to its knees but was the last bank standing. That Jamie Dimon is quite a guy, eh? Apparently, I inferred from the answer (am nervous about explicitly attributing by quote) that JPM is on a don't ask/don't tell policy; the Fed simply cannot handle another mega-catastrophe while they wrestle with the fully-insolvent Citigroup and Bank of America. I suspect that JPM was told to keep everything looking peachy to buy time. (Maybe this was what caused the delayed reaction of Bank of America when it should have been gagging on its own vomit months ago.)

Jack Welch got very low grades for engineering his balance sheet, moving to shorter duration debt to make GE profitable. The car industry is DOA. Germany and the UK are battling for the bottom rung of the sovereign ladder (above Iceland hopefully.) Why has the NYC housing market held up?

Supposedly, it is only a matter of time: "New York may look like Detroit in ten years." When peers claimed housing would bottom after a 40% drop, he asked "Why will it stop there?" No answer. Last but not least, the failed German bond auction was deemed catastrophic: Who is gonna buy up our trillions? No answer.
In short, he sees no way out of this mess without serious pain. Despite a deflationary slant today, he sees inflation and spiking interest rates as the risk going forward.

***

When gold was at $960 this morning, I spoke with a colleague. I mentioned, based on past experience, that would be it as The Gold Cartel would cap the price for the rest of the day after the surge as word went out to various bullion banks to STOP the up move. He was more precise and more accurate, saying Friday afternoon was coming so gold had had it and that the PPT would show up for sure to get the market to recover if they could.

I went to the doctor’s for a routine check up not long that after. By then gold was $11 off its high of the day. When I returned, I saw the PM Fix came in at $952, but the current price was $930 (with a $928 low) … which meant The Gold Cartel went into their standard Plan B following the PM Fix (once the physical market pricing was over for the day) and BOMBED the price.

I am sick and tired of having to watch and report Plan B to you all, contacting the press about this obvious manipulation drill, and then them NEVER responding. Clearly, one of the main reasons the US is going through the present day horror show is our financial market press is not free, not fair, and not balanced. They are hypocrites of the highest order … make that lowest order. One financial market scandal after another is surfacing, but ONLY AFTER THE FACT, because they refuse to do their watchdog job, instead kowtowing to the big money and power in New York and Washington. Some day, somehow I (on behalf of GATA), will tell them what I really think.

This is important … for confirmation of HOW RIGHT GATA has been all this time, it is come to my attention from the best of informed sources that bullion dealers are quietly talking to each other about how many US marked gold bars are showing up. According to these reports (the dealers know the bar markings so this is NOT HERESAY), these bars began to flood into the their world during the height of the financial crisis last September and October. None of that new input will surprise anyone in the GATA camp.

*** PS … I have one of The Muppets on CNBC in the background yapping how government involvement is showing up in the US all over the place. Yeah, I guess everywhere but in the gold market.