Hallelujah! We are saved! At last, the big banks have found a buyer for their garbage real estate securities they call MBS (Mortgage Backed Securities). Finally, their balance sheets can be cleaned up and our economy can be healed. It has been a while since real estate fell off a cliff. And, I think if we are all honest, we know that real estate has a long way to go before it hits the bottom. But in the meantime, who cares? The most important thing isn’t whether or not any of us have a place to live. It matters not whether we have food to eat or jobs from which we can eek out a living. It doesn’t matter whether our civil liberties have been abolished and we now have to board airplanes in the buff. (By the way, I said this was coming years ago in one of my newsletters in which I suggested we board plans completely naked and change the name of the government airline to NUDE – No Undue Delays En-route.) It doesn’t even matter if we no longer live in a free and capitalistic society. We all know it’s all gone. What matters most is our big banks have found a buyer for the garbage paper they generated by scamming the public through various fraudulent schemes and products. Thank heavens the banks are saved!!
The Federal Reserve met today (11/3/10) and made one of their most anticipated announcements. The wonderful and all-powerful Fed will commence quantitative easing 2 (QE2) and carry forward through June of 2011. During that time, the Fed will buy $600 billion in US Treasuries and $300 billion more in MBS paper from the banks. You can read my article that I posted in August of 2010 on why Treasury yields would all eventually yield zero but I don’t chew my cud twicst - Why Treasuries Will Eventually Yield Nothing. Sure Bernanke wants Treasury yields to all be zero very soon. How else can a bankrupt, intellectually vacant nation continue to borrow their way to prosperity? By carrying out this strategy, the Fed all but admits the economy is already in ruin. Who else is there to rescue us? This strategy has not worked where it has been tried and will ultimately bury us in debt and default. But, Bernanke is going to try it anyway.
It’s like the episode of the Roadrunner and the Coyote cartoon in which the Coyote rigged up a bunch of rocks in an arch under which the Roadrunner would run. At just the right moment, the Coyote would pull a rope that would be tied to a strategic rock and the whole pile would fall surely crushing the Roadrunner. At long last, the Coyote would eat the Roadrunner. However, when the time came, the Roadrunner ran under the arch of loose rocks, the Coyote pulled the rope, and only the single rock fell allowing the Roadrunner to escape the trap. In a moment of frustration, the Coyote stood under the arch of rocks trying to find the reason they did not fall. He climbed on top of them. He jumped up and down. He furiously climbed down and stood directly under the rocks still lodged in place and proceeded to poke at them with a stick. Now enraged, the Coyote poked harder and harder until a few rocks began falling. Realizing that his once anticipated avalanche was now under way, the Coyote pulled out a sign for the audience to read. It said, “What in heaven’s name am I doing?” By launching QE2, Ben Bernanke is now holding the same sign as the Coyote.
But, where will the Fed get this $900,000,000,000.00 to buy Treasuries and garbage from shill banks? Yep, out of thin air. The Fed is buying the treasure of the United States with confetti. In essence, he is handing the sign to us. We are the Coyote standing under the mass of rocks. Each dollar of asset purchase by the Fed in turn reduces the value of our assets by slowly destroying the currency. We, the taxpayer, are the ultimate buyer of the big banks garbage. Why their towers have yet to be turned to embers I don’t know. What does it take? Congratulations, fellow suckers. We will soon have some $2 trillion in extra debt for the purchase of bank garbage. What in heaven’s name are we doing, indeed!!!
Oh, did I mention that big banks rallied nicely today? The Fed would like to thank you for your sacrifice. They also would like to pass on that when it gets cold this winter and you find yourself unemployed, please don’t press on the glass of the banking towers for warmth. It creates fingerprints and, well, the FBI probably already has those on file. Anyway, there’s nothing like getting rid of a little garbage to stoke a rally! The BKX ETF was up almost 2% today! That’s all anyone cares about anyway. Only next time, maybe Bernanke will have a drawing and let the lucky winner pull the rope themselves.
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.
Copyright ©2010 BMF Investments, Inc.