THOUGHTS ON THE NEW RTC RESCUE PLAN

by Michael M. Pennington 

If you want warm and cozy thoughts on how the government saved Americans from a Great Depression, all you need to do is to listen to the media. But if you want a “what-really-happened” report from a goldbug’s perspective, then read on. The old Resolution Trust Corp that was created in 1990 to deal with the Savings & Loan crisis was resurrected once again. Originally, it cost every taxpayer about $4,000. Today’s new RTC will require $1,000,000,000,000 or more and was approved by a handful of politicians with little planning, no debate and no real understanding of the consequences. In all my years of experience, no one makes really good decisions when under short term duress. How soon we forget. The S&L crisis was followed by politicians calling for more regulation and oversight so such corruption will never happen again. Bad lending practices, cooked books etc. have happened all over again in less than twenty years now with the banking crisis. As the new RTC is established, all the “bad paper” in commercial banks, investment banks, insurance companies, mutual funds, money market funds and S&L companies once again will be transferred into the new “Trust”. Under the old RTC, there actually existed assets, which were the mortgages on the properties assumed. Today, the new RTC will own zero. The paper being assumed is worth zero. This is why the financial institutions were going under. Therefore, the real truth here is that the taxpayer is “gifting” all of this bad paper and they are gifting it to the very criminals responsible for the problem in the first place. Another way of saying this is that the American taxpayer was not asked, but was assigned by the government, the task of bailing out private corporations who were going bankrupt due to gross mismanagement and internal criminal activity. Since most of those responsible are friends of Greenspan, Paulson and many others, they were in fact “pardoned” for their criminal activity. We will hear in the days ahead about all the steps taken to assure this happens never again, but as long as the criminals are rewarded with abundant riches and then pardoned for their crimes, I suggest they will do it all over again. Why not?

CONSEQUENCES OF THE NEW RESCUE PLAN AND ITS AFFECT ON GOLD AND SILVER

While most people were celebrating the huge rally in stocks, mostly unnoticed was the significant increase in commodity prices.  Normally, when the stock market moves up, commodity prices move down, especially energy and gold/silver prices. Not today. Today’s reported potential infinite bailout of all and any financial losses is the largest increase in dollars outstanding since Noah’s Ark.It closely models actions undertaken during the production of currency liquidity as seen in the “Weimar Republic.”   More than $150 Billion was flooded into the system this past week by the FED to increase liquidity. Then $85 Billion went for the Lehman bailout and another $100 Billion is set aside for the AGI bailout. The new RTC Rescue will create at least $1 Trillion dollars and we’re nowhere near the end in sight yet. Can anyone spell  I N F L A T I O N. The only conclusion is that when the smoke clears and the advertised actions have been adopted, nothing more dollar negative than this has ever occurred in the US due to the potential expansion of T bills and therefore dollar supply explosion.  Silver and Gold are the only protection. After today, I see Gold increasing to over $2,000 oz and Silver increasing to over $100 per oz.2. Everyone on Wall Street admits to the government intervention in the stock market this week. This raises the question of how anyone can trust in the future the prices quoted on what used to be a free market.3. It was reported that home prices in the future will remain over market-clearing levels which will closely assimilate government price controls. This eventually will discourage new home buyers as price appreciation in the future will be hard to come by.4. For sure the Options and Futures exchanges will be dysfunctional for some time. Short sellers are required to balance positions.5. Knowing that any future bailout will wipeout common shareholders, the overall value of the stock will be lower to account for this additional risk.WASHINGTON MUTUALIn spite of everything, Washington Mutual has not been able to find a buyer. At least maybe now, customers will stop withdrawing their funds. Their black hole may be the deepest one out there yet. Perhaps they will end up putting the company for sale on Ebay!It will take awhile to digest the unbelievable occurrences of this week. Seven days ago, venerable US companies like Lehman Bros and Merrill Lynch were proud self-standing firms, AIG, who was the largest insurer in the USA, was not a ward of the state, and Money Market Funds were still trusted. One month ago, Freddie Mac and Fannie Mae were in operation and owned by most mutual funds and banks. Six months ago, Bear Stearns was still independent. That was then, Now is Now. It takes awhile to recognize that your country has been conquered. It’s a new world we are living in and every American needs to admit that our new bosses are not the same as our old bosses. 

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