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The Market of Make Believe

Jan. 03, 2011 5:49 PM ETXLF, KRE
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
When I hear the talking heads in the media speak about how the banks have paid back the TARP money or that the U.S. government made a good investment I sometimes choke on my glass of water that I drink. Does anyone realize that the large major banks have been borrowing money at zero percent since December 2008 from the Federal Reserve Bank? That is over two years of free money that the banks have used to pay back TARP, or the so called troubled asset relief program. In other words, the U.S. taxpayer that lent the money to the banks during the TARP bailout program will actually never really get paid back. The U.S. taxpayer is still supporting Fannie Mae and Freddie Mac. These are the two government backed institutions that are buying the toxic mortgage assets from the major banks. It seems that all of these large financial institutions that are too big to fail are getting paid off with the same dollar, except for the U.S. taxpayer who is actually paying the bill.

On top of the fact that the large major banks are borrowing or taking the free money from the central banks, they are also buying U.S. Treasuries, stocks, and other investments. They also operate a credit card business that charges an average of 17.0 percent interest to their customers. These banks do not have to write down their toxic assets which range in the trillions of dollars. That is correct, it is in the trillions with a 'T'. How are these banks ever going to fix there balance sheets? Well, they really don't have to fix their balance sheets with the accounting rules that are in place. This is worst than the accounting that was used by Enron, Global Crossing, or any of the other corrupt stocks on the early 2000's that went belly up after using fraudulent accounting. The only difference this time between the banks balance sheet and Enron's balance sheet is that the bank's balance sheet is actually legal. The rules have been changed in the middle of the game by the powers that be so that they can operate and remain in business. Meanwhile, small regional banks go out of business every week creating less competition for the big boys who manipulate the whole game. What a racket this is.

How can such a system exist in a so called capitalist society? What ever happened to supply and demand as the driver of prices? These days the Federal Reserve Bank buys an average of $8 billion in U.S. Treasuries everyday via their POMO (permanent open market operation). This creates cash reserves and inflates the markets, hence our stock market rally. Oh well, we shall ride the wave while it lasts, this really is the market of make believe.

Nicholas Santiago
Chief Market Strategist

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