Silverado will live & prosper but Jim Willie thinks Citigroup & Bank of America are dead!

CITIGROUP & BANK OF AMERICA ARE DEAD

The charade continues. Both big banks are too important to the syndicates to fail. They hold up the highly fallacious fractured foundation to the US banking system, complete with credit derivative ramparts and illicit gold & silver suppression latticework. The bizarre props to Citigroup cannot stand any test of scrutiny. The reorganization into a commercial bank on one side and an investment bank on the other side is likely soon to result in a pair of bankruptcies. Without USGovt props, it would be dead. Without influence by Robert Rubin, it would be let go. Then we have the Citi naming rights up in air and its $400 million cost associated with the new New York Met Stadium. Bad timing!

In a maneuver possibly more to deflect public outrage, under public pressure to increase its lending, Citigroup says it will release $36.5 billion to issue mortgages, to make credit card loans, and to buy distressed assets from the credit markets. The decision arrives after the bank received $45 billion in capital from the USGovt in two installments late last year, not yet used in any visible manner. In highly dubious promises, CEO Vikram Pandit said, "Our responsibility is to put these funds to work quickly, prudently and transparently to increase available lending and liquidity. TARP capital will not be used for compensation and bonuses, dividend payments, lobbying, or government relations activities, or any activities related to market, advertising and corporate sponsorship." My belief is that funds are fungible, and Pandit gave a complete list of precisely what TARP funds have enabled and will continue to enable. After considering $51.2 billion worth of proposals within its business segments, the bank said it approved $36.5 billion in total. That includes $25.7 billion in residential mortgages, $5.8 billion in credit card lending, $2.5 billion in personal and business loans, $1.5 billion in corporate loans, and $1 billion in student loans.

The Federal bailout has not fixed Bank of America, according to several industry analysts like David Henry, Matthew Goldstein, and Roben Farzad. My viewpoint is that BOA was bailed out in order to shore up a potential explosion in credit derivatives, no more, no less. They have become a gigantic tank to house toxic assets owned previously by Merrill Lynch and Countrywide. The entire merger was hastily cobbled in a time of desperation. The USGovt $138 billion rescue package of Bank of America is already failing. The bailout has amounted to little more than temporary medicine to help BOA digest its acquisition of brokerage giant Merrill Lynch, amidst great controversy. They could not permit Merrill to fail, so a clumsy merger was arranged that puts the larger BOA at heightened risk of failure. Worse, the USGovt approach to rescuing the big banks has been called a Band-Aid, even camouflage, as opposed to a real solution. My view is that many mergers were ordered by the USFed and higher powers who remain hidden. BOA will need another $80 billion to cover imminent losses and to rebuild its capital, estimates Paul J. Miller Jr., an analyst at research firm FBR Capital Markets. The ultimate costs to keep BOA afloat will be an order of magnitude greater.

The USGovt, complete with Dept Treasury henchmen from Goldman Sachs, and compromised USCongress committee wonks, still has not addressed the underlying problem: Billions of dollars of toxic securities and loans languish on banks balance sheets. The big banks are flailing, reluctant to make sharp writedowns, urging accounting boards to exclude mark to market methods, hiding assets off the balance sheets, anything to buy another day. In the meantime, the USEconomy suffers from credit seizures and basic deprivation. Much of the funds authorized for rescues, bailouts, and nationalizations have been squandered, not by waste, but in fighting credit derivative fires. These activities are not publicized for many reasons. Attention is not wanted on the flimsy foundation to the US banks. Attention is not wanted to reveal the location of financial nuclear bombs of great potential destructive force. One informed contact to the Hat Trick Letter expects at least $30 trillion and perhaps over $50 trillion to blow up eventually in credit derivatives, with uncertain consequences. Much has been discussed of the Credit Default Swaps that insure asset backed bond like mortgages and corporates. However, given the extreme pressures from near 0% rates, the Interest Rate Swaps have begun to blow up. The JPMorgan machine has abused the leverage of IRSwaps to force long-term interest rates down for a decade. The Bond Vigilantes pulled a disappearing act over that decade. With fresh fires in the IRSwap Laboratories, the same Bond Vigilantes might reappear, as rumor has indicated in just the last couple weeks.

The Institutional Risk Analyst follows such developments like a well-trained hawk. He writes, "By failing to enforce margin limits on CDS leverage while investing new capital in Citigroup, Bank of America, and other large banks via the TARP, the Fed and Treasury are essentially trying to fill up a bucket with a hole in the bottom... To fix the systemic risk issues with the CDS market permanently and also provide a much need additional buttress to the bank rescue efforts by the Fed and Treasury, here is what we would suggest. First, the Fed and Treasury should prohibit the writing of new CDS on any financial institutions that is participating in the TARP. Instead, the Fed and Treasury should interpose themselves as counter-parties for these names, writing CDS for any and all counter-parties and capturing the revenue for the US Treasury." They make other suggestions regarding the legal configuration of CDS contracts themselves. They claim in summary, more like an urgent warning, that "Unless and until Chairman Bernanke and the other regulator are willing to tame the CDS tiger, there will be no success in bringing stability to the US banking system or foreign banking markets. And the longer Bernanke & Co refuse to say an emphatic NO to Goldman Sachs, JPMorganChase, and the other CDS dealers, the financial crisis affecting global banking institutions will continue to worsen." See the analyst summary (CLICK HERE).

MANY HAVE WRITTEN WHEN THE USTREASURY BOND LOSES ITS SAFE HAVEN STATUS, THAT GOLD WILL RISE IN TURN. FEW ARE FACTORING IN HOW THE CREDIT DERIVATIVE GRADUAL MELTDOWN WILL LIFT GOLD. IT IS OCCURRING IN HIDDEN FASHION, AND WILL SURELY AMPLIFY.