Revealed: Day the banks were just three hours from collapse and COMEX Silver Default

I just read an interesting article about how the collapse is very, very close to happening. It is extremely important to start moving out of U.S. dollars now and into REAL assets like gold and silver.

Reported by the Daily Mail on January 24th, 2009:

Revealed: Day the banks were just three hours from collapse

By Glen Owen
Last updated at 11:21 PM on 24th January 2009

Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse.

The Mail on Sunday has been told that the Treasury was preparing for the banks to shut their doors to all customers, terminate electronic transfers and even block hole-in-the-wall cash withdrawals.

Only frantic behind-the-scenes efforts averted financial meltdown.

If the moves had failed, Mr Brown would have been forced to announce that the Government was nationalising the entire financial system and guaranteeing all deposits.

But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure.

The build-up to 'Black Friday' started on Monday, October 6, when the FTSE 100 dropped by nearly eight per cent as bad news on the economy started to multiply.

The following day, Chancellor Alistair Darling began all-night talks ahead of an announcement on the Wednesday that billions of pounds of taxpayers' money would be used to pour liquidity into the system.

But shares continued to plummet, turning into a rout on the Friday when the FTSE crashed by ten per cent within minutes of opening.

Both Royal Bank of Scotland and HBOS were nearing complete collapse - but Lord Myners, who built up his fortune during a long career in the City, said the problems ran far wider.

'There were two or three hours when things felt very bad, nervous and fragile,' he said. 'Major depositors were trying to withdraw - and willing to pay penalties for early withdrawal - from a number of large banks.'

The threat to the system was so severe that the Bank of England was forced to contact RBS's creditors in New York and Tokyo to persuade them not to withdraw their funds, but it is not known which other banks faced a run on their reserves.

'We faced the very real problem of how banks could stop depositors from withdrawing their money,' a Treasury source said yesterday.

'The banks themselves were selling their shareholdings, accelerating the stock-market falls, and preparing to shut up shop. Mortgages would have been sold on and savers would have been spooked, to put it mildly. It would have been chaos.'

After a weekend of crisis talks, which concluded at dawn on the Monday, it was announced that Lloyds TSB was taking over HBOS, supported by £17billion of taxpayers' money, and RBS would receive an injection of £20billion - prompting the resignation of RBS's infamous chief executive, Sir Fred 'the shred' Goodwin. Share prices at last started a small rally.

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said last night that it was 'highly irresponsible' for Lord Myners to reveal the scale of the problems because it could serve to further wreck already fragile levels of confidence.

'We are not out of the woods yet,' she said. 'I fear for Barclays, after the fall in its share price, and Lloyds has been damaged by the HBOS takeover.'

She added: 'If it was panning out in that way, then the Government would have had no choice but to step in and nationalise the entire financial system.'

Angela Knight, chief executive of the British Bankers Association, said: 'The issues related only to HBOS and RBS. To imply that all the banks would have gone under is wrong. It is complicated.'

Lord Myners also said that bank executives had been 'grossly over-rewarded' during the 'golden days' of big bonuses. 'They are people who have no sense of the broader society around them,' he said. 'There is quite a lot of annoyance and much of that is justified.'

I just found a great video on YouTube by stellaconcepts about COMEX Silently defaulting on a silver bullion delivery. I've posted the video below.

Jim Rogers on the Asian Financial Forum 1/21/2009

Part 1


Part 2

NY Times: Firms That Got Bailout Money Keep Lobbying

http://www.nytimes.com/2009/01/24/business/24lobby.html?partner=permalink&exprod=permalink

Where's the Deflation now?

On December 31, 2008 the Dow Jones Industrial Average was 8,776.39.
Today the Dow Jones Industrial Average hit 7,990.67.

That's a drop of 8.95%!

On December 31, 2008 the gold price was 869.75.
On January 23, 2009 the gold price is 895.80.

That's an increase of 3%!

People aren't dumb and are buying into gold now as a safe haven. Our whole financial system and economy is collapsing. Banks are giving zero percent interest on savings accounts. That's why it is making sense to people to buy gold.

The DJIA started the year at 10.09 ounces of gold and now it is worth only 8.92 ounces of gold. In 1932, three years after the infamous Wall Street Crash and the start of the Great Depression, it only took two ounces of gold to buy the DJIA. We're getting close to repeating history and maybe the 2:1 Gold:Dow ratio will be revisited again.

Bank Of America Bailout and Weaker Dollar

Treasury, Federal Reserve, and the FDIC Provide Assistance to Bank of America

The U.S. government entered into an agreement today with Bank of America to provide a package of guarantees, liquidity access, and capital as part of its commitment to support financial market stability.

Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Bank of America from the Troubled Asset Relief Program in exchange for preferred stock with an 8 percent dividend to the Treasury. Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.

Treasury exercised this funding authority under the Emergency Economic Stabilization Act's Troubled Asset Relief Program (TARP). The investment was made under the Targeted Investment Program. The objective of this program is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings, and retirement security.

Separately, the FDIC board announced that it will soon propose rule changes to its Temporary Liquidity Guarantee Program to extend the maturity of the guarantee from three to up to 10 years where the debt is supported by collateral and the issuance supports new consumer lending.

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy. As was stated in November when the first transaction under the Targeted Investment Program was announced, the U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks.

Bank Of America Bailout Terms

The dollar also fell today, as people are starting to realize that as our spend-happy government is out of control. It is time to invest in real assets TODAY before it's too late!

Do the banks really need more money?

How much money is it going to take to realize that subsidizing our banking system isn't going to work? The government needs to step back and let these banks eat their own disease. Even though it may be painful in the short run, a stronger banking system with greater corporate responsibility will follow. There is talk going around that the United States government has to spend even more money on our banking system. With the Democratic administration about to be inaugurated on the 20th, there is no doubt there will be even looser policies and bailing out anyone who asks for it. There is already a rescue package for the automakers once the Democrats take office!

2009 is turning out to be a bad month for the stock market. Already the DJIA is down 9% for the year! Commodities have also fallen, with oil falling below $35 a barrel on "excessive inventory". It only makes sense to buy the commodities now, because once things start turning around, international nations such as China and India will be using the oil and base materials to rebuild their infrastructure. Furthermore, oil is way below the break-even point for many oil producing nations. The Canadian oil sands require a price of above $80 a barrel to be profitable. Precious metals have also taken a beating, but when the hyperinflationary effects of reckless government spending kick in the later months (it usually takes around 6 months for government intervention to be felt within the economy). In the coming months, we'll see the effects of TARP (enacted in October 08 for $700 billion) and the Citigroup Bailout (Occured in November 08 for $306 billion). And let's not forget the most important culprit: The Federal Reserve!

Here are some decisions from our good old Fed directly from their website:

January 12, 2009 Federal Reserve will offer $150 billion in 28-day credit through its Term Auction Facility today

December 29, 2008 Federal Reserve will offer $150 billion in 83-day credit through its Term Auction Facility today

December 15, 2008

Federal Reserve will offer $150 billion in 28-day credit through its Term Auction Facility today

December 1, 2008

Federal Reserve will offer $150 billion in 84-day credit through its Term Auction Facility today

November 24, 2008

Federal Reserve will offer $150 billion in 13-day credit through its Term Auction Facility today

November 10, 2008

Federal Reserve will offer $150 billion in 17-day credit through its Term Auction Facility today

November 3, 2008

Federal Reserve will offer $150 billion in 84-day credit through its Term Auction Facility today

October 20, 2008

Federal Reserve will offer $150 billion in 28-day credit through its Term Auction Facility today

October 6, 2008

Federal Reserve will offer $150 billion in 85-day credit through its Term Auction Facility today

Sept. 29 2008 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

September 16, 2008

Federal Reserve Board, with full support of the Treasury Department, authorizes the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG

September 2008: Federal takeover of Freddie Mac and Fannie Mae. $5.2 trillion in mortgages held by Freddie Mac and Fannie Mae.

Citigroup to sell Smith Barney to Morgan Stanley?

From an AP article today:

Citi shares fall despite talks with Morgan Stanley
Monday January 12, 5:16 pm ET
By Madlen Read, AP Business Writer Citigroup shares fall on capital worries; talks continue with Morgan Stanley on brokerage deal NEW YORK (AP) -- Citigroup Inc.'s stock sank Monday to its lowest levels since November as investors wondered how much more cash the troubled bank will need.

Citigroup Inc., in an effort to raise capital, is hammering out a deal to sell the bulk of its retail brokerage to Morgan Stanley. The joint venture -- expected to be announced later this week -- would lead to an after-tax gain for Citigroup of about $5 to $6 billion, a person close to the negotiations said Monday. The person spoke on condition of anonymity because he was not authorized to discuss the ongoing talks.

But maintaining cash levels that are high enough to make up for upcoming loan losses remains a big challenge for Citigroup.

"While we believe this deal will provide some near-term capital relief, more likely will be needed," Meredith Whitney, a financial analyst at Oppenheimer & Co., wrote in a note Monday.

Citigroup stock fell $1.15, or 17 percent, to $5.60 Monday -- making it by far the steepest decliner among the 30 stocks that make up the Dow Jones industrial average -- even though many industry analysts were positive about the deal. Lauren Smith at Keefe, Bruyette & Woods said in a note that the potential joint venture "seems like a win-win to us."

Morgan Stanley shares fell 27 cents to $18.79 after rising in earlier trading. Most bank stocks tumbled Monday after President-elect Barack Obama said he plans to fundamentally change the way the second half of the government's $700 billion financial bailout fund is spent. He said he will target housing and small businesses.

Citigroup lost more than $20 billion between October 2007 and October 2008, and is expected to post another deficit for the final quarter of last year when it reports those results next week. The government has already loaned Citigroup $45 billion, and agreed to absorb the losses on a huge pool of mortgages and other assets.

"We've seen various indications that Citibank's problems run deep. The fact that the government came in and backstopped some of their assets was one signal of that. Citi's selling the majority share of Smith Barney is probably another such signal," said Jim Wilcox, a professor at the Haas School of Business at the University of California, Berkeley.

Smith Barney for years has been regarded as one of Citigroup's few strong businesses.

Citigroup is not alone in its problems, but where it differs from its peers -- JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. -- is the degree to which it bet on a strong housing market and ample liquidity in the credit markets. Even in July 2007, several months into the housing downturn, Citigroup's then-CEO Charles Prince told the Financial Times: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

Morgan Stanley -- which got $10 billion in government financing -- is likely to pay Citigroup between $2 billion and $3 billion in cash for a 51 percent stake in Citi's brokerage, Smith Barney, the person close to the talks said. In total, after accounting for the revaluation of Smith Barney, Citigroup would get a pre-tax gain of $10 billion, or $5 billion to $6 billion after taxes, the person said.

Morgan Stanley would then have the option to buy the rest of Smith Barney over the next three to five years, the person said. The joint venture between Smith Barney and Morgan Stanley's retail brokerage, the former Dean Witter, would employ a team of more than 20,000 and rival Bank of America Corp.'s Merrill Lynch in size.

A fruitful merger could take a while, though.

"We expect that it will take three years to successfully merge these operations together, and in the meantime the retail business will face a severe downturn," wrote Brad Hintz, senior analyst at Bernstein Research.

Morgan Stanley did post a $2.37 billion loss during the quarter ended Nov. 30. But its woes have not been as huge as Citi's.

Banking regulators are now pushing Citi to replace its chairman, Sir Win Bischoff, in an effort to restore confidence in the New York-based bank after it needed billions of dollars in government support, according to a New York Times report. The Times and The Wall Street Journal said Monday that Richard Parsons, former CEO of Time Warner Inc. and a Citi director, is likely to succeed Bischoff.

Citi could report an operating loss as large as $10 billion during the fourth quarter, according to the report in the Journal. About $4 billion of the loss would be offset though by a gain from the bank's sale of its German retail banking operations in a deal that closed late last year, the newspaper said.

Citigroup declined to comment Monday on the newspaper reports. The Federal Reserve also declined to comment on the government's reported involvement in replacing Bischoff.

Given the amount of taxpayer money that Citigroup has gotten, such intervention in the bank's operations would not be surprising.

"Banking regulators always have a lot of influence ... and hope financial institutions have the right people in the right jobs at the right time. When a banking organization comes hat in hand to the government, the government's hand is strengthened," Wilcox said.

Analysts polled by Thomson Reuters, on average, forecast a loss of $1.14 per share for the fourth quarter. Based on Citi's outstanding share count as of Sept. 30, that would translate to a loss of more than $6 billion. Analysts do not always include special one-time gains in their estimates.

AP Business Writers Stephen Bernard and Sara Lepro in New York and AP Economics Writer Jeannine Aversa in Washington contributed to this report.

What this shows is that Citigroup is desperate. This only proves the fact that the financial giant has no more money left and is willing to do anything- including selling Smith Barney to raise cash and get themselves out of the hole they've dug themselves in.

The Job Market

Everything looks pretty grim out there. The jobless rate just hit 7.2% and could go much higher.

Our service sector is shrinking rapidly because there were too many jobs. Companies are finally getting to the realization that many of them are not needed and can afford to trim necessary positions.

However, I have read the books The World is Flat by Thomas Friedman and The Little Book of Bull Moves in Bear Markets by Peter D. Schiff and they give very sound advice. Thomas Friedman recommends that people should become "Untouchables" and become "resilient in the field that they work in. Peter Schiff predicts in his book that the service economy will shrink and recommends several job sectors that will hold up well during the financial crisis or emerge from it stronger. Services such as banking, accounting, teaching, and law can be outsourced to India and other countries. However, labor related jobs such as agriculture, baking, hair salons, fishing, and construction should hold up well because those jobs are hard to replace.

If you are fear for or already lost your job, then you should seriously consider learning a trade in case to back you up. That way you can be an "untouchable" as Friedman recommends in his book.

Jim Rogers Outlook for 2009 and How to get into Agriculture

The video below is a 20 minute interview about Jim Rogers's outlook for 2009.



If you're interested in investing in agriculture, I would recommend that you look into these ETFs/ETNs.

• DBA - PowerShares DB Agriculture ETF
  
• RJA - ELEMENTS Linked to the Rogers International Commodity Index – Agriculture ETN
• JJA - iPATH Dow Jones AIG-Agriculture ETF

Of the three mentioned, I would recommend RJA because it is the most diverse and tracks 20 agricultural commodities.

Peter Schiff on our History and outlook for 2009