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A Renewed Financial Crisis Looming

Sep 07, 2009

On March 16, 2009 China began a financial policy with a six-month transition to Sept. 15, when Chinese companies will be allowed by the government to default or renege on paying up on the toxic derivatives which they purchased mostly with Goldman Sachs, J.P. Morgan, and UBS.

It would probably be quite risky to own stock in those banks right now.

There are a number of articles written on this, particularly since Reuters broke the story on August 29. Most are quite technical, but the following article is one of the easier ones for the average person to understand.


"On September 1, 2009 Reuters said that the Banks, not the commodities would be at risk if China followed through.  Yes, legal battles would ensue should this happen and we can also expect to have Chinese political figures downplay the story in an effort to avert panic. However, if they can prove that these derivatives or the underlying asset was manipulated in a manner to profit the bank that issued the product then that may even do more damage than the default themselves.

"Perhaps the "buzz" on the floor is indeed true. Perhaps we are going to see action that could annihilate one of the biggest Wall Street firms ever.

"If there is one thing I have learned of late is that when the Chinese speak, we must listen. Their list of allies is ever growing and they are simply fed up of having to swallow the US garbage that has turned out to be toxic and dangerous to their highly controlled and coveted state owned enterprises." 

Already we are seeing a few ripples in the stock market as money is being pulled out and put into other things such as silver and gold. The price of silver closed around $16.25/oz and gold is close to $1000/oz once again. There are enough traders out there who are nervous, and in times of uncertainty, they generally turn to gold and silver--at least until things quiet down.

My interest in this, of course, is the fact that September 15-19 is one of our "watch dates." The 15th is 3-1/2 years from March 15, 2006. Secondly, Sept. 19 is Rosh Hoshana this year, the Hebrew New Year and the beginning of the year 2010. We have a whole series of watch dates coming up in the next six weeks, so we expect to see some fireworks.

A bit of advice. . . As long as you aren't sitting on the box of fireworks, you may be able to enjoy the heavenly display.

By the way, from what I have read, most of these "derivatives" are not listed on the balance sheets of these big banks. The article in the link above says of derivatives, "The monster was crafted to remain unregulated and off the balance sheets." Most, if not all, of them keep a second set of books with which they do their illegal trading. Perhaps this is why everyone knows about the derivatives problem but the news media has largely kept quiet about it. If these derivatives get too much attention, the banks would have to cough up their illegal bookkeeping system, and it would cost the banks far too much bribe money to keep their officials out of prison.

And when you realize that these same banksters from the big banks are the "experts" appointed to run the US Treasury, well, you get the picture. It is quite possible that we could soon be heading into Round Two of the banking crisis.

Just when we all thought the recession was ending.

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Category: Financial

Dr. Stephen Jones

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