Idaho's Weekly Journal of Local & National Commentary Week 2815


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by Free Market Duck

What is The Master Liquidity Enhancement Conduit?  Hint:  It’s not a plastic flex straw to a bottle of Ripple wine
(Oct 29, 2007)

Washington, DC – Shut up, gather round, and listen up, girl friends.  It’s Master Liquidity Enhancement Conduit time.  Yippee!

   So… what is the Master Liquidity Enhancement Conduit, or MLEC for short?  Sounds like a plastic flex straw to a bottle of Ripple wine.  But it’s not.

   The Master Liquidity Enhancement Conduit is a Super SIV Fund created by the U.S. Treasury, Federal Reserve, and the major banks such as Citibank that are losing billions and billions of dollars in the current subprime mortgage fiasco.  SIV stands for:  Structured Investment Vehicle.

   So… what exactly is a Structured Investment Vehicle?  Hint:  it’s not a Hummer for soccer moms.

   A Structured Investment Vehicle is a hedge fund or derivative or CDO (Collateralized Debt Obligation, ironically with no real collateral) or a group of bundled subprime mortgages sold as “bonds” to unsuspecting investors or, as we say here at Free Market Duck, an SIV is simply a piece of crap.  Why?  Because SIVs are non-collateralized paper that have no real market value.  They are not redeemable for any real commodity nor are they actively traded in any market.  The issuers of these worthless pieces of paper have devised clever methods by which to assign imaginary monetary values to these SIVs and call their method “mark to market.”

   One “mark to market” method is to create elaborate Newtonian mathematical formulas that pretend to tie the SIVs to other paper instruments, perform differential calculus plus throw in a dash of salt, and, hesto presto, proclaim the SIV’s value.  Another “mark to market” method is to create a basket of similar toilet paper, wave a magic wand, and then proclaim the SIV’s value.  These “mark to market” values are, of course, highly inflated when it’s time to foist them upon the “suckers” who buy them and then greatly deflated in value when it’s time to post losses for taxes.

   All in all, the banks and their subsidiary investment houses promulgating this financial chicanery are simply playing a game of “myth to market” – as billionaire Warren Buffet dubbed it -- since there is no real commodity-backed collateral for ANY of the SIVs, not even the homes of the borrowers of subprime mortgages since the mortgages were often part of a new sport called Xtremely Overvalued (such as 150% of then-market values that are now crumbling below 50% of that pretended value) in a collapsing housing market and the subprime borrowers – let’s guess why they’re called “subprime borrowers” -- were never intended to be able to make the mortgage payments, especially after their 6% Adjustable Rate Mortgages (ARMs) jumped to 12% Fixed rates within 3-5 years.

   You should understand that if the Federal Reserve had not first provided the paper dollars through hyperinflating the money supply, their member banks could not have financed the subprime mortgages.  And if the Fed Reserve member banks had not received the deficit dollars, they would not have created subsidiary corporations that could create even more new money called SIVs as hedge funds, derivatives, CDOs, and bundled bonds of subprime mortgages, which they get to legally keep off the parent bank's accounting books until they want to post profits to pay themselves big salaries and/or losses to cut their taxes.  Guess what?  This is exactly what Enron did and people went to jail for it.  Now, for the bankers, the U.S. Treasury and Fed Reserve want to reward their banking buddies with a legal bail out:  a Master Liquidity Enhancement Conduit.

   The MLEC is just an extension of the same clever subprime mortgage Ponzi scheme fueled by the Federal Reserve central bankers and exported to many of the G7 central banks in Britain, Canada, Japan, Germany, France, and Italy.  Hence these countries are also wallowing around in the U.S.’s subprime slime and their own National Wallpaper and resulting SIVs.  Note that all of these SIV funding methodologies are essentially variations on the theme of “monetizing the debt” – printing up more deficit, non-backed, paper money just like the Federal Reserve Note – and are no different than the IMF or World Bank printing up tons and tons of deficit paper or credit and forcing it down the throats of Third World Nations in order to receive the interest while knowing full well that the debtor nations can never repay the principal debt.  The central banks do not care about receiving the principal debt since it was made up out of thin air anyway – not backed by gold or any other commodity – and, in fact, the bankers often simply “forgive” the debtor nations their principal balances since the banks’ main purpose was to receive billions of dollars in interest.  Sound a lot like the subprime mortgage industry in the U.S.?  The bankers knew full well that subprime borrowers could never repay their mortgages.

   In effect, the Federal Reserve and their large member banks treated subprime U.S. citizen borrowers as an internal American third world nation through which they could hyperinflate the non-backed U.S. dollar, earn interest for five years or so, and then leave it to Congress to figure it out.  The member Federal Reserve banks’ legally-separated subsidiaries wrote off the losses after first paying themselves huge paychecks.  This is, of course, tantamount to banks using the U.S. and international housing markets as vehicles – as Junior Liquidity Enhancement Conduits -- to inject tons of non-backed paper money into the economy, earn the interest and then “forgive” the principal (write it off as a loss) later.  After all, the subprime mortgages were created out of thin air -- and greatly overvalued -- in the first place.  Meanwhile, the stupids in Congress whine about how best to help the poor subprime borrowers who claim they shouldn’t have to be responsible for the mortgages they were signing.

    Remember, the Federal Reserve member banks and investment houses initiated this mess by creating – as Enron did – special subsidiary corporations so that the parent banks did not have to legally carry their SIVs or other fancy-dancy investment paper on their accounting books – just like Enron didn’t.  In this clever manner, the banks, through their sub-corporations, created new commercial paper "off the parent bank's books" – another way to hyper-inflate the money supply — and got rich quick.  Note that 25% of Forbes 400 richest people (all billionaires) of 2007 were Wall Street investment bankers (see Forbes 400 magazine, 25th Anniversary Issue, October 2007, The Richest People in America).  Proof that the bankers knew they were gaming the system is evidenced by the fact that one new Forbes 400 billionaire raked in over $1 billion last year by "shorting" – yes, I said "shorting" -- subprime mortgage bonds.  If you’re busy shorting your profession’s own investment vehicles, you must know they are valued way way too high.  That is, you know your “mark to market” valuations are a joke.

   So now that the big banks, and their legally-separated investment subsidiaries who pushed the mess, have made their profits and want to write off their subprime losses, big banks such as Citibank called upon the U.S. Treasury’s Henry Paulson (formerly of Goldman Sachs) and the Federal Reserve (Fed Chief Ben Bernanke, formerly of Goldman Sachs) to help bail out the big banks (cut future losses) by creating yet another worthless SIV fund called: a Master Liquidity Enhancement Conduit.  Nothing like the central bank bailing out a member of the central bank by injecting even more "liquidity," i.e., more money.

   Who is behind this clever trick?  Big banks such as Citibank, J.P. Morgan, Bank of America, Wachovia, Germany’s Allianz SE, Britain’s HSBC Holdings PLC, and others are expected to participate.  The idea is to create a $100 billion Super SIV Fund to pay off future SIVs that may go belly up.  In other words, the major banks with the help of the U.S. government (the Treasury Department), and the Federal Reserve want to openly form an International Banking Monopoly, a consortium of central bankers, to hyperinflate MORE U.S. dollars to “solve” the very mess they initially created with hyperinflated U.S. dollars which they flushed through the subprime housing market conduit in the first place.

   Yes, folks.  After the inevitable consequences of (1) forcing America off the gold standard and (2) implementing a central bank with fractional reserve banking so the bankers can print up as much paper money as they want by monetizing the debt or injecting non-backed money through a subprime mortgage housing conduit, the U.S. government’s solution to the current subprime slime and pending recession is to create yet another “Super” SIV Fund called the Master Liquidity Enhancement Conduit.  That's like if your big pile of paper "Bull Shit" is worthless, and you pile it up higher and higher with the sanction of the government and rename it "Super Chicken Shit," it somehow obtains value.  If any other group of businesses such as IBM, Dell, HP, and Microsoft banded together in this type of monopoly -- especially with the U.S. Treasury and Federal Reserve -- to protect their "bad" business decisions, the government's Anti-Trust Monopoly Division of the Justice Department would be all over them like white on rice.  The U.S. Treasury and Wall Street's illegal collusion to create a Master Liquidity Enhancement Conduit is a financial time bomb just waiting to trigger an Enron-like implosion of the U.S. economy. – FM Duck

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