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by Al Martin

Wall Street-SEC-Fed Fraud; The Libor Conspiracy

(4-21-08) Markets have continued to rally despite ongoing reports of operating losses and increasing asset write-downs. In fact activity in the markets reflects an Alice in Wonderland unreality that is unprecedented in history. It has reached a new level of absurdity even for traditional American Fantasy-Land Economics, which approaches the “Neronomics” (or necronomics as in the economics of death) in the last days of the Roman Empire.

      Even though the Roman Emperor Nero (Tiberius Claudius Nero Germanicus) knew the collapse of the Roman treasury was at hand, he issued a decree and told the Roman Imperial State Treasury that henceforth all losses would be counted for bookkeeping purposes as profits and all profits would be counted as losses. And indeed before the Roman Empire collapsed, the State Treasury acted as if it was swimming in peaches and cream. Their problem was that they didn’t have a fiat currency invented by then. People actually demanded gold and silver, and as it started to run out, the only way to make it appear that there was more left was to lie. The lies became quite apparent quite quickly and then it was the end. Nero fiddled as the gold ran out.

      Last week markets rallied despite billions of dollars of losses posted by Citibank, Merrill Lynch, PNC Financial, etc. This included the top 20 banking giants of the United States. Meanwhile the Bullish Financial Media Shills claimed that these companies posted huge losses, just as analyst- shills at the banks say that we’ve reached the bottom. But the Bullish Shills say that every quarter.

      The spin on Bloomberg, CNBC etc. by the shills is that every quarter that the investment houses, commercial banks, etc. report another $15 billion in asset write downs, or another multibillion dollar operating loss, or another issue of preferred stock that will further dilute existing shareholder equity, or yet another credit downgrade or negative credit listing, or a decline to a negative watch listing by one or more credit agencies, you will hear this term from the financial media that this was a “kitchen sink quarter,” meaning that the banks threw in everything -- all the losses they had --because they want to clean their books and show all the losses.

      That is what the shills said in the fourth quarter of 2007. Now what we are seeing in Q1-08 and they said it again that -- Yes, it is a kitchen sink quarter, but this time they threw in all the faucets as well.

      There is no such thing as a “kitchen-sink quarter.” The shills will try to make the unwashed believe that there is going to be some magic point that is reached, where the banks have taken all of the losses, including the subprime, high-yield, CDOs, CMOs, etc. But it doesn’t work that way, because this is paper, which has a market value that is continuously declining.

      People have asked me -- So why is the market rallying? Is this the dumb money that keeps getting poured into it?

      What has rallied the markets really has been an enormous amount of short-covering that has occurred in the last four weeks, particularly in the financial stocks.

      Professional traders got too heavily short in financials on the idea that the financials would practice some sound bookkeeping, and in fact would start to frontload loss reporting. That hasn’t happened. And here is the great scam.

      This is how the Fed is turning a blind eye and keeping everything alive. The Fed, instead of pushing the street to write down bad debt and to write down assets to what they are really worth, re simply allowing them to write-down assets as their remaining capital base allows.

      So what is that point? Many of the firms have to maintain (or do maintain) a 7.5% net capital reserve ratio. Without that 7.5%, they can’t stay in business. You will notice last week that Citigroup reported its net capital reserve ratio had fallen to 7.7%. All of the firms reporting have lied.

      All of the banks, from Citigroup, Bank of America, Merrill, Goldman Sachs, etc., have all done de facto secondary offerings to convertible preferred share rights, which have further diluted existing shareholder equity, by saying that they haven’t raised any money before, or that they won’t need to raise any more money in the future.

      What we saw last week is that all of that is a lie. Merrill Lynch announced that they will have to raise more capital. Citigroup announced that they will have to raise more capital, Lehman Brothers as well, etc. etc. etc.

      What the banks are doing in order not to tear the markets apart is gradually dissipating what capital they have left. That is why their reserve capital ratios are falling.

      At the same time they are all entering into secondary preferred share offerings, paying anywhere from a 7 to 11% coupon for the money, which is 2 to 3 times what they are actually going to be earning on the money. That in itself should be a clue to the unwashed as to how desperate the situation is. When all the banks, including Citigroup and Merrill Lynch, act as if saying “Well, we are raising money, but we don’t need it,” They all issue statements to that effect.

      Well, if you don’t need the money then why are you prepared to pay, let’s say, an 8% coupon on money you are actually going to be earning 3% on?

      Last week we saw a very unusual statement, in which the Bank of England directly accused the Feds of turning a blind eye to the so-called Libor Conspiracy, which you are hearing more and more about now.

      The Bank of England and the Fed were both alleging the same thing but were turning a blind eye to it. The primary dealers who are members of the Libor (London Interbank Overnight Rate-setting System) have been colluding (or conspiring) to artificially keep Libor rates low, so that no real mending is taking place at these rates, and they are just being artificially set so that all of the street firms who take lending at Libor rates are taking the money that they are borrowing from the Fed via the new TAF (Term Auction Facility) system and marking it up above Libor and lending it out.

      What the Fed and even the Bank of England and the ECB know is that these liquidity injections are not being used by street firms for what the central banks intended them to do.

      It is the Bank of England that is squawking about it mostly because Libor is a British deal, and they are going to get the biggest black-eye out of a Libor conspiracy.

      We have already seen the effects of it last week with the Libor rates getting jerked up. Or as the Wall Street Journal spun this story on April 19, 2008, “The London interbank offered rate jumped for the second straight day Friday, two days after the British Bankers' Association, which oversees the calculation of the interest rate, said it was investigating the borrowing rates that banks had been providing to it. The BBA started its review amid growing concerns among bankers that their rivals weren't reporting their true high borrowing costs, for fear of signaling to the market they were desperate for cash.”

      Meanwhile the unwashed are sending thousands of emails to CNBC and Bloomberg wanting to know if the demand for money is falling, which TAF auction results would seem to suggest.

      So why is the short-term Libor rate rising if the demand for money is falling? The reason the Libor rate is rising is because everyone has been caught with their hands in the cookie jar in a conspiracy to fix rates. They are now yanking those rates or letting those rates float up to reflect reality, and that is where real demand for money is.

      Everybody got caught with their hands in the cookie jar, but you don’t see anyone denying that there is a Libor Conspiracy.

      Meanwhile, since the dollar has dropped so precipitously, the dollar could become like the New Yen, or in essence, we are seeing a new Dollar Carry Trade. In other words, traders are taking dollars and converting them to higher yield currencies. There was some reversal of that last week and that is why the Treasury bonds got hit so hard.

      In other words, Treasury bonds got hit hard last week on this idea that has crept into the market psyche that the Fed has already ended the current rate-cutting cycle, and that Fed funds will not be reduced any further.

      Of course it is not true. The Fed has given no indication of that whatsoever. People are not necessarily presuming that, but it is a good argument for the Bullish Shills. The reason why the Fed has ended the rate-cutting cycle (even though the Fed has made no pronouncements that would backup that idea) is this idea that has crept into the market because bullish equity-market shills are pushing this idea because it would obviously be bullish for equities.

      So why is the market rallying? If you are a 300-share Joe Sixpack Investor, which is what 90% of the market really is in the last analysis, and you watch CNBC or Bloomberg off and on during the day, you would believe that everything is rosy and the peaches and cream trucks have arrived and are doling this sweet goodness to everyone who is an investor.

      However the reality is that there is no real reflection of reality in the financial news media. Look at the enormous popularity of David “Professor” Faber’s new Mr. Rogers Wannabe Act like he did with Citigroup.

      Citigroup stock rallied $2.00, and you should have heard this guy Friday. His new line sounds like, “Now, boys and girls, if your stock reports a greater than expected operating loss, it rallies. And if your stock reports a greater operating loss plus a $15 billion dollar write-down, it rallies some more!”

      “And if your stock reports a greater operating loss, a $15 billion dollar write-down and announces yet another $7 billion dollar preferred offering that will further dilute shareholder equity, your stock is off to the moon!”

      This is the Alice in Wonderland market analysis you’ll hear and see on the financial media.

      Behind the scenes, the real situation is that all of the large “street” firms (not only those in the United States, but all of the street firms worldwide like RBS and Barclay’s in London and Scotland) are stressed more than ever. RBS, for example, announced that it is going to have to raise another $20 billion on top of selling assets.

      In other words, this is a global financial stress cum debacle since “street” firms include not just the big U.S. investment houses and commercial banks, but also the big Japanese firms like Mizuho Bank, which is the largest in Japan, RBS (Royal Bank of Scotland) which is the largest investment bank in Britain, UBS (Union Bank of Switzerland) and just about every week, you hear about more multi-billion dollar write-offs.

      There is a global drumbeat of more and more losses, as the planet’s large commercial banks and banking operations are under severe stress. There is literally a sublime panic among global central bankers to conspire to try to hold it all together by allowing them to write down assets only as their capital basis can accommodate, this in concert with raising more diluted equity.

      By the way, 7.5% requirement is only for U.S. street firms. Most other street firms are required by their underlying governments to maintain, in Britain for instance, a 10% capital ratio, and in Japan they have to maintain a 12% capital ratio.

      The reason why the big commercial banks and even big regionals, as we began to see last week, are teetering on the brink is because the Bush/ Cheney Regime has continuously reduced reserve ratio

      requirements in order to allow the banks to continually increase their loan leverage in their desperation and in their effort to maintain consumption.

      The situation behind the scenes then is, frankly, perilous. People must understand that the world’s central banks and the world’s regulating authorities, particularly in the United States, the OCC, Office of the Control of the Currency, the FDIC, etc. have effectively abandoned regulation law in their desperation to prevent it all from falling apart. They are ignoring the law. They are turning a blind eye to rate setting conspiracies.

      The Fed has made a few weak public comments complaining that the banks aren’t using this TAF money to liquefy their illiquid book, but simply to re-lend in desperation to provide some ongoing revenue, where all the banks’ other revenue streams are frankly collapsing.

      This Global Central Bank Conspiracy that is being proffered to prevent absolute economic collapse is causing equity markets, particularly U.S. equity markets, which have been propelled higher that have the rest of the world’s markets and literally are trading in a world of their own, to enter some sort of unprecedented fantasy land. The S&P; 500 P/E ratio on Friday April 18, 2021 reached 22.

      As we have mentioned before, we are now entering the ninth post-war recession. At the onset of the previous eight post-war recessions, the median price/earning ratio of the S&P; 500 was 13.4.

      Today we are 62% above the historical average in the P/E, price to earnings ratio. At the same time we have never before have we had a price/earnings ratio above 20 in the S&P; entering a recession, wherein corporate profits are falling.

      The two opportunities that continue to be created in this volatile market for those willing to take some heat to sit on a position, are 1) to short equities, particularly in the S&P; 500s, and 2) after last week’s drubbing, to buy U.S. bonds, particularly the long 10 and 30-year bonds at very cheap prices.

    * AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," ( provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" ( will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.


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