Mad Money Machine

This show was delayed because events are moving too fast. I am trying to take the time to understand them myself. And as soon as I think I have one thing figured out, another thing pops up.     

What Happened?

Why is everyone saying we are in a financial crisis?
The government had for decades a broad policy of easy loans. The Fannie Mae and Freddie Mac acquired the loans from the banks that first lent the money to customers. Then FNM and FRE bundled the mortgages together and sold them as bonds to huge investors, such as China. House prices started to fall. Foreclosures by people who were upside down. Some mortgages didn’t pay off. Derivatives of mortgages were sometimes leveraged 30 to 1. Banks are failing. They don’t trust each other. They won’t lend each other money. 

What is Happening?

Is this a failure of the free market?
Hahaha, that’s a funny one. A free market is characterized by diversity. Independent agents trying different things, competing against each other to provide the best product or service. What we have is a failure of a government run monopoly of the world banking system through over regulation, over stimulation, perverse incentives, and adverse taxes. The end result has been a horribly disfigured evolution of a system that got over exposed to risk and is now paying for that over exposure.
But what is worse is that their fix is likely to impose new regulations or stimulus on the markets that continue to distort.
Why are you afraid of the bailout?
1. Mistrust of the government in general. These are the same folks that gave is the Patriot Act, FISA, Iraq war, and created the mess in the first place.
2. Look at loyalties: Henry Paulson just came sfrom Goldman Sachs. Which investment banks still exists? JP Morgan and Goldman. JP Morgan handles a lot of the Treasury market.
3. Where exactly is the $700 B going? CEO Pay?

Shorting: No short selling of financial stocks.

Power: Secretary of Treasury is above the law.

Gold: Why is the US Mint stopping the sale of American Eagles and Buffalos?

Bonds: WHy are bond funds going down?

Money Markets: First one to break the buck

What Bad Could happen?

• Companies are not able to get loans to do business. Already happening on the docks.
• 1000 banks could fail.
• Shipping companies could seize up. Store shelves could become less filled, starting with produce and fresh foods.
• China could stop buying US Assets. Then they could start selling.
• Countries could depeg from the dollar.

Can stocks drop another 25%? 
1. They have done so recently (2002-2003 for example)
2 P/E ratios are still high
3. Earnings are expected to go lower
4. Credit markets are tight

What Good Could happen?

• Can stocks rise 25% from here? Yes, look at January 1975.
• Congress could require an audit of the Federal Reserve Banking system and also of the gold reserves of the US Treasury.
• Congress could legalize competing currencies, specifically those denominated in gold.
• Congress could pass H. R. 2755 the Federal Reserve Board Abolition Act
• The public could be educated and awakened as to the fraud going on around them
• Liberty could thus be preserved

What To Do About It:
1. Read MMM and follow the links to Paul, Hebner, et.al.
2. Get some cash money out of your ATM machine. Credit cards should still work, but cash is king.
3. Keep your gas tanks full. And propane.
4. Buy some canned foods.
5. Do not pay off your mortgage
6. Extreme: trade some fiat dollars (Federal Reserve Notes) for gold and silver coins. Not collectible coins but junk coins.
7. 401(k) plans: make sure you match your risk capacity. Perhaps spread some money across bond index funds.
8. Non dollar investments. Diversify internationally
9. Bank accounts: make sure under FDIC limits.

Learning Earning: Should You Be Worried About Your Investments?

Music from music.podshow.com:
Runaway Train – Under Feather

Email me: feedback at Mad Money Machine dot com or call the Mad Money Machine voicemail line 206-734-4763