The Great Bamboozle: Selling Garbage For a Premium

By Steve St. Angelo, SRSrocco Report / GoldSeek.com

There is something very strange taking place in the financial markets presently.  Main Stream Media has actually convinced the majority of investors in the west that gold is now in a bear market while the real value is found investing in stocks and bonds.  It’s one thing to invest in equities or treasuries when they are undervalued, but to promote these assets when they have become the biggest bubble in history… is quite insane.

On the other hand, gold and silver prices have been severely beaten down and are now extremely undervalued.  This is actually right the time to be buying precious metals while exiting positions in stocks and bonds.  However, the exact opposite is taking place in the west as investors dump precious metal contracts and purchase overpriced equities.  Furthermore, hedge funds now hold the highest number of gold short positions ever.

So, the question remains, how on earth can gold and silver be selling off when the broader markets are in a massive bubble and the rest of the financial world is a compete mess?  There’s a simple answer.

Banks Selling Garbage for a Premium

Ever since the collapse of the Real Estate Market, Investment Banks and Government Sponsored Entities in 2008, the financial system has not grown stronger as the Fed and the Treasury would like the public to believe.  On the contrary, the U.S. banking system today is much weaker than ever and is behaving more like the walking dead — basically Zombie banks sucking life out of the system.

So, if these banks are waking zombies, how were some of them able to state record profits in the first quarter of 2013?  This was accomplished by the two following methods:

1) They list junk on the balance sheet as assets

2) They trade and sell garbage for a premium

That is exactly how dead banks can state record profits.  It doesn’t seem fair now does it?  The precious metal investors have seen their investments get crushed while the big banks are rolling in the dough.  When you turn on CNBC and watch some of the CEOs smile and discuss what a great recovery is taking place, it makes you feel a bit cheated, doesn’t it.  They seem like one big happy family over there on Wall Street, making nice profits and receiving huge bonuses.

So, what kind of garbage are the banks selling for a premium:

1) MBS – Mortgage Backed Securities

2) Exotic Derivatives of all types

3) U.S. Treasuries

This doesn’t include the entire list, but it represents the majority of the worthless assets the banks buy and sell for a premium.  While “Garbage” is a pretty blunt word to describe these financial products, it’s actually a perfect label to represent supposed assets in which the majority will never be repaid or settled.  I explain why many assets such as these above will become increasingly worthless in the article, The Greatest Fundamental Reason to Own Precious Metals.

To be able to sell this trash to the unsophisticated investors and the public, the work of three different players are necessary

Charlatans, Cut-Throats & Two-Bit Analysts

The world always had and will continue to have charlatans, cut-throats and two-bit analysts run amuck in the system.  If you are living in an advanced social and economic system, there will always be a certain percentage of these characters to entertain, amuse and defraud the public. Unfortunately, there’s no getting rid of them.

Anyhow, the Charlatan is best known for being in charge at the top slapping backs, talking out of both sides of his mouth, smoking cigars, smiling and shaking hands.  This is what the Charlatan does best.  According to Wikipedia:

Charlatan:   is a person practicing quackery or some similar confidence trick in order to obtain money, fame or other advantages via some form of pretense or deception.

If we realize that the zombie banks are really not what they appear to be, a Charlatan is actually the perfect fit to run this sort of high class establishment.  That being said, the Charlatan does not carry out the actual selling of the garbage to the investors or public.  Having spent many years cutting shady deals, greasing palms and moving up the corporate ladder, this activity is now beneath the Charlatan’s work description.  The peddling of banking waste falls into the purvey of the Cut-throat.

The Cut-Throat, is the kind of salesmen best described in Frank Partnoy’s book, “F.I.A.S.C.O, Blood in the Water on Wall Street”, by one of his fellow salesman (paraphrasing):

A month after the salesmen sold the insurance company $85 million in worthless PERLS (derivative product), the senior treasury official from the company called to find out the present value of the investment.  The salesman replied, “Your bonds had plummeted to a fraction of their value.”  The senior treasury official replied, “But how did we lose so much money on this bond?  It’s only been a few weeks.  My boss is going to kill me.”

The salesman had earned a giant commission on this PERLS trade, and he laughed uncontrollably when he shared this story with Partnoy.  He asked Partnoy if he knew what the term was called when salesmen did this to their clients.  Partnoy replied “I don’t know.”  He told Partnoy it’s called “Ripping their face off.”

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