Category Archive 'Financial Terrorism'

07 Mar 2011

Was the Panic of 2008 the Result of Financial Terrorism?

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Curt from Flopping Aces forwarded a lengthy posting by MataHarley which raises the question of whether the near financial collapse of 2008 was deliberately engineered, and whether a further stage of the same anti-American offensive remains to be completed.

MH summarizes and discusses the hypotheses advanced in a highly provocative paper on Economic Warfare written in 2009 by Kevin D. Freeman via the DOD contracting system for the Department of Defense Irregular Warfare Support Program (IWSP).

It is undeniable that if the collapse of the financial system was deliberately engineered by calculated attacks aimed at perceived vulnerabilities, those attacks were tremendously successful and resulted in enormous economic losses.

The hypothesis discussed in this paper suggests the very real possibility that financial terrorism may have cost the global economy as much as $50 trillion, roughly 1000 times greater than Bernie Madoff’s fund and equal to nearly four years of American productive output.

[A]n estimated $50 trillion of global wealth virtually vanished. At least $15 trillion of that loss was experienced by Americans, as measured by the combined declines in the value of stocks, bonds, real estate, and other assets.

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The Freeman paper visualizes a three-stage assault on the US economy, and the American position of military, political, and economic leadership, only two parts of which are so far completed.

The hypothesis under consideration is that a three-phased attack is underway with two of those phases completed to date.

The first phase was a speculative run-up in oil prices that generated as much as $2 trillion of excess wealth for oil-producing nations, filling the coffers of Sovereign Wealth Funds, especially those that follow Shariah Compliant Finance. This phase appears to have begun in 2007 and lasted through June 2008.

The rapid run-up in oil prices made the value of OPEC oil in the ground roughly$137 trillion (based on $125/barrel oil) virtually equal to the value of all other world financial assets, including every share of stock, every bond, every private
company, all government and corporate debt, and the entire world‘s bank deposits. That means that the proven OPEC reserves were valued at almost three times the total market capitalization of every company on the planet traded in all 27 global stock markets.

The second phase appears to have begun in 2008 with a series of bear raids targeting U.S. financial services firms that appeared to be systemically significant.

An initial bear raid against Bear Stearns was successful in forcing the firm to near bankruptcy. It was acquired by JP Morgan Chase and the systemic risk was averted briefly. Similar bear raids were conducted against various other firms during the summer, each ending in an acquisition. The attacks continued until the outright failure of Lehman Brothers in mid-September. This created a system-wide crisis, caused the collapse of the credit markets, and nearly collapsed the global financial system. The bear raids were perpetrated by naked short selling and manipulation of credit default swaps, both of which were virtually unregulated. The short selling was actually enhanced by recent regulatory changes including rescission of the uptick
rule and loopholes such as ―the Madoff exemption.

While substantial, unusual trading activity can be identified, the source of the bear raids has not been traceable to date due to serious transparency gaps for hedge funds, trading pools, sponsored access, and sovereign wealth funds. What can be demonstrated, however, is that two relatively small broker dealers emerged virtually overnight to trade ―trillions of dollars worth of U.S. blue chip companies. They are the number one traders in all financial companies that collapsed or are now financially supported by the U.S. government. Trading by the firms has grown exponentially while the markets have lost trillions of dollars in value.

The risk of a Phase Three has quickly emerged, suggesting a potential direct economic attack on the U.S. Treasury and U.S. dollar.

Such an event has already been discussed by finance ministers in major emerging market nations such as China and Russia as well as Iran and the Arab states. A focused effort to collapse the dollar by dumping Treasury bonds has grave implications including the possibility of a downgrading of U.S. debt forcing rapidly rising interest rates and a collapse of the American economy. In short, a bear raid against the U.S.financial system remains possible and may even be likely. Phase Two may have concluded with the brief market rebound that was supported by an emerging regulatory response calling for greater transparency across the board.

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Freeman observes: “[W]e remain left with the critical unanswered questions of who and how?”

One important clue must be the bizarre and confusing story of the seizure of $134.5 billion of apparently counterfeit US Treasury bearer bonds being smuggled across the border from Italy into Switzerland in June of 2009 by two Japanese nationals.


St. Louis Adjusted Monetary Base (BASE)

Freeman says that incident “may be as significant as the Japanese radio intercepts were before December 1941.” A hundred and thirty four billion dollars worth of counterfeit treasury bonds here and a hundred and thirty four billion dollars worth of counterfeit treasury bonds there adds up to a lot of money very quickly. The Obama Administration’s expansion of the US Monetary Base already threatens major inflation and jeopardizes the role of the dollar as reserve currency, additional counterfeit-based inflation could easily constitute a tipping-point factor changing our worst fears into reality.

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Freeman refers to, and quotes points made in, an anonymous, non-publicly-available 65-page paper titled Red Flags of Market Manipulation Causing a Collapse of the U.S. Economy, distributed to law enforcement agencies, members of Congress, and regulators.

This report discusses extensive research that shows significant red flags‘ of danger to the world‘s economy from what appears to be market manipulation in the global financial markets, which includes trading in common stocks, options,futures, commodities, currencies, oil, and bonds.

Two companies…are at the heart of this trading and they consistently work in concert. These firms became, virtually overnight, the largest traders in the U.S. financial markets. These companies provide a one-stop-shop for trade execution, back office clearing and bookkeeping that cater to hedge funds and small broker dealers. To give perspective, the amount of trading executed by these two firms in October 2008 exceeded the trading of securities firms Goldman Sachs, JP Morgan and Merrill Lynch combined in the NASDAQ market participant reports.

Key points

1) The firms have traded trillions of dollars worth of U.S. blue chip companies. They are the number one traders in all financial companies that collapsed or are now financially supported by the U.S. government. Trading by the firms has grown exponentially while the markets have lost trillions of dollars in value.

2) These firms appear to own few or no shares of blue chip companies they are number one traders in. There is no doubt that the magnitude of their trading impacted the marketplace. Since the direction of the market place has been in a severe downward trend, the impact from the firms has been and remains, negative to the marketplace.

Some other starling findings in the report, based almost exclusively on reviewing basic trading data, include:

The two previously small broker dealers mentioned in the report are market makers for every major financial services firm under attack.

These firms have a combined 76 different symbols under which they act as market maker (by contrast a major firm such as Citigroup has just 6).

Both firms offer sponsored access.

Both firms offer access to dark pools.

From June through September 2008, the two firms appeared to concentrate on Lehman Brothers, trading 1.04 billion shares while the stock price collapsed from $33.83 to $0.21 on 15 September. This pattern seemed to repeat in every other major financial stock.

The report estimates that the two firms completed as many as 641,000 trades per hour in October 2008 (based on market participation statistics and average trade size from the last available data).

Total trading volume by month in the financial sector listed for these two firms grew from approximately 350,000 shares (less than 1% of all market participant trading) in September 2006 to approximately 600,000 shares in the sector (about 6% of all market participant trading) in September 2007, to over 8 billion shares in the sector (about 19% of all market participant trading) by September 2008. That‘s an increase of 2.4 million percent in two years.

While both firms have been around for several decades, their rapid growth began in 2006 for one and 2007 for the other.

Both firms seem to specialize in the same stocks at the same time, appearing to work in concert.

Combined, the two firms traded 203 billion shares, mostly concentrated in major financial services companies. This compares to a total of 427 billion shares outstanding of all issues on the New York Stock Exchange.

The report estimates trading of at least $5 trillion over the 25-month period ending in November 2008.

The trading appears to represent new money to the marketplace by new participants.

From July 2008 through September 2008, the two firms ―traded more shares of Fannie and Freddie than were issued even as the share prices were collapsing.

The firms were also the largest traders of the UltraShort funds as well as the financial spider (symbol ―XLF) during the reporting period.

The firms also became the largest traders of energy stocks.

The two firms did not and do not hold major equity positions on their books.

The names of these two firms have been purposely withheld in this report because trading data alone is insufficient to consider any accusations against them. But, this trading data is specifically the type of red flag that should prompt further investigation. In addition, even in the event that trades were entered with the purpose of manipulating markets,there is no evidence to suggest that either of the brokerage firms discussed had any knowledge of, or in any way participated in any wrongdoing. They simply could have been conduits through which orders were placed as the laws and regulatory authorities currently allow. Nevertheless, this trading activity does lead to numerous questions:

Who had the capital to effect $5 trillion worth of trades in such a short period?

Who are the clients behind the trades? Are they foreign or domestic?

Why would two long-standing but relatively minor broker dealers be selected for such massive trading rather than the major firms? Did they have more permissive rules for sponsored access?

Why was trading concentrated in the financial firms that failed (Lehman, AIG, Bear Stearns, Fannie, Freddie) or were under threat of failing (Citigroup, Bank of America, Merrill Lynch, and Wachovia)?

There is obviously no definitive evidence here that the Financial Collapse of 2008 was the result of a deliberate strategic plan to bring down the US economy carried out by hostile foreign agencies, but many of the details noted, particularly the scale of bear raids on major US financial institutions, certainly do provoke suspicion. The US Government is hardly about to share what it knows, so the rest of us can only file all this away for future reference, and keep an eye out for further related coverage.


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