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A recent front page article in the Wall Street Journal reported a meeting between a group of  bankers from the world’s biggest banks and representatives of the U.S. Treasury Department. The meeting, we are told, is "in response to the world credit crisis." It purpose is to "avert a crunch."

Mark Twain once noted that no man’s property is safe when Congress is in session. A corollary to that rule can surely be found in what happens when supposedly competing bankers gather around a table with the people who are supposedly regulating their competition. The WSJ story is about just such a meeting. The reporters do their best to make it sound as if some good will come of it.

While it is possible that the participating bankers and government big wigs have the economic welfare of the American people foremost in their minds, there are other possibilities. The name of this game is "bailout." The "crunch" the meeting is designed to avoid is the deafening thunder of pink slips hitting fine walnut desktops and the crinkling sound of personal portfolios approaching the value of the paper that supports them.

It brings to mind a meeting of really rich important bankers (RRIBs) back in 1912 at a place called Jekyll Island. The biggest names in banking, Rockefeller, Morgan, Rothschild, Warburg, and a few others were all there. In several days of hard negotiating the competitors came up with the plan for the private banking cartel that is at the heart of the "world credit crisis" today.

The RRIBs took their plan to Congress. The politicians loved it. They made it the law. The Federal Reserve Bank was born, neither federal nor having any reserves. It was a well disguised scam to give bankers access to unimaginable profit and politicians access to unlimited funds without the inconvenience of having to raise taxes. Everybody wins. Everybody, that is, but the suckers who will have to tote the load of real sweat and toil that the bankers and politicians can now buy with the stroke of a pen.

The "world credit crisis" today’s bankers are worried about is of their own making. It started when they hit on the idea of bundling mortgages together into "collateralized debt obligations." (I love that kind of talk.) CDO’s were essentially the application of lipstick to a pig.

By moving shaky mortgage paper far from those who had to pay it and bundling it with other, similar paper, "sub-prime" mortgages miraculously morphed into AAA debt obligations. Pigs with lipstick, false eyelashes, rouge and pearl earrings.

Bankers who sold these obligations to other grey-suited experts at pension funds, insurance companies and investment houses made scant mention of the folks of questionable means who had to keep up the payments. Neither did they talk much about the typical 50-year-old, termite infested bungalow that served as "collateral." 

Over time peddling  CDOs became so lucrative that banks spun off separate divisions called Structured Investment Vehicles (SIVs) to speculate in the interest rate arbitrage they could generate using their own phony credit ratings. It was a banker’s dream come true. Create money out of thin air. Lend it at interest to anyone who could fog a mirror. Bundle the mortgages into CDOs and sell them. Repeat the process, making fat fees and big interest at every turn.

SIVs issue their own short term debt on their AAA credit ratings and large holdings of CDOs. They use the money to buy higher interest debt on the open market from businesses looking to raise cash on receivables or mortgages. This is where the full dress porkers live. It’s not just makeup. These little piggies are in full seduction regalia, fish net stockings, high heels, short shorts and gel-filled, gravity defying foundation garments. 

Citibank has SIVs valued at $100 billion. Citibank’s problem is that investors are starting not to care how the porkers in the chorus line are dressed. You can bet there is a real crisis when bankers start meeting with competitors and bureaucrats. 

There seems to be some question as to the market value of the CDOs. Usually market value can be determined by the most recent sale price of similar items. The problem? Nobody wants to buy the painted pigs. There are no recent prices because there are no sales. The price of something nobody wants is zero.

In that case the SIVs are worth a lot less than everyone thinks. They might actually be valueless themselves. When banks, bankers, bureaucrats and politicians get caught in their own scams and face a reckoning, they refer to it as a "credit crisis." The pigs are not only naked, they’re dead.

Look for the dead pigs to be carefully groomed and propped up as if they were just as healthy and fetching as the day they were first decorated. Look for bankers to appeal to their friends at the U.S. Treasury, the Federal Reserve and Congress for help in passing the painted pigs along to the dumbest guys in the room, the U.S. taxpayers.  Look for it to happen soon.