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October 6, 2008


If Their Lips are Moving…..


Over the last 3-4 years, Wall Street placed bets on risky debt obligations called derivatives. Now, trillions of dollars in losses are hitting Main Street right between the eyes. We just lost another 159,000 jobs this month, the most in five years, and it’s clear that we face the most serious recession in over 25 years.


On Wall Street, those masters of the universe with the obscene bonuses to prove it have been taken down by their own idiotic inventions. The top five firms on Wall Street were thought to be “too big to fail.” But Bear Stearns is gone, Lehman Brothers is gone, Merrill was forced to sell out, and the last big names, J.P. Morgan and Goldman, have waved the white flag and petitioned the government to allow them to become ordinary deposit taking banks…amazing.


How bad will this get? Well, listen to what our top leaders have lied to us about over the last 5 years. “FED Chairman Alan Greenspan relaxed about house prices…this is not a bubble of any magnitude” reported the Financial Times in 2005. “Most negatives in housing are probably behind us…” Greenspan said in October 2006. “We believe the effect of the troubles in the subprime sector…will be likely limited…” said Ben Bernanke in March 2007. It’s “not a serious problem…I think it’s going to be largely contained,” added Treasury Secretary Henry Paulson in April 2007. Every word they’ve said so far has been 180 degrees from the truth.


 Now, these same people are telling us that they will save capitalism from itself with this $700 Billion bailout. For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. As a result, the USA now has 30% more financial obligations than assets. It is, effectively, bankrupt. This year’s US government deficit will add about half a trillion. The US trade deficit is about $700 billion. The U.S. bailout plan will probably cost at least $1 trillion more. Where will the government get that kind of money? Everything is at risk now. The economy, jobs, housing prices…essentially our way of life.


However, we see this as an enormous opportunity. For those that have been prepared for this crisis…the smart money….this is exactly when huge fortunes are made. Generational fortunes. Great values will be had in the next 1-2 years in real estate and the stock market, and this is when lasting legacies are created. We will be at the front of the line to take advantage of them.



Kip Herriage

Editor, Vertical Research Advisory


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