Last night Bill Gertz reported in the Washington Times on a recently uncovered Pentagon report that discussed the possibility that financial terrorism was responsible for the 2008 financial crash.
The possibility of financial terrorism was discussed at the time, for instance in this article at the Big Picture.
Last night, we discussed the absurdity of banning all short sales. The details of the SEC action have been released (see below). The specifics are a “temporary halt in short selling in 799 financial institutions” until October 2nd.
I have been trying to contextualize this, and I keep coming back to what seemed like a wild theory yesterday that seems a whole lot less wild today. During the day, I had an interesting phone conversation with Joe Besecker of Emerald Asset Management. (We used to do schtick together on Power Lunch, and made for an amusing financial comedy team).
But Joe is a good money manager, a great stock picker, and a thoughtful guy. He raised an intriguing issue: None of the many hedgies he knew were pressing their bets recently. The bear raids on the banks and brokers were NOT a case of piling on by US based hedge funds. And from what he was seeing and hearing about in terms of order flow, the vast majority of the financial short selling the past week or so were being done overseas. It appears that the lion’s share of shorting was coming out of overseas bourses such as London and Dubai.It may not be a coincidence that the financial short selling ban is both here and in London.
Then there is another coincidence: The huge increase in shorting of the financials occurred on the anniversary of 9/11. And on top of that, the same institutions attacked on 9/11/01 were the ones suffering in recent days.
There were massive amounts of short selling on 9/11/08 coming from Dubai and London. This was part of a bear raid on Bear-Sterns and Lehman Brothers that destroyed the companies’ value. It’s hard to believe the date is coincidental. The Pentagon looked into it. They hired Kevin D. Freeman to investigate and write a report on the risks of economic warfare and financial terrorism. Freeman described in the executive summary of his June 2009 report what appeared to be a three phase operation:
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 muchas $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 worldâ€˜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.
The scenario of a terrorist attack on the US financial system is all too plausible given the information in this report. The US cannot afford to discount it, nor can its people allow the government classes to dodge hard questions about it.
There is quite a lot of speculation that China is involved in this. True, the 1999 book Unrestricted Warfare advocated economic warfare by China against the US and other western countries. [Also see Wikipedia, Amazon, Newsmax, and cryptome.org] Its authors seem to view the book as an open source conspiracy against the US that can be used by anybody with a grudge. The phases above do not seem to point to China, however. They point directly to the big oil producing states in the Gulf. Whether Unrestricted Warfare is being used as the battle plan for an open source conspiracy is a question that cannot be answered at this time.