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Mitch Feierstein Warns of Coming Financial Collapse

by Mitch Feierstein about 3 months 6 days ago


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Chris Menon interviews the author of the best-selling Planet Ponzi on the housing bubble, market
manipulation, gold and the subversion of democracy

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Chris Menon: In Planet Ponzi youve written about the huge debt bubble that was created
over the past 30 years. For those who havent read your book, how did it happen?

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Mitch Feierstein:My book goes into detailed analysis of the credit crisis and how we got into the mess were in
today. I think its important that everybody realises what precipitated the crisis, what got us here. Its impossible
to describe what Ive written about in 406 pages in a brief interview but I can give you what I think are key

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I think too much credit and too much leverage got us into this problem. I dont have a
problem with debt because I think debt is a good thing debt leads to construction projects,
infrastructure spending and capital expenditure. The problem I have is with the structures of
all these debt time-bombs with leverage of 100 or in some cases 500-1. We saw one of them
blow up in the form of Fannie mae and Freddie mac, with the sub-prime housing bust. Now
the US Government (read taxpayer) owns 94+% of mortgage loans.

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Mitch Feierstein Warns of Coming Financial

The thing that got us into this problem is the reckless abandon with which a lot of the banks and the financial
system have taken on these ridiculous securitized structures and the leverage that goes into them, which all
started out back in the late 90s when Glass-Steagall was abolished by Bill Clinton at Larry Summers insistence.
That opened the door to create massive tools of leverage aka weapons of mass financial destruction; a
massive build-up of an unregulated highly leveraged derivatives products market.
Of course, now what they have done is the politicians and the bankers have refined the dialogue and the

Collapse
George Osbornes UK Budget He might as well
claim that the budget will be balanced by fairies
selling pixie dust to leprechauns
Why an independent Scotland is better off with a

narrative, so they come out and say one thing that soothes the public but the reality of what they do is 180

modern currency and without the EU

degree opposite. For example, Dodd Frank was implemented to reign in the reckless leverage and credit and
the too big to fail banks but if you look at the reality of what has happened since the credit crisis, too big to fail
banks have gotten much bigger. You have banks like Deutsche Bank who have on balance sheet derivative

Volcker Rule: Too Big to Enforce

exposures of US$75 trillion and JP Morgan $70 trillion, not including off-balance sheet exposures! So that
leaves us with significant problems that have to be addressed as regulators are clueless as to the size of the
notional global derivatives markets some estimates are in the 900 trillion Dollar range I think its significantly
higher nearly 20 times greater than global GDP.

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Europe hasnt de-leveraged at all. I think Mario Draghi, who is ex-Goldman and Mark Carney, who is also
ex-Goldman and runs the bank of England, are going to come up with a new programme to bundle more
securitized, leveraged assets, which will create a problem thats exponentially larger than current exposures.
More leverage is not a solution for insolvency.
If you look at where the French 10-year is trading, about 40 basis points above Germany, and if you look at
where Italy is trading relative to the US, it is trading about 40 basis points above the US for 10-year financing. If
you also look at Spain, Spain is about 30 basis points over the US. Irelands debt is trading below the US. Does
it mean they are less risky?
These bond yield numbers, where these countries can borrow money, is a prime example of not only of
irrational exuberance, but it points out the biggest misallocation of capital in financial history due to temporary
central bank initiatives such as quantitative easing and money printing. 6 years later these programs have had
little if any success as GDP remains grim, debt, credit leverage hit historic new highs and too big to fail is
bigger.
If you take Italy, for example, their debt-to-GDP ratio is the second highest behind Greece, it is 140%. Greece
is probably around 180%, Portugal is 129%, Ireland 125%, Spain near 100%, France around 95%. But the limit
in the EU is 60%.
You can carry it on for quite a while, and they have, but when not if interest rates go up all of these guys
default.
My question is: whos buying these bonds and do they think risk is fairly priced? Im sure that the identical
timings of European Central Bank Stress tests Asset Quality Review (AQR) has nothing to do with this bizarre
rally.. After all the Italian, Spanish, Irish, Portuguese banks have borrowed money and are loaded to the gills
with these bonds

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I have been in this business 35 years and I think this is one of the most egregious misprices I have ever seen.
So what these guys have done, all these Goldman-leveraged central bankers, is they have encouraged
massive amounts of risk and theyve heavily punished every saver and student on the planet.
If you look, your parents and grandparents were prudent savers all their lives and put all their money into a
bank account and expected to get about 4% or 5%. That is out of the window now and they have 50-70% less
to live on during their golden years and they have bailed out reckless bankers.
Not only that, but the savers and the students are the biggest ones taking the hit right now, because when the
next crisis hits there are going to be massive bail-ins. What they are going to do is confiscate, like they did in

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Cyprus, all the prudent savers money and say: Yes, they were reckless speculators and now you are going to
have to bail them out with your life savings. Anything over 85,000 you have in the UK ($250,000 in the US)
per account, governments are just going to confiscate.
Moral hazard is the new normal, actually, because the banks and the funds know they can do whatever they
want with impunity because they are going to get bailed out.
Chris Menon: Do you make any distinction between private and public (government) debt?
Mitch Feierstein: You can go into that but it is a discussion for another book.
Lets look at the ratios of debt-to-revenues. I think this is an important metric for us to examine as we are time
limited and we can discuss politics and the way the political narrative is created.How many times have you
heard a politician say weve cut the deficit. Yet none of them have ever said theyve cut the total debt because
they havent. In fact, debt is much higher and growing out of control every day. I get infuriated when I hear
these narratives because they are playing games with semantics.
Despite the talk about reduced budget deficits, if you look at the absolute amount of debt it is rising all around
the world.
One option governments have to reduce the debt is by manipulating currency exchange levels and pushing
interest rates to artificially low rates. But what that does, unfortunately, is create gigantic unintended
consequences; along with massive asset inflation, which leads to the current misallocation of capital we are
witnessing today.
Now you have some junk bonds trading below 5%, non-investment grade trades at below 5%. Does that mean
were in a new world where there is less probability that these companies will default?Absolutely not. It is
absolute insanity, but the Fed, European Central Bank, Bank of England, and Bank of Japan have manipulated
these rates.
You get all the central bank statisticians saying there is no inflation. Dont worry theres no inflation. But they
dont include food prices and dont include energy prices in their calculations.When you ask me about the debt,
I am like, okay: well how are you going to calculate that? We can talk about the methodology but the
government is going to give you a statistic that fits their purpose. They are not going to give you one for you.
Im going out to the supermarket and saying, Hey shit, man, my milk is costing me three times what it did last
year.
For example, I do all my own shopping. I am not like Ed Miliband. I have a dog and myself. I tell you what, I
cant survive on 70 a week on my food budget, so I dont know how he does that with a family of four. You
honestly cant tell me that you can get by on 70 a week.
I happen to know that the price of chicken breast has nearly doubled over the past year-and-a-half to two
years.
House prices in central London, as you know, have gone ballistic. In 10 or 12 years it has probably gone up
500%.
Even if, on an inflation-adjusted figure, house prices are 9-10% below their 2007 peak everywhere in the UK,
what does that mean?
Prices were entirely irrational in 2007 and since the beginning of this crisis real wages have dropped, according
to some economists, as much as 11%.
Does that mean house prices should go up? No, it doesnt! Its a bubble thats causing massive systemic
financial risk to a stressed banking system where that central bank is out of bullets. Banks will fail.Let me
explain something, since the beginning of time there has been a correlation between the house prices and
income. There has to be.
Housing is not an asset class. It is asset but it is certainly not an asset class because it lacks liquidity. Property
is probably one of the most illiquid assets you can have, foreign exchange is probably the most liquid.
Right now we are in the mania stage of a bubble and everyone wants to buy because they dont want to miss
out.
Chris Menon: How much longer do you think this bubble will last?
Mitch Feierstein: It has lasted probably a year-and-a- half longer than I thought. Unfortunately, David
Cameron and Osborne are trying to be re-elected in 2015 so they came up with this Help to Buy Ponzi
scheme. The best example; its like filling up Boris Johnsons water cannons with petrol or jet fuel and spraying
it on a bonfire. What they are hoping it is going to do is create a bubble that generates aggregate trickle down
demand, which creates the illusion of a healthy economy.
But I would argue that there is no recovery. I would argue, further, that you are seeing stock markets go up and
you are seeing asset inflation, sure. But do you know why stocks are going higher to a large extent?
Chris Menon: I presume it is QE being pushed into the market?
Mitch Feierstein: The QE money has got to end up somewhere, that is part of it. A lot of the earnings that are
out therecorporations are borrowing money at record low yields. So, where is that money going? They are
borrowing to pay dividends and they are borrowing to buy back their shares.We are seeing a record number of
share buy-backs at market tops (always a terrible and dangerous sign) top executives get gigantic bonuses
when shares rise If corportions have fewer shares (via buybacks) their earnings are going to go up, right? So
it doesnt take a genius to work out that this is all coming down to the state manipulating the market. Problem is
no organic growth is created and zero capital expenditures.
But is this helping British citizens? No, it is not. I would argue that it is hurting them.
We dont have capitalism any more, that is the problem. The fundamental issue here is that we have some
quasi form of socialism, supported by moral hazard with government intervention in the form of back-doorbanking bailouts at the expense of Main Street.

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Chris Menon: Do you think it is going to take a financial collapse before things are reformed? Before people
realise the financial sector is too powerful and isnt acting according to the tenants of capitalism?
Mitch Feierstein: Well, there is going to be another financial collapse.
It would have been a lot healthier if they had taken advice from people like me who said, In capitalism you
have a mechanism that deals with failure. Its called bankruptcy Right?
Chris Menon: Theoretically, yes.
Mitch Feierstein: Yer, right. If a company doesnt perform they are out of business. My most memorable quote
is: Heads you win, tails I bail you out; thats not capitalism that is extortion.
The first bail out came with Long Term Capital Management back in 1999. I remember sitting at the trading
desk when the Fed bailed them out. That opened the door for the attitude: We can take any risk no matter how
large that we want and the Fed is going to bail us out because we are going to claim we are systemically too
big to fail.
So that is where we are. No lessons have been learned from 1999, the Dotcom bust or the housing bust of
2007. What has been learnt is the art of spin and how to manipulate the main street media and buy influence in
Washington DC, UKs Parliament and of course Brussels the home of the EU.
Mark Carney joined the Bank of England, hired by George Osborne and tells people anything they want to
hear. He is getting paid $6m for the duration to be here, with a housing allowance of 5,000 a week. He doesnt
care, he has created the biggest housing bubble in Canada, hes going to replicate the bubble in the UK to
create a wealth effect ahead of the 2015 elections.
First of all Im apolitical, I dont really care.Quite frankly, any party that has lied shouldnt get another chance.
Chris Menon: Then we wouldnt have any of the three major parties, probably.
Mitch Feierstein: I dont know, there are four parties now. I think the other politicians were bitter that UKIP took
the majority of the votes in the European election.The Labour party hired David Axelrod as an advisor to spin
things so they would vote for the Labour Party, and the Tories hired Jim Messina. They both worked for Obama
on how to manipulate voters into voting the way they want.
Both parties came out after UKIPs sweep of the European election and said what a terrific job they did, the
spin was ridiculous. People are fed up with that, theyre not stupid. I think British voters have more savvy than
American voters. I think American voters are hooked by the same old Hollywood-scripted election screenplays
and multi-million dollar TV advertisements created by Stephen Spielberg. Obama and Romney spent over 2
billion dollars on the 2012 presidential elections. I think British voters give you the rope to hang yourself. To me
it appears, the rope is taut and people have lost all faith and confidence in politicians, and for very good reason.
Politicians cant just come in and keep spinning the same old lines anymore that they have been spinning the
past ten and fifteen years. People realise that things just arent getting any better they cant be fooled. Besides
you cant spend a billion on a UK campaign.
Real wages go down, property goes up. When the cost of living reaches the point when most people cant
afford stuff they will have a problem and we may be close to that point.
Chris Menon: But none of the political parties, none of them UKIP included as far as I know are willing to
confront the bias towards the financial sector.
Mitch Feierstein: I dont think that is 100% accurate or fair: we dont know what UKIPs policy is on that
because they havent come out and said it
I can share that UKIP probably isnt given a fair shout as all of the media is against UKIP, as all of the media
endorsed Labour or the Tories. Main stream media want only status quo because if BBC or Sky for example
upset or alter the status quo then BBC or Sky lose interviews and people wont go on and officals wont give
them access. For example: President Obama regularly excludes FOX Broadcasting.It is an interesting line to
be on, but it is going to have to play out. Unless the banks are massively reigned in yesterday, I think it is going
to take another disaster or catastrophe to force the necessary actions.
If you think about what is going on: the Federal Open Market Committee is run by Bill Dudley, who is
ex-Goldman. Add to the chorus ex-Goldman: Draghi at the ECB, Monti ex-bank of Italy and PM of Italy, Carney,
ex-Bank of Canada and now BOE. All the ex-Goldman guys they believe in heavy amounts of leverage.
They dont have a problem with this. They didnt see it coming last time and they arent going to see it again.
The refrain will be predictable; No one could have ever seen this comingAs Albert Einstein said, Doing the
same thing over and over again and expecting a different result is the definition of insanity.
Thats what we are doing, because the leverage in absolute terms is higher than it was before we crashed the
first time.
Chris Menon: In practical terms, what would you like to see happen? The return of the Glass-Steagall Act in
the US?
Mitch Feierstein: I think what we need to do is to create an appropriate narrative to get back on track. Bad
businesses need to be let go, bubbles need to be pricked and the US Federal Reserve Bank needs a good
audit. Economic prosperity is created by an increase in capital expenditures and savings. We dont have either
of those and until we do we cannot have a sustainable recovery.
Do we have a problem in the banking system? I would argue that we do because we are not valuing assets or
marking anything to market properly. The EU has heinous exposure to a lot of European institutions. They
have the long term refinancing operation (LTRO), which has a trillion outstanding in that. They keep lending.
On May 28 it was announced that the French government faces a revenue Euros-14bn black hole after
overestimating tax income for the last financial year. Yet, you are lending that government at 1.76% for 10
years. Think about that for a minute.
Italy is in a perilous situation. If you go back and you look at the last four years on their GDP, it is an economic

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depression. Their general unemployment rate is probably about 13% and youth unemployment rate is very
high, in the 40-50% bracket. Not as bad as Spain, which has over 60% youth unemployment.
When you have students and the younger generation being dispossessed, pretty much, do you really think you
are going to stimulate growth by just pumping money into that system?The problem there is that they didnt get
rid of the excesses and the bad credit in the system. All they have done is say, Lets add more liquidity to the
system and maybe the prices will come back.Liquidity is not a cure for insolvency. If there is a basic solvency
issue that needs to be dealt with on its own. You need to take the asset and write off the bad debt and whoever
was left holding it needs to pay, not the taxpayer.
Chris Menon: So you think some banks should be allowed to fail?
Mitch Feierstein: Of course they should! Why shouldnt they? RBS should have been shut a long time ago, so
should Lloyds. It is not up to the taxpayer to bail out financially profligate institutions.
Eventually, we will see sovereign defaults.
The latest thing that is coming out now is this European system of accounts, ESA 2010. Basically, in
September they are changing the way that Greece accounts for its GDP.So basically, they are going to turn
losses into gains. Even in the UK they are using ridiculous stuff, like adding the proceeds from selling heroin
and prostitution to GDP. Now, first of all how do you calculate this stuff?
The US always does that by the way.The US employment figures are probably the most ridiculous. The US
Census Bureau also has the Birth Death adjustment, where they make up a statistical number for the birth
and death rates of American companies. I think in last months component they said We estimate the birth of
new businesses created 179,000 or 210,000 new jobs.
They are just making that number up out of thin air. Although I am sure they are going to justify their statistical
basis for making it up. I would doubt that is even close to reality but it gives the politicians a narrative to spin to
people.
Chris Menon: What should ordinary people be doing now to protect themselves?
Mitch Feierstein: The most important thing for everybody is: if you dont understand something dont invest in
in it.I dont like property in the UK. I think it is overpriced and close to collapse.
I think everybody should be buying physical gold 1 oz coins at around these levels. My average purchase price
is a lot lower because I started buying about 10 years ago. Physical gold in the form of 1 ounce coins is
attractive at current prices below $1250.
I dont think I had bought gold for six years before last summer but I added to my positions in July or August
when it was around $1200. I bought then and I also bought some silver. I like silver. I bought a lot of physical
gold and silver years ago then added to it.
Every investor should have a certain amount of their portfolio in physical gold and silver. I make that distinction
because I think there will be an exchange failure eventually.
Chris Menon: What do you mean by an exchange failure?
Mitch Feierstein: I dont know when it is going to happen but I think ETFs are a wolf in sheeps clothing. Those
things are going to blow up. Because, if you look at the documentation it is 200 pages of legal fluff, basically
guaranteeing you anything. It has a lot of disclaimers saying if you put money in this we dont guarantee that
we are going to correlate this to the underlying asset class.
The exchange failure I am talking about with gold is that if you do your homework and you look at the amount
of open interest in all the gold futures and options contracts, if only a fraction of that open interest demanded
delivery of the gold on the outstanding contracts the exchange would be unable to deliver and fail.Do you
know how futures contracts work?
Chris Menon: Maybe you could explain for our audience?
Mitch Feierstein: The way that a futures contract works its a vehicle for producers to hedge commodities or
speculators to invest or manipulate and it works via contracts, usually 3 months duration a piece.
A contract specifies parameters for delivery. So you could say I will take physical delivery of my gold contract
when it expires. Each gold contract represents 100 ounces of gold, so each contract is worth about $124,400 in
gold.
The concept is futures allow a lot of leverage. So, for a fraction of the 124,400 you can control 100 ounces of
gold.. So we calculate the sum of all the contracts and options with open interest, (noting most participants
NEVER take physical delivery) if even a small fraction of the open interest demanded physical delivey the
exchange doesnt have enough gold to deliver.
At the current gold price we are very close to what it costs miners to pull gold out of the ground.
Chris Menon: What does that mean?
Mitch Feierstein: When it costs miners more to pull it out of the ground than the price in the futures market,
they are going to close down their production. And if they need to deliver some, if they are smart they will buy it
in the futures market and take delivery as long as it is below their production cost.
It doesnt take a genius to work out that that trick is not going to work for much longer. Because all of this gold
manipulation, everybody used to say it is a conspiracy theory, but it is not. I could write a book on it.
When the US Government loses control of gold it loses control of the value of the currency. The currency will
go to zero eventually because it is not backed by anything.
If tomorrow Russia or China came out and said, Look: we have Renminbi or Roubles backed by gold, that is
the end of the Ponzi scheme.
Chris Menon: I have heard talk that China has amassed 6,000 tonnes of gold and ultimately the aim is to
challenge the hegemony of the US dollar.

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Mitch Feierstein: I would bet that they have more than 6,000 tonnes of gold. Its impossible to tell what they
have.
Chris Menon: Any last piece of advice for our readers?
Mitch Feierstein: If you are a British citizen you should buy British gold sovereigns and you wont pay capital
gains tax. Any of the British gold coins that are currency arent liable for capital gains tax.
And we are probably seeing Sterling at its peak for our lifetime. Sterling is only going to go down from here
against everything. It is not going to strengthen. If you buy gold it is a great hedge.

One Responses to Mitch Feierstein Warns of Coming Financial Collapse

Gary Moten says:

August 9, 2014 at 6:20 am

I read your article and that is what I was told, read in the book I cant remember, buy precious
metals. I have some, but should buy more and get out of some of these stock, Eh.
Thx

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