The Broncos Don't Need "Plan B" - We Better Pray Bernanke Has A "Plan B" That Works

Plan B?  No we don't have Plan B.  We're goin' Plan A! -  John Elway in response to a reporter's qustion about what the Broncos would do if Peyton Manning couldn't play because of his neck injuries - LINK (worth the 12 seconds to see Elway's grin)

Anyone who watched last night's Monday Night Football game knows that Elway took a big risk and it's paying off.  He doesn't need "Plan B."

But anyone paying attention to the smoke signals coming from the Too Big To Fail Banks understands that, so far, Bernanke's Plan A isn't working and he better have Plan B lined up and ready or our entire system could collapse.

Originally I was going to write more about how Citibank's earnings report yesterday was comprised largely of fictitious accounting gains and was total b.s.  But you can read the details here:  LINK If you don't want to read the details, suffice it to say that Citi fraudulently took a big gain from reducing its loan loss reserve at the same time that the default rate in its large home equity loan holdings spiked a lot higher.

Furthermore, despite the view being propped in the media about U.S. household debt levels declining, the truth is that the middle class in this country isn't deleveraging.  The average household is defaulting away its obligations, leaving systemic losses that are either being absorbed by accounting chicanery, per Citi's and JPM's earnings reports, or are being papered over by the Fed.

But the truthful bottom line is that the systemic problems that existed when our financial system basically collapsed in 2008 have never been fixed.  The reason I bring this up is because something very ominous is going on beneath the surface.  A good friend of mine in NYC called this morning and told me that he had heard that insiders at JP Morgan are basically terrified by the problems mounting there.  Without going into specific details, suffice it to say that the London Whale situation is the tip of the iceberg.

My friend pointed out that there's a lot more than meets the eye with the recent departure of JPM's CFO.  The London Whale situation, while appropriately knocking out JPM's Chief Investment Officer, should not have been enough to knock out the CFO.  He was clearly thrown under the bus by Dimon.  Furthermore, less noticed, was the departure of Barry Zubrow, previously the head of JPM's risk management and the person who was in charge of that area when the London Whale loss hit.  He was described as being one of Jamie Dimon's "trusted lieutenants."  Both of these "assassinations" are indicative of much bigger problems than just the supposed $2 billion Whale loss.

Same deal with the unexpected and abrupt resignation of Citibank's CEO, Vik Pandit.  Citi reports "fabulous" earnings yesterday and the Government claims that Citibank is completely turned around and the CEO leaves the next day?  That does not pass the smell test. It reeks like Pandit is walking away from a ticking time bomb just when it most appears like he's "successfully" navigated the bank back to health.

The Government/Taxpayers wrote a multi-trillion dollar check in 2008/2009 to save the banking system but nothing was ever really fixed.  The banks are not really deleveraging and have been substantially masking bad assets still on the balance with phony "mark to market" accounting gimmicks.  Moreover, the derivatives positions - those insidious weapons of mass financial destruction - are now substantially larger than they were in 2008 right before the financial crisis.  In other words, the banks not only never changed their business model, they've essentially re-upped the catastrophic bets that took them down in 2008.  Sounds a lot like gambling, doesn't it.

In fact, it looks a lot like Bernanke's "Plan A" was nothing more than a multi-trillion dollar hail mary predicated on false economic assumptions and fraudulent monetary theories that have never been tested but, to be sure, run egregiously contrary to all known laws of economics.  My friend worked at Lehman before it blew up in 2008.  He commented this morning that the situation on Wall Street feels a lot like it did in the months preceding the Lehman blow-up.  I wonder if Bernanke has Plan B...