By Darryl Robert Schoon

Last weekend started early for Timothy Geithner, President and CEO of the New York Federal Reserve. At 6 pm, Friday, Geithner called an emergency meeting to discuss the possible collapse of Wall Street investment bank, Lehman Bros.

The troubles of Lehman Bros had worsened during the previous week and the current Fed playbook dictated a solution be found on the weekend to calm financial markets opening Monday; but, this weekend, the Fed playbook came up empty, Lehman Bros. declared bankruptcy.

It’s official. The storm is here. In How To Survive The Crisis And Prosper In The Process, I predicted a global financial crisis would happen where real estate prices would fall 40-70%, stock markets would crash and a Great Depression would result.

Eighteen months later, the median price of housing in California is down 40 %, global stock markets are in disarray and although another depression has yet to begin, this weekend’s failure of Lehman Bros combined with the pressured sale of Merrill Lynch and the prospect of an AIG collapse are clear signs that we are now that much closer to the predicted end.

This is the end of a system. It is not a cyclical correction. It is not a market pullback and it is not a repricing of risk in an otherwise resilient marketplace. We are witness to the end of an economic system based on credit-based paper money that began 300 years ago in England. All beginnings have endings—and that we didn’t expect it to end doesn’t mean that it wouldn’t.

THE BANKERS’ BEGGING BOWL

Because Lehman Bros.’ CEO Richard Fuld received a $22 million bonus for his “work” in 2007 or perhaps because Fed officials had been openly criticized at their annual Jackson Hole soirée for their continuing bailouts of US investment banks, last weekend US officials unexpectedly informed Wall Street bankers that a government bailout of Lehman Bros. was not possible.

There is no political will for a Federal bailout…

Timothy Geithner, September 12, 2008

Geithner’s statement really means that Wall Street no longer possesses the requisite political muscle to extract more US dollars from a bankrupt electorate. Last weekend, Wall Street bankers finally understood that their privileged position in the welfare line of US government largesse had come to an end. This time, the banker’s begging bowl would remain empty.

With their co-conspirators in the US government no longer able or willing to provide additional US guarantees, the position of investment banks has now become increasingly fragile; and their newly hatched liquidity plan concocted by the bankers over the weekend is another indication of just how fragile their system is.
(more…)

The United States Treasury announced today that it will supplement funding to the Federal Reserve in order to shore up the central bank’s balance sheet. The Treasury said that the Federal Reserve requested the additional funding as they have gone through all their balance sheet assets trying to save the U.S. financial system.

In plain English this announcement by the Treasury means the Federal Reserve has run out of financial ammunition and as a result will start printing Federal Reserve Notes in order to buy the Treasury bills in order to fund its balance sheet. This also means this financial crisis is far from over as the Fed feels it needs to shore up its balance sheet.

Is it any wonder gold is up over $80 on the day as Ben Bernake crosses over the Rubicon in his helicopter?