Last Chance for the Truth

On this fateful Sunday morning, while Congress inches closer to approving the greatest financial bailout in history, while we teeter on the brink of what the President himself calls “a financial panic,” and while you and I enjoy the momentary luxury of a quiet respite, it’s time to sit back and take a long, hard look at what’s best for us, our country, our children and their children as well.

This is a defining moment of your lifetime and mine. It’s the moment I have been writing you about — and helping friends like you prepare for — week after week, month after month.

Now it is here.

Wouldn’t it be ironic if, after all your diligent preparation, you got caught in the melee, or if you let the opportunities for yourself and your loved ones pass you by? All due to a fleeting distraction? Perhaps due to a fluke of fate?

That is how critical this moment is. And that is why I am here with you today to help make sure it’s the right moment for the right decisions for you.

It’s Also the Last Chance for Our
Business and Political Leaders
To Step Up and Tell The Truth

Unfortunately, that has not been what they usually do. Most have been lying to you — deliberately and consistently.

Time after time, they swore on a stack of bibles that the out-of-control speculation was “under control,” that the sinking housing market was “unsinkable,” that the uncontainable debt crisis was “contained.”

When everything began to fall apart, they tried to persuade you it was “nothing to worry about.”

When something began to give you nightmares, they tried to dissuade you from taking “hasty action.”

But most of the time, they were aware of the dangers. They knew your future was in grave jeopardy. They saw it in their own government data and talked about it behind closed doors. They even made not-so-secret preparations for this day.

They didn’t suddenly discover these threats yesterday.

Now, finally, they’re saying something akin to what we’ve been saying all along. In a sudden gusher of frankness,

• Fed Chairman Bernanke warns of the “grave threat” posed by deteriorating lending conditions;

• Treasury Secretary Paulson tells Congressional leaders we’re “only days away from a Wall Street meltdown”; and

• In a major address to the nation, the President warns about major financial institutions teetering “on the edge of collapse” … and about the cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses.

Sound familiar? If you’ve been with me for a while, it should.

Take a look at our Money and Markets issue of December 3, 2007, “Dangerously Close to a Money Panic”, in which I shared hard data on how a money panic could …

“Threaten the solvency of major Wall Street firms like Bear Sterns, Goldman Sachs, Lehman Brothers, Merrill Lynch or Morgan Stanley.” Now, less than ten months later, every single one has failed, has been bought out, or is looking desperately for a merger partner.

“Increase the risk of future failure among large banks like Bank of America, Citibank, HSBC, JPMorgan Chase or Wachovia.” Now, Wachovia is close to failure; and many others, not far behind.

“Even force certain kinds of money market funds to break their solemn promise of preserving your capital.” Now, for the first time in history, we’ve witnessed a major money market fund to do just that — break the buck and deliver outright losses to its investors.

Or, go back to January 28 of this year and see my open letter to Fed Chairman Ben Bernanke, House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson. That’s when I warned them of:

“a vicious cycle more powerful than anything we’ve seen … debt troubles sinking our economy and the sinking economy triggering more debt troubles.”

And that’s when I advised them:

“Don’t let the U.S. government get dragged down into the quicksand. It’s too deep.

“Don’t bail out the banks, the bond insurers, and the thousands of other gamblers in the derivatives casino. They’re too big.

“Don’t get entangled in the giant web of bets and debts they’ve created over the years. It’s too complex.”

Now they’re agreeing with my deep concern for the future … but only for one reason — to justify taking all the steps and making all the mistakes I warned against.

I don’t presume to know more than they do or have all the answers they don’t have. But here’s where they and I fundamentally disagree:

They are the paramount pessimists, with little or no faith in our country’s ability to survive a financial crisis.

I am a profound optimist, with every bit of confidence in our ingenuity and resources to tackle the crisis without federal bailouts, clean up the bad debts on our own, and ultimately, recover with a cleaner slate.

The financial meltdown will be traumatic. It will turn many people’s lives upside down. It will hurt and hurt bad. But as I wrote to Bernanke, Pelosi and Paulson in January:

“No matter how dire the situation may be, it’s not the end of the world. We’ve survived worse, and we’re still here. We’ll survive this crisis as well.”

The irony of this saga, however, is the one final truth that Washington and Wall Street have yet to face:

The financial crisis will continue and will deepen one way or the other. At this late date, there’s nothing they can do to prevent it.

Whether Congress succeeds in passing legislation this weekend or not … whether the package is strong or weak … whether Monday’s market brings euphoria or panic …

No one can set back the clock ten years. No one can reverse the debt bubbles already created. No can undo the structural damage already done. The bad debts, like the truth, must come out.

In our white paper submission to Congress, we demonstrate why and propose concrete solutions.

Plus, in our press conference and press calls yesterday, we followed up with more. We talked to the Wall Street Journal, Dow Jones, Business Week and others. And the same point I’ve made here with you, I made there with them:

Washington’s entire argument is flawed at the core. They insist that the disease — the debt crisis — is so severe that we risk a total meltdown and a great depression.

But in the same breath, they argue that their cure — despite all past bailout failures and despite very nasty side effects — is somehow going to prevent the consequences.

They can’t have it both ways. And our white paper demonstrates they’re wrong on both counts: The debt disease — no matter how widespread — is not fatal for our country. And their so-called “cure” — no matter how expensive — is not the answer to our prayers.”

This leaves you with no choice. You cannot wait to see how long Wall Street’s celebration will last or how soon Washington’s plan will fail. You must take protective action now.

I have warned you. Now the President, the Fed Chairman and the Treasury Secretary have also warned you. There’s no reason to wait one moment longer.

Take advantage of any stock market rally to get out of all stocks we have not specifically recommended.

Take advantage of any temporary reprieve in the housing collapse to sell all the real estate you don’t want to live in.

Move your money to cash, and stash that cash in the safest, most liquid investment in the world today: a money market fund that invests almost exclusively in U.S. Treasury securities or equivalent, such as Capital Preservation Fund, Weiss Treasury Only Money Market Fund or any of the other excellent Treasury-only funds we have continually recommended. The yield is low. But that’s the price smart investors are paying for safety today, and it’s worth every penny. It’s better than the best bank.

And buy insurance against what could be one of the blackest Black Octobers in modern times, using the inverse investments we have been continually recommending throughout this crisis.

Good luck and God bless!

Martin

About Money and Markets

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

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