IT'S LATER THAN WE THINK

A SECRET MEETING

On Thursday, September 24, 1998 a secret meeting took place in the Manhattan offices of the New York Federal Reserve Bank. Present were William J. McDonough, president of the bank, and high-level representatives from some of Wall Street's leading banks and brokerage houses, including Chase-Manhattan, Goldman Sachs, Merrill Lynch, etc. The meeting concerned the threatened-demise of Long-Term Capital Investments (LTC), run by John Meriwether, long one of Wall Street's star traders, with the help of Robert Merton, a Harvard Business School economist who won the Nobel Prize for economics last year, and Myron Scholes, another Nobel laureate in finance. Long Term Capital is a so-called "hedge fund," one of several thousand such funds worldwide. Long Term Capital specializes in an especially high-risk kind of investment instrument known as a "derivative." Apparently, the object of the meeting was to organize a "bail-out" for LTC.

What was especially intriguing was, Why was the Fed getting involved in the bail-out of a private investor? "Maybe the Fed thinks it knows something that the rest of us don't," said James Grant, editor of Grant's Interest Rate Observer in New York. The rumor was that LTC was in danger of blowing more than one trillion dollars on derivatives that had gone bad or were in danger of going bad. Moreover, it developed that most of the money that LTC had invested into derivatives had been borrowed money - borrowed from some of the biggest financial institutions in the world - and that what was happening at LTC could be just the tip of the iceberg insofar as "hedge-funds" were concerned.

People who ostensibly are supposed to know what's happening appear very concerned. The reason, of course, is that more than one trillion dollars of borrowed money (and perhaps much more) is at risk - a sum which, in the end, could end up equaling almost one-tenth of the annual U.S. gross domestic product, a staggering amount of money by anyone's standard. Evidently the Fed is concerned that if LTC goes under, investment and trading losses at major banks, brokerages and private money firms will produce a world-wide domino effect: one major firm could be unable to pay off loans to another, causing that firm in turn to default, and so on, and so on. The news of all this has sent the market plunging - a plunge that even the Fed's well-trumpeted reduction of interest rates has done little to stem. It is beginning to appear that the global financial system - wracked by fourteen months of currency devaluations, plunging stock markets and sinking economies - is in much worse shape than financial experts have admitted.

"HEDGE FUNDS" AND DERIVATIVES

Derivatives are "investment instruments" whose value is linked to or "derived" from some other security. While derivatives are a very high-venture form of market speculation, they, nonetheless, have become one of the largest markets in the world. The size of the derivatives market was estimated at $55 trillion in 1996. More often than not, derivatives are linked to very complicated speculation in the currency markets. For example, one PEARL derivative (a derivative marketed by Morgan Stanley) is linked to its principal multiplied by the change in the U.S. dollar over a particular period of time, plus twice the change in the value of the British pound, minus twice the change in the value of the Swiss Franc.

Every major mutual fund in the country is in the derivatives market. Not only that, but most major corporations are into it up to their necks. The sad fact of the matter is, no matter how conservatively people attempt to "buy into" today's stock market by "buying into" "blue chip" companies like Mobil, Ford, GM, Procter and Gamble, Colgate-Palmolive, DuPont, etc., most are also unwittingly buying into the derivatives market as well. Why? - because most of these companies are heavily "invested" in the derivatives market. Unfortunately, the battlefield of the derivatives market is littered with victims: Orange County, Barings Bank, Daiwa Bank, and the Sumitomo Corporation, to name but a few.

THE SHADY SIDE TO DERIVATIVES:
WALL STREET BILKS MAIN STREET

And there is something more about derivatives that the "investment community" would just as soon like ordinary people not to know: to a large extent, they were originally designed to hide bad debt - principally bad "Third World" debt which the "big banks" had incurred in Latin America. Derivatives were instruments used by holders of bad "Third World" debt to transfer that debt from Wall Street (and the Third World) to Main Street, USA. Frank Partnoy, a professor at the University of California, San Diego and author of the book FIASCO - an expose of the "goings on" in the derivatives market - summed up in this way:

"What lessons did I draw from my experience selling derivatives (with Morgan-Stanley)? I believe derivatives are the most recent example of a basic theme in the history of finance: Wall Street bilks Main Street. "

He continues:

"(The) investment banks' recent appetite for mutual funds (the main vehicle used by millions of ordinary "Main Street Americans" to gain entrance into the action on Wall Street) is telling. Morgan Stanley, not content to sell sophisticated financial instruments (i.e., derivatives) to insurance companies and state pension funds, is now seeking out even less-sophisticated investors - you, for example - by agreeing to merge with Dean Witter. Other banks are engaging in similar mergers or cooperative agreements. Dean Witter's huge U.S. client base will be fish in a barrel for Morgan Stanley's marksmen. That merger - and similar combinations sure to follow - will create more profit opportunities for derivatives salesmen, more dangers for investors, and, if the dozens of derivatives victims in recent years are at all representative, more blood ..." (FIASCO, pg. 251)

HOW DERIVATIVES WORK

Take, for example, how derivatives were used to sell Adjustabonos, a peso denominated obligation of the United Mexican States (i.e., Mexico), to buyers in the United States. Nobody wanted to buy these Mexican obligations. Standard and Poor, the bond rating service, had rated them lower than "junk." They were worthless. So, they were "mixed" in a complex derivative's formula with a U.S. obligation (i.e., Brady Bonds, which were rated AA-) and marketed (with a carefully hidden caveat) in the U.S. with the AA- rating of the Brady Bonds - despite the fact that the real worth of the obligation didn't actually rest with the Brady Bonds, but with the Adjustabonos.

Take another example: NPC (Napacor). NPC was the 57-year old Philippines state-owned electric company. It was a rickety old company known more for generating "brownouts" than electricity. The World Bank, as NPC's leading creditor and only benefactor, had agreed to help the company make the transition to private ownership. The World Bank praised the privatization of NPC as one of the few successful such attempts in the developing world. It even agreed to provide a guarantee of principal repayment on NPC's new fifteen year bond issue. With that guarantee, a buyer of NPC bonds almost certainly would receive his (its) money back in fifteen years, even if NPC went bankrupt, because the World Bank (with its AAA bond rating) promised to repay.

Morgan Stanley had strong ties to the World Bank and the Philippines, and the Morgan Stanley Banking Division agreed, as part of maintaining those ties, to underwrite the new $100 million NPC bond issue. But despite the World Bank's guarantee, nobody wanted to buy the bonds. And the reason? - while the principal was guaranteed, the interest was not; and the record of bond issues in the Philippines was such, that the chance that the interest on these bonds would ever be paid was negligible. And who wants to tie up their money for fifteen years for nothing? What Morgan Stanley did was to convince Standard and Poor to - in essence - ignore the interest component of the bond, and issue a AAA rating based on the World Bank's guarantee on the principal. Standard and Poor insisted that a caveat to that effect be placed on the issue, but the issue was so complicated that the caveat was easily missed by most of those who purchased the NPC bonds. Morgan Stanley then turned around and marketed these bonds in the United States.

CAMOUFLAGING BAD DEBT AS GOOD DEBT

This is what a good deal of the so-called derivatives market is all about; this is what "hedge funds" - at least in part - are all about! Camouflaging bad debt (usually foreign debt) as good debt and marketing it in the United States under a less than honest Standard and Poor rating. It's not just a matter of betting on currency fluctuations, but more often than not it involves - in addition to betting on currency and stock fluctuations, adding into the derivative mix bad debt in the hope that the currency and / or stock bet will cover the risk of the underlying bad debt - which, when everything is good, more often than not, does. But when things go bad with derivatives, they really go bad.

HERE IS A RECKONING COMING

And who's been buying all this "junk?" - U.S. mutual funds, U.S. pension funds, etc. - in other words, "Main Street." And who - in the end - is going to have to pay for it all - "Main Street USA" - in other words, you! And the reckoning isn't that far off! The world is in for a financial meltdown.

Economist Robert J. Samuelson warns:

"We should not fool ourselves that the recent selloffs in world stock markets simply reflect a nervous reaction to Russia's turmoil or a long-overdue 'correction'. They signify instead a gathering fear that the global economy is drifting toward a dangerous slump (maybe even a world-wide depression), driven by forces that world leaders only vaguely understand and seem powerless to affect."

And who's responsible for all this? The so-called Illuminati? The Jews? No! That's stupid. Despite the Jewish sounding names on a few of the brokerage houses and banks involved - almost all the people involved in this fiasco are white, Anglo-Saxons who claim - in the main - to be Christians!

And more even than that - the fault lies with all of us. Did any of us really think that the stock market could continue to go up and up forever? Did any of us really think that buying into mutual funds which were paying off at rates approaching 20 and 30 percent a year was not a risky venture? If we didn't know it's because we purposefully chose not to know - all we wanted to do is collect the money. [We urge you to see our article on all this: "PONZI SCHEMES, THE INVESTMENT CRAZE, AND THE "END OF DAYS."]

Of course, one might ask, what does a financial meltdown have to do with us as evangelicals? - what concern is all this to us? Well, it should cause us great concern. The last time this happened, it led Christians in Germany to embrace an alliance with fascism which ultimately plunged them and all of Germany into a shame and dishonor from which even eternity may not be enough to extricate them. We are making a big mistake in thinking that it can't happen to us. Money - or the lack of money - does strange things to all of us! It causes us to do things which normally we would never do - to make compromises that under ordinary circumstances we would never contemplate.

OUR PRETENSE WITH REGARD TO MONEY

As Christians, we like to pretend that we are unaffected by money; that we've been delivered from such crass and carnal lusts; that the main things we need to be concerned about in the "end of days" are spiritual matters and those things which pertain to false doctrine and such other things as the infiltration of the "New Age Movement," etc. into our churches and denominations.

But while the Bible does somberly warn us with regard to these matters (i.e., false doctrine, carnality, etc.) - especially as they relate to the "end of days" - it also warns us that the struggle which will surround us as the end draws near will have a lot to do with money (Rev. 13:16-17) and our relationship with it, and we would do well, therefore, to take note of this fact.

To those Christians who possess money - who are secure in their financial affairs - the issues which surround money are at best ambivalent ones. It's only when our financial security is threatened that we become aware of how important money is to us, even as Christians - how much it dominates our thinking, our planning, the careers we choose, etc., indeed, our every waking moment. The fact is, nothing so frightens us as the threat of losing our financial security; and those who deny this are living in a "dream world." Would it surprise you, then, to learn that it is precisely on this point that all of us may soon be tested? - and not merely "in doctrine," but "in reality" and in the "here and now." And that day is not so very far off - a day when we all will be stripped of our money (or at least threatened to be stripped of it) - and then we shall see where we really are insofar as our "walk with the Lord" is concerned. No pretending then! Then we shall see if we are able to say with the prophet Habakkuk:

"Though the fig tree may not blossom, Nor fruit be on the vines; Though the labor of the olive may fail, And the fields yield no food; Though the flock be cut off from the fold, And there be no herd in the stalls -

"YET I WILL REJOICE IN THE LORD, I WILL JOY IN THE GOD OF MY SALVATION." (Habakkuk 3:17-18)

WHY DOES GOD ALLOW SUFFERING?

There are many Christians who shrink from such sayings - who say that God would never allow such a thing to happen to those who love Him and who are called according to His purpose. But that simply isn't true. For those who do believe it's true, we would simply ask, What does one do with Hebrews chapter eleven - i.e., those who "(chose) ... to suffer affliction with the people of God ... esteeming the reproach of Christ greater riches than the treasures in Egypt ... ?" (Heb. 11:25-26) And then there's Job; the Bible says:

"There was a man in the land of Uz, whose name was Job, and that man was BLAMELESS, UPRIGHT, fearing God, and turning away from evil.

"Now there was a day when the sons of God [angles] came to present themselves before the Lord, and Satan also came among them.

"And the Lord said to Satan, 'From where do you come'? Then Satan answered the Lord and said, 'From roaming about on the earth and walking around on it'.

"And the Lord said to Satan, 'Have you considered My servant Job? For there is no one like him on the earth, a BLAMELESS, UPRIGHT man, fearing God and turning away from evil'.

"Then Satan answered the Lord, 'Does Job fear God for nothing? [Why shouldn't he respect you since you take care of him so well?]

"'Hast Thou not made a hedge about him [haven't you put a wall around him to protect him from me?] and his house [his family] and all that he has, on every side? Thou hast blessed the work of his hands, and his possessions have increased in the land.

"'But put forth Thy hand now and touch all that he has; he will surely curse Thee to Thy face'." [but take away the wall and let me at him, and he will hate you]

"The Lord said to Satan, 'BEHOLD, ALL THAT HE HAS IS IN YOUR POWER ...'" (Job 1:1, 6-12)

Why does God allow his servants to suffer? Why does God allow Satan access to them? Why does God allow tribulation to enter their lives? As we said, many in today's Church deny that God does - but this is obviously not what the Scriptures say. The Bible says that Job was "... blameless and upright, fearing (i.e., respecting) God and turning away from evil ..." and more than that, there was "no one like him on all the earth."

Satan, of course, intends suffering for evil; but God intends it for good!! The fact is, GOD WAS GLORIFIED IN JOB!! Satan had said that Job loved God only because of the "things" God bestowed upon him. What a terrible thing to say. It is the curse of wealth. How does a rich man ever know that he is truly loved? The sad truth is, he doesn't so long as he retains his wealth. But should he lose it, then he will find out. Great crowds of people followed Jesus so long as he fed them and healed them of their diseases. But when tribulation arose because of the Word He spoke, the crowds disappeared.

TO BE LOVED BECAUSE OF WHO YOU ARE,
NOT BECAUSE OF THE MONEY YOU HAVE

Oh, to be loved because of who you are, and not just because of the "things" you have! This is the love that God desires from those who follow Him. It is the love that Ruth gave to Naomi, and this even after Naomi had asked Ruth to depart from her because she [Naomi] had nothing further to give Ruth - she no longer possessed any "things" with which to "purchase" Ruth's love:

"But Ruth said, 'Do not urge me to leave you or turn back from following you; for where you go, I will go, and where you lodge, I will lodge. Your people shall be my people, and your God, my God.

"'Where you die, I will die, and there I will be buried. Thus may the Lord do to me, and worse, if anything but death parts you and me'." (Ruth 1:16-17)

The Lord is looking for such to follow Him - those that will follow Him long after the "things" are gone, the crowds have left, the popularity faded; when the clothes are tattered and torn, there is no food on the table, and persecution rages all around. These are truly the disciples of Jesus - with such people one can repose trust and friendship, true love is here to be found!

SUFFERING REVEALS THE REAL CHURCH

It is only in tribulation that this love is truly revealed. So as the end draws near, let us not shrink from what must shortly come to pass. We will be judged by the world by what we do - whether it be to honor (as in the case of Job and those heroes of the faith in Hebrews chapter eleven), or to dishonor as was the case of the German Church.

The Bible says:

"Ye are the light of the world. A city that is set on an hill cannot be hid.

"Neither do men light a candle, and put it under a bushel, but on a candlestick; and it giveth light unto all that are in the house.

"Let your light so shine before men, that they may see your good works, and glorify your Father which is in heaven." (Matt. 4:14-16)

We repeat, Satan means to use the coming financial meltdown for evil, but God intends it for good. How we come to view this process depends on our relationship with Christ. If all we are concerned about is our security in the "here and now," our bank account, our career, our homes and cars, then it will terrify us and we will shrink from it in despair and anguish. But if we see this world and the "things" thereof as temporary "things" not to be compared to our beloved Lord, then we can say with Him -

"The kingdom of heaven is like unto a merchant man, seeking goodly pearls:

"Who, when he had found one pearl of great price, went and sold all that he had, and bought it." (Matt. 13:45-46)

We need to ask ourselves, Do we love Christ merely because of the "things" He gives us? or do we love Him for Who He is? - a love which has nothing to do with "things" and everything to do with Him as a Person.

Again, we urge you to read, "PONZI SCHEMES, THE INVESTMENT CRAZE, AND THE "END OF DAYS".

Written By S. R. Shearer
Antipas Ministries