There is a whole lot more to the flaying of Goldman- Sachs than meets the eye. I don’t think the President, the Department of Justice or the SEC – or public indignation – are the drivers for this.

It’s the Fed and the Treasury.

Think about it. During the runup to the SEC charge and now that the DOJ has started investigating, not one word has been spoken by either Geithner or Bernanke. Treasury is a de- facto partner with Goldman and the Fed is Goldman’s putative regulator. The agency twins’ silence is deafening. They are the dogs that do not bark. Why now with Goldman? Why not other investment banks? The SEC’s case is very strong. A settlement promises ‘death by a thousand cuts’ to Goldman. The list of potential litigants vs. Goldman must be astounding. As Walter Bagehot observed over a century ago, what a bank sells is trust. When the trust is questioned there is nothing for the bank to sell.

The Fed has some serious problems. Read both David Rosenberg (for good, sensible reasons why Treasuries are a buy) and James Grant (for equally good, sensible reasons why Treasuries are to be sold). Maybe, it’s the other way around: in any event the outlook is a massive cash dollar liquidity squeeze. There are other non- fixed income demands on dollar liquidity as well.

Problem number two orbits monetary policy in the US. It is now made by the swing oil producer, Saudi Arabia. The Saudis like money but they like money that is worth something better. When the swing producer is ineffectual, the upper bound price – where the price causes demand destruction – sets the crude/dollar peg. When the point is reached where prices stabilize – either by the actions of the swing producer or by ‘fate’ – official US monetary policy is irrelevant.

Both the liquidity issue and the loss of monetary control are huge, interrelated problems for the Fed.

The crude oil/dollar trade is the only one that matters. If crude becomes a speculative asset the dollar weakens (temporarily) because the oil price skyrockets. The outcome is a general economic collapse. When crude is not a speculative asset with a stable price relationship the result is a hardening dollar, exchangeable for crude on demand.

A hard dollar is massively deflationary; people hoard it. A hard dollar creates a preference for cash currency which is fatal to both other currencies as well as dollar denominated debt. Hence the panic in Eurolandia, China and on Constitution Avenue. The Fed and the Treasury along with the other countries that use oil and have economies are between the devil and the deep blue sea!

Peak oil is real, we are living the consequences right now. It’s going to kick your ass, Blankfein’s faster!

Bernanke may be a knave but he is brilliant, a true ‘Dr Evil’. He realizes that he cannot break the dollar/crude peg. Printing currency – money – drives the stock market upward; equities are a liquidity trap. So are the oil markets … money printing is a positive feedback loop that will certainly destroy the USA economy.

I have said since this crisis began that if the Fed got into trouble it would push one of its zombies into the abyss … to burst the liquidity trap and trigger a flight toward Treasuries.

Bernanke’s ‘least bad’ choice is to sacrifice Goldman … and pray.

The best choice is energy conservation. Heaven forbid that the establishment might attempt to use common sense for once …