The third quarter of 2008 has been so chaotic for the financial markets of the entire world that I will present to you a narrative of the causes of the financial meltdown in this newsletter.

Here are the questions:

What is the cause of the destruction of many financial institutions that were is the wealth management business not the wealth destruction business?

How did this become a global event?

What is ahead for the U.S. and global economies?

The cause of the financial meltdown is the lending of trillions of dollars to purchase homes, cars and other durable goods worldwide to borrowers that aren't able to repay these loans.

In 1977 President Carter signed into law "The Community Reinvestment Act". The purpose of this law

was to diminish "redlining" or not lending to poor people.

In 1995 President Clinton enhanced the 1977 act to further push banks to lend to people who were considered sub-prime borrowers.

The banks complied and that was the start of insane lending.

Wall Street wizards devised ways to sell these mortgages off the books of banks to investors who by 2003 were yield hungry as the Federal Reserve (Fed) had lowered short-term interest rates to 1%.

Mortgage brokers feasted in this frenzy offering "NINJA" loans to the masses (no income, no job, no assets).

Rating organizations rated these high risk pools of bonds investment grade.

The regulators stood by and watched it happen.

Financial institutions worldwide feasted on these securitized

debts, and hedged them by buying "Credit Default Swaps" from third parties (counter-parties.)

What is ahead for the U.S. and global economy is more pain, as foreclosures and defaults escalate on homes and other loans.

More banks and financial institutions will continue to fail in large numbers as they are linked to each other by counter- party risks.

There will be a world wide recession or depression as real estate values continue to plummet.

I remain committed to precious metals as the core holding in the portfolios that I manage for my clients as a hedge against the financial destruction ahead.

I have been able to limit the losses in my clients' accounts in 2008 by shunning the financial assets that are prone for further declines.