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Guest Post: The Opposite Of Apocalypse

Tyler Durden's picture


Submitted by JM

Fear is where the Power Is

November 2008:  the situation was dire.  But was it ever really an apocalypse?  We were all conditioned to think that without government intervention a waking hellscape of crappiness awaited.  And it continues.  Over and over, we are told of being just a step away from US government default if someone dares fiscal sensibility.  Or some variation of bank implosion catastrophe, or everyone going into foreclosure immediately, or something else equally horrible.  These outcomes are debatable, and they deserve to be debated.  Everything that happens in the future is debatable. 

What is not debatable is that we continue to be threatened with imminent doom if politicos don’t get what they want.  I’m not a believer in global conspiracy theories, much less a perpetual ruling class, but I am a believer that democracies are absolutely awash with propaganda, veiled threats, and fear-mongering. 

Why?  Fear is where the power is. 

Anybody who knew what was going on in November 2008 was afraid.  I know I was.  Being afraid of the unknown is exhausting and defeating.  The only way to defeat this fear is to make it known, to see the beast in the clarity of thought-light.  Being willing to communicate and engage is the step forward.  No matter how big, ugly, or evil it is, one can stand up to it, fight it, and break it. 

It’s time to break the spell of fear that makes this whole planet reek like week-old gym socks.  Breaking the spell means only this:  to be unafraid to communicate, to be open and receptive to ideas, to weigh them on their merits.  It doesn’t mean “find some guru and accept their crap ideology at face value.”  No one is totally, unambiguously, right.  Ideas may be challenging and unpleasant, but ones based on facts don’t wither under scrutiny.  Here goes.

Can a Company be “Shorted to Death?”

I’ve heard many reasonable, intelligent people say that AIG was shorted to death by Goldman Sachs among others.  On the face of it, sure looks like it.  After all, Goldman Sachs took out protection on AIG exactly when it was most vulnerable.  They profited from the demise of the largest insurance firm in the world.

The question is not if Goldman Sachs did it.  The question is why.

The reason why they did it is because AIG was the insurer of a large chunk of the equity tranche securitizations they held.  These securities were risky, and Goldman Sachs bought protection on them in the case of default.  This protection was desirable not just as default protection.  The price of protection goes up in times of stress, meaning profit, so it was a way to manage daily marks.

So Goldman knew there was a housing bubble that would pop and they would lose when it did because of these securities on book.  They also knew that AIG insured more than just their paper, but most of the world’s paper.  Before the crisis even started, AIG was having trouble posting needed collateral to cover their losses associated with the securitizations for which Goldman paid insurance.  This means Goldman would effectively pay insurance premiums for nothing, because AIG was at risk of not being around when they needed to pay out. 

So they bought CDS on AIG as a company. At least they would be able to recover a portion of their losses in the event that AIG went under.  This is the naked shorting that has been talked about so much.  It isn’t really naked at all, because it was insurance on the insurer of their book assets.  This is a good business decision.  It didn’t bankrupt AIG, because the swap counterparties, not AIG paid out if AIG went under. What bankrupted AIG were bad business decisions by AIG.  They had to mitigate risk exposure, which they did. 

So did this “shorting AIG” actually bankrupt AIG?  Could the situation be repeated for other companies?  No and no.  AIG didn’t pay out CDS upon default, the CDS counterparty paid out.  Now it is true that a blow out CDS curve can affect a company’s funding costs and this is especially bad for financial companies.  But insurance policy holders aren’t to blame for the spread blow-outs.  A company that makes bad business decisions that take them to bankruptcy is to blame for spread blow-outs.

And this isn’t a Goldman Sachs issue.  Just about everybody with securitizations on book that knew what was going on did the same thing.  In a sense, Goldman Sachs gets singled out because they weren’t a sucker holding the bag.  Why should anyone weep for some suckers on Wall Street?  Nobody weeps when the hammer comes down on retail. 

Am I saying all the bailouts and effectively free money was the right thing to do?  No.  I am saying that free money and political cronyism is a separate issue.  No hedge fund I know of got a bailout.  Is it Goldman’s fault that Uncle Sugar and the Fed screwed the taxpayers for generations to come?  I don’t know the answer to that and remain open to evidence to know either way.  I pass over it in silence until I know more.

The Opposite of the Black Swan:  Did Margining Mitigate the Apocalypse?

CDS were designed to manage credit risk: one leg gets a payout given a triggering event and the other leg receives a premium up to that event—sort of like an insurance premium.  To do this there has to be a buyer as well as a seller.  Market makers are flat credit risk.  Prop desks, hedge funds, and institutional books buy protection.  Net sellers are the monoclines and insurers—beat-up companies like AIG.  

Credit default swaps are transacted in terms of notional amounts, but the notional amount isn’t paid at the outset… it is funded, meaning it is paid in some series of installments.  Because they are paid in this way, and because the price of a credit default swap fluctuates in price based on supply and demand, the market value of the credit default swap position is monitored, mostly on a daily basis.  To cover adverse swings in price, the party affected must post collateral.    

So we come to times of crisis.  What do you think happens to CDS in these times?  That’s right, the spreads blow out and more collateral has to be posted.  More collateral is very beneficial to dealing with a crisis because a chunk of the crisis is paid for as spreads widen, before the default actually happens.   This means that the losses were less sudden and more manageable than they would have been otherwise.  Losses accumulated on a daily basis instead of all at once.  CDS helped because the problem was insolvency.  CDS procedurally expedite the insolvency process.

The problem was inordinate concentration of risk, meaning that one side of the risk was taken on by too few parties, or equivalently, the parties that paid in the event of default didn’t charge enough premium (because more premium reduces risk).

Has Nothing Been Learned?

Well, this is an open question which is in some ways a legal issue that others should address.    What I do know is that the industry is moving towards exchange traded derivatives, where there are a few central counterparties.  This isn’t just some cosmetic hogwash.  It can be clearly seen in the fact that non-OTC CDS contracts are being standardized.  Standardization means that contracts are more like homogenous transaction units where the differences in circumstance are dealt with via an upfront payment by buyer or seller. The events that trigger CDS payouts are simpler and straightforward to manage than OTC, so a clearing house can settle up a contract easily.  Counterparty exposures will be known, so you won’t have entities like AIGs effectively taking on risk that make no economic sense.  Far before crisis happens, entities won’t buy protection from counterparties with insane exposures.  

Exchange cleared CDS is huge because it means multiple layers of protection for transaction settlement.  More importantly, it means that dealers which make the market are responsible for each other’s failures.  The clearinghouse is a business that survives or fails on the basis of its risk management. How?

That’s how.  All this still does not mean that the system is unbreakable.  Things are simply better in an imperfect world.  But consider this… when was the last time that the CME busted on an options meltdown, or oil price spikes?  The answer is never. 

OTC (meaning non-clearinghouse for this purpose) CDS will continue to exist, at least until bank regulations catch up to how the market is evolving.  This is because some parties need to have trigger events that are contingent on restructuring events, not just defaults.  The motive is no speculation.  It is pure insurance need.

The Sun Also Rises

All the fear-mongering facilitates a symbiotic victimhood simply because it is so paralyzing.  It makes it easy to believe that never before has a society had to endure the trouble seen by those unfortunates living right now—because of the abomination unleashed by those whom voters legitimately brought into power.  The great depression needs its capital letters removed. Chairman Mao was a benevolent breeze of fresh air compared to Bush.  Cambodian genocide victims should heave a tremendous sigh of relief that they never saw the like of Ben Bernanke’s blasphemous money printing.  This socioemotional hypocrisy is an obscenity.

Take comfort in knowing that Joseph Fourier showed (Riemann proved) that everything can come in cycles, just like the sun coming up day after day on what is usually nothing new. And the sun will come up just like it always has independent of anything that happens on Wall Street. 

The last thing fear spreaders want is calm acceptance of truth; they want control.  It is truly debatable whether anything alive and feral like a financial market can be controlled.  But this is precisely what one is supposed to believe: a pretence that everything is under control.  Accept that the experts have it all worked out, simply because they say so.   Give in to public servant demands, or risk that hellscape scenario again and again.  And when the endgame finally vaporizes what is regardless of any action or reaction, the ruse just starts again with the hideously stupid formula:  “We can get things back under control.  Oh yes, we can!”

At their core, time-honored religious texts like Dao Te Ching and Ecclesiastes contain the vision of an intrinsic moral logic in the universe that makes things right.  Even if the universe rolls like that (debatable), convergence is slow and unpredictable. The support for anybody having anything completely under control is pretty flimsy.  Ben Bernanke could scarcely control himself on a “60 minutes” interview.  

Break on through to the Other Side

So what to do?  Let go of fear of the unknown and try to make it known.  Let go of easy comfortable ideas that just can’t stand up to news flow.  Holding on to shimmering BS is a sham unworthy of the intellect.  That is to say:  communicate and engage.

There’s no going back as memory ensures that ideas aren’t reversible.  There never was a Golden Age when everything was clean and easy anyway, because nothing has ever been easy or clean.  So what if the 1950s didn’t have derivatives. They had Jim Crow laws and H-bomb tests that literally annihilated pristine South Pacific islands instead.  They had to put up with this awful crap too.

Everybody needs containers to hold their insecurities, including the author of this joint.  But I know enough to know I haven’t figured it all out.  And I never will.  I will keep trying to figure out the nature of things, use the knowledge to make things better and adapt when it all changes in an instant.  This is the spice of life. 

Living things don’t stay still unless they are dead, so don’t let your thinking stall out.  Break on through to the other side. 



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Mon, 01/24/2011 - 22:14 | 901220 Ned Zeppelin
Ned Zeppelin's picture

The only apocalypse imminent in the fall of 2008 was the loss of immense amounts of money on bad casino bets by the Wall Street super-rich.  That's all it was. The balance of the American economy would have easily survived the loss of the likes of Goldman, Citi and BAC. If we had let it clean out then and there, we'd be a whole lot better off. But the decision to do otherwise was never in doubt, as the decision-makers were complicit, bought and paid for. 

Them's the facts. 

Mon, 01/24/2011 - 22:24 | 901262 Mitchman
Mitchman's picture


Tue, 01/25/2011 - 01:17 | 901700 Malcolm Tucker
Malcolm Tucker's picture

Algeria might be the next domino to fall because of Bernanke and company. Here are videos of the riots and even the hacking group Anonymous is getting in on the action!

Tue, 01/25/2011 - 05:17 | 901895 Dr. Sandi
Dr. Sandi's picture

The hacking groups with computers don't make me half as nervous as the hacking groups with machetes.

Tue, 01/25/2011 - 08:46 | 902061 snowball777
snowball777's picture

Even if its only the former that know where you live?

Tue, 01/25/2011 - 12:27 | 902898 whatz that smell
whatz that smell's picture

hilarious!...  Hotel 1984 has a room awaiting you..... "Room 101"

Mon, 01/24/2011 - 22:25 | 901266 Joe Sixpack
Joe Sixpack's picture

Here's what I was thinking then:

It's not the Forclosures- it's the deivatives; It is actually related

Mon, 01/24/2011 - 22:29 | 901278 papaswamp
papaswamp's picture

Iceland proved your theory.

Mon, 01/24/2011 - 22:30 | 901280 westboundnup
westboundnup's picture

Let's keep it real because I'm keeping it real.

Mon, 01/24/2011 - 23:47 | 901535 TruthInSunshine
TruthInSunshine's picture

Hank Paulson, bagman for and ex-CEO of The Goldman Sachs, went to Congress and told some whoppers, and he had help from The Bernank, The Geithner & even The Buffet, in scaring up a blank check for his boys on Wall Street - aka torture of the taxpayers.

Mon, 01/24/2011 - 22:37 | 901310 Implicit simplicit
Implicit simplicit's picture

True That. Gladman sucks along with the other banksters make Madoff look like a peeny candy thief.

Mon, 01/24/2011 - 22:46 | 901345 Billy Shears
Billy Shears's picture

But isn't the premise of this nonsense that "insurance" is a legitimate way to hedge risk? But isn't all insurance really a form of Ponzi...i.e. if everyone had to collect at the same time illiquidity would rule and insolvency would not be far behind. Sure, I own car insurance and other types but, if a black swan-type of event way can their be enough collateral available to satisfy all claims. Insurance is a bullshit scam...swim at your own risk!

Mon, 01/24/2011 - 22:49 | 901353 Seasmoke
Seasmoke's picture

Insurance is great (until you need it) the fine print

Mon, 01/24/2011 - 22:51 | 901363 jm
jm's picture

I'm not saying CDS is insurance per se.  There is an insurance motive, but CDS is much more than that, including expressing speculative views on credit risk of a name.

For example, I can't easily buy a Latvian cash bond, so I do the synthetic alternative... sell the CDS.

As far as insurance being a Ponzi, it's been around 4ever and serves an needed economic purpose, so who cares how you classify it?

Mon, 01/24/2011 - 23:42 | 901510 Joe Sixpack
Joe Sixpack's picture

CDS is somewhat of a fraud in that it is used to skirt insurance regulations that make insurance somewhat sure. CDS is not insurance, it is a derivatives contract. maybe the clearinghouse will make it more legit, but it is still not insurance.

Mon, 01/24/2011 - 23:46 | 901529 jm
jm's picture

I didn't say it was insurance, Joe.  I said there was an insurance motive in it and much more.

Tue, 01/25/2011 - 01:21 | 901708 chumbawamba
chumbawamba's picture

JM, another fine article, but along these lines, I'm reading this description of the way Goldman used the CDS and all that as just mental masturbation.  The whole practice itself is really just a form of mental masturbation with a vibrator in the ass and some midget porn.  It's all just manipulation and arrangement of dollar figures, like a life-sized board game.  I'm not sure if you were just explaining the new system or glorifying its sheer beauty, like a crazed inventor who can never finish an invention, always finding one more way to improve it, yet only adding complexity ad infinitum.  What you describe is madness.  These complex finance systems are complete crap.  The whole idea of finance has been lost.  It's all just a stupid game.

I am Chumbawamba.

Tue, 01/25/2011 - 01:48 | 901740 DoChenRollingBearing
DoChenRollingBearing's picture

Ahh, Chumba, great to write with you again.  I hope you got to see Cog Dis's nice piece today about veterans of Zero Hedge, your name came up favorably several times.  It is good to have you back.

I have become more and more a fan of simplicity, or perhaps better said, transparency.  I am still a fan(atic) of gold.  Simple and transparent (as long as it is not tungsten).  The incredible complexity of our financial system will lead to its destruction...  But, who benefits, cui bono...?

I would imagine that you would agree with my contention that NONE of our financial problems have been solved.  The SHTF scenarios are still in play...  Myself, as before, I am trying to prepare and accumulate actual products of value, in case (I would guess probably) things go bad...


It is either (for me) to flee to Peru when TSHTF, or fight it out here with weapons ready and stocked.  Which way will the Bearing go?  Maybe it depends on how much capital I can get to Peru...  But, if stuck here, watch out Fascist Goons, some of us await you, and you will not like (or even live) through the experience.

Mon, 01/24/2011 - 23:14 | 901424 jm
jm's picture

Another thing.  Much of the collateral needed to cover is posted as the spreads widen before the default event.

Central clearing mitigates the jump to default losses.  You have a point, but I think it unlikely.

Mon, 01/24/2011 - 22:47 | 901348 Seasmoke
Seasmoke's picture

i for one do NOT believe any one here would have been all that badly hurt and if we were , it probably would have been a good cleansing that we all needed anyway (even if done by a fire hose)

Tue, 01/25/2011 - 10:27 | 902343 docj
docj's picture

Thread winner, right out of the gate.

Well done, Sir Ned.

Tue, 01/25/2011 - 16:47 | 903911 Lord Koos
Lord Koos's picture

As outlined in "Disaster Capitalism" by Naomi Wolf

Mon, 01/24/2011 - 22:18 | 901234 spinone
spinone's picture

Don't let them convince you that your interests are aligned with theirs.  I am all for libertarianism for individuals, and strict regulation of corporations.  banks are utilities, and must be regulated as such.

Mon, 01/24/2011 - 22:43 | 901327 jm
jm's picture

Banks shoudl have been forced to pay the piper.  If they couldn't settled up, they should have been nationalize with shareholders and bondholders wiped out.  Recapitalize then IPO them to cover a part/all of the cost.

More regulation is never the answer.  Market discipline is the answer.

Mon, 01/24/2011 - 23:17 | 901435 Wynn
Wynn's picture

But they didn't have to pay the piper. That's the point.

Mon, 01/24/2011 - 23:23 | 901456 jm
jm's picture

A reason for all of us to be pissed, yes.  But it has nothing do with the usefulness of CDS contracts.

Mon, 01/24/2011 - 22:17 | 901237 DoctoRx
DoctoRx's picture

Is it Goldman’s fault that Uncle Sugar and the Fed screwed the taxpayers for generations to come?

Since GS made it corporate strategy to insinuate itself into the government, "fault" is not the term to use.  Undue influence, perhaps?

Mon, 01/24/2011 - 22:24 | 901265 jm
jm's picture

It seems likely that Goldman had a man in the White House--Paulson.The question is to what extent did he exert influence to benefit Goldman and others.  I do not know.  The influence peddling appears to be getting worse.

But like I said, it is a separate issue from my central point.


Mon, 01/24/2011 - 22:34 | 901290 alien-IQ
alien-IQ's picture

"It seems likely that Goldman had a man in the White House--Paulson"

It "seems" likely? Are you joking?

Mon, 01/24/2011 - 23:16 | 901432 DeeDeeTwo
DeeDeeTwo's picture

"Fear is where the power is" = Human Condition

Paulson played Fear like a violin. His brazen theft was the end of pretense of Rule of Law in America. It's been all downhill since. History will not be kind, baby.


Mon, 01/24/2011 - 23:20 | 901445 jm
jm's picture

+ some large number

Mon, 01/24/2011 - 23:44 | 901520 Joe Sixpack
Joe Sixpack's picture



Sorry, didn't mean to exaggerate

Mon, 01/24/2011 - 23:23 | 901457 In Fed We Trust
In Fed We Trust's picture

And it also seems that this man Paulson threatened Congress with words like Martial La w and Great Depression.

And is seems this man Paulson, executed a man named Lehman Bros in the back rooms of the White House.  

And the next day changed his mind with AIG.  

And this man Paulson didn;t see it coming, the real estate thing even though he was just CEO of Goldman for 8 years.  



Mon, 01/24/2011 - 23:28 | 901476 jm
jm's picture

Lehman executed themselves with their funding structure, combined with their clearing bank saying "I'm done with you."  This was their legal onus to do so.  Really Lehman is at fault for Lehman's demise.

The reason why AIG was bailed out I think is because TPTB saw the damage caused by a Lehman bankruptcy as miniscule compared to an AIG bankruptcy.

Panic?  Cronyism?  Not sure we'll ever know.

Mon, 01/24/2011 - 23:46 | 901530 Joe Sixpack
Joe Sixpack's picture

Wasn't a chunk of US Federal pension funds invested in AIG?


Also, Paulson had to be sure that GS got paid by AIG.

Tue, 01/25/2011 - 00:04 | 901581 jm
jm's picture

These very well could be the true motives.

Tue, 01/25/2011 - 08:53 | 902072 snowball777
snowball777's picture

It's been my understanding that AIG was rationalized as different because of the amount of international exposure to the name, whereas LameAss Repos would not cause "an international incident", if and when it souffled.

And Dick Fuld was (and most certainly is) a fucking asshole.

Tue, 01/25/2011 - 09:18 | 902138 jm
jm's picture

LOL.  the past part.

Mon, 01/24/2011 - 22:30 | 901281 papaswamp
papaswamp's picture

Because the 'american' is lazy and apathetic..the screwing will continue. Not until a riot calling for heads will anything change...I don't see that happening anytime soon.

Mon, 01/24/2011 - 22:37 | 901306 steveo
steveo's picture

Not just fault, direct planned knowingly criminal activity

Mon, 01/24/2011 - 22:17 | 901238 Robslob
Robslob's picture

I know fear sells better when idle minds (unemployed) have too much time on their hands.
Fear sells when people feel dependent not independent.
Fear sells when your gut tells you...I am being lied too.
Fear sells when control is lost.
Fear sells when confidence is lost.

I would rather fight for freedom with the uncertainty of obtaining it than not fight at all in a complacent life....

Mon, 01/24/2011 - 22:36 | 901304 papaswamp
papaswamp's picture

little past that point now aren't we? Freedom was lost a while ago. As long as the masses had 'things' (ex big plasma screen tv, mcnasty's) they are placated. 

Tue, 01/25/2011 - 08:55 | 902076 snowball777
snowball777's picture

Fear sells only when you buy into it.

Tue, 01/25/2011 - 18:11 | 904179 RockyRacoon
RockyRacoon's picture

Yes.  But if I am not buying in and 20 million others are, what good does my resistance do?

Mon, 01/24/2011 - 22:20 | 901249 TeMpTeK
TeMpTeK's picture

The Apocalypse is still dormant on bank balance sheets..




Mon, 01/24/2011 - 22:26 | 901270 Kreditanstalt
Kreditanstalt's picture

What's he trying to say??

Mon, 01/24/2011 - 22:33 | 901285 jm
jm's picture

Can a company be shorted to death? No.  So stop talking nonsense, people.

CDS weren't the issue, CDS may have mad the situation easier to take.

Central clearing substantially makes the financial system more stable.

We need to drop the self-pity, things have been bad before. 

Try some contructive approaches to relating to our situation instead of relying on outdated or incorrect information.

Mon, 01/24/2011 - 23:48 | 901536 Joe Sixpack
Joe Sixpack's picture

CDS themselves are not the issue. The entire shadow banking complex/derivatives are. CDS are part of  this- maybe the more benign and useful part.


Tue, 01/25/2011 - 00:28 | 901612 TimmyM
TimmyM's picture

I have not heard anybody talk about a shorting death spiral in ages. Why bring it up? Only idiots ever talked about it. The SEC used it as an ineffective temporary ploy.
CDS were an enabler of the credit bubble. They were and are a part of the shadow banking system. Their social utility is questionable. They have no place on the balance sheet of the still TBTFs. Socializing losses is bad policy. Collateral be damned, markets are not continuous.
Central clearing is the spreading of risk becoming the concentration of risk. Sounds like a security blanket used to justify excessive leverage until we socialize losses again.
Breaking out of self-pity I agree with. Destroying the wasteful financial culture and replacing it with a manufacturing base sounds like a good constructive place to start.

Tue, 01/25/2011 - 06:17 | 901928 jm
jm's picture

Hey Timmy.  Good to see you.  I just saw that short to death business mentioned last friday here on ZH. 

Was it CDS that enabled the credit bubble?  Or was it epic low interest rates that soaked the world in cheap money and moral hazard that made banks use CDS and just about everything else in an overly risky way?

If CDS can't stand the test of time in a non-cheap money, lower moral hazard environment then we'll know I was wrong.  If that ever happens.

I agree that central clearing concentrates the risk, but the incentive structure it puts in place is powerful.  It makes exposures clear, so buyer won't buy from crazies with too much risk.  It also creates incentives for market makers to police each other to some extent because they are on the hook for each other to some extent.


Tue, 01/25/2011 - 01:29 | 901718 chumbawamba
chumbawamba's picture

Ok, finally!  Someone who can explain how this is all going to get better.

Go ahead, JM.  Tell us how we overcome a $14,000,000,000,000 deficit and satisfy future liabilities of at least $100,000,000,000,000.  Tell us what miracle is going to allow the middle class to pay for bankers and beauracrats to continue enjoying their whores and coke.

I've been waiting a long time for this.  Don't disappoint.

Tue, 01/25/2011 - 07:10 | 901847 DrLamer
DrLamer's picture

Tell us what miracle is going to allow the middle class to pay for bankers and beauracrats to continue enjoying their whores and coke.

Solution (You may call it "miracle") exists. It exists *today*. You can obtain it as a GIFT. This is a free gift for righteous people only. The problem is ... you are not righteous people. You are not even "sheeple".

You are pigs.

You are regular, plain, fat, stupid paganistic pigs. USA is not a sheepland. You are ruled not by shepherds, but by jewish financial mafia. You eat not a grass, but a BS from mass media.

If this THE SOLUTION be applied TODAY, then the result will look like a HUGE non-free gift from false prophets like Alan Greenspan, or Ben Bernanke, or David Axelrod, or ADL.

And The Owner of this solution, ... THE SOLUTION - simply does want to hold a copyright on it.

This is a very natural desire of any creator, especially of The Creator of everything.

Therefore the rest  of the American People should pass via LONG starvation - to re-order the public opinion in a proper way, and in order to obtain that free gift.

I am just forced to repeat: the starvation is not a PRICE for that free gift. Starvation is the only visible way of receiving that free gift. Starvation is an essential part of Terms and Conditions to get that free gift, in order to eliminate today's sins.

Tue, 01/25/2011 - 11:34 | 902588 chumbawamba
chumbawamba's picture

When did they let Jared Loughner out of jail?

Tue, 01/25/2011 - 05:24 | 901900 Hephasteus
Hephasteus's picture

"I've been waiting a long time for this.  Don't disappoint."

You sound like you're expecting disappointment. LOL Have you had a previous pattern of disappointment here?

Tue, 01/25/2011 - 06:54 | 901931 jm
jm's picture

The only thing I can tell you and everyone else here is that things are going to change.  And things will work themselves out.  There is too much emphasis placed on policy and leaders.  Things are gonna go where they go independent of anything policymakers do.

Policy can either try to impede change or hurry it along.  I'm in favor of acting in my best interests and I think everyone else should too.

Tue, 01/25/2011 - 11:36 | 902603 chumbawamba
chumbawamba's picture

Yes, things will work themselves out, but CDSs won't.  They will rip the system into shreds when they go.  And this is my greater point.  Glorification of and blind faith in these systems is folly.  When it goes, it takes everything with it, including your awe and reverence.

It will get better, but only when that toilet gets flushed.

I am Chumbawamba.

Mon, 01/24/2011 - 22:43 | 901330 Wynn
Wynn's picture

It's just business. The business of fucking over billions of people. And business is good.

Mon, 01/24/2011 - 22:46 | 901339 jm
jm's picture

This is about ideas.  This kind of shit won't cut it.  Engage ideas or continue to be a fool.

Mon, 01/24/2011 - 23:08 | 901406 Wynn
Wynn's picture

What ideas? More debt to service previous debt, to keep consumerism chugging along? If wanting something better is being foolish, then yes I'm guilty. 

Mon, 01/24/2011 - 23:15 | 901429 jm
jm's picture

There is a subject here.  A general rant on the the Fed's money printing is a separate issue that we don't disagree about.  So why waste our time harping on it?  Stick with the subject.

Mon, 01/24/2011 - 22:27 | 901273 Pants McPants
Pants McPants's picture

Communicate and engage is great please, if/when someone figures out how to reach other people please let me know.  Most people I know are more interested in why Rahm (as of today) isn't on the ballot.  They'd rather debate whether or not Twitter was too tough on Jay Cutler yesterday.  Sad times.

That said, the author's conclusion is fantastic.  Every day I work to convince myself that it is more than enough to know the truth myself...the masses be damned.  Nonetheless the drive to help others persists.

Mon, 01/24/2011 - 23:45 | 901523 old naughty
old naughty's picture

Let fewer be damned...spread the anti-fear is what must be done. Thanks to JM's great conclusion.

Mon, 01/24/2011 - 22:27 | 901275 Ras Bongo
Mon, 01/24/2011 - 22:32 | 901276 Mark McGoldrick
Mark McGoldrick's picture

Yes, indeed, fear is where the power is.

And speaking of fear, let's talk about the fear-mongering around the Great Silver Pump of 2010.

In my opinion, this began in July when Sprott announced his intention to start a Physical Silver ETF.  Just three days later, ZeroHedge started the campaign with:

And the propaganda began in earnest from daily articles to cartoon characters. By the time of Sprott's July announcement, he was already holding Cdn$627M in silver bullion.  Let the squeeze and propaganda begin! How long did it take?  30 days. By the end of August, silver began its upward march by >50%, while gold only rose 15% in this period of time. Weird disconnect.

page 3. 

With regard to all the silver-pumping that we've seen in the past six months, it is interesting that HSBC barely gets mentioned.  For every article/video about HSBC's involvement, there are 50 more about JPM. Given that Sprott routinely voices his concern about silver manipulation, it is interesting that he would use HSBC as one of his underwriters for PSLV. Why would he choose a bank involved in a RICO suit for the very market that he is attempting to enter?  This is especially concerning given his (and those on his payroll) near obsession with removing fraud from the silver market.

Page 109.

Lastly, why the manufactured obsession with silver short contracts in the first place? If you actually examine the data, the percentage of silver short contracts (20.7%) against open interest is less than palladium (37.2%), gold (29.6%), platinum (23%), the Canadian dollar (24.4%) and even the Mexican peso (at a whopping 38.4%).

All this silver hyperbole is bullshit, which would explain why price continues to correct despite all the hoopla about JPM imploding, the world's richest man getting into the fray, and coin dealers low on inventory. 

Strange world we live in.  

Maybe the head of equity trading at RBC would have some answers. 


Mon, 01/24/2011 - 22:40 | 901315 spinone
spinone's picture



do you forget to strap on your nuts every time your investment drops? 


nice ass tho'

Mon, 01/24/2011 - 23:09 | 901411 Mark McGoldrick
Mark McGoldrick's picture


I'm telling you that you got hooked and crooked, and that's how you respond?

Here's Sprott's October 18 prospectus:

Pay attention to page 3 again.  Here Sprott (the Manager) lists silver bullion holdings of Cdn$754M. 


from mid July to October when silver moves from ~$18 to ~$24 (25% increase), Sprott's holdings only increased by 17%.  He was selling his bullion, while he and those on his payroll were selling the propaganda that JPM would implode, gold/silver ratios would revert to 16:1, silver was going to $500, and everyone should invest in his new Trust that would finally bring justice to the silver manipulation market - except HSBC, of course....they would collect fees to help pay their RICO lawsuit.

While his face was in front of the television, his wallet was at the cash register.  

You readers are the sheep.  Get it?


Mon, 01/24/2011 - 23:16 | 901433 Spalding_Smailes
Spalding_Smailes's picture

Read my post below. Smart money = Gone.

Mon, 01/24/2011 - 23:50 | 901541 breezer1
breezer1's picture

the sheep are those who fail to recognize that gold and silver are political. treat them as commodities at your own risk. TPTB need us all to accept their paper. PMs are the true measure of inflation. inflation is the method of theft used by governments and central banks. the war is one of distraction from this truth. the loss for TPTB will not be the dollar loss for JPM et al. the loss will be in the collapse of the ponzi.

just accumulate physical and be safe.

Tue, 01/25/2011 - 00:40 | 901630 Mark McGoldrick
Mark McGoldrick's picture

PMs are the true measure of inflation...

NO THEY AREN'T. You think inflation went up 50% in six months?

Gold and silver are anything that the plutocrats want them to be. 

For the past 7 years, the Wall Street casino had dozens of tables at which they could take your money: stocks, houses, land, buildings, Crocs, Krispy Kreme Donuts, inverse triple short ETFs, synthetic CDO's, metals - nearly everything was in play, no matter how absurd.  All Wall Street needed was to convince you to play the game as long as possible, because - like a real casino - they run in front, skim from top, pull the rug out and always win. The more tables that they can play against you, the better. 

Today, at the Wall Street Casino (Wallagio), the only table people are willing to play is the "Inflation Table."  And it's a hot table.  Gold. Gold. Gold.  Silver. Silver. Silver. Rice!  Corn! Oil! Hyperinflation! The Apocolypse!  Food Riots!  Step right up and spin the wheel!!

Wellagio will play that table until they can't.  And, like always, you will hold the bag, while they pass out free drink coupons at the next table they lure you to. 



Tue, 01/25/2011 - 00:54 | 901662 TimmyM
TimmyM's picture

Wall Street, and your Achilles heel-What is money?

Tue, 01/25/2011 - 02:39 | 901794 StychoKiller
StychoKiller's picture

Bottom line:  Some of us have exchanged small, decorated pieces of linen for PMs.

Mon, 01/24/2011 - 23:53 | 901552 oddjob
oddjob's picture

Eric Sprott earned millions years ago by fleecing total greenhorns like you that bought Citi at $55.

Tue, 01/25/2011 - 00:37 | 901567 Mark McGoldrick
Mark McGoldrick's picture

That is the most bizarre, random, irrelevant and fictitious statement I've ever heard. Ever.  If you're going for fiction, at least be witty.   


If you're going to pull things straight out of your ass, pull your head out first. 


Tue, 01/25/2011 - 01:26 | 901709 Mark McGoldrick
Mark McGoldrick's picture

Here.  This is how to pump silver prices and fuck the sheep.  

Straight from Sprott's prospectus:

Page 16.

The Trust anticipates that the price of physical silver bullion going forward and, in turn, the future value of net assets of the Trust and the NAV, will be dependent upon factors such as global physical silver bullion supply and demand, investors' inflation expectations, exchange rate volatility and interest rate volatility. An adverse development with regard to one or more of these factors may lead to a decrease in physical silver bullion trading prices. A decline in prices of physical silver bullion would decrease the value of net assets of the Trust and the NAV.

Got it?  Just launch a fear of hyperinflation campaign and a "silver shortage" campaign, against the backdrop of a RICO suit and a CFTC investigation and VIOLA!  Silver goes parabolic, just in time for the launch of your Physical Silver ETF.  Very clever, eh?




Tue, 01/25/2011 - 05:19 | 901890 Hephasteus
Hephasteus's picture

Oh I see this was all just a massive pump and dump so sprott could offload 5 or 7 percent of it's silver holdings at profit. You know that's what I love about powers that be. When people are standing right in their face fucking the shit out of them. They like to claim they are behind it.

McDonalds to raise prices

Motherboard price increases coming.

Food price increases coming and HERE.

Riots that are set off by a cop arresting a person trying to survive by selling food. Sets himself on fire and this is somehow the brainchild of cia operations control to destablize governments.

Next catfish mouth please. You are not leading or controlling shit.

Get some gold get some silver. Inflation is coming. They do not give a shit about lifting all boats. They want you out of thier boat and onto the inflation fucktreadmill.

You guys are fucking leaking desperation. We can smell it, see it, feel it. If this is all the truth you can shine you're going to lose. We are each others illuminati now. We don't need you any more. We will decompile your ass, checksum every packet and check it against the truth. You guys like to talk about lifting boats. Well lift away. But your going to snap your back on this one.


Tue, 01/25/2011 - 10:07 | 902192 Mark McGoldrick
Mark McGoldrick's picture

Remarkably, you've missed my entire point.

I suppose if it isn't spelled out for you on giant flash cards, you just can't process it, can you? Perhaps I should make an easy-to-follow, propaganda-driven fuzzy bear cartoon for you - those seem to work well for the neuron impaired.  My reference to Sprott selling some of his bullion was just a tangential point to show that he was willing to sell under $24, while telling everyone it was headed to $500.

The much larger, much more relevant point is something entirely different and more sinister.  I gave you a lot of facts to sift through, and if you're not capable of reading between the lines, then just forget it - I heard there's another cartoon in the works for you soon.

Back to your regularly scheduled programming..... 

Edit in:

While you drink your Kool-Aid, think about the line from the cartoon, "This is the biggest thing since the GM IPO."  Now that's true comedy, because the GM IPO was pure propaganda for the sheep - no one on Wall Street gave two flying fucks about it. It was just another tradable ticker to add to their screens. Do you actually think that the GM IPO and claims that the world financial system is about to implode are commensurate?  And the "inside information" regarding traders in London who were going to start squeezing JPM's shorts? - that had begun last summer. The story was already over. Done. Why do you think the price of silver shot up by >50%?  Why do you think silver prices have corrected since the supposed "inside information" was leaked?  You're just another sheep, easily influenced by cartoons and hyperbole.     

Ask Tyler why he changed the website from SilverGoldSilver to GoldSilverGold. 

Tue, 01/25/2011 - 16:14 | 903767 Scisco
Scisco's picture

Thank you Mark. You have given me a lot of information to go through.

Tue, 01/25/2011 - 21:12 | 904579 Scisco
Scisco's picture

Small thing. The RICO lawsuit came after the the prospectus was filed.


dated Nov. 3

Prospectus: Oct. 18th

I will admit that the absence of HSBC from silver 'propaganda'  is interesting. Still trying to verify your information on the shorts.

Wed, 01/26/2011 - 00:05 | 905217 Mark McGoldrick
Mark McGoldrick's picture

Thanks for following through with my posts.  Indeed, the RICO lawsuit was filed in early November, however everyone knew that HSBC had cross hairs on them.  This fraud/manipulation by both JPM and HSBC was well known by everyone for a long time.

Here's the point, though:  Sprott marketed himself and his new Physical Silver ETF as a campaign against silver manipulation.  It is incredibly disingenuous of him to choose HSBC to be an underwriter of it, when everyone knew a RICO lawsuit was coming.  Furthermore, if you listen to his interviews, read his articles and those articles written about him, it is all manipulative (dis)information designed to drive silver higher. Take for instance his argument that the historical gold/silver pricing ratio is 16:1, so silver should be $80.  You have to use a 5000 year chart to extract that ratio - that's ridiculous. Does anyone actually believe that data from 3000 years before Christ is relevant? The much more relevant ratio to our modern economy would be a 15 year ratio, 60:1.  But that ratio puts silver in the lower 20's, so you never hear it.  Isn't it coincidental that Sprott and the extranormal cartoon would use the exact same exaggerated ratio?  

Sprott's even made comments about silver going to $500/ounce.  It's all just price-pumping bullshit, and what makes it so hypocritical is that he markets himself as someone trying to weed out silver manipulation.  It would be laughable, if it wasn't so pathetic.

Did you look through the FaceBook page of  It is full of Sprott/Embry interviews and articles with deleted links (Embry works for Sprott, if you don't know).  And it has NIA links, too - another pump n dump organization.!/group.php?gid=128372287173866&v=app_2373072738

What about that cartoon filled with disingenuous propaganda?  Who really made it?  It wasn't some coin shop guy, who shut his business a day after it aired. That YouTube page was created in November; the video was uploaded on December 2nd and it immediately went to ZeroHedge a few hours later. It was very deliberate. Then there was a Hitler video circling a few days later that was obviously made in conjunction with the bears cartoon.  It was very congratulatory to ZeroHedge (with the red herring reference to GATA) for pumping silver prices.

Look at 2:43.  

There are other things I could say, but it would be bad form for me to post it here.

If you care and have the time, you should look into all of this. You would be truly shocked.    

Mon, 01/24/2011 - 22:32 | 901282 RobotTrader
RobotTrader's picture

Ras sums it up here.....


This is the painful lesson pounded into Rasputin's thick skull...

- Sun, Jan 23, 2011 - 08:25 AM

And to think that back in February, 2009, a hysterical Rasputin was screeching:

"This is it!!! The Dow's imploding!!! The economy is collapsing
BofA is bankrupt!!! Citi too!!! There is nothing that can be done!!!
We're scroomed!!! Scroomed, I tells ya!!!"

Well, it was just about that time that the Fed and Uncle Thug
kicked in the "afterburners" on their
monetizations/stimulations/nationalizations, turning around the stock
markets--and the entire economy--on a dime.

In that ensuing two-year period, the NASDAQ has ALREADY doubled,
and the S&P (a much larger index) and DJIA (the "biggie" that
everyone watches) are well on their way to doing so.

This rejuvenation of the Dow (nearly SIX THOUSAND points, straight
up) totally blows away the five-year, seven-thousand point run up that
took place between 2002 thru 2007.

...over the previous three-years, beginning with the creation of "Maiden
Lane" to absorb Bear Stearns, and ending with "QuantSleaze 2.x":

There is no law, rule, precedent, Constitutional covenant, or
boundary of good taste that the Thugs in Charge won't violate in order
to keep, increase and consolidate their power"

This realization began to dawn on the Mad Monk when he started
carefully documenting the unbelievable amount of Thug intervention in
his "Rasipedia" series on the other board, back in the Fall of 2008.

Then, when the Fed and Uncle stepped in, in February, 2009, and
saved BofA and Citi, Ras really began to get the hint that it was "Game
Over" for stock shorters and GHSers/SHSers.

Finally, with "QuantSleaze 2.x" announced last year--combined with
all the other shenanigans these goons were pulling--Ras finally threw in
the towel.

(Ras Conclusion): Ras has finally let it sink into his thick
skull that the levitation of stock markets is "A matter of national
security" and will never again make the fatal financial mistake of
believing that stock market crashes will be allowed by TPTB.

It ain't gonna happen in our lifetimes, period.

This latest move to transfer the Fed's
losses to the Treasury (translation: the U.S. taxpayer) should be a
wake-up call to anyone still clinging to outmoded paradigms that the Fed
is going to be "shut down".

Mon, 01/24/2011 - 22:47 | 901340 Spalding_Smailes
Spalding_Smailes's picture


Timber !!!!!!!!!




Mornings around here are fragrant: We all wake up to smell the coffee brewing. There's something brewing in the gold market, though, that might not be so pleasant.

Lease rates in the London bullion market have risen precipitously. Well, it's not so much that lease rates are rising - they're pretty cheap compared with their year-ago levels - it's more that forward rates are at historic lows.



Forward rates determine the pricing of bullion transactions in the over-the-counter market. A decline in forward rates implies one of two things: There's either a scarcity of metal available for swap or lease transactions, or there's heavy forward selling.



So, which is it? Well, we can gather some clues from the COMEX market. The latest Commodity Futures Trading Commission data show commercial accounts engaging in heavy selling and long liquidation. To boot, money managers have built their largest short position since August 2009 (and, if you're a contrarian, small speculators have taken up their strongest long position in a year and a half).

Given all that, the aroma wafting from the gold market seems to be a harbinger of a sell-off. Technically, gold's stalled now. Key support for the February COMEX contract sits at $1,120 after bulls backed off from a test of the halfway point for the contract's December swoon. A close below that level makes the sell-off case.

If February's price closes below the $1,111 level, the December low at $1,075 then becomes the bears' target.

No guarantees, of course, but at that point, bulls will have to consider how much they're in love with a four-figure gold price. How's that smell?


Mon, 01/24/2011 - 23:28 | 901475 the grateful un...
the grateful unemployed's picture

so the Fed has a poison pill clause in their charter?

Tue, 01/25/2011 - 07:02 | 901958 Hephasteus
Hephasteus's picture

Keep confessing catfishmouth.

Mon, 01/24/2011 - 22:34 | 901291 gwar5
gwar5's picture

Fear is one thing. Rational concern and preparedness about a breakdown in institutions is another.

Reassertion of self government and self determination is the answer and we're working on it.

Mon, 01/24/2011 - 22:34 | 901293 walcott
walcott's picture

Big Jew is watching you and Big Jew uses fear to control you and eventually kill you.

The world is Palestine, welcome to the reservation.

Mon, 01/24/2011 - 22:55 | 901377 satansanus
satansanus's picture

America is not and never will be palestine. America is a land of giant oceans and giant trees and giant men black brown and white.

Tue, 01/25/2011 - 07:17 | 901949 DrLamer
DrLamer's picture

America is not and never will be palestine. America is a land of giant oceans and giant trees and giant men black brown and white.

This is official : since representative Mr. DrLamer put his avatar picture on and (it is a cedar of Lebanon, "Dedus"), United States euv America IS considered as a Palestine.

Mon, 01/24/2011 - 22:35 | 901296 walküre
walküre's picture

Nice try.

Go long unicorns.

Debt is on the books and just buying your own debt paper ad infinitum however secretive its done will only achieve one thing. The end of your currency. Reserve currency status is overrated when that currency is diluted beyond redemption.

25 billion of funny money coming "online" to keep going. Who knows if that is the correct amount, could be more for all we know. There's no audit. Never will be.

So, you can't pay your debts and you can't service your debts. You create money out of thin air, change accounting rules to hide the trick and just keep diluting further and further.

This won't work this time around.

Mon, 01/24/2011 - 22:37 | 901309 spinone
spinone's picture


this time its different


Mon, 01/24/2011 - 22:40 | 901318 jm
jm's picture

Just for the record, this kind of babble means nothing.

Tue, 01/25/2011 - 00:31 | 901629 Calmyourself
Calmyourself's picture

Engage, propound, argue, fight I am looking for real answers. Must of us realize when the paradigm sellers come out reason often leaves, so enlighten me independently...

So far the only statements I have seen you defend is that CDS are useful and Wall Street and the White House use fear as a tool to manipulate men and markets.  That is not news..

Tue, 01/25/2011 - 06:24 | 901933 jm
jm's picture

People are conditioned to think that CDS are a part of the Wall and White manipulation.  That link needs to be severed.

Tue, 01/25/2011 - 11:48 | 902676 Calmyourself
Calmyourself's picture

Wow JM, just wow..  That is it: CDS  are not a part of Wall and White manipulation.  Above this you tell Chumba not to worry about 14.1T in debt and 100T of unfunded mandates because it will all work out, WTF.



Tyler, where can I send some writing samples? I am published nearly weekly in my local newspaper, if JM is the mark, pretty sure I can clear it..


Tue, 01/25/2011 - 11:57 | 902729 jm
jm's picture


Tue, 01/25/2011 - 00:34 | 901638 walküre
walküre's picture

Oh, but it does. It means alot.

50 years ago the gold standard was lifted

People didn't understand banker's language

Bankers were regarded an authority on money

Even here we still read the term "Fed speak" which I'd like to generalize as "banker's speak"

I understand their language and so do many more people since 2008...

Clearly. just that I (and so many others) have found ways to decipher what they're really trying to say.

it's not all complicated you know. the banker's talk a good book, just like the junkie that is going on empty and making up all kinds of shit to get the funding for his next fix.

When it comes right down to it, the bankers are decrepit junkies who would say anything to get their way.. the bottom line is they're all assholes and they're broke. Never did meet a banker I liked or trusted.

See, I do understand that when you're broke and you've got nowhere to go, you're a desperate man and willing to do all kinds of stuff a straight thinking person wouldn't conceive.

The Fed calls the shots. All central bankers are in agreement and doing the same - more or less. The party is not allowed to stop but the periphery of Rome is burning.

Tue, 01/25/2011 - 06:58 | 901954 jm
jm's picture

Rates determine everything, not the currency.  You can cheat people in a metal standard with lead and tungsten as easy as you please. 

Mon, 01/24/2011 - 22:35 | 901299 sgorem
sgorem's picture

+1000 !!!!

Mon, 01/24/2011 - 22:40 | 901316 steveo
steveo's picture

Good stuff on Bonds--More evidence of Thug Pimp Propoganda

Bond prices and Yield (aka interest rate) are mathematically linked

I nailed it here....

and here where I state "BONDS ARE A TRAP"

Mon, 01/24/2011 - 22:44 | 901337 Seasmoke
Seasmoke's picture

Hank Paulson needs to be waterboarded and than all the answers will be revealed (then he should be electrocuted)

Mon, 01/24/2011 - 22:47 | 901346 Buttcathead
Buttcathead's picture

 Opposite Of Apocalypse ??? phuck...  things have never been worse.  you is frickin crazy.

Mon, 01/24/2011 - 23:17 | 901436 jm
jm's picture

Things have been so much worse.  That is all.

Mon, 01/24/2011 - 23:51 | 901542 Joe Sixpack
Joe Sixpack's picture

Agreed. But we ain't out of the woods yet.

Mon, 01/24/2011 - 22:56 | 901381 Gimp
Gimp's picture

The eternal optimism taught in American society is it's greatest strength and weakness. For those who dare to challenge the status quo and put down their cheerleader pom poms, will be quickly turned on as outcasts and pessimists...

No room for grown-up thought and inquiry here...may the ponzi be with you.

Tue, 01/25/2011 - 05:23 | 901898 Dr. Sandi
Dr. Sandi's picture

Ponzi jumped the shark years ago. Now it's all just momentum.

Mon, 01/24/2011 - 23:02 | 901393 Stuck on Zero
Stuck on Zero's picture

This explains God's work!

Mon, 01/24/2011 - 23:07 | 901401 Gloppie
Gloppie's picture


Mon, 01/24/2011 - 23:08 | 901409 jm
jm's picture

Name one incorrect thing I said. Just one.

Tue, 01/25/2011 - 00:01 | 901558 Joe Sixpack
Joe Sixpack's picture

I don't know if this is "incorrect", but CDS were used indirectly to screw Americans.


The CDO/MBS/SIV/ratings/shadow banking system begins collapsing due to the real estate bubble popping (straw that broke the camel's back).


Banks are in trouble, homewners are in trouble. Bush--> Obama say they are going to "help" (bend over, please...).


The simple solution: Homeowners and investors get together and work out the problem in a negotiated sense. Everyone loses, everyone survives (except those in so deep that it constitutes fraud).


Instead, the government steps in and bails out AIG at 100%. Now the investor think, 'if I negotiate I lose'. I have these CDS that AIG had no chance in hell of paying, but now they are covered. Let the homeowner default, then I get my reward. I suspect  lot of this went around, and little if any "help" to the little guy did.


Thanks .gov, thanks for "helping" the little guy.

Tue, 01/25/2011 - 00:02 | 901573 jm
jm's picture

Eureka!  I get it.  Is said this below:

I think I'm beginning to understand.

People take derivatives and government intervention in financial markets and corruption and fraud and going against the spirit of a society with elected public servants as an inextricable plate of spaghetti that is rancid and vile.

These things should be separated and weighed on thier own merits or lack thereof.


The first step is separating out all the things we've shmushed together in our minds.  CDS are not an intrinsic part of deception and theft... if banks and governments collude to screw tapayers, it is no slight on CDS.  It is a slight on a rotten government and banks. 

I even made the case that CDS may well have done some good, and they certainly didn't kill AIG.

Tue, 01/25/2011 - 05:04 | 901889 suteibu
suteibu's picture

I'm sorry, CDSs (insurance) allowed all the players to over-leverage and made the MBS market palatable from the standpoint of risk.  It was a house of cards and AIG, as the issuer, was the foundation.  Unregulated CDS markets are an anathema to capitalism.  There is no way their use in this situation can be justified as "good business".

Tue, 01/25/2011 - 06:59 | 901935 jm
jm's picture

I think they would have overleveraged anyway because the driver for bubbles was and continues to be ultra low interest rates.

Decisive in this idea is that securitization would have happened with or without selling credit risk.  I think they would have, but could be wrong.  An acid test would be a comparison of other banking crisis before securitization (say 1990) and see how the financial system worked.

Perhaps the world would actually be in worse shape with banks unable to hedge book and sell credit.

I do think that you can't reverse an effective idea.  If you try to ban them they just go somewhere else.

Tue, 01/25/2011 - 11:10 | 902491 suteibu
suteibu's picture

Not ban.  Just regulated and more transparent.  However, you seem to want to justify these things at any cost.  How do you come to the conclusion that the world would be in worse shape if banks are unable to hedge book and sell credit?   Are you saying that a regime of conservative leverage and risk, as the regulations are written, would make the world worse off?  That all of these exotic instruments are a necessity?  I can only assume you are just talking your book.

Here's a story about 19,000 small businesses that were sold hedges on the yen.  Perhaps they have another perspective on their necessity.

Tue, 01/25/2011 - 11:42 | 902634 jm
jm's picture

Sumimasen.  Sorry if I come on too strong. I really don't mean to be rude by my rapid-fire.  

I think that the regulation and transparency will come with central clearing, but it s not perfect either.  This is in part because market makers knew the need and identified the need.  Good or ill, legislators were incapable of writing the law without the help of market makers... they just took market maker ideas and put them on paper.  In the process, banks got to write into the law advantages.  It would have been better if all users had a role to play.  But this is getting outside my area and much opinionated.

My ideas on credit are that easy money alters return distributions.  It makes them more kurtotic and skewed.  The data suggests this.  I wrote something up about this based on 150 years of US bond data... "lessons on some intervals" or something like that.  Because of this, there is more need than ever to hedge against big moves and downside return skew.  CDS happened because of this need.  They are an organic part of market development, not something artificial.

IF the above statement is right, then an age of coservative leverage and risk will call off organic demand for CDS.

Also, imagine a world of massive securitization of loans and debt. People who see the game turn are going to try and offload risk on the one side, and people will always want higher returns on the other.

I'm not sure that getting rid of hedging would lead to a better outcome here.  In a regime of highly regulated banks, I'm not sure if securitization could exist.  I think that would be a big step back.  This too is worth debating.

We always talk the book.  It is the evidence that matters.

 Is that link talking about those high-power carry trade vehicles with an embedded hedge?  If is is, risk mag had something about those, where the market turned so bad, they acted like a reverse convertible... 

I certainly don't want anybody to get hurt in markets, but it happens. I hope we see more eye-to-eye now.

Sayonara suteibu-san.

Tue, 01/25/2011 - 12:56 | 903048 suteibu
suteibu's picture

Enjoying the conversation, actually.

There is a concept of fiduciary responsibility.  In fact, this is one area in which government involvement, to maintain the trust of the financial system, is beneficial.  If this experience has taught us anything, it is that neither the government regulators nor the bankers cared much about this responsibility. 

The vehicle that facilitated all of this was the CDS market that allowed hedges against hedges, making it possible to take one risk instrument, say a MBS, and involve numerous players through the CDS market.  So, now, this single instrument spread risk throughout the system.  But the risk did not become smaller with each iteration of hedges.  In fact, it grew to the point that the risk of the original instrument became irrelevant compared to the risk in the hedges.

Nature shows us that the ripple effect of waves diminish the further out they spread from the splash that caused them.  In the case of the MBS failure, the ripples grew exposing the entire industry to the failure of a single instrument.

This neither holds to the concept of fiduciary responsibility nor does it seem like a good business practice, more like a casino game, the winner being the one best hedged. 

As for those 19,000 businesses in Japan who are trapped with massive losses, they bought these instruments, sold by the banks, believing that they were simply buying insurance, unaware that they were actually buying someone else's risk.

Tue, 01/25/2011 - 13:26 | 903166 jm
jm's picture

I do think a real issue is that risk is hidden, even more than transferred.  this speaks to the fiduciary repsonsibility issues.

Risk exposure is hidden on a bank's balance sheet on a footnote, and not well understood.  Frankly, there can be pure accounting fraud re: the material import of what is called an "asset".  Some of this isn't deliberate... the payoffs for some of these structures are nonlinear and highly dependent on multile factors.  You can say this exact wording, but it means nothing without sensitivity analysis, which I don't think is ever done for retail. 

So it's like a lit fuse that burns slow.  Some can see it and of course get far away.  Those that don't see it get blown up.  People talk about earnings fraud.  Sure it's pervasive, but earnings are the least of a bank balance sheet's problems. 

Tue, 01/25/2011 - 13:43 | 903225 suteibu
suteibu's picture

So, we boil it down to its essence and find agreement on the dangers of the risk being hidden.  For a system that can not survive without trust, it does not seem to be a responsible course, though, for the winners, it was very profitable.

Back to those Japanese companies.  Their only recourse, other than taking huge losses, is to borrow more money from the same banks that sold them the "insurance".  Nice gig for the banks, no?  I wonder if those banks protected themselves with hedges?  ;)

Tue, 01/25/2011 - 14:14 | 903319 jm
jm's picture

I'll be the last one to say there is no risk... risk is everywhere.   The kind of risk I'm talking about you can find in equity earnings fudging, and balance sheet chicanery, and other things.  A part of it is due diligence, a part of it is that things literally are so complex that accounting doesn't keep up with trading.

Buyer beware always.  Businesses won't stand long-term if there business is to screw clients.  Japanese people seem very patient and long-suffering.

Tue, 01/25/2011 - 14:42 | 903396 suteibu
suteibu's picture

Damn...just when I thought we agreed.

If the system is too complex, then it has no real value in the economy, other than as a vehicle for the dominant players to profit which, not surprisingly, is the criticism leveled against the GSs and JPMs of the industry.

How can there be due dilligence when the risk can not be determined?   Even roulette has a calculated risk that can be known.  Caveat emptor is not good enough when the risks for even a simple instrument like a mortgage can not be discovered.  The only option is to not play.

The Japanese are very patient.  It is interesting that they stayed away from derivatives for a long time while Wall Street was dancing in the street.  Then some political wank with US ties sold them on the idea that they have to begin to play with the West, breaking from their conservative roots.  Now these things are coming back to haunt them.  It should be no surprise that Citi, among others, runs dark pools and HFTs as well, another Western innovation.

The current debate in Japan is over joining the US-led TPP free trade agreement, which, among other things, will open Japan up to a US-style and US-led FIRE economy invasion.  Nothing like $14 trillion in personal savings to tempt, eh?

Mon, 01/24/2011 - 23:15 | 901426 blunderdog
blunderdog's picture

Let go of fear of the unknown and try to make it known.

Fear of the unknown?  This is some abstract FINANCIAL problem understood by people who've studied calculus and drafted laws?  Oh, no, wait...please...I'm sure there's a puzzle to be assembled here...a SOLUTION, it's certain...

The world of all humans ever, anywhere, is a social realm.  If you depend on money to survive, fuck you.  If you depend on violence to survive, fuck you.  If you depend on external enforcement from some dubious authority to survive, fuck you.

There is only one moment.  It's occurring right now.  Relative considerations shift, but there's only one moment that matters. 

The electronic numbers pushed by people who cower in gated homes at night in the dark don't matter.  The gallons of ink adhering to pages of paper in legal libraries and memorized by overeducated misfits don't matter.  The big gun in your hand when you walk up to the liquor-store owner doesn't even matter.

You are what you do, and everyone knows it. Everyone has ALWAYS known it.  Because it's all just the same moment.

You love and you thrive.  People will help you up out of the gutter and feed you from their own pantry.  They'll wrap you in their own blankets.  You hate and you die.  No one will give a damn as they step over your bleeding shell in the street after a mugging.  No one will notice as you freeze alone.

And you know what makes the decisions so easy?  You die anyway. 

The real problem is whether you welcome it or hide from it.

To grant one point: this is a mathematical problem.  As soon as you've figured out how to divide by zero, you're set.

Mon, 01/24/2011 - 23:19 | 901443 jm
jm's picture

This isn't a mathematical problem.  Read, read, read...

Mon, 01/24/2011 - 23:33 | 901486 blunderdog
blunderdog's picture

I read your little piece, and I said mine.  I said what I meant, and meant what I said.  I have faith in you, and enjoy your work.  I believe you can do better than to "correct" me.

A joke, of sorts:

Over a few beers, who gets pissed off first, you think?

Does that make someone right?

Mon, 01/24/2011 - 23:52 | 901549 jm
jm's picture


Tue, 01/25/2011 - 01:12 | 901696 blunderdog
blunderdog's picture

As much as I appreciate apparent humility, I'd request that you don't apologize.  Thank me or dismiss me, so that at least we might understand each other.  Sometimes the best command of language is to say nothing.

A simple apology is ambiguous through this medium. 

I struggle to assume the best.

Tue, 01/25/2011 - 02:53 | 901800 StychoKiller
StychoKiller's picture

Much respect for your intellect -- and thanks for the koans!

Tue, 01/25/2011 - 10:07 | 902254 DOT
DOT's picture

"You are what you do..."  ;   not talk, not print, not how you feel.


"Fear prevents action. Action conquers fear."


Your actions define you.

Mon, 01/24/2011 - 23:25 | 901464 the grateful un...
the grateful unemployed's picture

wait a minute, as I understand it, Goldman (through it various administration placements) and Hank Paulson bailed out AIG (whose bad business decisions caused their demise) and the money went directly to Goldman (whose bad business decisions in using AIG were not punished?) Chatter all you want, but please, let's get the facts in the case and present them in with some degree of verity. The government bailed out AIG, and the money went directly to Goldman, no mea culpa there?

Mon, 01/24/2011 - 23:34 | 901487 jm
jm's picture

As I understand it, you are referring to CDS being paid out to Goldman with no haircut.  This wasn't just Goldman, right?  Uncle Sugar/Bennie paid everybody out this way.

I'm not disputing that the transfer was right.  I'm saying the decision, rotten as it was, was a government/Fed decision.

Mon, 01/24/2011 - 23:40 | 901506 KickIce
KickIce's picture

All we did with the bailouts was to reward corruption and inefficiency.

Tue, 01/25/2011 - 01:06 | 901691 walküre
walküre's picture

People bailing out banks.

They pulled a fast one, the congress critters fell for it and their asses are saved.

Never ever forget that and make sure your kids and grandkids won't forget either.

History will record that democracy in America died in the fall of 2008. Probably even sooner but I'd wager that historians will agree on that time frame to put the events that transpired after into a historical context.

The doom & gloom will never go away again.

Mon, 01/24/2011 - 23:41 | 901508 blindman
blindman's picture

you can't insure your neighbor's boat and then sink it to collect,

but, .....

America Appears To Be Trapped in a Massive Coverup of Control Fraud and Corruption


and with financial protection rackets and all the while with the value

of someone else's labor.  ? 

Mon, 01/24/2011 - 23:56 | 901557 jm
jm's picture

I think I'm beginning to understand.

People take derivatives and government intervention in financial markets and corruption and fraud and going against the spirit of a society with elected public servants as an inextricable plate of spaghetti that is rancid and vile.

These things should be separated and weighed on thier own merits or lack thereof.

Tue, 01/25/2011 - 01:51 | 901744 blindman
blindman's picture

and they are all on the same plate.  how do you separate out

the broth used to season the chicken bits in the spaghetti?  and all the

cheese melted in there?  seriously, the wealth pools have become

toxic.  the disparity becomes more and more imbalanced and the

scale of "wealth" is oppressive and inflated on the one hand while

the level of debt on the other is choking the majority of the population.

i think we are seeing the intentional suffocation of socio-economics

by large pools of wealth that are looking to reestablish and redefine

global economics for their advantage in this new digital century.

i may just be unable to comprehend it.  it seems that the problem

is with the monetary system,  the fed, and all of the problems

emanate from it.  everything is an outgrowth and a fractal manifestation

of this first principle of a federal reserve note and its flawed nature or structure.

it is the common denominator of the environment, the economy, energy,

education and etc... the primary cultural fetish to which all other instruments

must tune and relate , bow and fail ?  after all it is a self destroying /

terminating contract or instrument.  and in its wake it leaves real assets that

have been created by people, but it, the note, is gone.  so what is there

to represent the value to exchange the newly created assets.  nothing.  so

the fed and treasury must issue new money / notes etc.. and these are

handed to the primary dealers(zirped) and then the population must

borrow again this zirped currency to exchange goods and services that

it already has paid for and "owns".  etc.. the system is cracked.  the only

thing that makes it marginally functional is wholesale theft and fraud. 

shhh, don't tell the kids.  they hate when you talk like that.

the cds are just a market of stipulated contracts to distribute notes,  more

rancid spaghetti.

the problem is all the spaghetti is piled on few plates while most plates

have nothing on them but anti-spaghetti.  so even if some appeared it would

instantly be anihilated.


i wish we could separate these things but it seems impossible.  everything

is valued in ever growing debt, including and especially derivatives and

insurance.  and that always bothered me about derivatives, why they were

not regulated as insurance, or as anything?  because there was no need?

who would take out insurance on their neighbor's boat and then sink it? 

i'm not saying anyone would do that, i'm just sayin'.  and who would sell

that kind of "insurance"?  i'm not saying anyone did, i'm just sayin'?

and when the counterparties are broke who would pay out on such a thing?

just sayin'?  and they always pay out in those federal reserve notes hot

off the presses, it is the system. 


so it appears the cds is just another menu item on the long list of

dishes or instruments used to drain pools of capital from one set of

owners to another smaller and more politically connected group

of financial terrorists, to make spaghetti of a few metaphors.


ahh, just kidding.

Tue, 01/25/2011 - 03:17 | 901811 blunderdog
blunderdog's picture

If anyone ever offered you a dollar for a _favor_ and you said "fuck off," you should be able to recognize your own power in this system of relations.

It *really is* that simple.

Tue, 01/25/2011 - 06:34 | 901937 jm
jm's picture

About that spaghetti...

Before you cook it in your mind, think about the ingredients.

That sounds so stupid, but I'm trying to stay with an analogy that is my fault.

Much of what you say I agree with so I won't quibble.


Mon, 01/24/2011 - 23:44 | 901522 Crab Cake
Crab Cake's picture

Listen up you lip flapping fuckers, whom want nothing but to discuss endlessly this and that.

You've got a choice. Either you make your separate piece that time, kharma, and the Almighty will sort this out; or you go to fucking war and bring justice to those who deserve it by any and all means necessary en lieu of a broken justice system; or all of you lip flapping worry worts are a bunch of pussies.

Face it, make your decison. We all die. How are you going to go? I'm not going to judge which way you go, but you fucks standing in the middle are just.... well, pathetic.

Mon, 01/24/2011 - 23:50 | 901538 jm
jm's picture

Well I'm just gonna do my thing, crab cake.  Things have been worse in this world.  I'm not sure your war is the way to make things better.

Tue, 01/25/2011 - 00:08 | 901586 Crab Cake
Crab Cake's picture

Actually, I've chosen the path of forgiveness. Truly, these people know not what they are doing to themselves, they are wretched, evil, and I forgive them. I love them like a sibling that has done a terrible and stupid thing.

However, if one is going to rail about inequities, and ones mind is bent to wrath and justice... then walk the fucking talk already. All that wasted thought and emotion, and no action... that'll give a person blue balls.

Tue, 01/25/2011 - 00:15 | 901596 Crab Cake
Crab Cake's picture

PS What exactly is... your thing? Just bitching it out on a blog to clear the emotional pipes? The only choices are ignorance, enlightened lip flappers, peace, non violent resistance, and war.... Oh and the criminals don't give two shits about non violent unless it works, and then they get violent. What's your poison?

Tue, 01/25/2011 - 06:39 | 901940 jm
jm's picture

I didn't think I was bitching.  I think the name of the game for governments in Ireland and the US and just about everywhere they have elections is to scare people into submission.

You dispell fear with clarity.  Bring the stuff out of the world of vauge threats so it can be conceived, and then ways to get past it can be imagined.  If you don't know how big or even what the issue is, you can't go there.


Tue, 01/25/2011 - 00:26 | 901617 bullet357
bullet357's picture

What is my poison? Crab is that what your asking. I say it's Lead poison of the .223 caliber. If your close then it would be of the 45acp. I am sure that it will do the job. Two words to live by int 2011:  Food & Ammo 

Tue, 01/25/2011 - 00:42 | 901651 topcallingtroll
topcallingtroll's picture

My thing is i know and understand. I also like to make money! The markets are better and more thrilling than vegas baby! And you have a chance in the markets.

Tue, 01/25/2011 - 01:02 | 901670 topcallingtroll
topcallingtroll's picture

This is a point others like me have tried to make less eloquently. We are such a nation of whiners and scaredy cats. We are afraid of a few riots. Employers make you afraid for your job. And seriously depressions arent that bad. Read HL mencken on depression in bill bonners book idea of america. The only thing my grandparents noticed was they ate a lot of cornbread and didnt have any white bread. We have forgotten how to live cheap and independently and are so easily scared we let people rob us if only they promise to get the.government involved in solving this horrible crises. I am far far richer than most but i can get by fine with no running water no electricity a couple hundred pounds of beans and corn and a 22. If you know how to survive on nothing you never have to be afraid....start by reading possumm living....

Tue, 01/25/2011 - 01:35 | 901714 topcallingtroll
topcallingtroll's picture

While i am here talking to myself i might as well go on. I washed dishes at a restaurant in high school and dug ditches. It was not financially mandatory in my family but they werent just going to hand everything to me. I understand now. I am raising the same way and they will likely have the values to maintain themselves in the obama rich style. I see many people apparently.spent.their time in front of the tv or playing video games and are now upset the world just doesnt give them what they want. Those types of people are pussies and losers and make themselves obvious by their entitlement mentality. You even see it on the hedge sometimes.. someone was claiming he is entitled to gasoline at a good price! I would be afraid too if i were a lazy entitled loser. The world has changed and it will likely not treat kindly that class of person. You know...the guy who got the easy degree in college instead of a real degree and now doesnt understand why employers view him the same as aHigh School graduate and offer him 15 an hour tops.

Tue, 01/25/2011 - 02:02 | 901755 blunderdog
blunderdog's picture

You've got the stare, bro.  You've seen beyond.

ALL field troops have the stare.

I'd follow you anywhere, scumbag...

Tue, 01/25/2011 - 07:43 | 901978 RaymondKHessel
RaymondKHessel's picture


Tue, 01/25/2011 - 02:14 | 901729 gangland
gangland's picture

...All of a sudden I could hear somebody whistling
From right behind me
I turned around and she said
"Why do you always end up down at Nick's Cafe?"
I said "I don't know, the wind just kind of pushed me this way."
She said "Hang the rich"...

...Oh this is sure stirring up some ghosts for me
She said "There's one thing you've got to learn
Is not to be afraid of it."
I said "No, I like it, I like it, it's good."
She said "You like it now
But you'll learn to love it later"

catch the blue train....I've been spellbound - falling in trances...


edit: I've dug ditches as well, hard as shit moving a couple metric tons of dirt that you had to dig up first, hard compacted dirt, then put it in the wheeler and move it to the dirt pile.  Best job I had; for the measly pay, it was the most euphoric I felt leaving work at the end of the day, except for the callouses since I had to come back the next day to do it all over again.  Plastic handle pick-axe.  August 2005 listening to John Roberts' confirmation hearing, it was good listening.  The mexicans all thought I was strange.  You haven't lived until you've lined up at 5 am for that day labor lottery.  you win if you're in the top 10 on the board, otherwise most likely there wouldn't be enough business if you were say 20th on the board, even in the halcion construction days of summer '05.  your name goes into a raffle and if your name gets drawn, you get to dig a ditch for ten bucks an hour.  sometimes you get paid in checks, sometimes not at all.

Tue, 01/25/2011 - 01:44 | 901733 Oh regional Indian
Oh regional Indian's picture

The opposite of Apocalypse is Espylacopa.

Funny, that sounds a little like Spain won the Cup (world cup) which is did.

Maybe the Espylacopa is really upon us!!!


Tue, 01/25/2011 - 03:14 | 901808 Weisbrot
Weisbrot's picture

not just another episode of puppet theater

Tue, 01/25/2011 - 03:23 | 901817 savagegoose
savagegoose's picture

so beting on your whole wealth until failure means total destruction is a worthwhile endevour, and needs a bailout? ok im off to vegas wheres my credit cards?

if these schmucks are willing to bet until they collapse then we have an obligation to let them collapse. just like every broke bum in vegas gets thre bums rush , no one likes a loser.

and no one likes a loser that goes home to mummy to get bailed out even more.

wanna talk austerity, check out the bonuses, your taxes paid for those multi million bonuses, now tell me about austerity.

Tue, 01/25/2011 - 06:48 | 901946 jm
jm's picture

Why did they bet until they collapsed?  

Alan Greenspan took an equity bubble bust and made it a credit (housing) bubble by taking interest rates too low to long.  Bernanke says if the spigot even gets turned down, it game over.  It continues.



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