mainstream media has numerous stories for why 2008 occurred, the real one is
largely ignored because admitting it would mean admitting that the entire
financial system is filled with crap and that none of these problems have gone
The truth is
that the cause of the 2008 crisis was the black hole of finance: the
derivatives market. A market that is so enormous (20 TIMES the entire world
stock market), so unregulated (Wall Street can literally price these things at
whatever levels it wants) and so complicated that virtually no one wants to
write about it.
Paulson, all of those guys lied when they acted like 2008 was a surprise. What
was a surprise was that the system managed to last as long as it did. As far
back as 1999, Greenspan admitted in private conversation that any attempt to
rein in the derivatives market would “implode” the market.
Why is this?
Because derivatives are crap, pure and simple. While intensely complicated on
paper (the prospectus for a typical CDO was north of 60 pages) the derivatives
market can ultimately be described in three words: Wall Street BS. It’s
basically the creation of “assets” by dressing up bad ideas and financial
nonsense in complicated terminology.
mere notion that lumping a bunch of crap mortgages, student loans, and auto
loans into a single package and then claiming somehow a portion of this is
prime quality asset and you’ll get an idea of what I’m talking about (hint:
they’re all still “crap” loans made to folks who won’t be paying them back).
Wall Street went so crazy with these things is simple: they can price them at whatever
prices they like and shill them to whoever (Greece, Jefferson County, Alabama,
etc) while charging fees at every stage of the process.
profitability you could create if you literally could claim your own excrement was
a financial instrument and then sell it to investors while loading the deal up
with transaction fees, processing fees, fees if they ever realize it’s just
crap and don’t want it anymore, and the like.
As you can
imagine, this situation lends itself to getting a little too carried away.
Small surprise then that the derivatives market is over $600 trillion in size.
That’s right, the largest market in the world is based on imaginary crap
designed to make money for Wall Street and no one else.
comes along. We all find out that this bunch of crap nearly destroyed the financial
system. And we did… nothing. Bernanke funneled trillions to the big banks (all
of whom are the primary producers of this crap) and that’s about it.
as if the conversation went like this.
Bernanke: You did what!?!?
Wall Street: We have rendered the
entire financial system insolvent with crap. We need trillions.
Bernanke: Hmmm… will you stop making
Wall Street: No.
Bernanke: Will you consider admitting
Wall Street: No
Bernanke: Ok, here’s a blank check.
So here we
are today. And rather than fixing any of these problems, we’ve transferred a
couple trillion dollars’ worth of this crap to the public’s balance sheet.
way, the crap that nearly took down the banks has been allowed to spread to the
US and other country’s balance sheets.
when a problem is not only ignored but allowed to spread even further? Well, we’re
going to find out.
next Crisis is coming. And it will make 2008 look like a picnic. Why? Because
this time around the Crisis will involve entire countries, rather than just
banks (see Greece today). It’s going to be really REALLY bad. And I would argue
that 99% of people are completely ignorant of it.
Don’t be one
of them. Don’t believe for one moment that the issues that created 2008 are
fixed or that somehow we’ve made it through the worst. The worst is only just
beginning. It may take a while to hit (just as 2008 did) but when it does it’s
going to be really, really, REALLY bad.
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