Seth Klarman: "If The Economy Is So Fragile That Government Can't Allow Failure Then We Are Indeed Close To Collapse"

Tyler Durden's picture

Following today's flashback to the most euphoric and irrationally exuberant days of market peaks (and bubbles) gone by, driven entirely by the now constant central-planner dilution of current and future wealth, these selected excerpts from Seth Klarman's latest letter to investors is just the cold water of common sense everyone needs:

From Seth Klarman of Baupost:

Is it possible that the average citizen understands our country's fiscal situation better than many of our politicians or prominent economists?

Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They are wary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions.

They regard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed, they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.)

They are pretty sure they are not getting reasonable value from the taxes they pay.

When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on.

When politicians claim that this tax increase or that spending cut will generate trillions over the next decade, they are properly skeptical over whether anyone can truly know what will happen next year, let alone a decade or more from now.

They are wary of grand bargains that kick in years down the road, knowing that the failure to make hard decisions is how we got into today's mess. They remember that one of the basic principles of economics is scarcity, which is a powerful force in their own lives.

They know that a society's wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing.

They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question.

And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future, they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the  policymakers—does either.

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q99x2's picture

Billionaire Bankster (Penny Pritzker) Breaks into Obama's Cabinet

Check out Jesse's Cafe

The FED globalists are going to steal everything they can get on the way down.

AlaricBalth's picture

Mr Klarman
The "they" of which you refer to are oblivious.
"They" are not rational agents and "they" are not critical thinkers.
"They" are Pavlovian dogs awaiting their next series of stimuli.

nope-1004's picture

Been hearing from Bernanke for years about the QE "exit strategy".  The guy is a global fraud, liar, and supreme bullshitter.  But, prove me wrong Ben.  End QE NOW!  Do it.  Stop talking like a dick and do it FFS.


But I know you won't.  Cuz you can't.  You're screwed into a corner.... LOL.  All you have is cheap talk, kinda like the guy sitting ringside at a fight.  He ain't in the fight, just chirping loudly with little to back it up.  That's you!!

redpill's picture

Happy 100th birthday, Federal Reserve!  A successful century of fucking America over.

fourchan's picture

it would be ironic if all the free money given to the tbtf 
banks under zirp flowed into every stock out there since the 
bottom in 2009 and when the punch bowl is pulled the tbtf 
banks take it in the ass so hard that they all go bankrupt again.

SWRichmond's picture

if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing.

I wish I could learn to be this succinct.

Radical Marijuana's picture

"For if you must rescue everything, then ultimately you will be able to rescue nothing."

Yeah, that is a succinct summary of the paradox of final failure from too much success ....

It also applies to the paradoxical way that the hedging gimmicks, through various derivatives, were able to justify those doing that sticking their paddles in the flow, to divert a lot into their personal piles, while the cumulative effect was to aggregate overall risks into a monstrously HUGE collection, whose consequences were to create far greater overall risks for everyone!

Another greater paradox is the way that fake democracy has been able to accumulate all the individual stupidities into an enormous aggregation of collective stupidity! Each and every short-term triumph of fraud, which may well benefit those doing that then, tends overall to destroy the entire system in which that is allowed to happen!

However, the real ways that the funding of the political processes take place means that there are no practical solutions to these problems, other than for the established system to runaway to become sufficient mad to destroy themselves. Tragically that madness fits within a global system of MADness, in the sense of the Mutually Assured Destruction strategy, which is the only thing we have been able to do, so far, to cope with the development of weapons of mass destruction.

The combined money/murder systems match each other in this respect, that the ways that they stabilize themselves allow for their overall situation to become more and more unstable!

The Big Ching-aso's picture

Hey, whatever happened to the talking teddy bears?    Those two are like ten Seth Klarmans.

jbvtme's picture

are they porking the equities to convert them later into collapsed dollars?

francis_sawyer's picture

Let's play ball...


- North of 80% of JEWS in the world descend from ASHKENAZI's... [despite all the rhetoric to deflect the narrative]...

- Most of the rest are 'Sephardic'... Which means to say if you're a 'Sephardic Jew', you're basically tending goats, &/or have your hook nose buried in an old book ( & maybe don't even know who Obama is)...

- The Asheknazis... Though 1.7% in the United States and less than 1% worldwide... Control the greater part [talkin' 70% MSM propaganda. & hefty percents in the political activism, & jurisprudence fields... WALL ST BANKING, IMF, BIS... Trilateral Commission, Club of Rome]... Well ~ let's not KID ourselves...


So... NOW... Let's talk about 'COLLAPSE'... [which means ~ the ASYMMETRIC DAMAGE that 'collapse' would cause to a certain tribe]...

Umm... I guess I'm not a genius... I really I dunno...

Herd Redirection Committee's picture

They also run the City of London, not just Wall St.  And I reckon they run HK/Singapore/Shanghai financial markets to a large extent as well.  HSBC has been laundering drug money since the time of the Opium Wars (which, by the way, you won't find in Chinese history textbooks)

MayIMommaDogFace2theBananaPatch's picture

or have your hook nose buried in an old book

Did you REALLY post that?  Wow. 

Perhaps you'll post a photo of yourself sometime, maybe for a caption contest or a Friday Afternoon humor piece and allow willing members to 'comment' on their perceptions of your physical appearance. 

Not sure how it will pertain to finance or politics or critical thinking but it will probably be pretty funny -- in a savage, sarcastic sort of way.


Aurora Ex Machina's picture

Let's play the racist game then.

Let's assume that unlike most other populations of self-selected cultural / "racial" / geographically located expressions of the genome, "The Jews" have been systematically selected for intelligence and adaptability (through slavery, pogroms, enforced migration into new countries / markets etc) as well as their own "blood purity / inbreeding" laws (check your Bible for the parable of the Samaritans, and then check who they actually were [hint: halfbreeds]), that the matriarchal lines and self-imposed breeding that has lead to some unfortunate genetic ailments but higher intelligence. (I shit you not even Jewish people publish this crap). If I were a racist, I'd be arguing that they're a pretty successful test case for eugenics, just like the USA did before Germany. Since, you know, they "run everything", that's a pretty good racist argument for such policies.

Then, if I were a racist, I'd look over stories such as this:

Billions of people carry sizable chunks of DNA from Neanderthals and other archaic human relatives. Some of those genes may play important roles in our health today.[source]

And start thinking that perhaps only those people with neanderthals DNA were non-human, or that perhaps "The Jews" have neanderthals DNA and we don't and so on... Then I'd get a fucking clue, look at the data, and realize: Caucasians / Asians have the extra DNA, not "the bliks" or "The Jews" and so on, and it's been mildly useful for surviving diseases, nothing more. I'd also notice that the scientist's name is David Reich and understand the joke and do some silent dog whistles to other racists to pile on.

Luckily, I'm not, and I think eugenics is a load of shit[1], because of stuff like epigenetics and the fact that a "white Caucasian" often has a closer set of DNA to an aboriginal than the next honkey one country over. "The Jews" aren't a "race", they're a cultural group that has selected for certain traits, and through inbreeding express certain genetic markers (hint: look up sickle cell anemia in Africa, it helps you survive malaria; chances are if you survived the 15,000 generations to produce you in a malaria rich country, you'll have that mutation). The biggest myth of our times is that "race" exists like the 20th Century taught us, and perversely, this allows a cultural group to claim that their pogrom was special. Horrifying? Yes. "Racially" motivated by crappy science? Yes. Special case?

No. Look up fucking Rwanda - people invent "difference" to justify genocide (thanks Belgium!), it doesn't actually mean you're special snowflakes, despite a cultural heritage telling you you're the "chosen ones". Go ask the Romanies how they felt when an equal % of their populace was killed off. Except no-one does. The fact people buy into the flip side of this coin ("The Jews" did it all!, "The Jews" are running it all!) just strengthens it.


"The Jews" are a cultural group with a shared Religion, who interbreed enough to select for certain genetic markers. That's all. By being a racist fucktard you're merely enforcing their cultural isolation / bonding, and thus making it more likely that they'll enact the same exclusionary principles as you do in reverse. Or build a wall. Or justify acting just as badly back.


/tired of this 20th Century poor Science narrative.  Fucking monkeys (and note to all: when I use the word "monkeys", it's not the dog whistle you think it is. You probably don't want to know how I'm using it)





An Alsatian and a chihuahua and a cocker-spaniel are all the same damn thing, and can all interbreed. Woof woof woof.


[1] Note: again, this is complicated. Obviously, you can select for certain traits (height, hair color etc) if you understand which genes are regressive or not, and 30,000 years of domestication shows us how to modify mammal expression of genes in client species, but selecting for the traits racists want to select for, such as "strength" or "intelligence" simply doesn't occur at this level. If you want a corgi, you can make a corgi (as long as you eradicate all the mutants, which people do to dog species, such as the rhodesian ridge back) but the bottom line is a human is a human is a human no matter the expression of slight cosmetic differences.




p.s. Whoever junked and couldn't argue: well done. Ooook.

andrewp111's picture

Since Jewishness is passed down a matriarchical line, they should have common Mitochondrial DNA.

Aurora Ex Machina's picture

And if you knew your science, you'd know that every human on the planet shares a similar female expression. It's only male specifics that can vary.


In the field of human genetics, Mitochondrial Eve, who is estimated to have lived approximately 190,000–200,000 years ago, refers to the matrilineal most recent common ancestor (MRCA) of all currently living modern humans. In other words, she was the most recent woman from whom all living humans today descend, on their mother's side, and through the mothers of those mothers, and so on, back until all lines converge on one person. Because all mitochondrial DNA (mtDNA) generally is passed from mother to offspring without recombination, all mtDNA in every living person is directly descended from hers by definition, differing only by the mutations that over generations have occurred in the germ cell mtDNA since the conception of the original "Mitochondrial Eve".

Mitochondrial Eve is named after mitochondria and the biblical Eve.[2] Unlike her biblical namesake, she was not the only living human female of her time. However, her female contemporaries failed to produce a direct unbroken female line to any living woman in the present day.


Fuck me, are you trolling, or just stupid?

tip e. canoe's picture

not to mention how M.Eve was born in a golden chalice.

baby steps dear, baby steps.

Manthong's picture

tip e canoe..  way cool

golden Mitochondrial..  cool too.

but  we ( they) are commoditizing the women that are supposed to keep the barbarians in check.

figure it out.

oddjob's picture

Or justify acting just as badly back.

Not sure how many palestinian children francis has murdered but am thinkin its pretty small in comparison.

Aurora Ex Machina's picture

You'll note I didn't condone the wall, even though I mentioned it. If we need to do this "on the record stuff" (because it's not really obvious already, right? Especially when I expressly stated that genocide is not a culturally specific horror): the current Israeli government's actions regarding Palestine are not only barbaric, they're dishonest and ethically wrong.


This doesn't absolve any other actors in this tragedy, nor does it require labeling anyone "The Jews".


See? It's very easy.

CompassionateFascist's picture

If it behaves like a Race, it is a Race. Jews are a (self-labeled) trans-national subRace, organized to a T genetically, socially, economically, politically. And lethally hostile to all others. "antisemitism"? healthy-minded reaction to subversive, destructive, universalist Jewish phenomena. Such as communism...and its updated face, globalization.   

tip e. canoe's picture

ever wonder why the karma has repeated itself so many fucking times?   and to whose advantage every single fucking time?  tired of repeating the same ol' fucking story again?

if so, then stop writing it.    the rest will take care of itself no?

lewy14's picture

There is a God-shaped hole in the heart of Man.

And a scapegoat shaped hole as well.

GoinFawr's picture

AEM's a breath of fresh air since blunderdog went AWOL... on the bright side at least you're still here!

Buck Johnson's picture

Your right.  The whole process is becoming more and more unstable and they can't get off this bucking horse without getting killed but yet they can't stay on either so what do they do?  They lie to everybody and whistle through the graveyard and hope not know but hope that the horse will stop and allow you to get off without getting hurt.  But it won't.

Anusocracy's picture

The Fed Phantasmagoria will end and the pain of reality will arrive, but the Keynesians will still be incapable of understanding what went wrong.

Al Gorerhythm's picture

One dump-and-run bankster lap dog..... so far.

HyperinflatmyNutts's picture

+1000.  Who would down voted?  Also  A big Fuck you Ben Shalom Bernanke!!!

PiratePawpaw's picture

Some time ago I think it was Boris who made a comment about "hitting the metallic wood fastener solidly on its flat upper surface" maybe I paraphrase, but it seems appropriate now.

Manthong's picture

let's see.. how does that velocity equation work?

mass.. acceleration..   I forget.

but.. at least we know there are no inconsistencies or incompleteness in the algos


hmm.. seems like it might be time to hang up the thong.


SAT 800's picture

I was just thinking a few minutes ago; that perhaps we're just enslaved to the meme of bookeeping. Perhaps Dr. Bernanke will simply declare that all the deposits at the Federal reserve are valueless; better yet, they never really existed, and they've certainly evaporated. So; no problem. ??

Zodiac's picture

What if they NEVER end QE? 

DosZap's picture

What if they NEVER end QE?

They won't have to, the rest of the world will end it for them.(if it were not for Japan, and China, still buying some US debt,and the Chineee are just doing it till they milk the PM train for all it's worth,and spending fiat US as they go about it),there would be no one else to even help them.That's when the dollar becomes worthLESS.And there is absolutely NADA Bennie n the Jets can do about it.

andrewp111's picture

No. Japan is now printing nearly as much as the USA is (and it is a much smaller country), and China has been printing mad amounts of Yuan for years in order to peg their exchange rate. Eventually, it just stops working. Even with the flow at max, the stock market will start going down. Once the downtrend accelerates, it reaches the point that the "circuit breakers" are hit milliseconds after the opening. You don't even hear the bell, and only the HFT traders get anything out of the market. The market goes straight down during the short time intervals it is allowed to be open. Once all the primary dealers become insolvent, Treasury auctions stop working. Congress will be forced to mint trillion dollar coins or authorize the Treasury to sell bonds directly to the Fed just to keep the government operating. All the big banks go bust and the FDIC will have to call upon the Treasury to make good on about $5 T of deposits.

Hacked Economy's picture

This is skewing a bit off-topic, but after reading many of the recent comments in several articles/threads, and using the QE topic as a springboard for the point I want to make:

We all know the debacle Bernanke has caused with his "helicopter money" QE policy, and the increasing probability of an economic depression or collapse on the horizon.  But here are some interesting points to add.  One of my friends owns a medical-related business, and is finding it harder and harder to collect the money owed to him by Medicare...he is currently waiting for nearly $100K in delayed payments.  Medicare is fracturing under the strain of its own flawed Ponzi structure, and apparently a lot of doctors and medical suppliers are being screwed.

Add to this the cracks in the Social Security system and the problems coming to light (for the masses, anyway...the rest of us already foresaw the Ponzi criminality of that program many years ago).  Some of my older friends who are collecting SS are now being told that new restrictions are being implemented for those who apply for the benefits.  I'm sure we all agree that the classic Ponzi structure was never fiscally sound to begin with, but in April 2013, for the first time in history, the math hit the point where the average person now pays MORE into the SS program than he/she will withdraw upon retirement.  As this becomes more widely known, the younger generations will also become more incensed at the unfairness of it all.  They'll already be increasingly angry at politicians for the high taxes, but they'll begin to direct their frustration at elderly people as well, since they're the group of people consuming the SS taxes taken out of the younger peoples' paychecks.

So what's my point?  There was a classic 1976 movie called "Logan's Run", and apparently a remake is in the works (which is reportedly going to be closer to the original novel than the first film was).  In the comments sections of those online articles, I was AMAZED at how many people - no doubt younger than 30 - agreed with the idea that older people who are no longer of any further use to the community should be put out to pasture and euthanized, if for no other reason than to ease the financial burden on society.  THE MOST COMMONLY SUGGESTED AGE WAS 55.  Regardless of the age discussed, the scary thing was that the majority of the commenters were on board with the idea of "getting rid of the flotsam in the system".

It sounds stupid to many of us now, but remember that the younger people of today will be the decision-makers of tomorrow, or at least the voters who will put the decision-makers into office.  And as the financial stresses increase, more desperate measures will be suggested.  For those who are old enough to do this, imagine what our lives were like 15 or 20 years ago, and how crazy it would have sounded to suggest any of the myriad things we now deal with.  Now imagine some of today's "crazy" ideas coming to light over the next decade.

Cloud9.5's picture

Given an option, at the end of our days, many of us boomers would off ourselves if there was a legal realtively painless way to do it.

GoinFawr's picture



Don't fret kids! By the time you're collecting SS the smaller nominal amount won't matter because the USdollar will be worth oh so very much in comparison to the things that you will need to be comfortable in your dotage.


A Deflationist

andrewp111's picture

They will never end QE until it stops working. By then it doesn't matter anyway. Once the Fed buys all the Treasury's and all F/F's bond issuance, they can't do any greater QE. By then, treasury 30 yr rates will be zero, short rates will be negative, and when the stox market starts imploding with the circuit breakers hit after milliseconds of trading, there will be nothing the Fed can do. They will simply be standing by, helpless.

Kobe Beef's picture

Agreed, they will never end QE until it stops working. And then, they will come up with something worse. 

SAT 800's picture

Yes, this is a problem with Mr. Klarman's article; it's an excellent analysis; but to say, or believe, that "they" are highly skeptical, is to give far too much credit to their mental functioning. Skepticism is part of Rational Thinking, and this they simply do not do. Nor, can they.

Groundhog Day's picture

I think Klarman gives to much credit to the populace.  I speak to doctors, lawyers, executives, business owners on a regular basis.  I explain the situation and get a glaringly confused look on thier face.  The most intelligent of them will state they understand and say that the money printing is lead to ever higher stock prices.  I just say your right.  If they are unwilling to ask questions they diserve to lose all their money

fonzannoon's picture

The waitress at my diner said her neighborhood had the "post collapse" meeting already.

kito's picture

fonz can you get the address of your waitress.................just in case....................

otto skorzeny's picture

I went home with a waitress... the way I always do.

AlaricBalth's picture

Was she with the Russians too and how is Honduras this time of year?

Dave Thomas's picture

Don't worry he'll call dad soon to get him out of that.

HardAssets's picture

I wonder about the 'they' written about in the article also. I rarely seem to run into them. The eyes of most of the 'theys' that I speak to glaze over when I try to speak to them on the topic of the economy and they actively run away (figuratively or physically) if the subject is even brought up. This includes those with advanced degrees in such subjects as medicine, science, etc.

I'm reading the recently released book "Bunker Hill" which talks about Boston at the time of the American Revolution. What strikes me is how much better the people of that time were than Americans today. We've lost the sense of fierce independence, love of freedom, and practical intelligence of our forefathers.  100 years of public 'education' has done its job, as have t.v. and all sorts of stupid diversions.

Perhaps when 'they' are really squeezed to the point when their comfortable world has been torn apart, 'they' will start to have a clue . . . or at least a little bit of curiosity about the situation they will be in. Most only have apathy.