Guest Post: The Smog Of Fraud

Tyler Durden's picture

Submitted by James Howard Kunstler of,

Team Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s commodity chief, to an advisory committee of the Commodity Futures Trading Commission (CFTC) which supposedly regulates activities on the paper trades in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the way, in which JP Morgan has been suspected of massive gold (and silver) market manipulations and other misconduct lately. That would include the 2011 MF Global Fiasco in which nearly a billion dollars from “segregated” customer accounts somehow ended up parked over at JP Morgan as a result of bad derivative bets on tanking Eurozone bonds. MF Global, primarily a commodities trading brokerage, was liquidated in 2011. The CFTC never issued referrals for prosecution to the Department of Justice in the matter and, of course, MF Global’s notorious CEO, Jon Corzine remains at large, enjoying caramel flan lattes in the Hamptons to this day. Such are the Teflon transactions of the Obama years: nothing sticks.

There was such a Twitter storm over Blythe Masters that she withdrew from consideration for the committee before the day was out.

JP Morgan is one of the specially privileged “primary dealer” banks said to be systemically indispensible to world finance. Supposedly, if one of them is allowed to flop, the whole global matrix of global debt obligations — and, hence, global money — would dissolve in a misty cloud of broken promises. They are primary dealers to their shadow partner, the Federal Reserve, and their main job in that relationship is buying treasury bonds, bills, and notes from the US government and then “selling” them to the Fed (earning commissions on the sales, of course). The Fed, in turn, “lends” billions of dollars at zero interest back to the primary dealers who then park the “borrowed” money in accounts at the Fed at a higher interest rate. This is, of course, money for nothing, and even small interest rate differentials add up to tidy profits when the volumes on deposit are so massive.

This “carry trade” was started because the primary dealer banks were functionally insolvent after 2008 and needed to build “reserves” up to some level that would putatively render them sound. But that was a sketchy concept anyway since accounting standards had been officially abandoned in 2009 when the Financial Accounting Standards Board (FASB) declared that banks could report the stuff on their books at any value they felt like. In short, the soundness of the biggest banks in the USA could no longer be determined, period. They were beyond accounting as they were beyond the law. At the same time, the banks began the operations of shifting all the janky debt paper, mostly mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”), value unknown, from their vaults to the a vaults of the Federal Reserve, where it resides to this day, rotting away like so much forgotten ground round in the sub-basement of an abandoned warehouse of a bankrupt burger chain.

All of these nearly incomprehensible shenanigans have been going on because debt all over the world can’t be repaid. The world’s economy, as constructed emergently over the decades, can’t function without repayable debt, which is the essence of “credit” — the fundamental trust implicit in banking. You have “credit” because other persons or parties believe in your ability to repay. After a while, this becomes a mere convention in millions of transactions. What’s happened is that the conventions remain in place but the trust is gone. It’s gone in particular among the parties deemed too big to fail.

Everybody knows this now and everybody is trying desperately to work around it, led by the Federal Reserve. Trust is gone and credit is going and debt is sitting between a rock and a hard place with its grubby hands pressed together, praying that it will be forgiven, forgotten, or overlooked a little while longer. By the way, the reason trust and credit are gone is because oil is no longer cheap and world economies can’t grow anymore. They can’t afford to run the day-to-day operations of a techno-industrial society. They can only pretend to afford it. The stock markets are mere scorecards for players who can only lie and cheat now to keep the game going. Somewhere beyond all the legerdemain and fraud, however, there remains a real world that is not going away. We just don’t know what it will look like when the smog of fraud clears.

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cougar_w's picture

2014 is shaping up to be a very interesting year.

But not in a good way.

LawsofPhysics's picture

< meh >, I see people are still accepting the banks paper promises in exchange for the fruits of their labor and the supply lines for essential commodities is still holding...

When there is no food, fuel, or electricity being delivered to those major cities, then, and only then, something might change.

not before.

same as it ever was...

cougar_w's picture

What will be interesting about it is the long, slow screaming descent into comprehension that will surely start to grip the American psyche long about August. The stories we will then be telling each other -- about who did what, and who is going to pay for it -- will say much about who we really are as a people.

LawsofPhysics's picture

Indeed.  There is a reason gated communities continue to become popular.

Carpenter1's picture

I would gladly pay 20k(not a gram  in gold), for this to be at the point where its no longer deniable and is hurting everyone enough to make delusion difficult. 

BandGap's picture

Some small place - a town, a municipality, a community - will take control and not follow the marching orders from TPTB, the Federales. It won't necessarily work, might even fail miserably. But if people find out and see, if people start thinking that like minded individuals can band together and stand up......that's when the feces hits the blades. Slowly at first, then enough to knock over the fan.

The state of Utah is looking to shut off the power/water to the NSA complex. What if they succeed? For a day? For a week? What happens when brother is pitted against brother because the Federales send in troops?

There are more than a few places in this country....

cougar_w's picture

An interesting thesis. I don't doubt you are correct. It will come slowly at first, and then, it will come all at once.

DoChenRollingBearing's picture

Could it be that Utah start something big by standing up to the NSA and the federal government in general?

Slowly at first, then all at once.  We have seen this kind of thing before.

vulcanraven's picture

I would like to believe that there are still many courageous people in this country who are just waiting for the real groundswell to begin.

Like you said, it starts with a few drops and then the flood comes

LawsofPhysics's picture

"The state of Utah is looking to shut off the power/water to the NSA complex." -

Got a link or credible source for that statement?

Texas, Arizona, Montana, and Utah have all made physical PMs legal tender.  All states have great resources.  My thesis is that it will start there.  I see several southern states joining texas and then things getting interesting.

This is not an unreasonable thesis.  The same thing happened when the soviet union (and the ruble) collapsed.

LawsofPhysics's picture

Wake us when the Utah legislature or even one Utah representative gets behind it.

Sofa King Confused's picture

Even if they do pass a bill, Utah gets a lot of money from fed gov. They won't rock that boat.

SmittyinLA's picture

Small place?

Try Detroit

You following the swap shenanigans?

Not only will the Detroit "swap investors" not get any additional loot and their promised vig, they may have to give back some of their already stolen loot.

"We did it in collusion with city officials and lawyers" ain't a legal defense.

scrappy's picture

Why wait until we are weaker?

This will clear smog, bigtime.

If we convene a Common Law Grand Jury, the people will come.

Join us.

TideFighter's picture

Everyday, I wish more people knew, but I know they don't. I start the discussions...I get blank looks....I go back to sports and tv conversations. WE ARE FOOKED!

cougar_w's picture

I think the blank looks are the best part. At some point, your only real personal hope is knowing that so many other of these fuckers are TSTL.

Carpenter1's picture

Same here. We must be fools now, but they will be the ultimate fools when this comes down. And when it does, I will give the same blank looks back to them when they come asking for a hand out.  



BandGap's picture

Not for me. I generally hang out with the 50+ crowd. Many of us have had parents, aunts, uncles who lived through the last war. Some even lived through the last depression. 

Everyone I have spoken to of late "gets it". Even people that used to give me the zombie stare. It takes different amounts of time to sink in for different people. But there is less substance to deny that the world is heading down the shitter.

Two of my aunts are taking a self defense class with my wife. They liked the Glock 19.

Anusocracy's picture

I find that the vast majority of the people that I meet are immune to reality.


Their minds are wired to function in the past and they want to make sure that past exists in the present.

KnightTakesKing's picture

+1 but you must live in fly-over country. People in the affluent coastal areas have no freaking clue. There's a general anxiety but no one is even remotely prepared.

rsnoble's picture

I fucking hope so the suspense is killing me and battering my emotions to the point im not sure if I can handle this gradual let down for the next 30 years im hoping someone gets the shit stick out soon!

madmax1965's picture

I concur rsnoble, knowing what is going on is driving me insane!  Bring it already, while i am still young enough to be of use to my children!

ZH Snob's picture

the level of this fraud is truly astounding.  it is in our blood, our tv and our breakfast cereal.  what to do when the very foundations of life are finally seen as the styrofoam they really are?  this country will suffer greatly in the coming years, but hopefully a redemption of spirit and integrity will follow. 

imagine the day when it will finally be more cost-effective to build things in America than to import them with our severly devalued dollar.

Omen IV's picture

Not a chance - zero, nada, nothing, zilch........less than squat!

Boris Alatovkrap's picture

Fog of war... Both is contaminant bi-product of corrupt banking system.

Boris Alatovkrap's picture

Second is thought... is not product of banking system, is central mechanism of banking system.

ArkansasAngie's picture

Insolvency is a bitch.

Turn off the loquidity hose.  No more TBTF.  No more bailouts.  Raise interest rates and let productive members of society get about making money the old fashioned way ... by earning it.

cougar_w's picture

As a bonus, you then get to watch the TBTF ripping each others' throats out.

LMAOLORI's picture



I would pay to see that it could be a pay per view event I bet it would rake in Trillions!



LawsofPhysics's picture

Pushing paper (financial "services" and "banking"), is now around 40% of GDP.

As much as I wish all those fuckers were kicked to the curb, I don't see it happening as long as they still have K-street.

be happy, .223/.556 rounds are on sale.

ArkansasAngie's picture

That 40% made up out of thin air

LawsofPhysics's picture

Not at all, many sources (including shadowstats) have addressed the financialization of the American economy.  You might want to read up on shadowbanking as well.  I saw a nice inverse correlation between financialization (including the shadowbanking) and a decline in baltic dry.  They were claiming more the 50% of the world's GDP was bullshit paper-pushing, so I was skeptical.

Think about it, if the CDS "market" is now north of 700 trillion, what the fuck does that say about the true extent of paper-pushing bullshit.

My god Angie, pull your head out.

cougar_w's picture

I was hearing "40%" being the number about two years ago.

When you see that you begin to understand why The Bernank had to let loose the financial dogs of war; a sizable part of the economic activity of a nation was about to implode, vanish down a black hole never to be seen again.

If anything, the situation is more dire now than it was then.

BandGap's picture

No one will trum off liquidity, they will drown in it. Water is essential to life but it can kill you.

It will take a spark, there are a lot of pissed off people out here. Don't think "all at once", think snowball effect.

TideFighter's picture

Sochied, bitchez! The criminals are in full control...

NoDebt's picture

Boy, are we all going to be disappointed when we're still having this same discussion in 20 years (just with bigger debt numbers).

Grande Tetons's picture

Just think in 20 years Fonestar will be 35.  

Emergency Ward's picture

Fonestar should be a multi-trillionaire by then.

acetinker's picture

Gotta hand it to him, though.  He sure as hell made himself known.

Atomizer's picture

All Ponzi Schemes have a cycle until they implode. Just have a close look at the US Government in operation. They spent because it’s not their money. Seize their bank accounts, house, cars and foreign investments.. watch them talk like a nightingale..