And Now, A Present: "Are The Brokers Broken?" - A Reprise

Tyler Durden's picture

Often times we are asked "why does Zero Hedge prefer to provide information in piecemeal increments and isolated snapshots (of irregularity) rather than write comprehensive articles (or even a book) that explain, from beginning to end why everything is broken - the end?" There are two answers - a short and a long one. The short answer is that finance, more so than any other field, changes so rapidly that the nuances are always and constantly on the margin, which in turn is stable only for the period of time that it is observed, and then it becomes part of "technical analysis." (Indeed, the Schrodinger wave function collapse is just as alive and well in finance as it is in the quantum arena). As such, we adhere to the paradigm describing the distinction between giving a man a fish and teaching a man to fish: we believe that it is far more useful to demonstrate all that ways in which the market (and global economy) works, or rather doesn't, than engage in extended exercises of vanity, which serve as much to stroke the author's ego, and demonstrate one's knowledge of SAT words, as they do to elucidate the matter at hand. By sharing our own views of events as they transpire in real time, be they right or wrong, we hope to provide our readers with the "connect the dots" patchwork required to evaluate relevant financial events as they occur in real time, instead of describing them in the in vitro vacuum of moody brooding. (As for a book, we are more than confident enough "independent" bloggers out there will succumb to the very system their protest against, and pen a few hundred pages on the goal-seeked topic of their choosing - the last thing the vast upcoming book pyre needs is our own intellectual self-pleasuring). The long answer is far longer, and, ironically, deserves a post of its own. But this is neither the time nor the place. What then is the purpose of this post is to break away from our tradition, but also not to recreate the wheel, as many others find delight in doing. Instead, as a special present to our readers, we share the seminal analysis by Citigroup's Matt King from September 5, 2008, titled "Are The Brokers Broken?" which in one place explains, better than anyone else has ever done, why the system is terminally broken, and why the best anyone can hope for is to keep kicking the can down the road until it all comes crashing down.

The report, which came out ten days before the Lehman collapse, was according to some, one the primary catalysts for the collapse of Lehman and the subsequent near collapse of the entire house of cards, as it explained better than anything to that point (and arguably since), just how hollow and broken the one all important component of modern finance - the multi-trillion shadow banking system is.

Sure enough, once the majority of analysts and traders out there, who for the most part are simple automatons who only push buttons all day and can barely see beyond the 8th screen on their Bloomberg terminal, comprehended the irreparable nature of the systemic break in terms even they would understand, the panic commenced, and resulted in a full blown run on every form of liquidity which also happens to be synonymous with quote unquote bank: yes, Lehman, on the simple visible side, but far more importantly, on money markets, that primary conduit (along with repos) of the shadow banking system. It was this, far more than the Lehman collapse (whose end they had greenlighted), that stunned the powers that be, who did not anticipate any of the aftershocks that would start cascading through the US shadow banking system which according to our estimates is about $15 trillion most recently (well above total traditional liabilities which are still below $14 trillion) , while according to others when one adds the rehypothecation "value" of various commingled assets, could be up to $4-6 trillion larger.

So while we all partake in the spirit of goodwill to man and festive joy (however brief), if for no other reason than because "we should", our present to our readers is that most important gift - knowledge, and the understanding of the truth behind the headlines which the traditional media will never provide, for fear of the all out panic that would ensue if the general public, just like the specialized financial industry, in the days after September 5, 2008, were to understand just how futile the actions of the Fed and the global banking cartel are when presented with all the facts.

In summary: the following report was 100% correct when it first came out and predicted the Lehman, and all other collapses; it is even more correct now, as nothing has changed, only the stakes have now gotten that much ('infinitely' some would say since every central bank is now all in on preserving the fake reality that is artificial central planning) greater. Unfortunately, because nobody listened and nobody learned from the events in late 2008, the next time around there will be no redo.

To understand why, read on (pdf).