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Guest Post: The Collapse Of Our Corrupt, Predatory, Pathological Financial System Is Necessary And Positive

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Submitted by Charles Hugh Smith from Of Two Minds

The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive

We are being throttled by the Big Lie: we're told that if the predatory financial system implodes, we'll all be ruined. The opposite is true: the only way to save our economy is to let the corrupt, pathological and flawed financial system implode.

I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.

Our first stop is modern finance itself. Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.

That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.

In modern finance, high-risk "investments" (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers.

And since even high-risk positions can be seamlessly hedged to zero, then there is no reason not to borrow money to increase the size of your wagers: since you can't lose, then why not? Wagering in risk-free skimming with borrowed or leveraged money is simply rational.

Put these together and we see how a system based on risk-free skimming eventually leverages itself to the point that the slightest disruption can bring down the entire over-leveraged, over-extended system.

Why is this so? Every hedge has a counterparty who is supposed to pay off if the initial wager blows up. A system based on risk-free hedging is ultimately a self-organizing system which maximizes return by increasing bet sizes, leveraging/borrowing to near infinity and hedging every hedge as well as every wager.

This creates long chains of hedges and counterparties. Here's an example based on an asset we all understand, a house. Let's say someone buys a house for $1,000 down, something that was common in the housing bubble. That $1,000 is leveraged up to buy a $200,000 house via a $200,000 mortgage.

The "owner" of the house then buys a hedge to protect himself from the house losing value, so the risk is reduced to zero: if the value rises, the owner reaps the gain and if it declines, then he collects the payoff of the hedge from the counterparty, for example, a Wall Street investment firm.

The counterparty calculated the risk of real estate declining and then priced the hedge accordingly. There is some small risk that the loss will exceed the cost of the hedge, so the issuer of that hedge bundles similar bets and then buys a hedge or "insurance" from another player, who makes the same calculations of risk and return.

Meanwhile, the mortgage has been tranched (sliced into principal and interest and into various pools of risk) and bundled with other "low-risk" mortgages and sold to investors, who also buy a hedge against any loss in the tranch, for example, a credit default swap (CDS) which pays out if a borrower defaults. Those hedges are sold or "insured" with another hedges.

All of this debt and all of these hedges are based on a mere $1,000 of actual capital. The players who originated each hedge are similarly leveraged, because since risk can be lowered to zero, who needs capital?

So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses. With razor-thin capital to cover any losses, then each link in the chain dissolves into insolvency if their counterparty fails to pay off.

This is how we get hundreds of trillions of dollars in "notational" derivatives: every hedged is hedged with another "instrument," "products" are bundled and insured, and so on. The system is based on the principle that risk can be reduced to zero, and so there is no need for capital.

Unfortunately, that premise is demonstrably false. Benoit Mandelbrot dismantled the notion that risk can be reduced to zero in his prescient masterpiece, The (Mis)behavior of Markets. The founder of fractal geometry showed that markets are fractal in nature, and are thus intrinsically prone to unpredictable disruptions. Simply put, risk cannot be massaged away.

Thus the fundamental premise of all modern finance is flat-out wrong, and this explains why systemic risk, rather than being eliminated, actually rises with every ratchet up in debt, leverage and counterparty hedging.

The entire global financial system is thus based on the equivalent of a perpetual motion machine: money can be borrowed or leveraged into existence in essentially unlimited quantities, and then deployed in risk-free skimming operations to harvest unlimited wealth.

What does this promise of using leveraged capital to skim risk-free fortunes do to the "real economy" of production and investment in plant and technology? It guts it. The risk of industrial Capitalism is real and cannot be hedged away; high-risk investments may blow up or they may return high yields. It literally makes no sense to risk real capital in productive Capitalism when a zero-risk skimming operation can be developed that essentially needs near-zero capital.

Thus financial capital has come to completely dominate industrial or productive capital. The pernicious consequences of this dominance have poisoned the economy and culture on multiple levels.

In the political sphere, the aggregation of hundreds of billions of dollars in skimmed profits gave Wall Street and the banking sector unlimited budgets to buy political influence. This created a monstrously pathological feedback loop: the more political influence Wall Street bought, the higher their returns on financialization skimming.

Consider housing as an example. Housing was once a simple, barely profitable long-term investment for both the buyer, who had to place substantial capital at risk (20% down payment) and the holders of mortgages, who took a modest yield for 30 years in trade for low risk.

Wall Street and the banks financialized housing via political influence. opening up a vast new territory to be exploited via skimming. Since capital wasn't necessary in no-risk skimming, then down payments were dispensed with to increase the pool of debtors, as they are the foundation of all skimming operations.

the cost of servicing that debt was manipulated via "teaser rates" and "interest only" loans, further leveraging up American home buyers' modest income streams. Mortgages were bundled, tranched and hedged, and the mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) were sold to trusting investors aroudn the world.

It was a bonanza of unprecedented wealth creation from financial skimming. $1,000 down and a few hundred dollars a month for a "teaser rate" interest-only loan was leveraged into a global chain of "products" and counterparties that could be skimmed all along the chain.

That deepened the political corruption that fed the skimming operation, and introduced the "no risk" pathology into Mainstream America. Since real estate never went down in value, then buying a second, third or fourth home on leverage was simply rational; in a Federal Reserve-controlled world of near-zero yields on cash, it was irrational not to.

But there were two intrinsic flaws in the skimming operation: while the Wall Street players were hedged (or so they reckoned), the average Americans buying homes with near-infinite leverage were not hedged. That meant that when their razor-thin capital went to zero, they were insolvent. Once they defaulted, then the income stream feeding the chain of skimming went away and the chain collapsed.

Once one counterparty failed in the chain, the entire chain collapsed as well. As Mandelbroit explained, such disruptions were an intrinsic feature of the system; though the timing of a systemic disruption could not be predicted, the fact that disruptions would occur on a regular basis could be predicted.

Some players knew this, of course, but that led to another pathology: those investment players who avoided the "no risk" skimming casino could not generate the yields being "earned" by the leveraged skimmers with legitimate investing, and so their investors abandoned them for the fully rational reason that "no risk" yields were higher elsewhere.

This too created a feedback loop, where the capital available to be leveraged grew rapidly, while the pool of capital available for "patient" risky investments in actual productive assets declined. Capital available for productive investment thus became costly and scarce, while capital available for leveraged skimming became cheap and abundant.

The Federal Reserve bankrolled the skimming to the hilt. Indeed, the entire pathology of low-interest, unlimited leverage skimming was based on the Federal Reserve's manipulation and intervention. That remains true today.

What happens when the whole chain blows up and the foundation of debt is impaired? Since the whole system is based on the debt and the income streams devoted to servicing it, the entire edifice collapses when the debt is impaired--debtors default and the system clogs with bad debt, i.e. uncollectable debt.

In a transparent Capitalist system, the debt would be written down and all the insolvent borrowers, lenders and counterparties would be wiped out. But the political corruption that enabled modern finance to poison the American economy and culture has stopped that cleansing from occurring.

Such a systemic writedown of bad debt in a system with only razor-thin capital to support a mighty edifice of leverage and debt would wipe out Wall Street and the banks and reveal the skimming operation of modern finance as an impossible perpetual motion machine rigged to enrich a thin crust of citizenry at the expense of the rest. And since they skim enough money to buy political protection, Capitalism has been strangled and tossed in a shallow grave lest it disupt the skimming and the political corruption that keeps the machine running.

What we end up with is artificial valuations, endless propaganda and a zombie economy. When borrowers are left dangling in default and the assets left on the books at full value, you end up with zombie debtors, zombie lenders, a zombie government that only has one lever to pull to keep the whole corrupt pathology going--borrow and squander more money-- and ultimately a zombie economy, drifting and decaying in a fetid pool of lies, shadow banking, ceaseless official propaganda, jury-rigged "fixes," manipulated statistics, corruption, predation, exploitation and pathology.

That's the U.S. economy, and indeed, the economies of the E.U., China and Japan in a nutshell.

The only way to clear a zombie economy is to write off uncollectable debt and liquidate all the assets, loans and hedges. That would collapse our financial system, but since it is the cause of our political and economic dysfunction, that would be the highest possible good and extremely positive.

There is a great final irony in the scare-mongering threats of the skimmers and their political toadies. If the taxpayers don't bail out the skimmers, then we'll have martial law by the weekend, the smouldering fires of Europe will rekindle into open warfare, and so on.

The irony is the propping up of a deeply, intrinsically pathological and destructive financial system is not saving the economy, it's the reason the economy is imploding. The Big Lie technique of propaganda is to reverse the polarity of reality: we are told up is down until we believe it.

We are told that liquidating the overhang of bad debt, leverage and hedges would "destroy the world as we know it." The truth is that keeping the zombie system from expiring and covering up the corruption with propaganda is what's actually destroying the world as we know it.

Thus the collapse of the current financial system of central banks, pathological Wall Street and insolvent banks would be the greatest possible good and the greatest possible positive for the global economy and its participants.

 

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Sat, 11/05/2011 - 13:03 | 1848687 vast-dom
vast-dom's picture

yeah yeah yeah.........just get back to me when the hopium bull run unwinds...........i'm short the planet and my calcs have showed end of August for Great Crash and yet here we are writing and reading about collapse and purge etc etc.

 

give me a time bc we all know it's over and yet the game somehow goes on..... 

Sat, 11/05/2011 - 13:13 | 1848700 The Big Ching-aso
The Big Ching-aso's picture

Depending on the crappiness of the players, a game of Monopoly can go on for a long, long, time.   Typically the crappier the players the longer the game.  

Hence where we are today.

Sat, 11/05/2011 - 13:26 | 1848736 CH1
CH1's picture

Right. Timing is virtually impossible: Too many states that can steal unlimited money from millions of obedient serfs, central bankers pulling unknown tricks, investment houses in unknowable deals, fickle confidence, no-think sheep... How can you make sane calculations based on such variables?

Sat, 11/05/2011 - 13:32 | 1848745 vast-dom
vast-dom's picture

CH1: you are absolutely correct! My calcs, even factoring in some insanity a la QE to the Nth, have clearly missed the mark due to GENERAL (and specifically EUROZONE) INSANITY AND FINANCIAL FUCKERY to da Nth!

I am just as insane for thinking I could ever comprehend what kinds of machinations and plots and scams insane people would concoct in their diseased heads!

 

Ever get recorded by an insane person while chatting on the phone with them? How does it feel, when you're left alone to deal with CRAZY?

Sat, 11/05/2011 - 13:57 | 1848826 Raskolnikoff
Raskolnikoff's picture

for the last few years I was very impressed with the fact that every morning the European markets would be off to the races before the US market opened up. The only honest market seems to be in Shanghai, LOL. One day, a few years back I heard Glenn Beck say something like 'it worries me with all the bad news that the market continues to go up.' And then we get earnings from a company like Goldman Sachs who rarely if at all loses money 'trading'. People are going to look back on our times the same way they looked back on the people in Germany in the twenties and thirties and scratch their heads saying, what were these people thinking?

Sat, 11/05/2011 - 14:46 | 1848918 nuinut
nuinut's picture

... and they'll likely conclude, correctly, that there was precious little actual thinking going on.

 

Fortunately, thanks to our example, they will have remedied that, or they wouldn't be equipped to contemplate it.

 

 

Sat, 11/05/2011 - 16:47 | 1849186 Michael
Michael's picture

People say they think I'm a lot more positive about the outcome of a complete and total worldwide economic collapse because, I think the result will be a starved and dead beast that has only served to pillage the sheeple.

I just thank God every day for the complete and total worldwide economic collapse, because I know the result.

No need to go to war over it, it's only money.

Sat, 11/05/2011 - 17:50 | 1849340 AldousHuxley
AldousHuxley's picture

positive for MF Global shorts.

 

regime change.....market system is bringining it to the fascists. Get off of your high horse banksters. MS Excel can do what you do already.

Sat, 11/05/2011 - 22:25 | 1849738 dehdhed
dehdhed's picture

free ebook - designing the future

describes how quickly we could transition from a monetary based economy to a resource based economy

great read for the open-minded

http://www.thevenusproject.com/downloads/ebooks/Jacque%20Fresco%20-%20De...

 

Sat, 11/05/2011 - 14:33 | 1848892 jekyll island
jekyll island's picture

The ability to extend and pretend is directly proportional to the amount of fairy tale capital that exists in the marketplace. 

Sat, 11/05/2011 - 14:18 | 1848868 traderjoe
traderjoe's picture

Just like PM price suppression, the delay in the coming reset is a GIFT - I.e. more time to prepare. And more time for more people to wake up...

Sun, 11/06/2011 - 00:06 | 1849858 UP Forester
UP Forester's picture

Doc:  I have good news and bad news.  What do you want first?

Patient:  The bad news.

Doc:  Your rectal cancer has spread to your penis.

Patient:  From Ass Cancer to Dick Cancer?!?  What the fuck's the good news?!?

Doc:  It's in remission....

Sat, 11/05/2011 - 15:58 | 1849068 zwscott33
zwscott33's picture

the best way to make a fool out of yourself is to put a deadline on your predictions. of course if your right you look like a prophet.

Dec. 21 2012, that is the day it all comes crashing down

Sat, 11/05/2011 - 21:40 | 1849680 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Dec. 21 2012, that is the day it all comes crashing down

Sorry - somebody already took that square in the pool.

Sun, 11/06/2011 - 11:39 | 1850422 Ganja Jane
Ganja Jane's picture

...and they pissed in it. Watch out for the yellow cloud.

Sat, 11/05/2011 - 14:04 | 1848847 Seasmoke
Seasmoke's picture

crappy monopoloy games are TORTURE

Sat, 11/05/2011 - 22:24 | 1849736 Ted K
Ted K's picture

I love sitting there with St. Charles Place and $9 fucking with people. Then I put little Star Wars action figures on free parking and tell them its NYPD bribed by JPMorgan. Then just when I think they can't take it anymore, I grab Chewbacca and pretend it's Sarah Palin giving a Tea Party speech. My Palin imitation is totally killer.

Sat, 11/05/2011 - 23:14 | 1849797 hidingfromhelis
hidingfromhelis's picture

Always wondered what you did on days when the post offices are closed.

Sat, 11/05/2011 - 13:12 | 1848704 nope-1004
nope-1004's picture

The game goes on because it's obvious:  The banks are all insolvent and will fail overnight if the the truth comes out.

The lie goes on and there are plenty more Corzines out there stealing other peoples' money as we speak.

 

Sat, 11/05/2011 - 13:48 | 1848800 Ganja Jane
Ganja Jane's picture

+1

It's a harsh reality.

Sat, 11/05/2011 - 17:52 | 1849341 AldousHuxley
AldousHuxley's picture

reailty for you, virtual reality for elites.

Sun, 11/06/2011 - 11:14 | 1850385 Ganja Jane
Ganja Jane's picture

Agreed.

Sat, 11/05/2011 - 14:17 | 1848867 LeonardoFibonacci
LeonardoFibonacci's picture

  Treasonist cowards with their constant after-close margin manipulation. Erect the gallows. It becomes obvious its time to use them again.  Guillotine them all, fucking bastards.  Don  Corzinello would be a good start

Sat, 11/05/2011 - 14:42 | 1848906 sabra1
sabra1's picture

one thing i know, once all this comes to rest, and all those responsible are hung, don't think for a second that their family members will be able to walk the streets safely. what we don't hear about are all the innocent families, who had someone close, commit suicide.

Sat, 11/05/2011 - 21:21 | 1849657 Tedster
Tedster's picture

The correct usage is "Hanged". Please make a note of it.

That is all. Carry on.

Sun, 11/06/2011 - 00:08 | 1849863 UP Forester
UP Forester's picture

I heard Janet Napolitano is hanged like a horse.

Sun, 11/06/2011 - 11:37 | 1850386 Ganja Jane
Ganja Jane's picture

Grammar police: Hung.

Hanged, as a past tense and a past participle of hang, is used in the sense of “to put to death by hanging,” as in Frontier courts hanged many a prisoner after a summary trial. A majority of the Usage Panel objects to hung used in this sense. In all other senses of the word, hung is the preferred form as past tense and past participle, as in I hung my child’s picture above my desk.

Although this doesn't cover the usage in this instance, I refer to the urban dictionary for consensus:

http://www.urbandictionary.com/define.php?term=hung%20like%20a%20horse

Sat, 11/05/2011 - 16:33 | 1849161 fockewulf190
fockewulf190's picture

Just so no one forgets....(D) Jon Corzine.  Someone should mark that letter onto his forehead ala Inglorious Basterds. 

Sat, 11/05/2011 - 13:49 | 1848803 Gully Foyle
Gully Foyle's picture

Jesus fucking christ!

You can neither prove that a collapse would be either necessary nor positive.

It's like those assholes who postulate if Gore had won none of the wars would have happened.

I'm so fucking tired of people making false assumptions designed to fit with their preconceptions and biases.

But worse are the goddamn idiot cheerleaders that can never consider the implications of any statement and merely follow the crowd. You know the 99% of ASSHOLES!

 

Sat, 11/05/2011 - 14:04 | 1848844 Absalon
Absalon's picture

Agreed.

 

We are teetering on the edge of civil collapse and a military coup in Greece and the bad stuff has barely started.

 

Collapse of the banking system would bring real suffering and death to many.

 

We need fundamental reform of the big banks but the nihilist approach of first we burn it down then we build something better is not going to work.

 

Sat, 11/05/2011 - 16:56 | 1849188 fockewulf190
fockewulf190's picture

How in the world is it possible to reform any financial institution of any kind when every financial thing on earth is hotwired to the $600 trillion dollar+ derivatives anti-matter bomb? 

It isn´t possible to diffuse this thing.  This sucker is going to blow and millions upon millions of people are going to be wiped out.  All you can do is try and prepare as much as you can to ease your journey through the turbulent times after it blows. 

It is really going to suck on planet Earth for at least a few years, and those people who currently have next to nothing, will be howling like banshees.   As Gerald Celente always says; "When people lose everything and have nothing left to lose - they lose it".

And lose it they will.

Sat, 11/05/2011 - 18:44 | 1849436 Absalon
Absalon's picture

Evey bank claims that they are hedged on their derivatives and they might be right in that most derivatives are probably just sham trades done to avoid taxes or government regulations.  

 

Some banks will have taken large positions that put them at risk if there is a black swan and more generally there could be serious liquidity problems leading to a contagion effect.  It is not inevitable that derivatives will blow up but every day there is some finite probability they will blow up that day and you know what happens if you keep rolling those dice for long enough.

 

Given that there are $600 Trillion in derivatives in a $60 Trillion global economy we know that most derivatives are "naked" (not based on an underlying right or obligation).

 

Derivatives are time limited.  They expire.  You unwind it by banning new naked derivatives.  Or governments could declare naked derivatives to be illegal gaming contracts and unenforceable. 

Sun, 11/06/2011 - 00:10 | 1849866 UP Forester
UP Forester's picture

So, we can't call that guy from the Oscar-winning movie the other year to defuse the derivative bomb?

Sat, 11/05/2011 - 17:17 | 1849271 Bolweevil
Bolweevil's picture

"More stringent reform." You of the androgynous handle are either complicit or complacent. Which is it?  And you freakin' agree with Gully then drop the "banking collapse brings death and suffering" in the next sentence? You're banned from posting for a week.

Sat, 11/05/2011 - 18:34 | 1849418 Absalon
Absalon's picture

I am hardly complacent.  They are talking about the collapse of the monetary system.  The banks, including central banks, failing.  The clearing system disappearing.  The money markets seizing up.  In 2007,  the US government stepped into the money markets so major corporations that relied on the money markets for working cash could make freaking payroll.

 

Collapse means no pay checks.  No pension checks.  No credit cards.  No bank accounts.  No checks.  No debit cards.   

 

The economy is like a shark - if it stops moving it dies.

Sat, 11/05/2011 - 21:17 | 1849646 Bolweevil
Bolweevil's picture

I appreciate your reply.  

Let it rain.  I agree in that things may be difficult following said collapse, but I welcome the departure from increasingly brazen disregard for the rule of law espoused by banksters.  I wish for a smoothe, orderly transition where TBTB(TM)* have a come to Jesus moment and realize the err of their ways and reform like the trusted stewards they portray, but I am relegated to this dimension where unicorns pooping skittles are merely fantasy.  I already don't get a paycheck and am moving toward all the others you list. Yes I do have a job type job, but I be the captain of this here ship.  Let the shark rot and I also welcome well-meaning people like you to help us reshape the future I just don't think it happens through the conventional channels available to us.

*[dcrb] 

Sat, 11/05/2011 - 17:21 | 1849279 Raging Debate
Raging Debate's picture

Absalon, I agree. The foundation itself can evolve from 3d to 4d very easily while laying a few bricks for a 5d model. Rothschild's model was built as a 4d construct. His intent of using it for conquest sucked but even if he meant well the tech tools were not available in his day and his model would have reverted to a pyramid. Same deal for US government. Use 4d tools and a 4d model. The tools now exist so building another pyramid at this point is leaders purposely pursuing a model of tryanny.

The model dictates behavior. Pouring new wine into old winseskins won't work this time. But the solutions do exit. Time for a new plan.

Sat, 11/05/2011 - 19:00 | 1849465 SPONGE
SPONGE's picture

Uhhhh, what?

Care to expound?

What's 5d and how many d's does one need to RULE THE FREAKIN WORLD!

Sat, 11/05/2011 - 20:33 | 1849588 krispkritter
krispkritter's picture

Da Bankers, Da Fed, Da ECB, Da IMF, etc.

Sun, 11/06/2011 - 13:01 | 1850591 dolly madison
dolly madison's picture

I'd say the biggest problem will be the sudden loss of oil.  When the economy melts down, it will probably be nearly impossible to buy oil anymore, and people are so dependent on it for food.  I wish more people would get a clue that they need to be prepared for the food supply to come to a sudden end.

I'm glad I don't live in a city.  It will be very ugly if we don't have oil.

Sat, 11/05/2011 - 20:24 | 1849578 Scorpio69er
Scorpio69er's picture

No argument that the financial system needs to be reformed and reigned in. But it is assumed in this article (and by many good people) that something better would naturally follow an outright collapse. This is a horribly naive assumption. What will surely follow is death and destruction for millions, if not billions, of people. What comes out of the ashes is anyone's guess, but if history is any guide, it ain't gonna be pretty. When chaos reigns, societies turn to "strong men" to restore a sense of stability and security. So, it is very likely that the near-police state under which we now live will become much worse under a crisis scenario.

Sat, 11/05/2011 - 21:28 | 1849663 Bolweevil
Bolweevil's picture

I don't necessarily disagree with you, but would you be so kind to list your historical references for the carnage you envision?  

Sun, 11/06/2011 - 16:24 | 1851013 Miss anthrope
Miss anthrope's picture

my dear scorpio, that is their plan.  IMHO

Sun, 11/06/2011 - 16:24 | 1851015 Miss anthrope
Miss anthrope's picture

my dear scorpio, that is their plan.  IMHO

Sun, 11/06/2011 - 04:08 | 1850089 Peter K
Peter K's picture

To all you asswipes who 'down twinkled' the above post, I say this: "You can't handle the truth":)
PS Socialism es muerte

Sat, 11/05/2011 - 14:10 | 1848855 Fibz
Fibz's picture

My calcs show that if you trade the opposite of ZeroHedge sentiment, your survival rate might never drop to zero.

Sat, 11/05/2011 - 14:40 | 1848900 Hook Line and S...
Hook Line and Sphincter's picture

"Past performance is not a guarantee of future results."

This was once in the Constitution, printed in invisible ink.

Sat, 11/05/2011 - 17:48 | 1849334 Flakmeister
Flakmeister's picture

Yes, the Hedge is an awesome contrarian indicator.....

Sun, 11/06/2011 - 10:59 | 1850369 Hephasteus
Hephasteus's picture

Yes zerohedge readers kick the dog crap out of fed primary dealers and bond market bigwigs on returns just by bying gold and silver and holidng.

Sun, 11/06/2011 - 08:03 | 1850202 Eurodollar
Eurodollar's picture

One approach to understand "the game" that I take is to map: Who are the players, what is their agenda, how are their relationships to each other. What mandates do they have? Then apply game theory, adjust with behavioural finance and apply to the current perception of fundamentals and common sense perception of fundamentals.

I know that I am an amateur plankton in a big ocean of predators, but doing the above excersise to the best of my limited ability I tend to believe that this game will continue to go on for quite some time if everything plays out as normal. Of course, as the future isn't pink and predictable one can't overlook that random events can send the game, that is very fragile at this stage into implosion mode. Black swans are in the water. Are they heading our way? Who knows. All I know is that I will stay alert and react to them based on my model as quick as I can :)

A small note before you all slaughter my thoughts :) I might be an amateur, but over many years I have worked with assessing probabilities on the fly for imperfect information type of activities. I managed to make a very good life for myself doing that in my own humble opinion. I know finance is the entertainment park for the big boys and that it will be virtually impossible to beat this game. However, I intend to give it a go :) Good Luck to me!

 

Stay tough, stay focused and invest well!

 

Sun, 11/06/2011 - 22:42 | 1851856 constitutionalist
constitutionalist's picture

A ship with a good bilge pump sinks slowly, but still sinks eventually

 

Sat, 11/05/2011 - 13:04 | 1848689 end da fed
end da fed's picture

bring it

Sat, 11/05/2011 - 13:46 | 1848792 Ganja Jane
Ganja Jane's picture

poseur

Sun, 11/06/2011 - 11:27 | 1850396 Ganja Jane
Ganja Jane's picture

Stop feeding the trollz and poseurs.

Look at the avatar!!!! Seriously, did we have a falling out with the clique of high school girls at the mall and ldecided to cling onto zero hedge?

end da fed?

*rolls eyes*

Can we get a 'Do Not Feed The Trollz and Poseurs' sign?

Sun, 11/06/2011 - 11:56 | 1850454 Hephasteus
Hephasteus's picture

You airforce guys are really dumbshits aren't ya. Must be the lack of oxygen at high altitude that does it.

Sat, 11/05/2011 - 14:32 | 1848891 jayman21
jayman21's picture

+1 for the avatar - LOL

Sat, 11/05/2011 - 13:11 | 1848698 xcehn
xcehn's picture

Sometimes nothing is better than something. Reset.

Sat, 11/05/2011 - 13:52 | 1848813 Gully Foyle
Gully Foyle's picture

xcehn

Can you be more of an idiot?

Something always fills a void.

You assume that that something will be beneficial to you.

Good luck with that.

Better yet read some History, you know the kind that illustrates how shit can go from bad to a fucking nightmare.


Sat, 11/05/2011 - 14:07 | 1848851 xcehn
xcehn's picture

You're the idiot.  What we HAVE is a fucking nightmare for MOST people, asshole.

Sat, 11/05/2011 - 19:46 | 1849515 Absalon
Absalon's picture

If you think this is bad you have limited education and limited imagination.

Sat, 11/05/2011 - 20:04 | 1849545 Absalon
Absalon's picture

Sorry, double posted.

Sun, 11/06/2011 - 11:30 | 1850406 Ganja Jane
Ganja Jane's picture

...and when it crashes, the same people that manufactured this current global crisis will roll out the savior: One world currency, bank and government controlled for and by the banking cartel.

Public enemy #1: Evelyn de Rothschild

Sat, 11/05/2011 - 14:54 | 1848955 JamesBond
JamesBond's picture

i tire of your vapid postings 

Sat, 11/05/2011 - 17:21 | 1849280 Bolweevil
Bolweevil's picture

And quit with the fucking bold type. Please :)

Sat, 11/05/2011 - 13:13 | 1848707 The Deleuzian
The Deleuzian's picture

Correct VD...Making poor decisions only get more costly and carry unknowns within them...Self reliance...The boyscout handbook...All the things and skills learned but now forgotten as a youth...Bad habits, guilt...self defeating attitudes and grudges serve zippo and only hurt in the end...I find myself mentally, spiritually calibrating more and more...

The longer time we have to prepare for the ugliness and personal disasters of many people out there the better...You can only store and prepare physical items so much...I say prepare the self and the ability to remain nimble trump all...

Sat, 11/05/2011 - 13:55 | 1848816 Gully Foyle
Gully Foyle's picture

The Deleuzian

I disagree on preparation.

All anyone can do is be here now. Live in the moment and be ready to act as if you were buck naked when the world falls apart.

Use your wits and be flexible.

That's the only way to survive.



Sat, 11/05/2011 - 15:36 | 1848907 High Plains Drifter
High Plains Drifter's picture

i a ready to act gully. since this situation started on a cold night in 1913, i may say that revenge will be served up cold........

Sat, 11/05/2011 - 14:49 | 1848937 The Deleuzian
The Deleuzian's picture

But Gully...(+1) I agree with what you posted...Don't seem to follow on your disagreement...Preparation is a multi-pronged process...I believe you misread my comment...Every moment we have is precious...Adaptation to whatever awaits the naked-savage should be absorbed...The more alternatives we have allows the prudent and adjusted to act accordingly...Many different aspects of preparedness and mental accuteness is welcome...

Sat, 11/05/2011 - 15:31 | 1849021 The Deleuzian
The Deleuzian's picture

Gully...Seek and surround yourself with likeminded individuals that have purpose, ability, and a realistic plan and goal moving foreward...It may be our only out....

Sat, 11/05/2011 - 17:33 | 1849301 Raging Debate
Raging Debate's picture

Yep. Walk right into your Town Hall and ask for the Mayor or City manager. Tell them as a citizen, your there to find out what the city needs from its citizens in regards to revenue or ways to be more efficient. It's called discovery. Take lots of notes. Then let them know you will do a simple three page plan starting with using the Internet to arbitrage need vs. supply and doing consistent promotion of volunteerism. Don't start yapping about servers and code, software. Just tell them you will take care of those details for them later. The simple plan will lead you to using simple systems spec visuals for most of the details.

Your going to make a bunch of new friends creating personal opportunity and will be active, having some fun with it and feeling satisifed by the quality of life. Run toward the problems presented not be afraid to hit it head on.

Sat, 11/05/2011 - 20:52 | 1849611 FreudianSlip
FreudianSlip's picture

Gully, the lazy mindless grasshopper troll (while the ant works his ass off storing & preparing).  

 

This will be the same troll stealing from everyone when things turn bad.  

All the Zombie ObamaTrolls, on the take at the expense of everyone else.

I shoot Zombies....great game!

 

Sat, 11/05/2011 - 13:13 | 1848708 B9K9
B9K9's picture

It won't be over until they decide it's over.  Consider the full spectrum: not only did they conceive such a system, knowing full well the inevitable, mathematical outcome, but it was strategically implemented & executed to such a degree as to provide complete global control over all political & economic processes.

I mean, if one where to be objective and give them their measure of due, the debt-money system has succeeded beyond anyone's wildest imaginations. So why not go for the coupe de grace? They understand resource exhaustion & environmental degradation, they know we cannot "grow" our way to support any further layers of debt.

So, it will all come down, with or without their initiative. So why not control the time/place of their choosing, so as to position them to win again after the reset?

Sat, 11/05/2011 - 13:20 | 1848723 Hohum
Hohum's picture

It will be over when the WTI price says it's over, notwithstanding Mr. Bernanke.  If stocks can appreciate but oil (and gold/silver) doesn't, it will be a miracle.

Sat, 11/05/2011 - 13:27 | 1848739 The Deleuzian
The Deleuzian's picture

I seriously doubt that is a possibility but I would have thought the house of cards would have been blown away already...IMHO ...the Dow/Gold Ratio will most likely be less than 5 and possibly down to 2 or 1...My take...At that point who knows

Sat, 11/05/2011 - 13:48 | 1848797 topcallingtroll
topcallingtroll's picture

Exactly.

Those ratios are how we can figure out if a productivity miracle has ocurred over the next five to ten years.

Dont count humans out yet. Resource constraints have decimated isolated pockets of humanity, but the overall trend is positive in that resource constraints have never been a general system issue.
Quite frankly it all depends on fracking, and oil gas depletion rates.

I still believe in a place called America, not the government, but individual genius that benefits all of us.

Sat, 11/05/2011 - 13:38 | 1848766 larynx
larynx's picture

Thats exactly the point:

> So why not control the time/place of their choosing, so as to position them to win again after the reset?

 

Got PM`s ?

Sat, 11/05/2011 - 14:49 | 1848938 sabra1
sabra1's picture

it will be over, when God casts these bastards into the fires of hell! since they already worship the devil, they're halfway home already! and for those that didn't know, the english royal families,are decendants of vlad the impaler, aka dracula!

Sat, 11/05/2011 - 13:23 | 1848720 DormRoom
DormRoom's picture

you should blame Goldman Sach's Fischer Black for leading investors to believe in precise mathematical model,s used in derivatives, and shown to be incomplete, which led to debtpocalypse.

It was the faith in these models, that led ppl to take on more risk, and debt.

 

After the portfolio index insurance crisis, a volatility smile stared back at traders.

 

After debpocalypse, a volatility columbian neck tie will be staring back at them.

Sun, 11/06/2011 - 14:15 | 1850751 Gadfly
Gadfly's picture

Actually, it was human greed that led to the creation and belief in these models.  Same old story.  Different time and place.  When money is your God, what do you expect will be the outcome?

Sun, 11/06/2011 - 22:46 | 1851862 constitutionalist
constitutionalist's picture

i can't agree with you more. We have been brainwashed by the media to worship either the dollar, celebrity bullshit, rims and "bling" or yourself. The question is, when will the world take the bag off there heads. 

 

Sat, 11/05/2011 - 13:22 | 1848728 CH1
CH1's picture

There is a great piece that explains why collapse brings a golden age here: http://freemansperspective.com/

It's a pay newsletter, but they may give you a free trial if you ask.

Sat, 11/05/2011 - 14:44 | 1848913 High Plains Drifter
High Plains Drifter's picture

a collapse will not usher in a golden age. on that i am sure. it will be a time like no human has ever seen...........

Sat, 11/05/2011 - 14:46 | 1848921 CH1
CH1's picture

Evidently your opinion is not the only one. :)

Sun, 11/06/2011 - 13:14 | 1850628 dolly madison
dolly madison's picture

Sure, right after the collapse will be not fun.  But golden times may come to those who survive the bad times.  Some of the ones most likely to survive have been studying what went wrong.

Honestly if I had the doomsday mentality that some of you seem to have I might just kill myself now.  I'm going to stay optimistic.  I have some plans for hopefully surviving through some really rough times, and I'm sticking with em.

Oh, and I don't like the undertone from a few of just put up with this crap, or the world will come to an end. 

Sat, 11/05/2011 - 13:23 | 1848730 oogs66
oogs66's picture

i like the twist on "positive" :)

Sat, 11/05/2011 - 13:24 | 1848734 DalaiLamaInAShark
DalaiLamaInAShark's picture

Just a side note....The chase payroll system is down for the second day in a row!  Just a coincedence that it's Nov 5 (end of "Bank Transfer Day")?  I think not. 

Sat, 11/05/2011 - 13:30 | 1848747 zardoz3006
zardoz3006's picture

in the UK - RBS and Natwest have been down all day.  HSBC was down yesterday and i don't know if it is up today.  Looks like a problem to me.  Anyone else know of any others?

Sat, 11/05/2011 - 13:27 | 1848737 MountainHawk
MountainHawk's picture

We need people at #Operationwallst educating people about what's in the article, someone grab a podium, mic and and start talking!!!

Sat, 11/05/2011 - 13:27 | 1848741 zardoz3006
zardoz3006's picture

What an excellent piece.  The writing on this site can be truly exceptional

Sat, 11/05/2011 - 13:28 | 1848742 DeadFred
DeadFred's picture

Preaching to the choir. The question is when not what or why. As the leverage increases it less and less of an obstacle in the road to permanantly stop the can kicking. Boulder > Stone > Pebble. But when? Monday because MF Global was THE stone or will they keep the scheme floating ever longer. If they can actually get fools to buy into the ESFS they might be able to ratchet this this along some more. When?

Sat, 11/05/2011 - 13:29 | 1848744 AssFire
AssFire's picture

Don't stop there.. tear apart the country into smaller republics. Those republics that want unions and big government can model their structure like that of Greece. Those that want economic freedom and the opportunity to build wealth can go to republics like Texas. Those that rely on the government are effectively handicapped there is no place for them in a society based on merit.

The people working for the federal government don't realize they are on welfare and the welfare recipients think they are employed by the federal government. The breeders need less incentive and more hardship. They should only receive aid if they agree to permanent sterilization.

Sat, 11/05/2011 - 13:51 | 1848809 topcallingtroll
topcallingtroll's picture

Nice to see you again assfire.

How is business?

Sat, 11/05/2011 - 14:00 | 1848835 Gully Foyle
Gully Foyle's picture

AssFire

https://secure.wikimedia.org/wikipedia/en/wiki/Jesusland_map

The Jesusland map is an Internet meme, created shortly after the 2004 United States Presidential election, which satirizes the red/blue states scheme by dividing the United States and Canada into either "The United States of Liberty & Education" or "The United States of Canada," and "Jesusland".[1]

Sat, 11/05/2011 - 14:30 | 1848869 AssFire
AssFire's picture

As an atheist I would abhor "Jesusland" and would hope to remove any religious questions to candidates who might be shunned for their lack of faith. In spite of the economic chaos in the fake world of government and Wallstreet, the sales of my hydraulic goods some imported, some manufactured here continues. Rather than hire anyone, since 2009 my goal has been to only do high profit business to the extent of our valued employees. I have given 10% raises the last two years that make up the taxable portion of the medical benefits stolen from my employees by the government as well as to compensate them for the increased medical plan costs.

I turned over drawings of customized products to former clients so that they could find other suppliers. I want to help those former clients, but won't take on the hiring of people when I have no idea what new taxes or socialist policies are coming next.

Negative votes come from the looters on the government dole and the recent influx of the anti-capitalists to this site.

Sat, 11/05/2011 - 15:33 | 1848996 DosZap
DosZap's picture

AssFire

Seems like Canada MAY have a say in that.

As for separating the US by regions(NOT under Fed control), I am ALL for,it.

We are far to divided and diverse to ever be the America of the 40-60's,again.

It would never fly, because the Jesusland Folks would be region with the most wealth and freedom.

The one's comprised by the welfare goonies, are totally incapable of taking care of themselves.Having for so long having the Red states support them.

OR, we do as I called for 5years ago,and hold a CON CON, and we Amend the p[arts we want amended, and get rid of all the bloodsucking vampires everywhere.

Take away ALL EO , and PDD powers from the POTUS, (allow him/her to just have Exec privilege over THAT Branch(as intended).Cancel ALL but the most needed laws and EO's, and PDD's, and make them all public,ALL of them.

There has been a plan to separate the US into 10 separate regions since the 40's.

Even the Russians have seen it coming.

Something is going to change us, why can't it be US doing the changing.

The states get to name their own delegates, and Government (as in Fed) is powerless to stop us from doing as we wish.

Each have separate militaries,and only come together as a group for attack/or threat from outside the US.

Each states responsible for itself, and it's region.

It would work, if the lines were drawn properly and guidelines were properly instituted for water, and food, and natural resource sharing. Free travel to each and every region, and a requirement would be made for anyone wanting to move in, or out of said region(with just cause).Stops infiltration, and agent provocateurs.

OR: THe best of all,is GO BACK to the Original Founders Plan, and start anew.No one has had a better one ever.

You do not interpret the intent, you are BOUND to follow it letter by letter.

Most all Fed Judges would be fired,as would be the SCOTUS.

Sat, 11/05/2011 - 13:32 | 1848751 tony bonn
tony bonn's picture

this article is zh triple platinum pulitzer nobel prize winning analysis.....absolutely superb and impeccable!!!!!!

the real problem with this perpetual motion machine is far more profound and disturbing as it is political in nature rather than economic....

the plutocrats who invented this fraud have declared war on america...the rockefeller-rothschild axis of evil and its myriad sycophants and instruments of subjugation such as the yale-cia cartel, the propaganda media, and others have burdened individuals and governments with debt in a faustian bargain with the devil....the outcome is always the same - loss of soul and enslavement to wickedness...all consequent to foolish and excessive debt...

and so this scum of the earth in high places have dismantled the consitution and republican government all courtesy of debt...and only a hand full of people in this country realize what has happened....

Sat, 11/05/2011 - 14:57 | 1848962 sabra1
sabra1's picture

with billions of us on this planet, all we've got to do is rush them, slit their throats, and unplug the HFT's! soldiers, cops, remember. you've got families too who are affected! you will join us, i guarantee it! tyler reassured me that all ip addresses are removed from the comments before posted! isn't that so?

Sat, 11/05/2011 - 21:48 | 1849695 steelrules
steelrules's picture

Thumbs up!

But when it all does fall apart just remember some of us have been taking names and we have the addresses.

There will be dates with madame guillotine. 

Sun, 11/06/2011 - 17:49 | 1851220 flattrader
flattrader's picture

This is just the new CHS meme.

A few months ago he was blaming ALL of us because we are complicit in the "Kleptocary".

A few weeks or next month, he'll be spouting a new meme.

Pulitzer Prize my ass.

Sat, 11/05/2011 - 13:34 | 1848752 Dr. Nancy
Dr. Nancy's picture

 

All that's happening is predictable, as there are 7 stages that any major economy goes through. Those who know how it works profit & massive wealth is transferred to them. Several months ago I learned this information from a millionaire whose site I found & am sharing it with everyone I know.  

His free video

"How To Create Incredible Wealth in Today's Economic Crisis"

is at:

http://theelevationgroup.net/presentation/register.php?a_aid=160667&a_bi...

Hope this info helps everyone as much as it has me.

Dr. Nancy

 

Sat, 11/05/2011 - 13:41 | 1848778 Socratic Dog
Socratic Dog's picture

Fuck off Nancy.

Sat, 11/05/2011 - 13:59 | 1848832 larynx
larynx's picture

Scam - no info. Just "pay me xxxx $", then you get the info.

Sat, 11/05/2011 - 18:15 | 1849385 Loose Caboose
Loose Caboose's picture

@ Dr. Nancy

MLM scam.  Greedy wanna be's trying to get their sweaty little hands on other greedy wanna be's money all the way down the line with so much marketing hype and no productive activity other than $$$$$$ being vacuumed to the top of the whole greedy, sweaty little pile of pustules called internet marketers, affiliates, associates, etc. 

That is the essence of what is wrong with the world. 

Sat, 11/05/2011 - 20:00 | 1849536 slewie the pi-rat
slewie the pi-rat's picture

the doc-tor has posted this crap 30X in the last 2 weeks

every post has one green arrow, too, so i would count that in nancy's favor if this bullshit wld just cease...

Sat, 11/05/2011 - 13:34 | 1848753 prains
prains's picture

It's not really that funny but man can zombies live a long time

Sat, 11/05/2011 - 13:42 | 1848760 dvp
dvp's picture

What has come to fascinate me about postings on the current world economic crisis is the isolation of blame.  As with the mythological academic "discipline" of economics, aping Newton, assumed is any event is the conclusion of a linear sequence of causal events.  So being, it is an easy task to trace back on the linear sequence to the first cause, upon which blame can be placed.  Thus, the problem with Greece is an irresponsible public.  No, the problem with Greece is a corrupt Government-economic elite alliance.  No, the problem with Greece is financial institutions providing Greece with loans to accommodate the above causes, etc.

Wrong about this popular line of reasoning is the world is better depicted as a circle, parts supporting parts in mutual intercourse.  Thus, periodically on this and other sites, we are provided laments for poor Germany because of the misdeeds of the Greeks, or Spanish, or Portuguese, or Irish, or Icelanders (?!), or Lithuanians, or whatever is the country de jour.  Well, folks, the Germans desperately want to sustain the EU because it effectively is a closed economy within which the Germans dominate, followed by the French.  So, let the Greeks exit the Eu?  Why, what if the Spanish, etc., follow?  What then for the effectively captive customer base for German production?

Similarly for the financial institutions.  A favorite of mine is to read the comment responses to articles on Yahoo! news.  Dominant is unrestrained right wing rants on government, socialism, "political correctness," Obama the Nazi communist (illustrating the education of the commenters), etc.  Favorite of these and commenators throughout the internet is, in the words of William Graham Sumner, the Social Darwinism of, "If you find a drunk in the gutter, leave him there, for that is where he belongs according to the fitness and nature of things."

Thus, if you find a billionaire in the towers of Manhatten, "that is where he belongs according to the fitness and nature of things."  Well folks, it's a circle.  As is discovered in Alabama, if you impose Draconian immigration laws, your farmers are going to suffer.  So, if financial capital comes to dominate the world economy, with production of tangibles declining commensurately, people are going to get pissed off.  Doing so, social eruptions are going to occur on a constant basis. Dismiss this as "inefficient" all you want, but it is so only because economists and financiers are blind to this expected human response.  Why it is "inefficient" is because idiot economists do not factor revolt into their throughly inadequate equations.  If the fools did, I do believe their policy advice would be quite different.

Sat, 11/05/2011 - 15:38 | 1849034 Pants McPants
Pants McPants's picture

I agree with the bulk of what you wrote.  However, one (small) quibble - I think the problem CAN be traced to a single source....and that source is the lack of sound money.  All excuses you reference in paragraph one are offshoots of the lack of sound money.

I'm dreaming, but I'd like to see sound money given another shot.  Let sound money be the bedrock of whatever kind of society is produced - for better or for worse.  Hey we can always return to our present forms of fascism and misery.

Sat, 11/05/2011 - 13:41 | 1848780 teregarcho
teregarcho's picture

THIS WILL NEVVVVVVER HAPPEN!!!!!!!!

Sat, 11/05/2011 - 13:46 | 1848788 devo
devo's picture

There's going to be martial law either way. So, might as well have it as the result of purging the system rather than propping it.

I'm ready for massive pain if it will result in a better life afterwards, but I'm not willing to do death by 1,000 paper cuts just to pay back banks' bad bets.

Sat, 11/05/2011 - 13:46 | 1848793 tim73
tim73's picture

USA after collapse...True grit comes to mind. Not necessarily very friendly place.

Sat, 11/05/2011 - 13:50 | 1848808 Waterfallsparkles
Waterfallsparkles's picture

When Houses got too expensive that is when they started the 0 Down Loans and Interest Only Loans.  I suppose that was the Top.

But, the increase in Value of Houses also created a lot of spending in the Economy.  As with the increase in Value many People took out Home Equity Loans to Buy things they wanted, that they may not have bought without the Home Equity.

The increase in Value of Houses also created a Boom to the States as they could increase Property Taxes and Spend the Money from the Huge increase in the Property Taxes.

I hate to say it but I think the first financial downfall for the American People was when the Banks introduced Credit Cards.  Unfortunatly, I am old enough to remember when there were no Credit Cards.  You could get Credit from a Store but it had to be paid by the end of the Month.

Credit Cards created a Boom in spending as People could Buy things without having to save the Money for the Purchase and could pay over time.  Plus, for years you could write off the interest on Credit Cards from your Taxes.

Then the Banks introduced Second Mortgages so that if you wanted to make a Big Purchase or Improve your Home could borrow the Money from the Equity in your Home.  This created even more Spending and helped the Economy as now it opened spending up to Large Home Improvement projects and created Jobs.

Then Congress ended the Tax Deduction of Credit Cards and the Banks introduced Equity Lines of Credit.  So, you could take all of your Credit Cards and other Loans which were no longer deductable and apply for a Home Equity Loan which the Interest was Deductable on your Taxes.  Basically, what Congress did is to encourage People to trade their non Secured Loans into a Secured Loan thru their House.  A lot of People have lost their House because of this.  If they had just kept their unsecured Loans and not put them in their Mortgage, many People would have defaulted on their Unsecured Loans and kept their House.

People used to look to their House as shelter and Money for Retirement, or at least pay off their Mortgage by Retirement and live Payment free (except for Property Taxes that is).  They used to have Mortgage Burning Parties.  Where when someone paid off their Home they celebrated as they were free from the Burdon of paymens and were secure as the Bank could no longer TAKE their Home.

I have always told everyone NEVER BORROW AGAINST YOUR PRINCIPAL RESIDENCE.  A Rental Property Yes but not your Principal Residence.  For if all else fails you have a place to live.

Sat, 11/05/2011 - 13:52 | 1848812 the grateful un...
the grateful unemployed's picture

when the market collapsed in 2008 i was certain Bernanke would RAISE interest rates (i contend he should have, because the Fed should really follow the market, and pricing risk at a premium was the thing to do AND it would have crushed the spec premium in commodities, which would set the table for business to start to make investments AND it would have saved a lot of mortgage holders who would have cheap paper relative to the rate environment going forward, home owners might still be underwater, but holding a 5% loan against 8% (where the market might have put rates),  and one hand washes the other. home owners would be encourged to keep their house, and not mail in the keys just because it was easier. everyone said you're crazy but we'll be there, sooner or later, (with the government deciding which banks survive, instead of the market) and five to ten years too late to get things going again, while the rest of the world eats our lunch and the moral basis of life in these US takes another downward slide toward socialism. huge and possibly treasonous policy mistakes. must be reversed

Sat, 11/05/2011 - 15:13 | 1848984 therearetoomany...
therearetoomanyidiots's picture

...but, the idea of keeping the rates low is to prevent people from amassing wealth. 

 

Seniors have now spent their savings  because the money isn't making anything.  Now their dependent on government/banks.

Young people won't save because 'you'll make more money' in the market. 

The market is heavily manipulated by the very same banks so that 'normal' people can't see a profit unless they pay a guy to do it for them OR follow and learn about what's going on themselves, even then, they can't get into the skimming. 

This effort to lower our standard of living a) makes it easier for other countries to accept their low wages, b) allows the expansion of corporate globalism (they wouldn't be able to do it without the US taking a cut in their standard of living) and c) reduces the US, or the majority thereof, to being dependent on the government/banking industry (since they are one in the same).  

I love my country but it's slipping away folks, and it ain't coming back.   You are all right to horde PMs, and of course the 5Gs is theway to go...God, Gold, Grain, Gas and Guns.   If you can feed yourself you'll be better off in this new world.  

Sat, 11/05/2011 - 15:46 | 1849047 Pants McPants
Pants McPants's picture

Excellent comment.  It's sad to see senior citizens spending all of their money for the reasons you listed.  PMs notwithstanding, wealth accumulation is next to impossible under today's circumstances.  People of all ages, who have no business speculating in the stock market, have been forced to pony up cash with the hope of outpacing inflation.  This cannot and will not end well.

Sat, 11/05/2011 - 16:02 | 1849079 The Deleuzian
The Deleuzian's picture

Financial repression is the bloody bitch as you well described all too well Mcpants...Bullseye...

Sat, 11/05/2011 - 13:55 | 1848818 Hohum
Hohum's picture

Waterfallsparkles,

Your comment makes me think of those who bought a house in 1970 by rubbing two nickels together and now are leveraged 100%+.  They got to buy a lot of goodies, though.

Sat, 11/05/2011 - 14:17 | 1848863 Waterfallsparkles
Waterfallsparkles's picture

In the 1970's you needed a lot more than Nickles to Buy a House.  But, it really was very different then.  I remember buying, at the time, a rather expensive Home.  We went to the Local Bank and sat down with the President of the Bank and he likes us so we got the Loan.  I will mention that our current Home Loan was thru them and we always paid on time.  There were no 20 Page Loan applications, no verification of Income or Assets.  It really boiled down to if the Bank liked you. 

The Bank kept the Loan on their Books and did not sell the Loan.  They trusted you and you felt responsible for the Loan no matter what.  With the Local Community Banks (like Baileys Bank in It Is A Wonderful Life)  they would work with you if you had a problem.  I had a friend that was with such a Bank and lost their Job.  The Bank suspended their Payments for 6 months so they could get back on their feet and find a Job.  I think they put the payments on the end of the Loan.

There really was a time when the Bankers were your Neighbors and cared and worked with you.  There was a kind of Trust between the Bankers and the Borrowers.  They really did not want to see you lose your Home and you really did not want to not pay them as the President or Manager may have been in your Kiwanis Club, Coached little league or lived down the street from you.

It almost seems Nostalgic now.  Really does make you wonder what has become of the Bankers and just maybe us.

Sat, 11/05/2011 - 14:25 | 1848879 Waterfallsparkles
Waterfallsparkles's picture

I also remember back in the 70's with an FHA Loan where a Wife's income could not be used in calculating monthly payments.  Unless she signed a statement that she did not intend to become Pregnant.

Women could also not get Home Loans by themselves.  They had to be Married.  Same with Credit Cards.

Rose Shanis (sp?) was the only Lender that would lend to a non Married Woman.

So, I guess with the introduction of the Birth Control Pill, Equal Pay, and discrimination it changed.

Sat, 11/05/2011 - 13:55 | 1848821 s2man
s2man's picture

Hence the reset in Fight Club by destroying the large banks' headquarters. (Symbolic, I know.  They should have blown up their data centers)

I vote for a financial reset, if we can avoid societal collapse.  Otherwise, I vote for a slow, sucky, decade-long decline, to give folks time to adjust to their new, sucky lifestyles.

I am re-reading Aftershock, about life after the bubbles collapse.  Good news - they think it won't be as bad as the Great Depression.  Bad news - it will feel worse, as we've just lived through the great Age of Excess.

Charles has great advice in his book, An Unconventional Guide to Investing in Troubled Times - Get used to change.  Humans hate change.  Set your mind to think of change as normal, so you are not confused/fearful/angered by it. (my interpretation, Charles)  As Deleuzian said above, prepare the self.

Sat, 11/05/2011 - 13:58 | 1848830 topcallingtroll
topcallingtroll's picture

The wisest quotes about statistics and insurance, because that is the product being sold by people who think that they can skim a risk free return, is from Against the Gods.

"Nature is predictable, but only for the most part."

The banks selling these insurance products know that an event will come along eventually that would make them insolvent, but as we have seen there is a government backstop.

This is the only reason the returns appear risk free. In reality they are inefficiently priced with only the appearance of risk free skimming. They are subsidized by implied guarantees from governments.

Sat, 11/05/2011 - 13:59 | 1848831 oldmanagain
oldmanagain's picture

Real world betting.  (finance)

 I make one  bet for up and another bet for down.  With the winner I make more bets for up and down. I owe for the losers, so I borrow using the winners as the collateral for more rounds. Ad infininitum.

Pick your game or invent one.  Same math.

Sat, 11/05/2011 - 14:00 | 1848836 Youri Carma
Youri Carma's picture

It seems that we have $600 trillion of 'no risk' derivatives lOlz http://theextinctionprotocol.wordpress.com/2011/10/14/600-trillion-deriv...

Sat, 11/05/2011 - 14:00 | 1848837 calgal
calgal's picture

Ah yes
But black swans do not discriminate between angels and devils
Dont give these pos's so much credit
Even they won't be able to control the outcome thank goodness

Mere mortals

Sat, 11/05/2011 - 14:03 | 1848842 slewie the pi-rat
slewie the pi-rat's picture

"the big lie" was a term coined by hitler

to describe propagananda

such bullshit that the ordinary pirate thinks nobody would be so impudent to distort the truth to that extent

like making up shit about WMDs in iraq and having a 4-star general like powell go before the UN with the yellowcake story;  their UN inspectors had found nothing, so we gave them the military presentation of intel = Big Lie

but when the sheep won't turn away from the conditioning machine, they tend to get conditioned and trust the familiar faces feeding them feces

wealth is being siphoned thru printing and corruption;  production (not "productivity") is being destroyed thru the gutting of the econom

risk?  how do you hedge the risk that the crimex might insitute "liquidate only" orders next week? 

marking to unicorns ain't helping.  more and more peeps are waking up to the best option which = M2M + let the chips fall

then, we can see how much has been stolen, how much we have left, and how we really feel about those big, fat, uber-elite liars and their feces and their faces

Sat, 11/05/2011 - 15:44 | 1849043 The Deleuzian
The Deleuzian's picture

Slewie....The beautiful pirate rat...Find your kind out there and fear not bro...Trust those in your heart and general surroundings...and find those that help not only you but the group you are one of the leaders of...Resistance orgs. on the economic, agrarian, and self promoting memes will do you well bro....

Sat, 11/05/2011 - 17:55 | 1849346 Bolweevil
Bolweevil's picture

Aka, loot, pillage, plunder

Sat, 11/05/2011 - 14:05 | 1848846 nickels
nickels's picture

Bravo! Nail this to the Church door!

Sat, 11/05/2011 - 14:05 | 1848848 Contra_Man
Contra_Man's picture

Where have all the real Risk Managers gone?

Heard inside Blackpaper/scissors:

"Push Back From Your Desks. Come Out Slowly with your Erasers pointing up and with all your Gross "Notational" Positions pinned to your chests."

 

Sat, 11/05/2011 - 14:13 | 1848859 PulauHantu29
PulauHantu29's picture

 

 

"G-Pap could not be reached for comment."

Sat, 11/05/2011 - 14:12 | 1848860 Fibz
Fibz's picture

There will never be a collapse as long as there's ZeroHedge readers selling into the market.

Sat, 11/05/2011 - 14:18 | 1848870 over45
over45's picture

right - as long as zerohedge readers think they should keep making money by trading - and not doing actual work - this will never collapse.  it needs to and should ... but as we have seen they will just change laws and regs to suit their needs.

what we need to do is enact a law that says anyone who steals or rips people off should get their hand chopped off... like they do in the middle east.  dead serious.  that is a cheap, efficient and serious deterrent.

Sat, 11/05/2011 - 14:31 | 1848889 Fibz
Fibz's picture

People like Jon Corzine would be executed in China, and rightfully so.

Sat, 11/05/2011 - 14:28 | 1848884 midgetrannyporn
midgetrannyporn's picture

A well written piece imo.

Sat, 11/05/2011 - 14:37 | 1848894 falak pema
falak pema's picture

So... Long read to come to the simple acceptance of cumulative evidence of manifest facts about a bubble financial construct in the context of political, hubristic hegemony, leading to an ineluctable conclusion; which begs one simple question : Who is going to bell the cat of corruption? AS it is not only financial but political, and it serves a civilization based on pax americana. 

Try rolling in that string to make into a coherent ball of wool under the very eyes of oligarchical lies.

Sat, 11/05/2011 - 14:48 | 1848934 JamesBond
JamesBond's picture

great article charles.  keep it up.

Sat, 11/05/2011 - 14:51 | 1848944 TheAkashicRecord
TheAkashicRecord's picture

The truth is banking insolvancy, everything being done is an attempt to put a veil over the truth. The truth can only be supressed insofar that the price of maintaining the facade can be maintained by GovCorp.  

GovCorp is attempting to stop the turning of the ages, to stop history from happening, to freeze the current power-wealth structure in its place - but, in doing so, must pay a very high price.  

The soft, water-like, power stemming from the simple progress of time will always prevail over those who resist it. Don't fight forces, use them.  Trying to control the zeitgeist, you will not be successful.  Can you stop the passing of the ages?  Can you resist decay?  Can you reverse entropy?  Can you stop the rusting of exposed metal? 

Why don't most recognize the truth?  Why are most satisfied wth Maya?  

 

Sat, 11/05/2011 - 14:54 | 1848948 High Plains Drifter
High Plains Drifter's picture

i was at the range yesterday playing with some of my toys.  this range is ued by mostly locals and cops etc..........a cop stood nearby staring at me with a scowl on his face. yeh mr cop. that's right. i don't hunt bambi. i am not  interested in killing innocent animals. i don't get any vicarious enjoyment out of such  acts. the second ammendment was not put in the bill of rights by jefferson because he thought we wanted to be able to hunt. but for me, i am thinking in my mind of hunting alright. hunting evil men and taking care of business...............cops don't like it when we pissants have toys just as good or better than their own...........well too fucking bad is all i can say about that........

Sat, 11/05/2011 - 15:42 | 1849040 DosZap
DosZap's picture

High Plains Drifter

Bingo..................right on.( you should have asked if he was ok, and did he need help?).<grin>

Most LE (except the Chiefs here)are PRO gun.(they are political animals).

Because they know they are just citizens that happen to be LE.When they retire, they are under the same rules as we are.

So it's in their best interest also, to be pro gun.

The LATEST(Last week) Poll on the Right to keep and own firearms was an all time low for people wanting more control(even those evil black rifles), at 38%.

Sat, 11/05/2011 - 16:12 | 1849103 High Plains Drifter
High Plains Drifter's picture

you would think that would be so here but unfortunately it is not. the police around here in south central texas are starting to get this us vs them attitude , which is so prevelant in the big city. many of them are former veterans of iraq etc i am sure. they think they are johnny bad asses and they don't like it when a old fart like me brings out his black rifles and does some shooting in front of them. the worst mistake these dicks will ever do is try and mess with me about anything. i say that not as a physical threat (at least not yet) but i say that as a person who knows his rights (whatever that is) and is not afraid to utilize them . if they get in my face, they had better be prepared to spend all day, because it wil cost them some money and like the old saying goes, they may win the case but they won't like the ride..........and believe me i am prepared for the day when these punks pull me over after i leave the range because they didn't like what they saw out there. i say this because this has happened before around there to other people. so i look in my mirror  and maintain a war footing out in the middle of bum fuck, just like i did in the big city and nothing has changed except maybe it is not as noisy around here.

Sat, 11/05/2011 - 14:52 | 1848949 Raskolnikoff
Raskolnikoff's picture

the white collar criminal and the inner-city street drug dealer come from very different backgrounds, yet they conduct their lives very similarly according to the way that they consistently supersede their wants and desires over those of others. Importantly, the criminal act is the end product of a specific thinking process and personality characteristics. The criminal personality precedes the criminal act. But criminality goes well beyond arrestability. It pertains to the way in which a person acts, thinks, and lives his life (Samenow,1978:17). Because a person has a criminal personality, however, does not necessarily mean that he will have a criminal record.

http://criminology.fsu.edu/crimtheory/samenow.htm

Sat, 11/05/2011 - 14:53 | 1848950 SwingForce
SwingForce's picture

Wow, that was the best thing I've read since It Takes a Pillage. Coherent and understandable. My favorite line: 

"borrowers are left dangling in default and the assets left on the books at full value". Magic.

Sat, 11/05/2011 - 14:54 | 1848954 jayman21
jayman21's picture

Every time I see a piece like this, I continue to think Drucker has it right with the whole centralize vs. decentralized arguments.  Then I add a pinch of black swan and you realize that everything financial has been optimized as well.  Nassim's views about nature and its ability to have a much better memory than a typical banker or economist is priceless.  I am paraphrasing - but he wrote if an economist had built our body, we would have one kidney, one lung, and probably be missing a lot of other body parts.  The economist would optimize and not give much thought to the fragility of the complex adaptive system or the feedback loops.  All inputs would be straight upward sloping lines that point to Harvard or University of Chicago and end at the FED.  Everything would work for about 10 years and then all of a sudden, you have the one kidney fail and it is lights out.   Opps did not see it coming.

 

Thank god nature and bankers do not have a lot in common in my story, you are pretty glad you have two kidneys and you did not have to see it coming.

 

Nature will take care of this little problem.  It is just a matter of time.

Sat, 11/05/2011 - 15:29 | 1849016 TheAkashicRecord
TheAkashicRecord's picture

I'm a big fan of that Taleb piece you paraphrased, it's from the updated version (I think) of Black Swan.

The optimization of efficiency is what Taleb warns against, and looking to nature for guidance (a good system to look at for inspiration, it has been around for a long fucking time so must be operating according to some pretty good principles) he sees that nature does not optimize for efficiency, but instead, redundancies are incorporated (the organ part you mentioned) - redundancies increase system resilience.  On the other hand, our economic system is optimized for efficiency.  

He also talks about the concept of "too big" which I got a laugh out of.  If you shoot an elephant, the largest land animal, the ecosystem is unaffected.  If the largest bank goes down, it ruins the entire ecosystem (the economy which it operates in).  

We should model our systems after the most resilient system we know, nature (also see biomimicry).

See this

Mr. Soddy’s Ecological Economy

    http://tiny.cc/kcmjt

     

    Sat, 11/05/2011 - 16:44 | 1849168 jayman21
    jayman21's picture

    Wish I could give you +100.  Great link.  I am not aware of Soddy's work.  This line of thinking might help me to reconcile/commingle the peak oil and metal arguments vs. capital movement arguments (Martin Armstrong).  Again Thanks.  Adding it to my list of reading right now.  Yes - the passage was in the essay located at the end of the 2nd edition of the Black Swan.

     

    Not sure if you saw this on ZH awhile back, the report offers some interesting data to backup the quick read on Soddy from the NYT.

    http://www.zerohedge.com/news/peak-silver-revisited-impacts-global-depre...

     

    Sat, 11/05/2011 - 17:01 | 1849223 TheAkashicRecord
    TheAkashicRecord's picture

    I will check your link out, I missed that story ..

    Here are a couple of other interesting things - 

    Helmut Creutz - monetary growth 

    http://tiny.cc/x0hkh

    Rethinking growth

    http://tiny.cc/wqgj4

    "I mean, we’re faced with two impossibilities. On the one hand, it’s politically impossible to stop growth. On the other hand, it’s biophysically impossible to continue it ad infinitum. So, which impossibility is fundamentally impossible?"

    Sat, 11/05/2011 - 17:30 | 1849291 jayman21
    jayman21's picture

    Nice links, thanks.  A few more pluses.  Just when I started to think I was getting it and thinking my eyes are open, ZH comments continue to make me open them even wider.  All the Best to Fellow Fight Club Members.

    Sat, 11/05/2011 - 17:47 | 1849333 TheAkashicRecord
    TheAkashicRecord's picture

    I strive to put the realm of the economy in its right place, as a subsystem of the environment.  Understanding this hierarchy places the the primacy of physical laws over the economic ones.  Nature doesn't give a shit what human system we devise to place on top of it, its rules will continue on nonetheless, so we better learn how it operates and place our human systems within its boundaries.  

    The field itself is known as ecological economics 

    http://tiny.cc/rtsuw

     

    Sat, 11/05/2011 - 18:51 | 1849454 Raging Debate
    Raging Debate's picture

    Hey Akashik. I'll net out: You go sideways until the solution is found. Cool links to avert nerding out. Peace.

    Sat, 11/05/2011 - 17:31 | 1849295 TheAkashicRecord
    TheAkashicRecord's picture

    One more 

    http://tiny.cc/2gbuy

    He brings up some interesting points, such as 

    I live in the south of Chile, in the deep south. And that area is a fantastic area, you know, in milk products and what have you. Top. Technologically, like the maximum, you know? I was, a few months ago, in a hotel, and there in the south, for breakfast, and there are these little butter things, you know? I get one, and it’s butter from New Zealand. I mean, if that isn’t crazy, you know? And why? Because economists don’t know how to calculate really costs, you know? To bring butter from 20,000 kilometers to a place where you make the best butter, under the argument that it was cheaper, is a colossal stupidity, because they don’t take into consideration what is the impact of 20,000 kilometers of transport? What is the impact on the environment of that transportation, you know, and all those things? And in addition, I mean, it’s cheaper because it’s subsidized. So it’s clearly a case in which the prices never tell the truth. It’s all tricks, you know? And those tricks do colossal harms. 

    Sat, 11/05/2011 - 15:15 | 1848987 blindman
    blindman's picture

    great stuff here mr. smith ! i hope you are well
    and best to you. sunshine is the best disinfectant.
    .
    http://www.businessweek.com/magazine/content/08_47/b4109070638235.htm
    .
    Sex, Lies, and Subprime Mortgages
    The sexual favors, whistleblower intimidation, and routine fraud behind the fiasco that has triggered the global financial crisis
    By Mara Der Hovanesian
    ....
    ..
    "WHOLESALE CORRUPTION

    Investment bubbles always spawn excesses, and housing was no exception. The abuses went far beyond sexual dalliances. Court documents and interviews with scores of industry players suggest that wholesalers also offered bribes to fellow employees, fabricated documents, and coached brokers on how to break the rules. And they weren't alone. Brokers, who work directly with borrowers, altered and shredded documents. Underwriters, the bank employees who actually approve mortgage loans, also skirted boundaries, demanding secret payments from wholesalers to green-light loans they knew to be fraudulent. Some employees who reported misdeeds were harassed or fired. Federal and state prosecutors are picking through the industry's wreckage in search of criminal activity." ...

    Do NOT follow this link or you will be banned from the site!