Guest Post: Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable

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Mon, 11/07/2011 - 13:16 | 1853685 Odin
Odin's picture

I- International

M- Mathematical

F- Fraud

Mon, 11/07/2011 - 13:16 | 1853686 Manthong
Manthong's picture

Well, NOW it is..

Mon, 11/07/2011 - 13:25 | 1853690 Ghordius
Ghordius's picture

Well, where is the CDS market here?

I'd say under operation of a gambling environment with other people's money and credit.

All in all I'd say this is one of the best Smiths I've read so far. And he now understands Taleb's point!

Mon, 11/07/2011 - 16:35 | 1854543 Mountainview
Mountainview's picture

What about the CDS market in the case of Greece? Is the voluntary haircut of 50% a sufficent event for Greece CDS? If not, forget about CDS!

Mon, 11/07/2011 - 13:25 | 1853694 gojam
gojam's picture

It's the biggest fundamental of all the fundamentals and it can't be said enough.

Charles Hugh Smith surveys the forest while too many others are staring at the trees.

The entire system is fucked!


Mon, 11/07/2011 - 13:19 | 1853699 Ethics Gradient
Ethics Gradient's picture

It's alright, the EFSF has just managed to raise €3bn. We're saved! Yay!

Mon, 11/07/2011 - 13:29 | 1853743 Odin
Odin's picture

E- Everybody

F- Funds

S- Someone-else's

F- Fuck-up


Mon, 11/07/2011 - 14:28 | 1853989 Grinder74
Grinder74's picture

Ooh, ooh, do one for the SEC.  It's Monday and my brain's not working.

Mon, 11/07/2011 - 14:53 | 1854075 Odin
Odin's picture

S- Shadow

E- Enterprise

C- Compensation


....k that one's a little harder

Mon, 11/07/2011 - 15:03 | 1854110 DaveyJones
DaveyJones's picture

S sex. E every. C computer.

Mon, 11/07/2011 - 13:21 | 1853703 El Viejo
El Viejo's picture

Big bonuses for taking risk.

Mon, 11/07/2011 - 13:27 | 1853705 DormRoom
DormRoom's picture

I like the way you think, Mister.


skimming in a credit ladden capitalist system also has a multiplier effect....


assume skim rate @ .2

(.2) + (.2)(.2) + (.2)(.2)(.2) + .... So in the long run the real economy is choked off from capital/resources.


Multiplier effects are the feedback loops in the system, and its negation 1-(multiplier rate) series has a built in reflexive property

Mon, 11/07/2011 - 13:30 | 1853746 gojam
gojam's picture

Are you a genius or is that just bullshit way over my head ?

It looks right to my eye, so on the off chance you are a genius I'll give you +1

Mon, 11/07/2011 - 14:01 | 1853895 narapoiddyslexia
narapoiddyslexia's picture

If my memory serves [and it usually doesn't] that series converges to 25%, or

x + x^2 + x^3... for absolute value of x <1, or 

[ 1/[1-x] ] -1 = .25

Which sounds about right. The bankers are stealing about 25% of the income and in exchange they see that we have pliable leadership.

Do you deserve more? Your congresscritter doesn't think so. So shut up and enjoy it. 

Mon, 11/07/2011 - 14:37 | 1854023 11b40
11b40's picture

.25 off the top sounds about right. 

After all, 30 years ago, the "financial" componet of our economy was less than 15%.  We had lots of jobs and actually manufactured lots of things.

Now, the financial contribution to GDP is over 40%.  No wonder we are where we are, fiscally speaking.

Mon, 11/07/2011 - 15:41 | 1854327 Kickaha
Kickaha's picture

Yes, and somebody ought to recalculate GDP ex-financials to arrive at the true rate of decline in actual US GDP during those 30 years.  Maybe then the numbers will match up with everybody's daily observations regarding the sorry state of the real economy here, and why there has only been one depression, and that using GDP or the S&P to argue for any sort of recovery is total BS.

Mon, 11/07/2011 - 13:21 | 1853709 HD
HD's picture

It's very, very simple. If you don't have moral hazard you don't have efficient, stable markets. The massive CDS market, bailouts and the fed have all but destroyed real free market capitalism.

Losses must be taken before we can start again.

Mon, 11/07/2011 - 14:57 | 1854086 jayman21
jayman21's picture

HD - I like telling the NYC OWS folks the same thing.

Downward mobility is just as important as upward mobility.  We lost the downward part when someone on Wallstreet fucks up.  They are allowed to continue to make the same mistakes over and over.  This is not capitalism.  OWS is protesting against a kleptocracy and they are realizing this.  They loved that word as do I.  Well, love/hate.

Mon, 11/07/2011 - 13:21 | 1853712 agent default
agent default's picture

Of course you have a fraudulent system!  When the a central bank can print money out of thin air, lend it to some bank at close to 0% and the bank lends that money to the market at something like 5% (pick a number here), it is a gross distortion of the market, it is manipulation, and it is a ponzi through and through.  And as usual with all market manipulations, the snap back is always vicious.  The larger the distortion and the longer it is maintained, the more vicious.  To the point of totally wrecking the manipulator.  Sound familiar to the situation we are in?

Mon, 11/07/2011 - 13:22 | 1853719 JustObserving
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All frauds are intrinsically unstable

Mon, 11/07/2011 - 13:23 | 1853723 Ruffcut
Ruffcut's picture

I met with my congresscritter this morning for a meet and greet. I flat out ask him about fraud, freddy and freaky, boy what A bullshit storm. The others were grey hairs worried about social security and medicare.

What a mother fucking deflective fuck. I made him sweat and rattled.

He sure liked using the phrase "free markets".

As far as help coming from the district of dipshits? forget it.

You are on your own, BITCHEZZ.....

Mon, 11/07/2011 - 14:49 | 1854060 11b40
11b40's picture

Good for you!  Election season is coming & I hope far more of us turn out for these local meetings.  They will be held in every district over the coming months.  Draw up your list of questions that will force discussion of real economic isues, and be prepared to chalenge and not accept bullshit answers.

Ask them if they are in favor of bringing back Glass-Stegal.  Ask if they believe we can solve problems of debt with more debt.  Ask if they approve of this low-interest program from the FED, which is robbing millions of savers the interest they are entitled to and destroying the ablity of pension plans to meet future obligations.  Ask them if they beieve corporations are people...& if they do, ask them if they can vote.

The list can go on & on, but you get my drift. I, too have been to a number of meetings with local Congressional representatives, and Ruffcut is right....most people attending are older and more concerned with general issues like Social Security and Medicare, or they are supporters of the speaker.  It is good and healthy to shake them up and make them stutter.

Mon, 11/07/2011 - 17:10 | 1854682 Ruffcut
Ruffcut's picture

I brought up glass steagle and he thought it was goldman steal and went into frank dodd.

A state senator was behind me and said all the fucky freaky MBS was bwarneys fault, and he was in the mortgage thft business. Yes fre held a gun to the heads of countrywide, wamu and chase to underwrite no doc reverse amort and teaser rate loans. I told him that and he ducked behind me, out of the room. I did not see him again.

Fuck, Im still pissed off.

Mon, 11/07/2011 - 13:24 | 1853726 BlueStreet
BlueStreet's picture

Chuck Ponzi would be immensely proud that his life's work has been carried on in such a grand fashion.  

Mon, 11/07/2011 - 13:25 | 1853727 fuu
fuu's picture

Gold bitches!

Mon, 11/07/2011 - 13:49 | 1853826 Vergeltung
Vergeltung's picture

never understand the down dings for these comments. isn't it the trademark ZH phrase?


Mon, 11/07/2011 - 14:11 | 1853930 jomama
jomama's picture

aren't the down dings trademark ZH?



Mon, 11/07/2011 - 15:36 | 1854301 MissCellany
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It is, but he didn't spell it bitchez.

(No, I didn't junk him.)

Mon, 11/07/2011 - 16:45 | 1854572 RockyRacoon
RockyRacoon's picture

The junks are from those who don't have any gold.   At the current ratio of +/- (5/2) I'd say that's about the ZH average population who hold/don't hold gold.   Jealousy!

Mon, 11/07/2011 - 13:25 | 1853728 SilverRhino
SilverRhino's picture

Until bankers / investment houses and crooked regulators start doing perp walks and/or getting hit with lynch mobs the financial system will not correct.  

Too many examples exist of outright theft and corruption for unethical men in the markets to fear justice.  So it will continue until systemic collapse.

Mon, 11/07/2011 - 14:07 | 1853917 XitSam
XitSam's picture

I fear the systemic collapse will be engineered so that unethical men go unscathed and the replacement system allows for just as much, if not more, fraud.

Mon, 11/07/2011 - 14:24 | 1853977 tired1
tired1's picture

when did you become such an optomist?

Mon, 11/07/2011 - 14:51 | 1854063 11b40
11b40's picture

Right after he got his 'opto' degree.

Mon, 11/07/2011 - 16:32 | 1854532 XitSam
XitSam's picture

Ha, good one.

Tue, 11/08/2011 - 01:52 | 1855653 FlyPaper
FlyPaper's picture

Absolutely.  And not just fraud, XITSam.  They want to go way past that into some form of pretend-democratic society where-you-have-no-freedom because you are regulated to death; and they will confiscate your wealth without due process should you break the regs.   

Mon, 11/07/2011 - 13:26 | 1853735 Seasmoke
Seasmoke's picture

if those who gambled and lost were not made to pay, it made the rest of us (well some of us) realize they we could make our own bailouts for ourselves and justify .....moral hazard is a bitch, but i would like to thank them for waking me up that i do not have to follow the rules that kept me really was 2008 the end or really the beginning

Mon, 11/07/2011 - 13:36 | 1853768 HD
HD's picture

If by "make our own bailouts" I assume you mean you stopped paying your Visa bill.  And to that all I can say is - I'm jealous, wish I had thought of it.

Mon, 11/07/2011 - 16:26 | 1854513 ClassicalLib17
ClassicalLib17's picture

My Visa card is issued from my credit union,  and I would not think of defaulting on an organization that has served me fairly for the last 39 years.  Should I get a different card from a bank so I can max it out on  GOLD, BITCHEZ?

Mon, 11/07/2011 - 14:16 | 1853736 El Viejo
El Viejo's picture

Like Minsky said, Too much money in the markets and they become unstable.

Blame 401ks and Under-taxed rich.

Ignore the history of LTCM and go broke. 

There once was a time when retirement plans were diverse. (Corp pensions and CSRS govt employees retirement plans) Then some brilliant person came up with the idea that everyone should manage their own retirement plans and all the Darwinian lovers of money said yeah. Until their time came and they cried foul or put their faith in gold.

Imagine where we would be now had Bush succeeded in making Soc Security Taco Bell ... I mean 401k now.

Mon, 11/07/2011 - 13:28 | 1853739 Shizzmoney
Shizzmoney's picture

Das on Financial Sector: "Like Big Tobacco, the Financial Sector "forgets" to factor in the one big variable: Externalities"

Mon, 11/07/2011 - 13:34 | 1853760 Dick Darlington
Dick Darlington's picture

And this is where societys end up as a result of the systematic and prolonged fraud where small portion of the population gets almost everything.

Mon, 11/07/2011 - 13:45 | 1853804 Vergeltung
Vergeltung's picture

that was a great read. tons of good stuff in there. first guy really describes it well.....

Mon, 11/07/2011 - 14:34 | 1854011 My Days Are Get...
My Days Are Getting Fewer's picture

Die Vergeltung schaft keine Erlöse.

Mon, 11/07/2011 - 13:48 | 1853822 El Oregonian
El Oregonian's picture
Greek Prime Minister Papandreou, London School of Economics Alumni George Soros, London School of Economics Alumni... HMMM... I'm sure this is completely unrelated with the financial collapse of Greece.. More interesting tidbits... Chelsea Clinton, graduate of... You guessed it... London School of Economics. But wait... So was Monica Lewinsky... How weird is that???

Come on you investigative journalists out there, lets get on it...



Mon, 11/07/2011 - 14:52 | 1854071 earleflorida
earleflorida's picture

they're called "Honey [trap] Pot's",...

Mon, 11/07/2011 - 13:51 | 1853839 Mayer Amschel R...
Mayer Amschel Rothschild's picture

Tally sticks, bitches!

Mon, 11/07/2011 - 13:59 | 1853884 lynnybee
lynnybee's picture

so many articles, so many vague generalities, so many frauds yet no names named. when will there be a real expose naming the culprits (culprits ? I mean CRIMINALS ! ) The word is fraud & outright looting of the U.S. TREASURY & systematic looting of the American taxpayer to support the military industrial complex & Wall St. & the City of London & don't even get me started on 9/11 & the twin towers & what really went down that day ... do your own research; i did mine & it's gut-wrenchingly sick, makes you want to vomit & get a pitchfork or worse & go after these sick son-of-a-bitches. I hope they all rot in hell.

Mon, 11/07/2011 - 14:55 | 1854079 11b40
11b40's picture

But the real crime, Lynnybee, is that so much of it is legal.

Mon, 11/07/2011 - 14:14 | 1853939 RiskAverseAlertBlog
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Not mentioned is the fact that, what is intrinsically fraudulent and unstable, indeed, is intended, and this to hasten the pipe dream of neo-fascists the world over whose given name today is "governance."

Mon, 11/07/2011 - 14:29 | 1853995 Mark123
Mark123's picture

The maginot line worked really well, until it didn't.  Then France collapsed like a house of cards.


maginot line = US treasury market

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