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

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Financial Cancer: Our Financial System Is Intrinsically Fraudulent and Unstable

Our financial system is like a fast-mutating cancer that evades any control and is still perfecting its ability to game and loot.

Two frequent contributors provided fresh insights into why the current global financial system will implode: it is intrinsically fraudulent and acts as a financial cancer, evading the "immune system" of regulation and perfecting its ability to exploit and loot the last remaining pockets of low-risk capital.

We start with David P.'s excellent exploration of systemic fraud:

Your essay The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive was entirely correct about risk. But let me come at this from a different angle - namely fraud.

 

Finance skims a percentage off the real economy. Some part of the skim is legitimate reward for capital allocation - a necessary part of a capitalist system and part of what makes it more efficient than a command economy. But some part of the skim is fraud.

 

Where are we now? Let's look at the sources of skim:

 

First there are the more legitimate skim sources - interest payments, management fees, IPO fees, M&A fees, trade commissions.

 

Then there are the less legitimate bank sources: penalty credit card interest rates, late fees, usage fees, over-the-limit fees, late payment fees, bounced check fees, low balance fees. And the capital markets sources - front-running, insider trading, account churning, manipulation of the news cycle, the captive analyst "ratings game", trading against your own client's order book, forex trades which are marked at the day high or low irrespective of when the trade took place, market manipulations at options expiration, stuffing your managed client accounts full of dubious IPOs and new issues that your organization is earning fees from originating.

 

Bucket shops and ponzi schemes take it even a step further - no actual financial activity takes place. Its simply robbery.

 

And now we add the new stuff: credit default swaps without margin, fraudulent loan origination, sliced & diced mortgages, mark to myth accounting, foreclosure halts to avoid realizing losses, extend & pretend, quote stuffing, HFT trading activity that boils down to denial of service attacks on exchange computers causing delays in pricing information, highly complex derivatives sold to unsuspecting but optimistic public servants, too big to fail status providing cheap backup in the event of trouble, and increased organizational size that facilitate cartel-like control over government and regulators.

 

But if that's not enough, there is the structure itself: they aren't doing this with saved capital, but rather with freshly printed and/or borrowed capital. Its all done with 12:1 leverage at a minimum. So only 8.3% of the gambling (optimistically anyway) is actual capital - saved surplus. And if Basel II says it's risk-free, well there's no need for reserves at all. It is just manufactured money, which effectively mean each bet is diluting the actual savings of real people. And if the bet goes bad, the Fed will ride to the rescue with low-cost money. But usually the bet goes well, because ordinarily the number of sources of fraud today is so HUGE, its practically impossible not to succeed.

 

Unless of course they get too greedy. Or the debt levels rise so high that large numbers of borrowers default. And guess where we are.

 

The financial system is supposed to allocate capital and take a modest skim as reward for helping society to be efficient. When they are doing this, they provide a net benefit to society because it's a win-win proposition. They are making society more efficient, and they thus earn their percentage.

 

However, and this is the key point: fraud provides no net benefit to society. Fraud extraction is a zero sum game. For every dollar extracted through fraud, someone in the productive society ends up losing - savings, salary, whatever. This is why fraud is bad.

 

(I say that leverage is zero sum because constructing money from thin air for a leveraged investment causes inflation and thus steals from savers.)

 

Currently, it is my opinion that the vast majority of today's highly profitable financial activity is fraud. They have gone way, way beyond their mandate of capital allocators. Because most of its activities are based on fraud, the finance industry is acting as a parasite, sucking the life blood from the rest of society. Its bad enough we have peak everything, a world population of 7 billion people, and globalization to deal with - but we also have to face these challenges while a leech is weakening us with every step we take!

 

As a result, when this bloated, fraud-based financial system dies, we'll have a awesome, positive chance to rip off the parasite and replace it with something more beneficial. Simply re-executing glass-steagall will do for a start. Bring back 9-3 boring banking, where banks retain the mortgage and live with the risk, and capital markets once again do their job of capital allocation -- but without the fraud so rampant today.

 

Same conclusion, different angle. Intrinsically, I believe that capitalism does actually allocate capital more efficiently than competitive systems. And yet, how the current system works is so wrong. And I figured out it was fraud. Fraud was the bad guy. Remove fraud, and things get a lot better.

 

But after re-reading your essay, fraud wasn't the whole answer either. Fraud might be the leech, but leverage is the system killer.

 

One other comment.

 

If you apply statistics incorrectly to market behavior, you get into trouble. It is possible to successfully hedge away risk if the failure of one investment is truly uncorrelated with another. Joe defaulting on his mortgage is a unique event, and won't affect Sam and the likelihood of him defaulting. Then you can apply statistics and things should work out fine. Of course, in a debt bubble or a recession, that's no longer true. The same factor that caused Joe to default will also affect the likelihood that Sam will default too. Unemployment, being underwater, herd behavior, "its better to rent" - it all correlates, completely destroying the underlying assumption. Real life trumps statistics.

 

This further supports your basic premise - in the real world, there are almost always hidden correlations that reveal themselves at the worst possible moment, typically at the point of maximum leverage. Thus for practical purposes, it is impossible to hedge away risk; as a result, leverage still kills.

 

We've seen this most recently in sovereign debt. Basel II lets banks lever to infinity on sovereign debt because it assumes sovereign debt has a zero default risk. Hmm...

 

So - remove fraud, remove leverage, admit risk will always exist, and the capital markets can go back to fulfill their traditional role in society of capital allocation, making us all more efficient.

 

But of course removing fraud and leverage removes all of the easy zero-sum profit opportunities; all that remains is the job of capital allocation. While its true that capital allocation materially contributes to society, it turns out it is also hard work. Who wants to do that when there's easy money to be made in fraud - with leverage! And that's why we have to have another crash so we can return finance to its proper - and necessary - role in society.

Contributor Michael M. explores the analogy that our financial system is in effect an aggressive cancer, and also explores the system's inherent instability:

I think the risk "hedging" can be split into two parts, first using/inventing "hedging" instruments who won't live up to their name in a major event (CDS anyone?), and second hiding risks in existing allegedly time-tested limited risk systems/instruments.

You mostly covered the first part in your article.

 

Some more examples for the second variant, besides lowering the down payment on house mortgages, are: Gaming VaR models (so for a 1% VaR the risk in the 99 days remains the same, but the blowup in the 1-out-of-100 event becomes much much larger), or lowering of Fractional Reserve requirements, or Sweep accounts (deposits in checking accounts get sweeped into savings accounts, i.e. are put into money market funds where the risk is a [little] bit higher, but the owner of the capital [the depositor] doesn't receive higher premiums), or student loans becoming non-dischargeable.

 

"So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses."

 

Or the accounting rules are manipulated, so the entity next in line after the collapsed one is allowed to keep their risk valued at par on the books, even though their hedge just vanished (and they are not able to get replacement hedges at an acceptable price in the current market) and the ongoing collapse freezes in a state of suspended reality - but the trouble is not undone!

 

The system has not blown up yet because there are still some pockets of unimpaired, really low-risk capital available to game and loot.

 

In effect the financial system is still perfecting its ability to game and loot, just like a cancer which, due to non-self-restrained growth and fast mutation, continuously improves its ability to elude or withstand the immune system. Until the host cannot bear the strain anymore.

 

How could we ever get to this point?

 

Too much stability. Thereby lowering reserves and safety margins more and more, until one day (maybe even without a large increase in volatility first!) a swing exceeds the safety margin. Oops. Which is exactly what Nassim Taleb is saying, but almost no one fully understands him.

 

This leads to my quote, which I came up with myself:

 

Stability breeds stupidity.

 

But at the same time one must remain humble of being able to overview all relevant parts of the picture... it can go on for a LOT longer than oneself can come up with a functioning game plan for, no matter how far you stretch your imaginable reality.

 

Which makes me go back to my "(over-)complexity" meme. I nowadays also look at The Fourth Turning through my complexity goggles... and war is still the strongest simplifier - quicker and more rigorous even than a systemic collapse!

Thank you, David and Michael, for your incisive analyses. The system's stability is superficial, and we might yet see that facade stripped away in the remaining months of 2011.

 

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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
JustObserving's picture

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?

 

*fixed

Mon, 11/07/2011 - 15:36 | 1854301 MissCellany
MissCellany's picture

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 down...so 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.

http://www.reuters.com/article/2011/11/07/us-usa-poverty-idUSTRE7A634M20...

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.

 

http://www.youtube.com/watch?v=GKXD_9bv_qg&feature=related

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
RiskAverseAlertBlog's picture

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

Mon, 11/07/2011 - 14:34 | 1854009 monopoly
monopoly's picture

Excellent article. All here need to read that again and again. This is where we are at why there is "Zero Hedge".

The criminals will Not go to jail. Sorry, all renumerations to necessary officials has been fully paid.

Mon, 11/07/2011 - 14:41 | 1854029 stiler
stiler's picture

up here in Maine, USA we're about to vote on and pass Qs 1,2,&3 to get three more casinos, when the first 2 haven't been built yet.

 

There was an article in Forbes this year about how Maine used to be a hotbed of entrepreneurial innovation. Someone here in Oxford County invented the ... blackboard in the 1800s. 

 

The 1% are coming into Maine to reap millions from the poor. And the 99ers are lovin' it.

Mon, 11/07/2011 - 14:43 | 1854040 Grand Supercycle
Grand Supercycle's picture

Latest NASDAQ chart porn suggests fun times ahead:

http://stockmarket618.files.wordpress.com/2011/11/2011-11-05_nas-8_x.png

Mon, 11/07/2011 - 14:44 | 1854043 chunga
chunga's picture

America, the patient, is very weak and gravely Ill, to the extent she now requires intensive care. While she lay dying on the operating table it is becoming painfully apparent that the environment in the operating room is septic. There are those who wish to see her survive and there are those who do not. In this medical metaphor, we are the surgeons, our understanding of how to treat the patient and the tools we use are not scalpels and sutures. The tools we use are laws and our ability to articulate them.

We have an epidemic on our hands. A plague. While the specific individual steps required to cure each patient may differ from the next, the pathogen is the same. Just as it would be irresponsible of a Chief Medical Officer at a hospital to realize a deadly plague exists, and to deny to all his surgeons their need to be aware of it – so it would be if a judge were to deny the fact we are suffering from a financial plague brought about by widespread deliberate indifference to the Law. Confining each individual case to the issues in the instant matter without considering that millions are succumbing to this plague, in increasing numbers, creates an impediment in the quest to find a cure.

Those that do not wish to see the patients survive either the financial plague or my imaginary medical plague are at every crack and crevice of the operating room, relentlessly and remorselessly pumping pathogens towards the patients in an effort to further add to the sepsis. The surgery still needs to be performed individually – but it must be acknowledged that the waiting room is full of new patients.

Mon, 11/07/2011 - 14:48 | 1854056 jal
jal's picture

 

Who wrote the financial rules that allowed the present system to get so fucked up?

 

Yep! That's right!

 

What are they going to do if those existing rules are not adequate or are going to mean that the system is going to crash?

 

Yep! 

Change the rules! 

Make new rules. 

Make new "tools".

 

Would you go back and play in the casino after winning the big jackpot if the casino declared that the machine was defective and that you would not be allowed to walk out with your winnings?

 

jal


 

Mon, 11/07/2011 - 15:02 | 1854107 Fix It Again Timmy
Fix It Again Timmy's picture

When you're gambling with other peoples' money and there are no enforced laws or regulations, of course there will be a carnival atmosphere - let the good times roll....

Mon, 11/07/2011 - 15:07 | 1854126 Fix It Again Timmy
Fix It Again Timmy's picture

So, what to do?  Simple - protect your savings and wealth, we know how to do that [readers of ZH] already.  In such a rigged investment environment, after you've protected your savings and wealth, there isn't much more to do.  Once protected, your best investment is a Good Time - keep it simple, man...

http://www.youtube.com/watch?v=EvuL5jyCHOw&feature=relmfu

 

Mon, 11/07/2011 - 15:14 | 1854152 ivars
ivars's picture

I have been mentioning the full USA default in end of 2015-beginning of 2016 here:

http://www.tfmetalsreport.com/comment/78029#comment-78029

However, in initial post about this issue, I was speaking about US debt correction, that is distributed haircut of around 3 trillion USD in 2013-2014:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&start=100#p31678

Here is the chart that supports that initial view. Its a fit of certain pre-crash behaviour model. How it is produced, is explained here:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=34998#p34998

So its earlier than I was saying lately. Lately I was talking of a full scale default, but it looks like it will be gradual, and the first one will happen very soon. To be honest, I forgot about my first idea-but usually they are the most accurate. So some assumptions following it will have to be reworked.

The approximate visual fit with Sornette Johansen log-periodic process with critical time tc = September 30 2013-January 1st, 2014:

http://farm7.static.flickr.com/6100/6322611889_f67e5664fe_o.png

QUESTIONS:

1) The distribution of haircuts of such partial US default (who will forgive 3-4-5 trillion USA debt in few months?)
2) consequences for USD rate to currencies
3) consequences for USD rate to commodities
4) consequences for USD rate to gold, silver ( i will dig into my charts on this)

Mon, 11/07/2011 - 16:25 | 1854351 Hook Line and S...
Hook Line and Sphincter's picture

For fucks sake..

Are the lies really so distant, and are we still so dissasociated with the fact that the system has been based on usury for the past 100 years?

Where's our brain when we lament about all the graft, CDS, bucket shops, ponzi schemes.

As if it's a surprise.

( ! )J Hook Line and Sphincter

Mon, 11/07/2011 - 16:37 | 1854549 earleflorida
earleflorida's picture

what's happening in the markets today is nothing new - you can trace everything happening today back to the late 1920's & early 30's -

it's a mirror image of the malfeasance, and utter chicanery that brought us the 'great depression',... -

ironically what's different from then, and now, is just the jargon used today, with quite the usual deviate unscrupulous behavior at a much more greater pitch gone viral! -

larry [ceo blackrock inc.] fink of '1st boston bank' was the managing director when he created 'collateral mortgage obligations [cmo's]' in 1987,... the rest is history - and along those same lines,...  coincidentally lewis ranieri of 'soloman brothers [sic] created, and popularized 'mortgage backed securities [mbs's] in the early 1980's, which was eventually bought by 'travelers group' in 1998 when sanford'sandy' weill of citi purchased 'travelers group' to form citigroup -- ~ months later in 1999 the 'gramm-leach-bliley' / 'financial services moderization act' was passed, gutting the 1934 'glass-steagall [ringfence] act', and we all know the rest of the story -

what's really sad, is back in 1987 when 'drexel,burnham & lambert, inc.' went bust,... it too was created by 'cdo's & cds's'/ insider trading, in which boesky, and milken's [ref: 'den of thieves', by james b. stewart]  malfeasance were mostly at blame for the entire debacle of our financial system - but today they're out and about, preaching to the world today --  kinda really pisses me off! -

in closing what we have today are 'cdo's, cds's, mbs's, abs's, cmbs's, rmbs's, ninja's, tier 3, alt-a's,, and a litany of crap that too, was used in the late 20's, early 30's to con the public  out of their hard earned money!

thankyou tyler

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