This page has been archived and commenting is disabled.

"The Truth Gets Out Eventually"

Tyler Durden's picture




 

Some look at today's FaceBook IPO flop, the ongoing market rout, and the situation in Europe with disenchantment and disappointment. We, on the other hand, view it with hope: because more than anything, the events of the past few days show that the truth is getting out - the truth that capital markets simply can not exist under the authoritarian rule of central planners, the truth that the stock market is a casino in which the best one can hope for a quick flip, and finally the truth that our entire socio-economic regime, whose existence has been predicated by borrowing from the uncreated wealth of the future, and where accumulated debt could be wiped out at the flip of a switch if things go wrong in the process obliterating the welfare of billions (of less than 1%ers), is one big lie.

We believe that hope is what SocGen's Dylan Grice is what he has in mind when he penned the following conclusion to his most recent piece: La Grande Illusion.

Since the crisis broke in 2008, the Fed and BoE have printed enough money to buy over 60% of the issuance of their respective government securities since. It makes you wonder. What would bond yields in the US and the UK look like without these purchases? Probably like those in the eurozone periphery. Indeed, maybe the euro debacle could have been completely avoided if the ECB had been headed up by a Ben von Bernanke, or a Mervyn Le Roi. Maybe that’s why so many of my friends agree with Atlantic magazine, which praised Ben Bernanke for ‘masterfully navigating’ the financial crisis and avoiding another depression.

 

Maybe all the Anglo-Saxon central banks have done is create the illusion that our sovereigns are more solvent than they are, and that our budget constraints are really a safe distance away.

 

But I don’t think they are. And I think the truth gets out eventually. The Enrons, the Allied Capitals, the Bernie Madoffs … they all get their comeuppance. Indeed, it’s what’s happening today in the eurozone. The accounting shenanigans eurozone governments resorted to in order to meet the entry criteria have been found out. Or at least, current CDS prices correlate well with countries’ cumulative deficit manipulations in the run-up to monetary union, as estimated by Paul van den Noord and Vincent Koen at the OECD. You can’t escape your budget constraint with financial gimmickry. You can just make it look like you have for a while.

 

Because if there is at least one thing the central planners of the status quo do not have control over, it is just that: hope.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 05/19/2012 - 09:17 | 2443055 Sandmann
Sandmann's picture

Of course it doesn't - then again Money doesn't matter in the USA because people can read celebrity magazines and National Enquirer. I find it really funny how my American friends are oblivious to the Real World and buying yachts and second homes - it is Hollywood all over America - no wonder Clooney and Parker are fundraising for Obama and saying zilch about food stamps

Sat, 05/19/2012 - 10:51 | 2443151 VelvetHog
VelvetHog's picture

Krugman, my sweet, is that you? 

 

(Good post!)

Sat, 05/19/2012 - 11:11 | 2443179 Element
Element's picture

The one thing that blows up MMT, and they all know it, is inflation.

A country with insufficient 'real-resources' to back the money being printed, is prone to an inflationary escalation, with a dilution of purchasing power.

That would seem to describe Japan pretty well ... but they were in mild price-deflation in 2010.

Wonder what would happen if conditions changed so that the printing had to stop?

That's called, "painting yourself into a corner".

But like the FED they left themselves no choice, but to destroy the debt-money system, due to their previous pretending that a major credit bubble was a legit taxable expansion of REAL GDP.

 

Cheap money, isn't.

Sat, 05/19/2012 - 14:51 | 2443536 matrix2012
matrix2012's picture

@justsayin2u,  its right! The former money maestro said it before :D

“America should never default on its debt, it can just print the money.” — Alan Greenspan

Sat, 05/19/2012 - 07:49 | 2442992 lakecity55
lakecity55's picture

Those joos do get around, eh, Nigel?

Righto-o, guvner.

Sat, 05/19/2012 - 08:00 | 2443000 tim73
tim73's picture

19th century was riddled with economic depressions and bank runs almost every decade.    

Panic of 1819, Panic of 1825, Panic of 1857, Panic of 1873, Panic of 1884, Panic of 1890, Panic of 1893, Panic of 1896, Panic of 1901, Panic of 1907, Panic of 1910-1911. FED was established to bring some stability to the American economy. It is not some evil conscpiracy like some idiots are here suggesting.

Only those ignorant of history would even suggest things would be better without any central banks. Smaller banks would be especially vulnerable without government backing. Big banks would crush them like ants with mere rumours and all kinds of other dirty tricks.

Sat, 05/19/2012 - 08:30 | 2443019 Badabing
Badabing's picture

"Panic of 1819, Panic of 1825, Panic of 1857, Panic of 1873, Panic of 1884, Panic of 1890, Panic of 1893, Panic of 1896, Panic of 1901, Panic of 1907, Panic of 1910-1911. FED was established to bring some stability to the American economy."

Those panics where caused by the very banks that wanted a central bank. they would contract or expand the money supply to cause boom and busts.

regardless of past history today its the world, when in the past each sovern nation experienced boom bust independently

Sat, 05/19/2012 - 09:14 | 2443053 Sandmann
Sandmann's picture

they would contract or expand the money supply to cause boom and busts

As Partnerships that would be really stupid...but you obviously think New York Jewish bankers were stupid so that is a different viewpoint.

On the other hand, it is good that Bankers today do not cause Booms and Busts.........

JP Morgan himself propped up the system in 1907....by 1913 he was dead.  There was no Banker of the same power to hold the system together and there is no single bank on earth that can hold the Derivatives Scam together and no Government.  This time the United States is going to go down with Greece and Spain and there is nothing that can be done.

Sat, 05/19/2012 - 10:04 | 2443073 Badabing
Badabing's picture

"On the other hand, it is good that Bankers today do not cause Booms and Busts........."
The FED is a bank and after Glass Stegal was abolished the bankers can once again cause major havick in the economic world today!

China is experiencing economic hardships also. Is that because all the joo bankers in China?
Get a clue.

Sat, 05/19/2012 - 08:56 | 2443037 Catullus
Catullus's picture

Crush them how? 

Bank runs do not concern banks that are well-capitalized.

Sat, 05/19/2012 - 09:10 | 2443050 Sandmann
Sandmann's picture

How do banks get well-capitalised ? The Us panics of 1907 stemmed from New York banks having seasonality of deposits because of Midwestern harvests.

Since banks have been capitalised for some time on hot or funk money it is hard to see how they remain "well capitalised" if they depend on Saudi Arabia, China, or Russia for capital. Just look at where Lehman bRos. was trying to raise capital before it went bust..........

The US does NOT have well-capitalised banks relative to Balance Sheet Risk. There are SIX Banks with $250 TRILLION in Derivatives exposure in a country with a puny GDP of $14 Trillion...........so work out how much more capital those Banks need to reduce Derivatives Leverage alone from 18 TIMES US GDP.

Sat, 05/19/2012 - 09:56 | 2443087 Catullus
Catullus's picture

A bank does not start off under-capitalized.  Assets match liabilities in the beginning. The question is how do they remain well-capitalized.

A depository remains well-capitalized by not loaning out money that is not their's to lend out.

A commercial bank primarily remains well-capitalized by matching up inflows with outflows of cash.

Investment banks remain well-capitalized by deploying capital efficiently and profitably. 

The central banks aren't providing capital.  They're enabling banks to engage in fractional reserve banking so that they do not run on each other. 

The largest banks in the US should be broken up into their respective banking functions. 

As a matter of prudence, I would not compare gross derivatives exposure to GDP.  GDP is not a balance sheet entry on the banks. 

Mon, 05/21/2012 - 06:07 | 2446705 matrix2012
matrix2012's picture

IN FACT, the top 5 banks in USA in total have 46 to 1 leverage!!!  

 

Systemic Risk Is Everywhere

 

"The $2 billion loss of JP Morgan in derivatives trading is signaling, once again, the enormous risks big banks take with taxpayer backing.  All U.S. banks are covered by the FDIC, and if a loss is big enough, it could threaten the financial system just as it did in 2008.  JP Morgan has $70 trillion in total derivative exposure.  The entire world has a little more than $700 trillion in derivative exposure, and one bank has 10% of all the derivative exposure on the planet!  If JP Morgan gets into trouble, it alone could cause systemic failure.

The Obama Administration has to be very worried about JP Morgan which has the biggest derivative exposure ($70.1 trillion) of American banks.   The next 4 big U.S. banks after JP Morgan, also, have huge derivative exposure.   Citibank has $52.1 trillion in total derivatives, Bank of America has $50.1 trillion, Goldman Sachs has 44.2 trillion and HSBC USA has $4.3 trillion in total derivatives.  Combined, the five biggest commercial banks have $220.9 trillion in total derivative contracts.  Weigh that against the combined assets of those same top five banks of just $4.8 trillion, and you get an eye popping 46 to 1 leverage!  

Please remember, in 2009, the Financial Accounting Standards Board (FASB) changed how banks value assets such as real estate and mortgage-backed securities to whatever the institution thinks they’ll fetch in the future.  These “assets” are not valued at what they would sell for today.  I call this “government sanctioned accounting fraud.”

The other big banks are probably making some of the same bets in risky derivative as JP Morgan.  The FBI opening up an investigation now is like closing the barn doors after all the livestock has run off.  There have been zero criminal prosecutions of financial elites in the wake of the 2008 meltdown.  (1,000 were successfully prosecuted after the S&L crisis in the 1990’s.)  That is no accident.  I think it’s because of Wall Street’s political connections, but also because the government has been worried about pushing too far for fear of crashing an already fragile financial system.  Now, the FBI is going to start prosecuting Wall Street.  Really?  Why doesn’t the FBI investigate the Halloween bankruptcy of MF Global and the $1.6 billion in missing segregated client funds?"

 

Read the FULL article of GREG HUNTER at here, USAWatchdog.com

 

Sat, 05/19/2012 - 09:56 | 2443088 tim73
tim73's picture

That just naive thinking, you should really read the history of bank runs in the 19th century.

Bank runs in otherwise sound banks were in many cases started by mere rumours because one of the neighboring banks went bust. People got scared and bank runs spread like wild fires and became self-fulfilling. It only takes withdrawals of mere 10-20 percent of total deposits before any bank will be drawn all dry. The rest of the money is in loans outside of the bank. 

Sat, 05/19/2012 - 10:38 | 2443094 Catullus
Catullus's picture

What is naive about a depository holding on to the money of its depositors and returning it to them when they demand it?

Loaning out something out that's not yours to loan out is not a "sound" practice, especially when someone can demand it back fom you on the spot

Sat, 05/19/2012 - 10:48 | 2443140 VelvetHog
VelvetHog's picture

Loaning out what you don't physically hold to loan out is counterfeiting.  It the same as you or me printing $100 bills in our basements.

Sat, 05/19/2012 - 10:16 | 2443101 Badabing
Badabing's picture

Man, your living in the past.
What the fuck are bailout's for then?
Rehypothecated post

Sat, 05/19/2012 - 10:14 | 2443104 Badabing
Badabing's picture

@tim73
Man, your living in the past.
What the fuck are bailout's for then?

Sat, 05/19/2012 - 10:45 | 2443137 VelvetHog
VelvetHog's picture

End the Fed and end Fractional Reserve policies.

Sat, 05/19/2012 - 10:42 | 2443131 VelvetHog
VelvetHog's picture

That's how it is now except the roles are reversed.  Its the big banks that are blowing themselves to bits.  If we had a free market that wouldn't be a problem.  These inept banks would go away and would be replaced with competitive entities.  BUT since there are no consequences for these big banks' actions, as the taxpayer is always there to make the pain go away, they contiue along their distorted path.  tim, you can contiue to be skimmed by the Fed and our colluded government, but I, and many others, have had enough.  Its time to end the fucking Fed already.

Sat, 05/19/2012 - 11:00 | 2443164 tim73
tim73's picture

Totally free market economy was tried back in the 19th century but banks were then very unstable. You really want to go back to that era, constantly worrying whether your bank is safe or not. In the end you would be putting your money into your own safe and how is that going to help the economy, most people keeping their money at home. Where the money for investments would come then.

Sat, 05/19/2012 - 13:05 | 2443324 gnomon
gnomon's picture

Wrong! Wrong! Wrong!

Those frequent, disruptive corrections brought people (and the economy) down to earth on a regular basis, thus re-inforcing conservative values instead of the Ponzi immoral behavior that has become imbedded through more than several generations of our society.  And once the multi-generational rot sets in there is no going back except through a complete breakdown.

The current system encouraged immoderate growth and consumption in addition to immoderate behavior. For instance, it made possible our Ponzi welfare entitlements, (Social Security, Medicare, Medicaid, etc.).   LBJ's "Great Society" never would have happened without the Fed enabling it.  And the resultant vote-buying was just another nail in the coffin for the Republic.  

We are now looking at a complete breakdown, and the lion's share of the blame can be attributed to the Fed/Bankster axis. 

The decades-long, wild, drunken orgy is just about over, and it is a toss-up whether we will have a debilitating hangover or if we will die of alcohol poisoning.

Sat, 05/19/2012 - 08:12 | 2443009 I am Jobe
I am Jobe's picture

G8 the summit to fucking nowhere. So called powerful nations my azzz. Bullshit chats and no solution.

Sat, 05/19/2012 - 08:40 | 2443026 Rathmullan
Rathmullan's picture

Beautifully spoken Tyler. My experience traces the illusion back to 1987 and the greenspan era. He muttered "irrational exuberance" and encouraged it at the same time. Yet, greenspan's protege is our monetary central planner? Our politicians, with a few exceptions (Ron and Rand Paul, Paul Ryan, Tom Coburn, perhaps Carl Levin) are completely ignorant when it comes to economics, and I believe our system has set it up to be that way. The Capitalistic Model is at stake here. We must chase the cheaters out!

Sat, 05/19/2012 - 08:47 | 2443032 rsnoble
rsnoble's picture

Never had a FB account, not going to get one. Almost too funny yesterday that FB took the place of the Dow on the finance pages.  As if it was all that matters.

Bunch of morons.  I suspect when we reach the precious 10k level that Ben Stinky will assault us with a massive round of QE. Not sure if it will work out as well. Everyone knows the game, everyone knows the US is fucked.

Sat, 05/19/2012 - 09:05 | 2443043 Sandmann
Sandmann's picture

the stock market is a casino in which the best one can hope for a quick flip

The Western System is converging with the Chinese/Hong Kong Stockmarket notion of being for gamblers and insiders. The degeneracy of Western legal and regulatory systems is producing the kind of Gaming Approach that Anglo-Saxon Cultures were supposed to be isolated from.

We are returning to the 19th Century fraud and gaming of investors and the corrupt railway barons buying State Senate seats to get nominated to the US Senate. It is the world of Leland Stanford and his ilke without the philanthropy

Sat, 05/19/2012 - 09:06 | 2443046 cdskiller
cdskiller's picture

Dylan Grice is a duplicitous banker and an idiot. He has no benign interest in the "truth" coming out. He has bets at the same secret casino, utilizes the same high-frequency programs and front-running buttons. He is an enemy of transparency.

Intellectual rigor and integrity of position is severely lacking when we rail against the socio-economic regime, saying it has become predicated on borrowing from the uncreated wealth of the future, while disingenuously avoiding mentioning the massive cancerous tumor of the OTC derivatives market that has exploded in the last 20 years into a $700 trillion dollar scheme, allowing bank and non-bank financial institutions to actually siphon, extract and steal from the uncreated wealth of the future, from the unrealized price of commodities and, most disgustingly, PROFIT BY BETTING THAT THE LIVES OF ORDINARY PEOPLE WILL FAIL BECAUSE THEY DON'T HAVE ENOUGH MONEY TO INFLUENCE THE POLICIES OF THEIR GOVERNMENTS.

The credit default swaps market has to be killed. There must be no secret casino for anything. The financialization of the future, short or long, must come to an end, and it will when this Ponzi collapses.

Sat, 05/19/2012 - 14:04 | 2443466 Yes_Questions
Yes_Questions's picture

 

 

most disgustingly, PROFIT BY BETTING THAT THE LIVES OF ORDINARY PEOPLE WILL FAIL BECAUSE THEY DON'T HAVE ENOUGH MONEY TO INFLUENCE THE POLICIES OF THEIR GOVERNMENTS.

 

Right!

 

And when the governed finally decide to impose what they actually consent to, money (as a political consideration) will fade quickly from the list of priorities of the governors. 

The pendulum swings.

 

Sat, 05/19/2012 - 09:16 | 2443054 goforgin
goforgin's picture

The trouble with capitalism is that eventually you run out of borrowers

-goforgin

Sat, 05/19/2012 - 10:40 | 2443119 Frozen IcQb
Frozen IcQb's picture

2) The sucess of capitalism is that eventually you run out of employees

Sat, 05/19/2012 - 09:28 | 2443068 spine001
spine001's picture

Tyler, thanks so much for your very insighful articles about what is happening. I won't attempt to compete with you on a data based argument. But I will try to explain why what is happening, actually is happening and I will look forward to see you incorporate this reasoning into your thought process from now on. Since I get very frustrated by all of us restating the obvious. We as a society will get what we incent and we are now incenting this crazyness ourselves, by enabling the MSM to brainwash us, if you don't believe me, try to expalin anything to the shepp and look at their eyes glazing after the first few words...

We are in the middle of a Thirty Nine Trillion dollars (39 x 10^12) Ponzi scheme.

Basically, that is what the world government debts are, a gigantic gargantous PONZI SCHEME.

It is easy to discern when you look at who owes what to whom, since nobody could have loaned that amount of money, since nobody ever had anything even closer to that. Remember that the richest and largest superavit Country in the world only has a few trilleon dollars, China. So where did this money come from?

The answer is easy: "From thin air", since most of it has not even been printed it is only electronic money or bits. Nothin more.

So how did governments get away with doing something like this unabated by their people, who are the ones inheriting the debts and the mess?

Easy, through collusion of interests between politicians and bankers, something people call "Crony Capitalism".

How does this collusion work?

Complex, but explainable if you put a little effort to understand it. Here it goes: rather than doing the impopular "printing fiat money" of the past (also called debasement, in the 1600s governments mixed copper with gold, etc.), which produced NO profits for either bankers or politicians. Somebody came up with the idea of "Borrowing the money" at interest rather than printing it. In that way, by borrowing inexistent money from Banks, governments were able to run HUGE deficits for years without being checked, and to provide huge profits to those lending the money (not only to the Bank's shareholders, but to the BANK'S executinves and BODs in the form of compensation packages worth hundreds of millions of dollars. Or why else do you think governments have allowed these guys to make so much money. No legal honest productive work can pay that money. Only fraud can.

But you may ask yourself, why did the give loans over and over along the decades that they knew will never be paid?

OK, here the answer is indeed simple, because, they didn't care if the loans were ever going to be repaid, remember this is a Ponzi scheme, while they are able to make it keep going, they make TONS of money in commissions for the banks and their shareholders (remember that shares can be sold before a crash, if you know what is going on) and for themselves in the form of outrageous compensation packages. Also when the system crashes, as it has done many times in recent history, they are able to get away clean and with all the defrauded money. During the Obama administrations there has been no prosecutions for the 2008 crisis, despite the fraudulent behaviors of the banks.

Finally you may wonder who is the money owed?

The answer here is really funny, All the governments owe their debt to each other, even China owes money, Japan owes to the USA, the USA to Japan, Germany to France and France to Germany, Spain to Portugal and Portugal to Spain, they all owe to each other. It doesn't widthstand the simplest of analyses, the Ponzi scheme is incredibly clear

The main problem is that there is no Barnie Madoff here, the Barnie Madoff is human nature and the system of the world developed in the early 1700s...

Until next time,

Engineer

Sat, 05/19/2012 - 13:51 | 2443442 Yes_Questions
Yes_Questions's picture

 

 

What's sad is that (39 x 10^12) causes eye glazing.  Ponzi analyses notwithstanding.

Sat, 05/19/2012 - 09:37 | 2443074 squexx
squexx's picture

Jump, you bastards! (If you need a hand, I will be happy to help!)

Sat, 05/19/2012 - 10:43 | 2443134 bharat
bharat's picture

http://en.wikipedia.org/wiki/Satyameva_Jayate

The Truth stands Invincible.

Sat, 05/19/2012 - 11:41 | 2443213 goforgin
goforgin's picture

The question that everyone should ask is 'what came first, central planners or laissez faire capitalism, especially in banking and finance, Central planners are merely care-taker technocrat appointees tasked with impossible role of dealing with the after effects of unfettered capitalism. To blame central planners is ridiculous: lack of any planning created this mess.

--goforgin

Sat, 05/19/2012 - 13:50 | 2443441 smb12321
smb12321's picture

I've heard the term "unfettered capitalism" and still cannot figure out what it means.  The very essense of capitalism is being unfettered - open markets, choice, the right to amass wealth and lose fortunes.  Capitalism that is "fettered" - an authoritarian body mandates economic rules for political purposes (what to sell, how much to charge or pay workers, confiscatory taxes, etc) is not capitalism but a "mixed economy'.

The essense of a mixed economy is the EU.

Sat, 05/19/2012 - 13:44 | 2443429 Yes_Questions
Yes_Questions's picture

 

 

There are too many of you to individually appreciate in one morning..

 

+one ups to all of you glorious fucks and long live ZH on the timeline

Sat, 05/19/2012 - 13:48 | 2443432 blindman
blindman's picture

http://www.youtube.com/watch?v=XAZ81lqppn8&NR=1&feature=endscreen
The Fall of the Dollar - The Death of a Fiat Currency part 1

Sat, 05/19/2012 - 13:58 | 2443456 smb12321
smb12321's picture

Don't hold your breath.  I have been long for some time for one reason  - despite our  huge debt with no solution, we still outrank the Euro & Yen due to our world currency status.  It will only change when something else rises to replace it.  And with every central banker on Earth working like a monomaniac to debase their currencies, the dollar, alas, has no competition.

Long ago I stopped watching the prophets of dollar doom.  Like the second coming nuts, the dollar prophets miss (it didn't fall in "two weeks" or "three months" or "by the New Year") and without shame prophecy yet again. Just because something is inevitable does not make it predictable.

Sat, 05/19/2012 - 21:15 | 2444014 matrix2012
matrix2012's picture

 

The Facebook IPO: The Last Great Wall Street Party (2012-05-18)

The Facebook IPO is kind of like a graduation party - everybody comes together for one huge blowout to celebrate the end of an era before going their separate ways.  Unfortunately, most people on Wall Street do not understand how bittersweet this moment really is.  A tremendous amount of pain is ahead for Wall Street in the next few years, and we will probably never see anything like the Facebook IPO ever again. But the Facebook IPO sure has been fun to watch.

http://theeconomiccollapseblog.com/archives/the-facebook-ipo-the-last-gr...

 

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