Subprime Mortgages

Derivatives like credit default swaps turned a mere bubble in the US housing market into a global financial catastrophe... 

While popular perception holds that debt-ridden, broke millennials are the ones driving the rental market, the truth is far more nuanced... and depressing for those who still cling breathlessly to The American Dream. The truth is millions of Americans were reduced to neo-feudal serfs by the financial crisis, and how those who ruined the economy profited handsomely from the process.

There exists a common theme amidst these signs of societal decay: The super-rich keep taking from the middle class as the middle class becomes a massive lower class. Yet the myth persists that we should all look up with admiration at the “self-made” takers who are ripping our society apart.

There were a few different stories coming out over the last few days that reveal the true nature of government and the apparatchiks who use disinformation, devious machinations, fraudulent accounting, and taxpayer money to cover up their criminality, lies, and the true state of the American economy. The use of government accounting tricks to obscure the truth about our dire financial straits is designed to keep the masses sedated and confused.

The Fed needs to extricate itself from manipulating the financial markets. It needs to end backstopping market liquidity. It must never again print Trillions of new “money” out of thin air. Because so long as the marketplace perceives that the markets are "too big to fail", there will be speculative excess, major securities markets mispricings and Bubble fragilities. No one – average investor or sophisticated financial operator – has a clue as to the degree Fed policies have distorted asset prices.

"Thanks to President Obama’s leadership and the determination and sacrifice of the American people, we’ve worked our way out of that ditch and put our economy on sounder footing. Now we have to keep going.

To prevent irresponsible behavior on Wall Street from ever again devastating Main Street, we need more accountability, tougher rules and stronger enforcement. I have a plan to build on the progress we’ve made under President Obama and do just that."

Q. Should somebody have gone to jail.

Bernanke: Yeah, yeah I think so. It would have been my preference to have more investigation of individual actions as obviously everything that went wrong, or was illegal, was done by some individial not by an abstract firm.

Some people will never learn... ever. What is happening today is nothing more than rearranging the deck chairs on the Titanic. The iceberg has been struck, we’re taking on water, and this sucker is going to sink. Game Over.

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion. Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.

The world is becoming increasingly chaotic and the American people are seeking a leader who can bring order, make tough decisions, and capture the zeitgeist of this moment in history. They are in search of a prophet generation (Boomer) Grey Champion, whose arrival marks the moment of darkness, adversity and peril as the Fourth Turning careens towards its climax. The Grey Champion doesn’t necessarily have to be a good person, but they must lead and display tremendous confidence in their cause and path. Franklin, Lincoln, and FDR have many detractors, but during their Fourth Turnings, they most certainly led, casting aside obstacles (sometimes illegally) and enduring dark days and bleak prospects for success. Is there someone of that stature ready to lead the American people now?

Liar loans are back from the dead which means that if you look under the hood, you might just have a shoddy credit or two hiding in the collateral pool of your triple-A mortgage-backed paper. Meanwhile, in a further sign that we've learned nothing since the crisis, non-Agency RMBS is set to stage a comeback.

"It’s not how I want my epitaph to read, but it’s not a shameful thing helping people finance themselves. It’s not a bad thing."

The lessons of ignoring history are likely to be learned once again... the hard way.

"...rising asset prices provide investors confirming evidence that their strategy is good and everything is fine. This induction problem lulls investors into a sense of confidence, and sets the stage for the shock when events turn down. That nonlinearity causes sudden change only adds to the confusion."

The one undeniable truth about the debt drama in Greece is that each of the conventional narratives - financial, political and historical - has some claim of legitimacy. These facts matter not only because contagion from Greek debt defaults may ripple in dangerous ways through the financial system, but because they are also true for many other members of the Eurozone. The Euro is a fatally-flawed monetary concept and what we now seeing playing out was eminently predictable from the start.