Wednesday, March 3, 2010

The Devil is in the Details

Greetings good citizen,

It is not uncommon for ‘like-minded’ writers to ‘echo’ each others point of view, which is to say tonight’s offering could be considered an ‘echo’ of last night’s post.

While last night dealt with the ‘breadth’ of the global crisis by looking at the slow motion/long term destruction of global civilization, tonight’s piece looks at a specific aspect of the crisis that has yet to be corrected, much less concluded.

As some of you may have noticed, I have taken to making my ‘arguments’ here in the intro rather than saving them for the end. It keeps the articles themselves cleaner and, mercifully, ends these missives faster than would otherwise be the case.

So…I’d once again caution you that many of the ‘dire predictions’ made by other writers should be tempered by the fact that ‘push’ most often is followed by ‘shove’ and it is all downhill from there. Meaning predictions that we’ll be saddled for decades with unmanageable debt should be tempered with the knowledge that this debt will ‘disappear’ once the money is no good.

Understand that money, along with the debts created by money, are entirely ‘conceptual’.

Not to put too fine a point on it but they don’t expect you to pay, they expect you to die!

Just a thought to keep in the back of our mind as you struggle to make sense of Ilargi’s main point.

March 3 2010: Swaps and Robbers

Ilargi: First off, apologies for the publishing hiatus, dear ones. Getting flooded and swamped out will do that to you. I never before spent time in an officially declared catastrophe zone (one notch over emergency, if I’m correctly informed} but I did so over the past few days in French Bretagne, or Brittany for those English readers who are spelling-challenged (there seem to be many of them around here). I’m on a tour, if you hadn’t noticed yet, of TAE readers who had invited me over the past two years. Some, if not all, of them now live to regret their promises.

But so anyway, down to business: swaps. Over the past few days, a number of opinions on them appeared. None too positive, mind you. But what are they worth, both the opinions and the swaps themselves? Let’s look at the short and curly wild boar sort of approach, why don’t we? Since in the end, no matter how complex instruments may be, their fall-out will always be as simple as it is dirty, and it will be those who don’t know CDS from DVD’s who are most affected, not the "brilliant" minds who created the stuff in the first place.

And, to add another chapter to the peak oil versus finance crisis parable, maybe understanding the way CDS have perverted our economies will make people see why peak oil has and [typo?] had nothing to do with our present economic downfall. Not that I hold out much hope, mind you; I sometimes think I’m talking to a crowd comparable best to the Red State parochial faithful, where in the end and down the line G-d does it all. [Consider yourself duly ‘slapped’]

However, I still think that once you start to comprehend what the derivatives markets, and I’m singling out CDS for the purpose, have unleashed into our daily lives, aided and abetted by our very own governments and representatives (think about that one last time!), who find much easier "value" in any sort of program that makes them look better today instead of tomorrow, you can leave that whole peak oil notion behind and focus on Wall Street. [Um, logically, CDS and the failure to regulate them contains zero ‘political capital’ beyond the ‘gratitude’ of Wall Street, which manifests itself in ‘campaign contributions’.]

Unless, of course you think Wall Street bases all of its decisions on peak oil. It doesn't. It’s the fact, instead, that it’s become one giant casino that is responsible for foreclosures, lay-offs, bankruptcies and the even graver consequences we have yet to witness. Our so-called leaders society has gambled itself away, literally, and that is so hard to understand I can't blame anyone for not catching on within the first five minutes. Perhaps once speculators force entire countries to their knees, it will become clearer.

Credit Default Swaps, as they are and stand, have the potential to bring down entire civilizations, and they will too, just to prove their point (and mine). It’s unbelievable to the innocent eye that after the collapse of AIG, the CDS market wasn't ostracized and burned at the stake. Unbelievable, that is, until you realize who's really in power in our societies. If you allow bets, wagers, in your society whose total monetary value adds up to many times the entire world’s GDP, you assure two certain outcomes: First, that these bets will bring down your society at some point and in some way, and: Second, that the people in charge of the bets will take over power until the house comes crashing down. What power does Washington have, with annual US GDP at $14 trillion, while JPMorgan’s derivatives desk has 6 times as much outstanding? When the total derivatives market has numbers like $1 quadrillion attached to it? And then we, the people, hail the winning bets, and bail the losing ones? There’s no way we can win this one. [Nor will it ‘end’ this way, like I say above, you aren’t meant to pay, you are meant to die! They just can be that ‘open’ about their motives…]

It’s like we’re all in the hands of the acid hippie who climbs up to the rooftop convinced she can fly. Feeling good, feeling great and then ..... well, not so much.

Yes, banks can bring down societies, simply because they can control them. And that’s what we’ve let them do. [It’s what our fucktard ‘elected representatives’ have failed to do!] And we’ve let them make us think we were far richer than we are, which got them into making us spend much more than we ever had. All this has perverted our economies, and our lives, to a far greater extent than we presently realize. But the bill is coming due, and you're not going to like it. [This is an extremely inaccurate picture of how it actually went down…although it is an honest interpretation of the ‘official’ media version…]

Here are three views of credit default swaps, by Gretchen Morgenson at the New York Times, Wolfgang Münchau at the Financial Times, and Ann Pettifor at the New Economics Foundation, from which I extracted bullet points. I hope they will give you a better understanding of what’s involved, beyond what I personally have to say. [The ‘bullet point presentations’ are very good, you should ‘click through’ and give them peek.]

There’s going to be lot more to talk about on this topic going forward. A good friend of mine suggested that CDS were created for the specific purpose of avoiding regulatory reserve requirements, both for financial institutions and for countries (Greece!). That’s certainly an interesting point, which I’ll get back to.

Basically, the bullet point presentations leave you wondering just how corrupt the political system is. (Since it is a personal ‘pet peeve’, I endeavor not to ‘blame society’ for the acts of a few reckless individuals…this is why I avoid phrases like ‘our’ political system, it is no more ‘ours’ than it is the Martians!)

Speaking of ‘political systems’ I stumbled across this succinct epilogue to today’s post over at ‘cynical tendency’…

We do not simply need a new government, we need a new constitution, a new electoral system, effective means of exercising choice, reliable access to sound information, breaking up the London Cronygarchies and the will not to change Hardy for Laurel but to radically reorder our chances to control our own futures.

It is observations such as the ones made here by these two writers that make you wonder why we aren’t deep in earnest discussion regarding the ‘disposal’ of the current regime and what to replace it with.

While it is not ‘Ideal’, I suspect we’ll have to tackle these two related problems…individually. First the overthrow and then the replacement. The trick will be keeping the new system ‘clean’.

This is why I designed ‘A Simple Plan’ to be self-reinforcing, it needs all of its parts to operate properly.

Thanks for letting me inside your head,


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