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Is it possible to make hundreds of billions of dollars in profits on securities that are backed by nothing more than cyber-entries into a loan book?
It's not only possible; it's been done. And now the scoundrels who cashed in on the swindle have lined up outside the Federal Reserve building to trade their garbage paper for billions of dollars of taxpayer-funded loans. Where's the justice? Meanwhile, the credit bust has left the financial system in a shambles and driven the economy into the ground like a tent stake. The unemployment lines are growing longer and consumers are cutting back on everything from nights-on-the-town to trips to the grocery store. And it's all due to a Ponzi-finance scam that was concocted on Wall Street and spread through the global system like an aggressive strain of Bird Flu. The isn't a normal recession; the financial system was blown up by greedy bankers who used "financial innovation" game the system and inflate the biggest speculative bubble of all time. And they did it all legally, using a little-known process called securitization.
For the past eight months, we have been a nation focused on bailouts and bankruptcies. For the past ten years, we have been a nation ignoring massive wealth transfer and wealth concentration through a rigged Wall Street. As simple and clear as this picture is, some of the brightest minds in this country are unwilling to connect the cause and effect of wealth in too few hands to bankruptcies and a tanking economy. The accompanying, and equally dangerous, problem is that concentrated wealth stifles the very innovation that is necessary to create new industries, new jobs and lead us out of the downward economic spiral.
Americans will never again buy as many new cars as they were able to do before 2008 on the terms that were normal until then: installment loans. Our credit system is completely broken. It choked to death on securitized debt engineered by computer magic and business school hubris. That complex of frauds and swindles coincided with the background force of peak oil, which meant, among other things, that economic growth based on ever-increasing energy resources was over, and along with it ever-increasing credit.
Simply put, every environment has a sustainable carrying capacity. In the past hundred years or so, humanity has boosted food production by devoting vast quantities of non-renewable inputs like oil and phosphorus (chemical fertizilers) to agriculture. Once those inputs are depleted then production will revert to pre-fossil fuel/chemical fertilizer levels. Yes, even the minerals used in chemical fertilizers are in the depletion phase:Phosphorus Famine: The Threat to Our Food Supply (Scientific American) As population has risen then the pressure on carrying capacity increases.Add in staggering energy consumption of depleting fossil fuels and you get a scenario with startling parallels to the die-off of the human population on Easter Island.
Various policy decisions such as suburban sprawl and a growing dependence on consumption have also raised the demands on irreplaceable productive assets such as arable land. How much "air" is left in a global economy careening down a path of resource/windfall exploitation is an open question; one oft-overlooked reality is that all the "alternative energy" sources in the entire world provide perhaps 3% of the global energy consumption.
The Bernard Madoff saga used to have a simple story line: A bad guy stole lots of people's money. But in recent weeks the plot has thickened. Good guys have been cast as bad guys. Those who were mourned as victims are suspected of being perpetrators instead. The first jolt came last month when the court-appointed trustee who is overseeing the search for money slapped revered Palm Beach philanthropists Jeffry and Barbara Picower with a lawsuit, claiming they pocketed $5 billion that wasn't theirs.
It’s the end of the world as the Greater Depression hits after 2010’s failed “W-recovery” Human Events had the opportunity to interview forecaster extraordinaire Gerald Celente, President of Trends Research Institute, several days ago -- and the future he predicts looks bleak indeed. In fact, as Mr. Celente sees it, the Great Depression will seem like a mild recession as what waits for us in 2011 hits with the force of a Katrina financial hurricane.
Discussion of the 50% Retracement Rule,
potential future price levels, time studies, key dates, Fibonacci, Gann, Astro numbers, Robert Rhea's Great Depression analysis.
For the past five years, Ernie DiGiacomo has been able to count on parents to guarantee the $1,500 to $2,500 rents he charges for the 15 apartments he owns in Williamsburg, Brooklyn. When he called renters who had missed payments, he often heard, “My parents will send you a check.” But in the past six months, the parents are pulling back financial help, he said, and as a result, he has watched more renters move out. "Most of them are moving back with parents", Mr. DiGiacomo said. Luis Illades, an owner of the Urban Rustic Market and Cafe on North 12th Street, said he had seen a steady number of applicants, in their late 20s, who had never held paid jobs: They were interns at a modeling agency, for example, or worked at a college radio station. In some cases, applicants have stormed out of the market after hearing the job requirements.
Whether or not the current unraveling turns out to be a modern day version of the Great Depression -- which I've argued against because, among other reasons, the policy responses we've seen so far and those I expect to see in future point to another sort of unhappy ending -- spending won't fall to zero. People will still need to eat, put a roof over their heads, find clothes to wear, etc. Given that, I try to help visitors to Financial Armageddon -- especially those who are investors or who make key business decisions -- keep tabs on what Americans are or are not doing with their money. Recent examples of posts on this subject include "Where the Axe Is Falling," "Green Shoots in Escapism," and "Proving Me Wrong" -- as well as the one you are reading now, which highlights an interesting New York Times article entitled "The Recession, Wal-Mart Style"
