Sunday, September 21, 2008

Meltdown.... procrastinated

Well, we have been watching intently the last six days (or more) as the house of smoke, mirrors, and paper that is the world of Wall Street unravels and collapses before our eyes. Comparisons to the 1930's, to the Resolution Trust Corporation, to the 1970's, etc., etc., etc. abound. They are all fundamentally flawed and fundamentally inadequate to describe the mess in which we find ourselves.

Fundamentally flawed because the crash of confidence that was behind all of the aforementioned crises was a crash in the confidence of the value of REAL THINGS. To be sure, there was speculation, and prices collapsed, and the financial system froze up as a result, but still, behind all the speculation, there were real things, of real value. So, no matter how bad things got, everyone in the system knew that they would be holding a real asset with some non-zero value - or paper backed by the same. The promise of value did not constitute value in and of itself. And even when there were not real assets to back up a promise of future value (bonds, paper, etc.), the lender of funds was compelled by self interest to insure that the expectation of future value was realistic and believable. This "crisis" is a crisis of confidence in the value of paper assets that have, essentially, no value at all. Zero. SO... Like musical chairs, whoever winds upholding them at the end loses EVERYTHING.

Of course there was also a time, not long ago, when real value was thought to be an integral component of value itself. And real businesses, which produced real products, were considered honorable and desirable and respectable. Now, the "Captains of Industry" (Carnegie, Ford, DuPont, etc) i.e., those who actually MADE things, have been replaced by the "Masters of the Universe", a comic-book sounding term used to describe the current batch of disgraceful bastards on Wall Street who bring to the table not any real productivity, but rather the self-inflated ability to pass worthless assets back and forth, inflating their value with each transaction, all to line their own pockets and scam the poor dumb bastards down below who operate under the pathetic belief that the price you pay for something has some connection to it's real value.

Think of it this way.... Say, for instance, I were to go into the woods to answer natures call, and find an expired (and losing) lottery ticket. An absolutely worthless piece of paper. BUT.... being unscrupulous and enterprising person, I find a gullible looking man o the street, and tell him that the ticket is a five-dollar winner, but if he will give me two-fifty for it, he can cash it in later for five. He, being gullible, believes me, and give me the two-fifty in cash. Then, he decides to "improve his position" and finds another person, tells him that the ticket is a $25 winner, but sells it to him for $12.50 cash, thus more than doubling his money, This happens two more times, and someone will be holding what they think is a $200 ticket, which is essentially and truly worthless. But then, the word gets out.... the lottery ticket that's being pedaled on "the street" is worthless, and all of a sudden, the holder of the ticket can't find a buyer. He's out $100, but he claims to be out $200! Because the ticket is "on his books" as a $200 asset. That is where we are today in the financial markets, except, of course that, instead of gullible street people, we have the "masters of the universe" and instead of two hundred bucks, we are dealing with trillions of them.

That is where we are until last week, that is. Last week, the United States Government agreed to come in and essentially buy the worthless ticket for some price, say.... $50. Which means that we, the taxpayers, just essentially gave away $50 - plain and simple. It also means that "traders" (we used to call them dumbasses) made a hundred bucks ($2.50+$10.00+$12.50+$25.00+50.00) trading worthless paper. And all the while the $100-paying dumbass is squealing about losing fifty bucks. Gotta Love that. He was stupid enough to pay $100 for a worthless piece of paper, knowing full well it was worthless, because he thought he could find another sucker. And now, that hubris, that moral bankruptcy, is supposed to be my fault, and I AM SUPPOSED TO BAIL HIM OUT!!!! Making certain, of course, that his billion-dollar personal wealth remains intact.

The comparisons are inadequate because nothing in the history of the modern financial system comes anywhere near the scale of this crisis. The numbers are unimaginable. So much money that, if all of the governments in all the world poured cash into the system, there would still be more worthless paper than there would be cash.

It is for these reasons that, no matter what the consequences, the inpending "bail-out" is a disaster in progress. NOT a disaster waiting to happen, but a REAL disaster unfolding before our eyes. It made a big splash two days ago, but it is doomed to fail. There is simply no way to make it big enough to make a real difference. Sooner or later - more likely sooner - within weeks, that is, the whole thing will crash. The numbers say it has to. The emperor has no clothes, and everybody knows it now. The fact that the government is trying to convince us otherwise doesn't change that de-facto nakedness. That is why they should have done nothing.... Nothing for Bear Stearns, nothing for Fannie or Freddie, nothing for AIG, nothing for all of them. If the Dow falls to 6000, then so be it. That is where it belonged the whole time. Let it fall, let it crash, let it bottom, and then, once things have assumed their REAL value, start to build it back. Build it back based on reality, not on pure bullshit paper. It will be rough, yes, but sounder in the long run.

BUT NOW the government (or central banks) has "shot their load", when it DOES crash, not only will it be worse, but the only refuge, the last resort of government assistance will be gone. So we will have the 1930's without "relief". People will be broke, and broken, and hungry, and there will literally be nowhere to turn.

And when THAT happens, it is going to get ugly. Very ugly, very fast. So get ready. It's going to be a long, cold winter....

May God help us...

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