Saturday, December 6, 2008

The Real Armageddon = $512 Trillion Debt

By handing over Americans' hard-earned tax dollars and indebting future generations, the (U.S.) Treasury has been engaging in the biggest transfer of wealth in human history.
The secret is out. Or haven't you heard yet? You're on the immediate hook for, oh, about $205 billion (and that's just the start of your problems). You're welcome! And it turns out that you've given quite large parting gifts to the culprits (many of whom are now in charge of the next administration's long-awaited, financial smoke-and-mirrors, sleight-of-hand, wait-till-you-see-what-we've-got-in-store-for-you-next tricks). I've heard of people who had exquisite manners and would never be accused of overreacting (publicly) to bad news, but this is getting ridiculous. People are still watching fantasy reality shows when a real one hit town two months ago. Go figure. (Emphasis marks and some editing were added - Ed.)
The notional amount of outstanding derivatives, as noted by the Bank of International Settlements (BIS), comes close to $512 trillion. This represents a figure that is impossible to settle and is the real Armageddon which banks are preparing for by hoarding the cash that they have received through Troubled Asset Relief Program (TARP). Unless this time bomb is defused by bringing the undeclared positions on the table, the duration and gravity of this crisis can only increase. As the underlying assets of these instruments crumble, the banks' exposure to counterparty risk increases and will lead to the inevitable collapse of even more banks, and reduce the availability of investment credit even more. The underlying assets include interest rates, mortgages, foreign exchange rates, credit ratings on companies, and even credit-worthiness of entire countries. This is the level of insanity that has passed for "Leveraged Investment."
The audacity (and greed-stoked mendacity) of the Clinton administration in working so closely (I still remember the newspaper photos that looked like celebrity coverage and wondering why everyone was laughing so much) with Phil Gramm's and Tom Delay's flying-monkey minions for the repeal of the Glass-Steagal Act of 1933 (notice the year) as a necessary corollary to the passage of the Gramm-Leach-Bliley Act of 1999 (the end of the sellout "Clinton Years" ("which opened the gates to financial destruction" nine years in the future)) has to be dealt with before the public can believe that all the cards are on the table and the final price tag of the insider chicanery is publicly accounted for and acknowledged. The blame game is being finessed right now as we reel from one "talking head" pronouncement to the next.
The announcement in the last few days of a deal reached between the U.S. Treasury and the moribund insurance giant, AIG, provides a very lucid insight into the nefarious and destructive world of the TARP. Not only has AIG received $152 billion to date, and subsequently reported a third-quarter loss of $25 billion, now they are to be cleared of their obligation on $53 billion worth of toxic Credit Default Swaps (CDS). U.S. taxpayers are now on the hook for $205 billion, courtesy of an institution which played in the Wall Street casino that passes for a "Financial Sector" and lost. Under the "Free market" system, so expounded upon by Government and Wall Street alike, AIG should be in chapter 11. Bailing out AIG and other failing institutions does absolutely nothing to address the fundamental issues at hand.
Although I believe it does a little something for the institutions which are entangled with AIG, thus the absolutely necessary taxpayer bailout. Andrew Hughes' reporting for Global Research provides so much illumination of this hitherto arcane knowledge that the reader is almost permanently blinded.
The economy is in crisis because unemployment and overarching debt levels pushed thousands of families into the untenable situation where they did not earn enough to cover their debts. This burst the real estate bubble inflated by Alan Greenspan, crashed real estate prices, consumer spending, and manufacturing. What we are seeing now is the inevitable result of lack of financial regulation, lax monetary policy, and a symbiosis between Government and the financial industry. The mortgages taken out by buyers had been bundled into complex financial instruments: Mortgage-Backed Securities (MBS). The latter along with Credit Default Swaps (CDS) and derivatives set the stage for a global financial meltdown. The Glass-Steagal act of 1933 had been conceived to prevent the banking sector from indulging in high-risk investments to protect the depositors of these institutions. This was repealed at the end of the Clinton Administration through the Gramm-Leach-Bliley Act of 1999 which opened the gates to financial destruction. With the stroke of a pen, the financial services sector was given the power to literally bring down an economy. . . . With over $3 trillion of taxpayer money injected into banks, insurance companies, commercial paper, Fannie and Freddie, what has come back to benefit the dying economy? A reduction in lending, increased interest rates on credit card payments, and further losses for these same institutions. No big surprise as the real economy has never stopped its nosedive. Does the Treasury really not realise that there is no point in investing in companies that have no chance of redemption? By handing over Americans' hard-earned tax dollars and indebting future generations, the Treasury has been engaging in the biggest transfer of wealth in human history. The U.S. is now the biggest debtor on the planet and the rest of the world has noticed. China, Japan and the oil kingdoms that buy U.S. debt are losing faith and it's only a matter of time until they turn off the tap.
And if you haven't absorbed the last drop of official wisdom yet, here it is: it's all your fault, you silly overextended fools. (Go to jail! Go directly to jail! But first, give us all your money.) As I don't believe there are too many shoes left to drop, do you think that anyone will hit the streets now? Suzan P.S. As I am long-term unemployed and it's the holiday season, any contribution you may be able to make to my PayPal button or any other way will be wholeheartedly appreciated (and you will get a "Thank-you" note for your kindness). ______________________

1 comment:

Jolly Roger said...

Yes, I think there will be civil unrest like any we've seen up till now, and I think there are even odds that it will lead to the breakup of the country. People do not seem to understand yet just how similar our situation is to the final-era USSR. They should.

-Costly, unpopular war.

-Huge Government debt, a substantial portion of which is external.

-Growing numbers of minority and other disaffected populations who do not participate in the society and consequently have no stake in preserving it.

-And last but not least, a central Government that is nearly completely disconnected from the problems the average citizen faces.

I don't see how this country survives a default. There has been a lot of talk about setting up the Army for quelling internal unrest, but that Army is largely made up of people from those disaffected populations that have no stake in preserving the country; I don't believe they'll enforce a martial law order, just as they refused to enforce the orders given in the USSR in 1991.

The US has at least 5 distinct regions that are liable to go their own way in a few years. If you happen to be living in the southeast, Utah, Wyoming, or Idaho, now might be a good time to consider moving elsewhere.