The Financial System is Finished

[Extracted form Bill Cara's Daily Report]

Outright seize-up of the banking credit system; absolute turmoil in currency and commodity markets; the collapse of capital markets; and a global economy that teeters on the brink of a depression! We are living history.

Just how bad are things? Bloomberg summed it up this way: “U.S. stocks fell for an eighth straight day, yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.”

Leaders of the world will now attempt to rewrite the rules of international finance, and may have to shut the capital markets for a time to accomplish this, says a G-7 leader. Finally, a responsible politician has admitted the system is broke and must be replaced.

Where else have you been reading that a General Agreement on Currencies would be needed before global leaders could go on about their business of building a new financial system? Yes, if you search this site in the window on the sidebar, you will find at least 180 citations for General Agreement on Currencies. You will not find that anywhere else you look, at least not until today.

Moreover, who else in the Wall Street Journal, as early as June 2006, was warning of this disaster, while others demanded that markets run free? My arguments were laughed at. But who among these skeptics is laughing now?

Some Observers Warn of Disaster, Others Say Funds Need to Run Free

Who else has been opining that since he was hired by the White House, every move by Treasury Secretary Henry Paulson has been an unmitigated disaster for the people, calling it, from the beginning, ‘Paulson’s Folly’?

The world has arrived at precisely the point that I strongly argued over the past three years would be the result of a bankers’ self-regulatory system run amok. The world must put an end to financial self-regulation and conflict of interest dealings by bankers. Now!

I will not write a Saturday Report because the financial system is finished. What happened Friday illustrates that markets no longer work as value discovery mechanisms. But, yes, I will cover Friday’s destruction in Sunday’s Week In Review, and I will also attempt to answer your fears and concerns.

Moreover, I will restate why the system is broke, what surely needs to be done to replace it, and why many of the key people in charge today – the central bankers and the Wall St bankers who have been recruited into the Office of the Treasury Department -- must not be allowed to make the most important decision in the history of the world.

Since it is the people’s capital – your portfolios, your Funds, your pensions -- that has been destroyed over the past one, two, four, and 52-weeks, it is important that you face up to your naïveté and/or your denial. Trust me; your banker is never going to make that statement.

In fact there is, in Canada, the ludicrous, ubiquitous, TV commercials of ScotiaBank (BNS) (“You’re richer than you think you are!”) that tell you all you need to know how morally corrupt many bankers have become and why those at the source of the global financial crisis cannot be part of the decision-making group that develops a solution that meets the needs of the people.

Let’s get the foxes out of the henhouse, now!

Comments

[SwingTimer:]

Umm...sounds like yet one more professional is capitulating. Can the herd of non-professionals be far behind?

My motto - "Nothing is ever either All White or All Black". You can extend that notion to infer that no one person/group is responsible for the debacle. As they say, "It takes two to tango". In this instance the finger can equally and justifiably be pointed at the lack of adequate governmental regulation AND the naivity of EVERY INVESTOR WORLDWIDE.

Admitedly, the current financial structure - once resurrected - needs a serious revamp of the oversight system. But let's not pretend that we can remedy the present situation by throwing out the baby with the bathwater.

Investor greed is a built-in human characteristic, and that won't change one iota by thinking that we can redefine our financial system to material advantage from scratch.

Just a thought for anyone on the edge of the precipice.

2008 Oct 12 08:43 AM

[User 30121:]

Hey Bill, wanna buy gold NOW? Betcha you wish you had a safe full. I DO!

2008 Oct 12 09:24 AM

[frankinstein:]

I agree, since around 2000 the market has not really been stable.I started investing around 1990 when the stocks were purring along. I have been out of the market for about 2 years because I did not want to lose the money I had invested,for retirement.

2008 Oct 12 09:58 AM

[Jimmy Lathrop:]

All I see is a lot of stocks being forced out of professional money managers hands through margin call and forced redemptions, You can buy a plane ticket to a country where there is a barter society, or you can say, well, I believe I should be buying when others are selling because I have a horizon beyond a quarterly report or a mortgage payment on my summer home. I believe 99 percent of Americans are in the second camp, but we have a system where the other 1 percent are held up in a pornographic worship of orgiastic greed. Yes, if your fortune is tied to a short term trading strategy, you are screwed. If you are under 35, do not smoke, have a couple of bucks and don't talk on the cell phone while you drive, just ignore the panic of the traders and slowly buy what the trading professionals CANNOT HOLD BECAUSE THEY ARE CASH POOR.

2008 Oct 12 10:37 AM

[Lilliana:]

Absolutly Finished...Chicken Little said so..
He was last seen running down the street screaming
'The sky has fallen..The sky has fallen"

2008 Oct 12 10:48 AM

[davesilb:]

Very good point

2008 Oct 12 01:21 PM

[Rumpole:]

Yes, I'd like it to be finished. But the bankers are going to draw the finish out ever so painfully I'm afraid. Whether they can or not might depend on the reaction to the upcoming LEH CDS settlement as well as the upcoming WAMU CDS auction and settlement. These will happen in the next two to three weeks. So get ready for a turbulent ride and even a crash below what we've already seen. But like I said, the bankers and the governments who are beholden to them will do their damnedness so that they don't crash alon side us. Hmmm...., what's that claptrap in the U.S.Constitution's preamble, something like "....government by, for and of the people...". Utter BS no matter what country one applies it to.

2008 Oct 12 03:35 PM

[Moon Kil Woong:]

The banker's aren't finished. It's more like you are. They are only getting started. First they bankrupt the system. Then they take money from the government. Then they make it all worthless or take it all away. They are a bit divided as to what to do. If they take all the money away the only ones who will have it are foreign creditors. If they inflate their way out pretty much no one wants it and they can't fund the debt and everything collapes.

Gee, what to do. What to do. How can I screw foreigners and still make sure I have something that's represents most everything in the US. When they figure it out they'll let you know.

2008 Oct 13 01:01 AM