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Moral Hazard? That Assumes Morals Still Exist

Sorry for the double post. I only clicked once, not sure what happened.

Moral Hazard? That Assumes Morals Still Exist

Our financial system was designed for moral hazard by the same means, bribery, with the creation of the federal reserve, to steal from the prudent and reward the foolish. They create constant mild inflation so that they can constantly shrink the dollars in your pocket, a tax without any congressional oversight. And think of it from the perspective of all the companies spending money bribing congress and the president; a dollar spent on their business yields only their ROI, but a dollar spent on purchasing our government yields thousands of per cent in return. It's clear that companies shouldn't be able to give money to congress (nor should unions, etc.).

Those running this show, Tim Geithner and Ben Bernanke, adhere to mainstream economic thought absolutely. And mainstream economic thought sees no relationship between money, credit, and physical reality. At this point, they are the equivalent of the medieval monks that debated how many angels could dance on the head of the pin.

Am I saying that the market won't go up, or that there isn't money to be made here by nimble players? No. What I'm saying is that they are so lacking in understanding that they are in ignorance creating terrible downstream problems in order to try to return to an economic reality that can no longer exist. Blinded by their expertise. At this point, it's like trying to fill ten 1 gallon jugs with 5 gallons of water. Someone is going to be left short.

We've borrowed from the rest of the world for two decades and then shafted them. I think the old saying "Fool me once, shame on you, fool me twice, shame on me" applies here. Who knows, maybe there are still fools out there.

What has really been laid bare by this crisis is the shallowness and blindness of Wall Street. It is clear they have no deep understanding of anything but the rote procedures they use to shuffle money and take their cut. They just want to go back to business as usual. And, of course, if you make your money by shuffling money and taking a cut, you need there to be lots of money to shuffle. So you talk your book.

Thanks for the article.

Moral Hazard? That Assumes Morals Still Exist

Our financial system was designed for moral hazard by the same means, bribery, with the creation of the federal reserve, to steal from the prudent and reward the foolish. They create constant mild inflation so that they can constantly shrink the dollars in your pocket, a tax without any congressional oversight. And think of it from the perspective of all the companies spending money bribing congress and the president; a dollar spent on their business yields only their ROI, but a dollar spent on purchasing our government yields thousands of per cent in return. It's clear that companies shouldn't be able to give money to congress (nor should unions, etc.).

Those running this show, Tim Geithner and Ben Bernanke, adhere to mainstream economic thought absolutely. And mainstream economic thought sees no relationship between money, credit, and physical reality. At this point, they are the equivalent of the medieval monks that debated how many angels could dance on the head of the pin.

Am I saying that the market won't go up, or that there isn't money to be made here by nimble players? No. What I'm saying is that they are so lacking in understanding that they are in ignorance creating terrible downstream problems in order to try to return to an economic reality that can no longer exist. Blinded by their expertise. At this point, it's like trying to fill ten 1 gallon jugs with 5 gallons of water. Someone is going to be left short.

We've borrowed from the rest of the world for two decades and then shafted them. I think the old saying "Fool me once, shame on you, fool me twice, shame on me" applies here. Who knows, maybe there are still fools out there.

What has really been laid bare by this crisis is the shallowness and blindness of Wall Street. It is clear they have no deep understanding of anything but the rote procedures they use to shuffle money and take their cut. They just want to go back to business as usual. And, of course, if you make your money by shuffling money and taking a cut, you need there to be lots of money to shuffle. So you talk your book.

Thanks for the article.

The Main Street - Wall Street Bout, Round Two

Kathy said:
... Main Street needs to realize that there are no winners if Wall Street fails. This is a slippery slope and if Wall Street loses its footing, everyone else could fall as well. This is not to say that I don’t agree that bankers need to be punished for their extravagant risk appetites...

So shall we punish them by letting them keep their ill gotten gains at the expense of the taxpayer? You are correct that capitalism needs capital markets, and functions best with some form of bank as capital markets. However, why does it have to be the current banks? Their expertise? LOL It is their lack of expertise, their lack of fiduciary responsibility, that put us in this mess. Ultimately, I put the blame on Congress because they allowed themselves to be rendered ineffective, sold themselves out, but the banks deliberately, knowing the ultimate consequences, acted in a rash manner. So what do I propose instead? Take all the current large banks and break them up, sell the pieces to the next tier. That second tier can hardly do worse, and the failed bureaucratic systems will be broken up.

That won't happen for two reasons.

First, because of our primitive currency/money regime the federal reserve, and thus us, depends on these banks to inject money into the system. It isn't hard to figure out who designed this system, is it? Right on the first try, the banking interests!

Second, the losses that would have to be recognized are mostly in the portfolios of our creditors. We have become a debtor nation. Without those creditors lending us money, we would have to cut back on spending (think Argentina). You might think that the creditors would want to see this happen. You would be wrong. They have structured their economies to depend on our profligacy. It is all a house of cards, and all the parties to it want to see it stay standing. That is why the threat is couched as "The bogeyman will get you!" instead of being spelled out. You can imagine how a politician views going back to their voters and saying "We have to take away some of your something for nothing giveaways, we were lying to you." Those representatives that voted against the bailout are very courageous.

As Clueless Wonder said above, the bailout can't fix this problem. It is a bandaid to hope that a miracle will occur to keep the house of cards standing. A bunch of con artists/financial operators convinced the suckers they were dealing with they could make gold out of lead. And they seemed to be able to. When they were done with securitization and credit default swaps, it seemed like they had created AAA debt out of subprime mortgages. When they left, they took some of the true AAA debt as payment and converted it to real wealth for themselves. The trouble with their alchemy is that it had limited lifetime before the gold reverted back into lead. So we have trillions of dollars of AAA debt that is now back to subprime. It was illusion, and the illusion has been exposed. There isn't any true wealth there, it was all smoke and mirrors. The losses are real, though, and someone is going to have to pay.

The bailout won't change the reality of this. We have two choices. Recognize that we were taken for a ride by financial operators, take our lumps, and move forward with a corrected system that won't let it happen again, maybe punishing the perpetrators in passing. Or inflate the crap out of the currency, so the debt that evaporated becomes less and less significant with time until it can be swept under the rug. The bailout is part of the second solution.

Who gets hurt by massive inflation? Main street. Why? Because of the way our system is designed, banks get the money before it is devalued by inflation. So they can spend it at the old rate. Main street gets it after it is devalued, so they pay the banks. People who save and aren't reckless are hurt because their assets are devalued in favor of bankers. I know, life isn't fair, and the powerful do unto the weak, but this seems a little too much.

Putting the Perception and Reality of the Financial Crisis Into Perspective

Honest John,

You know, given the candidates we have in front of us, it wouldn't take much for me to take you up on your offer. When confronted with lesser of two evil choices, people are wont to take a chance. And given the usual function of the Vice President, one of your cats would probably do.

Too bad there isn't a viable third party candidate. But the parties have removed that option. They know all too well that people are likely to grab at straws when given the kinds of choices we are.

As far as the original article and chaos theory goes, you need a model to use it. Have you got such a model? It can't be very good if it didn't see this coming. I had coworkers, working stiffs who aren't in finance, predicting this was coming years ago. They weren't using chaos theory, just common sense. They saw the flipping, people being priced out of the market, the mortgage sales mania, reverse mortgages, ARMs. Already ten years ago this was starting. I knew a guy who was selling mortgages, doing gangbusters business. He thought the sky was the limit. It reminded me of the traders doing the dot com mania thing at the time.

The Frannie Debacle: Let's Give Credit Where Credit Is Due

Can you imagine walking into your performance review and finding this in your manger's hands? :-)

How Much Credit Is Too Much? Where AmEx Went Wrong

Actually, where Amex went wrong was in broadening their card holders. At one point they were exclusive to wealthy clients. About 5 years ago they decided to issue to lower income individuals.

In a sense, this made sense, as they had basically all of the rich market, so expansion necessitated that they broaden to grow. And while the economy boomed from the housing bubble, it looked like a brilliant move. In the current economy, they are paying the price for their decision. By the way, I'm not saying that this negates your point about raising limits. They weren't alone in this, as all card issuers were raising limits during the housing boom.

This was purely a Chenault decision, so while he took the kudos for brilliance during the boom years, he has to take the brickbats now. Like all CEOs, his performance is dependent on general economic trends. They, and analysts, tend to forget that 85% of a CEOs performance is due to general economic trends. How could they demand exorbitant compensation if they remembered? ;-)