Here’s a recipe for global economic meltdown. You’ll find this one in a chapter
under soufflés. Just add greed, political instability, stir in incompetence, corporate malfeasance, sociopathic tendencies, add more greed and then wait several years for a crust of deception to rise.
Be careful though, the whole thing is empty of contents and extended scrutiny or a long, hard look of any kind may result in the soufflé falling flat. …Serves 6.7 billion.
Welcome to our own Hell’s Kitchen. A kitchen where the cooks are also the crooks, — the alchemists, conjurers, snake oil salesmen and fast-talking bamboozlers with ‘the too sweet deal to be true’. The realm of your typical Wall Street hedge fund manager, producing nothing of any tangible value except the obscene commissions that fuel their lust for more and more lucre in a big boys ‘pissing match’.
You’ve gotta have guts, balls of steel and not give two-sh*ts about anyone else. For the most part it’s a young boys game. And those coming out on top are left feeling like they’re ‘King of The World’! …Until, of course, they feel the next group of Wall Street billionaire boys breathing down their neck. Who wants to settle for ‘the set of steak knives’?
The 26 leading hedge fund managers earned an average of $363 million dollars each in 2005, a 45 percent jump from the $251 million average the top 26 each earned in 2004.
James Harris Simons, the founder of investment firm Renaissance Technologies, earned an estimated $2.8 billion in 2007, $1.7 billion in 2006 and $1.5 billion in 2005. All for being very, very good at executing trades at just the right time. Moving money. Nothing produced. Just pushing paper. Pressing a key. Executing a trade. How could you not get a rush from your pinky having that kind of power in our wonderful world of ‘money for nothing’.
The US economy is now largely a paper tiger and that tiger is starting to tear at the seams. The global financial structure is less transparent today than it’s ever been before. There are fewer reporting demands imposed on those who operate in the global economies. Financial swashbucklers are constantly creating “new products”, fancy things, that defy nation states, international banks and easy explanation. Former IMF managing director, Rodrigo de Rato had spoken out against these new risky, possibly illegal ventures more than a year ago before unexpectedly resigning. He said they were being magnified by the weakness of the US dollar and its mounting trade deficits.
There are many reasons, institutions and individuals to blame for the mess we’re in. Take the credit derivative market for example. It was all but nonexistent back in 2001 and grew fairly slowly until 2004. Then, suddenly, in 2005 it took off into the stratosphere like a Japanese bullet train riding the gravyland express, reaching $17.4 trillion by the beginning of 2006 (that’s a 17 with 12 zeros and ‘a point four’ of 9 zeros).
Credit derivatives are one of these fancy new financial products that defy easy explanation but can make the people dabbling in them wealthy beyond their wildest dreams. The kind of ‘wealthy’ where if you are a salesman making 150 million a year you don’t even qualify for admittance into the top 25 club.
Just what are credit derivatives? Gillian Tett, The Financial Times chief capital markets writer went on a quest to find out and came away with a head swimming in a pool of murky mathematics and maddening money management.
Way back in 1996 the ’best of the best’ in J.P. Morgan banking, known as ‘The Morgan Mafia’, were having fun in the sun at a Boca Raton resort in Florida. They were having a grand old time drinking and whoring, throwing each other into the pool and basically letting off steam at a bank-funded getaway. It was during this time that they came up with the notion of a new financial gizmo too complex and convoluted to be easily copied (you see, financial concepts can’t be copyrighted). It was an idea so audacious in design and brilliant in execution (at least they thought so) that if it worked, it would be sure to make them all piss pots of money.
Gillian Tett wrote in her Financial Times piece that she could see the potential for this causing a chain reaction of losses that could eventually engulf the hedge fund market that had recently leapt to the fore.
Warren Buffett, at present the richest man in the world, and a guy who knows his money, has described credit derivatives as “financial weapons of mass destruction.”
In their simpilest form they are insurance policies against defaults and they encourage far greater risk and credit expansion than should be prudently and reponsibly allowed. Witness the $52-billion leveraged buyout of BCE (Bell Canada Enterprises) recently. – Who loans/ covers somebody for 52 billion dollars? You know it’s not happening unless a bunch of guys somewhere in Rolexes, pin-stripes and ‘perma-tans’ aren’t thinking this gonna somehow make them all very, very rich.
Enron was perhaps one of the most famous and infamous users of credit derivatives, — it was one of the secrets of their success and reasons for their rapid ‘death spiral’ with over $100 billion in losses. Credit derivatives are largely unmonitored in any real way and a number of experts have even referred to them as “maddeningly opaque.”
A lot of these ‘innovative financial products’, according to one finance specialist, exist only in the realm of cyberspace and are often simply tax dodges taken by the ultra-rich. It’s stuff like this and things like collateralized debt obligations, split capital trusts, market credit default swaps, and on and on and on, — that the IMF and worldwide financial officials have been sounding alarm bells.
Banks simply do not understand it all, – the chain of exposure and who owns what, and now senior financial regulators and banking officials are slowly coming to realize it. Financial structures have now become a complex matrix of interconnected conduits that are like massive dominoes. The top 10 hedge funds alone in March 2006 had $157 billion in assets.
Hedge funds claim to be honest and above board, but those who guide them are obscenely compensated for the profits ‘they create’, which means they take risks. Enormous ones. Many collect inside information which is technically illegal but goes on all the time. It is a system fraught with danger.
After all, who is really watching ‘the purse strings’ when a low-level, rogue trader like Jerome Kerviel at Société Générale in France can lose over 7 billion of his employer’s and customer’s money over the course of a few weeks? …It is a truly laughable, unfathomable incompetence of Promethean proportions and simply one of the most recent big jokes that highlights our wild west economy. A global economy that I have come to think of as a farce, wrapped in a riddle and smothered in a masquerade of fantasy frosting.
There are many factors that are now different from the Great Depression in the last century. The US now has a massive debt approaching 10 trillion. Countries like China and India are now competing with the US on a global scale for both customers and resources. World oil supplies are shakier than ever, democracy hasn’t come to Iraq, – Iran wants to become a nuclear player and have an “oil bourse“, South Africa is in turmoil, and Israel is rattling its sabres.
Also, consider this, — India and China together make up over 2 billion people. Now imagine, if you will, all these people living an ‘American-style’ standard of living in a not too distant future. How could this ever possibly be considered a good thing for our planet? It’s only good for ‘the dealmakers’. The ones who ink the contract. Get the sale. Make the commission.
Nothing is indefinitely sustainable and the myth of unending growth is coming home to roost and ’bitch-slap’ the eggheaded economists and rah-rah capitalists who’ve been living in denial for so long.
And the ultimate lie some US economists and government types continue to perpetuate, is that the US will somehow, some way, some day, be out from under this massive anchor pulling them down (an almost 4 trrillion increase in debt load since Bush took office and since 1961 the US debt has never decreased).
US Natl Debt Chart And Presidents Responsible For It
The Federal Reserve in the US has created a loan that is simply mathematically impossible to pay off. A loan that is slowly starting to be recognized for the untenable and unsustainable thing it is, – devoid of the solid collateral needed to back it. The Fed has been doing this for years and years now. To the tune of 10 trillion dollars. They’ve simply been printing more and more money and hoping no one will notice that the emperor’s clothes are wearing mighty thin. In a way they’ve tried to pull the wool over everyone’s eyes. They have defrauded the federal government and the citizens of the United States and created a debt based system which is totally devoid of fairness, equity and equanimity.
Those greedy companies and individuals who have pillaged and plundered while the barn door has been left swinging off its hinges should now be made to suffer the consequences. Unfortunately, there will also be many Ma and Pa investors and average folk, just trying to eke out a living who will also be dragged down with them as this house of cards collapses.
All things being horribly unequal, — it’s time to ‘release the hounds!’
- Steve Steinbach
The Global Cure-All Co.®
