Banking at its core...is not an 'industry'... it does not ..

On Feb 17, 11:30 am, Vide... RemoveThis @tcq.net wrote:
> http://suddendebt.blogspot.com/
>
> SUNDAY, FEBRUARY 17, 2008
> Un Ballo In Maschera
>
> I have often remarked that I am on the deflation side of the inflation-
> deflation debate. Here is one more argument in support of this thesis:
>
> So-called "innovative" finance monetized real estate and corporate
> assets that where hitherto immune from being turned into money
> equivalents. This was done via an array of asset-backed securities and
> derivatives which often went all the way to the fourth order. Starting
> from plain vanilla mortgage, consumer and corporate loans (i.e. funded
> debt), the investment bank factories synthesized a whole array of
> artificial goods, ultimately far removed from the income streams of
> the underlying assets:
> 1. CDOs and CLOs, i.e. tranched bonds made up of loan packages.
> 2. CDSs on the above bonds, i.e. credit insurance policies.
> 3. Hybrid and synthetic CDOs, i.e. bonds made up of the above CDSs.
> 4. SIVs that issued their own ABCP in order to buy and hold the above
> "goods".
> 5. CPDOs that were structured to own CDS income streams.
> ... and more...
>
> The alphabet soup seems thick and opaque, but don't let the jargon
> confuse you. Here is the crucial point: almost all of these
> "securities" were unfunded debt, i.e. money equivalents created from
> thin air. All they did was to generate more and more "buying power" to
> boost asset prices higher, from houses in the Inland Empire of
> California to share prices in New York, London and Shanghai. In case
> it is still unclear: it was margin debt.
>
> If you are familiar with buying stocks or commodities on margin, you
> can immediately appreciate what went on, and why all current attempts
> to avert a wider crisis will fail miserably for as long as the focus
> is on the symptoms, instead of the underlying illness. Margin debt
> cannot be "restructured" with falling asset prices. Period.
>
> Depending on the leverage used, this debt is now worth anything from
> zero to a deep discount from face value. And that's where it is
> trading at, when it trades at all in the secondary market. All those
> trying to hide the balance sheet reality behind plywood and canvas
> should be recognized for what they are: Potemkin village builders.
>
> This artificial money is now being removed, destroyed by dropping
> asset prices. How much of this "margin money" was created, in the
> first place? In a word, lots. In the end of 2007, financial sector
> debt amounted to 110% of US GDP, or $15.4 trillion. It was 63% just
> ten years ago (see chart below, click to enlarge).
>
> Financial and Non-Financial Debt as Percentage of GDP Data: FRB
>
> Allora.. finalmente, it is only fitting that all of this is happening
> during Carnevale. The clueless may still be dancing Un Ballo In
> Maschera, but I see the elaborate Venetian masks coming off and "Miss
> Lovely Liquidity" being revealed for who she really is: "Madam Ugly
> Debt".




its complex.... good article...I am not completely clear on the scene
though.

it seems that gross hyper inflation of the currency would allow all
that debt to be 'paid off' cheap... eliminating the 'debt' aspect of
the mess. However making US currency worthless and crashing the
economy due to lack of a stable medium of exchange.

hyper inflating the currency also 'solves' the problem of 77 million
baby boomers on social security since their raises are a miniscule
part of actual inflation...many would be starved to death.

I dont see how deflation of the currency can come from the current
scene.

I do see how some other sorts of deflation would happen though...no
way in hell for most people to eat well or buy many goods with no job
etc...that would drive prices down in terms of how long you had to
work for a loaf of bread etc.... deflation.in real terms.


and it is real terms that matter in the end.... so you have wages at
500 dollars an hour, bread at 1,000 dollars a loaf.... and social
security recipients begging on the street as we have just seen in
russia.... a deadly mix of 'inflation and deflation'...

confusing because one of the terms is monitary... 'inflation'...the
other is goods based, not monitary... actual deflation.



a culture gone insane.... destroying itself, because it catered to
spin, lies and out right fraud from the banking / investments
community...and notice..these are the non producers of the
world....callling their various schemes and rip offs....'products'.


and their business....'industry'...it isnt. It is the antithesis
of industry, a leach on industry, and like all leaches necessary to
some degree. Those in the swamp just need to realize what they
actually are.

In the end it seems, banking and finance, given the compounding nature
of interest, takes more from those it had originallly funded than can
be produced.

Such systems collapse in the final analysis.


Phil scott