The Oil Drum

Derivatives, Ponzi Schemes, CK Liu called it over 4 years ago

This from 2003:

A new economic sector called financial services came into existence. This was the true meaning of the slogan "a strong dollar is in the national interest". Dollar hegemony allowed the United States to levy a tax on the rest of the world for using the dollar, a fiat currency, as the reserve currency for world trade. The livelihood of the world's workers came to depend on US consumers' appetite for debt sustained by loans from the underpaid workers' own governments. Neo-imperialism works by making the world's poor finance the high living of the world's rich. It transcends the Marxist notion of class struggle and surplus value. In neo-liberal globalization, not just labor but even capital comes from the exploited.

What the Wall Street Journal calls mass capitalism would not have been half-bad if it were not for the fact that the hard-earned capital was squandered through fraud and Ponzi schemes. These new ventures financed by fund inflows did strengthened the US economy at first. But as the real economy in the United States did not grow as fast as the inflow of funds, because fewer and few things were being produced in the US, the excess funds soon channeled toward manipulation and fraud on a massive scale, resulting in financial scandals such as LTCM, Enron, WorldCom, Global Crossing, and thousands of less-known bankruptcies.

Much of the disaster came from the smoke and mirrors of so-called financial services, based on minute technical quantitative advantages that seem benign by themselves, but can accumulate into huge profit or loss in hundreds of billions of dollars on the turn of a penny. Hundreds of billions of dollars of investment and credit went up in smoke from fraudulent schemes perpetrated not only by management under the coaching of ever-enterprising investment banks, but also with the active, knowing participation of the banks, robbing workers and retirees the world over of their pensions and life savings.

Domestic jobs in the United States were eliminated by the millions and shipped overseas, while overseas workers were told to be thankful for inhuman wages and sweatshop conditions that at least warded off starvation. Instead of confessing their regulatory failings, US officials such as Alan Greenspan of the Federal Reserve took comfort in the role derivatives played in allegedly smoothing over massive financial shocks in the system, making the damage longer-lasting. Falling wages and worker benefits were cushioned by the wealth effect from speculation by people who could not afford the risk. Now that the US economy is trapped in a prospect of decade-long slow growth with a pending onslaught of deflation, and the hollowing-out of blue-collar manufacturing and white-collar high-tech sectors, Greenspan has told Congress that the threat of deflation remains "remote" and that thinking jobs are better that doing jobs.

http://www.atimes.com/atimes/Global_Economy/EH14Dj02.html

Not correct. Bloomberg has the story on their home page.
Bloomberg has been very good about reporting accurately and completely. I believe they basically broke the story about the Florida state fund problems and followed it closely.

-Don

Yes. The word "Depression" was not used until after
120741.

We'll see part of the collapse from say, NYC.

Then, like the 90k Okies w/o power, we won't
be able to.

"KARACHI - Despite issuance of wheat quota to flour mills the flour shortage continued in the provincial metropolis on Wednesday as people could be observed queuing up at utility stores outlets for buying flour at subsidised rate. Many Utility stores have been facing flour shortage and consumers were seen waiting inquest due to recent increased in prices."

Well over here DER SPIEGEL is still silent but its economy sibling "Manager Magazin" has the story at the top of their website:

"EZB flutet den Geldmarkt" = "ECB is flooding the money market"

http://www.manager-magazin.de
http://www.manager-magazin.de/geld/marktberichte/0,2828,523946,00.html

So not too much conspiracy over here. And I bet DER SPIEGEL will run the story as well later on.

Best Regards,

J. Dähn, Hannover, Germany

Hello Mcgowanmc,

YIKES, according to this article, 'murkins will be borrowing lots just to pay their heating bills:

http://finance.yahoo.com/banking-budgeting/article/104038/One-in-Five-Ex...
---------------------------
One in Five Expect to Borrow to Heat Homes This Winter

For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.

Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills.
----------------------------
I would suggest that it would be financially better for people to start doubling-up with their family members, or to rent out the bedrooms. The money saved can be used to buy more insulation, doublepane glass, payoff the mortgage faster, increase the NPK, gold, and seed stockpiles, buy more postPeak handtools, buy more biosolar POT & FSLR stock, etc; to generally increase personal biosolar mission-critical investing, at every scale, instead of making someone else richer.

Don't dig a financial hole, climb a biosolar mountain!

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Right On, McGowan.

I'm in a huge amount of debt which at 30% and more interest rates I'll NEVER be able to repay.

Bankruptcy while it's still available will provide relief, assuming it's still available (Constitution not suspended) in 2-3 years because I want to lump my unpayable IRS debt into my Chapter 7.

I am banking by coffee can.

I am never going to use debt-borrowing again.

I am noisy and will speak, write, and perhaps cartoon/propagandize to that end to influence others.

The banks have not realized they should not count chickens they have not already eaten.

I argue that we've had hyper inflation since 2001.

An extension of the US going bankrupt in 85.

It's just been covered up by derivatives.

See over $600 Trillion for details.
or Buddy, can you spare $1000 Trillion.

That's HyperHyper.

But now they're getting 11/27 cents o the $
for this Tulip Bulb Crap.

That's massive deflation.

Mike Whitney-

"The banks don't have the reserves to cover their downgraded assets and the Federal Reserve cannot simply "monetize" their bad bets. There's no way out. There are bound to be bankruptcies and bank runs. "Structured finance" has usurped the Fed's authority to create new credit and handed it over to the banks.

Now everyone will pay the price.

Investors have lost their appetite for risk and are steering clear of anything connected to real estate or mortgage-backed bonds. That means that an estimated $3 trillion of securitized debt (CDOs, MBSs and ASCP) will come crashing to earth delivering a violent blow to the economy."

Depression comes with the credit card fiasco this Holiday/
New Year's Week.

It is quite something when the prospect of people deciding that they have to live more frugally and pay down their debts threatens to bring the entire US economy crashing down in flames.

Insanity doesn't even begin to describe this house of cards that we have built.