That's what Wall Street, Bush and McCain wanted you to believe in order to allow Wall Street to play with your social security money.
There are some differences between Social Security and a Ponzi scheme (check out Wikipedia's article on Ponzi scheme).
1) Ponzi schemes are voluntary and thus are subject to eventual investor flight. Social security is not voluntary and is funded by mandatory payments.
2) Ponzi schemes make promises that are very unrealistic
3) The majority of money in Ponzi schemes is stolen.
4) It is very easy to keep Social Security solvent, which is to lower benefits or raise retirement age.
We already have two wars going on, and they are not helping matters very much.
Yeah, it does, until you think about the fact that when the stock market goes down, it always comes up. This market is so quick to move, with trades coming in so fast from every point of the globe, that it's not a surprise that it's hyper-volatile compared to previous tankings.
Iggy, a couple of years ago I was reading some background material for a trade article and I kept being hit by the fact that 40% of US corporate profit was coming from the financial sector. Then I looked at the dollar numbers in the financial sector and said to myself, "self, what the hell does all this 'money' represent? Where is it? Where did it come from"?
Self said, it seems to represent nothing but a circle of obligations; it exists on hard disks; and it fell from the sky. Of course, I look at these things from an economics point of view, with very little understanding of finance. But I think I recognize an economic circle-jerk when I see one.
I never thought we were remotely as wealthy as the numbers suggested. I still believe that Adam Smith had it right, and by no stretch of the imagination could these financial "services" be labelled honestly as things of value. They were tricks of multiplication.
So I'm not surprised. I don't claim prescience, but the whole thing has stunk, from my point of view, for at least a couple of decades. Sooner or later there would be a reckoning. When Warren Buffet said, in the mid-'90s, that he didn't understand any longer how this market was working, I knew we were in trouble.
I'm shrugging a lot these days. I have no idea where it's going, but I'm not surprised about where we are.
-------- Was just watching one of the talking heads stock market shows and one of the panelists made a telling point, which caused the other panelists to have a "hissyfit."
Basically he observed that although the FRB is injecting liquidity into the M1/M2 money pools with several fire hoses, the Treasury department is using a high speed sump pump on the other end of the M1/M2 money pool to drain liquidity into Treasury securities such as T-bills/notes and bonds. This liquidity is then transferred to the FRB.
A classic case of the government standing [hard] on both the brakes and gas and wondering why the speed is not changing, although the motor is roaring and smoke is billowing.
Explains two things:
First why the outrageous sums being injected into M1/M2 are having no overt effect [M1/M2 money supply and bank (under) capitalization remains about the same], and Second, why they just had to add two digits to the national debt clock....
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
Treasure trove of European thought on global credit crunch and stock market break.
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Enjoy
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
Some keen insight from a Brit economist [Liam Halligan] (and a shot of cold p**s to the heart).
=========
What the world now needs is stability. That will stem from governments standing behind massively over-exposed Western banks while more collapse, others prevail, and the system is reconfigured. That requires deep, deep reserves ? and, after decades of profligacy, the Western coffers look bare.
==>For all its posturing, the G7 has only 20 per cent of the world?s currency reserves. Four emerging markets ? Brazil, Russia, India and China ? account for 40 per cent. And then there?s the Middle East.
Yes you do, whether you cast a ballot or not. If you don't cast a ballot, you're voting to let someone else rule your life. You're voting to be a serf.
Couple of things wrong here George. First, the auction was totally bogus. Nothing more is indicated by the "benchmark" than the fact that nobody really wanted these things AT ALL. Losses on credit default swaps are unlikely to exceed three or four percent even in the worste case without intervention. Three very reputable auction designers have been working for the last couple of weeks to model an auction for these assets. I've seen one of them. In the end, there may never be an actual reverse auction at all. Second, none of these derivatives ever created money. Any valuation will be done the way you would value an insurance policy but in this case there aren't any reserves to back them up. Not really anyway. There isn't and probably won't be a market for these products because they simply are not tradeable securities. They aren't actually coupled directly to an asset. They are all risk and have the same value that Enron weather futures did. Third, at worste, the probable loss/liability that they represent as class is about 2.4 trillion dollars absent government intervention.
In spite of all of the running around like headless chickens claiming this is some sort of secular event, it isn't. This happened twice in the last century and while the work out took a little time and lead to consolidations of the weak and strong players, the world didn't end then and won't now.
All of this subteranian stuff need to be dragged out into the light - kicking and screaming if necessary. That sort of transparency isn't going to happen until the financial institutions involved have a credible assurance from the regulatory agencies that they won't be "Lehman'd" when they fess up. THE CURRENT ADMINISTRATION DOES NOT HAVE THE CREDIBILITY TO MAKE SUCH A REPRESENTATION. They have not, and can't, articulate a policy that is any more coherent that our ignorant boob of a President, Mr. Bush.
As a practical matter, this is a seperate issue economically. The downturn in consumer spending that is underway is the real problem. It isn't the "Spondulick economy".
It's a little odd to be faced with an election that represents a clear choice between two models but it is exactly that way. McCain/Palin is a vote for Phil Graham at Treasury and a year from now we will be looking at the DOW at 5500 with 15 percent unemployment. Graham will run around buying up toxic vapours with the expectation that saving the Spondulick economy will trickle down. Golden Shower economics, if you will and the US will go through whtat JAPAN went through for a decade or more.. The gap between rich and poor will only widen and that's the real manifestation of what's been going on. People that actually spend money have been MAKING less and less of it. They have been operating and living on borrowed money.People that DON'T spend what they earn have been making more and more. No credible economist on the planet will rell you that trickle down works today. Not one. Neither will anyone telling the truth in finance. It didn't work for Reagan, hasn't worked for Bush and sure as hell never worked for the vast majority of Americans. The results, were there ever any real doubt, are in.
Obama Biden, OTOH, is a vote for one of the sharpest groups on the planet at the financial helm and their stated goal is to put money into the pockets of the middle class- where it will be spent - at the expense of the holders of all of the shadow Spondulick owners. The entire regulatory structure of both America and the world will be torn up and rewritten to reflec current reality.BooHoo.
Their model will lead to the DOW at about 10,000 a year or so from now, nine percent unemployment trending down and the biggest public infrastructure and energy development project project ever undertaken by man. This kind of public investment is what we have forgone for DECADES and in the end I guess that's a good thing. A great deal of both public and private money will be spent but unlike the good money that has gone before and yielded NO VALUE, we will get a tremendous return on every new dollar invested.Tremendous numbers of new high paying jobs will be created in the middle class and that is the basis for a robust and stable economy. It will also have the advantage of rebuilding America's tax base. It's a self licking ice cream cone George.
The Spondulick economy will pass like a bad fever and that's sort of what it is, an infection that transfers wealth from those that create it to those that don't.
=============== Indeed, but these were the Lehman Spondulicks, i.e. Lehman Spondulick denominated bonds, or at least a significant subset of them, on which the CDSs were written, and a $USR value had to be established, as the holders of the CDSs wanted "coin of the realm" and not more Spondulicks on other institutions which *MAY* be as good as $USRs[and then again may not].
That's why so many people are panicking. But look for a rally tomorrow. I just heard reports that the Asian markets are higher in the first hour of business today. The backstopping by governments of bank deposits and their aid in promoting banks to start lending to each other may just be what gets things turned around. Every time things look the worst a turn around is usually close at hand, and it has been looking bad, that's for sure. It'll be interesting to see what happens to the Dow on Monday. It won't be boring.
Kevin Phillips. If you want to know what has been going on and why it was destined to fall apart you need to read his book. He's written a number of books and I've forgotten in which one he details the financial problems he saw coming but it was written three or four years ago. The reliance on "finance" to make our money instead of by making things is nothing but a repeat of history. Phillips explains how other countries have done the same thing and have had the same disastrous results.
George Soros was interviewed this weekend and he nailed it perfectly. Americans have been spending 6% more than they have been producing for years. We have been making up the difference on the savings of China and other countries. We consume they save. We are going to have to go back to the old fashioned ways of doing business and it's going to be painful. Dave Ramsey and Suze Ormond have been telling it like it is for years now. The country is going to have to follow their advice and live on what we make and stop using credit so much. We're going to have to start making more stuff too. Sending manufacturing away was a big mistake. Pretty much everything the republicans have advocated since Reagan was elected is going to have to be reversed because it clearly has not worked. Look where low taxes, free markets, and globalism has gotten us.
========== Indeed. Two indications of just how painful....
----------- =========
What the world now needs is stability. That will stem from governments standing behind massively over-exposed Western banks while more collapse, others prevail, and the system is reconfigured. That requires deep, deep reserves ? and, after decades of profligacy, the Western coffers look bare.
==>For all its posturing, the G7 has only 20 per cent of the world?s currency reserves. Four emerging markets ? Brazil, Russia, India and China ? account for 40 per cent. And then there?s the Middle East.
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