EMPIRE OF DEBT

[Crewleader]

Friday, November 09, 2007

Though I don’t post very often (full-time job and family), every day I try to read various opinions regarding geopolitics, financial markets, the housing debacle, banking issues and the swiftly approaching credit/financial crisis (of which the masses, fed by daily mainstream propaganda, are completely oblivious).

Anyway, one of the many folks who I regularly follow is Charles Hugh Smith-—a superb writer with a knack for simplifying various complex economic issues... Well, today I ran across one of his articles that I absolutely had to share, as it simplified the very complex financial instruments called derivatives (identified by Warren Buffet as financial weapons of mass destruction).

Derivative instruments are used by markets to hedge bets, and their use/popularity has exploded over the last 10 years. Today, the world is awash with these weapons of mass destruction and hundreds of TRILLIONS (yes, that was not a typo) of these bets are so over-utilized and intertwined throughout the various financial markets, hedging one’s bets against losses, that no one really understands the true impact of any one loss against another and the daisy chain effect caused by simultaneous losses of many with the same bet.

Problem is: we’re now starting to find out... As the housing bubble bursts, the financial world is swiftly realizing that their insurance bets on losses (derivatives) were also used by everyone else and the losses are so staggering, there is absolutely no way anyone can get paid.

http://economicrot.blogspot.com/

[pretzel4gore]

1. selling debt, as an asset

i recall reading how companies which were deep in debt would sell the debt (the repayments) to 3rd parties, who then used the debt as basis for borrowing to buy other debts! No government could possibly regulate such an insane scheme (even if it worked, debt surely cannot be thought of as an asset!)

[John Q. Citizen]

4. Dollar bills are debt. Backed up with the full faith of the US government.

Otherwise, they are just some paper and ink. Right?

[pretzel4gore]

9. money is a fiction....

which everybody must agree on. What surprises about all this is that the 'hardhats' who 'don't smoke mara wanna' in the Skokie all those ages ago never noticed the real criminals weren't the desperate guys getting paroled, but the punks in the expensive suits and fake moral codes who lied to them dayin day out. We have to work for this idiot paper 'money'- and goddammit we told then 35 years ago that THE 'GULF OF TONKIN' WAS A CONJOB! and so is 911, and these bs media-driven elections!

[opihimoimoi]

2. CREW.........CREW RULES............LOL

K&R

Heya Crew...long time.....good to see ya...

Come, we go celebrate the downward Pub Spiral

[Crewleader]

5. opi

Good to see you too my dear friend...come, we'll stroll along the shore, reflect and share our stories! :hug:

[CrispyQ]

3. Very interesting reading.

Thanks for posting the link. I'll be spending most of tomorrow perusing Smith's site.

k&r

[nightrider767]

6. Crewlaeader, You De Man!

Hey,,,, really, really thanks.

I read that thing "stem to stern". It answered so many questions I had.

Recommended!

CHeers.

[Crewleader]

14. Thanks nightrider767

Here I am friend, Crewleader the woman! :hi:

[nightrider767]

18. Well then,,,thanks again.

I stand corrected!



:toast:

[lligrd]

7. That Is Some Scary Chit

Sure hope those predictions do not come true.

[On the Road]

8. He's Certainly Going Out on a Limb

"The financial catastrophe which will unfold within the next few weeks is fundamentally a gross mispricing of risk."

We will see. I don't think the direst predictions will come to pass any more than the worse-case scenarios during the S&L failures, two shocks, stagflation, 21% prime, or fear of another depression after WWII. But I do agree with all the points in the blog.

[NMDemDist2]

10. I give it until Black Friday, when it's running with red ink

the wheels will come off at that point

[Warpy]

19. I will give it until the end of the buying season

They'll know the wheels are off after the weekend of Black Friday. They won't know how far they've fallen until all the sales numbers are totted up on Xmas day, and they will be.

This won't be the worst of it. People who can still leverage credit card debt will try to give the kiddies one last good Xmas. Most people will settle for getting them a new pair of shoes and making a nice dinner.

However, this is the year that Wall Street will realize they've screwed the pooch by backing deregulation and offshoring.

This is the year it finally dawns on them that business isn't very good if you don't have customers.

[guruoo]

11. 'pugs are desperately trying to keep things propped up until the election n/t

[earth mom]

12. Does this sound like a giant pyramid scheme to anyone else?

:yoiks:

[Double T]

13. Crewleader, thanks for directing US to this sage of economics.

wall street, ALL congress, corporate ANTI-america and the WH have sold out our nation and the only result from this raping. pillaging and now burning will be the total collapse of our economy and financial system. I fear the economic terrorists far more than I fear religious fundamentalist terrorists yet nothing will be be done about their 'ATTACK' on our economy until after EVERYTHING is in ruins. Our national economy has been treated like a gambling casino and the HOUSE is about to cut off our line of credit because we are actually bankrupt. Keep up your great informative threads.

[Crewleader]

15. And yours too Double T....

I always said DU is a place where friends get together to converse, laugh and inform. With the uncertainty these days, it is always comforting to know there are friends out there to help and reach out to. :hi:

[Ghost Dog]

16. Outright unrestrained warfare would help paper-over this little problem,

by imposing a totally fiat command economy,

would it not?

[upi402]

17. Thanks for this article.

How can I cash in on my Conservative head-in-the-sand true beleivers before January 2008?
Now THAT would be cool (and just).

on edit, I wonder if they'd like to sell me their gold?