Banking at its core...is not an 'industry'... it does not have 'products'.. it enables business at first...then with compounding interest, takes more from the actual producers than can be produced.

On Feb 17, 11:30 am, Vide...@xxxxxxx 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



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