Sunday, June 12, 2011

Uneven Integrity

Fed Chairman Ben Bernanke has been desperate to find the linguistics to encode his self-imposed integrity paradox. This week, he referred to the “frustratingly slow” and “uneven” recovery. Thank heavens he’s not a doctor. “You may walk with a limp,” he would advise a patient prior to bilateral amputation of both legs. “Your feet will not recover as quickly as the rest of your body.” Really? When the evidence is overwhelmingly against the much heralded repair of the carnage of the debt fueled spending frenzy of the past decade, one has to wonder why, prior to the election cycle, he finds it impossible to tell the truth. The Chinese SAFE reports at the beginning of the week – so damning that the government had to censor their own transparency by removing public comments on U.S. economic instability from their own websites setting a new standard for censorship – leave no doubt that the market for more U.S. debt has soured beyond already abysmal standards.

In a ‘shocking’ and ‘unexpected’ turn of events, equities ended the week at a low that wiped over $1 trillion in market value away in 6 weeks – the longest slump since October of 2002. The financial media concluded the day on Friday with a record number of “weaker than expected” and “less than estimated” hyperbolic descriptors of the events of the past 6 weeks. Blackrock’s Bob Doll was quoted in Bloomberg saying, “We’re at the end of the recovery and the beginning of the expansion.” And, the casual reader may carelessly overlook the fact that his enthusiasm has more to do with Blackrock’s international exposure – including their massive Asian market interest – than reflecting bullishness on the U.S. economy.

I’ve frequently commented on the fact that sound-bite information is, in fact, misinformation. If a comment is taken out of context or, worse yet, presented without context, it may contain literal ‘truth’ without being contextually true. Most bank executives have basked in the comfort of this defense when they perjured themselves in Congress by ‘truthfully’ answering questions all the while knowing that they were hiding behind the error in the inquiry.

Visa and MasterCard both were appalled that Congress wouldn’t delay the imposition of new fee limits on charges to debit card transactions. In May, the Republican controlled House Agriculture Committee – yes, you read this correctly – AGRICULTURE – voted to delay implementation of transparency and regulation of credit default swaps. For those of you who aren’t familiar with CDS, you would be pleased to know that these traded bets against organizations meeting their financial commitments have ballooned to over $600 TRILLION – over 10 times the inflation-adjusted world’s GDP. To be abundantly clear, in addition to nonsensical deferrals of accountability like the Federal Reserve and U.S. Treasury Ponzi scheme – sorry, I mean Quantitative Easing or QE2 – the ‘recovery’ which has been so illusive is a hologram created by illegal and illusory utilities. And, the deferred enactment of regulation on CDS has been cued perfectly for the electoral calendar. You see, just before the Presidential elections, the Agriculture Committee, supported by the House Financial Services Committee - has set the CDS device to detonate just before the election.

To be clear, financial institutions like Bank of America, JP Morgan Chase, Goldman Sachs and Citigroup – all beneficiaries of the largesse of government bailouts and other concessions have achieved significant profitability arranging CDS trades. An estimated $55 billion in annual revenue is generated from these products and, without these bets and the speculation around the bets (yes, I know, this could seem confusing but this is what the recovery has been all based on, so you’ve all been drinking this illogical cool-aid), we wouldn’t have a recovery.

If you take one step back from the pathologic lying that passes itself off as news and analysis, you may be wondering why detonating another market melt-down on the eve of the next election would make sense. Apart from the obvious response seen in the Bush Administration’s eleventh hour ‘intervention’ which pumped billions of dollars into financial interests and the automotive industry as massive bonuses for aiding and abetting his 8 years of post-9-11 fiscal distractions, there is a more intriguing thesis that could be explored.

Over the past two weeks, the Department of Defense has decided to socialize a theme that I discussed years ago – namely, the growth of ‘cyber-threats’ against the U.S. Now, what follows is merely my musings around why one may want the CDS implosion and the DoD’s cyber threat marketing to be introduced at the beginning of the Presidential campaign season. CDS exist in digital form. They are private transactions and, courtesy of the Agriculture Committee’s crack oversight (please read the disdain-filled sarcasm) they have no regulation to speak of. As of this week, the U.S. and Europe are on track to break the all-time record for financial institution security breaches (at least the ones that are reported). Bear in mind that just at the end of this week, the IMF was reportedly ‘hacked’. Is this news or is it socializing a concept to make the actual event more plausible? Just a question.

So wouldn’t it be convenient if, long about September of next year, on the verge of a complete collapse of the government’s giant CDS – Ponzi racket, for a cyber attack to wipe out the records of CDS obligations? Rather than facing the messiness of the Greek bankruptcy predicament, a simple electromagnetic pulse (and EMP blamed on a hostile source) could wipe out all the records just in time for all of them to be on a single clearinghouse. If you could add Treasury records on the same platform, we could actually ERASE our financial obligations and, voila, get a fresh start. Best of all, we could blame the cyber attack on, say China or Iran, and get ourselves a whole new economic stimulus in the form of another war. The Department of Defense RF and EMP hardening budgets wouldn’t have anything to do with this scenario, would they? And best of all, in May and June of 2011, we could have been told the ‘truth’ of the plan and, as a society, ignored it.

Now, I’m not suggesting that this Dan Brown-style conspiracy could ever happen. Obviously our leadership wouldn’t be that nefarious. Obviously, somebody with integrity would insure that such a cataclysm of conscience wouldn’t actually happen. Nobody would seriously consider aggregating opaque financial obligations in a single place and then create a terrorist event to justify equally opaque wealth transfer. Right?

We, the People, need to stop hiding behind the complexity of synthetic financial products dismissing them as ‘too difficult to understand’. There’s been no recovery. There’s no plan in place to actually address our systemic problems. And chronic economist oracular failure is not due to complexity. It’s due to the fact that the court astrologers are being promoted to continue to sell the illusion. PIMCO’s Bill Gross has had the decency to try to set off the alarm surrounding the Treasury delusion and, for his recent activism, InvertedAlchemy applauds his efforts. Let’s hope that a few others decide to follow his lead and, together, we may avert a much larger crisis. Be informed. Put the puzzle together. It’s not hard – just sobering!

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave