[FoRK] the larceny crisis

[Eugen Leitl]

Nicely put.

http://www.populistamerica.com/trumpeting_a_credit_crisis_when_larceny_is_the_culprit

Trumpeting a credit crisis when larceny is the culprit  		
		

November 21, 2007 
by Ben Tanosborn

As the closing bell of the New York Stock Exchange stops ringing at the end
of each session, there is this Chatty Cathy doll that makes this signature
remark at America's business news channel: "Do you know where your money is?"
One might want to ask this "Money Honey" Maria whether she is referring to
real or imaginary money; or both.

I came to accept imaginary numbers at a very early age; also made to
understand by a dedicated mathematics teacher that they are abstractions as
much as regular numbers, and definitely just as real. Of late, larcenous
money handlers have been trying to tell us just that. what applies to exact
sciences applies to inexact economics as well.

Welcome to the world of financial derivatives, collateralized debt
obligations (CDOs) and myriad other ballooning schemes that create imaginary
wealth where there might be little or none, capital that can be real or
imaginary, genuine or counterfeit.

Einstein opened the universe to us with a rather simple equation (formula),
e=mc². And it's beginning to look as if in the world of economics, debt or
credit can also be brought down to a simple equation that defines where we
stand in the monetary universe; where the "paper value outstanding," all
floating around the world over burners of hot air, can be 4, 6, 8 or more
times the annual gross domestic product (GDP) of the entire globe.

I don't know what that formula should be, or the econometric model required
to arrive at it, but I have reached the conclusion that under our capitalist
system, one with few or no controls, debt - imaginary and real - is turning
out to be simply a function of larceny, or D=f(L). And even more
inconceivable to me is that we don't seem to understand or even care, putting
ourselves at the mercy of financial predators and a government that is
fiscally irresponsible, only concerned for those in society who represent
power and monopolize wealth. Outstanding paper debt in excess of 4 or 5 times
GDP is, in my estimation, likely to catapult us into a level of
unconscionable risk, and deep recession.

But hey, we are already there! Depending where you get your numbers, the
world is fast-drowning in debt - imaginary money that travels at
wire-transfer speed - most particularly here in these United States. An
annual global GDP of about $60 trillion has been "derivatized" one way or
another by a multiplier of at least 7, perhaps 8 ($450-500 trillion appears
to be the range); and if that isn't economically suicidal, someone please
tell me what is.

In this new version of the Ponzi scheme, carrying the imprimatur of most
governments around the world, many will get seriously hurt, some by virtue of
their own greed tilting their leveraged debt on overvalued assets, others by
being caught as innocent-bystanders in the great spiral of mismanagement by
those long thought to be institutional low risk-takers - starting with the
epitome of conservatism: pension funds.

Much as the dot-com bubble which burst six years ago, or the prior bout with
Milken's "junk bond" toxicity, both de facto consented by our
economics-libertine Fed, the now-began recession is likely to affect the
world economy in a measured way, particularly the emerging economies and
energy-rich nations. Not so in the United States, where an unwarranted
flattening of interest rates has created the perfect conditions for a major
recession, one which could attain a life of its own in the cauldron of
overvalued housing and investments, used as replaceable-manna for inexistent
wealth and unreal growth.

This long-lasting episode will turn out to be a larceny crisis, not the
credit crisis the folks from Wall Street would like us to see. The chicken
thieves, now that they have stolen all the chickens, are coming back to get
any eggs they might have left in the coop. And they are succeeding, a quarter
point, or even a half point at a time from the Fed, at a time when overall,
and markedly understated, inflation is starting to run rampant!

Globalization has always been about the free movement of capital, and not
free trade - with the unequivocal response, not of a synergistic global
economy as we've been told, but of greater distancing between rich and poor.
In similar fashion, liquidity, now truly global, will greatly shrink and lose
its hot air after the ascent has taken us to the apex of the pyramid, and
many trillions in overvalued assets will start to slide down, something that
will keep the US economy sober for some time to come: at least a decade,
perhaps longer. All indications are that we have reached this apex. that we
are at the very top.

In the United States we may be hard-pressed to accept this moment of
reckoning since we'll probably be affected two or three times as hard as
people elsewhere in the world. For one thing, if there is any bailing out,
we'll have to do it on our own, and no longer count on America's most
exclusive and profitable export since it is unlikely to find itself without
any significant market in the world. No, we are not referring to weapons; or
technology; or commercial aircraft; or entertainment. for the most profitable
export in recent times has been of the intangible variety and one which
requires neither labor nor material. only wizardry and salesmanship in
presenting highly overvalued debt paper, and a currency to match. Many
Americans were probably fuming a couple of days ago when Iran's Ahmadinejad,
at the OPEC meeting, stated that the American dollar wasn't worth the paper
it was written on - irritation being probably his intent - but his pejorative
proclamation wasn't really that irreconcilable from the truth.

Don't blame "a few" unscrupulous operators in our free capitalist society for
all the pain that is soon about to come our way. Yes, we are just welcoming
the recession with our national anthem, and the game is about to start. But
it's not a few rotten apples that got us where we are today; we are all
complicit in this feat in reverse: subprime lenders; greedy house-flippers;
an exploitive and greedy real estate industry ready to serve. itself; a Fed
ready to please whoever holds the political reins; a government out of
control in blatant warmongering and empire-building; an economy far more
dependent on consumption than productivity and savings; and a people who have
been purposely kept ignorant in their gilded cage, told by politicians and
preachers that greed is ok. the heart of our capitalist system, Blessed be
the Lord.

There are trillions of dollars playing musical chairs and the music is about
to stop; and from here one can see that many of the chairs are as imaginary
as the phony capital that is about to sit on them. It's going to be a long
and bumpy ride. "Maria, do you know where your money is?"

It isn't a credit crisis we are living through, but a two-decade larceny
crisis. Instead of authoring "The Age of Turbulence," Alan Greenspan should
have opted for his very own confession, calling it "The Age of Larceny."