Thursday, August 26, 2010

Doomed to Fail: A Federal Reserve Captive to Ponzi Finance

Insert colorful word between "Jackson" and "Hole" here.

The sun also rises, and the sun goes down,
And hastens to the place where it arose.


* * * * *

Absent power to extend the life of Ponzi finance nurtured by an array of ever more exotic credit securities, the Federal Reserve is at a crossroad. The problem is not that the Fed has run out of bullets. Rather the problem is they are running out of time for trust and confidence to be restored in such a way as will allow the securitization market to flourish once again.

Tweek whatever thing these folks wish — taxes, regulations, guarantees — none of it will change the fact that, a robust, diversified means of generating wealth necessary to keep current outstanding liabilities simply does not exist. Add to this the reality that, nothing has been done to keep in check excesses that have fostered outright criminal activity among financial enterprises — indeed, FinReg ventures only to extend this capacity — and you have the makings of a systemic failure rivaling the collapse of Venetian banking in the 14th century.

Flourish securitization must, piling on ever more massive sums of credit both to fill voids of prior excesses (created as a result of risk being mispriced) and extend all the more leverage over physical assets. This simply is not going to happen. Up until the point a child cried out, "The Emperor has no clothes!" everyone played along. Now, however, the Emperor forevermore shall stand naked (and this notwithstanding every effort to mask this reality made by Ivy League educated dopes).

—Tom Chechatka


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