The voyage of the Economic
Enterprise By The Mogambo Guru
To get a "feel" for how crazy things got,
Ambrose Evans-Pritchard at The Telegraph in London
reports that "Bear Stearns had total positions of
US$13.4 trillion. This is greater than the US
national income, or equal to a quarter of world
GDP - at least in 'notional terms'."
If
you are like me, you gulped in horror at the
revelation that this one bunch of people had made
that kind of a huge, humongous, staggering load of
unimaginable, unpayable commitments! More than the
total income of everybody in the country! These
are huge commitments, sort of like the kind you
find out about, but only AFTER you say "I do" and
sign the marriage license, which is when you start
to find out that "commitment" in marriage entails
getting a job and keeping it! No matter how much
you hate it!
Which you do, because your
bosses and co-workers are all
idiots
(and
don't get me started on the idiocy of the
customers!) and then you come home after hours and
hours of that boring crap with your stupid,
pathetic little paycheck in your hand, and at the
end of the month you still have no money left over
because your wife spent it on the kids and
herself, and then one day, prices have risen so
high that you run out of money before pay day
comes around again, and you discover that you have
maxed out all your credit cards, and you have
borrowed against all your equity in your house,
and you have borrowed money from all of your
friends, and now you find it was all for nothing
and you have wasted your life with the empty
promises of "family, friends, faith and
community", and you want your youth back! I was
cheated out of my life!
So you can see how
big commitments like this are dangerous, but Mr
Evans-Pritchard ignores me and my penetrating,
poignant analogy, and says that the problem at
Bear Stearns was that through using "swaps",
"swaptions", "caps", "collars", and "floors", they
were able to float $13.4 trillion of this weird
financial derivatives crap, and that "this heady
edifice of newfangled instruments was built on an
asset base of $80 billion at best".
$13,400 billion was what was leveraged on
a measly $80 billion? Leveraged 167 times? Bear
Stearns had less than 1% in the pot? Hahahaha!
This reminds me of Alan Stang at
AlanStang.com, who writes, "Banking is one of the
few businesses in which crime is rewarded; and the
bigger the crime, the greater the reward. The
perpetrators take down millions in bonuses and do
not go to prison."
Perhaps because he knew
I was watching and he wanted to get on my good
side, he added a nice swipe at Alan Greenspan,
whom he describes as "former top Fed swindler",
and then went on about how this little Greenspan
creep "more than any other man got us into this
mess; now he is telling clients in the Middle East
to dump the 'dollar' and go to the euro".
And speaking of Greenspan and how I hate
his guts for what he has done to my country, Bill
Fleckenstein of Fleckenstein Capital, author of
the new book Greenspan's Bubbles: The Age of
Ignorance at the Federal Reserve reminds us,
"Greenspan bailed out the world's largest equity
bubble with the world's largest real-estate
bubble. That combination easily equates to the
biggest orgy of speculation and debt creation the
United States (and the world) has ever seen."
And if you want to see the significance of
that, let's take a little tour through
interstellar history! In my best "Captain Kirk of
the Starship Enterprise" voice, I say, "Computer
on! Computer, research the economic history of the
planet Earth and all the planets in this galaxy,
and find any instance of a healthy economic boom
that started after 'the biggest orgy of
speculation and debt creation' the planet had ever
seen'!"
I note for the log book that an
eerie silence overtook the bridge. Everyone
noticed the complete silence from the computer,
which could only mean one thing; there is not one
example from anywhere in the whole freaking galaxy
where some dirtbag economy escaped collapse after
an "orgy of speculation and debt creation".
I will not ask the computer to look for
examples of economies that WERE destroyed by such
idiocy as engaging in "orgies of speculation"
because it is, essentially, all of them. In fact,
there are so many idiotic economies that
experimented with fiat currencies and wild
multiplications of debt by the banking system that
merely listing them ties up the computer so long
that Mr Spock comes over and tells me, with that
damned, dry "logical" voice of his that sets my
teeth on edge, that I am hogging all of the
computer's time and how he needs it to plot some
stupid course to slingshot us through a wormhole
or something to get us out of the Neutral Zone
that I accidentally wandered into because I was
distracted by my duties as captain of this
starship.
It could have happened to
anybody! And it has nothing to do with the fact
that I had ordered all the "good-looking chicks in
the quartermaster section to report to the
bridge", and now Mr Spock is acting like our
predicament is all my fault, and I am really,
really getting so sick of his snotty Vulcan
attitude and his stupid reports to Starfleet
Command.
The point is we are indeed
screwed because we engaged in what Mr Fleckenstein
calls an "orgy of speculation and debt creation"
of world-record proportions, and since the pain is
usually proportional to the gain, get ready to say
"ouch!" in a really, really loud voice to give Mr
Spock's stupid big ears something to listen to!
Richard Daughty
is general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily
Reckoning.)
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