Monday, October 05, 2009

Janet Tavakoli - Our Financial Crisis Is Worsening And, Of Course, Some Timely Economic Rants On Bringing Down Elephants

Two names we have highlighted on here before, Max Keiser and Janet Tavakoli, discuss the current fraudulent interplay between the United States government and Wall Street. And that this crisis is getting worse - something we have said no less than a dozen times since the March financial market low.

In this discussion Tavakoli describes derivatives as side bets on other products. Let me go one step further and state that derivatives are really just contracts of products with no intrinsic value between parties. And because these contracts are just paper products derived (aka derivatives) from other products such as stocks or homes or commodities, they truly have no intrinsic value. ie, In most cases they are simply gambling vehicles used to transfer wealth from society to a handful of thieves. It is a massive tax on society's capital. But then we have covered this before.

It's ironic that just about every single word Tavakoli utters has been discussed on here in detail including our lengthy derivatives post quite some time ago where we highlighted the fraudulent nature of derivatives including how Wall Street uses reduced transparency and complexity to defraud counterparties in many oBoldf these contracts. This is exactly what Tavakoli states in this discussion. Remember, we highlighted that many of those counterparties were our pension funds, state and local governments, schools, etc. In other words, Wall Street is often defrauding our own public institutions then advising hedge funds clients to make bets against our society's institutions. A crime which I consider greater than treason. Think about that. I sell you a fraudulent product then I turn around and tell everyone in the world you are now weakened by those fraudulent products and then I make bets against you to profit from selling you those fraudulent products.

Tavakoli talks about how failed financial institutions should have been put into receivership instead of transferring risks to other acquiring institutions. Something else we have hammered incessantly since the day this crisis started. We have also said that derivatives should be banned. Period. Because they are not being used as intended - to manage risk - but instead are only being used as profit vehicles amongst a handful of firms that should be broken up. And this creates even greater risks of enormous crisis. By now, I truly thought, as Tavakoli does, that we would have wound down some of these messes. I am completely shocked by the heinous actions of Congress across a wide swath of fundamental issues on the economy, on ethical governance and our financial markets. Nothing in this crisis shocks me except this issue. I never expected to see such fraudulent behavior on such a massive scale. Our government truly is corrupt beyond words if only by relying on failed process that must be transformed. The credit default swap market, as an example, should have been shut down when AIG was imploding. And AIG should have been put into receivership.

How do you shut down the CDS market? Tear up the derivatives contracts and shut down the markets in which they are traded. It's that simple. Then if a very large counterparty is going to fail because of these government actions, such as Goldman Sachs which would have almost certainly failed due to its incredible stupidity, manage it via a controlled shutdown with government backing so as to keep systemic risks from spreading - a constructive use of the Fed's balance sheet instead of propping up fraud as is the case today. Then reorganize the entities and bring them back to life or shut them down permanently if there is not substantial intrinsic value left in the institutions. If counterparties are foreign entities, alert their respective governments so they can decide if they want to backstop said firms and manage a similar controlled shutdown instead of our government pumping American citizen's money into foreign financial firms - a criminal act in my estimation. If not legally, then surely morally.

So, do you know why this shutdown process hasn't been followed? There is surely a reason. I would argue that it goes well beyond the lobbyist engine that controls our Congress. Because were this process to be followed, the government would lose many of the major buyers of its debt. These profligate financial firms are propping up our government spending by buying its debt. And, in the process attempting to heal their balance sheets. But the point is were these institutions wound down the U.S. government would be exposed to its profligate spending of trillions on wars and games of international meddling - dynamics which are destroying the social programs for the people of this country. The state serves itself before its people.

We are in the middle of a major transformation. The people of this country still rule when we are united. An awakening by the sovereign will continue to build momentum. The power elite try to marginalized dissent by labeling all nonconformists as right wing nutjobs. Thomas Jefferson would have penned Clinton, Bush and now the Democratic party attempts at marginalizing dissent as the "reign of witches". A historical parallel of marginalization meant to protect elitist interests via the Sedition Act - no dissent will be tolerated. There are surely fringe elements out there who find cover for their hate-filled ideas in a volatile world but the reality is there is a movement in America bringing together people of all beliefs and values into one common cause - to restore our democracy to the sovereign. And that transcends the way our economy is run, which is now heinously.

How we actually solve these issues from a political perspective is less relevant than this fundamental agreement 83% of Americans now share. That's right. 83% of Americans now believe government corruption is this country's biggest problem. Greater than the economy. Because people have quickly become educated on the fact that corruption is the cause of our economic calamities. And that means people like you and me and others in the blogosphere are bringing down a herd of elephants with the power of the pen. We are bringing down the complicit mainstream media, the corruption on Wall Street, the corrupt lobbyist machine and reminding our government that they work for the common people. The elitist mainstream media and ruling elite don't really support free speech or much of free anything. Bloggers, as an example, are labeled as irresponsible with our facts, uneducated, uninformed and dangerous. In fact, these are attributes of the mainstream media. Nothing could provide more validation that grassroots free speech is tearing down illegitimate authority. And that authority's fear of losing power is well too apparent by their remarks.

This dynamic of not addressing root causes of our crisis also plays one of the key roles in my lengthy post comparing President Obama to President Hoover. For those of you who are a little hazy on history, remember that President Hoover actually started the New Deal before the Great Depression gained full force. And the market collapsed beneath his plans and led to his defeat in 1932. The exact same script President Obama is following today. The world is lining up exactly as we expect it to. President Obama is digging his own political grave with incredibly terrible economic policy and no serious efforts at true reform. I find that very unfortunate because he didn't create this crisis and I personally want every President to succeed. Yet he surely is perpetuating crisis by not fulfilling his campaign promises of transformation and reform. But then neither did you or I cause this crisis and our fates are likely far more ominous. So, I have little sympathy for anyone in Washington who isn't trying to stop the madness. And do it with transformative change. Because that is exactly what is needed to return our country to prosperity that serves the common good.

Here's the Tavakoli interview

posted by TimingLogic at 7:07 AM