Posts Tagged ‘Financial Collapse’

Christ Almighty if the Internet is such a wonderful tool of education HOW IS IT that the utter madness that is going on right now in the world of finance is allowed to continue? I have rarely felt as helpless and sick to the stomach as I do today… the facts are out there and nobody is facing up to the music and the fact that it WILL STOP again. Nothing has been fixed. NOTHING! Multiple trillion dollar compress bandages have been applied to the debt-clogged crater that once held the heart of the world economy and people are dancing around the maypole thanking the Lord for his miraculous bounty while the patient continues to hemorrhage internally. And all poor sods like me can do is tweet it and facebook it at whoever will listen like some apeshit crazy prophet of doom in neo-biblical times (because there will be another book of warning for future generations, most likely long after the Face has been ripped off this era of profligate insanity).

Rant off. Here’s what triggered it:

Why Is The US Taxpayer Subsidizing Facebook – And The Next Bubble?

Goldman Sachs … has effectively become a new form of Government Sponsored Enterprise. Goldman is not a venture capital fund or primarily an equity-financed investment fund. It is a highly leveraged bank, meaning that it borrows through the capital markets most of the money that it puts to work.

As Anat Admati (of Stanford University) and her colleagues tirelessly point out, the central vulnerability in our modern financial system is excessive reliance on borrowed money, particularly by the biggest players.

Goldman Sachs is a perfect example. Most of this firm’s operations could be funded with equity – after all, it is not in the retail deposit business. But issuing debt is attractive to shareholders because of the subsidies associated with debt funding for banks, and compelling to bank executives whose compensation is based on return on equity – as measured, this increases with leverage. If they have more debt relative to equity, that increases the potential upside for investors. It also increases the probability that the firm could fail – unless you believe, as the market does, that Goldman is too big to fail.

Social networking firms should be able to attract risk capital and compete intensely. They do not need subsidies in the form of cheaper funding (seen today as a more favorable valuation for Facebook) or in any other form.

Social networking is a bubble in the sense that email was a bubble. The technology will without doubt change forever how we communicate with each other, and this may have profound effects on the nature of our society. But investors will get carried away, valuations will become too high, and some people will lose a lot of money.

If those losses are entirely equity-financed, there may be negative effects but they will likely be small – in the revised data after the 2001 dotcom crash, there isn’t even a recession (i.e., there were not two consecutive negative quarters for GDP).

But if the losses follow the broader Goldman Sachs structure and are largely debt-financed, then the US taxpayer will have helped create another major financial crisis.

And if you think that sophisticated investors at the heart of our financial system can’t get carried away and lose money on Internet-related investments, read up on Webvan:

“During the dot-com bubble, Goldman invested about $100 million in Webvan, the online grocer that never got off the ground and eventually collapsed in bankruptcy.”

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I strongly recommend to anyone who thinks life is just great and all will work out fine to read the article linked to below and then snap out of it!

Dangerous Economic Misconceptions by Giordano Bruno

Reposted from Neithercorp Press

An excerpt:

The reason the information we report on is disturbing is not because it is “bad”, but because it is TRUE. There are children who could make the distinction, but some full grown men and women seem to have difficulty with the concept. When the establishment says that we as researchers and alternative media do not have a right to spread facts that might upset you, what they are also saying is that you as an American cannot be trusted to act responsibly and constructively with the facts you are given. They are saying that they need to protect you from yourself. Who ever gave them permission to take on that job?

The Doomer Porn argument rings hollow because what I state here in these articles is entirely subject to your verification. If I embellish, or lie, I will be caught, and thus, my writing becomes meaningless. If I tell the truth, the hard truth, it is not up to me or the MSM or anyone else accept yourself to decide what you will do with it.

Perhaps the greatest misconception of all, especially in economics, is that bad news encourages bad events. That the truth is hazardous, and for the economy to remain healthy, the establishment must continue to lie. The presumption that our financial system is so dependent on our mass psychology is complete nonsense. The dollar is being fundamentally debased whether or not we blindly “believe” the dollar is fine. Our country is facing unserviceable national debts whether or not we force ourselves to think positive thoughts. The stock market is exceedingly overpriced and primed for collapse even if you and I ignore all the warning signs and drink margaritas on white sandy beaches all day with big dumb smiles on our faces. Two plus two equals four no matter what the psychological state of our society is. The facts are not subject to my “good vibes” or “bad vibes”, and if this is the best argument MSM pundits can make against legitimate alternative financial analysts, then I think they need to pack it up and leave the thinking to more adequate men.

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A fantastic post about how past civilizations have dealt with the shift from complex to simple…Empire to Feudalism… It’s a story as old as civilization itself..and we are next in line…

Excerpt from “After Money” by John Michael Greer

As the rising spiral of economic trouble continues, we can expect drastic volatility in the value and availability of money – and here again, remember that this term refers to any form of wealth that only has value because it can be exchanged for something else. Any economic activity that is solely a means of bringing in money will be held hostage to the vagaries of the tertiary economy, whether those express themselves through inflation, credit collapse, or what have you. Any economic activity that produces goods and services directly for the use of the producer, and his or her family and community, will be much less drastically affected by these vagaries. If you depend on your salary to buy vegetables, for example, how much you can eat depends on the value of money at any given moment; if you grow your own vegetables, using your own kitchen and garden scraps to fertilize the soil and saving your own seed, you have much more direct control over your vegetable supply.

Most people won’t have the option of separating themselves completely from the money economy for many years to come; as long as today’s governments continue to function, they will demand money for taxes, and money will continue to be the gateway resource for many goods and services, including some that will be very difficult to do without. Still, there’s no reason why distancing oneself from the tertiary economy has to be an all-or-nothing thing. Any step toward the direct production of goods and services for one’s own use, with one’s own labor, using resources under one’s own direct control, is a step toward the world that will emerge after money; it’s also a safety cushion against the disintegration of the money economy going on around us – a point I’ll discuss in more detail, by way of a concrete example, in next week’s post.

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Time to stop drooling about iCrap and worrying about Internet business models and pick up some books on Carpentry and Sheep Farming.

At least do yourself a favour and just consider for a moment – a moment – how you would get by if you could not withdraw money for a month or so and the Internet, for all practical purposes, was down for good.

Our great grandparents would be shocked to see how incapable we are to fend for ourselves in a time of unimaginable crisis.

Note to self: Don’t forget to buy a hand wound radio!

“The US economy is unsustainable” says Roubini

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This is a very compelling, and wordy, commentary at http://www.Zero Hedge.com on how complex systems, in their lead up to catastrophic collapse, behave much like Avalanches.   To contain the devastating release of energy contained in a snow ridge, avalanche control experts launch mortars into areas they measure to be unstable, before they become a bigger threat.  Yet despite their best efforts, not all catastrophes can be avoided as the tipping point of Avalanches is still not completely measurable and controlling them still involves a lot intuition and experience.   Likewise, this commentary speculates that the Lords of Finance are scarred senseless by populist backlash at the Banking industry and are thus themselves launching the mortar of an SEC case against Goldman Sachs to purportedly avoid the entire Ridge of public opinion to be released upon them.  The problem is that with avalanches catastrophic collapses occur despite the ski patrol’s best efforts since the science of what triggers these collapses is still not completely understood.   The trigger, or tipping point can occur in random, innocuous areas of the physical network that keep the mass intact.   The article explains better than I do.

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