Billmon: Chocolate Covered Cotton

February 19, 2009

So here we are: The banks are sitting on paper originally valued at 100 cents on the dollar (or even more) which is now worth 20 or 10 or 0 cents. If they sell the stuff at those prices, most of the capital they’ve put behind those assets will be erased, leaving them insolvent, technically and perhaps literally – as in, unable to cover their current liabilities. On the other hand, if they don’t sell their pieces of Big Shitpile, all their capital (including what Uncle Sam has already thrown into the till) will remain frozen in place, blocking them from doing any new lending. Without new lending, they can’t earn the profits they need to make good the losses they are sitting on. Zombies. Night of the Living Dead Banks.
…
One of the things that creeps me out about the political system’s response to the crisis so far – the insolvency of the banking system in particular – are the increasingly desperate attempts to maintain a phony façade of free markets and private enterprise, in an economy now utterly dependent on the federal safety net. I totally expected that from Hank Paulson and the Cheney Administration, but is Obama’s financial team really pressed from exactly the same Wall Street mold?

It may be best not to think too much about that question. It reminds me
too much of the USSR’s fetish for preserving the trappings of socialist
"democracy" – a Supreme Soviet, a ministerial government, courts, etc.
– even though the actual decisions were all made, behind the scenes, by
the party and the Politburo. It’s not a good sign when societies routinely lie to themselves about such big, fundamental truths, which in turn suggests that toxic assets may not be the poison we most need to worry about: The rottenness and decadence of the entire system may do us in first (not exactly a new theme for me.)

Billmon: Chocolate Covered Cotton

Posted by b on February 19, 2009 at 10:09 UTC | Permalink

Comments

I love billmon (Iasm,hkow).
Thanks for the link, b.

Posted by: waldo | Feb 19 2009 11:45 utc | 1

That’s some catch, that Catch 22.
The other relevant scene from the novel is when the old Italian man (108 years old) tells the 21-year old Lt. that the secret to a long and happy life is to surrender, not fight.
To bend.
To not get in uniform, not get in line, not march with the masses, not stand in the ranks, not espouse the public goal.
To live instead like a knife cutting through water, leaving no trace of yourself while simply being yourself. The young Lt. may not see the next sunset, while the old man has lived the one day given to him, day by day, for 108 years.
Most people can’t do it. Human beings live in stories, in myths about nationhood, heritage, generational accomplishments, ethnicity, in sports teams if nothing else. Most of us are eager to stand up and be a part of history, to fight for truth, justice, and a sacred cause larger than our life, to make our mark in this world, to make a difference, to be somebody, to do some thing.
When the only thing you can ever possibly have any control over is yourself, inside your own skin.
Ozymandias in the end was just a man. Though he reportedly shook the heavens and the earth, no trace of it remains. What he took to eternity was who he was, not what he did. Not the slightest speck of any mountain he moved, not the smallest coin nor thread of cloth went along with him to wherever he went.
None of those things were taken. None of those things remain.
It’s hard to leave off the story, the country, the cause that appeals to you, and to care nothing about all that.
In the eight years of daily heartbreak of the Bush years now past, I went from grieving for my lost America, to a white hot rage to rescue it, to a determination to change it, to a cold examination of its core deceits.
And there has been a divorce. I’ve no respect or regard remaining for America’s story, for its birth or history, for its government, its leaders, its various wars, or for its aims around the world today. It is not my story or my country even though I live here.
Like the majority of Americans, much has been taken from me in these eight years, and as I watch the fledgling Obama Administration service the robber barons assiduously instead of the people I perceive that even more will be taken.
But I also perceive that these taken things are just things. Job, career, savings, property, pride, prospects, patriotism, optimism, health care, community, anger, shame, love of country. These things that I once thought moved heaven and Earth are gone now.
Like so many Americans, I am standing here in my skin, with no particular loyalty to the nation that robs me, that abuses me, that uses me and then sends along a bill for its services. I won’t be paying that bill, and they cannot collect it without taking my very skin, which I aim to keep.
Like so many Americans, I am ‘paddling to Sweden’ as Orr did in the novel — I am getting up every morning and doing what is sane and effective to escape a mad and maddening situation, to escape with my skin. My bank is a mattress, my income is barter and black market, my taxes are nought. My interest in the blogs, news, and headlines is to dodge what’s coming next, not to fight it, espouse it, worry about it, or live in it.
The oligarchs atop our nation do not grasp how very many Americans don’t live in America any longer even though we live right here. How very many of us see that the Dream was only ever possible for 10% of us, and that those 10% have got theirs but good, and have no further concern for the rest of us, or for other nations, or for the planet.
They’ve virtually left the country. So have we. Catch 22 — no one lives in America any longer. Some live above it, while most live below it. The Dream is increasingly unoccupied.
The 10% of wealthy Villagers atop America will happily leave the rest of us shivering in our skins, if it keeps them living in their story. In their country. The country they won, that they stole fair and square so they can live happily ever after.
Or until we come for them.

Posted by: Antifa | Feb 19 2009 14:20 utc | 2

Billmon still misses the larger point and context. Thirty, or more, years of unchecked, massive wealth accumulation is the reason for this end game. There was, and is, so much wealth, the Plutocrats, and I’m speaking globally here, had to find ever increasingly creative ways to derive robust returns on all their excess wealth. So they concocted elaborate ponzi schemes within the ponzi scheme that is Capitalism. It’s like fractals with ponzi schemes emanating and replicating from the master ponzi scheme, devouring everything in its path and replacing it with its detritus.
I have to give Billmon credit. He uses all the trendy buzz words boutique coffee shop liberals love so dearly, like Toxic Assets, Zombie Banks, Preprivatization and so on and so forth ad nauseum. You also have to laugh at the ads juxtaposed against his script on DKos. It strips the words of any credibility, even if he does make some valid points.
Just to emphasize how clueless Billmon can be, or disingenuous, take your pick, this little tidbit is laughable, at best.
I totally expected that from Hank Paulson and the Cheney Administration, but is Obama’s financial team really pressed from exactly the same Wall Street mold?
When will Billmon graduate?

Posted by: Obamageddon | Feb 19 2009 14:35 utc | 3

essentially it is all theatre. it will not work. & this crisis will deepen in a way even nobel prize winners would not be able to understand. in a month they will be saying something else
the only line that they have in common since the beginning is to blame the poor & to save the very rich
we are living in a mausoleum

Posted by: remembereringgiap | Feb 19 2009 14:55 utc | 4

James Galbraith points out that as long as the bailout money is tied up in the hands of bankers, the stimulus package will do little, if anything, to stimulate the economy. If bankers keep hording the bailout money for themselves without letting it flow to the broader economy, then this will hinder the stimulus’s ability to lift our economy out of the doldrums:
“A clear—a major problem that we face is that the stimulus package is sized so that it will work only if the revival of credit, which is part of the plan that the Treasury is announcing today, also works. And the problem is that that plan is still, I think, not well designed and is not likely to succeed. I think it actually, in many ways, misconceives the nature of the credit problem that we have, and therefore is very unlikely to succeed at bringing about an early revival of credit markets, of housing markets, of consumer credit markets, automobile loans, and the rest. Now, we could talk about that, but I think it’s very important to understand that this spending package is really geared to the success of this other piece, and this other piece is much more problematic than the spending package is.”
http://www.democracynow.org/2009/2/10/economist_james_galbraith_bailed_out_banks

Posted by: Cynthia | Feb 19 2009 15:05 utc | 5

Galbraith goes on to points out that our banks, which would have already been pronounced dead by now had they not been put on federal life support, must be taken out of the Treasury’s hands and put into the hands of the FDIC. The FDIC, unlike the Treasury Department, is in the catbird’s seat of being able to open bank books, exposing which assets are toxic and which ones are not:
“And the problem is that when you—the little bit of checking that has been done appears to reveal that a very large fraction of these securities contain, on the face of it, misrepresentation or fraud in the files. And so, we are looking at an asset which nobody, no outside investor doing due diligence on behalf of a client for whom they have some responsibility, would touch. And that is the issue. That’s the problem… If that is indeed the case, then I think it’s fair to conclude that the large banks, which the Treasury is trying very hard to protect, cannot in fact be protected, that they are in fact insolvent, and that the proper approach for dealing with them is for the Federal Deposit Insurance Corporation to move in and take the steps that the FDIC normally takes when dealing with insolvent banks… And the sooner that you get to that and the sooner that you take these steps, which every administration, including the Bush administration, actually took in certain cases—replacing the management, making the risk capital take the first loss, reorganizing the institution, guaranteeing the deposits so that there isn’t a run, reopening the bank under new management so that it can begin to function again as it should have all along as a normal bank—the sooner you get to that, the more quickly you’ll work through the crisis… The more you delay and the more you try to essentially prop up an institution whose books have already been poisoned, in effect, by this—the practices of the past few years, the longer it will take before the credit markets begin to function again. And as I said before, the functioning of the credit markets is absolutely essential to the success of the larger package, of the stimulus package and everything else, in beginning to revive the economy.”
So whenever I see Geithner with that stupid deer-in-the-headlights look on his face, I’m reminded how out-to-lunch Obama must have been to have made Geithner his most precious gem in his treasure chest. No one needs a head full of fully functioning brain cells to realize that Geithner is only looking out for the interest of our nation’s financial elites who are sitting on a well-hidden mountain of toxic assets. He doesn’t seem to give a damn about the rest of us who just want credit thawed to a more or less liquid state so that borrowing can be restored to businesses and consumers across America!
http://www.democracynow.org/2009/2/10/economist_james_galbraith_bailed_out_banks

Posted by: Cynthia | Feb 19 2009 15:16 utc | 6

i follwo the purest empiricism. i do not believe a word this administration or it’s so called experts say.
i believe only what is happening befoe my eyes

Posted by: remembereringgiap | Feb 19 2009 15:28 utc | 7

Wow. What an elaborate scam. Pretty ingenuous, the complexity of it all. It might make a good movie starring Charles Ponzi, directed by Satan.

Posted by: slothrop | Feb 19 2009 15:50 utc | 8

it is quite simple :-
re-establish a ‘faith’ in the system that has completely collapsed. personally, if i fillow virillio correctly – this faith has gone forever given the velocity of events
concentrate the wealth in fwer hands. socialise the loss.
to create even greater inequalities & introduce millions of people to the underclass & the ‘working poor’
for the criminals who are responsible for this – to escape any form of punishment or censure
& i would suggest as uncle has done – the acceleration of the use of the repressive state apparatus – primarily against the poor for property crimes & acts of social disobediance
it is, in the end, a very bad horror movie but it will go on & on & there will be no titles at the end

Posted by: remembereringgiap | Feb 19 2009 16:03 utc | 9

tho immanuel wallerstein & michael hudson seem to posses a clear knowledge of the cartography of this catastrophe

Posted by: remembereringgiap | Feb 19 2009 16:11 utc | 10

Glen Greenwald highlights a video in which an explication of the plight of the common man is considered distasteful by some Fox carboard cutout. Hope its not too OT.
http://www.salon.com/opinion/greenwald/2009/02/19/bernero/index.html

Posted by: DonS | Feb 19 2009 17:18 utc | 11

Antifa@2
Indeed, the story of skin…
In my best Dean Martin voice, “welcome to my world, wont you come on in” …

Posted by: Uncle $cam | Feb 19 2009 17:34 utc | 12

Cynthia 6) This is not the S&L Crisis, the tranches of toxic assets are slices of adulterated layer cake of performing and non-performing assets all going stale and rotten as the economy pushes more properties into non-performance. In S&L Crisis, the Resolution Trust Corporation sold individual assets at a high return (“junk”).
Investors could buy, say, “2010 Macon Georgia Big Trees Subdivision 8.75%” and if you got lucky, and the property didn’t default, you made 8.75%, less broker’s fees.
That’s not the case today, and why Bernanke’s lip is sweating. Since those toxic
wedding cakes were sliced up and served up, property values have fallen by -30%.
Commercial properties, financed at unsustainable prices, will never see a profit.
Many may not have been built out and sold. You’d be relying on a bankrupt company
to repay you for your “involuntary investment” in a half-finished tower of Babel.
For Geithner, he’s on his own. Treasury hasn’t been staffed yet. Geithner is the man in the golden cage, totally beholden to Bernanke to hold his hand and guide him. We know, if anything is ‘fact’, we KNOW Fed is a consortium of private banks.
We KNOW anything that Bernanke says is defacto conflict of interest to the people.
And we KNOW they are going to monetize those toxic non-performers onto our backs.
It’s that, or crash the Pension funds, and that’s where all the commission fees are.
The commissioners and Commissars would never risk damaging those pension funds fees.
They’re walking on egg shells because they’re stealing $2.5T from our children and
we just might wake up in the dark, shout out, “What the hell are you doing here!?”

Posted by: Free Alice | Feb 19 2009 17:43 utc | 13

@ Antifa #2
It’s was like reading a transcription from my barely conscious awareness.
We all live in the after shock of birth and projected fear of death. In between we seek and indulge every consolation available and invented to make us feel better as we try to maintain the credibility of our denial of our mortal dilemma.
You record the essence of our individual yet mutual and coincident journeys to a realization of the ultimate futility of all our impassioned acting in this plane and remind us again to begin with and keep the end insight [sic]. A difficult admonition to obey yet as necessary as our final passing act if we wish the final transition relatively smooth.
But take heart. The 10% are no less victims of their fallacious narratives and actions than any of the rest of us. In fact even more so. At least you, and some of us have stepped outside their boxes and discovered a completely different story that can still be lived. Their exuberance at their ill begotten windfalls is but the disguise of anguished souls with little chance of redemption. Or is that my ill-willing wishful thinking?
We on the other hand can walk into the interstices with some integrity intact and perhaps even continue the play until 108. Maybe.

Posted by: Juannie | Feb 19 2009 17:53 utc | 14

don
why is it that these visibly pumped up with poop anchor on u s tv look like they still wear nappes & perhaps have never had a shit in their lives. that’s why it comes out of their mouths

Posted by: remembereringgiap | Feb 19 2009 17:54 utc | 15

Or until we come for them.
Until then, the cannibalism continues…
Micropolis: Kiddie Capitalism

With its own bank (to get that start-up play cash before learning “how to spend it” and “what it takes to earn more”), supermarket, model runway, business class flights…and an unemployment office even. Luckily, this unemployment office always finds a job for every kid.

Posted by: Uncle $cam | Feb 19 2009 18:07 utc | 16

A very good post by Mish this morning digs into the details of Ponzi economics.

Posted by: Obelix | Feb 19 2009 18:11 utc | 17

I like how, in this video floor traders take up the barricades to defend capitalism. hehe.

Posted by: slothrop | Feb 19 2009 18:20 utc | 18

antifa, stunning post
misses the larger point and context. He uses all the trendy buzz words boutique coffee shop liberals love so dearly, like Toxic Assets, Zombie Banks, Preprivatization and so on and so forth ad nauseum.
as opposed to your clarity: “Thirty, or more, years of unchecked, massive wealth accumulation is the reason for this end game. ‘
i appreciate the breakdown he provided. boutique terms or not.

Posted by: annie | Feb 19 2009 18:22 utc | 19

sorry, my italics were in response to # 3. i should have made that clear as they were not related to antifa’s divorce post.

Posted by: annie | Feb 19 2009 18:27 utc | 20

Ahhh, yes, Divorce…

Posted by: Uncle $cam | Feb 19 2009 18:53 utc | 21

Without growth (real growth), the banks and the tax payers are left with pixie dust. They can fudge it around, sign a lot of paper, go into more debt, posture about, pay home owners, bail out the banks or Movie Stars or whatever, go into fancy contortions, it all will come to nothing except disappointment and ruin down the road.
Top Dems don’t pay taxes:
NY post:
News broke last week that Rahm Emanuel, now White House chief of staff, lived rent- free for years in the home of Rep. Rosa De Lauro (D-Conn.) – and failed to disclose the gift, as congressional ethics rules mandate. But this is only the tip of Emanuel’s previously undisclosed ethics problems.
link

Posted by: Tangerine | Feb 19 2009 19:10 utc | 22

Cynthia, merely lending again won’t solve a thing. We have reached, and are now beyond Peak Debt. This guy saw it all quite well in 2006 when things were still flying high.
PEAK DEBT

I am no expert on Peak Oil, but Peak Oil is not the urgent problem that the world faces, economically, or politically. The problems of the supply-demand of oil will play out over a longer period and its effects would be spread over a longer period of time than that of the Peak Debt, which are lot more immediate. As a matter of fact, it has been the rapidly rising debt (racing towards the peak), which in turn has “fueled” a worldwide construction boom, that has resulted in the high prices for oil over the past 4 years and not the realization of the problem of Peak Oil. During the coming global depression, within this decade, the price of crude oil should fall below $25 a barrel and there will be glut due to sharply falling demand. I realize that these are not the concerns that people have today as long as the American consumer keeps borrowing. But, for how long?
…….
You will find direct correlation between the increase in debt on the middle class, as percent of income, and the rise in inequality. And this correlation is a result of causation. This time, the banking Crooks have taken the problem to such a scale that the middle class in America will be decimated. America will become a nation full of bankrupt households most of whom were formerly middle class. It does not bode well for the stability of the whole political system. The current Peak Debt may well foreshadow the collapse of the American political system, as the world has known it since 1776. And that would be a long life for a political system. Circa 2020s: It was a good system for most of the time it lived. May it rest in peace.

Posted by: Obamageddon | Feb 19 2009 19:16 utc | 23

I’m surprised no one else has caught on to the inherent racist nature of Billmon’s title. I mean, come on, if a complaint can be made of the cartoon about the cops shooting the monkey, then surely a complaint can be lodged about this being a racist slight. I mean, really, what does Billmon imply with this title…that Obama is really just “whitey” with a chocolate coating for appearances? For those who aren’t paying attention, that was satire.

Posted by: Obamageddon | Feb 19 2009 19:28 utc | 24

Shortly after class, a student approaches his economics professor and says, “I don’t understand this stimulus bill. Can you explain it to me?”
The professor replied, “I don’t have time to explain it at my office, but if you come over to my house on Sunday and help me with my weekend project, I’ll be glad to explain it to you.” The student agreed.
At the agreed-upon time, the student showed up at the professor’s house. The professor stated that the weekend project involved his backyard pool.
They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, “First, go over to the deep end, and fill your bucket with as much water as you can.” The student did as he was instructed.
The professor then continued, “Follow me over to the shallow end, and then dump all the water from your bucket into it.” The student was naturally confused, but did as he was told.
The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool.
The confused student asked, “Excuse me, but why are we doing this?”
The professor matter-of-factly stated that he was trying to make the shallow end much deeper.
The student didn’t think the economics professor was serious, but figured that he would find out the real story soon enough.
However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, “All we’re doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you’ll really have accomplished is the destruction of what could have been truly productive action!”
The professor put down his bucket and replied with a smile, “Congratulations. You now understand the stimulus bill.”

Posted by: Cloned Poster | Feb 19 2009 19:54 utc | 25

Good post by Billmon. It’s nice to see him using his broad palette of allusions again.
The complexities he chronicles make me wonder again when we are going to see it revealed that there are many instances where the underlying documentation has disappeared, intentionally or not. Archived data mis-filed or placed on unreadable media; laid off employees.
Yes, the rich and powerful have screwed us royally, but to believe that the machine that they have devised can keep functioning is wrong. All the little cogs are coming apart at a fundamental level. Without the luxury of obscene profits to fix or paper over the pieces, the system will seize up technically as well as financially. A small example of that is a woman who stopped a bank from foreclosing on her home by demanding the bank produce the original mortgage documents. It couldn’t. Magnify that to complexities of CDOs, etc. and the courts will be booked for decades.

Posted by: biklett | Feb 19 2009 20:12 utc | 26

Uncle $cam,
Kiddie Capitalism is a microcosm of what capitalism used to be like. Now it’s all about trying to get as much as you can of something for nothing.

Posted by: Cynthia | Feb 19 2009 20:23 utc | 27

In the end then it won’t really matter if Obama’s mob of ass lickers and apologists give the banks 100 million gazillion trillion billion. This because a $ is worth nothing and as we all know you can multiply zero by the biggest number you can imagine and it is still zero.
Those who haven’t should really read up on the creation of the federal reserve in 1910 where the notion that banks could create wealth outta thin air was first enacted by washington stooges of the big banks. (ignore the sources, the weird philosphies espoused by some of the Jekyll Island mob and concentrate on the facts to draw your own conclusions).
The Federal Reserve scam goes like this:
Banks were given the ability to lend out 9 times the amount of money they had on deposit. ie if someone put $100 bucks into a bank deposit, the bank could lend out $900 keeping $100 ‘on the books’ as ‘security’.
Of course as all of this extra, created outta thin air, money moved through the system over the next hundred or so years its value was ratcheted up by 9 times, then the money generated from that would inevitably pass through a financial institution somewhere and ratchet up another 9 multiple. On and on it went until a century later the actual wealth that each dollar stems from is infinitesimal, literally less than the cost of the paper the money is printed on.
It is difficult to explain this giant flaw, chiefly because about the only peeps who still remember that the emperor really is naked are those conspiracists of the right who have been derided marginalised and deliberately sabotaged by mainstream ‘believers’ in the media who have thrown real loons in to fester with those with a long memory thereby making a laughing stock out of something that is actually factually correct.
The other protection has been that although any truthful economist will concede the above analysis is correct they counter with the old saw about money being worth what people believe it to be worth. That as long as we all agree that piece of paper will buy $100 worth of chocolate coated cotton, then it is indeed worth $100. However that is no longer the case. As billmon and others have already alluded banks are now forced to look at assets in terms of their real value. “Mark to market” is over and whilst they may overinflate the value of their own assets when they look at any others belonging to anyone else, all they see is zeroes multiplied by great big numbers. If money is perception, then all the major movers of money actually no longer perceive it as worth anything.
The government could give the biggest number they can think of to the banks and it won’t fix this. There is a genuine breakdown of the financial system which is not fixable with superficial patches or any of the other remedies currently on offer.
In the end either by way of some declaration (unlikely but preferable and the only bloodless way out) or by slow realisation people are going to recognise that all they really own are the material ‘things’ they physically hold in their possession. The unfair distribution of those ‘things’ caused by too many buying the lie and trading reality for a number multiplied by zero, will cause ordinary peeps to demand a reckoning.
I thought we might be safe here in NZ but I have been rethinking that. Although we produce enough food and energy to sustain the population several times over, the privatization of the distribution of those resources followed by the subsequent sale of the distribution entities ‘offshore’ means that there will be a period (hopefully short) where NZers starve while their food is exported to others. Of course people will eventually get off their hind quarters and take their assets back but evidence suggests that the period between the beginning of starvation and the realisation of how they’ve been fucked and what it is they need to do, could be longer than it should be.
Nations that have huge urban societies reliant on make-work to keep the zeroes moving and distribute life’s necessities will come to a grinding halt fast, but it is difficult to see how the people will seek redress. Societies which don’t produce enough to sustain their populations, that rely on trading zeroes offshore will likely see war as their only option, but war won’t deliver food in time for most of the urban populations. What food there is will most likely be diverted to the young, fit warriors.
If I remember correctly the old bloke in Catch-22 was a roman. He had reached is lifestyle or philosophy after ordinary peeps in Rome had endured many centuries of deprivation following the collapse of the Roman Empire.

Posted by: Debs is dead | Feb 19 2009 21:07 utc | 28

I mean, really, what does Billmon imply with this title…that Obama is really just “whitey” with a chocolate coating for appearances?
maybe if you click the link and read the whole post it will make sense to you.

Posted by: annie | Feb 19 2009 21:38 utc | 29

European banks apparently have a problem also — $25 trillion of “impaired assets.”
http://www.lewrockwell.com/north/north689.html

Posted by: Don Bacon | Feb 19 2009 21:59 utc | 30

The Obama Administration, the whole financial market and all their underlings, like CNBC, just can not admit that the last two decades were a gigantic ponzi scheme that has been busted. The wealth that the Masters of the Universe flaunted was the skim taken from the marks who invested in their funny money.
The economy will continue to flail until a new regulated safe banking system is rebuilt washed clean of the toxic waste. America afterwards will be poorer. The question is can Americans live within their means or will they lash out at the latest scapegoats, Liberals, Atheists, Muslims or whomever led on by Rush and the GOP.
Hopefully, the internet can serve the same function as cassette tapes in the Soviet Union and spread the truth and counter the media propaganda.

Posted by: VietnamVet | Feb 20 2009 2:57 utc | 31

Billmon is a dropdead great writer. He’s every bit as good as Mencken, imo.
One thing has always bugged me is a persistent lack in his criticisms of a theory of a system of power. Instead the critique is an expose of the vast venality of individual players. The closest he ever came to the “system-theoretic” argument was in the unfinished “Wild Blue Yonder” series.

Posted by: slothrop | Feb 20 2009 3:26 utc | 32

louise glück THE TRIUMPH OF ACHILLES

In the story of Patroclus
no one survives, not even Achilles
who was nearly a god.
Patroclus resembles him; they wore
the same armor.
Always in these friendships
one serves the other, one is less than the other:
the hierarchy
is always apparent, though the legends
cannot be trusted–
their source is the survivor,
the one who has been abandoned.
What were the Greek ships on fire
compared to this loss?
In his tent, Achilles
grieved with his whole being
and the gods saw
he was a man already dead, a victim
of the part that loved,
the part that was mortal.

Posted by: Copeland | Feb 20 2009 5:14 utc | 33

Obx17) adn DiD28) The point Mish so laboriously tries to make is that a centuries old practice of fractional reserves involved repeatedly lending the 90% percentile of those deposits, increasing the “value” of real deposits by about 9:1. So for every $1000 someone deposited in a bank, the bankers could generate about $9000+ in interest-earning loans, which they tip a small share of to the original depositor.
However in 1*999<--!, the Republican bank deregulation bill allowed leveraging of that 9:1, by 9:1, and 9:1, and ... through all those clever acronym instruments, CDOs, SUVs, CDSs. So if the sum of all our deposits and investments in America is say, a "real" $1T, the Bush Mob (remember BushCo is first and foremost a banking family) made it "worth" $729T in impossibly leveraged, cool whip, spun dry fluff. Which is why they got so rich so fast, and why we got poor so fast, and which is about where economic scholars think the Tower of Babel reached before it began to topple. $700 odd T. Clearly, in the old days, if a bank sustained loses exceeding 1/9th of their loans, then they were technically bankrupt, the deposits were gone. You can do the math today, and that's the meaning of Jesus' parable about the rich man **and the 1/999th eye of the needle**, a thousand Dubai's dancing on the head of a pin, (and all the King's horses and all the King's men couldn't build it back.) The interesting part, since it's a global phenomenom, is whether we will all go through "deleveraging" as happy eunuchs standing on eunuchs standing on eunuchs, or if the wheels will come off the chariot, or perhaps some revelation will come down from on high, and $700T in 'money-pixels' will chase it into a Mars Mission. THOUGHT EXPERIMENT Can you imagine, for example, if someone patented cold fusion at this very moment? Or let's say, someone patented the stem cell solution to turn off the aging process and grow replacement organs from your own cells, as long as you had money and brain? Then suppose you had money, and once had a brain, with your estate and all the odd commissioners and Commissars in your retinue keeping your addled corpse rejuvenated forever, for as long as the grass grows and the rain falls, for your pension fees? What if you were New Age Croesus Imperious, but brainless, and never allowed to die? That would be the *precise description* of the Fed's Bank Nationalization Program.

Posted by: Reeses Croesus | Feb 20 2009 5:20 utc | 34

#28

…sale of the distribution entities ‘offshore’ means that there will be a period… where NZers starve while their food is exported to others.

Jeeze, come on, DiD, just because this happened in Ireland in the middle of the 19th century — just to name the classic play out of this scenario does not mean that it can happen again!
You see, DiD, humanity has learned something from two world wars, a baker’s dozen genocides and assorted more mundane atrocities — I just can’t put my finger on what it might be, if anything…

Posted by: Chuck Cliff | Feb 20 2009 9:29 utc | 35

Fractional Reserve Banking and a debt economy rest on growth. Once the real economy stalls – as it did in the late 70’s, 80’s and 90’s – financial tricks, the ‘new economy’, the ‘information age’ etc. (basically junk paper and war spending imposed with various powerful moves) can paper it over for a long while. But not for ever. At some point the debt, the lack of productivity, the various paper exchanges collapse under their own weight. Deflate like a soufflé that was not properly mixed or cooked.

Posted by: Tangerine | Feb 20 2009 17:33 utc | 36

#34, Note that the practice of reserve lending, at every step exacting fees and commissions enriches the purveyors of the scam without actually having created any real wealth. People got rich through number games; no new asset-backed capital actually entered the system.
I think Mish’s point was that when this manufacturing of money happens in excess, there is a surplus of cash at the top of the pyramid looking for some way to keep making more cash (again, without actually creating anything tangible). Thus, the ever-more-arcane and opaque investment schemes, aided, of course, by modern technology (computers and communications). Much of this stuff doesn’t even have a paper trail–it’s just a shift of a magnetic domain or trapped electronic charge in some great machine.
For example, at this late date, does anyone really know the extent or value of the CDS tangle? I’ve heard numbers bandied about, but nothing solid. You’d think that before a government lent money, the financial state of the borrower would be ascertained. Of course that would also mean marking the borrower’s (i.e. the bank’s) assets to market, which isn’t going to happen ever.
In short, money has become an ethereal nothingness; no more substantial than the belief in a deity or in a book of folk tales. There’s no coin to bite into to see if it’s really gold. And the world believes because it has to–the one true Universal Religion. The chaos resulting from a bout of monetary atheism is unthinkable.
And the priests of this religion tell us that everything is fine; that all we need is hope and belief, while they go about raping the faithful.

Posted by: Obelix | Feb 20 2009 17:56 utc | 37

obelisk
those commodities, hope & belief, also faith – they are selling day & night because they know what our eyes see

Posted by: remembereringgiap | Feb 20 2009 18:43 utc | 38

Really, that post is best composite summary of this mess I’ve read anywhere… period.
Excellent.

Posted by: jdmckay | Feb 20 2009 19:25 utc | 39

jdmckay: I’ve really valued regular counterpunch contributors like Whitney and Hudson, not to mention b’s early assessments which have proven prescient.

Posted by: Lizard | Feb 20 2009 20:39 utc | 40

Just by way of clarification I contend that labelling the bank de-regulation of the late 90’s as ‘republican’ as Reeses Croesus has done is pretty damn disingenuous given that the democrat administration of bill ‘cigar’ clinton signed it into power after an agreement between the Clinton administration and congressional Republicans, was reached during all-night negotiations which concluded in the early hours of October 22 1999.
In fact if it is official dem tactics to offload entire responsibility for the amerikan banks deregulation onto the rethugs, that tells us two things.
Firstly that the dems under Obama are as dishonest as they ever were (Oh no! it can’t be? Shock horror – yawn) Secondly that the dems intend to keep the regulations lax. If they really intend mending their ways, that would require honesty about previous mistakes to be offered up first.

Posted by: Debs is dead | Feb 21 2009 1:36 utc | 41

Found this Dmitri Orlov piece over at Feral Scholar. Interesting and humorous take on preparing for the collapse, based on observations of how Russians survived the collapse of the Soviet Union. Welcome to FUSA (the Former USA).
One of the commenters at FS highlights a bit of gender inequality:

Women seem much more able to cope [with collapse]. Perhaps it is because they have less of their ego invested in the whole dubious enterprise, or perhaps their sense of personal responsibility is tied to those around them and not some nebulous grand enterprise. In any case, the women always seem far more able to just put on their gardening gloves and go do something useful, while the men tend to sit around groaning about the Empire, or the Republic, or whatever it is that they lost. And when they do that, they become very tedious company. And so, without a bit of mental preparation, the men are all liable to end up very lonely and very drunk. So that’s my little intervention.

Many of Orlov’s suggestions have appeared here at MoA in the past few months. Plant your garden, get to know your neighbors, live close in, (learn how to get along with unemployed psychotics with guns).

Posted by: catlady | Feb 21 2009 16:39 utc | 42

Indeed, That’s some catch, that Catch 22. and at 2 …

Posted by: Uncle $cam | Feb 22 2009 4:08 utc | 43

Maybe the U.S.A. will one day send their puffed up, overblown, overpaid bankers to Lebanon for lessons in common sense. As far as I know, Iran didn’t invest one cent in derivatives either:

Posted by: Parviz | Feb 22 2009 8:35 utc | 44

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