Saturday, September 20, 2008

Does the WSJ grok the difference between investing and wagering?

Among the measures announced Friday, the Treasury temporarily extended insurance, similar to that on bank deposits, to money-market mutual funds and the Federal Reserve said it would buy commercial paper from the funds. The Securities and Exchange Commission, meanwhile, banned short-selling of 799 financial stocks -- a financial bet that they will fall in price -- for at least 10 days. And the Treasury said it -- along with mortgage giants Fannie Mae and Freddie Mac, recently taken over by the government -- would step up their purchases of mortgage-backed securities to help keep the housing market afloat.

The most ambitious part of the government plan is to create a new entity to purchase impaired assets from financial firms.

The Murdockal WSJ immediately loses track of the analysis, scratching its head over how it would work.

People like Ellen Brown are asking questions we are not hearing from the corporate media:

Treasury bills are the I.O.U.s of the federal government. We the taxpayers are on the hook for the Fed’s “enhanced liquidity facilities,” . . .. What’s going on here? Why not let the free market work? Bankruptcy courts know how to sort out assets and reorganize companies so they can operate again. Why the extraordinary measures for Fannie, Freddie and AIG?

The answer may have less to do with saving the insurance business, the housing market, or the Chinese investors clamoring for a bailout than with the greatest Ponzi scheme in history...

How's that, Ellen?
...the greatest Ponzi scheme in history, one that is holding up the entire private global banking system. What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an “event of default” that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.

...snip...

“The point everyone misses,” wrote economist Robert Chapman a decade ago, “is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing.” link

Add: Phil Gramm: uno, dos.

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4 Comments:

Blogger jonhusband said...

I'm not hugely sophisticated in my understanding of all this, but .. one might consider that the financial derivatives game might not have been playable had not other countries been willing to extend the USA's overdraft on a seemingly-permanent-and-infinite-basis, thereby enabling the ongoing creation of "money" out of thin air, to wit the fees and bonuses accompanying the selling of the equivalent of gaudy cereal boxes (the wrapping) on plain ole grains.

Now we're told it will cost between 700 billion and 1+ trillion to "save" the financial system ... in some (real) sense, money that today does not exist for the USA, but has to be borrowed by the sale of US Treasuries.

As Bush has said, the confidence of the citizens is paramount. He's right .. it is a con game. The problem is, that in a real sense it has to end some day, like all con games.

No ?

9/20/2008 12:04 PM  
Blogger Tom Matrullo said...

The US can print all the money it needs - the con comes in convincing people to accept it. Only someone utterly deprived of reason would rely on infinite acceptance of infinite fiat money.

9/21/2008 10:17 AM  
Blogger Paul said...

Perhaps you would be interested in the perspective of an actual economist?

http://www.becker-posner-blog.com/archives/2008/09/the_crisis_of_g.html

9/22/2008 12:04 AM  
Blogger Tom Matrullo said...

Thanks Paul. The emphasis in this (Mon.) morning is on "getting it done" asap. This unreflective haste has all the hallmarks of Bush - having wrought chaos, get your insiders to resolve it in a weekend. I appreciate hearing the views of Becker - but is the Holy Triad led by Paulson soliciting his, or anyone's views? What about the press? In addition to breathlessly reporting the latest improvised moves, it could stimulate some broader reflection, conversation.

9/22/2008 5:21 AM  

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