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Op-Ed: Too big to fake, too – Insane credit positions don’t help

Eventually upgrade the word “investment” to something other than a simile for “sucker bait”.

Wall Street, NYC. — © Digital Journal.
Wall Street, NYC. — © Digital Journal.

The good news is that it’s not 2008 again. The much-less-impressive news is that the ghosts of 2008 remain, and so does the culture that spewed that disaster on Main Street. If you read this patiently-written mini-tome in The New York Times you’ll see why and how this mess happened and is continuing to happen.

The Fed is trying to reduce its mortgage-backed “securities” and bonds. The criminal irony in those things ever having been called “securities” should be obvious. This process is called “quantitative tightening”. According to the NYT, it’s draining money from the financial system.

Presumably that’s the same bloated, out-of-control, smug, and largely useless financial system which has been driving up prices for decades. It’s the same financial system which is tolerating massive cost of living price rises. It’s the same self-devouring system which has been dissolving money and making it worth less, for decades.

This is the system which has made housing unaffordable for so many people and for at least two future generations. It’s cranking up grocery prices on a daily basis.

On top of this, layer upon layer of complex credit is now the never-ending cause of bank issues and corporate crack-ups. Banks operate largely through debt. So does the real economy, which is NOT dead, by the way. If you’re still alive, breathing and eating, it’s the one you’re living in, or pretending to be able to live in, on a daily basis.

Debts are created and routinely turned into “instruments” which can be sold on the markets. Securities related to those debts are similar, covering debt defaults. These things were the meltdown vector for the sub prime mortgages. They’re also the simplest examples of how debt explodes.

There are now oceans of debts and related instruments. It’s a global tangle. Everybody borrows, everybody “owns” someone else’s debt. That’s partly because these debts and related transactions are so easy to create. New money is created every time a loan is issued.

People get paid to sell these loans and instruments, so the net debt load increases every second. The resulting numbers are huge and look impressive. It’s a glitzy cabaret act of big numbers. The word “billion” is now as common as confetti. That’s not good. The current banking mess is what happens when people get unimpressed. It’s a measurement of stupidity.

Too big to fake

There’s a problem with this undiluted expensive and largely fictional hype. It IS hype. If you don’t believe the hype, you probably won’t take out the loan. The low interest rates made it a lot worse. “Sure, with these low rates, you can afford this much higher price.” It’s that simple. People who should have and did know better entered to spin cycle, and the liquidity got drained out.

Meanwhile, the real economy, the one you HAVE to live in, is falling not-very-quietly to bits. The super-hyped economy is being waited upon hand and foot. The irresponsible, and now somewhat suicidal lending continues.

Another fakery is a bit too obvious. The banks demanded deregulation. They ignored regulation when the sub primes became cash cows and lent to anyone able to sign a loan.

The sheer howling hypocrisy isn’t hard to find. Now they run to regulators to save them. Publicly funded regulators. You remember the public – Those little furry overstressed things with no money who can no longer afford anything including their homes and groceries?

It’s time to take out the trash and make sure it stays out:

  1. Strict compliance with lending regulations.
  2. Proper credit monitoring by people not full of meth and coke.
  3. Write off insolvent debts as much as possible because there’s no reason this utter garbage should be on anyone’s books anyway.
  4. Stop talking up prices and forcing higher debts on borrowers. Raising prices is the no-talent way of making money. Better deals can do more, safely.
  5. Eventually upgrade the word “investment” to something other than a simile for “sucker bait”.

It’s not that difficult.

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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.

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Editor-at-Large based in Sydney, Australia.

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