Please don't be fooled by this RTC nonsense... there's no silver bullet for the derivatives mess
September 18, 2008
– Comments (10)
What a ridiculous comparison!!!!!!!
Comparing the notion of a black hole of debt to collect the toxic instruments that are behind this whole mess with the Resolution Trust Company (created in 1989 for the unwinding of the savings & loan issue) as like comparing Milli Vanilli to Mozart. There are no parallels here whatsoever, so don't be fooled for a second into thinking there is "precedent" for this. Nothing about this crisis has precedent at anytime in history that matches the scale and dynamics of the present depression event.
First of all, the total price tag of the entire savings and loan thing was $153 billion, of which the thrifts chipped in $29 billion, leaving the taxpayer with a $124 billion price tag. Accounting for inflation to convert to today's dollars, that sum is the equivalent of $216 billion today. Now, I've lost track of the price tag to date in this financial crisis, but considering that $568 billion has been thrown into the black hole of leveraged debt instruments just this week alone, I think few would argue that we're well over the $1 trillion dollar mark already. Just as we were initially told $50 billion would cover the entire Iraq war, and the savings & loan victims were told $30-$50 billion would cover the mess... so too were we prepped to be okay with the $1 trillion price tag some months ago by media reports that were posted to my blog. But ohhhhhh Fools.... that $1 trillion is just the tip of the iceberg.
Ready for this? The global total tally for the derivatives market, according to the Bank for International Settlements, is $1.14 quadrillion! That's $1,140 trillion... or 120 times the U.S.' entire national debt!! If we're talking about a systemic deleveraging process like we saw in the first Great Depression, then this first $1 trillion was merely the prologue of a Steven King novel. I
So, clearly, the difference in scale between the S&L crisis and our present predicament is so vast as to make any discussion of 'precedent' not only disingenuous but blatantly false.
Second, the structure of the RTC and whatever iteration of that general approach they might be considering for this debacle would be so fundamentally different, again, as to make any comparison meaningless. As a commentator on CNBC was quick to point out today, RTC was a repository for ASEETS... the seized assets of institutions as they were forcibly shut down by regulators. Since this was prior to the invention of the types of instruments out there today, these were not portfolios of meaningless securitized debt instruments, but rather actual long-term mortgages that the institutions had just leveraged too far relative to their cash position as the interest rate environment quickly grew less favorable. In the present day scenario, this black hole would contain no assets, since the true value of all these derivatives will ultimately be shown to be... zero!
Having once sported inspirational notional values, and now sporting mark to market values of pennies on the dollar, as the appetite for risk continues to disappear in the face of global financial uncertainty, the true value of these instuments will deleverage their way down to zero. Far from what the spin will present... a portfolio of debt instruments that the government will sit on until they become valuable enough to sell at a profit... this move to create a black hole for derivatives is nothing more than a direct pillaging of the taxpayer by the criminal and greedy minds that invented and propagated these useless pieces of paper.
How do you feel... knowing that the guys who built up the market for derivatives will walk away with untold billions in wealth while you and I will end up paying for it for a thousand generations. Again, if we were already concerned with the nations ability to pay down the $9+ trillion national debt over the course of several generations.... how indeed can we be expected to reasonably shoulder the burden of another 100 times that sum?? If a mechanism like this is in fact instituted, then every American taxpayer and every successive generation for eons will essentially become indentured servants to an insurmountable mountain of debt. And you thought the question of solvency for the social security fund was a critical danger lurking in the shadows?
The U.S. dollar is toast. Foreign nations will not bankroll this kind of debt. To the contrary, I believe they will flee the USD due to the implications of this. If the credit agencies had an ounce of objectivity, they would place the greenback on negative watch to signal the implications of such a plan. Instead, the Treasury, with a nod from a corrupt and clueless Congress will inflate the currency as needed to service the debt. Deflationists... I'm sorry... you really must consider the possibility that your interpretations of the events unfolding no longer tread water.We are heading into a hyper-inflationary depression because unfathomable quantities of U.S. currency will have to be created if the black hole is ever to be filled in.
Gold and critical commodities will soar in price as the dollar weakens and nations nationalize or otherwise act to secure access to resources before the prices get out of control.
Greedy bankers and brokers played the ultimate game of roullette with the former reserve currency of the world, and we all will bear the consequences. Forgive me if I sound upset... I am!
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