Use access key #2 to skip to page content.

alstry (< 20)

VERY SOON.....are we ALL Madoff Clients????



March 13, 2009 – Comments (22)

Bernie Madoff ran a Ponzi scheme.  The assets and values on the statements he sent to clients were illusory, but perceived to be real by those that received them.  The checks kept coming until money stopped flowing into his firm.  His clients slept like babies at night thinking they had millions, tens of millions, and hundreds of millions of dollars working with the man that paid like clockwork.......until the clock stopped one morning......and their lives turned upside down.

If you think about it....are most Americans really in a very different position than Bernie Madoff's clients???  The vast majority of assets making up the wealth in America is DEBT!!!!  Yes debt.

Municipal Bonds, Corporate Bonds, Mortgage Securities, Securitized Credit Card portfolios, Securitized Auto Loans, and trillions and trillions worth of deritives based on that debt.  If you put it in perspective, the total value of the stock market is likely $10 Trillion dollars, but the total value of debt exceeds $50 trillion....and much more if you factor derivitives.

The vast majority of assets in banks, pensions funds, and many retirement plans is debt.  As long as the money keeps flowing in, the debt is serviced and everyone is happy.....just like Bernie Madoff's clients.  Not only that, much of value of equity is a derivitive of the value of houses and many corporations (with lots of debt on their balance sheet).  If the debt is impaired, many companys' equity is WORTHLESS.

At the end of the day, even currency is DEBT.  If you look at a dollar, it is a Federal Reserve NOTE......a DEBT instrument.  DEBT IS MONEY.  It spends just like money because it is money.  DEBT should be counted as part of the money supply just like deposits.....

If you think about, just about everything we value is either debt or derived from debt in some way or another.  All is good if the debt is being serviced.  Just like all of Bernie's clients, we are happy as long as we get our checks every month and we are told that our value is holdin....but if the music stops.......

Here is the PROBLEM:

Fewer and fewer people, families, businesses, and state and local governments can afford to continue to service their debt.  DEBT is DEFAULTING at an accellerating rate causing the value of the majority of the assets in America to IMPLODE!!!!

Real Estate is the most visible to all of us...but so is the value of the debt itself.....and for us CAPs players...equity values are priced derivitively to the value of debt.......but sometimes our statements show a much higher value than reality would normally dictate.

If you think about it.....the vast majority of American's wealth is centered in Real Estate, Business Equity, and Debt holdings.........and our savings is backed by DEBT.

AS DEBT does the value of just about everything in AMERICA......

As stated in an earlier blog....debt was often serviced by borrowing more money creating even more DEBT adding to the asset base of the nation......and then our wise bankers levered up 10X, 20X, and 30X to expand debt even more and to keep servicing the existing debt  while giving themselves HUGE bonuses.......this was hyperinflation of DEBT!!!!!!!!

During this period we all looked at our statements and everyone was happy is it kept getting bigger and bigger every month as TMF and others were screaming BUY BUY BUY and chastising Alstry saying he was too Doom and Gloom and his blog offered little investment value.

You think Alstry felt a bit like Markopolous when he tried to warn the SEC about Madoff and was rebuffed?????

Well we are just waking up right now.  Jon Stewert did a pretty good job getting the ball rolling......and my what a long ways to roll it has............

Things are not stabilizing....they are getting worse....A LOT WORSE!!!!!! as more and more debt continues to default destroying value in BANKS, PENSION FUNDS, RETIREMENT PLANS, HOUSING, and STOCK EQUITY we will become more acutely aware just like Mr. Madoff's clients.

If you think you are OK because you have savings......don't forget to look at that money.....IT IS DEBT......and if few are paying taxes.....what do you think the government is going to be able to exhange it for......more debt????????  How much will that debt be worth??????

Remember, the day before the Madoff scandel broke out......his clients perceived they were RICH!!!!!!!  The day after they were broke.

Look at your own net much of it is based directly or indirectly on DEBT.......and if debt is defaulting at an accellerating the end.....will any of us really be in a much different position than Bernie Madoff's clients??????

And for those of you that think we can inflate our way out of it.....that is just creating more debt......isn't that what got us here in the first place????.........yes my friends, we are all just waking up that the last ten years or so was one big PONZI scheme.....we are all just like Mr. Madoff's it is only a matter of time before we are told.

22 Comments – Post Your Own

#1) On March 13, 2009 at 6:33 PM, kdakota630 (29.10) wrote:

Well said, and frankly, I think one of your best blogs.

Report this comment
#2) On March 13, 2009 at 6:34 PM, njbrown113 (< 20) wrote:

Jesus Alstry, where do you come up with this stuff, I mean I agree with you, but holy crap man. I just would like to know a few things about you if you dont mind me asking

1. Where did you go to school (college)

2. What do you do for income (jobs,entrepaneur,etc)

3. and what state do you live in.

I only want to know cause I used to despise you, but I finally came to the realization that your right majority of the time and just deal with.

Great article by the way.

Report this comment
#3) On March 13, 2009 at 6:37 PM, jszoke01 (26.83) wrote:

At this point, I might as well start Rec'ing before reading the blog.

Are you going to revise your "Don't fear - prepare" statement soon?  Doesn't sound like preparing is going to do us much good in light of what we're facing..

Report this comment
#4) On March 13, 2009 at 6:38 PM, alstry (< 20) wrote:

In a debt based ponzi scheme, when people can't borrow.....people can't puchase things.  When people can't purchase, business slows down.....when business slows down....people get terminated from their jobs.....when people get terminated....they can't slows down......and the loop keeps expanding!!!!!!

Port Traffic in February is DOWN about 25-30%.....that is an incredible number.  Income Tax receipts were down over 60%.

The trend is not hard to follow if you are looking for it.....if business and revenues are down should expect 30% of workers to lose their you see why it was not hard for me to forecast 30% unemployment???????  and that might be just the beginning.

We are unwinding a debt bubble against a backdrop of declining production....The Great Depression was a liquidity crisis against a backdrop of rising production......a much easier problem to resolve that resulted in 25% unemployment.

Report this comment
#5) On March 13, 2009 at 6:45 PM, cbwang888 (25.53) wrote:

Too much debts? Isn't it time for the creditors to suffer? Irresponsible lending is as bad as irresponsible borrowing. The US federal government is the biggest creditor (credit bubble maker) and it is pumping more credit into the system to protect its own credit. Wonderful!

Report this comment
#6) On March 13, 2009 at 7:16 PM, fewl10 (< 20) wrote:

Hey Fool.  If you're going to PLAGIARIZE the MARKET TICKER, you should give credit to Karl Denninger.

Report this comment
#7) On March 13, 2009 at 7:54 PM, jester112358 (28.20) wrote:

In all fairness, for every debtor there is a creditor and everything nets to zero.  So, neither debt nor credit is inherently bad.  Debt is just an IOU against future cash flow and if used to acquire productive assets which increase future cash flow can be useful.  (e.g. paying for a professional education in science, medicine etc.)  For example, if I borrow against real collateral to acquire all the food and energy supplies I will need for the rest of my life, that may be a very good use of credit.  Our debt problem arose from the illusion of wealth which encouraged reckless spending and more borrowing on depreciating assets like big screen TVs, SUVs etc., vacations-the well known housing ATM.  Debt insurance of all sorts and overuse of leverage then created the perfect storm as you have been accurately documenting.

Report this comment
#8) On March 13, 2009 at 7:54 PM, alstry (< 20) wrote:


You must be new to this blog.  I have been posting in a very similar fashion for the past year.  In that time, I have been accused of many things, but never plagerism, and made numerous references and provided links to Mish's Blog, CalculatedRisk, TheHousingBubbleBlog, Karl's Blog, Nuriel's Blog and others.

Any comparison you make of my work to Karl's is my privelege as I am a great admirer of his.  Although I havn't read his blog for the past few days, on more than a few occasions I have told readers of my blog that they should look at his work specifically.

That said, I would say me and most of the above people have had somewhat similar perspectives on the general negative outlook for our economy for some time to differing degrees.  In that light, I would say, for at least the past year or so, without a doubt, I have been the most bearish but the others are catching up quickly.

As far are any similarities, I would appreciate if you would provide a link or reference.  I think Karl is a great blogger and it would be fun to see if we are thinking parallel at the current time.

If you want to add in Nasim Taleb, I would be priveleged.


Report this comment
#9) On March 13, 2009 at 7:59 PM, checklist34 (98.75) wrote:

So with an outlook like that, what assets do you recommend holding?


Report this comment
#10) On March 13, 2009 at 8:01 PM, alstry (< 20) wrote:


You miss the point.  Current debt zeros out as long as it remains current.....not defaulting debt.

Defaulting debt destroys an asset each time it defaults.  What do you think makes up the majority of assets on banks and insurance companies balance sheets?

People, businesses, and municipalities simply borrowed too much.

The current problem arose from reckless lending standards and reckless borrowing.  BOTH parties were culpable as in many cases the lenders knew or should have known that the borrower would likely default.

TVs, Cars, and vactions are only a very small...VERY SMALL part of the problem......reckless commercial real estate debt, municipal debt,  commercial debt, mortgage debt, HELOC debt ALL contributed to the current problem.

Report this comment
#11) On March 13, 2009 at 9:33 PM, motleyanimal (39.38) wrote:

Report this comment
#12) On March 13, 2009 at 9:49 PM, Jaycephus (< 20) wrote:

jester, alstry,

How can debt zero out when houses were bought at $200,000, and are now worth only $145,000, and probably not 'really' worth that much, meaning I believe home values will drop some more before they stabilize long term, and that assumes we DON'T have a serious, ugly, big-D depression. Banks are foreclosing on these homes and already turning around and marking down, in some cases, far more than 30-40%.  A loan was made with the house as collateral, but the house is only worth as little as 50% of what the loan balance.  So, as I understand it, the bank bailouts, and the money to AIG is really to help cover this difference.

Fill me in if I'm not getting something.

Report this comment
#13) On March 13, 2009 at 9:53 PM, biotechmgr (< 20) wrote:

Another massive dose of reality. Good one.

Makes me want to take a soma holiday though.

Report this comment
#14) On March 13, 2009 at 11:01 PM, mliu01 (< 20) wrote:

I read Karl Denningers' tick often. This is NOT PLAGIARIZE the MARKET TICKER.  Good stuff alstry.

Glad you woke up to these points. But you still have not see why Gold is real money. Cause USD, as you just realized, is simply debt. US govt(or fed) issued more and more, but they have nothing to pay it back with. Both you and KD are dead wrong about gold and inflation. I have been arguing with him about print, inflation etc for more than a year now. I am sure time will prove who is right or wrong.

I don't know what deflation are you talking about. The debt is deflating, but we are not going to quit print more money to replace the deflated assets. How will this end? History showed up many lessons before. People are not buying the stuff they don't need anymore. This is hardly called deflation. In Gold we trust, My friend. Gold is not a dirty word or thing.

Report this comment
#15) On March 13, 2009 at 11:59 PM, Jhana9 (20.72) wrote:

I read Denninger daily. Also  Mish, Calculated Risk, Naked Capitalism, B.P., etc. Alstry may see eye-to-eye, but I've never know him to plagerize.

Alstry, don't know if you read The Automatic Earth, but it seems right along your perspective. It's one of my favorites. 

Report this comment
#16) On March 14, 2009 at 12:35 AM, herztical (27.57) wrote:

...debt is fine as long as their is a counterparty taking the risk. Foreign governments will buy in, buy in more at 10% more at 20%, and more at 30% rates...what does the rate matter if you never intend to pay it back? Ironic how we criticize the people who don't pay their mortgages, credit cards, and cars but how does this differ from the U.S. government? The world is a gigantic bank and hopefully the U.S. doesn't become the next toxic asset.

Report this comment
#17) On March 14, 2009 at 1:16 AM, milpo (46.14) wrote:

Maybe it's Lent or the Easter Season Alstry, or maybe you are finally therapeutic on your lithium levels, but a switch has clicked in your brain and you are providing the most cogent and rational blogs that are not only educational but a pleasure to read.  Boos tizi ya habibi

Report this comment
#18) On March 14, 2009 at 2:54 AM, kaskoosek (30.10) wrote:

"And for those of you that think we can inflate our way out of it.....that is just creating more debt......isn't that what got us here in the first place????"

This is where I disagree.

When the federal reserve buys assets (equity, or bonds) in exchange for money or loans. These are not intended to be paid back, therefore they are hyperinflationary.

Report this comment
#19) On March 14, 2009 at 2:56 AM, kaskoosek (30.10) wrote:


Which country are you from?

Report this comment
#20) On March 14, 2009 at 4:47 AM, leo744 (< 20) wrote:

I agree on of your best Blogs Alstry!

 So if our US dollar won't be worth anything what do we do to protect ourselves????

Report this comment
#21) On March 14, 2009 at 11:25 AM, RVAspeculator (28.21) wrote:

"And for those of you that think we can inflate our way out of it.....that is just creating more debt......isn't that what got us here in the first place????"

Yes, exactly....  it has been the formula since 1971 when we went off the gold standard and it will continue to be the formula. 

Report this comment
#22) On March 14, 2009 at 3:25 PM, Jaycephus (< 20) wrote:

Maybe some one can explain: Certain people that I believe don't 'get it' say we are 'deflating', we must increase the money supply, i.e., inflate, or maybe they would say 'reflate' or something, only to keep from using the 'i' word.

So then you hear arguments like 'we have no inflation', or 'deflation is THE problem, not inflation.'

But what we are doing IS inflation, regardless of where some prices are heading.  There is more than just one factor here.  There is supply and demand's affect upon prices, and there is the totally separate value of the dollar, which IS reduced when trillions are printed.  

It's like the economy is an airplane, and we have a cross-wind. Simultaneously, we have Bernanke loosening a wire on the rudder, repositioning the rudder (tail flap).  The airplane sees no net change in heading.  But changes have occurred!  The wind is no longer from behind.  It is from the side trying to blow us off our heading.  Bernanke, meanwhile, has been jerry-rigging the rudder to compensate.  It just seems like there is no net change (assuming you ignore the fact that the government has also been fudging with the reading from the compass as well, i.e. the methods of determining the official inflation number.)  However, when the cross-wind dies down or shifts, Bernanke's meddling will become painfully apparent as the plane goes into an unrecoverable spin and crashes, killing all aboard.

Just because prices are falling due to decreasing demand for all commodities, goods, and services doesn't mean we ALSO don't have high inflation, which is to say a massive devaluing of our dollars.

How is this a 'good' thing?  How is this not a very bad thing?


Report this comment

Featured Broker Partners