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Karl Denninger, “Here You Go: It’s Over”
by Karl Denninger
Our lawmakers, for their part, continue to sing a happy song about how we’ll get it done – but not today, since the supercommittee was an abject failure. Covering up the failure was the fact that there were departments that had 10, 20 even 30% increases in the funding found in the appropriateions bills that were passed in the House even while the “committee” was trying to find a way to “cut” spending.
Folks, this political game of lie, lie and lie some more cannot go on forever. Eventually the waiter appears with the check and you either pay it, wash dishes, or get arrested for theft. In the political world that “arrest” comes in the form of capital holders saying that they no longer believe you will ever pay and borrowing costs go up – way up. The Fed cannot “print” out of this and neither can the ECB. If either try that they will engender an all-on revolt, never mind that as purchasing power falls the fixed costs of staying alive go up relative to incomes and the war is lost anyway.
Reality must eventually be faced. That day is here for Europe and it will soon be here in the US. We have permitted the lies and stealing – both indirectly and now, as we’ve seen, it appears directly through MF Global – to go on for too long. To those Seniors (and soon-to-be-Seniors) and others who say “but we were promised!” and “I vote damnit – you better give me what you said I’d get” respond: The till is empty and your check is going to bounce.
Occupy Wall Street? Well sure, but while you’re at it, why aren’t the Seniors encircling the Capitol and refusing to leave? Why isn’t the underlying truth being discussed and why aren’t the jackals that led to this happening being forced from office and run out of town on a rail? I’ll tell you why: Because everyone thinks that they can manage to somehow “get theirs” while “someone else” will take the hit.
I’m sorry to tell ou that it isn’t going to work out like that. There’s no point in continuing to play this game. MF Global showed us – you’re right, you hedge or you place your bet, you still lose your money! How many farmers, airlines, industrial producers and other legitimate entities using the market for risk management got screwed by that little game and why is it that Corzine is not in handcuffs? FINRA? What’s that – it appears Corzine didn’t have a valid (and required) securities license. Self-regulation not only failed so has any resemblance of actual law enforcement.
The same game was run over in Europe with sovereign CDS. You hedge, you bet right, the ISDA declares that you were “voluntarily” exchanging your bonds and the hedges you bought were worthless. Your “exchange” was as voluntary as is handing over your wallet when there’s a gun up your nose, but that doesn’t matter – the word “is” can be redefined any time the people in charge want, and they want. Your money, that is.
It will not be long ladies and gentlemen, when the bulk of the folks running the algorithms deduce that they’re exposed to the same risks – they have to post margin too, you know, and if it can be stolen then their capital isn’t safe either. These deposits aren’t supposed to be “at risk” when there’s no position actively open – that’s a performance bond against possible failure to pay, but is supposed to be exactly as safe as a bank deposit in a checking account under FDIC limits. Well, it wasn’t. The CDS you bought on Greece wasn’t. And it will only take another event like this or two before people conclude that everything is unsound as the jackals running the game will redefine the meaning of words to suit themselves and, failing that will simply steal the money.
30+ years of lawless behavior has now devolved down to blatant, in-your-face theft. They don’t even bother trying to hide it any more, and Eric “Place” Holder is too busy supervising the running of guns into Mexico so the drug cartels can shoot both Mexican and American citizens. What am I, or anyone else, supposed to do in this sort of “market” environment? Invest in…. what? Land titles are worthless as they’ve been corrupted by robosigning, margin deposits have been stolen, Madoff’s clients had confirmations of trades that never happend and proved to worthless pieces of paper instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone! Without enforcement of the law – swift and certain – there is no deterrent against this behavior. There has been no enforcement and there is no indication that this will change.
It will take just one – or maybe two – more events like MF Global and Greek CDS “determinations” before the entire market – all of it – goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.” It’s coming folks, and I guarantee you this: Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.
“CNBC is reporting that there are now clients running out of the markets entirely because they do not believe their customer funds are safe. That’s the end of it. The belief that there are more MF Globals has now taken hold. The thieves have pushed it too far and now we’ve got the start of a global liquidity run, and with good reason. The authorities both in the regulatory side and on the prosecutorial side have refused to put a stop to the thievery and now the risk factors have turned into realized risk. The market is done folks. You can be right but if you make your bet in the markets, are right, and then get screwed anyway when someone steals the money and nobody goes to jail there comes a time when people begin to understand that it can happen to them and will unless they depart the market.
We’re there folks.
Oh sure, there will be rallies and there will be selloffs. But there is no longer a market, there is no longer a thing to trade, and there is no longer a reason to believe that superior analysis will lead to profit or even safety. This isn’t just about speculators – it is also about farmers, shippers, airlines, manufacturing concerns, everyone in business who has a need to hedge.
More than four years ago I said that the government had to step in and demand that both off-balance sheet games be ended permanently and in all forms and that all derivatives had to be put on an exchange, without exception, and that every dollar of underwater position had to be backed by an actual dollar of capital in real money, held and known to be safe. The regulators refused and now it appears that what was put up on a regulated exchange was effectively stolen.
Well folks, then none of your investment accounts – not your IRA, 401k, not even your bank account – is safe.
Diversification is a strategy but the risk remains. It is up to you to decide how much you’re willing to risk losing to a crook. If the answer is “none” or you cannot reduce the at-risk portion of your assets to what you’re willing to lose to fraud then you can no longer participate in the market at all, in any form, nor even do business with a bank. That sucks, but it is what it is and if this meme spreads – and it will until it’s stopped – we run the risk of a “sudden stop” economic event.”
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