FedUpUSA

So We Now Have "Financial Reform"?

 

So We Now Have “Financial Reform”?

Posted by Karl Denninger

Who are these guys trying to kid?

The most-important part of the bill, stopping derivative abuse, was watered down to the point of irrelevance.  The exceptions and exemptions that remain for OTC trading are big enough to drive 200 West Street through – sideways – and Goldman will do exactly that.

Nor did we re-impose a hard leverage cap.  You know, the one that existed before 2004?

Nor did we reinstate a hard deposit cap limitation.

Nor did we fix The Fed illegally usurping the appropriation power of Congress or impose an actual audit on them.

Nor did we fix the off-balance sheet or “mark to fantasy” BS – in short, the outright lies printed in so-called “financial reports” every quarter.

President Obama came to the podium yesterday afternoon to “applaud” the passage of the rookery bill in the Senate, looking like he had a laser designator on his forehead – or a load that was about to intrude into his pants.  In a delicious bit of irony the sellout he had just perpetrated on the American People was graphically illustrated by nature:

Many commentators have said that’s a rat – but it doesn’t look like one to me, unless someone chopped off it’s tail.  But no matter what it might be on a species basis it’s definitely a rodent.   The Rat in Chief got one-upped by Mother Nature.  If you don’t appreciate the irony…..

On the other side of things we have Europe, which is really just the shape of things to come here in the US in the near future.  Yeah, I know, everyone says it won’t happen here.  Uh huh.  They said Europe wouldn’t have it happen either a year ago.  “They” were wrong then and they’re wrong now.

There is no solution to the mess we’re in found in borrowing and spending more money.  Yet that’s been the “solution” to recession ever since… well…. forever.  At least since 1929. 

Why has it “worked” up until now?  Well it didn’t work in 2003, as the chart I’ve repeatedly posted showed.  All it did was “support” the economy perpetually and embed into the economic fabric structural deficits.  Medicare Part “D” was one of the most-outrageous of these acts undertaken by the Bush Administration, but it was by no means the only one.

We have lied our way into idocracy.  Bwarney Frank stepped up yesterday to attempt to revise history – few remember that in 2005, as the housing bubble was about to pop, he made a statement in public that “housing wasn’t infested with excessive leverage” and that “housing wasn’t like the .COM bubble.”

Everyone on CNBS and elsewhere is trying to find a way to “restart lending.”  Folks, that’s impossible.  The leverage hasn’t come out of the system as we’ve refused to force those who were excessively levered to take their lumps and go bankrupt!

Back in 2008 I wrote a paper called “Our Mortgage Mess” that was faxed to all members of Congress.   It was, of course, ignored.  Note that this white paper predated the collapse in the market.  The prescriptions are no less valid today than they were in early 08, but they’ve been ignored.

There are three sorts of investment, all of which involve lending of capital.  There’s productive investment, where one expends acquired capital to buy a machine or factory that is reasonably expected to produce more in net earnings than the principal and interest over a reasonable period of time.  There’s speculative investment, where one expends capital chasing some sort of return created by a productive investment (e.g. buying an IPO.)  And then there’s Ponzi investment, where capital is expended where the only possible way to recover that capital is to find someone who will purchase that item from you at a higher price than you paid for it.

(Speculative investment differs from productive investment in that the speculator is not directly involved in the creation of value – he is betting on someone else doing that.)

Ponzi investment always ultimately fails.  It did fail in 2000 and again in 2007.  But instead of forcing out the speculation and bankrupting those who caused the problem we instead supported all of them with insane government policies and swept the bad debt under the rug.

Everyone seemed to think that it “worked” in the mainstream media. 

I never believed it, and have been consistent in saying so.

Now, in Europe, the dead fish are stinking up the joint and cannot be ignored any longer.  This will come to our shores, as we’ve done the same thing here they did there.

It is simply a matter of time.

President Obama and Turbo Timmy are going to wind up eating their words on “recovery”, and if they don’t act soon the gangrene that has been ignored and covered up with flannel is going to wind up reaching the head, at which point it simply won’t matter.

Remember the PIMpCO folks who now say that this is “more than a correction” – they were some of the biggest cheerleaders of “stabilization” and “recovery.”  So was the administration, so was Cramer, so was Kudlow, so has been everyone else.

Last night Kudlow looked like he was about to stroke out on TV.  He knows – and so do the rest of these clowns.  They know they misled you.  They know they sucked you back in with the premise of “Pax Americana” and similar bilge.

All of them know.

Now consider this chart, and what it may be telling you.

Compare carefully what people said at the end of 2007 and what they’ve been saying in the last few weeks and months.  Remember the calls of “no recession” out of Bernanke and others, as we’re now hearing “no double dip.”  Remember the claims by Bush that “the economy is fundamentally strong”, along with Paulson, and how we’re “recovering” now.

If you don’t recognize the symmetry you’re blind.

If you get trapped a second time, it’s your fault.