Tuesday, November 01, 2011

The Ruse Is About To Be Revealed

How quick that green worm turned. The illusionary euphoria of "the market" dispelled like a cheap parlor trick. The hedge fund wizards' bluff of pretending debt can be infinitely extended called by the Greek President himself who went All In, issuing a surprise public referendum on the pseudo-enforced referendum deal.

Maybe Greece will just accept default and go their own way, much like Iceland in late 2008. The Greeks can't pay their debt now, haven't been able to pay it for more than a decade, and even a 50% reduction by their creditors won't help. Any deal they accept now just prolongs their suffering.

But why all the drama and fury by the weeping wizards of Wall Street? Because they know the ruse is about to be revealed. That the financial emperors have no clothes. And even less money. Much like the burning hordes of Greece, the market mavens are all in debt to their red-rimmed eyeballs and have no way of paying their own liabilities once the collection plate gets passed around the room.

If Greece goes Tango Uniform, failing to meet its obligations, then a hailstorm of counter-party risk, in the form of Credit Default Swaps (CDS) will need to be paid out. Computerized triggers will get pulled. Bank accounts will open. And suddenly several million CDS holders scream "BINGO!" because they're owed several trillion (yes, TRILLION!) dollars on their risky investments. Except nobody is excited. Nobody is getting ready to collect their filthy lucre. No screams of bingo. Or triggers being pulled. Instead, the panic has started anew.

It is very likely that even though CDS have been piling up for more than a decade, few (if any) of them will be cashed in. Why? Because of the other end of the ruse, the other half of the lie: the so-called owners of the CDS never actually paid real money for those CDS they're clutching so tightly. Instead, they just promised to pay real money at some future date, which never arrived. No money has ever changed hands, and those risky investments aren't worth the paper their printed on (if they're printed at all!) because the owners can produce no receipt proving payment. So the effective worth of all those "investments" is actually close to zero.

And that is what this crisis is about: the fiction of money. There is none. No hedges. No bonds. No deposits. No protection. No backing. No insurance. No real cash. Nothing. Just a punch-drunk collection of grinning frat boys electronically exchanging nods and winks and promising to pay the beer tab next week. Like they promised last week. And for ten years worth of weeks before that. But now the tab is so ungodly huge that it dwarfs the Gross Domestic Production of many small nations. And the only thing the frat boys can produce for payment are rancid burps and well-manicured beer bellies.

Meanwhile, all their cars and houses in the Hamptons andregularly scheduled pay-per-views of Ultimate Fighting Championship have been funded by our IRAs, our pension funds, and the hollow shells of our 401Ks. Every penny and every real dollar we "invested" in the magic show of "the market" was instantly converted into ones and zeros then mixed into a toxic slurry of computer generated financial vehicles like collateralized debt obligations, naked shorts, fault resistant traunches, and other indecipherable forms of financial derivatives. We're all competitors in some pre-apocalyptic version of Thunderdome: two men enter, one man leaves! Except in this twisted version of our new reality: your so-called retirement enters, and nothing leaves.

Maybe Greece has seen the truth and they are going to accept their fate. They would rather reject the deal of 50% debt reduction, walk away from Thunderdome, and take their chances at starting over from scratch. That is what is spooking the exulted wizards of Wall Street.

Meanwhile, the rest of us rubes cling to the steel bars and stare, slack-jawed and clueless, as Dr Dealgood recites his all-too-familiar lines:
Listen all! This is the truth of it. Fighting leads to killing, and killing gets to warring. And that was damn near the death of us all. Look at us now! Busted up, and everyone talking about hard rain! But we've learned, by the dust of them all... Bartertown learned. Now, when men get to fighting, it happens here! And it finishes here! Two men enter; one man leaves!
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