Time to Go Guerilla.

It's time for a new direction at Direwolf. The power brokers, fear mongerers, and financial shamans have gained the upper hand. It looks like it could all be over.

If Naomi (I moan) Klein wasn't such an idiot she would have titled her book "Disaster Socialism: How The Ruling Elite Seize Control During Panic and Spend the Next Thirty Years Giving Massive Kickouts to their Cousins, Trysts, and Deadbeat Sons At the Expense of Those Stoogie Taxpayers."

It may not have sold as well but it would have had that ring of truth.

Anyway my people have asked me not to publish anything regarding finance for a week. They told me to turn my back on the mystical world of finance until at least monday. Just like Andrew Lehard except without the billions of dollars. Or like that native man turns his back on the polluted landscape with a tear in his eye.



While the good guerilla soldiers attempt to wrestle order out of this chaos the Direwolf's new topics will be the desert, music, and whatever else catches my roaming fancy. Let this be the week of Sandy Song and Sunshine!

From Our Friend Ron

"I believe that our economy faces a bleak future. We risk committing the same errors that prolonged the misery of the Great Depression, namely keeping prices from falling. Instead of allowing overvalued financial assets to take a hit and trade on the market at a more realistic value, the government seeks to purchase overvalued or worthless assets and hold them in the unrealistic hope that at some point in the next few decades, someone might be willing to purchase them. As with many other government proposals, the opportunity cost of this bailout goes unmentioned. $700 billion tied up in illiquid assets is $700 billion that is not put to productive use. That amount of money in the private sector could be used to research new technologies, start small businesses that create thousands of jobs, or upgrade vital infrastructure. Instead, that money will be siphoned off into unproductive assets which may burden the government for years to come. The great French economist Frédéric Bastiat is famous for explaining the difference between what is seen and what is unseen. In this case the bailout's proponents see the alleged benefits, while they fail to see the jobs, businesses, and technologies not created due to this utter waste of money. The housing bubble has burst, unemployment is on the rise, and the dollar weakens every day. Unfortunately our leaders have failed to learn from the mistakes of previous generations and continue to lead us down the road toward economic ruin."

What the Hell is Money?

America has a fiat currency. Fiat meaning faith. Taken at its simplest the government prints a bill which it says is worth this much and people believe them. Dave Barry pointed out it's the tinker bell system from Peter Pan. Clap if you believe in fairies. The logic goes if you clap then fairies exist.

Does anybody believe in the people who found time to include in the 'Bailout Package' tax breaks for kids wishing to purchase Wooden Arrows in Oregon?

From the markets reaction to the bail out package the answer was a resounding, 'No!'.

If only there had been cool headed leadership instead of Johnny McManiac claiming the economy was about to 'Crater' (Crater!?) or George Bush saying trust me or the world economy will collapse....

Trust George Bush's team to become the saviours and stewards of international finance? Are you serious?

So how much fiat is left?

No fiat therefore a broken monetary system therefore no liquidity therefore economic chaos.

Looking at some of these financial derivative packages requires suspension of disbelief: look up CDO squared obligations or Credit Default Swaps.

Modern Finance was as incomprehensible as modern art and even more profitable.

The notion that world finance is the tinker bell system raises some questions. Questions I wrestle with late into the night until my mind wanders to the austere beauty of the Kazhak mountains of my birthplace.

Strange Revelations

Here are the two paths as I see them from here:

Firstly the credit winter slowly thaws and spring restores confidence. Nothing will ever be the same again but relative prosperity and growth will begin again within four years. Governments around the planet will have a haircut (or more likely shearing) and there will be constant renewal of regulation, struggles against excessive inflation, and general aversion to any kind of wild west finance for a long, long time.

Worst Case.
Across America and Europe people will be eating ketchup sandwiches, grifting, scraping, wearing those cools gloves with no fingers and lots of holes in them, singing songs around burning garbage cans.

Russian land sailors and peasents will constantly be fighting off Teutonic knights in scary black armour, or seething asian hordes led by Ghengis Khan's great...great grandson John. Babylonian orgies of violence. Alexander Nevskies galore. People wandering into Arabian deserts. Bards, shamans, faith healers, barricaded farms...

Australia will probably just mandate that everybody watches mad max, picks their favourite character, and then emulates them.

The Rebirth of the Blues

Bear markets for finance mean bull markets for the arts, entertainment, and street culture. This Peter Stothard fellow is dancing for joy nowadays 'as the bankers head for the exits.' And why not?

All those kids at Goldman, Lehmans, and every other bulwark mystical capitalist institution were never stupid just a li'l but greedy. They wanted to get rich as astronauts, that was their right, and those were the right places to do it.

Too Bad! That whole racket is bust now so they have to pursue other careers.

Just like within every insurance salesman is a lion tamer, inside every bond-flow desk clerk is a cinematic auteur, every CA wants to be Van Gogh, Merchant Bankers want to be Brecht, and every corporate lawyer would prefer to be Evelyn Waugh. (I might be generalizing but it's a trend I believe in.)

With chaos around the corner I recently took a little break from the logosophere to buy a metal slide and tuned my guitar to open D. All the better to play Skip James. That wasn't irrelvant trivia it fits in with my next point:



When finance collapses the Blues comes back baby!

And People Wonder Why I Drink So Much...

Posted by Chris Martenson:
"Carsten Brzenski, chief economist at ING in Brussels, said the global crisis was now engulfing Europe with devastating speed.

"We are at imminent risk of a credit crunch. Key markets are not functioning properly. The Europeans thought the sub-prime crisis was just American rubbish that the US should clean up itself, but now they are finding out that it is their rubbish too," he said.

Data from the IMF shows that European banks hold 75pc as much exposure to toxic US housing debt as US banks themselves. Moreover they have mounting bad debts from the British, Spanish, French, Dutch, Scandinavian, and East European housing markets, where property bubbles reached even more extreme levels that in the US."

Borrowing to Make Poor Investments

There is a certain simplicity to this whole mess which is amusing. It begins with the words sub and prime.

Prime:
3. of the highest eminence or rank: the prime authority on Chaucer.

4. of the greatest commercial value: prime building lots.

5. first-rate: This ale is prime!

6. (of meat, esp. of beef) noting or pertaining to the first grade or best quality: prime ribs of beef.

Now even without an economics degree one, at least intuitively, looks for investments of ‘great commercial value’, a ‘first rate’ investment, or an investment of the ‘best quality’.

Sub:
a prefix occurring originally in loanwords from Latin (subtract; subvert; subsidy); on this model, freely attached to elements of any origin and used with the meaning “under,” “below,” “beneath” (subalpine; substratum), “slightly,” “imperfectly,” “nearly” (subcolumnar; subtropical), “secondary,” “subordinate” (subcommittee; subplot).

It appears investors focused on the prime and ignored the sub. Everybody is wondering how to value these SUB-prime assets. Well the answer is pretty simple. They aren’t of great value. There value is below, imperfect, slight, secondary… And thanks to computational wizardry almost every major financial institution, and following the chain a few more steps, every pensioner/anybody with savings (there aren’t actually very many in the states), is exposed.

The other simplicity is debt. Household debt was around 50% in the 1980s and rose to 100% in 2006. Whence does this level of borrowing lead? 100% debt?
Adam Smith, Keynes, Karl Marx, Milton Friedman… All pre-eminent economists never managed to articulate one of the most fundamental economic laws as gracefully as a lowly writer of ‘fiction’ Mr. Charles Dickens:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result: happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result: misery."

Have I Got a Deal for You!

They're going to pass this bill. I can sense it. They're actually going to do it. And here are some choice quotes illustrating the profound incompetence of the leaders.

Joe Biden:
"When the stock market crashed, Franklin Roosevelt got on television and didn't just talk about the, you know, princes of greed, he said 'look here's what happened.' "

(The television wasn't invented for another thirty years and Franklin Roosevelt wasn't the president when the stock market crashed.)

John McCain:
"The fundamentals of our economy are strong."

George Bush:
"Anyone engaging in illegal financial transactions will be caught and persecuted (sic)."

Barack Obama on getting involved in the drafting of the bill:
"If they need me, they can call me."

Sarah Palin:
" "

Joe Biden needs to repeat first grade history. Obama is chillin' shooting some hoop. McCain is a lunatic. Sarah is...

As for George, well, his solution is to hunt them down and then get down to the persecution.

From their words alone I can tell these men couldn't be trusted to mow the lawn without badly injuring themselves and any innocent bystanders. Yet soon they will be equipped with 700+ billion dollars to do as they please.

Ricky Gervais Should Be President

The Wise Senate Says Yes to the Bailout... and so the youthful House tomorrow, chastened by their clever colleagues, will probably say yes too.

Have we learned nothing from Ricky Gervais' analysis of Humpty Dumpty? When the egg smashes into a million little pieces you don't send in every man, woman, child, and horse to put him back together. It just doesn't work.

So now that humpty-dumpty (read:the market) has fallen off the wall and smashed into a million little pieces why does the Bush Administration (yet again) want to send in the troops? They aren't going to glue this all back together. Why do they want to give 700 billion dollars, SEVEN HUNDRED BILLION DOLLARS, to Secretary Hank? The man who presided over one of the major players in this mess in the first place? Hank helped push Humpty off the wall. Hank hated Humpty. Hank and his heavies helped waste Humpty.

Market Turmoil reads in English as "an opportunity for drastic changes". This is a real opportunity for a youthful, dynamic, young man, with democratic ideals (sound familiar?) to stand up and say this isn't a crisis, it's a chance to make things better. You want change, well, now is the perfect opportunity.

Instead, cap in hand, he votes with the herd.

We get the politics of fear. "We must pass this bill or it's the end of the world." The people are scared, they want to see something being done, and their politicians seize the opportunity to fail them.