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How to wreck a financial system

September 16, 2013 - Harry Eagar
This one is especially for Skipper and others who insist that the CRA caused the crash of '08. The key words in this piece about credit default swaps are "completely unregulated."

Allow me to repeat that: COMPLETELY UNREGULATED.

Although Brenton Smith does not say so, the Lehman CDS deals were so opaque that today, five years after its bankruptcy, some of them are still unsettled.

Nobody knows the total of CDS obligations, because -- wait for it! -- they were COMPLETELY UNREGULATED. But a common estimate was $55 trillion, or several times the cumulative economic activity of humans since the first caveman traded a rabbit skin for a pretty shell.

Should you click through to the Smith piece and then click through to Smith's link about what he calls Bill Ackman's lies, allow me to commend your attention to the date of the story about that: July 2008. (That summer, RtO, a new blog, was constantly repeating financial advice: conserve cash. It was no secret, at least to me, that a crash had been engineered.)

Should you think Ackman's name is familiar, he is known around here for -- until recently -- holding a big stake in A&B, and, more broadly, for being wrong about his bets on business about as often as he is right.

In other words, the people who devised the system that crashed didn't understand it. They were just shooting crap, and if they won, they collected billions. And the way it was set up, even when they guessed wrong, they collected millions. The key word here is GUESSED.


Courtesy of a Facebook friend, this morning I was presented with the following support for the last paragraph of this post.

Funny thing.When rightwingers bitch about income redistribution, they always point to people who are doing their jobs competently, even if the job is no more complicated than restocking shelves at Wal-Mart. I have never, ever heard one of them complain about the massive income redistribution to business management (doubling under Reaganomics) despite the obvious fact that management is, on average, incompetent.

CEO pay has, on average, doubled when compared to worker-bee pay. I doubt anyone will be bold enough to propose that CEO's have doubled their relative productivity.

Arguments that market forces bring us the best achievable distribution of economic assets sound really silly when you think of "management skills" as an asset.


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