Shoes Dropping

[Crewleader]

by Jim Kunstler

The fall of Britain's Northern Rock bank may be the first dropped shoe in a chorus line of big banks tap-dancing into oblivion. The British government's move yesterday to nationalize the insolvent mortgage lender's remaining operations leaves shareholders holding an empty bag. Their only resort now will be to call their lawyers. What we may be witnessing, in a movement that will surely spread to the US, is a changing of the guard at the top of the financial food-chain between bankers and lawyers.

Shoes may have begun to drop in the US last week with Citigroup halting redemptions for its $500-million CSO mini hedge fund -- half a billion dollars being something less than walking-around-money in the Hamptons these days. Halting redemptions means that investors in the fund cannot withdraw their money -- the same as going to the bank and being told your account is frozen. Hedge funds can play rough with their investors because they are unregulated. The reason they remain unregulated is the presumption that anybody rich enough to "play" in a hedge fund can afford to lose (or be swindled) with no protection on the sidelines from government busybodies. What's more, the hedge fund managers do not have to make any of their operations open to public view, so that neither the investors nor any regulating authority knows what they are actually doing.

What the big banks who run many hedge funds are doing is going broke. They are pretending to be solvent by borrowing money from the Federal Reserve, the nation's alleged superbank. But borrowed money is not capital, i.e. surplus wealth wholly owned. Borrowed money is an obligation, a liability, a negative on the balance sheet. You can't have an entire financial system based on nothing more than a giant daisy-chain of liabilities. Somewhere there has to be a "reserve" of assets, items of value owned by somebody.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/commentary_on_current_events/index.html

[aquart]

1. Are they holding off till January 20?

So that it lands on the head of whichever poor sap we elect?

Can't wait to hear McCain's plan.

[Vincardog]

2. They are trying to. But their house of cards build on the corrupt foundation of "Free Market"

policies has to fall down.
If it is going to crash (And how can it not?) let it happen on Dim Son's watch.

[Warpy]

3. The truth is that 99% of the crash has happened

with the fall in the dollar wiping out more real wealth than anything else has so far. Now banks are raising their credit card interest rates across the board in an attempt to squeeze more blood out of stones, an admission that they're realizing most of that debt is uncollectable even with the consumer hostile bankruptcy law.

Whether or not the corrupt media will tell Joe Sixpack that the crash has happened and that his 401K has been trashed and his pension tried to compensate for being used for a piggy bank by increasing risk and it's now evaporated and oh, by the way, we're still paying corporations to offshore your jobs and the deck is now so completely stacked against you that you might as well do the plutocracy a favor and eat a gun.

Expect to have more banks, brokerages, insurance companies, and pension funds announce big losses. Keep adding those losses up, folks, because they're going to equal the deregulated bullshit that has been going on for the past 27 years, including derivative trading, hedge funds, and all the rest of the snake oil that was being traded around to boost paper profit while being intrinsically worthless.

Don't think the crash has happened? What's your net worth, Joe? Remember, you take what you own and subtract what you owe and even though you've got all the latest toys and a little wiggle room left on that now 28% interest credit card, your net worth has been in negative numbers for a couple of years while you weren't paying attention and you're DESTITUTE, not middle class.

When Joe wakes up and figures that one out, we'll be in big trouble because all the happy talk in the world won't keep us out of another depression.

[sendero]

5. I predict....

... (or maybe wishfully think of) a tsunami of anger towards the Republican "let business regulate itself" mindset that made it so easy to get here.

There is no way the pukes are going to be able to blame this on Democrats.

[nadinbrzezinski]

6. That happened in the 1930s, why do you think the Republicans saw

forty years in the wilderness? It took literally two generations for them to be able to sell snake oil again

[sendero]

4. That's what they want...

.. but there is no way it is going to work. We are already well past the point of no return.

[nadinbrzezinski]

7. Trying hard

but what is coming will be clear by next summer at the latest

Wise people will NOT incur any debt from now until five years from now