The Virtual Horserace (November 17, 2008)

During the dot.com bubble, a small number of affluent investors (consultants, dentists, consultants to consultants, public employee retirement funds, consultants to consultants to consultants, candle stick makers, etc.) anteed up large bets in cash up front; few horses crossed the finish line a few years later; everyone absorbed the losses with little intermediate-term damage.  Okay, they will retire later and perhaps with less money.  Life went on.  [See the e-ssay dated December 4, 2006 entitled “When the Bubbles Burst”]

During the “Greenspan Bubble,” however, the seeds of the Depression were sown democratically across the land.  (Almost) everyone in the populace placed huge bets on credit; few horses will ever complete even the first stretch of a 30-year race (mortgage term); the negative consequences are predictable and devastating.  The intermediate-term loses may be 3 to 5 to 7 Trillion in the US and a few Trillion overseas.

Astute observers knew that something evil was going on behind the scenes during “Hurricane Al,” but the contours of the corruption did not emerge until recently.  The Wall Street Boys devised something noxious known as a “Credit Default Swap” that involves a “virtual horserace” without real money that jeopardizes the economy and the American economic and political system.  The real nightmares are the bets placed on bets placed on bets placed on bets placed on bets placed on bets placed on bets in this virtual and unregulated gambling casino using CDSs as tokens.  These players were betting on outcomes in the horse race and then insuring the outcomes without any money, margin or reserve.  The winners (who may need to lose in order to win) of the game want to be paid; the losers cannot pay and never intended to pay.

No one will say that these gamers are “domestic economic terrorists.”  Saying something that true and stark is deemed to be impolite and impolitic.  The CDSs are a cancer on the country.  The losses may be 25 to 50 Trillion or more.  The Economy cannot absorb the losses.

Bumper stickers of the week:

We will get fooled again.

“All you need in this life is a tremendous sex drive and a great ego.  Brains don’t mean a shit.”

Mayor Anthony “Captain Tony” Tarracino (1916 – 2008)

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