Time for an “I told you so” re-post

What is going on – My opinion and not-so-improbable scenario

By guidoamm

You’ve read my rants and ravings and you are probably inclined to think I am a crank. After all, how can Guido be sitting there seeing things that the great and the good cannot see particularly considering that he avails himself of published data and news articles available to all. Entertaining though he may be occasionally, Guido mostly dramatizes for effect.

Bear with me. We know for a fact that the USA, Europe and England have officially borrowed in excess of US$3Trillion to ostensibly counter the crisis. This sum does not take into account the guarantees each government has put up. This is just the physical amount of money that has been requested, approved and is being transferred.

From a recent Bloomberg article we read: “If atonement is difficult, retribution may prove “brutally difficult,” Starwood Capital Group CEO Barry Sternlicht said in an interview in Davos. As Sternlicht sees it, “everyone wants a head, and that’s not reasonable. To do that, you’d need to take out the top 20 executives at the 300 biggest financial firms.”

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=abAA1ieh6wTk

Sternlicht gives us an estimate of 6000 people that are directly involved in this scandal – because it is a scandal.

Let’s take the 6000 people Sternlicht is talking about (300 biggest financial firms x 20 executives per firm) i.e. Thain, Trichet, Paulson, Bernanke, Cameron, Goodwin, Greenspan and so forth and lets assume they were the only and ultimate puppet masters. As puppet masters, they operated through a gaggle of minor figures a good number of whom were politicians. To be generous, let’s assume that Sternlicht’s 6000 top executives influenced and enacted policy through a gaggle of 10000 minions. So we now have an estimated gang of 16000 people involved in the scandal. Let’s round that number to 20000 to be generous.

So, we have a band of 20000 around the world that somehow genuinely did not, could not or did not want to see what was clearly suspect, undesirable if not criminal behavior in the past 15 years. Things like companies selling debt and using the proceeds to buy back their own company stock so as to artificially inflate the stock price. Things like Fannie Mae unable to publish its accounting books for a period of 18 months not 2 years after the Enron event. Things like GM no longer making money in its core business (vehicles) and making up the shortfall with suspiciously juicy profits from its finance arm GMAC. Things like banks making use of off-balance-sheet instruments called SIVs. Things like negative ammortization mortgages in the face of what was clearly a bubble… you get the drift… there was no shortage of red flags in the recent past and yet, apparently, nothing appeared to be out of whack for the world elite economists and politicians. Fine.

Of course, we can argue that professional economists also somehow completely failed to notice the long term decline in the velocity of money despite the fact that the rate of expansion of financial debt was outpacing GDP expansion at an accelerating rate for the past 20 years. But, let’s not get technical here.

So, we have a band of 20000 (twenty thousand) that thought nothing was amiss in the past ten, or even, the past five years.

Our leaders have now borrowed US$3Trillion (that’s twelve zeros) and it is likely that Obama this week will request another whopping amount as will the EU and England in the coming weeks. I estimate that before the year is out, we’ll be talking of amounts in excess of US$7Trillion… a large sum in and of itself but nothing compared to the sum it is supposed to off-set estimated by the BIS at well over US$500Trillion in various debt instruments world wide.

What is the use of pitting 7 Trillions against a potential default of 500 or even only 50 Trillions?

The answer is two fold. Our leaders are not attempting to counter the deleveraging of the debt mountain. If that were the case, they should be talking of sums that are ten, twenty or thirty times larger than US$7Trillion.

What our leaders are doing is to make whole the gang of 20000 that got us into this mess.

The 20000 are making out like bandits. They will plunge us in a world war which will presumably bring about the much talked about New World Order that Gordon Brown is so proud to discuss in public fora these days.

7 Trillion Dollars divvied up amongst the 20000 is a cool average of 350 Million each. In a deflationary environment, that’s a whole lotta moola.

These calculations are based only on the official numbers common mortals like you and me have access to. Undoubtedly, there are huge sums changing hands behind closed doors that we will never hear about.

Still think I am a crank?

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One Response to “Time for an “I told you so” re-post”

  1. Patrick Donnelly Says:

    Oooops! “Physical amount of money” ? Really?

    So, what makes you think these folks are getting the $ into their hands? I wish they would as it would provoke a backlash!

    Sadly, it is a quid pro quo operation. They prop up one another with fake money and inflate commodity prices causing riots worldwide.

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