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The Heart of Financialization: Counterfeiting Risk-Free Assets (December 7, 2012) Greece is merely prelude; the global chain of risk recognition lies just ahead. The essence of financialization is also the heart of our economy: the counterfeiting of risk-free assets. Think about what is totally dependent on the counterfeiting of risk-free assets: 1. The mortgage market and thus the housing market 2. The derivatives market and thus the entire hedging-risk mechanism of the global financial market 3. The sovereign debt market, i.e. government bonds that support deficit spending on a massive scale Think about what happens in each of those markets when the real risk is recognized. Consider housing. The housing bubble was predicated on the fabrication/ counterfeiting of risk-free assets and debt based on the phantom collateral of those assets. For example: a no-down payment, no-document "liar loan" mortgage is issued to an unqualified buyer for a house with an inflated appraisal--i.e. phantom collateral. The buyer's level of risk is masked, as is the collateral's inflated value. Given that the buyer cannot actually afford the house without a heavily gamed mortgage (interest only, etc.), the mortgage is toxic, i.e. doomed to default from its origination. The lender takes this high-risk mortgage and bundles it in with higher quality mortgages and then sells them as a AAA-rated, essentially no-risk mortgage-backed security (MBS). This risk-free asset is entirely counterfeit. The same can be said of all the derivatives based on credit default swaps and other financial instruments with phantom collateral and masked levels of risk. Everyone claims their government bonds are risk-free until they're suddenly not. Greek bonds were risk-free until they were suddenly not, and Japanese government bonds are risk-free until they are not. The same can be said of U.S. Treasuries: they are risk-free until the risk that is being suppressed by the Federal Reserve suddenly breaks free of manipulation/suppression. The same can be said of the stock market. The "Bernanke Put" has supposedly rendered the stock market nearly risk-free, as the Fed will always act to prevent any serious decline. Enron and Lehman Brothers stock were essentially risk-free, for example--until they weren't. Counterfeiting risk-free assets inflates increasingly fragile bubbles of trust, phantom collateral and risk. When the counterfeit risk-free assets are recognized as intrinsically risky, the entire house of cards collapses: stocks, real estate, government bonds and the deficit spending those bonds supported. Greece is merely prelude; the global chain of risk recognition lies just ahead.
NOTE: I will be taking a few days off from online work, so I will be unable to
respond to email. Thank you for your understanding.
SPECIAL OFFER ON GREEN COFFEE BEANS FOR LONG-TERM STORAGE FROM EVERLASTING SEEDS: Here is a note from ES's founder: "I've successfully stabilized green coffee beans for a period of six years and still had them roast up to within 90-95% of their 'new' bouquet, smoothness, and flavour characteristics. We've finally got all of the odds and ends together, along with the best 'stove top' roaster {Whirley Pop} that we're found. The coffee beans are all 100% Organic: Peruvian, Colombian, and Guatamalean in two sizes, 1 lb. And 5 lbs. the sealed cans contain a small 'Roasting Guide' that gives basic instructions, roasting times and temps, etc. This is, by necessity, only a brief intro with the essential information, as it has to fit into our smaller, 'chowder' size can.
It's taken me nearly ten years to experiment, wait, and finally find a method that would
preserve the bean's natural flavours and oils. The other thing that suggested itself to
me is that I can think of few things, outside of the obvious 'necessities'
{Bible, beans, bullets} that would be more valuable, command a higher price, and be
virtually instantly 'tradeable' anywhere, anytime after an 'event': coffee is, in
a multitude of ways, our latter day 'comfort food.'"
My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.
Things are falling apart--that is obvious. But why are they falling
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1. Debt and financialization
2. Crony capitalism and the elimination of accountability 3. Diminishing returns 4. Centralization 5. Technological, financial and demographic changes in our economy Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of
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To receive a 20% discount
on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter
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Please click on a book cover to read sample chapters
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