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I just realized that I'm smarter than I think I am. And those who know me well will have to pick their jaws up off the floor, because they know how smart I think I am. Hell, think? Call it a clear-eyed, cold-steel assessment of things-as-they-are. I KNOW I'm bloody well smart. So... Smarter than THAT, even?
Okay, I'm not mapping any neural pathways, splitting any subatomic particles, explicating string theory or fractal geometry any time soon. I do know my limitations.
But I've just become aware that I am actually smarter than the overwhelmingly vast majority of people who have been running our economy for the past thirty years. I'm smarter than Alan Greenspan, yep. I'm smarter than Hank Paulson and Ben Bernanke put together. I'm smarter than all those suited yoinks who toted up eight-figure salaries on Wall Street. I'm smarter than people who publish quarterly financial newsletters that cost ten grand a subscription. I'm sure as hell smarter than Lou Dobbs. I might even be smarter than Louis Rukeyser was, and I tremble with the thought of that heresy.
I might even be as smart as the team Obama is assembling to try and defibrillate the U.S. economy-- in fact I'm pretty sure I'm smarter than some of them (Robert Rubin comes to mind,) although definitely not all of them. (I know Robert Reich is lurking in the weeds there somewhere.)
What makes me so all-fired fricking smart?
One thing. One little thing. One thing so devastatingly, stunningly simple that it seems to have utterly eluded all of the Financial Powers That Be for upwards of thirty years now. And the lack of that one thing is the very heart of the root of the nub of the reason our economy is now far past the S-bend and heading south with sickening speed:
I know, you see, something they either don't know, or won't allow themselves to know.
I'll share it with you, here it is:
If it seems too good to be true, it FUCKING IS TOO GOOD TO BE TRUE.
Mods, pardon my profanity. Sometimes the situation just demands it.
Let me run some terms by y'all:
Collateralized Debt Obligations
Credit Default Swaps
Specialized Investment Vehicle
Special Purpose Acquisition Company
Equity Multiplier
Derivatives Transaction Execution Facility
Mortgage-Backed Securities
I could go on and on with the arcane terms that define the intricate web of transactions that make up our economic superstructure. Words that, until recently, induced near-orgasmic states among Wall Street geeks and now induce nightmares in people who don't even know what they mean.
Which is pretty much all of us, including those same Wall Street geeks.
Here's another list of terms:
Spanish Prisoners
Pigeon Drop
Nigerian 419
Pedigreed Pooch
Three-card Monte
Block Hustle
Michigan Roll
I bet you know where I'm going with this.
We say it a lot. "Wall Street is just a big hustle. It's crookeder than a mob casino, blahblahblah..." We can't figure out what all those complicated "instruments" and "vehicles" are, so we write them off as complicated versions of the three-card monte. Not really, of course. Because we know that there's a whole structure of organizations like rating companies (Moody's, Standard & Poor's, etc.) Federal agencies (SEC, Treasury and so on,) and even private entities watchdogging all this, writing rules (albeit abstruse and fantastical and, ultimately, ineffective ones) and generally assuring that even though the game is rigged, it's rigged along agreed-upon lines, known to the Inner Circle, and they understand what's going on even if the rest of us feel like mugs. And the balloon can't go up too far, can it? Because after the last big Depression we put all those laws and rules into place to make it, essentially, safe.
Hahahahahahahahahah, Sucker! That's what YOU think.
Remember: If it sounds too good to be true, IT'S TOO FUCKING GOOD TO BE TRUE.
So, no. There is NO WAY to turn a dodgy loan to an unqualified debtor into a no-risk proposition for the lender, or for the lender's investors, or for customers of the lender's credit rating agency, or for buyers of products derived from the dodgy loan, or for the taxpayers who credulously wander along assuming that There Are Grownups In Charge Somewhere.
And there is NO WAY to turn a piece of real estate worth ten thousand dollars based on sound property valuation principles into a hundred thousand dollars' worth of paper.
And there is NO WAY to turn a boiler room full of callers hustling desperately to get suckers to buy dodgy (at best) investments into a valuable "financial services corporation" whose share value will keep going up forever.
And no matter how many "tranches" you split something worth a million dollars into, and how many other "vehicles" you fold it into, and how many other things it gets bundled with, and putatively backed by, and theoretically enhanced by, it is still only worth ONE million dollars, no matter how many suckers believe it is actually accruing additional real value based on the number of other suckers who believe it is accruing additional real value. (Head spinning yet? Of course. That's what they want.)
And here's the kicker: The people selling this crap? Two things about them:
One: They know it's crap. It's just crap that might make them rich. Them, not their customers. Not even the people they supposedly work for. Not even the people who theoretically own the company that pays them. Just them. That's all that matters. And,
Two: They don't understand it either. Seriously. Sit down with one of these yobs sometime, and get very humble. Ask them to explain a "credit default swap" to you in simple terms. Terms you can understand. Keep telling them when you don't understand, which you won't, because it doesn't make sense. Eventually they'll be reduced to spluttering, babbling, frustrated incoherence because they don't understand it well enough to actually explain it to anyone. Not even themselves, if they're honest.
So, here's the problem:
One, virtually the entire economic structure we depend on is, essentially, a network of crooked scams with very little basis in the kind of reality that can be eaten, lived in, worked on, used, etc.
Two, in the process of building up this fantastic labyrinth of illusion, we have created a vast new sector of the economy, literally millions of jobs, that produces nothing, adds no tangible value to anything, indeed, does nothing except create and maintain the fiction of intangible value to keep the whole thing afloat.
Three, tethered to that sector is the pitiful remains of the real economy where the rest of us live-- where we expect to get at least eight dollars and fifty cents' worth of food we can actually eat when we hand over a ten dollar bill, or an actual pair of shoes we can wear when we pay our hard-earned cash for them. The world where we need short-term credit to buy milk and bread and toilet paper to stock our convenience store until we make enough money selling the milk and bread and toilet paper to pay off the credit and buy a little more milk and bread and toilet paper. The world where we need to be able to trust that when we take out a loan to buy the truck we need to carry our tools around to fix customers' leaky sinks, we'll actually have all of the term of the loan to pay it off, at the agreed-upon interest rate, and without any hidden "fees" or "service charges" that will inflate the cost of the loan.
Yep, that reality-based world is so infiltrated and submerged and interlocked with the fantasy world where mythical commodities are sold and re-sold at 200% markups without ever actually existing in the first place, that we can't escape the disaster descending upon us all.
And all because a whole lot of "smart" people believed it was possible to suspend the rules, let the watchdogs go to sleep, pretend that fantasy is reality, and we'll all get rich, rich, RICH! Something for nothing, in other words.
Yep, I'm smarter than them.
All I can hope is that Obama has a lot of people on this incoming team who are willing to take the hits that will need to be taken to put the economy back into a new, smaller, reality-based box. Yes, we'll have to stop promising everyone that they, too, can make MILLIONS! Without working, without exchanging any real value, without carefully assessing risk and applying trust only where merited. It will be dreary, for a while. Giving up fantasies, especially in the face of an immediate reality that looks pretty unpleasant (at least for the near term) generally is a pretty dreary affair.
But in the long run, reality has got to be better. I'm happy with limiting my potential returns, so long as I am secure from the kinds of colossal risk we've been so blithely and ignorantly slinging around. I'm happy to build a new, simpler, more concrete economy where value is measurable and tangible, and it doesn't require the equivalent of a hit of windowpane to believe an IPO will make me FABULOUSLY WEALTHY for a modest up-front investment.
Just remember: No one on Wall Street, no one in the government, no one in any fancy office tower or private jet has yet invented, or will ever invent, a bona-fide exception to this rule:
If it seems too good to be true, it's TOO FUCKING GOOD TO BE TRUE.
You're welcome. Now you, too, are smarter than Hank Paulson, et al.
generously, Bright
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