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One of the best things I've ever read, IMO

This is not about trading, so don't read this if your only interest is trading related material:
Thanks Jim.

Good stuff
So many reads on this and no comments, I was starting to think this is not the deep kind of stuff anyone here wants to read. Thanks for the comment, blue.
One underlying theme of the commentary seems to be the concept of ethics in business (or the lack thereof in this case).

In my view, the investment bankers were using the fractional banking system to maximize the leverage of their positions. Nothing wrong with that as long as nothing unexpected happens. The problem was like the spokes of a bicycle wheel, all the leverage was ultimately underwritten by the big 5 money center banks. So when something did go wrong, the ultimate holders of the debt were left holding the proverbial bag of bad apples. So in very simple terms, this was nothing more than a highly leveraged trade that went horribly wrong. As traders we understand leverage is a double edged sword. But, is using leverage to construct a social structure unethical ?

It is important to to keep in mind the historic perspective. In 1999, under then President Clinton and Treasury Sec. Rubin (former chairman of Goldman Sachs), the social engineers in Washington decided they could use leverage and bank deregulation, via the repeal of the Glass-Steagall Banking Act of 1933, to greatly expand home ownership (by extending low cost credit to marginal borrowers). A side effect of this credit expansion in the housing market was the predictable corresponding expansion of home prices. For existing homeowners, the sudden spike in home values enabled them to use HELOC's to conveniently "tap into" this new found paper equity (and expand their debt to equity ratio) for personal consumption and the purchase of depreciating assets. The wealth effect was in full swing, everyone "felt" richer. Thus, at that time, no one (with the exception of Robert Prechter) was complaining about the expansion of credit and rising home values, it was viewed as progressive economics. Alan (bubbles) Greenspan was a national hero for bringing down interest rates to levels everyone could afford and thereby fueling strong and steady economic growth. This is the "feel good" side of the credit expansion cycle.

The double edge sword of leverage always works that way, in the good times everyone loves all the benefits of more credit, conversely when the credit bubble bursts and the system collapses (driven by the corresponding and inevitable credit contraction phase) everyone screams bloody murder (the article is an excellent case in point) about the abuse of leverage and the evils of debt. So as the pendulum naturally swings back in the opposite direction, today we hear about all the opposite things we were hearing in 1999: rising taxes, new increasing regulation of everything, falling home values, state and local budgets under severe pressure, the evil Federal Reserve Board, and the explosion of the national (public) debt as all this "toxic" debt is being transferred off the banks balance sheets and into the pockets of ordinary taxpayers (and their children and grand children as the article aptly points out).
Originally posted by pt_emini

...But, is using leverage to construct a social structure unethical ?...
I think the answer to that is a resounding 'Yes!'. The really curious part is, with this whole thing it was super easy to see what would happen, yet it didn't matter. I think those that create these monstrosities know full well what will happen, but their cut of the well over a quadrillion dollars in derivatives (the latest estimate I heard is now $1.5 quadrillion outstanding today after all the supposed 'deleveraging') is so big, and so assured, that even if the system and average people suffer tremendously, they feel 'who cares'. Even today they are still arguing you can't see a bubble until after the fact. Yet all us traders seem to be able to spot them quite early on. I contend they are incredibly easy to spot, but those who are playing this game just perpetuate the myth so that they can keep doing what they are doing, plain and simple. Same old, same old, nothing ever changes. And yes, PT, repealing G-S was a major factor (and mistake, one which I wish they would rectify, but since those most affected if they do change it are the ones who own the world, I doubt it will...). Great post, great synopsis. Two thumbs up.
I think with regards to bubbles, yes you/many people can see one that is likely forming, like gold is right now, but nobody really knows exactly when it's done forming and when it decides to burst. Bubbles are only bad when you get in at the end and can't get out in time.
Sry Jim, It would take me too long to respond.

However: I might add that along with "Morality", Mentality is a great part in the measure of a nation.

Also, there comes a time where the the most productive action IS for "Good Men to do Nothing". This I believe is one of those cases.

I have often pondered if Alan Greenspan was playing the part of "Francisco D'Arconia.
Hi Jim,

Sorry I didn't post more of a response but I've trying to focus my attention.

I guess my feeling on it is that he is saying what I have felt is obvious for so long. I while ago a watched a video which put it all in perspective for me (see below). I think the evil and corruption is much deeper than we want to admit to ourselves.

There was no surprise in this last bubble. The bankers and investment houses are thieves and are supported by the government with our money. There is an governing institution for banking. Bankers are required to do due diligence and know the credit risk of each investment - they didn't and the last 7 years of bonus and pay should have been taken from them - for not meeting the obligations of their positions and acting both illegally and without professional competence. This hasn't happened and shouldn't be expected to have happened if you realize the Fed was set up by bankers to protect bankers interests.

In the Simpsons cartoon in the episode with Monty Burns loses his money he is briefly at the old folks home. Grampa Simpson is showing him the ropes and Monty ask about daily newspapers.

"Not allowed. They say they rile the blood."

Well that sums it up for me. I don't read the paper (except the business section if I'm at the coffee shop) - I don't watch the TV news and haven't for years. It's really just brainwashing. They want us to think we are making a difference. They want us to think that getting "riled up" helps. They want us to think that we live in a democracy and our vote makes a difference. They sell us this garbage and we lap it up.

We don't have a say.
Our opinion doesn't matter.
Our vote doesn't matter.
The government is not on our side.
It is not for the people and by the people.

-- now you know why I didn't write more.

What can you do when you live in a shoe?
The creation of the American worldwide empire with bribery and CIA (stop when he gets to the Venus project about 41 minutes in):

The banking cartel, its supporter (the Fed), and money creation:

Fiat money illegal:
I took out the h at the beginning of the URL http:// in the video links so you can paste it in (adding back the h at the beginning to get a full screen) - I didn't realize the board software would make little embedded screens.

Venus part starts around minute 54 not 41.
The free trade part of the breakdown of individual countries
was a real eye-opener for me.

The banking cartel, its supporter (the Fed), and money creation:

Fiat money illegal:

The creation of the American worldwide empire with bribery and CIA:
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