There is no there there. And there is no money there, either

[Tansy_Gold]

Disclaimer: I am not an economist. I am not an investment banker. I'm not a Wall Street guru. I did, however, used to be an accountant. And a novelist.




Let's start with some numbers. The U.S. gross domestic product (GDP) is estimated to be something around $15 trillion for 2008. That's the sum total of all goods and services produced in this country. And it is estimated to be roughly 25% of the world's total. So we can put the total economic production of the planet at about $60 trillion. http://en.wikipedia.org/wiki/United_States

Although trading in derivatives got a lot of media exposure in 2000 when Enron collapsed because its value was almost entirely derived from derivatives (pun intended, of course), derivatives kind of faded from kitchen table discussion until late 2007, when the housing market began to crumble. Slowly they crept back into the conversation, usually in terms of their wild and almost incomprehensible value.


Derivatives have been estimated to have a "notional" value upward of $500 trillion.
http://www.marketwatch.com/news/story/derivatives-notional-value-4545-trillion/story.aspx?guid=%7B0186CA73-F5FA-4CF0-885A-B4267FB73A0A%7D

Or maybe even $1 quadrillion. http://mikecane2008.wordpress.com/2008/11/03/chronicles-of-depression-20-364-quadrillion/

Now, let's back up a second, while you're still in shock over those numbers. They need some perspective.

One quadrillion equals a million billion. Or, put another way, a billion million. Or, put another way, it's enough to make every sixth person on the planet a millionaire.

One quadrillion represents roughly 15 times the annual economic output of the entire world. All the food, all the cars, all the cheap plastic crap from China, all the teachers' salaries and doctor bills, all the oil and gasoline, all the guns and bombs and vaccines and iPods. EVERYTHING.


So let's ask ourselves: Do these derivatives really represent anything tangible? For instance, my house is paid for. I don't have a mortgage on it that's been bundled up and sliced into tranches, sold off in layers to public retirement funds and speculative hedge funds. Are my monthly utility bills and insurance premiums and groceries somehow wrapped up into these derivatives? Does someone already own the gasoline I've burned in my paid-for 2000 Chevy Blazer with 150,000 miles on it? The dog food my pets gobble?

Derivatives and credit default swaps and all the other "investment instruments" may very well be nothing but imaginary values and not in fact tied to anything that most ordinary people would call real. Could they, however, be used to transfer real wealth?

Imagine a simple fraud. A guy comes knocking on your door -- or sends you an e-mail -- that says he has something of extreme value but for one reason or another he has to liquidate it (turn it into cash) immediately. He is willing to sell it to you for a fraction of its value because he is so desperate. If you will just give him the cash, he will be able to fend off personal disaster, and you (out of concern for his well-being more than out of your own naked greed, of course!) will own something you can instantly turn into a fortune. It might be a long-lost Rembrandt or it might be the key to a safe deposit box in a Swiss bank.

Now, most of us with half a dozen functioning brain cells know that the email scams are exactly that -- scams. There are no billion-dollar Swiss accounts waiting for us after we hand over our $50,000 in cash. There are no long-lost Rembrandts being peddled door to door.

Is the world financial crisis merely an email scam on steroids? Are AIG and Citi just nicely dressed versions of the guy in a trenchcoat lined with counterfeit "Bolivia" and "Eglin" and "Relox" watches? Are we shelling out good money because we see "Bulova" and "Elgin" and "Rolex" in tiny gold letters on the dial because that's what we want to see? What's blinding us to the truth? Is it fear? Or greed? Or a combination of both?

Have the investment bankers and hedge fund managers -- the guys begging for bail-outs while taking home bonuses in the tens and hundreds of millions of dollars -- successfully scammed the U.S. taxpayers by way of our surrogates in congress? Hmmmmm.......

The usual metaphor is to the naked emperor who as been duped into spending good money for non-existent clothes and is then embarrassed by the child who goes around screaming the truth, a truth which everyone saw but no one wanted to admit.

I'd like to offer a different comparison, this time to Guy de Maupassant's "The Necklace."

Because those we owe are rich and powerful, we assume that what they lend us is genuine. Perhaps it is not. Perhaps like Madame Forestier, their jewels -- their derivatives -- are imitation, fake, frauds, and we are putting ourselves deeply into debt in order to replace their bits of imaginary wealth with our own hard-earned diamonds.

Instead of Mathilde Loisel, we should confront our "benefactors" with the truth. We were careless and shallow. We cared more about appearances (big house, big car, lots of stuff) and impressing other people (big guns, big armies, big wars) than we did about living honestly and comfortably within our means. We lost not only something of value -- our personal and national treasury -- but we also lost our self respect. We won't get it back handing over even more of our wealth to those who never lent us anything anyway.

Show us the money, Wall Street. Show us where you really "lost" far more money than you could ever possibly have had. Show us how you're spending what we're giving you before we give you another cent.

Otherwise we will end up like poor Madame Loisel, who paid far more dearly than her sin required. Yes, we've been greedy. Yes, we've been materialistic. But if we need to own up to our failings, Madame Forestier lied when she didn't tell Mathilde that the "diamonds" were only paste. She let the woman believe they were real and do you really think she herself couldn't tell the difference when the real thing was handed back to her? If the original was but fake, why was she so upset that it was returned a few days late, with the whine that she might have wanted to wear it?

We could spend the next ten years like poor Mathilde Loisel, paying off a debt we did not truly incur, while the ones we are paying live far better than they have any legitimate right to do.

Before we buy the diamonds, let's make sure that's what we're replacing.

The truth may be that there are no losses on Wall Street, because there were never any huge gains. It may be all greed and avarice and imaginary money that some scam artist wants to trade in for the real deal.

I say we let him eat it and give him nothing. He already has enough.


Tansy Gold

[machI]

1. My right wing conspiracy nut friend has said that about the Federal Reserve for years

In a nutshell (he says):

The Federal Reserve Bank has no money. The Federal Reserve makes loans with no money, but collects real money as payment on the loans. Then the Federal Reserve Bank keeps the real money, and proceeds to make more loans with non-existent money.

[Joe Chi Minh]

16. All the more scandalous in that they are actually private banks, and the very term, "Federal", here,

is overtly fraudulent in relation to its normal connotatation. It makes the Tansy's Mme Forestier analogy perfectly accurate. As Daniel said to Nebuchadnezzar, "...the interpretation is exact."

The Federal Reserve Bank has clearly demonstrated - at incalculable cost to the nation - that it could scarcely be less "fit for purpose." Either that or its chiefs were/are criminals or surreally imbecilic and incompetent.

[Seldona]

18. Not only that, but we are charged interest on every note.

What a racket. Print 'money' backed by nothing, and collect interest on every fake bill you make. It's like this giant parasite sitting on top of money making apparatus and syphoning off 20% right off the top.

How many more of these confidence scams can we afford?

[HereSince1628]

2. All true, and of course we did this to ourselves...

Our most recent quarterly statement from our retirement accounts show a couple hundred thousand dollars missing. REAL MONEY HAS DISAPPEARED.

During 28 years of teaching at the University level, my employers and I collectively put 15% of my monthly pay into the hands of 'Experts' working over at TIAA-CREF. Every month. Without fail. It was real money that, rather than being spent on a thousand bright and sparkling things or not so sparkling $3 cups of coffee, was packaged up and sent off to the experts. The whole point sending away the money into a vested retirement account with TIAA-CREF was that it wasn't the sort of empty promise supplied by the steel mills and the auto manufactures who squandered their employees retirements. "We" participants in TIAA-CREF trusted experts to handle the investments. It was always left up to experts who "were committed to our best interest."

Now "my" experts depended on other experts to rate the investments that were being purchased on behalf of me. Those other experts have proved to have not been very expert. They didn't really understand all the voodoo derivatives. BUT since the voodoo chants were hypnotizing big players like Lehman's, Goldman Sach's, AIG etc., the confused experts/fools just accepted that those things must be good, and they continued to get paid big bucks to give terrific ratings to investments which were just as you described above...instruments of theft. The regulators and politicians and their expert advisors and staff couldn't make sense of these derivatives. But, they never took the fact that the derivatives were impossible to understand as an indication that there was some very sophisticated slight of hand at work.

So. I am not really feeling stupid for having spent nearly 30 years of my working life diligently putting away 15% of what averages out to have been a $45K salary as a bio professor. What I am is very disappointed. Disappointed that the people who hired experts to do the ratings research, hired people who weren't up to the task. I'm disappointed in the people who seem to have faked being up to the task of handling investments for an entire generation, either because in admitting they couldn't understand the derivatives they would seem to be not very bright, or because they really didn't care, or because they were the actual pirates who figured out a way to raid the baby-booms stash of retirement cash.

I'm disappointed that among the alphabet-labelled came to age post-Vietnam generations, who bitch all the time that boomers are "me-centric" had a significant proportion of their age-cohorts decide that they were entitled to live far, far, above their own means. I am disappointed that mortgage companies and the federal regulatory system directed by people largely of the beat-nik generation conspired to help them do that. I am disappointed that while I had my attention on my work those bandits actively, intentionally, built a not a house of cards but a towering pillar of Sauron promising to fulfill an impossible gravity-defying dream.


I'm disappointed. Very disappointed. Most of the retirement account victims, who have seen their life-savings cut in half, or more, have seen REAL MONEY DISAPPEAR in this mortgage/credit scam, and the victims did nothing more wrong than to follow expert advice. And in doing so we were quite simply fleeced because in trying to do the right thing, we amassed a huge pile of money that other people desired to steal. We were saving when no one else in this f@#$ing consumer culture was saving. Over our working lives we watched interest in passbook savings accounts drop from 4.75% to about the same as the return on savings buried in mason jars in the flower bed we kept saving, and unfortunately, many of us kept believing in the experts.

No, I'm not stupid or too proud to admit a mistake. And, I'll admit my circumstance is my fault. I should have seen it coming, because, I should have known what we all now know--in the Investment Society there is no such thing as security.

And today, I give Thanksgiving, I didn't have all my retirement depending upon the pirates on Wall St.

But,I am disappointed, even profoundly disappointed.

[Tansy_Gold]

3. Likewise. Profoundly disappointed. And a boomer, too, who is bitter

at the many recriminations heaped on us by those who in many ways directly benefited from us. Well, if only because our generation is their generation's parents, for one thing.

[girl gone mad]

8. Not sure what you guys are talking about.

Baby Boomers created the derivatives market. Most of the people in the Clinton and Bush administrations were Baby Boomers. 80% of the people at the top of the investment banks are Baby Boomers.

Greenspan's not a Boomer, but other than him, it's primarily the Boomers who created this fiasco. I don't know many genX or genY people who are living way above their means. Most are struggling just to pay for rent and student loans. Half of the people my age that I know have put off having children because they can't afford them.

I'm sorry that many Boomers won't be able to retire as comfortably as they hoped. Don't blame us. You guys didn't come out of college saddled with hundreds of thousands in debt, only to be stuck in a low wage service job because the previous generation decided it was a good idea to outsource. You didn't have to find housing 30 miles from your work because the previous generation thought it was a good idea to loan money to anyone with a pulse, spec houses were a smart investment and they could make up for their generation's wild spending habits by selling their overpriced homes to young people.

If you look at the faces behind this disaster - the Phil Gramms and Robert Rubins - it wasn't young people who created or profited from it. It was cynical greedy old Boomers. The same group who voted overwhelmingly for Reagan and Bush. The same group who have consistently sold out to corporations and turned a blind eye as our rights have been steadily eroded.

[Two Americas]

12. I agree

I am a boomer, and I agree. What they are not telling you is that they would not listen to the warnings, and were dismissive - that is putting it mildly - of anyone who objected to their complete and gleeful embrace of Reaganomics, and many of them were activists in the 60's and should have known better. And they were going to get rich - they say it in much more genteel terms, that is how they differentiate themselves from Republicans, but let's not gild the lily here - and the Hell with blue collar people, the Hell with regulation, the Hell with the Unions, the Hell with the "losers" on the Left. I think there is a lot of denial going on, and a lot of cognitive dissonance. So many Democrats were perfectly happy with Reagan, so long as their retirements, investments, and real estate were going up, up, up. If you questioned this, they treated you like a pariah and morally defective and you heard things like "hey the 60's are over."

Many Democratic boomers completely sold out - bragged about it, lorded it over you.

Hey fellow boomers who joined the investment class - the 60's may be over, but guess what? The 30's are back, thanks in large part to you.

[HereSince1628]

10. Above 60% of first mortgages on property belong to people under age 50

Slightly more than 85% of the current crop of foreclosures are for loans that are 5 years or less into amortization. Which suggests that mortgages with 10-15 years of amortization behind them (a majority of the first mortgages held by boomers) are a significantly smaller part of the foreclosure problem.

By more than 4 to 1 the defaulting/foreclosing loans are subprime loans. Loans that were very risky and only possible because they were fed into the investment industry with improper ratings using derivative instruments of dubious value that were used to hedge the risk. The greedy bastards are in this group that figured out how to sell shit as if it were gold.

Anyone of any age could have recently bought a home in a part of the country that was highly inflated and had it's value go upside down when the housing bubble burst they could be in trouble, but most of the trouble isn't in prime mortgages. The majority of the mortgage trouble is in subprime loans...people who grabbed onto bigger dreams than they should have (yes, probably encouraged to do this by greed assed mortgage officers, some of whom were undoubtedly boomers, but only a tiny fraction of boomers, or any other generation, are employed in the mortgage industry).

Admittedly demographics related to foreclosures and age of borrower are hard to come by as the data available is actually in the hands of the credit companies who only hand it out to people who pay for it. The mortgage companies proper who report to the federal government, don't seem to publish statistics of defaults by age of borrower.

But my point isn't really the demographics, and it wasn't intended to say that one age group did this. The subprime lenders (a lot of whom really were the greedy bastards) had help from government (nonregulation) and the credit-rating groups (faking it as Wall St experts) in finding a way to sell risky subprime mortgages (contracts for money borrowed by people who shouldn't have agreed to loans they recieved). "Professionals" who managed the truly gigantic private retirement funds (like the people at TIAA-CREF) carefully but heavily invested in AAA rated stuff hat should have never been AAA rated stuff. Collectively the system to insure honest, if not fair, dealing broke down.

The consequence is that a whole lot of folks over 50 have lost between half and two thirds of their life-savings. That is lost huge amounts of money (as much as 4 times their annual incomes). Amounts whose absence will have life-changing impacts on their retirements because there is no time frame to repair the damage. The truly disappointing part of it is that the mahority of those hapless folks only had that sort of money to lose because they had gone to the effort to save it. They are the folks who 25-30 years ago considered that Social Security was unlikely to hold up.

They weren't the greedy bastards you think boomers are, they weren't even stupid bastards. They were folks who diligently saved month in and month out and handed that money over to "investment professionals." The current outcome is quite honestly profoundly disappointing.

[Tansy_Gold]

11. Thank you. You said it far better than I could. FAR better. n/t

.

[Tansy_Gold]

19. Allow me, please, to add an observation

Understand, of course, there there is never a clear demarcation between generations and/or demographic groups, but always a certain overlap in each direction. AND that generalizations will always have exceptions.

I believe that, for the most part, boomers (especially early boomers, '46-'56) were able to conform to a pattern: If you worked hard and put a little bit aside, you would do all right. Jobs were readily available and the two-income family with limited children became the norm. Coming of economic age in the tech boom of the 80s and 90s, we were perhaps more eager as well as more able to indulge both ourselves and our children with certain luxuries. We were the grandchildren of the Depression and The War, raised on stories of hardships our parents hoped we would never endure. And for the most part we never did.

We did not have the external pressures to do without that our parents had. Jobs were plentiful, and many of those jobs paid reasonably well. The college education that had been put within reach of our fathers (and to a lesser degree, our mothers) via the GI Bill meant that college was more accessible and expected of our generation, primarily as an avenue to better jobs and income but also as a social stepping stone up from working class into middle class.

We bought homes, usually "starter" homes and fixer-uppers and older homes, because the housing boom of the 1950s -- fueled by the post-war baby boom, the jobs boom, and VA loans -- had subsided. The huge need for small "affordable" homes had declined. For those who are familiar with the northwest Chicago suburbs, I'm thinking back to the developments in places in Arlington Heights (pop. about 7,000 when my parents bought their first 2 br house there in 1951), Rolling Meadows, Hoffman Estates. We built equity in those homes, we bought two cars because we had two-earner families, and we tried to put something away for retirement. ("Retirement" as we know it today is pretty much a 20th century invention, by the way; "retirement communities" like the various Sun Cities and their clones were the brain child of Del Webb in the 1960s.)

OUR children, on the other hand, born in the very late '60s to early 80s, did not grow up with stories of privation. Nor did they live through it themselves. Many were not born and raised in the "starter" homes we first bought. Their world comprised a 3- to 5-bedroom house, 2 or 3 bathrooms, two cars and an RV, several TVx with 100+ channel cable. Why would they, setting up their own households 20 to 25 years later, want to take a step backwards economically?

And they didn't need to. Lots of cheap credit, lots of new houses, lots of new imported "stuff" was readily available. Did we as the parent generation have a responsibility to curb their appetites? I suppose so. Did we have a responsibility to rein in the mortgage brokers and the credit card companies? In the midst of the booming economies of the 80s and 90s, would we have been able to? Could we have competed with MTV, LIfestyles of the Rich and Famous, The Real World, with Oprah and Michael Jackson? I'm out of touch with today's television, but are there shows now on that suggest the same kind of mindset we saw in M*A*S*H or All in the Family or the Jeffersons? Am I idealizing what I remember of them, shallow as they may have been? I could never watch Seinfeld; it seemed so empty that I couldn't even find it funny. Mad About You was I think the last network show I watched with anything approaching regularity.

Last night BF and I sat down to watch Breaking Away, the Oscar-winning 1979 coming-of-age movie. He had never seen it, and it's one of my favorites. I hadn't watched it for maybe four or five years and enjoyed it all over again. But as I woke up this morning and headed in to pick up the latest news on DU, I got to thinking about the more subtle message of that movie and its context. Before the Iranian hostage crisis. Before Reagan. Before union busting. Before the loss of dreams.

Where did it go wrong? I don't know. I would like to think that the powers that put Reagan in place -- and they were the same powers who tried with Goldwater in 1964 and failed and they were not boomers -- were the culprits. They would ultimately rob us boomers of all we had and all we hoped to have. And if I can say anything in defense of us, I think it would be that as a generation we still believed in a work ethic. Maybe that was the greatest thing they stole, because we could no longer pass it on.

We are a huge bloc, and I am that leading edge. Most of us are facing a retirement we worked hard for and are seeing stolen from us. Most of us were not greedy, and if we were, we found ways to work for what we wanted. There was little sense of getting something for nothing. That came later, much later, but it was not something we engineered. Blowback? Unintended consequences? Maybe. But it was never the objective (and for anyone from SMW who reads this, pun intended).


Tansy Gold

[barbtries]

4. this rings very true to me

notice that foreclosures are continuing and very little if nothing is being done to stop them. when all is said and done, the fat cats will have a hella lot of real estate that was worked for by other people who lost it all because of the greed of those fat cats. yes, they bit off more than they could chew, but they were lied to and scammed into it as well.

i wish i knew the answer. i think a major retooling of the economy and a collective rethinking of how we spend our time and what do we really need and only want is in order. and i think that the greedmeisters should be exiled somewhere for life without parole, power, or means to do more than subsist.

wish i thought that was realistic.

[Joe Chi Minh]

13. Could it be that one day, legislation will be passed to force the owners of sequestrated

properties, which the former owners had had a reasonable expectation of paying off, were it not for the irresponsible/crooked contrivances of the sellers, to return them to those original purchasers - albeit, subject to the latter agreeing to resume payments when the economic conditions are again propitious.

In the UK, if you buy a stolen car, and that is possible, even after taking measures to safeguard against it, you lose it, if the owner prior to the theft claims it.

[Tansy_Gold]

17. Replevin

And I believe it holds -- or used to hold -- in the U.S. as well.

Of course, after eight years of the booooshies, who knows??? :grr:

[Joe Chi Minh]

21. I expect it could be reinstated, if need be. And that, in itself, is a scary thought.

[barbtries]

20. i don't know

i never thought of that. i just thought they're setting us up to be slaves. basically, to usher slavery back in.

[bvar22]

5. The crooks could not have done it without help....

....from people who KNOW better.

[formercia]

7. All of them invested in the 'Market'

All of them owing their souls to the man in the middle.

[Laelth]

6. Agreed. n/t

The United States is a LIBERAL Country.

:dem:

-Laelth

[DemReadingDU]

9. It was all marked to fantasy

Now that their game is crashing, the fantasy must be made real. I think they will take as much as they can before Obama becomes president in January. Then: game over.

[Joe Chi Minh]

14. A great article.

[Joe Chi Minh]

15. Deleted repetition.