http://www.intelligencer.ca/ArticleDisplay.aspx?e=918803

And you thought that I had a gloomy outlook on the economy. Now the bad news pops up everywhere.

Harry Koza in the Globe and Mail quotes Bernard Connelly, the global strategist at Banque AIG in London, who claims that the likelihood of a Great Depression is growing by the day.

Martin Wolf, celebrated columnist of the U.K.-based Financial Times, cites Dr. Nouriel Roubini of the New York University's Stern School of Business, who, in 12 steps, outlines how the losses of the American financial system will grow to more than $1 trillion - that's one million times $1 million. That amount is equal to all the assets of all American banks.

Every day now, thousands of people all over the U.S. and Great Britain are walking away from their homes - simply mailing their house keys to the banks - as housing bailout plans fail.

With unemployment growing, the next phase will hit commercial real estate making the financial institutions the unwilling owners not only of quickly depreciating houses, but also of empty strip malls and even larger shopping centres.

The next domino to fall will be credit card defaults, and after that... who knows? There are so many exotic funds out there, with trillions of dollars in paper - or rather computer-screen money - all carrying assorted acronyms, and all about to disintegrate into nothingness. Over the next couple of years, scores of banks that have thrived on these devices, based on quickly disappearing equities, will fail.

The most frightening forecast so far comes from the Global Europe Anticipation Bulletin (GEAB), available for 200 euros - about $300 - for 16 issues annually. Its prediction is quite specific.

Where my warnings never spelled out an exact date, this think tank has it pegged precisely. Here are its very words:

"The end of the third quarter of 2008 (thus late September, a mere seven months from now) will be marked by a new tipping point in the unfolding of the global systemic crisis.

"At that time indeed, the cumulated impact of the various sequences of the crisis will reach its maximum strength and affect decisively the very heart of the systems concerned, on the front line of which (is) the United States, epicentre of the current crisis.

"In the United States, this new tipping point will translate into - get this - a collapse of the real economy, (the) final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the U.S. dollar fall. The collapse of U.S. real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down."


The report goes on to say that we are entering a period for which there is no historic precedent. Any comparisons with previous situations in our modern economy are invalid.

We are not experiencing a "remake" of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis.

What we will have, instead, is truly a global momentous threat - a true turning point affecting the entire planet and questioning the very foundations of the international system upon which the world was organized in the last decades.

The report emphasizes that it is, first and foremost, in the United States where this historic happening is taking an unprecedented shape (the authors call it "Very Great U.S. Depression").

It continues to predict that, although this crucial event is global, it will be the beginning of an economic 'decoupling' between the U.S. and the rest of the world. However, non 'decoupled' economies will be dragged down the U.S. negative spiral.

Concerning stock markets, the GEAB anticipates that international stocks would plummet by 40 to 80 per cent depending where in the world they are located, all aff

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D%2D4796%2D4D0D%2DAC9E%2DD9124B59D436%7D
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PAUL B. FARRELL
Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen
By Paul B. Farrell, MarketWatch
Last update: 7:31 p.m. EDT March 10, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.

"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

hat warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.
Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system. How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs.

Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002.

Derivatives bubble explodes five times bigger in five years Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:

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Finance is like any other commodity business - the more it is a commodity, the
less markup there is for the seller. A stock is highly commodified, and as such,
bears little profit for the broker, as commissions are a thin business. But doing
a bankruptcy credit swap can involve lawyers in 10 legal jurisdictions for a product
that is literally so complex that it is above national regulators ability to even
comprehend. The subject matter experts in the kind of law that they need to comprehend
the structure - are the ones making the market inside broker dealers.

Creating business then in investment banking, one prefers to trade on the unknown
fringe where the profits are huge huge, that will support the high carry costs of a
banks expensive operations. Then smart educated people are legally set, by the
invisible hand of the market, towards defining unregulated fringes beyond balance
sheets where everyone piles in.

Then they move on and work the magic in another market area. One or two get busted,
the thousands move on with the project of bubblenomics. And then the "financial
wizards" that create bubblenomics, who are so out-of-touch with the greater gears
grinding ina political economy - arrogantly present the latest bubble as something
new and not entirely systemic of the worker bees in the collective machine.

Capitalism may not be the root cause to this attempt to profit by creating
backwaters of niche liezones where you can buy all the Intellectual property and
define a market black hole all for yourself - financial spreadsheet voodoo has
indeed worked a lot of middle class white guys a fortune. But its people leeching
off the system rather than creating real value, using spreadsheets to build bridges
across cracks in global market waves. If you want real competition, create public markets where no buyer or seller can transact off the public trading computer.
Make prices ubiquitous and use a market microstructure that clears in real-time.
Our financial system fundamentally runs like it did in the 19th century.

Books are added up very quickly in big computers, but they are added up in the way
it was done then - 1 day per transaction -minimum. SO even today, in 2008, banks
and firms can withdraw money in rea-time, but cannot seem to provide a real-time
way to interact in financial markets.

The average American,who is fully invested in his ego boosting charade of being Number One, was easily coopted by the banks and financial institutions into living way beyond his means by the lure of easy, cheap money.While Asians, not used to such financial ju-jitsu,plodded on, paying for products and services out of their pockets and saving money.Their so called low standard of living in conformity with their earning power elicited derision from the big shot Americans, who now wonder who is going to bail them out.

Three decades after Mikhail Gorbachev, an infinitely wise leader, bailed out of the business of Empire, we have intellectual pygmies still clinging on to a tottering Empire which happens to be the 10,000 lb. gorilla no one can see in the financial unraveling of this Empire.

The collapse of the American Dream of hegemony may very well be what is needed to restore this country to moral,financial and psychological health.So, a collapse is to be welcomed by all who wish this nation well.