Tuesday, February 10, 2009

The market is even bigger than Obama

Obama may yet manage to stop climate change and lower sea levels, but his all-thumbs economic policy won't reverse the investment world's law of gravity, Karl Denninger says. He thinks ordinary Americans should get mad and get even.
Obama: The market is issuing you a warning

We are approaching yet another market implosion just like the one in September and October.

While it may come today or tomorrow, I wouldn't take that bet. In fact I expect that people will "rejoice" that you didn't wipe every common stockholder's equity stake in firms like Citibank, Bank America and Goldman Sachs - even though you should. Because I expected you to do the wrong thing, I actually bought some Citibank stock a short while ago. Were you to do the right thing my position would be worthless. It should be worthless. I'll bet its not - at least not immediately (and that I'll make a profit as a consequence of your idiocy.)

When and if this dislocation comes, however, it will destroy what is left of the American Banking System, it will expose that Bernanke has over one trillion dollars of garbage on The Fed's Balance Sheet, and that in turn will destroy the international market for United States Treasury Debt.

In the best case we wind up like Japan and have a bunch of zombies sucking up capital and doing nothing of value for our economy. In the worst case we get much higher yields in the bond market and the near-immediate bankruptcy of hundreds of midsize and larger firms, including virtually all financial firms in the S&P 500 and DOW, along with all major multinationals that have a captive financing function.

The Government cannot backstop it all. If you try the government fails outright. The market is bigger than you, it is bigger than The Fed, it is bigger than Treasury. You are subservient to The Market, not the other way around. Go ask Bill Clinton about The Bond Market when he tried to ramrod his Hillarycare plan through and what the reaction was. That's 1/100th of what you're about to experience.

I have no way to know whether this is wrong, 10 percent true, 50 percent true, or 100 percent true. It's always tempting for a pundit to call the game on account of cataclysm. But certain things are so unarguable that they fall into the realm of fact.

Fact: Other than Bear Stearns, all the big-time players (not excluding the U.S. government) who made a plague pit of our economy are standing, digesting the first helping of bail-out money and licking their chops in anticipation of the next, and possibly the one after that. Fact: Not one of the executives (including U.S. government regulators) who knowingly created financial bubbles that they knew were bound to pop is under indictment or hiding out in Honduras. Fact: The financial advisors of the Bush and Obama administrations — in some cases the same Mandarins — have been unable to stop the debacle, although they have assured us many times that their wise hands on the tiller would do so. The only thing that has changed is that they have migrated from reassuring us to threatening us with dire consequences unless the stimulus is passed last week, if not sooner.

Denninger's thesis is that many of our big financial institutions are already bankrupt and that all the government can do to save them, which is a higher priority than saving millions of our citizens from bankruptcy, is to take the toxic assets (a self-contradictory term, that) and force the helpless taxpayers to buy them. And even that, he believes, won't work for more than a brief time.

President Obama, this next crash in the markets, if it occurs, is your sole responsibility.

It will come as a consequence of your policies where you intend to try to shift the BANKRUPT institutions' losses to The Taxpayer - a debt that America cannot finance and which foreign governments and investors WILL NOT cover.

I'm well-aware of the Washington DC policy called "kick the can" but the can is now full of cement and if you think you'll get through your term before this all comes home to roost you are, to be polite, nuts. You must stop the stupidity and you must stop it NOW. The game of obfuscation and literally violating investors both foreign and domestic as a consequence of fraud countenanced by our government is over.

Both Americans and foreigners know about the lying and fraud; it is pointless to continue to dissemble and obfuscate as you are merely making a fool of yourself. If you do not understand this and are being led by your "advisers", many of whom are the very people who advocated the changes in policy over the last 20 years that brought us here, you need new advisers, and you need them today.

It's no surprise that the president's playbook consists of oratory and spending borrowed money. And while there's no shame in needing, even relying on, advisors in specialized areas like economics, he needs advisors who don't just reflect back his own limited understanding. He might start by replacing his Treasury secretary or Fed chairman with someone who has demonstrated a knowledge of honest accounting and ethics, such as Harry Markopolos, the Cassandra whose warnings to the SEC about Bernie Madoff were ignored for almost a decade.


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