Greed crisis and fight club

We are living in a period of rampant global inflation. Some may argue it’s been the past 8 years of cheap money. I’m going to look at two crisis and give my brief opinion on the cause… The credit crisis and agrarian commodity speculation or as the media terms it “The Food Crisis”.

This all started with the dotcom bust of April 2000, I was in the Dominican Republic watching it unfold on HBO; upon my return my portfolio had lost 85% of its value. I thought it best to just leave the money put and hope for an up turn, but two weeks later my broker Suretrade.com sent me an email saying they were closing international accounts and they would be sending me a check for the balance… there’s a long story in that bubble and con game that was the dotcom, but I’m here to rant about the fore mentioned ones.

Fast forward to 2003 after Enron and WorldCom; there were more accounting cons behind the scenes which lead to quick regulations. Greenspan's fed policies to stimulate the economy had made contract mortgage rates in the US hit an all time low of just above 5%, which hadn’t been seen since 1965.

What you gona do if you want to make money the easy way?
Sell cheap money or asset backed loans (mortgages)! Because with almost free money you’d have to be plain stupid no to want it. Take note "they" think the average person is only 1/2 stupid.

Now the people selling the mortgages had an incentive to sell; a commission for each mortgage sold, and when your objective is to turn over as many contracts as possible you aren't going to perform a detailed check of who is borrowing the money as this costs.

The pieces of the puzzle so far:

1. cheap money
2. incentive to sell cheap money

Who’s lending the money? Mostly banks, but the banks are doing some proper checks before they lend, so how are all these mortgages being sold?

Here comes the key stone… mortgage brokers not affiliated with banks are selling them and then sending the mortgage contract to a “clearing” house where the mortgage amount is evaluated at the prevailing increase rate for the area and cut up and mixed with other cash assets and called a cash CDO (collaterised debt obligation).

Yup I know you’ve heard of CDO’s, and yes the above is an over simplified view, but I’m not going to go in to detail about CDO’s.

CDO’s are now investment products I mean SIV's (Structured Investment Vehicles). But before you, I, your pension fund can invest in these products (become note holders) they have to be risk rated (AAA, AA, A, BB, ...) by a rating agency. The problem is that CDO’s are complicated if not close to impossible to model, so rating agencies basically went by what they were told.

2005 everybody is happy; CDO’s have good return rates people who borrowed money have seen their home values soar, people who want to borrow are being tempted by $0 down payments/deposits, stock markets are booming because the CDO yields are good, money flowing… but as with EVERY pyramid schema the first ones in do well, but it progressively gets worse, and towards the end of 2005 the pool of people who could afford to borrow and hadn’t was dwindling.
House prices had been over inflated in Europe, America and Australia by cheap money and the incentive to sell mortgages. People stop being able to pay the repayments after the bonus/intro rate changed and it all starts to crumble.

March 2007 banks started to realize that they were holding notes for CDO’s with ratings of AA and even AAA comprised of sub prime mortgages on over inflated properties.

They realized that they could lose big, and if they could lose, so could any other institution who had bought the bad “eggs”. So the first thing they did was stop buying from the hedge funds causing a couple of them to collapse under their own crap, and second stop exchanging money with anyone who may be holding bad eggs.

Who have been the winners?
The people who bought a home in 2003 and sold in 2006.
The mortgage brokers.
But the real winners have been the hedge fund managers who put together the CDO’s and sold them to your bank and pension fund, other funds, and then go out. And they can’t be prosecuted for no following lending guidelines.

Who are these hedge fund/asset managers?
If you’re a Christian you may think of them as the “Money Changers” or their agents, if your Muslim “Sheitan” is probably an apt word, if you’re an investment banker you know them as the “Super Elite”.
Basically they’re people who ask for your money so that they can make you rich, and they take a cut of what they make. Yup, that’s it they gamble with other peoples money. But the big ones won't bother with you for less than a couple million invested.
With that in mind, what are they to do when their latest scam or bubble pops? Find another. Since we live in a capitalist system which demands perpetual profits and higher yields… they saw an opportunity with commodities while they wait for carbon trading.

Did you really buy that bullshit story about oil demand pushing prices up? Yeah me to… but then I realized hey oil demand couldn’t have increased 110% in 4 years, and oh look it really started taking off in 2006, and so did other commodities. I know China is making more trinkets than ever and the dollar sank but the correlation is there, it was the “investors”/"speculators"/"gamblers".

Now I hear on CNN, CNBC, BBC, etc about the food crisis… global warming, China wants meat, Indian’s getting fatter, Bio fuels, Australia’s drought… but not a single mention of the primary cause, yes it’s the “speculators" again. Investors demand healthy yields and hedge fund managers go looking for ways to get those yields.

If I have US$1,000,0000,000 and I can triple it in two weeks by buying rice futures… what should I do? Think about the poor people, or think about that 2^nd yacht to take my helicopter and McLaren F1 to Cannes next spring?

If you thought the WTO was for the good of man you went so far down the rabbit hole you missed the exit. Its to give the “money changers” more control and force countries to import stuff they don't want (Korea, US hormone beef any one?).

Now with the help of Forbes (http://www.forbes.com/2008/04/15/paulson-falcone-earners-biz-wall-cz_js_0416wallstreet_slide_2.html?thisSpeed=15000 ) let’s see who the “Super Elite” are… yeah I know Bill Gates makes billions, but that’s OK'ish cos you buy a product and he gives a lot of it away. I want to look at the hedge fund managers that are causing rampant inflation and hunger in poor countries.

1. John Paulson made US$3,300,000,000 last year shorting on the sub prime crisis he probably helped cause. And look he's acquired Greenspan John Paulson Acquires an Alan Greenspan

2. George Soros made US$2, 400,000,000 I have mixed feelings about him.
3. Philip Falcone US$1,700,000,000 again betting people couldn’t pay back money they borrowed.
4. Kenneth Griffin US$1,500,000,000, 39 years old.

And the list goes on and on.

What should society do?
The really sad truth is that we have made such a mess, any change is going to be painful. If the banks and investors don’t get they’re returns the system is going to start collapsing and that’s going to cause wide spread misery. I think the governments need to reappropriate some funds or force internal investment, they could use the moral dynamic of "with power comes responsibilities"

1. Regulate investment options (what can and can't be gambled).
2. Tax all financial transactions, 1% internal and 3% external.
3. Limit the size of institutions... it isn't a level playing field when you're competing with somebody 10000 times bigger than you!

The bankers and super elite are going to squeal like pigs in a barn on fire, banks will pass on any tax, and the investors won’t get such good returns but the rest will benefit from a more stable financial system.

The other option
There is one other option which I can’t claim credit for, and that is the shock treatment of a “Fight Club” scenario… you know where they blow up all the financial buildings in one go… this would have to be effected by the military as there are numerous data centres in well fortified places; they could call it "Operation Financial Freedom" on second thought from experience I'm not sure I agree with military use of the word freedom. We could let the “bankers” rebuild their financial assets from their tax records…that would be soooo funny.

Any good?
There is one good thing about such massive amounts of personal wealth some people have amassed, and that is technology and luxury goods. Space tourism is soon going to take off in a big way… no not for you or me but for them, but eventually it will trickle down. What about those massive yacht's used to transport other yacht's... yes they exist google it! Personal aviation, etc... there are some way cool toys out there that would have never been invented were in not for such wealthy people.

I’ve given a very brief overview, obviously generalizing and over simplifying…
If you want to find out more, research, don’t believe a word from CNBC/Sky Business they’re behind the curb and not where you want to ever be.

I can recommend these books to see how the elite enjoy the billions they make:

1. Richistan: http://www.amazon.com/Richistan-Journey-Through-American-Wealth/dp/0307339262
2. All the Money in the World: http://www.amazon.com/All-Money-World-Make-Spend-Their/dp/0307266125/

Of course I could just be talking rubbish as I have no money and all I am is programmer recovering from a broken back. But I’ve been too scared to invest after being burnt once by the dotcom con, and another time by a mining company collapse… and I know that atop the pyramid exists the architect/s and if he/they decide it’s time for a new pyramid it’s time and all I’ll be able to do is sit back, hope for the best and marvel in the brilliance of the design… I can almost imagine how the Egyptians felt 5,500 years ago. Godspeed fellow traveler.