moonman
08-16-2007, 12:55 AM
Despite infusions of fresh capital from central banks from Europe to Japan to the USA the financial markets continue to dive. Remember, the financial markets are not the real economy, financial markets are the virtual economy. For years the paper money boys have been playin' games and now it's report card time.
The panic is now spreading to bonds and as a result our gubment is witholding paper. No buyers. That children means we have less than 90 days before the full faith and credit of the United States of America defaults.
Why? said the 4 year old. Simple. They've lost they're street cred. Investors don't trust the valuations and absent buyers the market is unable to set prices. The reason again is simple.
IF you follow the financial media, you're a phrase, "marked to market' quite alot these days. All this means is that financial products are priced to sell and find a market price. The 500 trillion dollar derivative or hedge funds has not been marked to market but rather marked to a business model based upon yesterday's news.
The models assumed are all based upon past performance. As you know if you've ever seen a financial product advertisement "past performance is no guarrenty of future results." What the models didn't take into account, in the subprime area, is that the market woud reject the valuations. This is why our markets are now insisting on marking derivatives to market.
The panic then spread to leveraged buyouts for the same reason. The bankers saw in LBO credit application packages the same problem that is occuring in subprime. Valuations based on a 'marked to model' mathematical theory rather than on 'marked to market' principles of finance.
So you see all the central banks can really do is (1) shrink or expand the money supply by raising or lowering interest rates (2) bailout by becoming the buyer of last resort as it has done recently. Liquidity or inflation is what got us into this mess in the first place. More of the same is no solution.
And we are fast coming to the real problem. None of the marked to model formulae has worked because what is happenning now only happenned once before and it wasn't factored into the equation. The financial system's reserve currency, the USD has lost 40% of its value, directly due to the Bush Administration fiscal policy of borrow and spend.
Marked to market is no longer viable because, as you must know by now, market to what? USD's? USD's are losing value faster than a meth-head loses IQ points. Marked to what market? Lots of asking prices but there are no bids because we no longer know what money is worth.
And that's why children, the issue is our dollar and everything else is a symptom.
The panic is now spreading to bonds and as a result our gubment is witholding paper. No buyers. That children means we have less than 90 days before the full faith and credit of the United States of America defaults.
Why? said the 4 year old. Simple. They've lost they're street cred. Investors don't trust the valuations and absent buyers the market is unable to set prices. The reason again is simple.
IF you follow the financial media, you're a phrase, "marked to market' quite alot these days. All this means is that financial products are priced to sell and find a market price. The 500 trillion dollar derivative or hedge funds has not been marked to market but rather marked to a business model based upon yesterday's news.
The models assumed are all based upon past performance. As you know if you've ever seen a financial product advertisement "past performance is no guarrenty of future results." What the models didn't take into account, in the subprime area, is that the market woud reject the valuations. This is why our markets are now insisting on marking derivatives to market.
The panic then spread to leveraged buyouts for the same reason. The bankers saw in LBO credit application packages the same problem that is occuring in subprime. Valuations based on a 'marked to model' mathematical theory rather than on 'marked to market' principles of finance.
So you see all the central banks can really do is (1) shrink or expand the money supply by raising or lowering interest rates (2) bailout by becoming the buyer of last resort as it has done recently. Liquidity or inflation is what got us into this mess in the first place. More of the same is no solution.
And we are fast coming to the real problem. None of the marked to model formulae has worked because what is happenning now only happenned once before and it wasn't factored into the equation. The financial system's reserve currency, the USD has lost 40% of its value, directly due to the Bush Administration fiscal policy of borrow and spend.
Marked to market is no longer viable because, as you must know by now, market to what? USD's? USD's are losing value faster than a meth-head loses IQ points. Marked to what market? Lots of asking prices but there are no bids because we no longer know what money is worth.
And that's why children, the issue is our dollar and everything else is a symptom.