[R-G] [BillTottenWeblog] The Ponzi-Plus Plan

[Bill Totten]

Clusterfuck Nation

by Jim Kunstler

Comment on current events by the author of
The Long Emergency (Atlantic Monthly Press, 2005)

www.kunstler.com (September 29 2008)


To paraphrase the late and great old war-horse of the senate, Everett
Dirkson of Illinois (1896 - 1969), a trillion here, a trillion there,
sooner or later you're talking about real money. Except in the case of
the Great Bail-out of 2008, maybe it's more like ... sooner or later
your money is no longer real.

What we're seeing in this fiasco, among other things, is a lesson in the
diminishing returns of technology. This is a train wreck of investment
vehicles so complex that they could only be created with the aid of
computers. The result is that hardly anyone - perhaps even nobody in or
out of Wall Street - really understands what they represent. In fact,
this alphabet soup of engineered securities - CDOs, CDSs, MBSs, SIVs,
etc - was cooked up from a recipe of Ponzi algorithms. They were
designed to be mathematically indecipherable, except by computers, in an
alternative universe of model-making that bore only a superficial
relation to the real world. That was their dirty secret. And the dirty
secret of the Great Bail-out is that, in the real world, we will never
be able to discover the actual trading value of these things at any
number above zero. This is why they are called "toxic".

The big effort of Mr Paulson and his working group has been to ram
through legislation that at all costs avoids any attempt to place a
reality-based value on this bad debt. He managed it by holding a gun to
Congress's collective head, telling them in plain English that a genuine
"work-out" of these "toxic" investments would set in motion a fatal
cascade of credit default swaps which would leave the entire banking
landscape a smoldering wasteland - with the result that virtually every
retirement account and pension fund would go up in a vapor, the Federal
Reserve and the FDIC would melt away to twin piles of goo, scores of
millions of lives would be ruined, and the USA would be left a basket
case among nations, making us envy even the fate of Haiti and Zimbabwe.
Talk like that might prompt a congress-person to do any fool thing.

The question, of course, is what happens now, after this morning's
scheduled vote on the Great Bail-out package. Last night, I would have
predicted a brief bounce in the stock markets of a week-or-so duration.
This morning, at eight o'clock, I'm not so sure of that anymore, but I
suppose we shall see. Beyond a week-or-so, I expect the Great Bail-out
to fail rather quickly in its main mission: to stabilize the banking
system and calm the markets. The process of negotiating the package has
given off an odor something like medieval scholasticism - a method much
like the creation of Ponzi finance itself, in which layers of tortured
interpolation rendered theological concepts so abstruse that all the
prayer of all the monks and nuns ever conceived within the walls of the
Vatican would not avail to reveal their mysteries. The object, of
course, was to reinforce the essential mystery of religion, just as the
object in Ponzi finance was to reinforce the mystery of engineered
securities.

What the mainstream is truly missing here en masse is that another
tsunami is building right behind the finance fiasco, and that it will
render moot the whole reeking cargo of schemes and wishes that comprises
the Great Bail-out. I am speaking of the global oil problem. In fact,
the problems in banking and money currently roaring in the center ring
of the world circus, can be described categorically as a product of the
oil problem - since oil is the primary resource of industrial economies
and therefore the motive force behind our ability to generate "wealth".
Without reliable and ever-growing supplies of oil, there is no
industrial growth, and without industrial growth things like capital
investment instruments lose their legitimacy. That is why the
Frankenstein family of Ponzi securities was invented in the first place
- to compensate for the demise of industrial growth by creating wealth
out of ... nothing!

The looming oil problem entails a swirl of factors that will aggravate
and accelerate our social, economic, and political struggles. These
factors will mutually reinforce the instabilities that they set into
motion. For instance, the new oil nationalism is undermining the
traditional operation of oil markets as we've known them since the
mid-20th century. In turn, oil nationalism will aggravate the oil export
crisis, which will starve the oil importers - the USA being the chief
victim. Finally, there is the remorseless base-line condition of Peak
Oil itself, meaning that we are at point where world oil demand
permanently outstrips world oil supply no matter if the USA falls on its
ass economically or not. What remains beyond this is a desperate contest
among the oil importers - America, Europe, China, Japan, India - for
control of the world's remaining oil resources.

The fantasies about alternative energy currently wafting across the
American media-scape will not "solve" this problem, much as we wish they
might. We'll try everything in a quixotic effort to sustain the
unsustainable (that is, the happy motoring consumer society), but we
will be disappointed by the results. I try to remind readers that the
very concept of "solutions" does not apply in this situation, since it
implies that we can keep running things in America just the way we are
running them now, only by means other than oil. The truth, in my view,
is that we have to run things very differently now, at different scales
than the ones we're used to - but we are too invested in our behavior of
the past to move forward. This is certainly unfortunate, because we have
everything to gain by letting go of our old habits and obsolete wishes.

It's odd to watch the talking heads on CNBC this morning, parsing
endlessly over the latest minutiae of the latest deal for CitiGroup to
land on Wachovia like a giant amoeba and begin the gruesome process of
digesting its innards. The TV heads are just like the medieval monks
trying to explicate the labanotation of x-number of angels dancing on
the head of the pin. Religion really is the only metaphor left to
discuss the epochal disaster underway right now, because God alone knows
where this will take us.
_____

My new novel of the post-oil future, World Made By Hand, is available at
all booksellers.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2008/09/the-pnzi-plus-plan.html


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