Alan Schwartz Might As Well Be Treasury Secretary ~ The Risk Averse Alert

Tuesday, December 22, 2009

Alan Schwartz Might As Well Be Treasury Secretary

Is it safe to say that, never before in the lifetime of anyone presently living has there been such limited physical capacity to efficiently service those myriad financial claims facilitating leverage?

Was not last year's extraordinary experience a consequence of this reality? Indeed! So, then, what of growing vulnerability born of excessive leverage has changed?

Both nothing and everything!

Nothing ... because physical economy is a slow-moving ship. Such added capacity as naturally reduces leverage is not easily ramped up. This in fact is an endeavor that takes time, as well as a great deal of capital-intensive investment which must be directed toward building up the stock of productivity-enhancing assets.

Everything ... because Treasury plainly recognizes that, by remaining in the confines of the present dynamic there is only so much it can do. Namely, it can buy time. And this it did. Thus, when talk of "success" averting collapse is heard, think only in these terms.

As I have been suggesting, it appears Treasury recognizes time has run out. No one else seems to be acknowledging this. Yet TARP was repaid for a reason and "all is well" was not it! Contrarily, there is every reason to believe we are on the verge of global financial collapse whose impact threatens even the U.S. Treasury.

DJIA monthly

If never before in the lifetime of anyone presently living has there been such limited physical capacity to efficiently service those myriad financial claims facilitating leverage, then the consequence of this reality could destroy the world as we know it in a virtual instant.

And what condition would most effectively raise the probability of sudden collapse?

Well, how about an irreversible loss of confidence? When in the lifetime of anyone presently living was there ever such open acknowledgment of risk at the very core of global arrangements — where solvency of sovereign debt issued by such nations as the United States and the United Kingdom was being called into question?

Some might say a similar crisis occurred in the late-1960s and early-1970s. However, there is one big difference now. Formerly developed nations have become post-industrial scrap heaps, no longer self-sufficient, making up for physical deficits by imposing a sort of neo-colonial capitalism upon the globe.

Globalization certainly requires capacity to enforce this altered arrangement. Yet recent failure in Copenhagen, attempting to accelerate the build out of a global carbon casino, suggests enforcement capacity is waning. This, too, has bearing on confidence in the viability of a grotesquely leveraged, global financial system.

This issue of confidence is raised tonight with reminder of a memorable recent instance when its evaporation literally changed the world in a mere matter of days...

company chart (BSC)

Remember Bear Stearns? There is every reason to fear a repeat ... but on a much larger scale.

Fast Money
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