Whistling Past the Graveyard ~ The Risk Averse Alert

Wednesday, July 06, 2011

Whistling Past the Graveyard

In claiming "Greece is NOT a New Lehman Brothers Disaster," does Dave Goldman fail honest appraisal of the degree to which bank balance sheets remain opaque marvels of deception in a climate marked by razor thin confidence among investors? This is an important question, because there are empiricists out there claiming the current climate is similar to the early 1980s and suggesting the market's advance off March '09 bottom has only but begun.

Unlike days of old, though, today finds major investor interests exposed to the tune of hundreds of billions of dollars in securities created by fee junkies euphemistically called banks — securities whose very backing is in doubt and whose issuers' fiduciary conduct increasingly appears suspect and, indeed, is being challenged. Most greatly at stake in this is "a very valuable [investor] right ... of being able to sue over so-called [RMBS] chain of title issues (in very crude terms, whether the parties to the deal did all the things they promised to do to convey the loans properly to the mortgage trust)."

For months now — ever since the robo-signing scandal became public — the issue of unsecured RMBS has been a dark cloud hanging over a banking system whose so-called assets are fat on fantasy and thin on markets where they can actually be favorably priced. Never mind that, the security (real estate and employment) underneath the greater portion of these Ponzi assets remains flat on its back.

Back in 1982, contrarily, circumstance at the core of the trans-Atlantic banking system was not nearly so weak. Yes, at the periphery there have been many bouts of similar weakness as now exist on the since-expanded, now-collapsing [euro-zone] edges. But never has the core been so awfully exposed to a massive liability sans physical backing. That was principally exported, as the world's strongest creditor nation was turned into the world's greatest debtor ever.

Windmills simply could not fill the void, nor were they ever intended to. The administration might as well have proposed a bean policy as a means of powering these things. Contrasted with our liability, renewables have no shot of producing output sufficient for the physical economy to reach escape velocity — affecting increases in productivity so massive, our legitimate, present liabilities become entirely manageable — indeed, a blessing. Windmills will fail, as will solar energy. That's intended, and a given, as the noose of our liability is further tightened. We won't even be able to afford 12th century technology! Gotta keep that mountain of fee-generating, gambling goodness current! Hey, we're talking liquidity here. And jobs moving it around. Good lord.

Today's greater understanding of the contrast between what was, what is, and what should be is a dynamic little appreciated for its substantial bearing on confidence following 2008's sprint to the financial graveyard. This is fueling dissent on the scale of entire nations, and resentment over what is has been spreading unabated. So, although banks by their numbers might appear impervious to financial collapse today, who's to say tomorrow, as the periphery, one way or another, dominoes into a tragically weakened core, now even consuming the lender of last resort?

Up to now I have refused to play the fool who will not acknowledge those most fearsome qualities — mass changes in demeanor and outlook — extending from 2008's collapse in confidence. Since I am not alone in this there's no reason to change now. The market's "stuffing" — its suspect technical underpinnings — indeed, appears to put me in company with commanding hands. Yet those who appear on CNBC gaze upon the same scene and see things entirely differently than I...

How does fading confidence higher up in the capital structure — reaching all the way to the U.S. Treasury in more devious circles — increasing financial and economic distress and a spreading tide of mass dissent suggest the cumulative NYSE Advance-Decline line is pointing the market higher, rather than revealing risk at the bottom of the capital structure being consistently offloaded while liquidity avails? Did I miss the Fed's announcement of QE to infinity and beyond?

I rather dare say, today, Katie did whistle past the graveyard...

Fast Money
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