Team Fraud Trapped ~ The Risk Averse Alert

Tuesday, June 05, 2012

Team Fraud Trapped

What is a "fiscal cliff" compared to a derivatives black hole? If there really is a cliff, why doesn't Wall Street just push Uncle Sam over, that fiscal discipline the Street claims lacking be enforced? Simple! If Treasury's finances are thrown over cliff's edge everything gets sucked into the derivatives black hole. Read my lips: if rates rise, it is all over for toilet paper at every level of the trans-Atlantic banking system's capital structure. You think Spain has trouble with a 7% bond yield? Wall Street's worst nightmare is if Treasury is forced to offer the same.

The story today is much the same as it has been for the past thirty years. Increasing debt burdens will appear manageable so long as rates fall (much as has been the case these past three decades). The difference now, though, is that, the magnitude of the burden is in uncharted territory. Not only that, but the lions shares of it implicitly rests on lenders of last resort. This the consequence of the past few years bailout policy is rather like a dark shadow cast by the trillions of dollars already explicitly put on the line. Only in a fraud-rife financial system are dark shadows sought. Too bad all is dark: consumed by a derivatives black hole.

Talk of a "fiscal cliff" only ventures an austerity policy aiming to forestall the inevitable moment when rates must rise. Yet a few months at most would austerity likely buy. Truth is everything now in the bailout crew's quiver accelerates both the physical and financial economy's shut down. Team Fraud is trapped. Meanwhile the market remains poised to collapse. A crash over coming days still cannot be ruled out.

Fast Money
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