by Mathew Maavak
October 11th, 2007
This is a planet in denial. While the existential question gets a red hot “apocalypse now” for an answer, our stock markets seem to have regained paradise lost.
We are witnessing nothing less than history’s first confluence of unsustainable “peaks.”
Perhaps, we are incapable of piecing them all, for when crude oil reached an all-time intra-day high of $84.10 per barrel on Sept 20, its entitlement to a front pager screamer was conceded to the tale of a few thousand empty — or emptying — American homes.
It was like the Butterfly Effect, with a twist. The flapping rooftops of confiscated homes were now whipping up an economic tsunami worldwide.
Here is how it works.
US mortgage lenders, voracious as ever for “more,” had extended loans to the default-income group, who, were in turn hit by bad economic management. Credit card issuers followed suit to bloat consumer fantasies, and banks tightened the noose with additional loans for cars, tuition and businesses.
In the world of finance, debt is ironically regarded as an “asset.” Think of the rock-solid house that can be repossessed in the event of a default.
Debts, with the outward promise of a steady cash flow, are regularly pooled, “securitized” and converted into a bewildering array of financial products along an upward chain, where, they are hawked off by fund managers to the global market
This money buys up commodities, stocks, and yes, more “securities and derivatives,” along with junk bonds and blue chips.
It was easy come, easy go, wherever the money takes you…a 24/7 electronic casino…a Las Vegas without borders.
London bankers were toasting to the dawn of “the haves and the have yachts” at cocktail parties where sauvé qui peut was the vintage.
One of the greatest scams in recent memory was unfolding, exposing a pyramid scheme of epic proportions.
When this reached the point of metastasis, stock markets began to collapse.
The bottom feeders could not pay up anymore. Even the middle class were finding it difficult to pass the buck upwards.
This is called a liquidity crisis, and it happens when the laws of gravity finally exert a pull on the cash flow.
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