The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive

[girl gone mad]

by Charles Hugh Smith from http://www.oftwominds.com/blognov11/collapse-of-corrupt11-11.html">Of Two Minds

The Collapse of Our Corrupt, Predatory, Pathological Financial System Is Necessary and Positive

We are being throttled by the Big Lie: we're told that if the predatory financial system implodes, we'll all be ruined. The opposite is true: the only way to save our economy is to let the corrupt, pathological and flawed financial system implode.

I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.

Our first stop is modern finance itself. Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.

That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.

In modern finance, high-risk "investments" (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers.

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[tama]

1. Refreshing

instead of all too common fear mongering, OP gets it. No fear.

[FirstLight]

2. this guy gets it

and i like that he calls out those who say "it would ruin us!" because it is the propagation of the crap that is actually ruining us all...

perfect!

[Gregorian]

3. Suddenly Schiavo

Maybe I'm all screwed up here having just watched East of Eden. Tears still in my eyes. But here is another economist who knows reality. I wish I could remember the examples Max Keiser has given over the years for letting this economic system crash. I can't. And the examples of systems that have collapsed, and then begun rebuilding.

Until it crashes, it will never begin rebuilding.

[azul]

4. "insurmountable internal conflicts" nails it.

I have been arguing for some time, not very successfully, that growth (profits) should be minimized in any financial system to preserve resources, slow population growth and increase stability. And that a crash or depression may be the survivable way out of this dead-end rush for riches. Wake us all up the the real priorities of living on this fragile little world.

[Scruffy1]

5. I like it.

Of course the thing missing from the equation is the fees and commissions siphoned off. Like commodity trading of any kind it's a zero sum game except they've managed to hedge the downside risk out of the upside profit potential. The real problem is the commissions both ways add up and guarantee losses. It's just like a casino. The house edge may be small but it is always there and insures a loss over the long run.

I think you've hit across a major cause of the latest crash. In order for the money casino to work it must have a constantly growing profit in order to hedge the downside risk and still take out commissions. This leads to more risk in a geometrically expanding expanding bubble. Eventually the house of cards collapses when it runs out of new suckers. It's just the old Ponzi scheme in the end with more bells and whistles.

Capitalism sucks.

[Hydra]

8. I'm in favor of 0 growth and later negative growth

In a socialist context. We only make what we need, and we only procreate as we can support.

This idea that we produce products and then create a need for them, or design things like cars to have a lifespan so we can sell more of them is, frankly, insane.

People first, Earth first, not profits.

[golfguru]

6. Correct, the best cure for a festering boil is to squeeze

all the puss out. Covering it with band-aids is never good.

[GliderGuider]

7. We're getting near the limit of "extend and pretend".

This can of crap has been kicked about as far down the road as it can go. The calls to let the system go down are getting louder and more widespread every day. It's time.

[jtuck004]

9. And we sow the seeds of our own demise.

From the article...

"We are told that liquidating the overhang of bad debt, leverage and hedges would "destroy the world as we know it." The truth is that keeping the zombie system from expiring and covering up the corruption with propaganda is what's actually destroying the world as we know it."

Which brings to mind...

"I freed a thousand slaves I could have freed a thousand more if only they knew they were slaves."
Harriet Tubman


The question is will enough people realize the position they are in to wrest control? In 20 years, a hundred, or ever?