: Enron Redux OR "Let them eat caviar"

[David Farber <dave () farber net>]

________________________________________
From: Charles Brown [cbrown () flyingcircuit com]
Sent: Thursday, April 03, 2008 9:03 PM
To: Dewayne Hendricks; David Farber
Cc: Charles Brown
Subject: Enron Redux OR "Let them eat caviar"

Dave/Dewayne, for your list if you like.

Welcome to Enron redux.

This is the game where the same players in the Enron Deal, investment
bankers, traders, lawyers, and greedy shills like Enron, fleece the
public and investors.  It is graft and corruption in its ideal form,
in the Platonic sense.

I pose the question, which is notoriously vacuous in the discussions
at the highest levels of government and finance thus far, what if we
just allow the investment banks to fail?  Can't we create new
investment banks?

Regarding the size of impact of the problem on our economy, one must
remember that these are investment banks, not commercial banks covered
by FDIC insurance.  One must remember that this is money created by
the investment banks, not money in our checking accounts.

I'm speculating intelligently, but it's a very, very good bet that
most of the counterparty's to Bear-Stearns derivative positions are
other investment banks,  and other investment banks have sub-positions
with other investment banks, and so on.   They all played in the
scheme because the profits were easy and enormous.  They were creating
their own money supply and taking a cut of every dollar created.  And
lots of hedge funds of course, whose investors make big contributions
to political campaigns.   The hedge funds are also some the of the
most profitable customers of investment banks.  That's where
Structured Investment Vehicles (SIVs) came into play, off Balance
Sheet contingent liabilities.  Just like Enron!

Why is it that we don't hear about possible scenarios, like what
happens if the investment banks can't raise the capital they need and
are allowed to fail?  We hear, "Oh, it's too horrible to
contemplate."  No discussion, nothing, just bail them all out.
Perhaps because these actions are predetermined?

However, if they are allowed to fail, all of the money they created
via derivative instruments evaporates.  Poof, gone.  As taxpayers, we
get rid of the problem because they created the money supply in the
derivatives market in the first place, and so their shareholders take
any associated losses they may be holding.  Remember, these are the
same people that only 6-9 months ago were reveling in their profits
and new houses in The Hamptons.  We also need to remember that they
have already sluffed-off a lot of this junk off on foreign investors,
hedge funds, pension funds (a political hedge), etc., and they are
only holding the "inventory" they were caught with when the sub-prime
market exposed this ponzi scheme.

It seems that the Wall Street crowd, of which the Fed is a charter
member, are great proponents of free markets until their greed goes
beyond the pale, or potentially inhibits their ability to do it again,
of which you can be assured they will if given a crack of
opportunity.  This whole play demonstrates that the Fed is just a
vestige of political power.

In the meantime, one out of eight people in Michigan are on food
stamps, bread and dairy products and other staples are increasing
monthly due to  inflationary pricing pressures, and since the
derivatives scam is all played-out, Wall Street is back pumping
equities and the good ole energy markets.

I live in California and have real-world knowledge and experience of
the Enron scam. This has all of the elements of Enron redux.  Now, the
politicians are have been sufficiently frightened and want us to pay
for the Ferrari's and the houses in The Hamptons.  We should say, "No,
let them eat caviar."  Trillions of dollars of phantom obligations,
created through the creation of phantom money will disappear if they
disappear.

Why not take them at their word about free markets and let them fail?
Any free-marketer that can't tolerate that position must be, well, not
really a free-marketer, but a fair-weather-free-marketer.

Charles Brown



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