High water...

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Aqua alta – Venice – 2008

Well I did not say it, Roubini did… The United States of Ponzi

A reporter contacted me recently with the following question:

“I am a reporter, and I am doing a story on Bernard Madoff’s life after pleading guilty. As part of this, I was wondering if you could comment on what significance he will have in the history of this period. Will he represent more than a scamster who stole a lot of money from a lot of people? As Bernie Ebbers and Ken Lay came to embody corporate greed and deceit, what will Madoff symbolize?”

Here is my answer fleshed out in full:

Americans lived in a “Made-off” and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its over-leveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now collapsed in a heap.

When you put zero down on your home, and you thus have no equity in your home, your leverage is literally infinite and you are playing a Ponzi game.

And the bank that lent you, with zero down, a NINJA (no income, no jobs and assets) liar loan that was interest-only for a while, with negative amortization and an initial teaser rate, was also playing a Ponzi game.

And private equity firms that did over a $1 trillion of leveraged buyouts (LBOs) in the last few years with a debt-to-earnings ratio of 10 or above were also Ponzi firms playing a Ponzi game.

He did not stop there.. ahem:

A government that will issue trillions of dollars of new debt to pay for this severe recession and socialize private losses may risk becoming a Ponzi government if–in the medium term–it does not return to fiscal discipline and debt sustainability.

…

Madoff may now spend the rest of his life in prison. U.S. households, financial and non-financial firms, and government may spend the next generation in debtor’s prison having to tighten their belts to pay for the losses inflicted by a decade or more of reckless leverage, over-consumption and risk-taking.

Americans, let us look at ourselves in the mirror: Madoff is us and Mr. Ponzi is us!

***

Yesterday Ob compared the AIGs to suicide bombers. Yes, he wowed ‘em in OC CA with that…

[E]ven though the deposits might be guaranteed, you’ve got the entire economy resting on that credit.”

The president said, “It was the right thing to do, even though it’s infuriating, even though it makes you angry because you’re thinking, ‘I was responsible and these folks are irresponsible and somehow I’m paying for them.’ The same is true with AIG. It was the right thing to do to step in.”

“Here’s the problem,” Mr. Obama said, “It’s almost like they’ve got — they’ve got a bomb strapped to them and they’ve got their hand on the trigger. You don’t want them to blow up. But you’ve got to kind of talk them, ease that finger off the trigger.”

hmmm. Might try listening to himself someday.

My own allusion, the nation swallowed a load of bombs over the years. The triggers went off.

***

In other tangential, completely unrelated, nothing to do with anything,  news, there are demonstrations planned in San Francisco today… for the 6th anniversary of the start of the war. The second war… the Iraq section of the Big War. Long War… what ever they call that particular bomb we swallowed. I prefer to phrase it, the 7th year of war.

Oh I am sure it all comes out OK in the end. The president said so yesterday.  No worries.  God bless…

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