Wednesday, March 23, 2011

A Little Fiat Bubble History

Wow - imagine that....the government blows a bubble and encourages the lumpen masses to keep pouring their depreciating paper currency into it!

Can you say *stock market bubble*?

Can you say *housing market bubble*?

Just what exactly do y'all think those tax incentives (401k) and bailouts were enacted for?

France, way back then, thought it was doomed when paper money was levered at 5 times the gold at hand.

Hah! At least gold had value.

Today the large banks, BAC, WFC, JPM, and C not only don't have ANY HARD ASSETS backing up their balance sheet....they only have about 1 PAPER DOLLAR at hand for each 15-25 they claim to hold!!!

Never before in history has it been so clear - that *wealth* is a tenuous political condition.


Anonymous said...

This article is making rounds on the net

thought u might be interested.

Anonymous said...

I agree that these banks are in a mess, but ... how can you say they don't have any hard assets?
Out here (CA) BAC is busy auctioning off foreclosed properties.
Market value of those properties is somewhere between 30-50% of the face value of the mortgage(s) on them but they are still "hard" assets, no?
In fact, several of the banks you named have been hauled into court to defend lawsuits regarding sloppy foreclosure practices.
They do have hard assets but the value of same is questionable.
Is wealth political? Not sure of the definition but it is definitely ephemeral. Real wealth is something besides hard assets, including gold ...

CaptiousNut said...

Anon 1,

I do like that story.

HOWEVER....MIT rejected me outright!

Anon 2,

The banks don't own those assets. They own them by default (literally and figuratively) and only temporarily.

They lent against the house....had to repossess....and will resell.

The net result is simply that they lost cash/capital. They lost capital on a *hard asset loan*.

Don't forget that they also have to shell out for unpaid real estate taxes, utility bills, HOA fees, maintenance, real estate selling commissions,....and sometimes they have to fix the septic before selling, etc. That's all hard cash out the window (down the toilet).

Wealth is political in the sense that your bank doesn't really have your money. They have a connection in Washington who might or might not be able to print your cash for you on demand.

Wealth is political in the sense that they could confiscate it at any time (estate taxes, income taxes, asset seizure,...). And heck, they can debase your money away too!

The best/optimal thing to do in this short life is focus on making friends, amassing spiritual currency, and creating quality life experiences. And who would be richer than a guy/gal who had 50 grandchildren?

Will Durant said "The health of nations is more important than the wealth of nations."


Anonymous said...

children/grandchildren != spiritual/ happiness

just ask all the major religions priests/saints/nuns...starting from Buddhism...list goes on.

everyone of us have to live our own journey. You cant derive superfluous satisfaction/health/happiness (what ever u call) from grandchildren...may be children(as u guide them through their childhood).

Just wait till your kids grow up to be they know everything!

Anonymous said...

I don't understand your thinking. On the one hand you say banks have no hard assets. Then, when someone points out that they do, you say it's transitory et al.
How is this different from the way banks have always operated?
What precisely are you saying is the difficulty?
Banking practice, i.e. elevated level of risk and diminished quality of assets?
Debasement of the dollar?
All of the above?
Failure to pursue the [metaphysical] wealth?
All are more or less true but I still don't see a coherent thread in your postings.

CaptiousNut said...


It's not that their hard assets are *transitory*'s that they NEVER have them/any in the first place.

Banks of yore, like the one in the video, had gold and silver. And before fractional reserve banking went nuts....banks actually had cash (semi-soft asset) in a vault.

The *difficulty* as you call it, is fractional reserve banking and to an extent FDIC insurance - along with all the politicization inherent in a government guarantee of funds for risk-taking institutions.