"The failure was and is of the entire market and the rules upon which it is built. For the Liabilities side of each bank is connected to and to a large extent made up of the assets side of all the other banks. And the Assets side of every bank is tied to and, in large part, made from from the liabilities side of all the others. When people talk of ‘the Market’ it is an abstraction only. There is no even larger, daddy organization called ‘THE MARKET’.
To return for a moment to my original analogy each bank is a hugely unstable tank of water, built like an upside down pyramid constantly being strained by the huge in and out flow pipes that feed and drain it. In this analogy ‘The Market’ is just the abstract summation of all the flow in all the connecting pipes that is hurtling from one bank to another at any given instant.
So it is silly to somehow imagine the market is a huge reservoir of stability separate from the banks and other institutions themselves. It is simply the sum of them. So if each bank is stupid, greedy, unstable and blind to the risks of its own construction and functioning – then ‘The Market’ is simply the sum of all that stupidity, greed and disastrous design.
The market is not the cavalry. There is no cavalry."
Golem XIV, Propaganda War: Our Version - The Banker's Mexican Standoff
The implication is that the western financial system has already failed. The failure has just not yet been realized, while the system remains confident that it is still alive.
The massive insolvency will not affect us if we believe that the currency retains its value, and life can go on as before. Extend and pretend.
It is like the death blow called Dim Mak 點脈. The recipient takes the blow, and may walk away, and then collapse. This was parodied in the movie Kill Bill 2, as the 'Five Point Palm Exploding Heart Technique' of Pai Mei.
The liquidity seizure that gripped the markets was merely the shock of the bankers' realization that they and their peers were utterly insolvent. But with the assistance and encouragement of the Fed and the ECB they have stepped forward, one foot after another.
The emperors are not only naked, they are the walking dead.
When does a bubble finally end? When did the French realize that the Banque Générale of John Law was insolvent?
Men may go mad in a crowd, but they come to their senses slowly, one at a time.
The unavoidable fact is that the financial system is insolvent. Eventually it will have to be nationalized and then recreated. Those with a share in the system will receive some form of 'payout.'
It may be based on the decimalization of their holders, say 1 new dollar for every 100 or even 1000 dollars presented as in the case of the Russian ruble, or it may be a bit more arbitrary as in the manner of the bankruptcy of MF Global.
I am not sure I buy into this line of thinking, but it is an interesting thought experiment.
See you Sunday evening. Watch out for falling bankers.
