ETFs and Derivatives Will Be the Next Trigger Event for a Major Financial Crisis

ETFs and derivatives may be fine for a trade or a hedge to a trade, but by no means are most of them that I have looked at worthy of a long term hold.  I distinguish them by their opacity, leverage, and lack of transparent audits from legitimate physical trusts.

And some of the ETFs, especially in commodities and on the short equity side, appear to be almost fraudulent both in construction and representation, and are often more instruments of manipulation and raw speculation for extracting wealth from the less sophisticated than investment vehicles. 

The great story of this financial era is the same of all the control frauds that have preceded it: leverage founded on paper claims, asymmetrical information, and the calculated mispricing of risk.

And when the ETFs fail it will be an echo of the market failure of 1929 when firms like Goldman Sachs enjoyed spectacular growth, promoting investment trusts, that blossomed late in the paper speculation of the 1920's, and became a major source of kindling for the flames.  Enough so that John Kenneth Galbraith devoted a chapter to Goldman and the Trusts in The Great Crash of 1929.

"For a long the the New York Stock Exchange looked with suspicion on the investment trusts; only in 1929 was listing permitted. Even then the Committee on the Stock List required an investment trust to post with the Exchange the book and market value of the securities held at the time of listing and once a year thereafter to provide an inventory of its holdings...

It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

John Kenneth Galbraith, 'In Goldman Sachs We Trust,' The Great Crash of 1929

I do not know if we are done with bubbles. We might see another yet again. It almost seems likely given the reckless apathy of the public and the passionate resistance against reform fostered by the powerful few. 

And do not presume that these monied interests will shy away from their possible self-destruction in precipitating another financial crisis and collapse.  They are emboldened by their recent brushes with disaster in the manner of the moral and emotional sickness which they share with psychopaths.  They will not respond to reason, because their motivations are not rational, not based in reason.  Was Madoff rational?  I do not think so.  He was intensely deluded and self-destructive.

Even in the ashes of another Great Depression, the powerful see the opportunity to take command and overturn the democratic republic that so inflames their swollen pride and sparks their fears, that a government of the people, by the people, and for the people has endured despite their best efforts to subvert it for themselves.  As they so proudly imagine, they are not like 'us.'  The greed to keep their ill gotten gains, and the will to power to gain more control over others, their inferiors, knows no bounds.

ETFs – The Next Accident Waiting to Happen?
By Golem XIV
May 3, 2012

Where will the next point of instability be? Not what will trigger the next liquidity and credit crunch and cause the next landslide of panic selling and losses. We can already see many candidates for the trigger. But what will be the mechanism by which it is amplified and spread?

I think that in a couple of years, unless something alters the current trends in money flows, we will come to know ETFs the way we already know the securitization and packaging of sub-prime mortgages into CDOs. I think the signs are already there to suggest ETFs are where the instability and risk is accumulating. If I am in any way correct then ETFs will be to the next stage in our on-going state of siege-mentality crisis what CDOs were to the last...

Read the rest here.

House May Call For Independent Counsel to Investigate MF Global

It is never the crime, but always the obstruction of justice that does them in. 

Obama may be fortunate.  The House Republicans may make noises about a truly independent investigation, but I doubt that it will happen. 

The credibility trap runs far and wide, and on both sides of the aisle.

Fox
House Republicans Expected to Call for Independent Counsel to Investigate MF Global Failure
By Peter Barnes
May 02, 2012

A Republican member of the House Financial Services Committee is circulating a letter in Congress that calls for the appointment of an independent counsel to investigate the failure of MF Global.

Investigators and a bankruptcy trustee are trying to locate and recover a $1.6 billion shortfall in MF Global customer funds. The firm filed for bankruptcy last October after making risky bets on European debt.

Rep. Michael Grimm (R-NY), a former FBI agent who investigated Wall Street for financial fraud, began circulating the letter today, according to sources familiar with the matter. Other House members, mainly Republicans, are expected to sign on, with formal release of the letter planned for next week when Congress returns from its current recess.

Among other things, sources said, the letter is designed to address allegations of conflict of interest in the ongoing investigations of MF Global, including one by the Commodities Futures Trading Commission.

CFTC chairman Gary Gensler is a former executive of Goldman Sachs where he worked with former MF Global CEO Jon Corzine. Gensler has recused himself from his agency’s probe into MF Global.

Also, President Obama’s re-election campaign disclosed last month that Corzine is a top fundraiser for the President, a so-called “bundler...”

Read the rest here.

Bill Black: Geithner Channels Greenspan and Airbrushes Fraud out of our Crises

Tim Geithner is a creature of the system, and no doubt a part of the problem.  But only a part. He is appointed and serves at the pleasure of the President.

The root of the problem is the pervasive corruption of American politics, intellectual discussion, and public policy by Big Money.   And a culture that tolerates a total lack of shame for the abuse of power and trust in the pursuit of personal power and gain. 

After all, greed is good.  And greed is the will to power.

And some public figures of the last twenty years, both political and financial, have been rather proud of their ability to twist words to dissemble and obfuscate, and mean whatever they wish to promote their agendas.

And the lesser leaders, the CEO's, have no problem taking enormous sums of money for superior performance, but willingly feigning almost complete ignorance of the business which they manage when it suits their purposes. Why not, when those in positions of power set the example.

When there are no significant social penalties, much less serious legal consequences, for deceit and dishonor in positions of trust, when personal integrity is not even considered important compared to wealth and power, when all are compromised so that none need even feel embarrassment, truth has no purchase, and justice is a unloved stepchild.

Geithner Channels Greenspan and Airbrushes Fraud out of our Crises
By Bill Black

On April 25, 2012, Treasury Secretary Geithner made remarkable statements about the role of elite financial fraud and greed in producing our recurrent, intensifying financial crises.

In this first installment I focus on the first of five problems with Geithner’s claims: (1) he does not understand the causes of prior crises, (2) he does not understand the causes of the ongoing crisis, (3) he does not understand that if he were correct about the first two points our nation would be in even greater peril and the urgency of Geithner leading a radical transformation of finance and regulation would be greater still, (4) he is not correct that we are prosecuting the elite criminals who drove the ongoing crisis, and (5) the media continues its nine-year pattern of failing to challenge Geithner’s fictions and his failures to lead the radical transformation that he should be desperately seeking given his stated beliefs about the causes of financial crises.

Here are the specifics of what Geithner said about financial crises, fraud, and greed.

"The wheels of justice are turning now," Geithner said at an event in Portland after touring a factory there. "They are not turning as fast as people would like, but we have the best system in the world for making sure we can enforce the laws of the land," he said.

Geithner suggested that holding people accountable for the wreckage caused by the recent housing collapse and the ensuing financial meltdown was not that simple since most crises were not caused by criminal activity.

"Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope," said Geithner, who helped tackle the crisis for the Bush administration when he was the head of the New York Federal Reserve and has been urging Europe to act more aggressively to contain its debt problems.

"You can't legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk," he said...

Read the rest at Capitalism Without Failure.

Gold Daily and Silver Weekly Charts - Coiling and Capping - Azalea

The fraud will continue until confidence is restored.

This is for my good friend Harold in Canada.