The unlucky sap who lost $2.3 billion for
USB was just given 7 years for fraud:
Is he the first or the only one to “push
the limits” or “bend the rules” in search of trading profits? Of course not. The business of high stakes gambling with
other people’s money is very competitive – hyper competitive even. No risk, no reward. As the legitimate risk plays began to dry up,
the only thing that was left was the borderline risks or the outright
fraudulent risks. Any time the
system rewards someone to go down a particular path, people will be testing
that path. Sooner or later someone goes one step too far.
The threat of jail time is the biggest wet
blanket possible for leveraged Wall Street gamblers and the risk for them going to jail has never been higher.
In the past, corporations would just send in an army of lawyers when
they screwed up, absolve the individual of any criminal wrongdoing and take the
hit at the corporate level in the form of a large fine without admitting any
wrongdoing. Those days are gone now
because of the additional focus being put on The Street by Main Street and also
because large players are themselves getting weaker every year. The people are beginning to want blood in exchange for blood and so the era of "slap on the hand" enforcement are fading in the rear view. Even the biggest and baddest players like Goldman
are feeling the pinch in visible ways.
You can see the fear in many
places including Tim
Geithner abandoning his post now that it is clear that the US will suffer
its own form of economic collapse going forward. Note that he tied this decision to Obama
winning again and probably would have stayed on if Romney had won. I can only take this to mean to me that he
sees Obama’s increasing give-aways as a real threat to the country and he doesn’t
want to be around when it’s time to account for the mess.
Bottom line: leverage of all kinds is being
removed from the system and that is highly deflationary for now. Leveraged debt is what fed the Ponzi and the Ponzi cannot stay bouyed without it. "Growth" is not going to be possible again until the Ponzi collapses because too much of the "growth" was simply growth of the credit portion of our money supply. Obama is still throwing money and easy policy at
the problem hoping to restart the “animal spirits” (AKA “greed”) of the people
but the people and most of the corporations are in full retreat.
Deflation is still running the show and I think it will get a lot worse
with higher unemployment, dismal corporate earnings, increasing bankruptcies at
all levels and civil unrest being just a few of the results. The great Debt Ponzi is beginning to unravel
at an accelerated rate.
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