Monday, October 6, 2008

Depressing and soon Random

As I’ve said before Global Guerrillas is one of my favorite blogs. His latest post is an examination of why the current efforts to bail out the collapsing financial system are going to fail. Not only is the financial system large, fast and complex but it is interconnected in ways that are not understood even by those who have helped build it. With derivatives having derivatives the system is completely opaque and deliberately so. The current system ahs been described as a ponzi scheme but it’s not, its multiple interlocking ponzi schemes. The perpetrator of one ponzi scheme can be the victim of one or more other ponzi schemes. Thus the uncertainty among financial institutions, even if they sold off all their now toxic paper they may have bought some soon to be equally toxic paper from some one else. No one knows what is or is not potentially toxic at this point and won’t know until the security goes bad.

Fasten your seat belts, it’s going to be a bumpy ride

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