Libor, Bernie Madoff, MF Global, Peregrine Financial, zero-percent interest rates, the Social Security and Medicare entitlement funds, many state and municipal pension funds, mark-to-model asset values, quote stuffing and high frequency trading (HFT), and debt-based money.
What do all of these things have in common?
The answer is that every single thing in that list is an example of market rigging, fraud or both.
Where should you put your money if you don't know where the risks lie? How does one control risk when control fraud runs rampant?
Unfortunately, there are no perfect answers to these questions.
Instead, the task is to recognize what sort of world we happen to live in today and adjust one's actions to the realities as they happen to be.
The purpose of this report is not to stir up resentment or anger –although those are perfectly valid responses to the abuses we are forced to live with – but to simply acknowledge the landscape as it is so that we can make informed decisions.
In this report I connect the dots on the fraud, noting both what we already know about and what we'd better prudently suspect is happening but not yet revealed. (If you'd like to jump straight to our conclusions about this Ponzi scheme click here.)
As Warren Buffet said, "It's only when the tide goes out that you learn who's been swimming naked."
What he meant was that poorly-run companies can appear healthy during boom times but are later exposed as hollow shells when the economic tide retreats. Naturally it's a lot easier to make money when times are booming, but much more difficult when the economic pie is stagnant or shrinking. The dot-com companies of the late 1990s are the poster children for this phenomenon.
My corollary to Buffet's naked swimming quote is this: It's only when the pie stops expanding that you find out who's been running a Ponzi scheme. The global pie is no longer expanding, and the relentless parade of disquieting economic and financial news can be laid right upon that fact.
Sure, there are the prosecutable examples, such as Bernie Madoff, but state and municipal pensions and the Social Security entitlement program also fit the definition. So does the practice of expanding public debt at a faster pace than GDP, which many nations, provinces, and states have done for many years running.
These are all Ponzi schemes in the sense that they require constant growth to remain “healthy” (or hidden, more accurately) and are therefore mathematically certain to fail. Now that the economic pie is no longer growing like it used to and most likely will not for decades to come (if ever), all of these schemes are rapidly falling apart.
The insolvency of Greece, which is now in a full-bore depression, is simply a reflection of a multi-year Ponzi scheme that has now run its course and fallen apart.
It is simply not possible to borrow forever at a faster rate than your income growth, and Greece is now a harbinger of things to come for every country in a similar position. That includes all of the PIIGS, Japan, and the US.
Now that the pie has stopped expanding, all of the countries that have been swimming naked are exposed. Timing will vary, as in this metaphor some were in shallower water (Greece) than others (the US), but timing aside, there really isn't much of a difference between any of them.
Illegal & Condoned Fraud
Where does one even begin with a discussion of all of the rampant fraud that has been revealed of late? Should we suspect that there is suddenly a lot more fraud in the system? Or is the lack of growth simply revealing the extent to which fraud and Ponzi schemes are a significant feature of our political-financial-regulatory-banking landscape? I lean towards the latter view.