Day by Day



17 November 2008

None dare call it Conspiracy...

My good friend (okay, she’s a blog –bug) Lana Walker has made good on a little wager we had in February.  During the cold, dark winter of the primary season our wager consisted of her assertions that the media was “blocking” information on Ron Paul and that once the election was over a huge public backlash would ensue.  Who would have guessed that the global economy would be on the brink of collapse due to actions taken by the Carter administration in 1977?

 

Well, I simply made the assertion that no conspiracy existed.  I follow a simple rule, no secret can exist which is known by more than one person.  The alternate corollary is that the ONLY way to keep a secret between two people is to make sure one of them is dead.  In the interests of fair play, and full disclosure, my predictions are here.  What was my killing line? 

 

There is a real risk the economy will improve

 

I think I need to return my MBA.  Clearly, I don’t know what I am talking about.  But enough about me, let’s talk about conspiracies.

 

These are the stuff of legend, whether it is the uncaring gods, toying with our lives, or the hidden puppet masters of a clandestine world government, we love to imagine someone has got their hand on the tiller.  The internet is a rich feeding ground for all the various fantasies of the population of the planet.  You can find conspiracies about almost anything.  There are Coca-Cola plots, sinister “chemtrails” saturating our atmosphere, Lemurian myths, Big Pharma (or oil, or the military industrial complex, or the RIAA, or anyone!) working to suppress the “true” nature of whatever it is someone is supporting.

 

There are NO areas exempt from good on a little wager conspiracy theories.  I would submit that most organized religion is an extrapolated form of conspiracy theory.  However, that’s beside the point.  The reality is that conspiracy theories are just that, guesses and predictions to explain circumstances and situations.  They may be driven by a kernel of truth or they may simply be paranoid delusions brought about my mental illness.  What has proven itself time after time is that they simply don’t exist. 

 

Some more astute readers will Google various “true” conspiracy theories and present them, smugly, as fact.  The CIA’s MKULTRA mind control experimentation is credited by many to be proof that these things exist.  The reality is far from compelling.  It represented a small program, sanctioned by the government, in which individuals were subjected to LSD and other drugs in the quest for a perfect truth serum or mind control chemical.  The project was indeed secret, however, its overall influence was small.  Finally, its eventual discovery and exposure eliminates the underpinning framework that conspiracists promote, that these programs are “undiscoverable”.

 

Whatever your take, I would encourage you to apply Occam’s Razor to the posits of anyone promoting an alternate view to current events of contemporary history.  First ask yourself, which is the most likely occurrence?  Second, how likely would the alternate possibility be able to remain concealed from view?  Finally, what motivates the promoter of these views.  A frank and objective answer to each of these questions will guard you against falling for most of the ensnaring hogwash running rampant in our society.

 

Now excuse me, I need to order one of those  free Amish Heaters!

7 comments:

captjackharkness said...

Um. You are blaming a President from 30 years ago to todays economic meltodown? Link, please.

Oh yeah, and the DAY BY DAY messiah histrionics are becoming a tad grating as well....especially when you have busloads of school children in Idaho chanting "Assasinate Obama".

Lana said...

But what about Mark Twain's observation?

"Truth is stranger than fiction, but it is because Fiction is obliged to stick to possibilities; Truth isn't."

Citizen Deux said...

Community Reinvestment Act (also known as the CRA) - the first push for non-creditworthy consumers to outsepnd their means. Courtesy of JC.

http://www.ffiec.gov/cra/

http://citizeneconomists.com/blogs/2008/10/17/did-the-community-reinvestment-act-lead-to-the-present-financial-crisis/

Anonymous said...

Pish Posh! We all KNOW its the PHONE POLICE!

S/F
MudShark

sonicfrog said...

Carter's CRA is not to blame for the current economic malaise. The concept of the measure plays a part, but it is much more complicated than that.

Carter issued the CRA's which were administered by Fannie and Freddie, then, later by mortgage banks. The loans were more risky than regular loans, but through the years the default rates were about as much as expected, and so there was an equilibrium of sorts. And the mortgage banks made some money off the loans, got good PR, so all is well. You have an economic balance of sorts.

Twenty years later, Phil Graham, with the blessing of Bill Clinton, create the Credit Default Swap, enabling banks and financial institutions to sell the long term contracts (debt collections) to other institutions. This is much like selling your long term lottery payment contract, say $1 mil over twenty years, to a financial institution for a lump sum of lesser value, $700 thousand dollars now. You get your money, and the bank gets the $300 thousand profit over time.


But why would a bank want to buy these more risky loans you ask? Why did Lehman Bros. go belly up?

In business accounting, you can count the entire value of a long term payment package as a lump sum of profit on the books. When you buy a car, they look at how much money you make annually, and not how much you have on hand. Kinda the same thing. So, through an accounting quirk, the more debt collection accounts you have, the better your books look. Investment banks are in the business of long term debt, so it is only natural that they acquire much of this debt.

Keep in mind that, although the government is wanting, pressuring mortgage banks to issue more loans at lower interest rates to lower income families, there are no requirements, NONE, to disregard basic sound accounting principles, like making sure the applicant has a steady income and such.

Now that they can make an immediate profit from these risky loans, mortgage banks now go wild! Suddenly, they can sell these more risky contracts easy as pie to investment firms. And there are plenty of buyers. As more contracts get sold, there is more and more pressure by the bosses of the mortgage banks to make more loans. The bosses of the banks, not the government, are the ones who induce the loan officers to issue mortgages to any warm body that walks in off the street. Through the CDS, each contract mean $$$ for the mortgage bank.

The conditions for the crash are set. The system is just waiting for a trigger. Enter Lehman Bros., Wachovia, and everyone else. They buy the mortgages, and then repackage and resell the risky loans as mortgage backed securities, derivatives, and other money market type investments. As the housing market declines, investors complain that they can't make heads or tails of some of the packages that contain mortgages, so the government changes the accounting of mortgage backed assets to mark to market value, instead of long term. Suddenly, these packages that had worth based on long term projections, were worth much less overnight. Everything came to a screeching halt.

And the problem is compounded, because so much of the mortgage debt has been split up, and resold, and injected into various investment packages, via the CDS, that no one is sure exactly where all the poison debt is.

That, my friends, is the crux of the financial mess we have today.

So much for being a short explanation.

Citizen Deux said...

BRAVO!

sonicfrog said...

In conclusion:

The low income mortgage loans were somewhat like a virus or pathogen. As long as there were only a small number of them , they were not dangerous. Then, as the banks got careless, they began to multiply. As long as they were contained in the Mortgage banks, things were OK. If they would have stayed there, you would have only seen organizations such as Countrywide or Oro Bank go down the tubes.
But the CDS acted as a hypodermic needle, or transmission vector that spread the virus throughout the body economic. The virus spread all the other financial organs, and viola, we have an epidemic.

I guess I should post this.