To paraphrase the late and great old war-horse of the senate, Everett Dirkson of Illinois (1896 - 1969), a trillion here, a trillion there, sooner or later you're talking about real money. Except in the case of the Great Bail-out of 2008, maybe it's more like... sooner or later your money is no longer real.
What we're seeing in this fiasco, among other things, is a lesson in the diminishing returns of technology. This is a train wreck of investment vehicles so complex that they could only be created with the aid of computers. The result is that hardly anyone -- perhaps even nobody in or out of Wall Street -- really understands what they represent. In fact, this alphabet soup of engineered securities -- CDOs, CDSs, MBSs, SIVs, etc -- was cooked up from a recipe of Ponzi algorithms. They were designed to be mathematically indecipherable, except by computers, in an alternative universe of model-making that bore only a superficial relation to the real world. That was their dirty secret. And the dirty secret of the Great Bail-out is that, in the real world, we will never be able to discover the actual trading value of these things at any number above zero. This is why they are called "toxic."
Right now Peacenik is like everyone else in the world....clueless about how the great bailout will work. As usual Jim Kunstler offers an entertaining take on the situation. At this time the Dow is down 278 and the TSX is down 513, which would seem to imply a vote of no confidence by the markets. But weirder things have happened. When talk at the pub revolves around how deep to bury some cash in your backyard, you know the great unravelling can't be far in the future. Will the bailout calm the markets? Will everything go back to the way it was. Will Peacenik win a lottery?
Update: As of 1:55 pm the Dow is now down 653 points.....this is known as cliff diving. Capitulation? Everyone throws in the towel. Watch out below!
