The jive-finance economy had a few acidic burps last week — or, at least, that's how it may seem in the days ahead as the equity markets finally upchuck the toxic notional junk "money" they have been gorging on in recent years. Has there ever been a financial collapse with brighter or louder warning signals?
I suppose the expectation (or hope) is that the quasi-mythical "plunge protection team" — a "working group" of federal reserve officials and bankers — will jump in and administer some soothing pepto-bismol, but frankly I don't see how that's possible this time. The poison at the bottom is a fetid mass of "non-performing" mortgages, billions upon billions of loans that strapped borrowers are not paying back, loans which, in the meantime, have been rolled over, rebundled into jive "securities" (ha!) and sold, and rolled over again and used as "leverage" for massive exotic bets and bloated arbitrages involving mere abstract figments of electronic digital pulses completely removed from any reality-based productive investment activity.
Among the leaders at the supply end of this racket has been General Motors — that's right, the company that used to manufacture cars, the company about which one plutocrat once remarked what was good for [it] was good for the country. In fact, General Motors' main source of earnings for a long time now has been money-lending, not car-making (which only loses money). They started decades ago with GMAC, their own car-loan operation — which makes sense if you are serious about selling cars — but in the 1990s, with foreigners way out-selling GM's shitty cars, the company's financial wizards decided to venture into home loans and thus Ditech was born.
That's right, Ditech, the outfit that advertised incessantly on TV,
promising that house-buyers could sleepwalk their way into mortgage
approvals — and thus frustrate all the smarmy, over-fed, punctilious
bankers who obstructed such requests with pain-in-the-ass qualifying
protocols and burdensome paperwork. Last week GM put off filing regular
required financial reports because of disarray in its Ditech operation.
Ditech is responsible for as much as $80 billion in mostly sub-prime
house loans — i.e. given to people with dubious prospects for
repayment. But GM's Ditech is but one of scores of entities now choking
on non-performing paper (and many of Ditech's rivals are now bankruptcy
road kill).
What makes matters far worse is that all this wildly reckless lending
has been in the service of a suburban sprawl-building juggernaut that
will itself represent another layer of grotesque liability for the
United States. The crash of the house-selling bubble, based on absurd
asset inflation for things built badly in the wrong places, is
coinciding exactly with a permanent oil crisis that will only
exacerbate the locational disadvantages of houses built in the newest
and furthest suburbs.
Evidence now conclusively shows that Saudi Arabia's oil production was down 8 percent in 2006 over 2005,
even while the number of oil rigs went up substantially — indicating
that the Kingdom is drilling as fast as it can and still losing ground.
(Production slipped from 9.9 million-barrels-a-day to about 8.4
mm/b/d.) Mexico's Cantarell field is crashing (minimum 15 percent
annual decline and possibly much steeper rate, meaning in a year or two
the US will cease getting oil imports from its number two foreign
supplier). The North Sea is crashing, too. Russia is about show steep
decline. Iran is past peak. Iraq, as every six-year-old knows, is the
world's clusterfuck poster child. Indonesia (OPEC member) is now a net
oil importer. Venezuela is past peak and full of loathing for the US.
Nigeria is collapsing politically. No amount of corn is going save the
Happy Motoring utopia, and that's really all our economy is now based
on.
When the financial markets factor all this in — and they really haven't
yet — I think we'll see a lot more of what they like to call "downside
action." These things are all connected. The housing bubble was set
into motion by $10-a-barrel oil at the turn of the millennium. Perhaps
as much as half the jobs created since then have been in
house-building, house-selling, house-buyership-enabling, house
furnishing, and other things house-related. The whole final suburban
blow-out enterprise has been a fantastic blunder. Now it's unraveling
and the only "performing" loans will be the ones paid to the accounts
receivable department in hell.
It ought to be an interesting week in the markets.
Writings 
The jive-finance economy had a few acidic burps last week — or, at least, that's how it may seem in the days ahead as the equity markets finally upchuck the toxic notional junk "money" they have been gorging on in recent years. Has there ever been a financial collapse with brighter or louder warning signals?
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