Play It Again Sham

[Goldmember]

Jimi

 

No no You're missing the point. Up phases are caused, directed, and managed from a dark room somewhere underneath the Eccles Building.

 

I think too much emphisis is onthe Fed during this rally since March. While I conceed that it may very well be some version of the windowless room, perhaps in the Eccles building or elsewhere, think we also need a portion of the scrutiny to be also cast upon upon a possible windowless room in some Treasury room somewhere, and let's not forget the windowless rooms/i] that must abound within the various departments of the Gang of Tweens Primary Dealers wich by then the cacophony of chaos probably even scares the whales away...

 

I will say this appears to be a very smaht move by the Treasury to place this many bongs at this time. Git it while the gittin' is good, and causes the least damage and pressure on other speculative and investment vehicles out there, the hopes and dreams and crossed fingers of the dispossesed.

[Jorma]

Assuming that we are discussing treasuries for purposes of argument, there are the underlying securities and then there are several levels of derivatives. Each of these types of instruments are treated differently for accounting purposes. Each requires different initial funds and costs to hold. There are limited number of bonds to be traded, but unlimited numbers of counterpart futures and option contracts, yet another example. Again for example, the power of futures has been long recognized as being able to move the price of the underlying securities.

 

 

The existence of the multiple derivatives for every sort of financial instrument in fact creates demand for the underlying instrument, in a virtuous circle. Until, like with mortgage backed securities, the circle turned vicious. When every last warm body to take a mortgage had been found. When it came to pass that the hedges and the CDO's were backed by nothing but confidence, which found a limit.

 

It must be logically incorrect that "There are limited number of bonds to be traded, but unlimited numbers of counterpart(ies)". The dizzying abstractions that are derivatives suppose a world without limit but it is an illusion. Either that or wealth would be unlimited and poverty would end.

 

An incremental increase in credit can create wealth and derivatives can facilitate that creation. Beyond that quite finite limit the derivatives serve to transfer wealth or create fictitious wealth out of fictitious capital.

 

Debt itself cannot be unlimited. This isn't just a financial or monetary matter or a practical matter. It's a matter of moral philosophy. Or in other words, FU.